WITA’s Friday Focus on Trade – July 14, 2023




DDG Ellard: Technology Presents Challenges and Opportunities for Future of Trade


Deputy Director-General Angela Ellard is one of the honorees at this year’s 2023 WITA/WITF Annual Dinner. While the dinner itself is sold-out, reception only tickets are still available!

Technological developments can unlock new opportunities for businesses and individuals around the world. To realize this potential, we need to understand how to harness new technologies to make sure that they translate into job creation, economic growth, and helping to deliver Sustainable Development Goals in line with the WTO’s stated mission to improve living standards.

There is no doubt that the future of trade is inextricably linked to digital technologies. According to WTO estimates, global exports of digitally delivered services have more than tripled since 2005. Between 2005 and 2019, the average annual growth rate of digitally delivered services reached 7.3%. By contrast, other services exports grew only by 5.6%, and goods by 4.7%. During the pandemic, exports of digitally delivered services further increased by 14% year-on-year, and e-commerce sales soared.

…First, at our 12th Ministerial Conference last June, WTO Members agreed by consensus to extend the longstanding moratorium on customs duties on electronic transmissions until our next Ministerial Conference, in one year. This outcome was fundamental to preserving a trade policy environment that is supportive of e-commerce and is of tremendous importance for many businesses.

But because this moratorium is set to expire in a year, discussions will continue in the coming months to address the gap between developed and many developing countries on the one hand, and some developing countries on the other, who see the moratorium as detrimental to raising revenue and addressing the digital divide in ecommerce.

At MC12, Ministers also agreed to reinvigorate work under the work programme on electronic commerce, a longstanding effort aiming to address all trade-related issues relating to global e-commerce. This work includes development-related issues, such as digital divide in terms of digital infrastructure, connectivity, and capacity building.

Second, there is a lot of attention these days on the plurilateral joint initiative on e-commerce. Eighty-seven WTO Members, including many developing countries, participate in this initiative to develop baseline rules to govern the global digital economy. In particular, Members seek common disciplines to facilitate remote transactions and strengthen trust in digital markets while helping to tackle digital trade barriers. Members are aiming to conclude them by the end of the year.

It is significant that developed country Members participating in the initiative recognize the importance of inclusion and the barriers faced by developing and least developed countries seeking to benefit from the digital economy. In this regard, the ‘E-commerce Capacity Building Framework’ launched by Australia, Japan, Singapore, and Switzerland is a key step to strengthen digital inclusion and to help harness the opportunities of digital trade. The Framework will offer a wide range of technical assistance, training, and capacity building to support countries’ participation in the e-commerce negotiations.

…My last point is that technology is also at the heart of many trade tensions today. In 1989, the former U.S. Secretary of Defence Harold Brown wrote a paper on U.S. – Japan technological competition, which was aptly titled “High Tech is Foreign Policy”. This is again the case today. For many countries, technology is at the heart of foreign policy, national security, and geopolitical tensions.

02/14/2023 | Angela Ellard | World Trade Organization

Section 232 Reloaded: The False Promise of The Transatlantic ‘Climate Club’ For Steel and Aluminum

In using the removal of Section 232 ‘national security’ tariffs on steel and aluminium imports as a bargaining chip, the United States demands that the European Union engage in negotiations on “global steel and aluminium arrangements to restore market-oriented conditions and address carbon intensity”. The US demand has reportedly been inspired by a blueprint that would establish an international institutional arrangement – labelled a ‘climate club’ – which would externalise market-access restrictions afforded by US Section 232 tariffs to the customs borders of club members. While the declared objective is to incentivise non-members to adopt low-carbon steel (and aluminium) production methods the US blueprint suffers from various design flaws including inefficient incentives, WTO inconsistency and incompatibility with the EU Carbon Border Adjustment Mechanism.

The effectiveness of the proposed US scheme is severely compromised by the plethora of policy objectives it pursues, which go far beyond the goal of incentivising industrial decarbonisation in third countries, including secondary (ie protectionism) and tertiary (ie global power competition with China) objectives. The initial negotiation proposal submitted by the United States Trade Representative (USTR) to European Commission trade negotiators incorporates many if not all the problematic elements of this blueprint, setting the US on a collision course with the negotiation proposal put forward by the European Commission. This paper concludes that the adoption of the scheme proposed by USTR would result in a step backwards for international climate and trade cooperation, whereas not adopting the EU proposal would make for a missed opportunity. Given the sharply diverging negotiation positions and associated respective domestic constraints on both sides, however, policymakers should start to engage stakeholders now to manage expectations towards a low-ambition negotiation result, if any.

…A transatlantic arrangement for steel and aluminium to address carbon intensity is an opportunity for the US in particular to align its climate and trade policies progressively with the EU standard and best practices, which are laser-focused on creating efficient incentives for abatement at home and abroad, as well as achieving effective decarbonisation and carbon-leakage policies. At the outset, a carbon customs union or a common methodology for ‘carbon tariffs’ is not the right way to achieve this objective….

Priority should be given to cooperation on prerequisites of carbon-leakage policies, including first and foremost, the joint development of methodologies for pricing and measurement of carbon emissions, industrial transformation/ decarbonisation roadmaps with specific timeframes, and transatlantic green procurement and investment initiatives. Once pricing and measurement methodologies and product standards have been developed and enacted, members could consider the progressive development of an international CBAM network along the lines of best practices that facilitate and reinforce the operation of individual CBAMs operating in different jurisdictions. Cooperation with non-club members to similar ends, and the provision of technical and financial assistance through a greening of aid for trade, would support the ambition for leadership by example through an open and inclusive climate cooperation platform

Read the Full Article Here
07/10/2023 | David Kleimann | Bruegel

Mexico Seeks To Solidify Rank As Top U.S. Trade Partner, Push Further Past China

Excerpts from Luis Torres’s analysis on Mexico seeking to solidify rank as top U.S. trade partner.

Mexico became the top U.S. trading partner at the beginning of 2023, with total bilateral trade between the two countries totaling $263 billion during the first four months of this year.

Mexico’s emergence followed fractious U.S. relations with China, which had moved past Canada to claim the top trading spot in 2014. The dynamic changed in 2018 when the U.S. imposed tariffs on China’s goods and with subsequent pandemic-era supply-chain disruptions that altered international trade and investment flows worldwide.

Mexico positioned as a manufacturing base

Mexico’s expanding manufacturing base has offered an alternative to producing in China. Sourcing or producing goods in a nearby country is sometimes referred to as “nearshoring.” While data on recent nearshoring is thin and evidence of it is largely anecdotal, increased protectionism and related industrial policy are consistent with less global trade, more regional trade, and nearshoring and reshoring (returning production to the home country).

More activity in Mexico would support increased bilateral manufacturing with the U.S. It would also bolster Mexico’s standing as the U.S.’ leading manufacturing trading partner, a ranking it achieved in 2022.

Automotive industry plays key role

The automotive industry is an especially active example of the cross-border manufacturing relationship. A U.S. plant typically produces an intermediate good that is then exported to Mexico where it becomes part of the assembly process before a final good is then imported back into the U.S.

The supply trade linkages are supported by the presence in Mexico of foreign-owned, labor-intensive assembly plants for export—the so-called “maquiladoras” Over the past 20 years, transportation has accounted for about 24.5 percent of total bilateral manufacturing trade, followed by computer and electronic equipment, 22.4 percent; electrical equipment, appliances and components, 8.5 percent; and machinery (excluding electrical), 7.7 percent.

While Mexico benefits from increased trade with the U.S., the impact on U.S. producers and consumers has been mixed. To the extent that frictions with China account for Mexico’s ascension in the trade rankings, the higher profile comes at a cost to U.S. firms and consumers through higher input and purchase prices.

While the principal focus of trade policy was once free trade, greater efficiency and lower prices, that may no longer be the case. Today’s global economic relationships encompass a myriad of concerns, among them national security, climate policy and supply-chain resiliency.

Read the Full Analysis Here
07/11/2023 | Luis Torres | Federal Reserve Bank of Dallas

The Scramble for Critical Raw Materials: Time to Take Stock?

It surprised us that much of the trade policy-related narrative concerning critical raw materials has little basis in fact. Analysts and officials need to take stock of the current scramble for critical raw materials—and, ultimately, revisit assumptions about the factors most likely to prevent long-term supply of critical raw materials from growing to meet growing demand.

Even in the absence of geopolitical rivalry, the challenges associated with scaling up supply of raw and processed critical raw materials to meet higher levels of demand would have been formidable. Complicating factors include fundamental uncertainty as to the pace of the digital and energy transitions, with their knock-on effects for both how much material will be needed and, quite possibly, which materials are needed in greater quantities in the first place.

On top of this are geological considerations including the fact that some critical raw materials are byproducts of other less-wanted materials, that long time frames needed to bring some mining facilities online, and the central roles that uncertainty and difficulties in financing play in scaling up production. Without denying the contribution that greater recycling and the adoption of circular economy practices can make, on its current trajectory, supply expansion for most critical raw materials is likely to be sporadic.

One consequence is that periodic outbreaks of market disruption are on the cards. Whichever long-term strategies are adopted by governments need to be designed with this disruption in mind. Opportunists should not be allowed to capitalise on any short-term shortages, price hikes, and the like. Anyone expecting or demanding that markets for critical raw materials unfold over time in a predictable manner simply hasn’t read enough about the mining industry. This is going to be messy. Yet, we do not counsel despair.


Read the Full Report Here

07/05/2023 | Simon J. Evenett & Johannes Fritz | Centre for Economic Policy Research


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