WITA’s Friday Focus on Trade | March 31, 2023




Slaughter & Rees Report: How Commerce Can Save the Climate

On April 12, WITA will host an in-person panel discussion on climate and trade, followed by remarks and an armchair discussion with the Director General of the WTO, Dr. Ngozi Okonjo-Iweala. Information on that event can be found here.
Last week, the Intergovernmental Panel on Climate Change—a body of experts convened by the United Nations to assess the extent of and prospects for climate change—crossed a Rubicon of sorts.
In the IPCC’s latest major report, Climate Change 2023, it acknowledged that the world’s efforts to date have almost surely failed to keep the planet’s average temperature from rising less than 1.5 degrees Celsius (2.7 degrees Fahrenheit) above preindustrial levels.
That mark became the world’s target in 2015, when at that year’s United Nations climate summit in Paris all participating nations agreed to try to hold global warming below that amount. But alas, countries’ cumulative efforts since then have been woefully insufficient. Thus has the IPCC now concluded that continued greenhouse gas emissions will lead to increasing global warming, with the best estimate of reaching 1.5°C in the near term in considered scenarios and modelled pathways.
To slow the rate of global warming, countries must accelerate the invention and deployment of low-cost green products in key areas, including energy generation, distribution, and transportation. Chief among the needed policies is the implementation of a meaningful world carbon price, in the form of a charge on greenhouse-gas emissions. Such a price would make new green products cheaper than existing carbon-intensive ones. But the prospect of a high and harmonized world price on carbon is not on the horizon. In the United States, for instance, many on the Right deride carbon prices as an intrusive new form of taxation, whereas many on the Left see them as tacitly condoning the continued use of fossil fuels.
So, what to do? One of us (Matt S.) and coauthor Gordon H. Hanson propose a solution that Foreign Affairs has kindly published in its March/April issue. This essay, “How Commerce Can Save the Climate: The Case for a Green Free Trade Agreement,” argues that under the auspices of the World Trade Organization, countries should expedite necessary inventions and lower the cost of green products by establishing an accord that liberalizes trade in green-tech products, investment in environmental industries, and the immigration necessary to foster entrepreneurship and build skilled workforces.
Think of this as a green technology version of the Information Technology Agreement (ITA), a WTO deal initially signed by 29 countries in 1996 that eliminated tariffs on hundreds of IT goods. The ITA eventually expanded from 29 to 82 countries, covering roughly 97 percent of world trade in high-tech products. In 2015, over 50 members concluded an auxiliary IT agreement, known as ITA-2, that widened coverage to an additional 201 products valued at over $1.3 trillion a year. The ITA remains the WTO’s most comprehensive free-trade agreement.
The ITA helped spur innovation, trade, and investment around the world. Through the agreement, companies invented new goods and services and then grew global production networks to scale up, reduce costs, and benefit from comparative advantage. And in addition to the ITA’s cross-border flows of products and capital, the migration of highly talented people contributed to the success of the ITA industry. Between 1995 and 2005, a quarter of all U.S. high-tech startups had at least one foreign-born founder. In 2005, these new companies employed 450,000 people and generated more than $50 billion in sales.
03/29/2023 | Matthew J. Slaughter and Matthew Rees | Tuck School of Business at Dartmouth

Inclusive GVCs for Resilient Global Trade and Investment

Global Value Chains (GVCs) have played a crucial role in securing the development of the world economy since intermediate commodities, services and capital goods account for more than 70% of international trade. As a result, GVCs have given nations a way to industrialize at a much earlier stage of development as producing enterprises opt to outsource portions of the production value chain to nations with lower labor cost or where other locational benefits provide the entire GVC a competitive cost advantage. 
Rapid economic expansion, generally accompanied by increased trade, has reduced income disparities and levels of inter-country inequality. The Sustainable Development Goals (SDGs) and the 2030 UN Agenda for Sustainable Development both specifically mention the role trade plays. However, the impact of trade on inequality may not be consistent. National and multinational policy also play a major role in the differences in outcomes. For instance, the regulations controlling market access and entry conditions and the uneven distribution of earnings across value chains in a trade scenario may benefit certain countries while harming others. 
Therefore, a new approach to trade policy should be considered in the context of growing inequality and advancement towards the SDGs. Such disparities have been made worse by the COVID-19 pandemic and trade disruption, which has had a significant negative impact on MSMEs. Hence, the post-pandemic trade policy should promote MSMEs’ integration into the global market, allowing them to compete more effectively on a global scale. 
International Trade 
The years preceding the pandemic saw a drop in international trade growth. From 1990 to 2010, the contribution of trade to the global GDP grew at a 2% but shrank by around 0.9% between 2010 and 2020. That trend was somewhat accelerated by the pandemic. Notably, 2020 saw the largest trade and output volume declines since World War 2. In the first half of 2020, both global industrial production and goods commerce decreased. 
Despite tensions and policy uncertainty, the global trade is expected to grow by 2 to 4% in 2022, closely tracking the expansion of the global economy. However, a convergence of continued supply chain issues like aggressive monetary policy, reduced demand for consumer durables and elevated freight costs would cause a substantial downturn starting in 2021. 
Although the global economy was on the road to recovery after the pandemic, most of the G20 countries are forecasting a considerable output gap for 2023 compared to the pre-COVID trend.
03/28/2023 | Confederation of Indian Industry


WTO Global Trade and Politics, Managing Turbulence

Excerpt from write up of the Camden Conference that featured, among others, Jennifer Hillman, a speaker at WITA’s upcoming panel on Role of the WTO in a Net Zero Future. Information on that event can be found below.
It was quite wonderful to see old friends and to catch the energy in the air again from yet another global challenge, namely, Global Trade and Politics: Managing Turbulence…
It took some work to tease out a central message in such a sprawling set of issues and the several different perspectives represented in the panel…My take would go something like this: The global trade system is wracked with disagreement and dispute. The World Trade Organization, charged with setting the rules and enforcing them, is emasculated and ineffective. The United States’ unabashed love for free trade over the past 20 years has been dashed by largely unforeseen difficulties in finding meaningful work for all those in manufacturing jobs that were shipped overseas The Biden Administration’s efforts to re-shore manufacturing jobs could make all of this much worse with the subsidy policies embedded in the Chips Act, the Deficit Reduction Act, and the Infrastructure Act. Nonetheless, free trade remains good, essential, and will somehow survive.
Oh, and amongst all the PhD’s at the Conference was the inevitable politician, John Sununu, former senator from New Hampshire, who confirmed that the Congress had neither the appetite nor the will to address the problems associated with trade issues.
All of this may sound pessimistic, but you would be wrong to infer this from my summary. One of the standouts among an array of standout speakers, Jennifer Hillman, was unabashedly optimistic. Dr. Hillman, a veteran of trade dispute resolution from years as Commissioner at the U.S. International Trade Commission and the UTO’s appellate body for dispute resolution, radiated a compelling balance of fact and understanding with a resolute belief that progress through the tangle of challenging issues was possible.
Indeed, though the discussions were lively and diverse, the prevailing view of the panelists was that the world would figure out a way to muddle through without damaging essential global trade patterns. All agreed that the Camden Conference setting and dialogue somehow breathed more life into this debate.
Nonetheless, many acknowledged that the substantial progress in raising standards of living in much of the developed world, driven by “free trade” over the past 20 years, was now jeopardized by the failure of the champions of free trade in the U.S. to recognize the serious impacts of the hollowing out of jobs and opportunity in many parts of America.
Several panelists noted that the Scandinavian countries were the best examples of dealing with the disruptive effects of free trade. There the social safety net and extensive retraining and job support has cushioned the effects of loss of manufacturing jobs. Not so in the U.S., where our political system has been unable to come up with effective solutions — and the political cost to the Democratic party has been significant. There were many reasons given for the U.S. failure. The simplest was cited by New York Times global economics editor Peter Goodman who said “We don’t tax rich people in America.”
02/23/2023 | Ron Bancroft | The Courier-Gazette

Treasury Releases Proposed Guidance on New Clean Vehicle Credit

Except from the U.S. Treasury’s proposed guidance on the new clean vehicle provisions of the Inflation Reduction Act, including a proposed set of principles for identifying the set of countries with which the United States has a free trade agreement in effect.
The Notice of Proposed Rulemaking (NPRM) provides clarity and certainty to manufacturers on the Inflation Reduction Act requirements that vehicles eligible for the clean vehicle credit undergo final assembly in North America and do not exceed a Manufacturers Suggested Retail Price of $80,000 for a van, pickup truck, or sport utility vehicle, or $55,000 for any other vehicle.
Building on the anticipated approach detailed in a white paper released in December, the NPRM also explains how manufacturers may satisfy the critical mineral and battery component requirements under the Inflation Reduction Act.
To be eligible for a $7,500 credit, clean vehicles must meet sourcing requirements for both the critical minerals and battery components contained in the vehicle. Vehicles that meet one of the two requirements are eligible for a $3,750 credit.
…The NPRM also details a proposed set of principles for identifying the set of countries with which the United States has a free trade agreement in effect, since this term is not defined in statute. This term could include newly negotiated critical minerals agreements. 
Agreements would be considered based on whether they reduce or eliminate trade barriers on a preferential basis, commit the parties to refrain from imposing new trade barriers, establish high-standard disciplines in key areas affecting trade, and reduce or eliminate restrictions on exports or commit the parties to refrain from imposing such restrictions on exports, including for trade in the critical minerals contained in electric vehicle batteries.
Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore are included in the NPRM.
03/31/2023 |United States Department of the Treasury

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