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Global Trade Update

By Editorial
June 10, 2015

In the history of world trade, the year 2015 could be a pivotal one, with several important bilateral, multilateral and regional free trade negotiations approaching their finish lines. This feature provides a summary of the state of play in world trade.

The Trade Facilitation Agreement

In December 2013, World Trade Organization (WTO) members concluded negotiations on a Trade Facilitation Agreement (TFA) at the Bali Ministerial Conference, as part of a wider "Bali Package." Since then, WTO members have undertaken a legal review of the text.

The TFA will create binding commitments across all WTO members to expedite the movement, release, and clearance of goods; improve cooperation among WTO members in customs matters; and help developing countries fully implement the Agreement's terms. The TFA forms part of international efforts to cut tax barriers to trade on a global basis under the Doha Round (see below).

At a meeting on March 24, 2015, more than a dozen WTO member states reported that they are close to ratifying the TFA. During the meeting, many member states expressed their desire to see the agreement enter into force by the WTO's 10th Ministerial Conference in Nairobi, which will take place on December 15-18, 2015.

However, a number of developing country members highlighted that they are still trying to overcome a number of domestic legislative hurdles to finalize their approvals. Several indicated they are not in a position to ensure ratification by the Nairobi meeting.

To date, six WTO members – Hong Kong, Singapore, the United States, Mauritius, Malaysia and Japan – have ratified the TFA, which was concluded at the WTO's 2013 Bali Ministerial Conference. Two-thirds of the WTO's 160 members will need to ratify the TFA in order for the agreement to enter into force.

Esteban Conejos of the Philippines, the Chairperson of the Preparatory Committee on Trade Facilitation (PCTF), told members he understood that a considerable number of additional WTO members have started their ratification processes. The challenge, he said, is that the process is domestic in nature and differs from country to country.

On June 4, 2015, the Organisation for Economic Cooperation and Development (OECD) said that the TFA would cut trade costs by between 12.5 percent and 17.5 percent, with the greatest benefits accruing in developing countries.

The OECD report, "2015 OECD Trade Facilitation Indicators," found that countries that fully implement the TFA will reduce their trade costs by between 1.4 and 3.9 percentage points more than those that only implement the minimum requirements. The greatest opportunities for reductions in trade costs are in low and lower-middle income countries.

The benefits estimated by the OECD are greater than previously anticipated, with earlier expectations that the TFA would lower trade costs by almost 14.5 percent for low-income countries, and by 10 percent for high-income countries.

The Doha Development Agenda

While steady progress is being made towards adoption of the TFA, the same cannot be said of the Doha Round of world trade talks, which have remained more or less stalled since 2008. Indeed, the Director-General of the WTO, Roberto Azevêdo, said on June 1, 2015, that he is concerned about slow progress in negotiating a work program to advance the remaining issues of Doha.

The Doha Round, officially known as the Doha Development Agenda in recognition of its importance of integrating developing nations into the global free trade framework, was launched in 2001. It aims to cut trade-distorting agriculture subsidies, phase out tariffs on industrial goods, open trade in services, facilitate customs operations, open trade in clean technology, adjust anti-dumping rules, and offer duty-free and quota-free access to the exports of the world's poorest countries, among many other goals. However, some emerging and developing nations remain of the view that many of the proposals on the table will benefit the economies of the developed world to the detriment of up-and-coming nations. Broadly, this is the reason why talks broke down in mid-2008 and have remained mostly becalmed ever since.

WTO members committed in November 2014 that they would agree a work program by July this year as a springboard towards the WTO's 10th Ministerial Conference in Nairobi in December.

"We are still seeing good engagement – and this is positive. We have been having detailed conversations across a range of issues, and in some areas we are seeing progress," Azevêdo said. "However, on the basis of the discussions I have had over recent weeks, I am becoming increasingly concerned that we are not making the progress that is needed in the key areas of agriculture, industrial products and services."

"Agreeing on a work program was never going to be an easy task. But as of today we are still waiting for the necessary convergence on key issues in order to deliver the outcome we need by July and to help us build towards a successful ministerial meeting in Nairobi in December," he added.

Azevêdo outlined, as he had on previous occasions, that this work will continue over the coming weeks in the WTO's various negotiating groups, through the Director-General's own consultations, and through meetings convened by members or groups of members. He reiterated his commitment to the transparency and inclusiveness of the negotiating process.

The Information Technology Agreement

During a meeting of the Information Technology Agreement (ITA) Committee on May 8, 2015 a number of countries called for the swift conclusion of negotiations to expand the agreement.

The Ministerial Declaration on Trade in Information Technology Products was concluded by 29 participants at the Singapore Ministerial Conference in December 1996. The ITA eliminates tariffs on a number of technology products, such as semiconductors, computers, and telecommunications equipment. It covers 80 countries, representing about 97 per cent of world trade in information technology products. However, the agreement's coverage has never been updated, even though there have been significant technological advances since 1996, and many IT goods are therefore now not included in the deal, such as GPS devices, flat panel displays, video game consoles, computer software, next generation semiconductors, and remote home and patient monitoring devices.

During a meeting of the ITA Committee on May 8, 2015 a number of countries called for the swift conclusion of negotiations to expand the agreement.

The European Union said that the basis for inclusion of products in the updated agreement (ITA 2) is consensus, and urged participants not to block agreement but to accept what is already on the table.

Japan called for progress to be made at the meeting of the APEC (Asia-Pacific Economic Cooperation) trade ministers in the Philippines later this month and at the June mini-ministerial on the sidelines of the OECD meeting.

The United States said it considers ITA 2 a top trade priority, adding that its IT industry as well as those of other countries, are getting impatient over the lack of agreement.

Norway, Switzerland, Canada, Chinese Taipei, Montenegro, Singapore, Colombia, Australia, and Hong Kong, China also supported the early conclusion of ITA 2.

South Korea said it is actively engaged in good faith negotiations, and said it sees the remaining gap as not big and within reach.

It was noted at the May 8 meeting that the conclusion of ITA 2 would also help the Doha Round negotiations.

Trans-Pacific Partnership

Trans-Pacific Partnership (TPP) officials last met in Maryland from April 23-26, 2015, where discussions were held on market access, intellectual property, rules of origin, investment and textiles, among others matters. Negotiators met in plurilateral, bilateral and small group formats with the objective of advancing remaining text and market access issues.

The TPP in its original form was signed by New Zealand, Chile and Singapore on July 18, 2005 and by Brunei on August 2, 2005. It entered into force on May 28, 2006 for New Zealand and Singapore, on July 12, 2006 for Brunei, and on November 8, 2006, for Chile. However, from the beginning it was intended to invite further countries to subscribe to the agreement, and in November, 2008, Australia, Vietnam, and Peru announced that they would be joining the P4 countries in the TPP, followed by the United States in November 2009 and Malaysia in October, 2010. Then in June, 2012, Canada and Mexico announced that they would join also, and did so in November after consultations between other members. Japan joined in July 2013.

The agreement is very comprehensive, covering trade in goods and services, rules of origin, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, intellectual property, government procurement and competition policy. Tariffs were reduced by 90 percent initially, and it was intended that they were to be reduced to zero by 2015. However, the negotiations have got somewhat bogged down with Japan reluctant to lower some of its high trade barriers to its agricultural sector and the US wary of giving Japan unfettered access to its automotive sector while Japan continues to protect its own car industry.

On April 28, 2015, US President Barack Obama and Japan's Prime Minister Shinzo Abe expressed their joint commitment to finalizing negotiations on the TPP.

In his remarks, Obama confirmed that the two leaders had "reviewed the progress our teams have made towards the TPP. I know that the politics around trade can be hard in both our countries. But I know that Prime Minister Abe, like me, is deeply committed to getting this done, and I'm confident we will."

"Based on the progress we've made," he continued, "Prime Minister Abe and I discussed how the United States and Japan, as the two largest economies in the TPP negotiations, will now work together to lead our TPP partners to swift and successful conclusions of the broader negotiations."

"We will continue to cooperate to lead the TPP talks through its last phase," Abe added. "We've confirmed that we would work together for the early and successful conclusion of the talks."

TPP discussions between the United States and Japan are currently concentrated on market access for Japan into the US automobile sector, and for the US into the Japanese agricultural market, although the gap between the two sides is said recently to have narrowed.

Transatlantic Trade and Investment Partnership

In mid-2015, negotiations towards the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union are at about the half way stage. However, the talks aren't exactly progressing smoothly, and with so many interest groups wanting their voices heard, this was probably always going to be the case.

Although tariffs on trade between the EU and the US are in fact comparatively low, standing at an average of around 4 percent, the TTIP is probably the most ambitious bilateral free deal attempted yet.

According to the European Commission, a successful TTIP negotiation could see EU exports to the US rise by 28 percent, earning its exporters of goods and services an extra EUR87bn (USD97bn) every year. US traders and consumers can expect to see similar benefits, with a successfully concluded TTIP expected to add USD100bn to the value of the US economy.

The ninth round of the TTIP negotiations took place in New York on April 20-25, 2015. The negotiating sessions encompassed a very broad range of subjects. On market access, technical discussions have continued on tariffs and public procurement. The round did not cover the services area, in which negotiators are preparing for an exchange of revised offers ahead of the next negotiating round. However, there was a focus on the most troublesome aspect of the talks so far: regulation.

In draft recommendations agreed on May 28, 2015, members of the European Parliament Trade Committee agreed that an EU-US trade deal should deepen EU access to the US market, but must not undermine EU standards or the right to regulate in the public interest.

Similar sentiments, that the TTIP must not undermine the country's legal and regulatory framework, have been expressed in the United States.

At the ninth round of talks, the EU presented its revised text on regulatory cooperation containing a number of clarifications as regards the scope as well as specific provisions on non-central regulatory acts. Both sides agreed to further reflect about the most appropriate institutional provisions on regulatory cooperation and to identify priorities for future cooperation, while striking the right balance between avoiding any duplication and overly bureaucratic procedures and respecting each side's regulatory sovereignty to set the appropriate policy objectives and protection standards.

Regional Comprehensive Economic Partnership

The leaders of the Association of Southeast Asian Nations (ASEAN) welcomed the progress made towards the realization of the ASEAN Economic Community (AEC) during their 26 th Summit in Malaysia on April 27, 2015.

ASEAN is a ten-country trade association (the members of which are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) which has agreed to establish a Regional Comprehensive Economic Partnership (RCEP) with the six countries that have signed FTAs with ASEAN. These include China, South Korea, India, Japan, Australia, and New Zealand. It is envisioned that an agreement would form one of the largest FTAs in the world, with 3bn consumers and accounting for 30 percent of the world's GDP and be expected to become the platform for future trade and investment integration in Asia. The RCEP will form a key part of the AEC, which envisages a single market and production base.

It was noted at the 26th Summit that the current rate of implementation of the 506 measures within the AEC Scorecard targeted for ASEAN-wide implementation over the period 2008-2015 now stands at 90.5 percent. The leaders were therefore generally satisfied with the progress, which "is sending a strong signal that the region is moving forward as an economic community by January 1, 2016."

ASEAN-6 eliminated tariffs on 99.65 percent of tariff lines in 2010. Under the AEC plan, ASEAN's newer members – Cambodia, Laos, Myanmar, and Vietnam – also reduced tariffs on 98.86 percent of their tariff lines to the zero-to-five percent tariff range by the same year, and were expected to eliminate tariffs on these goods by 2015.

The leaders welcomed the confirmed cancellation of those tariffs by the four countries on January 1, 2015. It was said that the elimination of import duties on most of their remaining tariff lines by 2018 "will further contribute to the development of a more integrated regional market."

They were also pleased at the progress being made in negotiations and "urged all parties to intensify efforts with the aim of concluding negotiations by end-2015."

Trade Promotion Authority

It is important to note that participation by the United States in the trade deals it is currently helping to negotiate, either bilaterally or multilaterally, might depend on the passage of a piece of domestic legislation that will allow concluded texts to be fast-tracked through Congress.

TPA sets negotiation goals for the President but then prohibits amendments to implementing bills for trade treaties and imposes a timetable for their consideration. Renewing TPA, which last expired in 2007, would therefore allow the US Administration to submit trade deals that are in line with those goals for a yes-or-no vote.

TPA passage is considered to be a necessity prior to President Obama's conclusion of further trade deals, particularly the TPP and the TTIP. There is still, however, a large body of Democrats within Congress that strictly opposes TPA, despite the strong support from President Obama for its approval.

A major hurdle was overcome in May 2015 when the Senate approved legislation restoring. The legislation now goes to the House of Representatives where, at the time of writing, it is expected to be voted on shortly.


Tags: trade | Japan | tariffs | United States | Singapore | services | Malaysia | Europe | Philippines | Brunei | legislation | Vietnam | Australia | New Zealand | investment | Cambodia | Canada | Chile | China | Hong Kong | interest



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