trade policy

The Devilishly Hard Job of Defining an Environmental Good

The Devilishly Hard Job of Defining an Environmental Good

What explains this apparent paradox of accelerating focus on taking steps to tackle climate change with limited forward progress in crafting trade policies that are responsive to climate-friendly objectives?  The Asian Trade Centre’s newest Policy Brief looks in detail at the difficulties of defining environmental goods.  [This Talking Trade post merely highlights some of the issues explored in the Brief—be sure to read the whole thing!] Policymakers in search of answers zeroed in on challenges in moving environmentally-friendly products across borders.  They were able to identify one specific issue: potentially high levels of tariffs applied to certain goods at the borders.  These tariffs were acting as a brake, impeding the flow of goods and driving up costs. Hence, one early and sensible idea was to consider how to reduce tariffs on environmentally friendly goods.  If tariffs are leading to lower utilization of climate-friendly products, the reduction or elimination of tariffs on these products should lead to their greater use. APEC members intended to have signatories agree to reduce tariffs on listed products to less than five percent within three years.  There would be “real world” consequences to inclusion/exclusion from APEC’s list of environmental goods (EGs).  Items on the list would have tariffs reduced or eliminated while those not included would not. Getting to the final set of 54 EG products, released in 2012, was not an easy process.  Understanding why it was so hard highlights the difficulties that are likely to affect a range of policy responses ahead.

Trade and Tax in a Digital World

Trade and Tax in a Digital World

Neither trade nor tax are new issues. What is new are the types of challenges that digital trade poses to revenue collection. As the digital economy has grown significantly, governments have watched with increasing dismay as taxes have not been collected from a steeply growing volume of transactions. Fiscal pressures in the wake of pandemic spending have accelerated the quest to appropriately tax companies and purchases made in the digital or online environment. The rise of the digital economy has complicated the traditional tax environment. Firms can be located anywhere and provide goods and services online to suppliers, vendors and customers in places without any need for a physical presence. The digital economy allows firms to scale up substantially at often minimal direct costs, creating a small set of super firms generating outsized profits. Such technology or digital firms present tempting targets for cash-strapped governments looking for revenue. However, it is not just large firms that can take advantage of new ways to find customers. A vital aspect of the digital economy is how it enables even the smallest companies to engage in cross-border trade. Firms that might never have been tempted to trade outside their own villages are increasingly finding key markets halfway around the globe. In short, there are at least four important ways that the digital economy has affected traditional tax systems: by allowing firms to compete in markets without a physical presence; by the proliferation of approaches, mostly used by large firms, to more carefully manage tax; companies that can operate with no or minimal presence; and by the participation in cross-border trade by companies previously not engaged in such transactions. Our latest paper, published this week with the Hinrich Foundation as part of the ongoing series on digital trade issues in Asia, highlights some of the current and upcoming issues of digital tax under both direct and indirect tax collection schemes.

US Worker Centered Trade Policy Meets Global Competition

US Worker Centered Trade Policy Meets Global Competition

The United States has a new chief trade official. Katherine Tai was unanimously confirmed as the next US Trade Representative (basically trade minister). As USTR, Tai is expected to develop and execute US trade policies. The extent to which American policies on trade are adjusting remain to be seen. Thus far, Tai has been relatively quiet on her objectives, speaking only during her confirmation hearing. She has to hire her three deputies and a chief agriculture negotiator who will help flesh out and deliver policies. The early signs, however, suggest that potentially important changes are on the horizon. The key buzz word is that from now on, the US will pursue “worker centered” policies. It remains unclear what “worker centered” actually means. In practice, the phrase is likely to mean different things to different people. It will take cues from long-standing Democratic party objectives to support organized labor and environmental protection. These concerns have been embedded into a series of trade agreements for the United States, including the renegotiated NAFTA or USMCA. Tai took the lead role of shepherding the final USMCA document through Congress and building support from within Capitol Hill for the agreement. Her personal ability to forge bipartisan consensus on renewal helped with her smooth passage into her new role at USTR. US President Biden has suggested that trade agreements are not going to be part of American trade objectives in the near term. This suggests that worker centered policies will need to be anchored in something other than trade deals. Where might they be found? In large measure, it appears through enforcement. The US is likely to be giving extra scrutiny to US trade partners under various free trade agreements (FTAs) and other preference programs. It will also be looking hard at obligations and commitments made at the World Trade Organization (WTO) which have not been pursued with sufficient vigor by members. The US is also likely to change its position on a number of domestic policies. This includes an increasing use of “Buy American” policies and a probable review of US commitments under the WTO’s government procurement agreement and other similar chapters in existing FTAs.

US Trade Policy in 2021

US Trade Policy in 2021

So, on trade, Trump and whatever might now be called the “Trump wing” of the party will be opposed to trade agreements (except for “really good ones” that are different from the current crop of deals). He made three big promises: to hike tariffs on China and Mexico; to “rip” up NAFTA, and to withdraw the US from the Trans-Pacific Partnership (TPP, now renamed the CPTPP after US withdrawal on Trump’s first Monday in office). Note that—in an otherwise wildly inconsistent presidency—Trump has delivered nearly all of what he set out to do in trade. Trade is the one area where Trump has strongly held beliefs that have not wavered across decades. He has found officials that share his vision of a world where the US continues to dictate outcomes and allowed them to press ahead. As he faces a very tough re-election fight in 2020, Trump is likely to continue to escalate one area that matters to him—reversing the economic “war” that the US had been losing by pursuing aggressive policy actions. The President already had extraordinary leeway to maneuver on trade, as we noted in 2016. The past years have shown that the presumed “guard rails,” like Congress, have been less effective in limiting actions than many anticipated. His use of Executive Orders and options pulled out of the US policy “toolkit” of largely forgotten provisions, often dating back to height of the Cold War with the Soviet Union, has continued to rise. Trade, President Trump believes, is a big part of what got him into the White House. Hence, expect it to remain dominant in the few months leading to the election. His advisors will also be more eager than ever to lock in policy actions consistent with Trump’s views on trade.

Phase 1 US-China: Implications for Asia

Phase 1 US-China: Implications for Asia

What does this mean for Asia?  At least three things seem obvious. First, the tariff pressures are going to remain for companies.  Not only are firms still subject to extensive tariffs, but the risk of future increases is only marginally reduced.  In the very best case scenario, firms will continue to pay 25% tariffs for another 10 months. Companies may not be able to weather this extent of damage for so much longer.  Many companies will finally pull the trigger on relocation plans.  Most of the supply chain adjustment will not be redirected back to the United States, but will be shuffled around globally.  Many Asian markets are obvious places for moving manufacturing.  Second, the restrictions on Chinese investment into the US will remain in place.  Chinese investment dollars are likely to be redirected, including into other Asian markets.  The impending start of the Regional Comprehensive Economic Partnership (RCEP) will accelerate this trend.