Living with the Trans-Pacific Partnership (TPP)

The standard response to many questions about possible shortcomings in the Trans-Pacific Partnership (TPP) negotiations is likely to be some variation of the following, “Don’t worry—your concerns will be addressed later, because the TPP is a living agreement.” 

This sounds great.  Who doesn’t want an agreement to remain living?  But, in practice, the idea is going to be very difficult to implement, particularly if it is not tied to a Secretariat to carefully monitor the agreement.  Several key issues need to be considered as well, particularly the extent to which change will be allowed in the future.

The TPP, a 12 party trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam, has been under negotiation for more than 5 years.  As deep and broad as the coverage will be in this deal, officials have not been able to resolve every possible issue satisfactorily for every member. 

Even if officials were amazingly capable of nailing down every possible point of concern, trade agreements can still become out of date relatively quickly as technology changes and markets shift.  New issues are constantly being added to the agenda of each ambitious deal.

Existing trade agreements, however, are relatively hard to amend.  Most require a “protocol of amendment” to be negotiated with the parties for each requested change.  Even if the parties agree to let the deal be amended, it does not guarantee that all sides will agree to incorporate specific changes. 

The mechanism for considering amendments in most standard trade agreements is also challenging to use.  Most preferential trade agreements (PTAs) are structured with a set of committees that are meant to meet from time to time to discuss the deal.  For example, a PTA may specify that the trade in goods committee will meet every year while a committee on services may be scheduled every two years. 

We can’t be sure yet, as the explosion in PTA numbers is a relatively recent phenomenon.  But for many agreements, it is highly likely that the required committees will not meet or will meet only intermittently.  Even if they do meet, officials are not likely to put their best efforts into the review meetings.  For a government like Singapore, with more than 20 active preferential trade agreements with bilateral and regional partners, just scheduling times for officials to meet during each review is likely to be a challenge. 

Thus, counting on the standing committees to resolve issues may provide false comfort.  Other than serious or significant obstacles and major or minor disasters, very few changes are likely to result from the standard operating procedures in trade agreements.     

We do have experience with the downsides to having agreements that cannot be easily amended.  The most obvious example comes from the World Trade Organization (WTO) where officials have been wrestling for years with how to alter an existing agreement for electronic goods. 

The Information Technology Agreement (ITA) at the WTO is an agreement that lowered tariffs to zero on a wide range of IT products.  The reduction in tariffs for electronic goods helped stimulate the growth of “factory Asia,” in particular, as companies found it easier to break apart supply chains for these types of products and to disperse production of different elements of complex products into different WTO member states.

The problem is that the agreement was negotiated on the basis of a “positive list.”  Under this method of liberalization, any product that appeared on the list was covered, with tariffs scheduled to drop.  But any product that did not appear on the list was not covered—tariffs would remain unchanged.  The idea was most definitely to amend the list as required over the years to reflect changing technology.  After all, IT cycles quite rapidly. 

But the list proved impossible to revise.  Hence the ITA might lower tariffs to zero on record players but still does not cover smart phones or tablets at all.  Members of the ITA agreement at the WTO continue to labor over creating new lists of items eligible for tariff cuts in an “ITA2.”

By contrast, the TPP would not face similar issues.  In addition to using a different method of market opening for services and investment (the so-called “negative list” where everything not listed is automatically opened for competition including new sectors), the TPP would become a “living agreement” that would never go out of date.  It could be simply and easily altered in the future.  Finally, any incomplete or insufficiently developed ideas, rules or coverage could be addressed without the major hassle of convening new negotiations or complicated committee meetings.

This sounds great.  Surely a living agreement beats a dead one?  But the devil, as happens so often, lies in the details.  How, precisely, can an agreement be brought to life?

Remember that the TPP has the same committee structure (at the moment, at least) as every other PTA.  Why would any committee member suggest an amendment in its area of purview?  (At least for items that do not rise quite to the level of catastrophe.)  The negotiating teams will have been disbanded and the institutional memories of the agreement are likely to vanish with retirements and promotions.

Sensitive issues will likely need political engagement to adjust or negotiate.  If it turns out to be difficult to amend the TPP, then this automatically negates the idea of a “living agreement” which was intended to be continuously revised and updated as events on the ground change.

Essentially, the TPP will face the same challenges as the WTO members in amending the ITA—the practical consequence will be to force a renegotiation of the agreement or of a portion of the deal. 

My solution, as regular readers may recall, is to create a TPP Secretariat.  This would not entirely fix the problem, but would at least keep changes out of the hands of indifferent trade officials racing from PTA review to PTA review.  It would put someone in charge of getting people together to consider possible amendments.  It would, most likely, have a built-in mechanism for engaging political leaders to sort out sensitive issues. 

The Secretariat staff would be most familiar with the agreement and the obligations of members.  They could serve as neutral brokers and help members manage necessary changes to the texts and commitments. 

A Secretariat does not solve all the problems associated with a living agreement, of course.  But the right institutional structure is needed in general and certainly represents a huge improvement over the traditional committee mechanisms.  Such a complicated trade deal requires the best possible institutional structure to run effectively.

One issue that will have to be considered by members directly in a living agreement is the extent of renegotiation that is allowed as part of the living deal before it triggers some sort of re-ratification or new approval process by members.  There must be, surely, some baseline level of change that is acceptable as part of the continual upgrading needed in a rapidly changing economic environment. 

But at a certain point, member governments will surely argue that they should be consulted again or give direct approval for changes.  What is the appropriate trigger point?  Is it the percentage of the text that is altered?  Officials on the ground can change one percent of the texts without a problem, but when they reach, say, 10 percent, this is the trip wire? 

Is the trigger the economic impact of changes?  In this scenario, officials can make minor adjustments to the texts, but if the result is more than $50 million, this is a problem?

For some TPP members (now and into the future), it is possible to imagine that no changes at all will be allowed without re-ratification of the deal. 

What if a member wanted to scale back commitments?  In a “21st century, high quality” deal, such a thing will likely not be countenanced.  But the idea of a living agreement, at least, suggests that alterations should be allowed both forward and backwards.  All adjustments, of course, would be subject to negotiation and not simply allowed to take place unilaterally.

It is possible to imagine a scenario under which a member might want to retreat from some element of the deal in the future.  Many people will strongly disagree here, but recall that one of the selling points for a living agreement is the ability of the agreement to handle a range of concerns after the TPP comes into force.  If a living agreement only allows upward ratchets on the level of commitment in the deal, it will not really allow for continual adjustment to meet the needs of members.

An additional benefit of an effective living agreement is that it could also create a mechanism for new members to adjust the text of the agreement.  Given that new entrants into the TPP are likely to be allowed limited (or even no) room for altering texts, a living agreement provision could provide a “back door” mechanism for alterations.  Such flexibility may be critical in getting new entrants to join.

Finally, if the living agreement idea is not made a reality, it is likely that the TPP will become just as difficult to amend as existing trade deals.  It may get out of date and become less and less relevant.   Getting the structure right for “living” is a necessary element of making sure that the final agreement does not rapidly become dead.

***Talking Trade is a blog post by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Facilitating Trade

Trade facilitation is not the sexiest sounding topic.  Eyes tend to glaze over whenever it gets mentioned.  But the ability to move goods across borders faster and cheaper is extremely important.  Obstacles at the border are unpleasant for bigger firms and can be catastrophic for smaller companies. Consumers pay more for products than necessary.

It is not that governments are ignorant to the benefits of facilitating trade at the border.  They have tried for years to be more efficient.  At the global level, early rules dealt with freedom of goods in transit and tried to address issues of fees attached to importing and exporting products.  Some countries struck out on their own to reduce barriers at the border. 

Yet the obstacles to reform can be significant.  For instance, even with excellent intentions, standard operating procedures can be devilishly hard to shift.  Existing systems have to be modified or scrapped.  Technology needs to be upgraded.  Many of these problems require a commitment for reform plus—often—money. 

Even countries that might be counted on to facilitate trade well, like the United States, continue to have challenges.  As an example, facilities for loading and unloading container ships in the biggest ports in the U.S. are only open for business from 6 am to 6 pm during weekdays.  Ships run 24/7 and delays at the port due to limited office hours by staff members onshore are deeply problematic. 

Many countries have similar bureaucratic problems coordinating policy at borders.  Some have customs officials that work longer hours, but the agriculture ministry staff who must inspect food items may not have similar schedules, leaving perishable food items waiting for clearance. 

Companies face a myriad of obstacles at the border.  Customs officials have to inspect goods.   In some countries, inspection rates can reach 100%, meaning that every single item or container (or perhaps all food shipments or all health products) have to be looked at by someone before goods can cross borders.  In others with improved risk assessment programs, the percentage of goods that are checked is closer to 1 percent. 

Similar variations can be found in nearly every aspect of crossing borders.  The kind and type of paperwork demanded by customs and other ministries is also often different.  For any firm trying to use one of the hundreds of existing free trade agreements, the paperwork requirements are different again. 

The rules that have to be followed for companies claiming benefits under free trade deals vary as well.  In many cases, border officials struggle to cope with the complexity.  The classification of goods becomes critical, as customs agents can have tremendous flexibility in deciding which rules will apply depending on how they define a good. 

The time needed to get over land, sea and air port clearance processes also varies tremendously.  Singapore can clear cargo destined for the shipyards in as little as 23 seconds.  Other places can take days or weeks.  Each hour of delay at the border adds to the costs for the firm as merchandise is tied up in containers or in warehouses waiting for processing.

The procedures for declaring cargo also vary depending on countries.  ASEAN members have been quite progressive in aiming to create “single windows” under which (in the ideal world), a trader inputs data once on the items that need clearance.  This information is automatically sent out to all the various agencies that need to know about the arrival of goods (customs, port officials, agriculture, health, security, and so forth).   All paperwork gets seamlessly processed, with high risk shipments flagged for inspection and the rest quickly moved through the border on arrival. 

But even in ASEAN the application of the single window concept is quite uneven.  All 10 member countries are supposed to have the system in place as part of the ASEAN Economic Community (AEC) at the end of this year, but this is not ready yet.  Eventually, the members are hoping to knit their systems together so a trader in one country could have cargo data automatically routed to all 10 members without the need to do anything further. 

The desire to create larger groupings with unified systems is driven by the need to ensure consistency and ease of doing business for companies.  This same pressure lead the World Trade Organization (WTO) to focus intensively on trade facilitation as part of the latest round of negotiations. 

In December 2013, the now 160 members of the WTO announced conclusion of what is called the “Bali package.”  It contained a set of rules on facilitating trade (plus a few other items) with the goal of harmonizing and streamlining the procedures for moving goods. 

Particularly for countries with firms enmeshed in global value chains or supply chains, any delays or unnecessary costs at the border are very damaging.   Countries with high barriers to entry will struggle to be competitive.  Firms that have to fill out up to 30 different forms (some or all of which need to be submitted in person or in multiple hardcopies) and wait 6 weeks for cargo clearance are not going to be able to meet delivery times and costs demanded by firms participating in supply chains. 

The Bali package goes some of the way towards addressing these issues.  For example, it requires countries to post information about all forms, documents and fees associated with moving cargo.  This information should be put online as much as possible.  Firms should be given an opportunity to comment on any proposed changes in rules or procedures with sufficient time to respond. 

Companies can ask for what is called an “advance ruling.”  This is where customs decides the classification of the good ahead of time and the officials at the border cannot suddenly reclassify an item or decide that it does not meet the rules of origin.

Bali contains a lot of language about clear posting of fees and charges, since important obstacles to trade are informal charges, shifting charges or straight out bribes demanded at the border.    The scheduled fees, duties and so forth can be paid online as much as possible. 

Some of the processing of goods clearance can take place ahead of the arrival of goods.  Countries can use schemes for Authorized Operators which allows trusted trading firms with a solid track record to have fewer inspections and faster processing times. 

In short, the rules negotiated in Bali should be extremely helpful for companies in getting costs down and delays shortened. 

However…since the heady days following approval of the deal in December 2013, the Bali package has gotten stuck.  Members were supposed to be moving to implement the deal.  For developed economies, the whole deal comes into force at once.  But, frankly, for most developed economies, the Bali package may actually provide less coverage than is actually practiced currently.  Thus the difference post-Bali implementation for efficient countries is very modest.

Where Bali matters is for developing countries that tend to have uneven implementation of trade facilitating measures, higher costs, and longer times for clearance.  For developing countries, Bali comes in three parts:  some elements will kick in immediately (on entry into force), some elements will be phased in over time on a clear timetable provided by the member country, and some elements are supposed to start pending the receipt of sufficient capacity building to implement the agreement.

The OECD estimates that full implementation of the agreement will have significant gains—particularly for low income countries.  The cost reduction could be 14.1 percent.  But partial implementation includes a rapid fall-off in benefits gained by countries and by firms trying to operate across these borders.

The WTO has already missed several deadlines for members to declare their timelines for implementation.  Another one set for the end of this year looks troubled as well. 

For the poorest members of the WTO, these delays should be deeply alarming.  For companies trying to operate in a world of patchwork rules and, often, little transparency in procedures, the implementation of Bali is badly needed.  In fact, much of the Bali package ought to be viewed as a floor rather than a ceiling.  Some of the trade agreements in Asia (especially) are, indeed, trying to go beyond Bali and to capture the gains that come from unilateral, bilateral, and regional efforts to improve trade facilitation.

***Talking Trade is a blog written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

Legacy of Lee Kuan Yew

It would be impossible to live in Singapore and not write a post this week about the late Lee Kuan Yew.  So many people lined up to pay their respects that the line stretched for several kilometers and people stood for more than 8 hours.  Nearly every company gave employees time off.    The response was so overwhelming that the government has had to extend the viewing period to 24 hours.  The subway and feeder bus lines also had to be opened nonstop to accommodate everyone.

Local media coverage was nearly as wall-to-wall.  On the first day, the Straits Times ran an extra 32 page section on the Minister Mentor’s life and legacy.  The second day, the tribute section ran another 20 pages.  On the third day, 18 pages more. 

With all the coverage, it may not be possible to comment on anything new.  What is striking in many of these retrospective articles is the extent to which myriad economic policies put into place from the very beginning have been continuously refined and enhanced over the decades.  The foundation for Singapore’s explosive economic growth—from third world to first, as Lee famously proclaimed—was set from the earliest days of independence.

Lee left much of the day-to-day management of government when he retired from the post of Prime Minister after 31 years at the helm.  He continued to be involved in high-level policy decisions afterwards as Minister Mentor and a member of Parliament, although his influence tapered over time.  

Clearly, the city state would not likely be what it is today without the policies put into place by Lee and his cohort of officials from the beginning.  At the time of independence, 50 years ago, Singapore few obvious advantages.  It had a limited population.  No natural resources.  Limited land.

It did have a strategic location and a history of being a port city.  Lee and his colleagues set about enhancing the assets that were available.  The market had been focused under colonial times on re-exporting products made elsewhere.  But a relatively large number of unemployed, low skilled people needed to be put to work.  Despite limited domestic savings and not a very deep bench of skilled entrepreneurs, the government decided that Singapore would have to focus outward to survive. 

The neighboring countries, however, were not particularly helpful as destinations for the new strategy.  After all, some of the neighbors were in similar situations and were likely to be aiming at the same markets.  This meant that Singapore could not just concentrate on the region, but had to be planning from the earliest times to sell to a broader marketplace. 

The lack of domestic skills meant inviting outsiders in to help and invest.  Foreign investors were granted concessions, including favorable taxes, as part of a broader plan to encourage economic development.  Foreign capital was combined with domestic savings, gathered through a new program called the Central Provident Fund (CPF) started in 1955 for civil servants and later expanded to include all citizens. 

These policies continued and were expanded over the decades.  Foreigners still receive concessions for investment and Singapore now receives more inward foreign direct investment than most of the rest of Asia, totaling $850 billion by the end of 2013.  The CPF scheme has shifted Singaporeans from a nation of limited savings to a country with significant capital. 

The Economic Development Board (EDB) was established in 1960 to direct the government’s industrialization drive.  Over time, the government continued to expand the number of agencies tasked with assisting companies and economic development.  In addition to the EDB bringing in foreign companies, Singapore now has Spring to help local small and medium enterprises as well as International Enterprise (IE) Singapore to help local firms that are interested in expanding into new overseas markets.  These agencies are given ample funding to help encourage economic growth and development for local firms and, especially, to continue to attract foreign investors in targeted sectors.

Education was also a key early focus.  Originally, Singaporeans were given basic vocational training to help them transition into factory positions.  Over time, the orientation shifted to creating higher skills and, eventually, into advanced knowledge.  Lee also emphasized language training, requiring students to be bilingual.  He continued to promote the use of English and famously switched local Chinese language skills from various dialects to Mandarin.

Workers were housed in new high rise buildings, largely built by the Housing Development Board and sold to citizen owners at heavily subsidized rates.  Given the scarcity of land, the government has always been extremely active in managing this resource.  Buildings have been routinely demolished to make room for new, more productive construction and facilities.

As manufacturing began to take off, the country also highlighted its traditional role as a trading hub.  The government continually took steps to ease the movement of goods in and out of the country.  The sea and air ports were continuously improved.  Government officials have always emphasized the development of excellent infrastructure in general. 

From the beginning, Lee and his government put in place the foundations for strong economic growth.  After 50 years, the lines of people waiting to pass by his coffin to pay final respects could be sheltered by gleaming glass skyscrapers inhabited by some of the most competitive and dynamic firms in the world.  Other countries have tried to make a similar leap to economic development.  Singaporeans have been lining up in droves to commemorate the man that they believe made the country succeed where many others have not.

***Talking Trade is a blog by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

How Oreo Could Become Best Friends with the Marlboro Man

Last week I wrote about how lobbyists should be an important part of the policy landscape, particularly for trade issues.   Companies, consumer groups and others need to pay careful attention to what governments across Asia are doing.  The consequences of inattention could be significant.

As an example, one deeply problematic regulatory issue that appears to be spreading across the region is the introduction of plain packaging.  While initially targeted at cigarettes, the momentum seems to be building for the use of plain wrappers for other products as well, including alcoholic beverages and even ordinary food items. 

The results would be a disaster for companies both big and small and potentially a nightmare for consumers.

Let’s start with understanding plain packaging for cigarettes.  Under an Australian plan, cigarettes were singled out for special treatment.  The intention was to reduce the number of Australians who smoke cigarettes.  By limiting the marketing and branding of cigarettes, the government hoped to reduce the incentives for taking up the habit.

Changing labeling for cigarettes is not new.  Many governments around the region have special rules around packaging.  In Singapore, for example, packets require graphic and gory photographs of the damage caused to smokers (and their offspring).  Advertising for cigarettes, like in many markets, is heavily restricted.

Cigarette companies have managed to live with these rules.  The key issue for companies has been to have clarity.

But plain packaging is a whole different level of regulatory influence.  Under plain packaging, every element of the product is made to look identical to every other product.  For cigarettes, imagine that the carton is Army green.  The Marlboro name is written in courier font.  Every pack of cigarettes inside the carton has the same green wrappers with courier font.  Even every cigarette stick inside looks identical between brands. 

Thus a consumer cannot tell what cigarette is being sold, bought or smoked very easily at all.  From a glance, the Marlboro looks like a Salem which also looks like a generic product. 

The purpose of this change in packaging was to get consumers to stop smoking.  It is not clear whether this objective will be met.  What is likely to happen instead is that consumers will continue to use cigarettes but may shift preferences between brands over time.  Absent clear quality differences, some consumers will likely migrate to cheaper products.

This is, of course, deeply problematic for companies that have spent a lot of time and money building up brands.  As a result, Philip Morris sued the government of Australia for invalidating the intellectual property embedded in their packaging.  While this case is not yet resolved, Ireland has also passed plain packaging legislation for cigarettes.

Governments have the right to regulate in the interest of health.  Philip Morris would likely argue that they are fine with the various regulations on packaging and advertising prior to the plain packaging rules.  These new rules, however, took a legal product and changed the regulations in ways that did not automatically appear to confer health benefits but could be very damaging to the company’s brands.

Leave aside for the moment whatever you think of cigarette smoking or the use of investor state dispute settlement as a means to resolve this dispute.  Of greater interest for this blog post is the likely spread of this regulatory measure if the cigarette case gets resolved in favor of the government.

One of the lobbyists from Philip Morris has been arguing for several years that plain packaging would spread to other sectors.  But no one seems to have taken her comments very seriously.  However, looking at the ground in Asia, it appears she was right and companies from across the spectrum should be deeply concerned. 

Government officials in Indonesia have already said that they will use plain packaging on alcoholic beverages with high levels of alcohol content.  But really, why stop there?  If plain packaging is required for strong spirits, it might as well be required on all alcoholic beverages. 

Imagine trying to shop for wine in a world of plain packaging.  If every bottle on the shelves has an identical shape with labels in Army green and brands listed in courier font, how will a consumer find the best product?  How will a consumer find any new brand?  How will a company reach new consumers?

Will the change in packaging result in less wine being drunk?  Will fewer people become impaired if all the labels look the same?  It is not at all clear that plain packaging would, in fact, resolve public health concerns related to alcohol use.

Consumers are still likely to buy wine.  What I suspect will happen is that consumers will reach for brands and products they know.  They will shun anything unfamiliar, making it nearly impossible for new companies to grow or for existing companies to expand product lines.  While major brands will be affected, the change could be most problematic for smaller firms and new entrepreneurs.    

Now think about this brave new world if the plain packaging mania spreads to food products or even to just processed food products.  Already, officials in Malaysia have apparently commented on their intention to proceed in this sector. 

Imagine if every Oreo cookie looks like very other biscuit—no more blue packaging as it could also end up Army green.  No more happy Oreo logo.  Every single cookie inside the packet could also lose identifying markers—no Oreo stamp on the cookie and no raised design on the chocolate cookie at all.  How will Oreo distinguish their products from others on the shelf?

Again, would plain packaging keep consumers from eating Oreos?  Would customers be healthier if food labels were identical and Army green? 

I’m sure that many will rush to say that there is no public health reason for plain packaging on food.  But I suspect that a creative government could come up with something.

The point is that this sort of regulatory behavior is likely to spread, particularly in the absence of clear information from companies and consumer groups about how such rules will affect the marketplace.   

As I said last time—government is going to make policy.  The extent to which those policies are helpful or not may depend on having information from companies and others about the implications of different policy decisions on real-world behaviors in the marketplace.

***Talking Trade is a blog by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

An Ode to Lobbyists

Bangkok--Here is a post I never expected to write—a note praising the efforts of lobbyists.  It wasn’t exactly that I was hostile to the idea of lobbying, but more that I regarded the industry as pushing objectives that could be problematic for society as a whole.  However, after working with the Asian Trade Centre for the past 8 months, I’ve come to more deeply appreciate the need for the sector and to regard the abilities of a good lobbyist (sadly in short supply in the region) much more highly.

One basic problem that the Centre was created to address was a broken or non-existent transmission belt between government and business in Asia.  In the area of trade policy, it makes little sense for government (especially) to be operating without clear knowledge of the needs and demands of the business community. 

Yet I’ve seen it over and over again in different governments across Asia—there is no clear mechanism for business to feed in even basic information to government officials.  To the extent that information flows, it tends to be ad-hoc and often conveyed informally.  It may have once taken place over the golf course, but now is done over tea, coffee or other beverages, perhaps at a reception somewhere for a different matter entirely. 

Alternatively, business relies on informal connections—the board chairman went to school with the key government official or has useful relatives.  The board chairman may even have been selected precisely because he (and it’s nearly always a he) went to the same school and has these types of personal connections. 

This model is clearly limited—there are just not enough people who went to school with key officials.  

Foreign companies hope to connect with the “right” local partner (meaning, preferably, someone who has these types of informal relationships with key stakeholders).  Companies often drag in their own government officials in embassies in the region only when things go horribly wrong.

What is largely missing in this region is a good lobbying sector with clear mechanisms for engaging with government at different levels and in different ministries to address specific trade-related policy issues.   Such a system would help head off many of the problems across the region and ultimately lead to more efficient, more effective policies with greater opportunities for growth.

Given that the business of trade policy is to create an environment for conducting business, the lack of feedback between government and business is deeply problematic.  Government officials end up trying to make policy in the absence of information about their own economy and have even less knowledge of systems in other countries.  It is perhaps not surprising that the outcomes from such a flawed system can be disappointing.

I remain an optimist and assume that most government officials in trade actually do want to create certain outcomes.  Even when the intended result is to protect the local industry, however, government often acts in ways that fail to achieve the desired outcome.  A lack of knowledge makes it more likely that decisions will actually create unintended consequences and perverse incentives. 

The problems are significant.  Start with the fact that many companies in Asia do not have anyone actively paying attention to government policy at all.  Most local companies—even the biggest, most powerful players in any given field—will not have a single person in the firm paying attention to trade and trade policy.  There will simply not be a government affairs or government relations person (let alone a whole team).  The marketing or corporate affairs or PR person may also pay zero attention to the policy side.  As a result, local companies can be blindsided by policy and regulatory changes in their own countries and in neighbors.

Also surprising—many foreign companies do not have anyone paying attention to policy in Asia.  They may have a team very busy in Washington or in Brussels, but no one on the ground in Asia.  If there is any attention paid to the region at the corporate level, it might be handled by someone based in the headquarters. 

In the relatively rare company that does have someone to follow trade policy in Asia, the person (or, perhaps, limited team) generally has no budget and limited ability to actually follow policy.  More problematic, the Asia-based staff members rarely have a good grasp or connections to government individuals involved in making policy so even if they are on the ground, they have limited capacity to influence outcomes.

Of course, this becomes a reinforcing mechanism—with limited staff and no budget, the Asia policy team rarely succeeds in making a difference, making it harder to justify the existence of the person and/or budgets in the future for the task.

The exception to this pattern is generally American companies (and, to a lesser extent, European companies).  Of course, many will say, the American approach to corporate lobbying is not something that anyone wants to emulate. 

However, if you look at who gets what they want and who succeeds, American companies have a much better track record than others.  This is true even for firms that might be thought of as competitors, like the Australian or Canadians.  Companies from both countries, by and large, do not engage in lobbying.  Except for the biggest global firms, both tend to wait for a crisis and then, perhaps, call in their own government or embassy staff to help.  Companies are just not as successful in reliably getting what they want.

As an example of the relative difference, last week the American Chamber of Commerce held their annual Asian conference in Singapore.  This event brought together the 27 AmChams from Mongolia to ASEAN.  The ballroom at the Marina Bay Sands was full. 

The Canadians held a similar event in Bangkok today.  The Canada/ASEAN Business Forum had less than half the number of people participating.  Of course, it was focused more narrowly on ASEAN than the American event with an Asia-wide remit.  The entire CABC has only been in existence for a few years (which also helps illustrate the problem).  Finally, the scale and scope of US versus Canadian investment is quite different—there are 3600 American companies in Singapore alone. 

But the important point remains—nearly all of the participants in Bangkok from Canadian companies were not following trade policy and government affairs as their sole job.  Most were company heads who grasp the importance of Asia to their corporate bottom line.  While welcome, such individuals are unlikely to be deeply engaged in following policy changes in the region over time.  

Canada does have more than 1000 trade commissioners located around the world.  These people do work full-time on trade issues.  However, each of these individuals is unlikely to be an expert in the industry, and certainly do not fully understand specific firms.  Thus, while government officials like trade commissioners should be a key element of a company’s strategy, they cannot and should not be the first (or only) line of defense for a firm.

A complex, shifting economic and policy environment like Asia requires the full-time attention of company staff.  Without a sustained focus, companies cannot hope to get the results and policy environment that they would like.

Government is going to make policy decisions.  Companies can either try to influence these decisions in a proactive, preferably helpful manner, or they can be reactive.  Those companies that do it well will likely have more success than those that do not.

***Talking Trade is a blog written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***