WITA’s Friday Focus on Trade – May 5, 2023




WITA Webinar: Finding Synergies on Carbon Border Adjustment Mechanisms

On Friday, May 5, WITA hosted an online event to discuss efforts at the WTO, OECD, G7 and other institutions and governments to develop policies that seek to leverage trade to deploy cleaner energy and technology while avoiding unilateralism and counter-productive trade disruptions. Discussants provided a better understanding of the multiple workstreams, priorities and synergies in discussion of CBAM and environmental subsidies.
Featured Speakers:
Ken Ash, Visiting Fellow, Institute for International Trade, Adelaide; and former Director of Trade and Agriculture at the OECD
Mark Linscott, Senior Fellow at the Atlantic Council and Senior Advisor at the Asia Group; and former Assistant USTR for WTO and Multilateral Affairs
Catrina Rorke, Executive Director, Center for Climate and Trade; Senior Vice President for Policy and Research, Climate Leadership Council
Ludivine Tamiotti, Secretary to the Committee on Trade and Environment at the WTO
Moderator: Alice Slayton Clark, US Council for International Business, VP, International Investment and Trade Policy
05/05/2023 | Washington International Trade Association | Trade & Environment Series Sponsored by Silverado Policy Accelerator

Strengthening Regional Supply Chain Resiliency Through the Indo-Pacific Economic Framework (IPEF)

In recent years, supply chain disruptions have become commonplace, resulting in governments and businesses rethinking long-held strategies, such as “cost and efficiency,” “just-in-time,” and “offshoring.” Facing shortages of products ranging from personal protective equipment (PPE) to automotive semiconductors, governments have had to mobilize quickly to deal with crises, often cobbling together a series of temporary and ad hoc measures. However, it has become clear that no country can prevent or cope with these disruptions alone. A collective approach, especially among like-minded countries, can greatly enhance supply chain resiliency and security.
The Indo-Pacific Economic Framework (IPEF) is one of the most promising international economic negotiations for addressing supply chain issues. Launched by the Biden administration in May 2022, IPEF is a blueprint for U.S. economic engagement in the region with 14 partners representing 40% of global GDP. Of its four pillars, the Supply Chain Pillar has attracted considerable attention. In many ways, this area is a clean slate, paving the way for creative thinking on rules and cooperation mechanisms to minimize disruptions.
IPEF negotiators are making meaningful on their supply chain work, with early harvest agreements possibly being announced in late May this year, around the time of the APEC Ministers Responsible for Trade (MRT) meeting in Detroit, Michigan. With this in mind, we recommend a series of proposals to strengthen and expand the work of IPEF, both on a sector-wide basis and on critical minerals and materials, which could serve as a pilot for work in other sectors.
We recommend important elements that should be included in an “early warning system” and “crisis response mechanism” to make these tools as robust and impactful as possible. We also suggest that IPEF members agree to World Trade Organization plus rules to deter the imposition of export restrictions and facilitate customs processing and essential cross-border movement of products and people during times of supply chain shortage. Finally, we underscore the benefits of supply chain connectivity and co-investment opportunities that can be generated through work in this pillar, especially for the developing country members of IPEF.
Regarding critical minerals and materials, we offer several recommendations to cooperate on supply chain mapping, as well as streamlining and harmonizing regulations and standards. Furthermore, we suggest developing a “swap system” to be drawn from the financial “currency swap” mechanisms as a collective response that encourages countries to share their stockpiles during times of severe supply crises. Finally, we propose that Washington negotiate critical minerals and materials agreements similar to the one recently signed with Japan to make other IPEF members eligible for electric vehicle tax credits under the Inflation Reduction Act.
05/01/2023 | Han-Koo Yeo and Wendy Cutler | Asia Society Policy Institute

Of Bytes and Trade: Quantifying the Impact of Digitalisation on Trade

Excerpts from OECD policy paper quantifying the impact of digitalisation on trade.
This paper provides an overview of the evolving nature of digital trade and digital trade policies. It shows that digital trade has been growing faster than “non-digital” trade. By 2018, 24% of global trade (USD 5.1 trillion) could be considered digital trade. In parallel, countries have embraced digital trade provisions in trade agreements and new digital economy agreements have emerged. The empirical analysis shows that growing digital connectivity delivers a double dividend, increasing both domestic and international trade.
It also shows that digital trade chapters have the potential to double the effect of trade agreements, while reductions in domestic barriers affecting digital trade have a strong export-enhancing effect, particularly in digitally-deliverable services. Overall, the results suggest that digital connectivity and digital trade policies play a significant and growing role in reducing trade costs and increasing trade across countries at all levels of development. The paper calls for wider participation and ambition in discussions at the WTO.
…The results presented herein suggest that digital trade is not only growing but also changing. They also underscore an evolving regulatory environment. Since 2000, almost one in two new trade agreements signed has an e-commerce provision. However, uptake by middle-income countries has been slower and shallower than that of high-income countries. Low-income countries have, to date, not taken part in these at all. 
More recently, new Digital Economy Agreements are emerging. These cover a wider range of issues, going beyond what is covered in many digital trade chapters, including co-operation on artificial intelligence, underwater cables, digital identity and open government data. In parallel, discussions on digital trade are underway between 88 countries at the Joint Initiative on e-commerce with issues covered being similar to those appearing in e-commerce chapters of RTAs.
Against the backdrop of growing international discussions on digital trade, there has been an overall tightening of domestic regulatory approaches, albeit with differences across regions. The African region appears to have the most restrictive environment for digital trade, but there is evidence of ongoing liberalisation. In turn, OECD countries have the lowest level of restrictiveness, but the trend is towards tightening regulation.
To date, the magnitude of digital trade and the impact of these policies has been difficult to capture, largely due to measurement difficulties. However, using proxy variables, this paper has shown that digital trade could represent as much as 24% of all trade. In some countries, digital trade represents more than half of total exports.
Where impact of digitalisation on trade is concerned, the paper shows that digital connectivity not only plays a statistically significant role in reducing trade costs and therefore increasing trade, but that this effect is growing in time. The paper also highlights that there is a double dividend from increasing digital connectivity, raising both domestic and international trade for countries at all levels of development. It also shows that digitalisation matters across all sectors of the economy, including agriculture and food as well as manufacturing activities.
Last, but certainly not least, this paper shows that digital trade policies matter. Indeed, having a trade agreement with an e-commerce chapter is seen to double the benefits of an RTA, however the results are sensitive to the depth of these provisions. More work in this area is required to better capture the impact of e-commerce provisions on trade. Moreover, domestic policies, especially those that affect electronic transactions and infrastructure and connectivity, have a quantitatively important and significant trade reducing effect.
The paper makes a particular effort to identify the extent to which these issues differ across countries at different levels of development. It finds that, largely, there is a strong case for both developed and developing countries to engage in wider digitalisation and liberalisation of digital trade. While the paper does not extensively cover low-income countries due to data challenges, evidence using the ITPD-E database suggests that digital connectivity is an important contributor to trade flows in lower-income economies.
Overall, the findings from this paper support the idea that countries at all levels of development have much to gain from embracing the digital transformation for trade. This underscores the importance of a wider and more ambitious engagement in digital trade policy discussions, whether in trade agreements, emerging digital economy agreements or in discussions at the Joint Initiative on e-commerce at the WTO.
05/03/2023 | Javier López González, Silvia Sorescu and Pinar Kaynak | OECD


Tricks of The Trade: Strengthening EU-African Cooperation on Trade in Services

Despite the growing importance of services in the global economy, Europe’s trade cooperation with Africa is almost exclusively focused on commodities and other primary goods. Services – which range from banking and insurance to transport – are largely missing from Europe’s trade and development cooperation agenda with Africa. Yet the services sector has outstripped the primary and secondary sectors in their contribution to African output, making up more than half of the continent’s gross domestic product (GDP). The rapid expansion of information and communication technology (ICT) and the digital economy, the ‘servicification’ of manufacturing, and the cross-border fragmentation of production processes make trade in services more important than ever before for industrialisation and integration processes.
Services not only enhance participation in trade and global supply chains, they also contribute to more equal and diversified growth. More women, young people, and micro enterprises operate in the services sector than in agriculture or manufacturing. Expanding opportunities in services is therefore particularly important for creating more inclusive employment. The high costs of energy, transport, logistics, and other backbone services across Africa make the production of goods and services expensive, impeding the competitiveness of firms across all sectors. Trade in services is a powerful tool to increase the efficiency and reliability of services, which in turn brings down production costs across the economy and facilitates diversification – and its importance goes beyond trade to offer possibilities for structural transformation.
A stronger services trade between the European Union and Africa would allow European multinationals to near-shore their production processes and diversify away from Asia-focused supply networks. As barriers to trade in services are embedded in domestic regulations, trade agreements covering services entail a degree of cooperation and shared understanding. Improved trade in services would also allow the EU to influence regulatory models across various sectors. China and other non-Western powers wield significant economic influence in Africa, which they can use to shape regulatory processes and influence standards in their favour. Faced with geopolitical competition with China, the EU should be wary of this influence. In this regard, trade cooperation on services could be a powerful means for the EU to nurture a shared understanding with African countries on economic, environmental, digital, and social goals.
03/09/2023 | Iza Lejarraga | European Council on Foreign Relations

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