Talking Trade blog
Meanwhile in global trade…
Published 05 October 2016
Much of the focus of the Asian Trade Centre and Talking Trade is, of course, on Asia. We are paying a lot of attention to the prospects for passage of the Trans-Pacific Partnership (TPP) (see our special edition today on ratification updates for all 12 member countries). We are gearing up to attend the next round of the Regional Comprehensive Economic Partnership (RCEP) in mid-October in China. And we are always watching what unfolds in ASEAN.
But we ought not lose sight of key developments elsewhere, which is why we are also following the Brexit process since it is both fascinating in its own right and will have implications for many companies across Asia.
This post, however, is an opportunity to check in with trade developments elsewhere. Since the death of the Doha Development Round of global trade negotiations at the World Trade Organization (WTO) in Nairobi in December 2015, not much activity has taken place at the systemic level. Officials across the more than 160 member countries are trying to figure out where the organization goes next.
There are, potentially, some new ideas floating around, including discussions on e-commerce and renewed enthusiasm for services trade. Both were topics of the recently concluded WTO Public Forum. Members will have to move past basic conceptual ideas and start figuring out how, exactly, they might want to address such topics in the WTO in relatively short order. A prolonged period of drift must end swiftly.
In the meantime, the body continues to struggle with locking down a few other agreements—on trade facilitation, and smaller deals with a subset of members on environmental goods and on services.
The trade facilitation agreement (TFA) was signed with great fanfare in Bali in December 2013. Nearly three years on, not enough members have yet ratified the agreement for it to come into force. So far, 94 countries have signed the deal but it cannot start until 110 have done so.
The TFA agreement has the potential to lead to significant new economic growth, since many countries have poor policies and procedures that stymie movement of goods across their borders. Delays in border crossings are not just inefficient, but cost time and money. These costs are borne particularly by smaller companies and developing countries.
The WTO is optimistic that the remaining countries will ratify the TFA by the end of this year. What may be interesting to Talking Trade readers is which countries have not yet ratified the agreement. Besides the EU, this list includes TPP members, Canada and Chile. Here in ASEAN, we are waiting on Indonesia and Philippines.
Since the TPP and ASEAN have commitments that go well beyond TFA pledges for trade facilitation, this gap is curious.
Another agreement is moving ahead slowly at the WTO on environmental goods. This does not include all WTO members, but a small subset of 17 countries.
APEC first suggested that some climate-friendly technologies might move more freely if tariffs on these products were dropped. APEC put forth a list of goods in 2012 and asked member states to drop tariffs on these products to 5% or less by 2015.
This idea was picked up by the WTO. But negotiations are now stalled over a fight between the EU and China over whether or not bicycles should be considered an environmental good.
This is rather ironic, since I used to run a simulation in my negotiations course for government officials that focused on exactly this topic. Emotions could run very high as individuals argued fiercely on both sides—while it may seem obvious that a bicycle should be labeled environmentally friendly, doing so could open the door to a much wider set of products than many are comfortable with. After all, if a bicycle is environmentally friendly, why not running shoes or skateboards?
It turns out that getting agreement on environmental goods is harder than it first appears as many products have dual uses. If the scope is widened to include services, as APEC originally had intended, the prospects for reaching agreement is even harder. If products are considered for their manufacturing processes or their recycling prospects, the problem is magnified again.
A similar agreement that includes a subset of WTO members, the Trade in Services Agreement (TiSA), is also winding its way towards a possible conclusion later this year. TiSA deserves a post of its own, but for now just the note that the 23 countries participating in the negotiations are working on updating the rules on services trade.
The WTO, after all, really last touched services in the early 1990s. Since then, services traded across borders have changed beyond recognition and have become a critically important part of most economies. Even manufactured goods contain upwards of half their value in the form of services.
Hence the need is clear to do something about services trade. Most free trade agreements (FTAs) contain chapters with rules on services and schedules that provide market access for member firms. These provisions sometimes do not go much beyond what members have committed at the WTO already. But in some cases, FTAs break considerable new ground for services (and investment).
This disconnect will need to be addressed. The global rule book is getting badly out of date. Current provisions do not match up well at all with the reality of how business is being done on the ground. While FTAs help, a patchwork of trade agreements is not the best way to address the needs of a dynamic sector of the economy.
The WTO just announced that Argentina will host the next Ministerial round in late 2017. Member governments cannot show up a year from now and begin to put into place a few more small initiatives. It really is time for the global trade regime to get out of neutral and get back into gear.
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