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Talking Trade blog

Business must remain engaged and vocal on trade

Published 02 August 2016

An increasingly popular narrative says that business “always gets what they want.” Trade and trade agreements are now being rejected precisely because they are assumed to be creations of multinational companies.

One irony—from the vantage point of someone sitting in Singapore—is that businesses in Asia are often not represented well (or really at all) in many trade agreements.  In fact, the motivation for creating the Asian Trade Centre two years ago was exactly because governments in the region were not talking enough to companies in the region and vice versa. 

In the past, much of the disconnect between business and government could be found in developing countries.  But now the gap seems to be growing in the developed world as well.  This is a very worrisome trend that should be deeply alarming to companies of all sizes and shapes.

Firms cannot assume that government policies will remain benign.  Companies cannot keep their heads down, their “powder dry,” or hope that some other organization will do the important work of ensuring that policy and regulatory frameworks stay supportive.

Conditions can literally change overnight. 

One large multinational watched as its fifth largest global market evaporated in an instant as a result of one regulatory change.  The company had seen the policy coming, but had been repeatedly reassured that no harm would come from it—until it did.  Profits are now zero.

A version of this story can be told by nearly every company operating in Asia. 

Now, however, equally alarming policy shifts are radiating out from developed markets. 

The Brexit vote in the UK should be another wake up call to companies.  No matter how large the firm or how distant the market, policy and regulatory changes can have dramatic and potentially dire impacts on the bottom line.  Firms cannot afford to sit back and hope for the best.

Ford has already said the direct effects of Brexit will cost it US$200 million this year and a further $400-500 million per year over the next two years. It has announced price hikes on all its cars. And this follows the closure of plants across the UK and in Belgium with the loss of over 5,700 jobs. As Bob Shanks, Ford’s CFO put it, “Everything is going to be on the table across Europe.”

US presidential candidate Donald Trump’s comments could fill volumes, of course, but one recent remark in particular should be noted.  He suggested that the United States should withdraw from the World Trade Organization (WTO). 

He likely made this comment when it was pointed out to him (yet again) that his proposal to hike tariffs on Chinese-made goods would be illegal and violate US commitments under the WTO.  His solution to this problem is to simply get America out of the WTO.

This is not the time or the place to debate the wisdom of the remark or the likelihood of it happening or whether or not Congress could or would allow the US to withdraw.

Instead, all companies ought to be concerned about this line of thought no matter what happens to Trump or the US election.  Once it becomes possible for government officials (or wanna-be government officials) to even contemplate withdrawal from the WTO for a moment, things could rapidly get problematic for companies.

Firms have gotten very complacent about what WTO membership means for their own bottom lines.  The WTO, for example, ensures that tariff rates do not suddenly shoot up from 0 or 5% one day on products to 150% the next.  It creates consistency across 160+ countries in customs procedures and myriad other rules that allows firms to operate across regions and worldwide.

Like the firm that watched their fifth largest market evaporate overnight, if governments suddenly started questioning their WTO commitments, companies will see their own trade foundations collapse as well.

The same thing is true with all other large trade agreements that benefit firms the most—from the Trans-Pacific Partnership (TPP) to the Regional Comprehensive Economic Partnership (RCEP) to the ASEAN Economic Community (AEC).  None of these agreements will get done or implemented if businesses are not behind them with full-throated enthusiasm.

Government officials can get the agreements negotiated.  They can see the broader economic incentives for their country.  But they will not take potentially unpopular steps to push through reforms absent support from the very communities that should be the natural beneficiaries of such trade agreements. 

Businesses that do not support trade agreements should not be surprised when trade agreements do not move ahead.

It is not easy or popular to get internal alignment within large companies to push for resources to advocate for trade or regulatory policy work.  It is hard to show a clear and obvious return on the investment (ROI) for such engagement.  Even if the ROI is present, it will likely not show up in this next quarter or the quarter after that. 

It is much easier to assume that someone else will do the advocacy work for trade openness. 

Easier to leave the burden of promoting the trade agenda to some outfit like the US Chamber of Commerce or the EU-ASEAN Business Council and continue to focus on areas that provide obvious material benefits to the firm.  To let other companies pay for membership dues in industry associations while your own firm cuts back on non-essential purchases in tighter economic times.

But it would be shortsighted and foolish in these rapidly changing and dangerous times.

Trade and regulatory policies can change in an instant.  Profits can fall to zero overnight.

Investment now can head off dire consequences later.  Businesses have got to keep speaking up for trade.  This is not the time for keeping powder dry.  The war might be lost before a single shot gets fired.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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