globalization

The CPTPP Expansion Challenge for America

The CPTPP Expansion Challenge for America

This now puts the US in a particularly awkward position with Chinese entry to the CPTPP on the table. The easiest solution would be for the US to quickly come back to the revised deal. All the schedules have been maintained and could be reactivated. The 20 provisions that were “frozen” in the transition from TPP to CPTPP could be addressed. However, politically in the US, this is viewed as a “non-starter.” If the US were to return at this point, there would need to be additional adjustments made and, even then, it is not clear whether there might be sufficient votes in Congress to approve entry. The US, under the Biden Administration, continues to work on its trade policy dimensions. There is a review of policy with China, specifically, that has been underway for months. Until these are both clarified and supported by Congress, it’s not clear what sort of forward-looking offensive trade items might be possible. It could be something on digital or perhaps on climate. Since the US is neither likely to return to the CPTPP in the near term or have a comprehensive trade strategy in place, the US is in a pickle.

China Applies to Join the CPTPP

China Applies to Join the CPTPP

China has submitted a formal letter of application to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Now, after years of speculation, it’s decision time. Will the current members of the CPTPP agree to allow China to start accession or not? As readers may recall, a CPTPP accession process has started already. Members have formed accession working parties to manage the addition of the UK. With China’s request, members will need to hold formal bilateral consultations. Then, they will convene to decide on what to do with the application request. If the current members decide to allow it, China will proceed to the accession stage and start working on their own country-specific schedules for market access in goods, services, investment, movement of business persons, state-owned enterprise (SOE) exceptions, and government procurement commitments. The text of the agreement and all existing member schedules are not intended to be adjusted in the wake of new accession discussions. The key question of concern for current members will be whether or not they judge China to be ready, willing and able to uphold the existing rules in the agreement?

Facilitating Trade: Vaccine Passports?

Facilitating Trade: Vaccine Passports?

International tourism is key to many economies around the world, accounting for over 10 percent of world GDP in 2019. But international travel is not just about beach vacations in Aruba. Business travel is essential to restarting the world economy. Facilitating travel for work is a clear reason to embrace the vaccine passport. Take, for example, the opening of a manufacturing plant. Such an endeavor requires highly skilled experts who may not necessarily live in-country. The type of engineering expertise needed to construct and kick off the operations of a high-tech factory is not always needed day-to-day – meaning in the pre-COVID world, the firm or industry relied on hassle-free international and inter-regional travel, allowing experts to work on-site for short periods. Now, a similar trip might require the traveler undergo two two-week hotel room quarantines on either end of the trip, making business travel much more expensive and inconvenient. In a 2020 paper, Harvard researchers set out to determine how much business travel benefits the global economy. Using their model, the researchers determined that the effects of reduced business travel are severe. If business travelers were forbidden from leaving South Korea alone, world GDP would fall by an estimated 0.95 percent – equivalent to nearly US$770 billion a year. In 2020, business travel fell by an estimated 54 percent, and expected to fall even further through 2021. To put it simply – the consequences of reduced business travel are huge. With governments nowhere near lifting entry restrictions and airlines not particularly keen on letting contagious passengers fly, the vaccine passport is an obvious solution to ease restrictions on international travel.

US-China Decoupling: Implications for Asia

US-China Decoupling: Implications for Asia

While firms have shifted some production already out of China, it is economically risky for companies to completely ignore the unique advantages that China offers including its quality infrastructure and sizable domestic market, which serve as strong incentives for firms to stay put. Most companies that believe they may be exposed to an ongoing set of trade tensions between the US and China have engaged in internal reviews and scenario planning. COVID-19 has both put a hold on and, paradoxically, accelerated some of this thinking. While the pandemic has made it difficult for many companies to focus on strategy not directly related to immediate survival and management of a series of supply chain disruptions caused by market shutdowns, it has also amplified the risks of potential exposure to new challenges. Every company has begun talking about building more resilience into their systems. What, exactly, such resilience will mean is less clear. For some, it means holding more inventory. For others, it means identifying key chokepoints in the supply chain and looking for additional sources of supply to lower risks in these specific aspects of the chain. For others, it means shifting production closer to final markets to reduce disruptive effects caused by border closings and other specific obstacles. At this point, however, most firms have already instituted supply chain reshuffling between internal locations, if such options are available. For example, companies that have overlapping capabilities in multiple locations have ramped up production in some markets while lowering production elsewhere. Internal swings to mitigate risks have already been put in place wherever possible.

How to Block Trade

How to Block Trade

As Covid plus a deteriorating global trade regime makes previously unthinkable actions possible, expect more actions to block trade. Some will try for creativity, but others will simply act and dare others to challenge their bad behavior. It is easier to take such actions, of course, at a time when the global trade dispute system is broken. Governments can continue to file claims against one another at the WTO. Absent a fully functioning system though, the “losing” party can simply sit on the verdict (“send it out into the void”) and make no change to any policy. Some bad behavior could, in theory, be constrained by a variety of regional or bilateral trade deals that often come with their own dispute settlement mechanisms. Most of these dispute systems have never been used, though, as governments have tended to trust the WTO system to resolve disputes whenever possible. It’s unclear how well these other mechanisms in the majority of trade agreements might fare in tackling tough disputes. A determined government is never likely to be constrained by the mere presence of a dispute settlement system. The system works only when members are willing to abide by the rules. The global trade problem is not just that the “court” system is not working, but that some of the members in the system don’t even seem interested in participating.