WITA’s Friday Focus on Trade – July 7, 2023




To Decouple, or To De-Risk? That Is The Question

As often happens in diplomacy, the communique the G7 leaders issued in May from their meeting in Hiroshima ducked a key question: What is the difference between “de-risking,” which the communique expressed approval of, and “decoupling,” which it disapproved?
The G7 statement didn’t define those terms. It didn’t even mention that the foremost object of both decoupling and de-risking is China. That’s diplomacy for you.
The leaders of the seven countries (the United States, the United Kingdom, Canada, Japan, Germany, France and Italy) simply said they were coordinating their approaches to economic resilience and economic security “based on diversifying partnerships and de-risking, not decoupling.”
The leaders of the seven countries (the United States, the United Kingdom, Canada, Japan, Germany, France and Italy) simply said they were coordinating their approaches to economic resilience and economic security “based on diversifying partnerships and de-risking, not decoupling.”
As often happens in diplomacy, the vagueness was intentional. It conveniently papered over differences between the U.S. and some of its allies. “Economic resiliency” and “economic security” are diplo-speak for avoiding overreliance on China (and to some extent Russia) for key products and avoiding supplying those countries with strategically sensitive technologies.
On the surface, decoupling (the trendy word until recently) implies taking separation from China further than de-risking (the European Commission president’s word). De-risking suggests diversifying, ending exclusive reliance on China, rather than withdrawal.
In practice, though, much of the decoupling to date has also been diversification. For communique purposes, the difference between decoupling and de-risking is semantics. That’s why the U.S. could agree to the communique even though there are real differences between the U.S. and its allies in their concerns about reliance on China.
Those differences reflect their differing geopolitical situations, especially with regard to Taiwan. A Chinese military attack on the island seems increasingly possible — possible enough that U.S. officials have to plan for it even as they pray it never happens.
Washington’s allies don’t. In the event of an attack, Japan could end up supporting the U.S., at least logistically. It’s a prisoner of its history and geography. The European allies would be far less inclined to see an attack on Taiwan as their problem. They might be cajoled into joining a coalition of the willing, but that is far from guaranteed.
The U.S., then, has greater reason to worry about providing China with technologies that strengthen it militarily. It has more serious fears of being cut off by China from critical products during hostilities.
When governments are planning for war, national security ranks higher in their concerns than economic efficiency. This can be a hard swallow for those who believe, as many in exporting sectors like agriculture do, that financial markets allocate capital more efficiently than governments and free trade produces the best economic outcomes?
05/17/2023 | Tobias Gehrke & Julian Ringhof | European Council on Foreign Relations

Miles Apart:
The US and Europe Diverge on China Car Threat

On August 3, WITA and the Asia Society Policy Institute will hold an online event to discuss the future of Chinese automobile manufacturing and trade. Information can be found here and below.
Chinese electric cars are coming — and the U.S. and Europe are split dramatically on how to respond.
On both sides of the Atlantic, the push to move beyond the internal combustion engine is creating a giant strategic opportunity for China, whose carmakers already dominate global markets for batteries and clean-energy technology.
From there, the responses of policymakers diverge, as U.S. protectionism contrasts with the European Union’s low tariffs and generous national subsidies for battery-powered imports. But in both Washington and Brussels, the threat of China taking over yet another industry is becoming an issue governments cannot ignore — and it’s shaping debates about jobs, trade and the fight against climate change.
“The U.S. has not outright hung up a ‘Do Not Invest’ sign, but we have made it clear we are anxious about Chinese car companies,” said Scott Kennedy, an expert in Chinese economic policy at Washington’s Center for Strategic and International Studies. “Europe has been much less interventionist and more supportive.”
The U.S. imposes a stiff 27.5 percent tariff for Chinese-made cars — put in place during Donald Trump’s presidency — and has buttressed that with the protectionist tax credits of President Joe Biden’s Inflation Reduction Act, which put a premium on car and battery production in North America. In addition, hostility toward Beijing from leaders in both political parties would make it difficult for Chinese carmakers to penetrate the U.S. market, at least openly.
Meanwhile, Europe’s moves have, intentionally or not, provided a strategic opening for China’s start-up car brands. The bloc’s tariffs on imported cars are only 10 percent, and European national subsidies for electric vehicles apply to imports as well as domestically made cars and trucks.
The attraction of the European market for electric vehicle makers is magnified by the EU’s recent decision to ban the sale of new combustion engine cars starting in 2035 — a decision the U.K. has also followed.
That’s why it’s possible to see a BYD-branded car in Dusseldorf, but unlikely in Dallas. BYD, a maker of both clean cars and the battery cells that power them, sold nearly 2 million cars last year (way more than Tesla). It’s one of many Chinese brands moving into the European market.
“Europe’s [electric vehicle] market is comparatively far more open than those of China and the U.S., where national or regional assembly is a prerequisite to qualify for purchase subsidies and import duties on foreign vehicles are higher,” said a recent report by the Allianz insurance company on the threat Chinese carmakers pose to the EU.
Read the Full Article Here
06/23/2023 | David Ferris and Joshua Posaner | Politico

Chinese Car Makers are Becoming Shipping Companies

Is BYD, the Chinese electric vehicle giant, turning into a shipping company?
As it aggressively pushes into markets overseas, BYD has ordered at least six massive car carriers, ships that can transport thousands of cars at a time. In part, BYD’s move reflects a keen frustration of the Chinese auto industry. Over the past two years, just as China’s vehicle exports boomed, pandemic-related supply chain snarls led to acute shortages of space on cargo ships.
Now, BYD appears to be maneuvering not only to ship its own products but also to offer global shipping services to other car manufacturers. Think car company meets ship owner meets shipping logistics provider, all rolled into one.
BYD has made no public statements about its foray into shipping. But a recent update to information about the company on Tianyancha, China’s database of companies, offers some clues.
According to a time-stamped update last month, BYD Auto Industry, a subsidiary of the broader BYD group, expanded a paragraph on the scope of its commercial activities. The section now lists activities not usually associated with a car manufacturer: ocean carrier operations, freight forwarding, international shipping agency services, and port cargo handling. (BYD did not respond to a request for comment from Quartz.)
The Tianyancha update suggests that BYD is looking to establish a foothold in global shipping. And it represents yet another push by the company to establish its dominance up and down the automotive supply chain.
BYD has honed its vertical integration strategy for years, having started out as a mobile phone battery maker before manufacturing other electronics, auto components, and finally electric vehicles. That playbook has served it well in the competitive EV field.
“[BYD] has mastered the core technologies of the whole industrial chain of new energy vehicles, such as batteries, motors and electronic controls,” Wang Chuanfu, BYD’s chairman, once told Forbes.
Already, BYD is looking to buy lithium mines in Africa and has secured a contract for lithium extraction in Chile, since lithium is integral to EV batteries. BYD has become a leading producer of EV batteries, even supplying competitors like Tesla and Toyota, and is expanding its battery production capacity from about 285 Gigawatt hours (GWh) in 2022 to an estimated 445 GWh by the end of this year.
“BYD is probably the most vertically integrated [car] company,” said Lei Xing, a US-based auto analyst and co-host of the podcast China EVs and More. “There’s nowhere else to turn to vertically integrate more than to [buy] your own ships… And it’s not out of the question that BYD becomes a provider that they can ship for other people, competitors.”
BYD isn’t the only Chinese car maker that’s getting into the shipping business.
Last July, SAIC Motor, the state-owned automaker, partnered with the Chinese shipping giant COSCO and the port operator Shanghai International Port Group to set up Guangzhou Yuanhai Car Carrier Transportation, described as a “vehicle supply chain” company.
For China, expanding its homegrown vehicle shipping capacity is seen as critical to growing the global footprint of its automotive industry.
Read the Full Article Here
01/04/2023 | Mary Hui | Quartz

International Trade and Artificial Intelligence:
Is Trade Policy Ready for Chat GPT?

On July 27, the WITA Academy will host an online workshop on Artificial Intelligence and Trade Policy. Information can be found here and below.
Beyond merely providing an additional impetus to liberalize international trade, AI presents several policy gaps that current rules cannot address.
The rise of AI brings a familiar problem in the form of the goods–services distinction, which has proven difficult in the case of digital goods, for example. Although World Trade Organization (WTO) case law has shed some light on how to determine if a product is a good or a service, the WTO’s work program on electronic commerce—which was meant to settle the question more conclusively—is still being negotiated after 25 years. As AI is incorporated into more goods (think self-driving cars and AI robotics), it will become increasingly important to establish universal rules to determine whether General Agreement on Tariffs and Trade or General Agreement on Trade in Services (GATS) commitments dictate. The current patchwork that has emerged in the form of free trade agreements creates a fragmented landscape that is likely to boost the cost of trade.
Where AI can clearly be considered a service, other issues emerge. GATS market access commitments for certain professions including accounting, legal services, or medical services are often tied to certification requirements or legal personhood. This poses problems for AI systems such as legal tool Harvey or even Chat GPT (which recently passed the bar exam). Can such systems be said to have received education and training such that they are covered by GATS commitments? Similarly, where GATS commitments are based on legal personhood, does this exclude AI systems? Would this also be the case in a situation where a form of electronic or digital personhood is adopted for AI systems, as has been suggested in the European context?
Another GATS-related problem concerns the four modes of delivery: cross border, consumption abroad, commercial presence, and the presence of natural persons. These modes are ill-adapted to products that have AI embedded in them, like self-driving cars, smartphones, or medical devices. Such products create a market access issue for services trade, which, according to the GATS, is not supposed to be subject to tariffs. However, services that are embedded into goods are liable to tariffication because the value of the services is included in the cost of the final product for which a tariff is levied. Software bought online and delivered through mode 1 is not tariffed, for instance, yet the same software, when installed on an imported computer, will effectively be tariffed, given that the customs value of the computer includes the value of the software. This has led some to call for the addition of a 5th mode of services delivery, meant to capture the services content embodied in goods exports. In 2009, the European Union’s estimated mode 5 services exports amounted to EUR 300 billion. A 2017 study, meanwhile, suggested that multilateral liberalization of mode 5 trade could increase world trade by EUR 500 billion. Though some attempts have been made to include mode 5 facilitation in bilateral agreements, this has not been attempted at the WTO.
Lastly comes the issue of intellectual property. AI is producing graphics, poetry, and even music—all of which are the legal purview of intellectual property rights (IPR). In the context of international trade, it is the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) that sets minimum standards for the protection and enforcement of IPR. Unfortunately, the TRIPS agreement does not define how to deal with AI-generated works, and individual members have taken different approaches in their domestic legislation, ranging from full protection of AI-generated works to a requirement of human creativity that effectively leaves such works unprotected. This patchwork is likely to become increasingly unsatisfactory as the share of intellectual property—both copyright and patents—generated by AI and traded across borders continues to rise.

Read the Full Policy Analysis Here

04/14/2023 | Pascal Krummenacher | International Institute for Sustainable Development

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