IPEF: The Party Few Wanted to Attend

IPEF: The Party Few Wanted to Attend

The final document, released by US President Joseph Biden, ran to just over a page. It described the elements of the proposed framework, which include four pillars of activities. Only 12 governments have agreed to think about starting to discuss something in the future. Why was this party such a disaster? In a nutshell, because the US was promising to hold a very dull event. It was not just that the food and beverages were going to be either bland and uninteresting for some party goers or inedible for others. The proposed music was not danceable. But much worse, the hosts had a series of activities planned for the party. These activities were, in fact, mostly quite unpopular for the proposed guests. The individual games or plans were largely built to suit the hosts without much consideration of the needs or interests of potential guests. These activities are also set to continue long after the original launch party ends. Some could, in fact, take years to wrap up. Guests could be committed to regular gatherings for an indefinite amount of time. While some of the activities have titles that are unobjectionable, others may be quite problematic. The description of these events is so brief and so bland that almost any sort of outcome could be imagined. There is no way to tell how involved any guest will have to be at any given time. This sounds less like a fun party and a lot more like work.

Congressional Testimony: Trade Policies in Asia

Congressional Testimony: Trade Policies in Asia

The trade and economic landscape in Asia is rapidly evolving. While there are many activities that I could mention, I will focus my testimony today on four regional trade arrangements: the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); the Regional Comprehensive Economic Partnership (RCEP); a set of digital trade deals known as DEPA or DEAs; and the upcoming American-led Indo-Pacific Economic Framework (IPEF). I will attempt to explain how and why these agreements matter for Asia and describe some of the implications of this evolving regional architecture for the United States. I will conclude with a few brief suggestions about how craft an IPEF that best fits into a complex economic landscape. Let me begin with the CPTPP. The CPTPP came into force in late December 2018 and now has eight active members: Australia, Canada, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam. The UK is in the middle of accession talks and hopes to be part of the group by the end of this year. Three additional formal letters of application were received last fall, from China, Taiwan, and Ecuador. South Korea’s outgoing government pledged to submit an accession request this month. There are three important items on the CPTPP agenda for this year: members must review the agreement; conclude accession negotiations with the UK; and decide on a process for addressing pending applications.

Trade Compliance Keeps Getting Harder

Trade Compliance Keeps Getting Harder

Pity trade compliance staff. For years, these roles received little attention. Staff ensured that laws and regulations related to the movement of goods across borders were followed. The right paperwork was sent to the correct recipient and customs duties or tariffs were paid accordingly. In an efficient office, with fairly limited changes in border procedures and relevant legal regimes, it was the sort of important operation that largely escaped notice. It was really only if the staff made a serious mistake that trade compliance moved up on the corporate agenda. Failure to follow rules, such as declaring the wrong code or valuations for products, could result in significant fines and penalties. But, generally, most trade moved without incident. As a result, companies probably undervalued the operations and provided only limited resources for staff. Increasingly, however, trade compliance has become a focus of attention within firms. At least four changes have added to the workload: growing trade tensions, supply chain snarls stemming from Covid-19 restrictions, a massive and growing list of sanctions and other types of controls, and the increasing use of economic levers to tackle broader foreign policy issues.

Digital Trade Supports Economic Development

Digital Trade Supports Economic Development

Perceiving the digital sphere as winner-takes-all leads to an incorrect assessment of the market forces shaping the digital economy and suboptimal policy responses. In particular, the suggestion that developing countries should enact technology transfer, data localization, and internet filtering requirements, or force the breakup of large e-commerce firms, ignores both the benefits of these platforms to development and the potential consequences of pushing platforms out of small markets. Instead, governments should focus on creating an enabling environment for MSMEs to pursue digitalization, enacting regulation that encourages firms to leverage digital tools for growth and development. For MSMEs, there are several key reasons participating in digital platforms can beneficial. Firstly, digital platforms increase visibility for participating MSMEs, as large platforms are accessed by large numbers of customers. Participation in digital platforms contributes to lowering operational costs, as economies of scale and their marketing abilities reduce the burden of logistics, payment methods, and marketing on individual firms participating in the platform. For example, a small firm may struggle to navigate customs rules when engaging in cross-border trade, adding risk and increasing costs. E-commerce platforms with sufficient scale and expertise can easily navigate the complexities of cross-border trade, reducing costs for participating MSMEs. This has enabled the emergence a growing number of ‘micro-multinationals’ in the Asia-Pacific region, wherein small business engages in cross-border e-commerce. A further benefit in participating in platforms for MSMEs is access to their analytics capabilities and optimization programs. Using data analytics to collect information about customer preferences, MSMEs can leverage the platform’s data to optimize offerings to customers. Digital platforms, like any other business, are profit-seeking. But this does not mean that this profit-seeking behavior functions to stifle MSME growth or development. Instead, the opposite is true. Platforms tend to push capacity-building efforts to enable MSMEs to participate in their platforms, unlocking new growth opportunities. For example, Meta, Amazon, Gojek, and Flipkart offer training, advisory services, and more to MSMEs to boost capacities to participate in their platforms. From this arrangement, the companies benefit from an increased number of suppliers, and MSMEs unlock new growth opportunities, increasing access customer pools and addressing key barriers to growth.

Russia’s Not-Normal Trade Relations

Russia’s Not-Normal Trade Relations

Nevertheless, the basic point still stands—products from the WTO are meant to be given consistent tariff rates at the border. Thus, a member with an MFN rate of 10% on eyeglasses can collect 10% in tariffs from every incoming WTO member firm at the border for each pair of glasses. If the eyeglasses are coming from a non-WTO member, then there is no MFN obligation. Members can apply whatever tariffs they want to glasses from non-WTO members. The pool of non-members is steadily shrinking with most remaining outside the WTO currently involved in accession negotiations. Belarus is not yet a WTO member, meaning that members can quite easily apply whatever tariffs or measures they want against Belarusian eyeglasses or any other product. Governments can be quite particular about products that come in from across borders. Thus, although they have agreed to non-discrimination and MFN treatment in the WTO, they do not give such consent in all circumstances. There are a number of exceptions clauses within the WTO that can be triggered, such as in times of crisis. The WTO has an explicit set of national security exceptions. The original GATT was formed in the aftermath of World War II and officials were extremely conscious of trade concerns in times of direct conflict or war. They put into place Article XXI on security exceptions that includes a provision to suspend application of the rules “taken in time of war or other emergency in international relations.” For a long time, the use of national security exceptions remained limited. They were assumed to be for use by direct combatants in war situations. But the norm against invoking these exceptions has sharply weakened in recent years. Some WTO members have now declared that they will apply national security exceptions to revoke Russia’s MFN treatment. In other words, they have reserved the right to make unilateral changes in their treatment of Russian imports such as imposing an across-the-board 35% tariff on all products. The removal of MFN thus far has largely been focused on tariff changes, but discriminatory practices could be taken across a range of possible trade commitments.