We conclude there is no compelling case for governments going spare over global excess capacity in manufacturing. From the perspective of the global trading system, a nation’s excess production capacity is not the issue per se but the harm such excess capacity does to trading partners is. We build our case first by critically evaluating the implementation of the only G20 initiative to tackle sectoral excess capacity, namely in the steel sector. The dissatisfaction of key steel sector stakeholders with this initiative’s execution is merited. That the steel sector is plagued by trade distortions is not in question, how the G20 has gone about tackling it is. Then we muster empirical evidence that sheds light on how little global trade is in sectors where China has excess capacity. Moreover, exports from these sectors account for only a small share of China’s total exports. Critically we show how systemically unimportant are the trade-related knock-on effects of excess capacity such as import surges and how infrequently G20 governments have bothered to respond to import surges in excess capacity sectors during the past 10 years.
The Need for Sectoral Annexes in RCEP
While overall rules for standards and conformity assessment procedures in RCEP are necessary to reducing non-tariff barriers in Asia and facilitating trade, the example of cosmetics shows why sectoral approaches are also important. Individual industries face particular challenges that cannot always be handled through generalized rules. Cosmetics firms need to know which substances can, and which substances cannot, be included in products prior to manufacture. Government officials are not always well positioned—on their own—to know the answers to such questions as which coloring agents might usefully be included in cosmetic products in the first place. Hence it is also important to include industry representatives in the creation of rules and regulations. Government should have the final say, but there is clearly a role for industry in crafting sensible policies that apply to a particular sector.
Managing Government Affairs in Times of Turbulent Trade
Almost exactly three years later, the situation is slowing improving. Firms have begun hiring more individuals in government regulations or corporate affairs roles in Asia. These individuals or teams have done a better job working directly with officials in the region. But as trade policy heats up, and especially as the threats to the global and regional system escalate on a near-daily basis, most firms are frankly not ready to respond effectively. For firms to do a better job managing their businesses in Asia, government relations (GR) people need to do at least six things. First, recognize that the region is changing rapidly. Many companies have gotten complacent. Firms in Singapore or Southeast Asia, for instance, do not appear to recognize or take seriously the risks coming from a potential trade war between the United States and China.
Singapore’s prime minister: Nobody wants a trade war
Although most Asia-Pacific countries continue to pursue trade and economic liberalization — for example, through the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership — these initiatives will not compensate for the damage caused by a trade war. Beyond the economic loss, strained ties between the United States and China will make it harder for them to cooperate on other pressing issues such as the denuclearization of the Korean Peninsula, regional security, nonproliferation and climate change. None of these issues can be solved without the full participation of both countries. If any of these disputes escalates and destabilizes relations between the United States and China, the consequences for the world would be disastrous. Competition between the United States and China is to be expected. But whether this competition takes place within a framework of interdependence and generally accepted international rules makes all the difference. Ultimately, what is at stake is war and peace, and the security and stability of the world. The United States, China and the rest of the world have too much at stake.
From 11 to 12 Again? The US Rejoining the TPP
So how easy might it be to get the United States back into the CPTPP? That depends on how the United States chooses to behave. If the US were to come to the current 11 parties and ask to reenter on the same terms it had prior to exit, it would be considerably easier. After all, the current 11 locked down the agreement as it stood at the time of US exit, minus 20 provisions that were suspended. The entire text was otherwise unchanged. All market access commitments between members were untouched. These were painful concessions by the 11 to the United States. Many of the 11 members wanted to make changes in the wake of US withdrawal to better match their domestic audience demands for adjustment. This was largely not done. Instead, as our previous Policy Brief noted, just 20 elements of the legal text were suspended. These provisions were not removed entirely, but merely set aside for later consideration. If the US comes back in the near term, the CPTPP could take effect exactly as originally negotiated with all the existing market access commitments for the US still intact and the rulebook as agreed upon under the CPTPP.