Micro Economics Basic Concepts Scarcity and Choice
The firm -- Objectives
Volatile capital flows have the potential of sabotaging already-anemic recoveries in many emerging market countries. The global financial architecture continues to lack reliable backstops in the event of more instability. The U.S. should cooperate with other nations and international financial institutions in addressing the fallout from its economic policies, either by directly providing liquidity or allowing the international institutions to do so.
The American failure is, in good measure, due to a notable lack of “steeliness” on the part of the political class in Washington. Bringing federal debt under control requires unpopular decisions. There is a limited set of choices: raise taxes, cut entitlements such as Social Security and Medicare, or further slash federal spending on discretionary programs. Realistically some of all three is probably necessary. But Americans want neither spending cuts nor tax increases, and both Democrats and Republicans have pandered to one side of that preference, making any “grand bargains” – or even little bargains – impossible.
Looking around the world, economies are subject to two main forces. One from the past: Countries have to deal with the legacies of the financial crisis, ranging from debt overhangs to high unemployment. One from the future, or more accurately, the anticipated future: Potential growth rates are being revised down, and these worse prospects are in turn affecting confidence, demand, and growth today. VERY GOOD, SHORT RUN FORECASTS
Following very strong growth during the period 2000–12, emerging market economies (EMEs) experienced a slowdown in the last couple of years. This paper examines the supply-side drivers of the strong growth performance of 63 EMEs and investigates if the recent slowdown in growth is transitory or a more permanent phenomenon. We find that on average the recent slowdown is explained equally by structural and cyclical factors, although there are large variations across countries and regions. While the cyclical component of the slowdown can be corrected by countercyclical policies (provided that there is sufficient policy space), structural bottlenecks are harder to address. Given the expected moderation of capital accumulation and some natural constraints on labor, the strong growth momentum of 2000–12 is unlikely to be repeated going forward, unless TFP performance improves significantly via structural reforms.
The International Monetary Fund’s (IMF’s) report on its 2014 consultation with the U.S., pursuant to Article IV of the IMF’s Articles of Agreement, contains an unprecedented number of audacious, highly politicized, and controversial proposals that appear to be an effort by the IMF to support the bulk of the Obama Administration’s statist economic policy agenda. This latest IMF report is decidedly hostile to free enterprise. It promotes a heavy-handed, top-down approach to financial regulations, explicit taxpayer backing of financial sectors, and other expansions of the welfare state and big government—from recommending an increase in the U.S. minimum wage and adoption of “more proactive labor market policies” to a broad endorsement of Obamacare, a call for carbon taxes, and a recommended increase in the maximum taxable earnings for Social Security purposes. Heritage Foundation policy experts explain the dangers of the IMF approach, and make recommendations for the U.S. to take a different course.
The northern Chinese province of Hebei plans to shift some of its steel, cement and glass-making capacity abroad over the next decade, mostly likely to Africa and other countries in Asia, as part of an effort to reduce excess capacity and control polluting factories, the state news agency Xinhua reported.
While strong growth has returned to the payments industry, disruptive forces will continue to reshape the competitive landscape.
An energy revolution fueled by the rapidly growing production of unconventional oil and gas is under way in the United States today, but its effects so far on the Gulf Cooperation Council (GCC)—which still produces nearly a quarter of the world’s oil—have so far been strikingly limited. Nonetheless, it would be simplistic to claim that new North American production will barely affect the region. The U.S. boom has a profound strategic impact on the GCC.
For all the costs that Western sanctions and lower oil prices are inflicting on the Russian economy, the Russian flag still flies over Crimea, Moscow remains undeterred, and the September 5, 2014, ceasefire in Ukraine has failed to end the fighting in Eastern Ukraine. In response, Russia is using its own form of economic and energy warfare as both a shield and a sword. This all suggests that there are limits to the West’s ability to deter Russian aggression.
But stating the problems is one thing. Getting from such statements of principles to action – both at the G20 and here in South Africa – will be something rather different.
With such underwhelming results, rich country finance ministers and central bankers often say the Group of Seven leading economies is their preferred forum, even though it is far from representative of the global economy. It leaves the G20 as something of a forum for grandstanding, bilateral meetings over geopolitics and impotence on world economic affairs.
“The global energy system is in danger of falling short of the hopes and expectations placed upon it,” the International Energy Agency said in its World Energy Outlook 2014 report
After decades of actively participating in international economic institutions – including the G-20, the International Monetary Fund, the World Bank, and the World Trade Organization – China has begun to resemble a revisionist power seeking to create a new world order. Last month, China and 20 other Asian countries signed a memorandum of understanding to establish a new multilateral development bank, the Asian Infrastructure Investment Bank. Viewed as the first serious institutional challenge to the World Bank and the Asian Development Bank (ADB), the AIIB was proposed by China.
China is the world’s second largest economic power but lacks comparable voting power in the International Monetary Fund, which bases quotas mostly on GDP but also on openness, economic variability and international reserves. So China is throwing support behind another institution: The Asian Infrastructure Investment Bank, or AIIB, could “place China at the hub of a gigantic trade and economic web,” explains Nayan Chanda in his column for Businessworld. One estimate suggests that Asia could use $8 trillion in infrastructure investment. China will initially capitalize AIIB with $50 billion with plans to provide start operations by the end of 2015. With ample foreign-exchange reserves, China seeks new investment opportunities, and suggests the loans will come without IMF-style conditions. China is the largest foreign creditor to the United States, which questions the new bank’s lending policies and lack of transparency. Besides China, the bank’s 21 founding members also include India. Australia, Indonesia and South Korea could soon join. Chanda warns that tension over China’s territorial disputes with neighbors could hamper bank operations. – YaleGlobal The AIIB is the logical outcome of China’s surging wealth and its limited influence in global financial institutions Nayan Chanda
The task facing PisaniFerry and Enderlein is to create a new reform strategy for Europe’s two largest economies, focusing on structural reforms in France and increased investment in Germany. The hope is that the report, which will be made public on December 1, will provide a breakthrough that can revive, at long last, the eurozone’s growth engine.
Summary • The European Commission lowers outlook for economic growth in the eurozone. • This report is putting even more pressure on the European Central Bank to go establish a program of quantitative easing lowering even further the value of the Euro against dollar. • The stronger dollar and slower economic growth in Europe already seem to be lowering our exports, hurting our outlook for economic growth.
This is the big problem with fiat currency - eventually the temptation to print more of it when you are in a jam becomes too powerful to resist. In a surprise move on Friday, the Bank of Japan dramatically increased the size of the quantitative easing program that it has been conducting. This sent Japanese stocks soaring and the Japanese yen plunging. The yen had already fallen by about 11 percent against the dollar over the last year before this announcement, and news of the BOJ's surprise move caused the yen to collapse to a seven year low. Essentially what the Bank of Japan has done is declare a currency war. And as you will see below, in every currency war there are winners and there are losers. Let's just hope that global financial markets do not get shredded in the crossfire.
I am concerned that one cost of this focus on fiscal cliffs will be failure to deal with the long list of international economic issues that are in front of the Congress. Notably, there is a great deal of optimism that the Senate will now provide the President with trade promotion authority (TPA), which likely is essential to have any chance of meaningful agreements on the trade negotiations
Findings The United States is the world’s largest economy, as well as its preeminent trading power. Each year the country exports and imports over $3 trillion worth of international goods, while the domestic market encompasses an astonishing $17 trillion in goods trade between regions—amounting to a combined $20 trillion.1 These trading relationships serve as a sparkplug to the national economy, providing access to distant markets, helping U.S. firms take part in global value chains, and spurring innovative value creation and industrial specialties. Standing at the center of this invaluable trade network is the country’s freight infrastructure, an expansive set of transportation assets that help match supply and demand between separate regions. Considering the importance of goods trade to the country, strikingly little is known about which regions trade with one another. This information gap limits the country’s ability to coordinate freight policies and investments. Overall, the lack of a well-defined, networked approach to freight infrastructure continues to hold back needed projects and hinder long-term economic growth. To address this deficiency, this report analyzes domestic and international goods trade data from 2010, revealing that:
The reorganization process is the first of my two big worries about the World Bank.The second is more troubling: The Bank is well past its heyday as a major supplier of funds to developing countries. Short of a new vision, it faces an existential threat of growing irrelevance and even obscurity.
Unlike the Fed and BOJ, which are designed to have a strong leader, the ECB is designed to preserve as much as possible the national interest of its members. At the Fed, when fully staffed, the Board of Governors has a majority of votes on policy. At the ECB, the executive board consists of only six people. According to a Reuters report, Draghi is being accused by many of his colleagues as being Caesar. Draghi is said to have a secretive management style, erratic communication, and weak on collegiality.
The challenge is clear. Absent changes in policy, continual increases in federal spending, particularly in spending on retirees, will bury Washington in dangerous levels of debt. But the changes needed to avert that outcome are significant. According to the economists Alan Auerbach, of the University of California, and William Gale, of the Brookings Institution, just keeping the federal debt-to-GDP ratio at its current levels over the next 75 years would require a combination of tax hikes and spending cuts worth about 3.5 percent of GDP annually, or more than $500 billion at current levels.
Editor's Note: The recent drop in global oil prices is affecting economies around the world. This series examines the reasons behind the falling prices and their effects on major energy consumers and producers. Part One discusses the structural changes in the oil market, particularly the growth in supply and the decline in demand. Part Two will examine the countries likely to be most troubled by price drops, while Part Three will look at the countries likely to gain the most.
A nuclear deal with Iran could help revive the country’s energy sector, with serious effects on consumers and producers, especially in the Middle East.
Infinity, it turns out, lasted a little more than two years. In September 2012, the Federal Reserve administered one of the greatest market shocks of recent years by announcing that it would buy $40bn of mortgage-backed securities every month (subsequently raised to $85bn, including Treasury bonds), and do so indefinitely.
GDP figures don't capture the possibility that individuals may have a sudden fall in standard of living -- increased vulnerabilty in the U.S.
Brazil Finance Minister Guido Mantega popularized the term “currency war” in 2010 to describe policies employed at the time by major central banks to boost the competitiveness of their economies through weaker currencies. Now, many see lower exchange rates as a way to avoid crippling deflation.
MADRID – We have been living in an illusion. For years, the world has believed that the transition from a unipolar to a multipolar order would be peaceful, orderly, and steady, with new players like China, Brazil, and Turkey adapting to the existing multilateral framework in a natural, harmonious way. How wrong we were. In fact, as the transition toward multipolarity has progressed, the international order has become increasingly unstable and tense. The 2008 global financial crisis compounded uncertainty and mistrust, disrupting key trends like globalization. But the biggest problem has been the failure of the developed countries – the architects of the post-World War II international order – to formulate an inclusive strategy to address global challenges and manage the transition to a new international system.
Most old-fashioned barriers have already disappeared. Trade negotiators are focusing instead on removing discrepancies between the regulations in force in the American and European markets. These talks are no longer about removing protections; they are about harmonising precautions that prevent harm to consumers
Sharp fall in oil prices turned world’s attention to OPEC &Saudi Arabia’s response •Saudi Arabia communicated to market that it is comfortable with markedly lower oil prices even for an extended period which contributed to a further fall in price (though there remains doubts as to the credibility of the signal as it was communicated using unofficial and unorthodox channels) •Hopes that Kingdom would come to rescue and ‘balance’ market and arrest decline in oil price replaced by stories of ‘price wars’, ‘conspiracy theories’ and ‘grand design strategies and games’ aimed at pushing prices down to achieve ‘some wider economic and political objectives’
VERY GOOD IN PRICE THEORY APPLICATIONS
Six years after the Lehman disaster, the industrialized world is suffering from Japan Syndrome. Growth is minimal, another crash may be brewing and the gulf between rich and poor continues to widen. Can the global economy reinvent itself? A new buzzword is circulating in the world's convention centers and auditoriums. It can be heard at the World Economic Forum in Davos, Switzerland, and at the annual meeting of the International Monetary Fund. Bankers sprinkle it into the presentations; politicians use it leave an impression on discussion panels. The buzzword is "inclusion" and it refers to a trait that Western industrialized nations seem to be on the verge of losing: the ability to allow as many layers of society as possible to benefit from economic advancement and participate in political life.
Not since the financial crisis of August 1998 has Russia faced the very real possibility of a currency crisis that could seriously threaten the fundamental stability of the country's economic and political system. Though the ruble's loss of 20 percent of its value this year falls well short of the 70 percent collapse in 1998 and is even lower — in relative terms — than the 30 percent decline experienced in 2008, there are key parallels between the 1998 crisis and the crisis developing in Russia today. Both Russia's leaders and citizens would do well to remember the lessons of August 1998 as they face the coming storm
Germany's most recent economic slowdown would seem to be all the more concerning for the eurozone since the forces that have caused the German economy to slump are not likely to go away anytime soon. That would certainly appear to be true of the escalating sanctions resulting from the West's standoff with Russia over Ukraine, the ongoing Middle Eastern geopolitical uncertainties and the significant economic slowdown in a number of major emerging market economies. Yet another early warning sign that Europe could very well soon be heading toward the next round of its sovereign debt crisis is that it appears to be well on the way to outright price deflation. While the European Central Bank (ECB) does have an inflation target of close to 2 percent, the overall European inflation rate has already decelerated to 0.3 percent.
VERY GOOD, MAKE POWERPOINT SLIDES
People in key advanced economies, including the US, Japan and Germany, have become deeply sceptical about important elements of globalisation even as their governments push for further liberalisation, according to an international poll. Half of all US respondents said trade destroyed jobs at home, with only one in five saying it created jobs, according to the global survey released on Tuesday by the Washington-based Pew Research Center.
The US dollar surged again on Wednesday against a basket of emerging market (EM) currencies, adding urgency to the question of which EM countries are most vulnerable to a receding “carry trade”, the multitrillion dollar flow that has swollen domestic debt markets since 2009.
In July, the European Commission published its sixth report on economic, social, and territorial cohesion (a term that can be roughly translated as equality and inclusiveness). The report lays out a plan for substantial investment – €450 billion ($583 billion) from three European Union funds – from 2014 to 2020. Given today's difficult economic and fiscal conditions, where public-sector investment is likely to be crowded out in national budgets, this program represents a major commitment to growth-oriented public sector investment. The EU's cohesion strategy is admirable and smart. Whereas such investment in the past was heavily tilted toward physical infrastructure – particularly transport – the agenda has shifted to a more balanced set of targets, including human capital, employment, the economy's knowledge and technology base, information technology, low-carbon growth, and governance.
As the standoff between Russia and Ukraine drags on, there are increasing calls to use U.S. oil and gas exports to weaken Vladimir Putin’s hand. There’s something to this, but it’s likely to be a lot less powerful than most pundits seem to think.
Oil prices are in free-fall. That's good economic news for the United States, even if it ends up meaning a serious hit to the shale drilling bonanza. Whether you cheer or boo the plunge, though, depends a lot on where you live and what work you do.
As the meetings progressed, optimism about a G-20 growth agenda and infrastructure boom receded and concerns about growth outside of the United States began to dominate the discussion. The perception that policymakers —particularly European policymakers—were either unable or unwilling to act contributed to the gloom. Time will tell whether macro risk factors that markets have shrugged off over the past few years will now be a source of volatility going forward. But if that is the case, perhaps these meetings had something to do with i
The most globally significant bilateral trade and investment relationship is between the U.S. and the European Union. An increasing amount of this economic relationship is underpinned by cross-border flows of data. Whether the U.S. and the EU are able to take full advantage of the opportunities for international trade and investment presented by their increasingly online and digital populations will affect transatlantic economic relations. As the world’s two largest economies, the U.S. and EU decisions on support for cross-border data flows will also have global implications
In May 2013, the U.S. Federal Reserve made the unexpected decision to begin scaling back, or “tapering,” the bond-buying program it had adopted in the wake of the financial crisis. The move triggered a sharp sell-off of assets from emerging markets, which had been the greatest beneficiaries of the ultra-loose monetary policies of the world’s main central banks. That was bad news for those countries that had used the easy money to fund themselves. The “taper tantrum,” as it became known, recalled the American investor Warren Buffet’s old line, “You only learn who has been swimming naked when the tide goes out.”
“A major lesson of the last crisis is that accommodative monetary policy contributed to financial excesses,” said Lucas Papademos, a former vice president of the European Central Bank. “We are pursuing a similar policy for good reason. But there are limits — if you do this for too long, risks in the financial markets will materialize.”
The bull market in oil over the past 15 years or so fired up resource nationalism, whereby governments of countries rich in raw materials block access to foreign companies, seize assets, or impose tougher conditions and taxes. Lately, though, some flags have been partially furled, and the sharp drop in oil prices in recent months should encourage more of that. Western major oil companies won’t escape the fallout completely, but they do stand to benefit as resource nationalism retreats.
Not long ago, executives at the Dutch multinational Royal DSM, a globe-girdling maker of nutritional supplements and high-tech materials, used to require a battery of internal studies to decide where to do a deal or locate a new manufacturing plant. But today, “we won’t even do the study,” Stephan B. Tanda, the managing board member with responsibility for the Americas, told me. “It’s clear it will be the United States.” MANUFACTURING FIRMS LOCATING IN US
YOUNG families are better educated than ever before, but they are earning lower real incomes. The Federal Reserve Board’s newly released 2013 Survey of Consumer Finances indicates that the median family headed by someone under 35 years of age earned $35,509 in 2013 dollars. Adjusted for inflation, that is 6 percent less than similar families reported in the first such survey, in 1989.
The near-stagnation in Europe has many causes. A big drag comes from households and companies that are holding back consumption and investment so as to pay down debt. The resulting shortage of demand impedes growth – and so undercuts the progress made in reducing debt-to-income ratios. Ultra-low inflation, and deflation in some places, also means the debt burden keeps rising relative to income. On the supply side too, wages and other costs are stubbornly high even as prices fall, discouraging hiring. Restrictions in product markets prevent new ideas from sprouting into the next big thing. Europe is not creating enough jobs. This strains the social fabric and frays public patience with the euro.
Europe has to try something bolder – and soon – before stagnation becomes the new normal. This must involve fiscal policy, structural reform and ECB action all at once. Acting in just one area reduces pressure to act in the others, and can even be counter-productive: fiscal stimulus alone will raise fears over public debt, structural reforms alone invite social strife, and monetary easing alone may do more for the price of chalets and fine art than for employment. -- very good CCMR eurozone part of class
The IMF finds that a dollar of spending increases output by nearly $3 t has been joked that the letters IMF stand for “it’s mostly fiscal”. The International Monetary Fund has long been a stalwart advocate of austerity as the route out of financial crisis, and every year it chastises dozens of countries for their fiscal indiscipline. Fiscal consolidation – a euphemism for cuts to government spending – is a staple of the fund’s rescue programmes. A year ago the IMF was suggesting that the US had a fiscal gap of as much as 10 per cent of gross domestic product. All of this makes the IMF’s recently published World Economic Outlook a remarkable and important document. In its flagship publication, the IMF advocates substantially increased public infrastructure investment, and not just in the US but much of the world. It asserts that when unemployment is high, as it is in much of the industrialised world, the stimulative impact will be greater if investment is paid for by borrowing, rather than cutting other spending or raising taxes. Most notably, the IMF asserts that properly designed infrastructure investment will reduce rather than increase government debt burdens. Public infrastructure investments can pay for themselves.
October 5, 2014 7:46 pm Monetary policy: An unconventional tool By Martin Wolf Author alerts The Fed’s quantitative easing raises questions about whether it has worked and its legacy ince September 2008, the balance sheet of the US Federal Reserve has expanded by $3.5tn to close to 25 per cent of US gross domestic product. This month, the Fed is expected to end its experiments with policies, particularly “quantitative easing”, that have had this result. QE is contentious. So what have the Fed and other central banks done? Has it succeeded? What problems does it bequeath? QE involves the creation of central bank money on a large scale. That makes it “quantitative”. It is one of a family of unconventional policies employed in the aftermath of a crisis that damaged the financial system and caused a deep recession. As the International Monetary Fund has noted, “central banks in advanced economies responded with unconventional tools to address two broad objectives: first, to restore the proper functioning of financial markets and intermediation, and second to provide further monetary policy accommodation . . . The two objectives, while conceptually distinct, are closely related.”
The new financial institutions announced by the Brics nations in July – a development bank and an arrangement to share currency reserves – have been compared by many observers to the World Bank and the International Monetary Fund. There is no doubt that they reflect frustration in the developing world over governance at the multilateral institutions that emerged from the Bretton Woods summit 70 years ago. These remain dominated by the US and western Europe despite their relative economic decline. In truth, however, the new initiatives break little ground.
The term “carry trade” sounds innocuous, even benign. But as the US dollar continues to surge, the multitrillion dollar flow that has engorged emerging markets (EMs) risks reversing, threatening growth in much of the developing world, analysts warn.
Investors engaging in the carry trade borrow in a low-interest currency, such as the US dollar, to invest in the higher yielding domestic debt of emerging markets. But stress on the carry trade mechanism is growing, with a gauge of EM currencies, the JPMorgan EMCI index, falling to its lowest point against the US dollar in 11 years. Investors are increasingly deciding that their losses in the foreign exchange market eclipse their gains from the interest rate differential, prompting them to cut and run. Were market participants to unwind their carry trades in unison, selling EM assets to buy dollars, the process would exacerbate the market conditions that they were fleeing.
When President Barack Obama announced he would seek a sweeping trade deal with Europe in his State of the Union address nearly two years ago, officials on both sides of the Atlantic set a goal to complete it before the EU leadership’s term ran out. Just over a month before Brussels changes hands, not only is the US-EU deal far from completion, but the EU’s outgoing trade chief has warned the pact – which would be the biggest trade agreement in history – is at risk of never being agreed. -- TTIP
A global fight over fiscal policy has raged since the International Monetary Fund shocked the world in 2008 by recommending governments stimulate their economies by cutting taxes and increasing spending. Almost seven years later, the battle is stuck in a quagmire with questions still to be resolved. How far should governments attempt to offset economic weakness with fiscal activism? Are attempts to reduce public borrowing in difficult economic times automatically counter-productive? And what constitutes prudent public finance management in an era of extreme uncertainty over sustainable levels of output? VERY GOOD -- FISCAL POLICY PART OF CLASS
To his credit, Mr. Peña Nieto has spent significant political capital to reform the constitution to allow private investment in Mexico's energy sector, promote competition in telecom, and introduce accountability in public education. So it's tempting to dismiss the shoe duties as a venial sin committed by an otherwise virtuous, reform-minded administration. But structural reforms in a few key sectors will not have their desired effect if economic freedom is not more broadly promoted. On that score the Peña Nieto government is coming up short. From fiscal policy to trade and regulation, the evidence is mounting that the first PRI government in 12 years seeks to restore the centralization and bureaucracy that made the party so powerful in the 1980s and also made Mexico so poor. Brazil illustrates the dangers.
Foreign direct investment in target emerging economies is competitive. Japan and China have each announced new investments in India. The investors do not simply rely on geopolitical imperatives. “Sitting on a reserve of $4 trillion, China needs profitable avenues to use its savings and find employment for its citizens. Chinese companies need places to invest their cash reserves, export their technology and skills and open new markets for their bulging stocks,” writes Nayan Chanda, YaleGlobal editor in his column for Businessworld. “[President] Xi hopes that by drawing India into China’s growing economic empire and according India economic advantages, it can be wooed away from the US and Japanese embrace.” China is India’s largest trade partner and Chanda reviews both the successes and challenges. Ongoing cooperation on foreign direct investment requires attention to local hiring, balanced trade and quality controls, as well as resolution of border issues that divide India and China. – YaleGlobal
Citic's Troubled Australian Iron-Ore Mine Shows How Much Has Gone Wrong with China's Push to Buy Raw Materials SECURITY SECTION ALONG WITH MORAN'S ARTICLE
Sluggish Global Trade Growth Is Tempting Officials to Devalue Their Currencies to Jump-Start Economies
Oil-Producing Countries Face Steep Deficits If Price War Continues
The stimulus-versus-austerity debate is an old one. In the 1970s and 1980s, the United States regularly called on Germany and Japan to act as locomotives for the global economy. But, until recently, the divergences were viewed in terms of interests, not “philosophies.” Americans wanted additional demand for their goods and higher prices, while the Germans and Japanese defended their export industries.
In this paper we examine the impact of rises in inactivity on wages in the US economy and find evidence of a statistically significant negative effect. These nonparticipants exert additional downward pressure on wages over and above the impact of the unemployment rate itself. This pattern holds across recent decades in the US data, and the relationship strengthens in recent years when variation in participation increases. We also examine the impact of long-term unemployment on wages and find it has no different effect from that of short-term unemployment. Our analysis provides strong empirical support, we argue, for the assessment that continuing labor market slack is a key reason for the persistent shortfall in inflation relative to the Federal Open Market Committee’s (FOMC) 2 percent inflation goal. Further, we suggest our results point towards using wage inflation as an additional intermediate target for monetary policy by the FOMC.
The Eurasian Union, as conceived by Russia, was supposed to rival the European Union as a trade and economic force. “Most notable about the Eurasian Union is not the geopolitical vision that motivates it, but how badly the entire project has gone,” argues Chris Miller, a PhD candidate at Yale University and a research associate with the Hoover Institution. Russian aggression is unnerving former members of the Soviet bloc. Neighboring Ukraine long had close ties with Russia, but with the takeover in Crimea and war along the eastern border, disagreements run deep and regional distrust spreads. Former Soviet states gradually expand their ties with economies that offer more than energy: “The appeal of European Union on the west and that of a resurgent China in the east continues to nibble away at Russian power and influence,” Miller explains. Aggression may deter nations like Georgia or Ukraine from joining NATO, but weakens Russian influence in other areas. Russia’s ready reliance on military force encourages other neighboring nations to diversify political, economic and cultural relations and better withstand bullying. – YaleGlobal Putin, striving to wield influence over former Soviet states, must compete with EU and rising China
Scotland rejected declaring independence from the United Kingdom, 55 to 45 percent. Businesses, investors and political leaders are relieved about some certainty moving forward. Many analysts credit the outcome’s wide margin to a last-minute, passionate appeal from former Prime Minister Gordon Brown. Those who fear globalization may “seek to insulate themselves against what appears like an unstoppable juggernaut of economic disruption and social dislocation,” he wrote in an essay based on his speech. “But because change seems to threaten to sweep aside long-established customs, values and ways of life, political nationalism becomes a credible vehicle for their response.” Leaders cannot be slow in responding to citizen concerns. Any community can instigate new purposes and reforms, preserve cultural identity and institutions, while controlling and benefiting from cross-border cooperation. In enticing Scots to stick with the union, many promises were made. Interdependence, the ability to cooperate, marks progress. The referendum fueled a civil engagement in Scotland that could be a model for citizens in Europe and the world. – YaleGlobal
U.S. and African leaders meeting in Washington on Monday kicked off a campaign to renew a program that gives exemptions on U.S. tariffs and quotas in an effort to boost trade and stimulate the economies of sub-Saharan African countries. Leaders in the U.S. and Africa are looking to spur economic ties at a time when trade between the two is sinking and China's hunger for commodities is boosting Beijing's influence on the continent. American officials and lawmakers say extending the 14-year-old African Growth and Opportunity Act, or Agoa, is crucial to preserving trade ties with fast-growing African countries, especially when U.S. trade negotiations at the World Trade Organization and with other major economies have stalled. China passed the U.S. in imports in 2012 and imported $88 billion from sub-Saharan Africa in 2013, according to the International Monetary Fund. Partly because of increased oil production at home, U.S. imports from the region plunged to $34.5 billion last year, from a peak of $78.2 billion in 2008, with exports showing some gains in recent years. Agoa is part of a strategy to increase economic ties with a growing Africa—including in trade and power generation—as China strengthens ties on the continent and the European Union negotiates free-trade agreements there. The goal, U.S. officials say, is to replace foreign aid with trade.
Building economic ties could also help contain conflicts that have convulsed Africa, said Erastus Mwencha, deputy chairman of the 54-nation African Union. But critics point out that the bulk of African trade is oil shipments from West Africa, and U.S. agricultural and textile interests have opposed efforts to expand the list of products eligible for tariff and quota breaks. President Barack Obama's trade policy has faced delays and dogged opposition in Congress, and a similar preferential tariffs program for the developing world was allowed to expire last year. Still, trade with sub-Saharan Africa is so small that Mr. Obama and other officials say it shouldn't be seen as a threat to the U.S. domestic industry. Non-oil Agoa trade was only about $5 billion in 2013, still up from just $1.4 billion in 2001, said U.S. Trade Representative Mike Froman. That is because Africa's factories and farms still face the same headaches as ever: ramshackle roads, debilitating blackouts, ports that need to be dredged and bureaucracies that process permits at a glacial pace. Agoa "has not in fact been as powerful a stimulant in growing trade and investment as those who supported wanted," said Johnnie Carson, former assistant secretary of state for African affairs, in an interview. "Progress is being made—it's just being made at a much slower rate than many of us had anticipated." One way to boost trade with the U.S. further would be to loosen Agoa's rules for sugar, tobacco and cotton. "The issue of cotton, of course, remains a key concern of Africa." Mr. Mwencha told Mr. Froman and representatives of 40 African countries gathered on Monday in Washington, the first day of the U.S.-Africa summit. The U.S. is looking at make the criteria tougher for African countries to gain certain Agoa benefits, including in the areas of worker rights and rules that block agricultural trade, Mr. Froman said.He urged Congress to act soon to renew Agoa, since some factory owners and other investors need to make decisions a year or more in advance. The act needs to be reauthorized by September 2015. U.S., Africa Aim to Boost Trade - WSJ http://online.wsj.com/articles/u-s-africa-aim-to-boost-trade-1407... 2 of 3 8/28/2014 8:54 AM "Things just take too long—it scares people," said Cliff Schiffman, director of sales and marketing for Cherry Tree, a Turkish clothing-sourcing company that manufactures in Kenya. "I think deep down, the Congress does want to support Africa.BUnfortunately our legislative process is extremely slow." Lawmakers say opening U.S. markets won't transform economic ties with Africa. "Barriers to U.S. trade and investment in the region continue to inhibit the full potential of the U.S.-African trade relationship," a group of Democratic and Republican lawmakers who write trade legislation said in a joint statement on Monday.
The latest round of a trade war that started nearly three years ago over Chinese silicon solar panels imported in the United States will likely have a far more financial impact than before. In fact, prices for Chinese solar panels could go up 14% on average, said a report released Thursday. That price hike will be hard to avoid and cause Chinese companies to lose much of the advantage they have enjoyed for years: the ability to make and sell solar panels at costs far lower than their competitors elsewhere in the world, according to an analysis by GTM Research (http://www.greentechmedia.com/research/report/the-2014-u.s.-china-solar- trade-dispute). The report is taking stock of the ongoing trade case undertaken by the U.S. Department of Commerce, which issued a preliminary decision (http://enforcement.trade.gov/download/factsheets/factsheet-prc-crystalline- silicon-photovoltaic-prod-cvd-prelim-060314.pdf) on June 3 that set tariffs at 19% to 35%. It plans to make a final decision in August. China is the solar manufacturing hub of the world. It supplied 31% of the solar panels installed in the United States last year, GTM said. The vast majority of the solar panels made in China use silicon solar cells. The commerce department pegged the value (http://enforcement.trade.gov/download /factsheets/factsheet-prc-crystalline-silicon-photovoltaic-prod-cvd-prelim- 060314.pdf) of the Chinese silicon solar panels that entered the U.S. market at around $1.5 billion. Some solar installers and project developers aren’t waiting for the government to wrap the case before figuring out its supply strategies. Two days after the commerce department handed down the provisional tariffs, SolarCity announced (http://investors.solarcity.com Ucilia Wang (http://www.forbes.com/sites/uciliawang/) Contributor I write about renewable energy, electric cars and water tech Opinions expressed by Forbes Contributors are their own. Report: U.S. Trade Dispute Will Inflict Pains On Chinese Solar Ma... http://www.forbes.com/sites/uciliawang/2014/06/19/report-u-s-t... 1 of 4 8/24/2014 4:20 PM /releasedetail.cfm?ReleaseID=852754) that it had agreed to buy between 100 and 240 megawatts of solar panels from Norway-based REC Group. And here is a telling quote from that press release: “The availability of competitively priced, U.S. trade-compliant PV modules is an important development for the global solar industry,” said Tanguy Serra, chief operations officer of SolarCity (/companies/solarcity/) SCTY +1.19% (/companies/solarcity/) . “REC delivers high-performance modules with excellent resistance to degradation, all with a responsible environmental footprint.” The company didn’t stop there. Earlier this week, SolarCity made a surprise announcement (http://www.forbes.com/sites /uciliawang/2014/06/17/solarcity-moves-to-become-a-solar-panel-maker/) to become a solar panel maker by buying a startup, Silevo, that has developed a hybrid solar cell technology and a manufacturing process that promises to deliver low-cost cells that can convert a higher percentage of sunlight into electricity. Making its own solar panels — the plan is to build a giant factory in New York — will give SolarCity a greater control over its supply and protect it from price fluctuation that can vary greatly as a result of trade disputes or market forces governing supply and demand. The New Fight The latest round of trade dispute still centers on whether Chinese solar manufacturers have received unfair subsidies from the Chinese government that then allow them to sell their products at below fair market value. But the result will likely to be very different than the last go-around, GTM said. The first round of trade battle started in October 2011 (http://gigaom.com /2011/10/19/u-s-solar-fights-back-against-cheap-chinese-panels/) by a group led by SolarWorld. When the government concluded its investigation in 2012, it imposed tariffs (http://gigaom.com/2012/10/10/its-official-u-s-slaps- higher-tariffs-on-chinese-solar-cells/) that reached 250% on the high end. But those tariffs from 2012 turned out to be easy to circumvent. They targeted silicon solar cells made in China, not the raw materials and components that go into making the cells or the panels in which the cells are assembled. What many Chinese manufacturers, some of whom make their own materials and components for solar cells, ended up doing was to buy silicon solar cells from Taiwan. They still used materials made in China and kept the panel assembly in-house. Report: U.S. Trade Dispute Will Inflict Pains On Chinese Solar Ma... http://www.forbes.com/sites/uciliawang/2014/06/19/report-u-s-t... 2 of 4 8/24/2014 4:20 PM The SolarWorld-led group subsequently filed a new complaint after realizing that their effort didn’t inflict the intended pain or achieve what they hoped would be fair competition. The new complaint covers the components that go into solar cells, as well as the solar panels. What To Do This Time? This time around, Chinese manufacturers could pay the tariffs and ship all-China made products, or they could build factories or hire manufacturers outside of China, GTM said. Whatever strategies they use, they will likely have to sell their products at a higher price if the commerce department doesn’t lower the tariffs in its final decision. That price hike will likely range from 7% to 20% (average 14%), GTM said. Developers of projects to sell electricity to utilities will feel the pinch the most. Utilities typically sign a 20- to 25-year power purchase agreement and look for low-cost options to preserve their profits. Keeping solar equipment cost low will therefore be critical for developers to preserve their own profits, too. Non-Chinese solar manufacturers that will benefit from the latest trade dispute include Arizona-based First Solar (/companies/first-solar/) FSLR -0.37% (/companies/first-solar/) . Low-cost solar panels from China have helped to boost the solar market growth over the years. That has prompted many solar installers and project developers to oppose SolarWorld’s trade petitions. The Solar Energy (http://www.forbes.com/energy/) Industries Association, which represents manufacturers and installers based in and outside of the country, said in a statement (/Users/ucilia/Documents/Freelance/Notes /threatens%20to%20derail%20the%20rapid%20growth%20of%20the%20U.S.%20solar%20industry) earlier this month that the trade dispute “threatens to derail the rapid growth of the U.S. solar industry.”
On both sides of the Atlantic in recent months, governments have acknowledged ongoing negotiations for the Transatlantic Free Trade Agreement (TAFTA), a free trade agreement between the European Union and the United States. Though the merits of this future transatlantic partnership went largely challenged at the outset, some differences of opinion have lately emerged among European leaders. On the one hand, German Chancellor Angela Merkel welcomes the prospect of an agreement stating that , “[Germany and the United States] will benefit enormously from the TTIP, the Transatlantic Trade and Investment Partnership, which we need to try to bring to completion because that will be an economic engine for both of our countries as well as for all of Europe.” In a similar vein, Lord Livingston, the British Minister of State for Trade and Investment, stated , “an EU-US deal is the biggest prize of them all. It has the potential to ShaSrheaSrheaSrheareMore be the biggest free trade agreement ever, and will make exporting cheaper and easier for businesses of all sizes and regions on both sides of the Atlantic.” On the other hand, French leader Francois Hollande sounded a note of caution in March 2013. He has asked for “safeguards in certain areas”  of a potential agreement, emphasizing the importance of cultural autonomy with regard to “audiovisual services”—i.e., mass media. European parliament members, for their part, have insisted that the agreement be “acceptable to the European public.” They noted specific areas of concern, including health and safety standards for animals and plants, intellectual property rights, and data protection. These differing views are indicative of the differing perceptions of the details and scope of any potential future agreement. Some worry about harmonizing European and American standards and protecting their cultural sovereignty, while others are concerned about the hidden costs of a hypothetical merger between the two largest markets in the world. Given the stakes, much is riding on European Commission President José Manuel Barroso’s management of the negotiations, which he hopes will reach a conclusion before the end of 2014. And time is ticking. *** Multilateralism has always been one of the foundations of European diplomatic and trade policy. For more than twenty years, the European Commission has maintained that “[C]ooperation within the international community is a prerequisite for addressing global challenges, ranging from the fight against poverty to climate change." The EU has been a prime mover in some of the major global conferences—since the Rio Summit in 1992, which was a milestone in conceptualizing new forms of multilateral global governance. The EU has vigorously backed the Kyoto Protocol as well as the International Criminal Court, despite opposition from the United States in both cases. And the EU consistently defended the General Agreement on Tariffs and Trade, until the time it was supplanted by the establishment of the World Trade Organization in 1995. But notwithstanding its support for multilateralism, the European Commission has also engaged in numerous bilateral negotiations with the likes of South Korea, India, Japan, and Thailand. The Commission appears to be close to concluding a free trade agreement with Canada, an initiative jointly advanced by the leaders of Canada and France. It has been viewed as a sort of “pilot project,” potentially to serve as a precursor for a more ambitious agreement between the EU and the United States. Meanwhile, EU members are waiting for the TAFTA with baited breath. The leaders of the United Kingdom and Germany would like to see at least the first phase of an agreement reached before the end of the term of the current President of the Commission in June 2014. But what about the parameters of the negotiations? All parties seem to agree that the discussions should focus on nontariff "barriers". But in terms of broader issues, the parties disagree on how to structure the negotiations. François Hollande has already raised concern about "health standards" and called for a "cultural exception” for “audiovisual services” in any Franco-American negotiations. Others, such as the Dutch politician Frits Bolkestein, believe that the EU should not succumb to "French protectionist temptations," and that the European side in the negotiations should have “as broad a mandate as possible." At the moment, this view seems to prevail. Androulla Vassiliou, the European Commissioner of Education, Culture, Multilingualism, and Youth, expressed a desire for the exclusion of audiovisual services from the agreement.  These early indications of dispute have had the effect of revealing deeper disagreements among the various European governments. The absence of unity is a considerable weakness for Europe amid the United States’ determination to gain the upper hand in international trade and impose its interests. Meanwhile, all these matters are of greater urgency to Europe than they are to the United States. Amid economic instability, Europe needs to establish an agreement that can help ensure a rapid recovery of growth without sacrificing fiscal stability. In addition to its disunity, Europe also lacks latitude and flexibility—a weak starting point for negotiations indeed. Furthermore, the United States, for its part, is more concerned with stemming the rise of China. Washington has already started another set of grand-scale trade negotiations on the Trans-Pacific Partnership (TPP) with countries in the Asia-Pacific region, a partnership that the United States may well consider to be of greater consequence. *** As a Moroccan who travels frequently in Europe as well as in the United States, I view these matters with interest, concern, and a special focus on how they impact my own country. Though Morocco’s participation in global trade is proportionately very small, it is clear that we need to adapt to the evolving situation. And it behooves our allies in Europe and the United States to take our perspective into consideration—both for Morocco in and of itself, and as an example of many other developing countries grappling with similar questions. Since its independence, Morocco has chosen the path of integration into the global economy. Morocco signed an Association Agreement with the European Union in 1990, which required significant reforms, including the establishment of fledgling new industries which have struggled to survive. In 2000, a free trade agreement was signed with Europe; and in 2006, another was signed with the United States. The latter agreement, however, has not allowed the development of exports to the American mainland, and has, on the whole, been more advantageous to the United States. The reasons why relate to nontariff conditions and the battery of measures imposed on imports by the Washington administration. This imbalance, in turn, is precisely what causes Moroccans in and out of government worry about the transatlantic treaty. It is understandable that each side should press for “standards” that serve its own capacity to compete. However, the settlements the two sides reach regarding “standards” will probably prove detrimental to Moroccan exports. Perhaps some Western voices would say that increased pressure on Morocco and other developing countries is a “blessing in disguise” that will require Moroccan producers to make greater strides faster. But the rate of acceleration they appear to expect is unrealistic. Moroccans tend to share another fear as well. The “pivot to Asia,” ultimately an interest shared by Americans and Europeans, may lead to a neglect of the Southern Mediterranean in terms of economic planning. This concern applies to Morocco as well as other countries south of the Sahara who are trying to come together through economic, political, and security cooperation. “Co-development” is a pillar of King Mohammed’s diplomacy and economic planning, as the king’s successive visits to Mali, Gabon, Senegal, and elsewhere on the African continent demonstrate. The fight against terrorism, if waged successfully, cannot be limited to intelligence cooperation and military deployment when problems reach the point of crisis. And yet unfortunately, both Americans and Europeans seem to have imposed a firewall between economic considerations on the one hand and military and intelligence activity on the other. In France, for example, François Hollande joined a high-level meeting in Paris to draw up a plan against jihadists in Syria. "A strategy was adopted and an action plan has been decided," wrote the Elysée  in a statement specifying that the particulars of the plan would be presented "later." Among the supposed planks of the “action plan” is an effort to combat “violent radicalization.” And indeed, French interior minister Manuel Valls promised, in January, measures such as the establishment of an alert service for families to cope with the phenomenon of the departure of French youth to the battlefield in Syria to fight the Assad regime. But are these the sorts of remedies the French envision? For years, King Mohammed VI has argued that a comprehensive approach is necessary to fuse hard-nosed security and economic cooperation with the fostering of peaceable alternatives to religious extremism, as well as economic opportunities for the disenfranchised. (I have described this approach in prior articles.)  Since Americans and Europeans plainly recognize that security threats emanating from the developing world are harmful to the global economy, it behooves both sides to consider how to ameliorate these threats when negotiating over economic matters.
A shared concern with employment is one of the reasons that politicians are starting to pay more attention to NAFTA, which in recent years has been failing to live up to its early promise. Rebooting the agreement tops the agenda at the meeting of the leaders of the three countries scheduled to take place in Mexico this February. “There’s a joint willingness among all three countries to relaunch the idea of North America, not just in terms of manufacturing, but in innovation and design,” says Sergio Alcocer, under-secretary for North America in Mexico’s foreign ministry. In May 2013 Barack Obama—who in 2007, on the campaign trail, called NAFTA a “mistake”—trumpeted cross-border trade on a visit to Mexico, noting that the United States exports more to Mexico than to the BRIC countries—Brazil, Russia, India and China—combined. On a visit in September his vice-president, Joe Biden, dwelt on NAFTA’s untapped potential. The trade agreement was beginning to look out of date. There needed to be freer movement of “goods, people and information” across the borders, despite security worries. More shared infrastructure investment was necessary. Obliquely, he acknowledged that politicians had held up such improvements: “Make us do it,” he urged businesspeople and the public. In the United States, the potential of closer integration has been outweighed—at least in the eyes of politicians—by the fear of job losses, as well as illegal drugs, crime and immigration from Mexico. Canada, Bombardier’s success notwithstanding, long ago started seeing Mexico as a rival in its relationship with the United States, rather than a partner. Mexico, in which almost half of the population lives in poverty, much the same level as 20 years ago, has mixed feelings. Robert Pastor, head of the Centre for North American Studies at American University in Washington, DC (and one of NAFTA’s most prominent advocates) says the bloc has become a piñata—something politicians and pundits alike enjoy bashing. Yet a poll Mr Pastor recently commissioned showed that the people of the United States still much prefer the idea of free trade with Canada and Mexico than with the European Union, China or India. And though support in the United States has dwindled in the past ten years, in Canada and Mexico it is on the rise. The case for optimism about NAFTA is not limited to opinion polls and political summitry. Nor is it simply a response to the doldrums that the agreement has been in over most of the past decade, with its infrastructure badly in need of an upgrade and regulatory structures left behind by the pace of technological change. The fundamentals also favour a resurgence in North American trade. Mr Alcocer talks of a “rejuvenated” region benefiting from cheap and abundant energy, a young workforce, and costs that are increasingly competitive with those in China. The aim, though quietly stated, is to develop a “Factory North America” to rival “Factory Asia”. Bumpy ride Part of NAFTA’s problem is that its original take-off was accompanied by a level of hyperbole its subsequent flight path could never match. Its chief architect, President Carlos Salinas of Mexico—who signed the treaty with George Bush and Canada’s prime minister, Brian Mulroney, in 1992—hoped it would make Mexico a first-world country. In 1993 Vice-President Al Gore compared it to the creation of NATO and the Louisiana Purchase. And for its first six years the pact’s success was remarkable. Crossborder investment ballooned. Rapid growth led to the three countries’ share of global production hitting a peak of 36% in 2001. But the progress stalled (see chart 1). Fears of terrorism in the United States after September 11th 2001 led to a security clampdown on its borders that still hampers trade today (the drug war in Mexico has not helped). Even more destabilising, after China joined the World Trade Organisation in 2001, American firms in Mexico upped sticks and headed across the Pacific. Trade within North America eventually started to grow again; but global trade—principally with China—mushroomed (see chart 2). By 2011, North American production had fallen back to 26% of the global total, similar to the shares in Asia and Europe. In a 2013 overview of NAFTA’s effects, the Congressional Research Service, an American government think-tank, portrayed it as something of a damp squib: “In reality, NAFTA did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters.” In a 2009 study, Robert Blecker of American University and Gerardo Esquivel of the Colegio de México found that for all its promise NAFTA had failed to close the development gap between Mexico and the United States. “During the first seven years…North America showed signs of becoming a more integrated and competitive regional market area, but much of the progress on the regional front was reversed in the next eight years.” The sense of something stymied, and the need for smoother borders and better infrastructure, become apparent the moment the Learjet 85’s fuselage is loaded on to a lorry and sets off up Mexico’s juddery Highway 57 towards the border at Nuevo Laredo. Before it gets there, its driver and cab will be replaced by a drayage team that hauls the cargo to just over the other side of the border. There an American driver and cab will take it to Wichita. This three-stage irksomeness mostly stems from a violation of NAFTA on the part of the United States, which waited 17 years after the agreement had come into force before honouring a pledge to allow Mexican truckers to cross the border and deliver goods to their final destination. When it did so it was in the form of a three-year pilot programme up for renewal in 2014. As yet, few Mexican truck companies have signed up for the rigorous checks involved, in case the programme lapses. At the border, those drayage firms face excruciating waits. On one recent afternoon the tailback stretched 8km (5 miles) without even a Coca-Cola machine by the road for the thirsty drivers. Large X-ray devices are meant to allow cargo to flow faster through United States customs, but spot checks mean the wait usually takes several hours. In 2009, based on an estimate that 1.5m lorries crossed from Nuevo Laredo each year, the Tijuana-based Colegio de la Frontera Norte reckoned the annual cost of delays added up to almost a third of a billion dollars. Youth and energy It is a similarly depressing story at the nearby railway bridge. The snakelike trains loaded with cars, scrap metal and grain—mostly built by Bombardier, and operated by Kansas City Southern, a United States-owned company—do not change locomotives at the border. But halfway across the bridge a team from the destination climbs up into the cab, and the departing crew trudges back home. American University’s Mr Pastor puts much of the blame for such inefficiencies on the United States’ security fears, and the allocation of resources that goes along with them. Since 2001, he says, $186 billion has been spent on border security. In the last fiscal year $18 billion was spent on immigration enforcement. Only a tiny fraction of that has been spent on upgrading border infrastructure to make trade flow more freely. However inconvenient the hours of waiting at the border can be, though, the time lost is little compared with the weeks spent shipping goods from China. Ten years ago those weeks were a price worth paying for cheaper manufactures. Now the differential has been reduced, perhaps even reversed. The Boston Consulting Group (BCG) calculates that if Mexico’s higher manufacturing productivity is taken into account, by 2012 the cost of labour in China was no less than in Mexico. By 2015 BCG expects Mexico to have a cost advantage of almost 30%. Mexico’s free-trade agreements with 44 countries—most of them entered into since NAFTA was set up—add to the attraction of expanding supply chains in the region. So, from the perspective of the United States, does the proportion of American content in Mexican and Canadian exports. BCG reckons 37% of Mexico’s exports include parts imported from the United States. That is four times as much as in Chinese exports. One reason is that NAFTA protects the intellectual-property arrangements such close-knit processes require to a degree that is very hard to guarantee when dealing with China; it has enforceable commitments on copyright, patents, trademarks and trade secrets. As Mexico becomes more attractive, it is seeing industries start to cluster. Mexico is the world’s largest exporter of cars after Germany, South Korea and Japan. Its production of cars recently overtook Canada’s; and German and Japanese carmakers NAFTA at 20: Ready to take off again? | The Economist Page 3 of 5 http://www.economist.com/node/21592631/print 3/14/2014 Put out more flags are investing heavily there. Carlos Ghosn, boss of Nissan, which in November opened a $2 billion new plant in Mexico, says it will soon become a bigger export hub than Nissan’s home base, Japan. What Brookings, a Washington think-tank, calls “advanced manufacturing industries”, including aerospace, computers and pharmaceuticals, are all spreading their supply chains across North America—as Bombardier shows. Brookings’ Joseph Parilla says the most high-tech industries will probably remain in the United States for a while—but even advanced technologies like 3D printing will have a role in Mexico. In the longer term, two further things favour North America; demography and energy. Two-fifths of Mexicans are under 20. Between 2000 and 2030, BCG expects Mexico’s labour force to grow by 58% and the United States’ by 18%, as China’s shrinks by 3%. And Mr Alcocer says the shale-gas revolution, the development of Canada’s oil sands, and a constitutional change in December allowing private firms to invest in Mexican energy, could give the industries employing those people secure supplies of low-cost energy for the foreseeable future. John Rice, head of global operations at GE, a conglomerate, chairs a business task-force looking at ways of boosting trade between the United States and Mexico. He bubbles over with praise for President Enrique Peña Nieto’s energy reform. “I visit 40 to 50 countries a year…and I don’t see enough countries where leaders are willing to take [such] tough, aggressive, bold actions.” He says Mexican energy is one of GE’s top strategic priorities: “When we think about Mexico we think about energy.” But linking up energy markets and aligning regulatory standards on everything from green technologies to smart grids will not be easy, and risks stirring up anti-NAFTA forces that have recently been in abeyance. In all three countries, energy arouses prickly notions of sovereignty. Officials say the White House’s failure so far to approve the Keystone XL Pipeline from Alberta to Nebraska, which would help carry crude from Canada to United States refineries on the Gulf coast, has dampened the faith of prime minister Stephen Harper in deeper North American integration: Canada is looking across the Pacific for oil markets. Many Mexicans remain fiercely nationalistic about their oil. Some fear that its energy reform will allow American firms to shift shale-gas production south of the border before environmentalists clamp down on it at home. Perhaps the biggest question-mark is whether cheaper energy in the United States will make it so competitive it feels it does not need closer North American ties. If states where wages were hard hit during the housing crisis, such as Nevada and New Mexico, are able to lure businesses directly back from China thanks in part to low energy costs—which they are keen to do—Mexico could be sidelined. Both and, not either or That tendency to want to go it alone may be reflected in Washington’s instincts to keep its NAFTA partners at arm’s length in other free-trade negotiations. The Obama administration started talks on the Trans-Pacific Partnership (TPP) with countries around the Pacific Rim before Canada and Mexico joined. It has chosen so far to rebuff Canada’s and Mexico’s desire to join it on the Transatlantic Trade and Investment Partnership (TTIP) with the European Union, despite the fact that both its NAFTA partners already have free-trade deals with the EU and harmonising all three might make sense. The United States’ “hub-and-spoke” approach to free trade raises resentment to the north and the south. But in principle the region’s growing links with Asia and Europe are to be encouraged. The alternative, building a Fortress North America in which the three countries try to boost their mutual competitiveness at the expense of the rest of the world, should be avoided. Jaime Serra, a former Mexican trade minister who led the country’s NAFTA negotiators, argues that TPP and TTIP could undermine Mexico’s trade advantages within North America, especially because they would allow other countries low-tariff access to the United States. But if they live up to their billing, helping to promote regulatory harmony and trade in services, which have lagged badly under NAFTA, and if they include businesses that were scarcely around in 1994—mobile phones, e-commerce—the whole region may be better off. NAFTA at 20: Ready to take off again? | The Economist Page 4 of 5 http://www.economist.com/node/21592631/print 3/14/2014 A more seamless North America should help reduce the differences between living standards around the region, which would benefit all three countries—not least because a richer Mexico would mean fewer problems of illegal immigration, violence and corruption in the neighbourhood. Bombardier is an example of progress. Just eight years ago, its site next to Querétaro contained nothing but cacti. Now twice-weekly flights shuttle engineers and technicians between Querétaro, Wichita and Montreal. In the process they pick up bits of the nations’ different languages and cultures, making North America a tangible entity. To them at least, the relaunch of NAFTA, like the launch of the Learjet 85, would be something to celebrate. From the print edition: Briefing NAFTA at 20: Ready to take off again? | The Economist Page 5 of 5 http://www.economist.com/node/21592631/print 3/14/2014
In this Q&A, Uri Dadush, former director of international trade and of economic prospects at the World Bank, explains how the improving economic outlook and international political will are fueling trade’s positive trajectory. Yet he cautions that risks remain in the form of unforeseen crises, geopolitical tensions, and more. • How realistic are forecasts that world trade will significantly expand over the next twelve months? What is driving the trend? • How great a risk to trade is the threat that emerging markets will become engulfed in crisis? • How significant is the trade-facilitation deal reached in Bali in December under World Trade Organization (WTO) auspices? • How does the progress in Bali relate to ongoing mega-regional trade negotiations on the Trans- Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP)? • What are the TTP’s prospects in the year ahead? • What are the prospects for TTIP? • What risks does world trade face in the longer term?
How significant is the trade-facilitation deal reached in Bali in December under World Trade Organization (WTO) auspices? The Bali agreement is important because without it, the WTO—which has fostered the laws that regulate world trade and help keep it open and predictable—might have slid into terminal decline or irrelevance. The so-called Doha Round of negotiations that has sought to achieve major multilateral reform of the international trading system remains stalled after twelve years. While the Bali agreement was not earth shattering, it does represent progress on a major agenda, namely the workings of customs arrangements. Bali also demonstrates how the WTO can retain its relevance in the future by engaging a critical mass of players on a relatively narrow issue and by allowing developing countries the room to implement agreements at their own pace. Unfortunately, Bali also came at the cost of taking a step backward on agriculture. The deal included a significant exception to the rules that limit trade distortion in this area—members can breach agricultural subsidy limits if they can justify doing so on the basis of ensuring food security for their citizens. Even though there are much more effective ways of ensuring food security than subsidizing agriculture, India’s government pushed this agenda very hard, in part for domestic political purposes. How does the progress in Bali relate to ongoing mega-regional trade negotiations on the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP)? Because of their size and reach, the TPP and TTIP mark significant steps in the cementing of regional arrangements as the preeminent locus of trade negotiations and have triggered interest in a number of similar initiatives, such as Japan-EU negotiations. The motivation behind these prospective partnerships begins with disappointment over the Doha talks. But it also stems from a need for deeper trade integration on the part of the world’s most advanced economies as well as a desire to establish tighter rules in areas such as intellectual property, stateowned enterprises, and FDI. And geopolitical considerations play a role as well—most importantly a desire of the United States and others to forge a tighter alliance as a counterweight to the rising power of China. What are the TTP’s prospects in the year ahead? There clearly is considerable momentum behind the negotiations at high levels of the U.S. administration. The Japanese too, particularly given the very difficult situation they now confront in disputes with China, badly want an agreement that would reinforce the structural-reform leg of Prime Minister Shinzo Abe’s economic agenda. Of course, the TPP was supposed to be concluded at the end of 2013. That deadline has come and gone. And, while the negotiation is advanced, bear in mind that since nothing is agreed until everything is agreed, what matters most are the real sticking points to be overcome or that can otherwise sink the whole agreement. There are plenty of these—from opening up Japanese agriculture, to reducing tariffs on imports of SUVs in the United States, to overcoming resistance to tougher intellectual property provisions. A widely noted lack of transparency in TPP negotiations makes it particularly difficult to assess the prospects for resolving these issues. A Bright Future for World Trade? - Carnegie Endowment for International Peace Page 3 of 5 http://carnegieendowment.org/2014/03/06/bright-future-for-world-trade/h2m6 4/24/2014 The recent abrupt rejection of trade-promotion authority by the U.S. Senate’s majority leader, Harry Reid, a Democrat, could quash all hopes of significant progress on the TPP this year. Trade-promotion authority gives the U.S. president the right to negotiate a trade deal and to send it to Congress for an up or down vote, which means legislators cannot pick the agreement apart. This authority is critical for concluding the TPP agreement because the United States’ partners don’t want to make concessions in one round of negotiations only to have another, even more complex negotiation process involving members of Congress begin. What are the prospects for TTIP? The transatlantic talks are really only just getting off the ground. The start of negotiations in earnest was delayed when the U.S. government closed down in late 2013. Cold water was also poured over them during the National Security Agency spying scandal, and some of the fraught dynamics created by that episode remain. The most that can be said about TTIP right now is that a very complex and far-reaching negotiation has begun—and that the negotiations will be especially difficult as they will extend to reforms of regulation that go well beyond the traditional purview of trade negotiators. Areas of greatest difficulty include government procurement, imports of genetically modified organisms (GMOs) and hormone beef, and data security. The gains from tariff reductions and broader liberalization in services and investment are bound to be limited because trade and foreign investment already flows quite freely between Europe and the United States. Still, the remaining barriers, such as those on agriculture, garments, and trucks, will be tough to remove, as they all require politicians to take long-standing vested interests on directly. Contrary to the aspirations of negotiators on both sides of the Atlantic, striking a deal will take many years and is very unlikely to happen during the U.S. administration’s current term.
The US is leading a push around the world to bring the rules of global commerce into the 21st century. The TPP, which includes Japan, Australia and other countries making up some 40 per cent of global output, is the most mature part of that. But the push also includes negotiations, begun last year, with the EU and an effort by two dozen economies on the sidelines of the World Trade Organisation to update the $4.5tn-plus annual global trade in services, which China is eager to join. As Mr Obama and Shinzo Abe, his Japanese counterpart, both indicated, the TPP and its siblings are part of a bigger strategic project. Mr Obama has “pivoted” to trade as well as to Asia as he seeks to construct a strategic economic response to the rise of China and other emerging economies. But to get the job done before he leaves office in January 2017, Mr Obama’s pivot to trade all depends on delivering a certain sequence of events. As the clock ticks and domestic politics intrude, the president and his team appear to be making only slow progress. The White House’s latest plan has been to close the deal on the TPP in order to convince reluctant Democrats in Congress to grant him the “fast-track” authority that allows US presidents and their interlocutors to conclude trade deals without fear they will be renegotiated on Capitol Hill. Crucial to that plan is striking a bilateral deal with Japan over agricultural and automotive market access, the absence of which has caused the broader TPP negotiations to stall. Those bilateral discussions dominated Mr Obama’s visit to Japan last week. The end result, according to the leaders’ joint statement, was the identifying of a “path forward”, language that left observers scratching their heads. The problem for Mr Obama is that despite the best efforts of his officials to spin this as a “breakthrough”, it may do little to re-energise the TPP talks. The spin may prove to be right. But negotiators worry that, without a firm agreement between the US and Japan, the TPP discussions could easily drag on through the summer and quite possibly until the end of the year. Why does that matter for EU negotiators? Or for China? It is a question of timing and politics. And it all comes back to the question of fast-track authority, which Mr Obama also needs to wrap up the transatlantic pact and a new global services agreement in Geneva. Once the TPP negotiations are done, it is likely to take months of work by lawyers to draft a final text that can be presented to Congress. To get a deal to Congress for approval – and make the case for fast-track authority – by the end of this year, or even early in 2015, the trade negotiators have to finish their work this summer. That now seems ambitious. The risk is that if the TPP and fast-track debates drag on deeper into 2015, they could come up against US presidential politics. The first primaries are just 20 months away and few Democrats are likely to want the divisive issue of trade making an appearance as they woo the party’s base in Iowa and New Hampshire. To be fair, the future of world trade does not hang entirely on Mr Obama or the TPP. Another round of negotiations on the services agreement began on Monday in Geneva. Mr Abe is in Europe this week to discuss a Japan-EU trade agreement. Angela Merkel, the German chancellor, is visiting Washington later this week and is also dealing with a centre-left coalition partner with a more sceptical view of the proposed transatlantic pact than she has. Still, the US is clearly the most important player. Just six months ago Mr Obama was restoring badly needed dynamism into the global trading system via the TPP and his other efforts. The risk now is that he may be running out of time.
The world economy is looking a lot weaker than it was just a few months ago. In May, the Organization for Economic Cooperation and Development predicted that growth would strengthen across the world in 2014 and 2015. But on Monday, the OECD said that its earlier estimates were too rosy and it lowered or kept unchanged its growth forecast for all major economies except India.
The Export-Import Bank (Ex-Im Bank) of the United States, which provides essential financing for many US exports, faces an existential crisis. Powerful opponents in Congress want to abolish the Ex-Im Bank to reduce government intervention in private markets. Its supporters are frustrated by its declining ability to help US companies compete with the heavily subsidized export of other countries, most notably China. The Ex-Im Bank's charter expires September 30, and the temporary extension that seems likely to emerge from Congress soon would only postpone the fundamental decisions that must be made about its future. Fortunately, a tried-and-true approach to the problem can satisfy both sides of the debate. In the mid-1970s, the Nixon and Ford administrations virtually eliminated the Ex-Im Bank, even as its European and Japanese counterparts were running rings around it. Then the Carter administration adopted a two-track strategy: Quadruple the lending of the Ex-Im Bank to make clear that the United States meant business, while simultaneously negotiating effective restraints on the export credit subsidies of all countries, especially below-market interest rates and excessively long maturities. The strategy worked. A multilateral accord was reached, with all major countries consenting to notify each other if they intended to deviate from the agreed-upon limits so that the United States could match them—a powerful deterrent on misbehavior. This new compact ended the export credit subsidy race of the day. US exports boomed, and the Ex-Im Bank was able to limit its lending—just as its critics wanted. It is time to repeat that counterintuitive strategy. Rather than cutting, Congress should agree to (at least) double the Ex-Im Bank's lending ceiling. In turn, the Obama administration should agree to launch a major effort to negotiate an updated cease-fire, with new transparency commitments, with all other large exporters. Once again, such a strategy can simultaneously satisfy conservatives' desire to reduce the market intervention of governments while defending US economic interests. The alternative—unilateral disarmament—would produce worse outcomes on both counts. The world of trade finance has changed dramatically in recent decades. As part of their deleveraging in the wake of the global financial crisis, commercial banks cut back sharply on all long-term lending, especially beyond their own borders. Private export credits have dried up, and small and medium size firms are essentially shut out. Governmental export credit agencies have had to fill the breech, and the Ex-Im Bank must do more, not less, to support US exports and counter increased competition from abroad. But many of the foreign agencies are using this new justification to escalate their subsidies beyond what is necessary to fill the vacuum, and it has also become urgent to negotiate new restraints on unfair competition. Moreover, our traditional competitors have invented new devices over the past decade or so to circumvent the agreed-upon rules. Even more important, new players that do not adhere to those rules—mainly China—now account for almost half of all official export finance. As a result, two-thirds of these credits take place outside the traditional regime. An International Working Group is discussing this problem but at a glacial pace that has yielded negligible results to date. Meanwhile, our competitors have been mightily encouraged by the failure of the United States to keep pace. The Ex-Im Bank now supports less than half as many exports as most other countries. It has a smaller program than Korea, whose economy is less than one-tenth the size of ours. The paradoxical outcome of partial US withdrawal has been increased overall market intervention by governments. Partly as a result of this, President Obama's goal of doubling US exports by this year has not been met, and our large trade deficit continues to significantly reduce US output and jobs. Our lagging government support for exports also prompts US companies to sell to global markets from their foreign subsidiaries, where they can take advantage of much more generous credit facilities—which may be one more factor in the recent rush to re-incorporate abroad. The United States is now engaged in the most ambitious trade agenda in its history, negotiating megaregional trade agreements across both the Pacific and Atlantic Oceans, along with multilateral efforts to reduce barriers to trade in services, environmental goods, information technology, and government procurement. But domestic political support for these initiatives is shaky, due importantly to the weakening of US competitiveness and the correct perception that foreign subsidies are a significant cause of that. That's why it's so important that we adopt more effective strategies to counter government intervention in global markets, including by fighting fire with fire and negotiating new accords to end the latest export credit race. That's the best route to a level playing field that enables US firms and workers to take full advantage of the new trade opportunities that could soon be available to them.
SUBJECT:The impacts of the widening of the Panama Canal on US East Coast ports. SIGNIFICANCE:The Panama Canal Authority has committed over 5 billion dollars to double lock capacity and deepen the channel sufficient to handle larger 'New Panamax' vessels. By 2016, the Canal will be ready to handle larger ships, including larger classes of liquified natural gas (LNG) vessels. However, only ten US commercial ports can accommodate the larger vessels and cargoes. Many on the East Coast have invested in upgrades to take advantage of the new ships that will be able to travel eastwards from Asia, bypassing the longer journey through the Suez Canal or overland travel from the West Coast. ANALYSIS: Impacts. As ports have consolidated market share in the face of rising operating costs, many ports fell into second-tier status. With shipping rates dropping and shipping margins compressed, cargo will shift to larger vessels, further hurting secondary ports. Investments may not be able to overcome this gap, as location is likely to be a larger factor than port capacity in determining costs. For about 100 years, the Panamax vessel class provided the US East Coast with access to Pacific markets. Over time, however, ships have become larger with fewer vessels meeting Panamax specifications (about 5,000 twenty-foot equivalent units, TEUs). After upgrades, which are expected to be completed in 2015, the Canal will be able to accommodate ships of 13,000 TEU capacity ( see PANAMA/SPAIN: Canal crisis costs signal conciliation - January 14, 2014). The new class represents upwards of 25% of ships under construction. However, growth of fleets is falling off as shipping rates decline. Presently, the demand and the shipping rates favour landing cargoes on the US West Coast. The West Coast's dominance is evident in the volumes. In 2013, the adjacent ports of Los Angeles and Long Beach collectively handled 11.1 TEUs. In contrast, the Port of New York and New Jersey handled 4.2 million TEUs. East Coast utilisation. The Panama Canal Authority claims that the New Panamax vessels could lower the cost of shipping goods to the East Coast by up to 30%, which suggests that that coast would see an increase of traffic diverted from the California and Washington ports. Amidst the economic boom preceding the recession, many port authorities believed that the new canal and the New Panamax vessels would necessitate a capital spend to serve them. At that time, emerging markets (notably, China) were major export powerhouses, and import growth seemed inevitable. Several factors drove this consumer import dynamic: US consumer spending rose based on increased household debt. Exporters like China pegged their currency against the dollar at rates designed to sustain the manufacture and shipment of consumer goods to the United States. As the recession hit and these factors reversed, capacity utilisation of US ports collapsed. As reported by the US Maritime Administration, US waterborne foreign trade declined in the period 2007-12 from 1.376 billion metric tons per year to 1.292 billion per year. The Gulf and East Coast ports saw considerable market consolidation during the recession and its aftermath. Port investment. Other ports are attempting to capitalise on the wider Canal by upgrading their facilities to attract New Panamax ships. Boston is spending 300 million dollars and Miami, a port handling similar volumes, is spending over 2 billion dollars in improvements. In the Miami port, about 900 million dollars will go towards building a four-lane tunnel to provide trucks direct access to Florida's extensive interstate highway system and about 50 million will be spent to improve the rail connection. Declining imports. This raises the potential for overbuild. Emerging economies are slowing in response to falling exports. Some traditional exporters, such as Japan, have swung to become net importers and China's growth has fallen off (see CHINA: Slowing manufacturing endangers policy goals - April 11, 2014). Indicators for Brazilian, Indian and Russian manufacturing have been neutral since mid-2013. The US consumer is also not spending as much as in the past. The household sector is unable to sustain creditfunded TEU imports at pre-recession levels as debt level rises. The most recent month's total consumer credit increased by 13.8 billion dollars but around 14.0 billion dollars went into student and car loans ( see UNITED STATES: Student debt will be a drag on economy - October 23, 2013). Debt-financed consumer spending, critical to TEU volumes, is unwinding. In January 2007, when US ports were considering expansion, monthly imports were running at around 185 billion dollars in value and growing at double-digit rates, depending on the port. They peaked in the summer of 2008 at approximately 233 billion dollars per month. Imports have reached this value again, but with inflation since 2008, at smaller volumes. Importance of geography. Boston is representative of a port struggling against the new shipping environment. The port ranks 22nd measured by foreign trade volumes but has lost 40% of its shipping volume since the recession. Smaller ports tend to operate as niche markets. For example, Boston is the end of the pipeline for natural gas deliveries. Hence, LNG cargoes coming from the Caribbean can compete with pipeline gas. In December 2013, only 2.72 billion cubic meters (bcm) were delivered to the eleven US licensed terminals in operation; over 1.8 bcm of those deliveries went to one terminal near Boston. As the furthest major port from the Canal, Boston will be competing with every other ports closer to the Panama Canal as well as those offering significant competitive advantage in cost and proximity to markets. Miami, though large, is nearly as distant from the neighbouring state as is possible to be in the contiguous United States. Therefore, economics favour the Chesapeake ports of Norfolk and Baltimore, with their central locations, access to the markets of the Northeast Corridor, intermodal connections and the ongoing market consolidation. Outlook. Port authorities have interpreted the expansion of the Canal as an opportunity for lower transportation costs on imports and job opportunities and economic growth from handling cargo. It is estimated that the ports of Long Beach and Los Angeles support 1.2 million jobs in California. However, the costs of direct Asia-US East Coast may be lower than rail or road transshipments, but not enough, given the likelihood of overall import stagnation, to justify expansion in every major port on the coast. There is likely to be overexpansion and municipal debt as a result of the capital spends. CONCLUSION: The expansion of the Panama Canal is unlikely to bring a renaissance to US East Coast ports. Declining trade volumes since the recession are unlikely to be reversed rapidly and consolidation indicates that the major ports of the Chesapeake region (Norfolk and Baltimore) may grow as smaller ports are further marginalised. For capital expenditures to prove justified, a considerable expansion of US consumer spending as the result of wage growth or reduction in consumers' debt would be necessary.
Trade deal implications. Washington is in the midst of three negotiations that together would transform markets for agricultural and food products on a global scale. The WTO Doha Round has struggled for over twelve years without a conclusion, though http://search.proquest.com.libproxy.nps.edu/printviewfile?accoun... 2 of 4 9/7/2014 9:51 AM the recent Bali WTO Ministerial did at the least provide some progress and promised a search for an eventual solution ( see INTERNATIONAL: WTO deal signals new era of regionalism - December 10, 2013). Direct payments. The elimination of direct payments has no effect on the potential Doha disciplines on US policy, since such measures have been notified as 'non-trade distorting' and were not scheduled for reduction. However, the growth of expenditure on crop insurance subsidies poses more problems: None of the crop insurance programmes now being offered to US farmers could qualify as 'non-trade distorting' under the WTO agricultural rules. The total expenditure depends on crop prices as well as uptake by the farmers, but could rise rapidly. The expansion of insurance coverage, along with ARC and PLC, could make the United States more cautious about agreeing to the proposed limits on trade-distorting subsidies, particularly those that limit spending on individual commodities. However, the reform of the dairy programme could add some flexibility to the US position, as much of the 'market price support' has been in favor of dairy producers; the Dairy Export Incentive Program, one of the only export subsidies still used by the United States, has now ended. Trade disputes. Other changes in the Farm Bill will be of interest to some trade partners. Meat labeling. An attempt to eliminate the provisions on 'country of origin labeling' for cattle failed, so these contentious regulations may again provoke Canada and Mexico to challenge the policy in the WTO (see INTERNATIONAL: High-frequency trading rules to tighten - February 6, 2013). Local sourcing. The EU may take comfort in the fact that there is a pilot programme for sourcing food aid from local sources: currently the United States is alone among the food aid donors in insisting that US grain be shipped to food aid recipients. Dairy. The change in the dairy programme could also make trade talks with TransPacific Partenership and Transatlantic Trade and Investment Partnership countries somewhat easier. The TPP partners, particularly Australia and New Zealand, may find it easier to expand sales in the US market, currently controlled by tariff-rate quotas, if domestic producers are cushioned against any dilution of the price of milk products. Similarly, when EU negotiators press for improved market access for dairy products on the US market the extra flexibility afforded by the change in the dairy programme could be useful. CONCLUSION: The US agricultural sector may become less of a threat to global trade deals with the recent Farm Bill. Although the industry will receive governmental support, especially in the form of insurance schemes, and none of these will qualify as 'non-trade distorting', some of the reforms may add flexibility to US trade positions and mollify partners in major trade negotiations.
The chances of passage of presidential 'fast track' trade authority in Congress. In last week's State of the Union address to Congress, President Barack Obama lauded presidential 'fast track' Trade Promotion Authority (TPA) and the prospective TransPacific Partnership (TPP) trade deal as boons for the economy. However, the White House policy quickly attracted opposition from many quarters: Democratic Senate Majority Leader Harry Reid reiterated his disapproval of the draft TPA bill; senior Republican Senator Orrin Hatch, who supports the bill but criticised administration efforts; and over 500 labour and environmental groups petitioned Congress to reject TPA. Restoring 'fast track' authority to the president is critical for conclusion of the TPP, since the bill mandates timetables for congressional action and constrains the legislature from amending it. The negotiation process among the twelve TPP countries has bogged down, with the January rounds postponed and no agreement on dates for the next meeting. SUBJECT:The chances of passage of presidential 'fast track' trade authority in Congress. SIGNIFICANCE:In last week's State of the Union address to Congress, President Barack Obama lauded presidential 'fast track' Trade Promotion Authority (TPA) and the prospective TransPacific Partnership (TPP) trade deal as boons for the economy. However, the White House policy quickly attracted opposition from many quarters: Democratic Senate Majority Leader Harry Reid reiterated his disapproval of the draft TPA bill; senior Republican Senator Orrin Hatch, who supports the bill but criticised administration efforts; and over 500 labour and environmental groups petitioned Congress to reject TPA. Restoring 'fast track' authority to the president is critical for conclusion of the TPP, since the bill mandates timetables for congressional action and constrains the legislature from amending it. The negotiation process among the twelve TPP countries has bogged down, with the January rounds postponed and no agreement on dates for the next meeting. The window for increased cooperation between the parties, and Congress and the White House will be confined to the early months of 2014. Closer to November's mid-term elections, Republicans will not want to be seen as cooperating too closely with a Democratic president. Post-elections, potential Republican majorities in both houses may be more likely to pass this part of Obama's agenda. Last week's objections to Obama's trade policy surfaced little that was new from each individual source. However, the timing and collective weight of these actions had considerable political impact and forced US Trade Representative Michael Froman publicly to reassure negotiating partners that TPA passage was on track. Domestic opposition. Opposition to Obama's fast-track authority came from three distinct quarters, each with its own agenda. Senate control at stake?. Reid has historically been opposed to trade agreements, having voted against the North American Free Trade Agreement (NAFTA) in 1993. However, he has brought bills to the floor which his party supports but which he has opposed, and may do so in these circumstances. Of greater concern to the White House is that Reid is speaking not because of his own views on policy, but because he wishes not to commit his caucus to a difficult vote before an election cycle in which Democrats are facing an uphill battle. Senate seats up for re-election include 21 held by Democrats and just 15 by Republicans. This would mean that Reid, rather than attempting to slow down TPA consideration in the first months of the year, would be attempting to delay it long enough that trade negotiations may be crippled. Chinese trade inclusion. Hatch supports both the TPA and TPP -- he co-sponsored the TPA bill -- but his address to the US Chamber of Commerce on January 29 could be seen as a precautionary warning. Hatch is ranking Republican member of the Finance Committee and the likely committee chair if his party wins control of the Senate. Hatch's complaint was focused on intellectual property rights (IPR). Although he cited several countries where he considered the White House to be lax on IPR enforcement, including India and current TPP member Chile, Hatch's concerns were directed towards US-China trade. Beijing is not currently a TPP candidate and Froman has said that the United States would prefer that China first conclude the US-China Bilateral Investment Treaty currently under negotiation before entering into TPP talks (see US/CHINA: Investment treaty could fail on blocked bids - August 2, 2013). The slow progress of that series of discussions practically ensures that Beijing would not be able to join the TPP before an agreement among the twelve existing members goes to Congress. Hatch's opposition is the easiest to accommodate, but does raise other concerns for the White House if worries about eventual Chinese entry into TPP is conflated with Democratic objections to the current negotiations. Democratic party opposition. A petition from 550 environmental and labour groups to Congress was predictable in its substance, but the White House was startled by the inclusion of several organisations that were not previously involved in anti-free trade lobbying, such as the United Auto Workers , which had provided critical support to the US-South Korea http://search.proquest.com.libproxy.nps.edu/printviewfile?accoun... 2 of 4 9/7/2014 9:52 AM Indexing (details) Subject Politics; Foreign investment; International trade; Legislation; Environment; Labor market; Regulation; Labor unions Location United States, US, North America, Asia-Pacific region, Chile, India, Japan agreement and the American Federation of Teachers -- both traditionally Democratic support groups. Several signatories were moved by the release of the TPP chapter on the environment by Wikileaks on January 15, which they viewed as being too weak on enforcement. It will be difficult for the administration to placate these groups without divulging ongoing negotiations, and it will be hard for Democratic senators in tight election races to ignore the demands of key fundraising and campaigning groups. Combined with Reid's hesitancy, these groups may pose the biggest threat to TPA. TPP negotiations. Congressional and public opposition to TPA has undermined the negotiating process for the TPP, which hit obstacles of its own at the end of 2013. A ministerial meeting had been planned for January, which was envisioned as the final push to resolve the most high profile issues, but was abruptly postponed at the December negotiating round in Singapore ( see INTERNATIONAL: TPP Singapore round faces hurdles - December 6, 2013). Tensions between Tokyo and Washington over Japanese tariffs on farm products and auto trade issues were the most high profile at the December rounds, and two bilateral meetings since then have not resolved these differences. The White House considers it imperative to show progress on the TPP to shore up confidence in the agreement in Congress and is pushing for a ministerial meeting later this month. However, questions over the TPA as well as the remaining trade issues have inclined some members to consider March at the earliest for the next round. Outlook. Presidents have historically had great success in winning fast-track authority from Congress despite opposition from interest groups and some in Congress; none of the developments in the past week indicate that this trend will be reversed. However, the combination of a reluctant Senate majority leader and energised party activists during an election year makes passage of TPA far from certain. Although this may affect the timeline and negotiations for the TPP, the US-EU Transatlantic Trade and Investment Partnership is in the early stages of negotiation and unlikely to be affected. CONCLUSION: In the short-term, TPA must wait on incoming Senate Finance Committee Chair Senator Ron Wyden. Wyden has signalled that TPA legislation as written is not acceptable, and that he favours renegotiating some of its terms. This may gain him the support of some Democratic senators in principle, but reconciling core Democratic concerns with Republican interests -- without undermining the White House's negotiation position -- will be difficult. In the medium term, passage depends on White House efforts with Democratic senators. Reid may oppose TPA personally, but as with Central American and South Korean free trade agreements in recent years, is unlikely to prevent a vote if the majority of his caucus approves.
The Senate yesterday approved a farm bill, which will authorise an estimated 956 billion dollars over the next ten years for agricultural support and food stamps. The bill, which President Barack Obama is expected to sign, passed the Senate by 68 votes to 32, after clearing the House last month by 251 votes to 166. Although it reduces spending by about 17 billion dollars over ten years, including 9 billion dollars in cuts to food stamps, the bill generally maintains -- and in some cases, increases -- other agricultural subsidies and supports. The legislation was a year overdue and has been attacked by deficit 'hawks', environmentalists and legislators from urban areas.
CONCLUSION: The extensive new legislation includes increased insurance for farmers, which may become increasingly important as climate change is expected to increase volatility of temperature and rainfall. However, continued mandatory country-of-origin labelling for meat products will trigger protests from Canada and Mexico, and possible retaliatory measures; the farm bill will also create additional impediments for TransPacific Partnership and US-EU trade negotiators.
A series of oil discoveries in the Bakken, Eagle Ford and Permian basins in North Dakota and West Texas, coupled with technological advances that allow these reserves to be profitably exploited, have led to a surge in US oil output. From yielding virtually no output five years ago, the Bakken Shale formation passed one million barrels per day (b/d) this month, while the Eagle Ford Shale deposit is nearing 1.3 million b/d. The United States is approaching Russia as the world's second-largest oil producer -- but the development of infrastructure to move the oil to market has not kept pace with new production.
Relaxing export restrictions. Part of the pressure on US oil prices is the inability of producers to access global markets. Despite increasingly loud calls from oil producers, the White House has yet to give any response indicating that it will relax export restrictions. A few producers have been able to obtain licenses to export crude; however, these amounted to 45 licenses in 2011 and 66 in 2012 -- and were almost all oriented towards the Canadian market. In October, the United States exported less than 1% of the 7.7 million b/d that US energy companies pumped. While this state of affairs does not look likely to change soon, pressure is mounting and will continue to do so as production increases. The United States exports natural gas, and supporters of export reform will point to the discrepancy within the hydrocarbon sector ( see UNITED STATES: Exports will provide swing inventory - December 18, 2013). Outlook. The recent increase in the production of light sweet crude does not mean that the United States is energy independent. US imports have dropped 25% over the past five years, but foreign oil still makes up about half of the crude that US refineries turn into petroleum products. The United States does not come close to consuming all of these refined fuels -- gasoline, diesel, jet fuel -- which, unlike oil, can be exported, and ships much of them abroad. However, over the medium-to-long term, as pipeline activity eases transportation capacity, production continues to rise and oil producers increase their calls, there will likely be at least some relaxation of the export ban. Although Keystone XL may be opposed by environmentalists due to (largely misplaced) concerns that it will exacerbate climate change, laws regulating the export of already-pumped oil are unlikely to meet similarly visible protests. CONCLUSION: The surge in oil production means that the United States is moving towards a significant domestic oversupply of light crude, which could overwhelm Gulf Coast refineries not equipped for the type of oil now in abundance. A reassessment of restrictions on crude oil exports, which date back to the 1973 OPEC oil embargo, is likely. Although no reversal is immediately forthcoming, pressure on Congress and the White House will grow throughout 2014, especially since there is high demand for light crude internationally and it fetches higher prices than heavier oil.
SIGNIFICANCE:The United States became the world's top producer of petroleum and natural gas hydrocarbons in 2013, according to the US Department of Energy. Natural gas production has risen by 84.9 billion cubic meters (bcm) since 2008, despite a recession and slow recovery, which has depressed demand. Once viewed as a major import market for pipeline gas and liquefied natural gas (LNG), the United States is now a swing inventory, ready to supply markets facing constraints. US energy export policy -- still in the midst of reform -- will determine how that swing inventory impacts global energy markets. ANALYSIS: Impacts. EU demand for gas imports will grow as North Sea fields decline and nuclear power plants are phased out. New shale gas production through 2014 will exceed the production growth of 2009-12 by around 30%.
Rising supply is expected to modulate prices and reinforce demand growth. Until recently, natural gas markets were regional, and defined by the pipeline network. While natural gas is available worldwide, the absence of an existing pipeline would often strand a field in an undeveloped state. However, LNG is deconstructing pipeline constraints. By degasifying natural gas into a highly concentrated liquid state, and loading the fuel onto specially constructed carriers, markets lacking local supply, such as Japan, could be served by regions where the supply exceeds local demand, such as the Middle East and North America. Growth in US gas. A decade ago, the United States anticipated a domestic supply shortfall. At one point, around 150 bcm of LNG imports each year promised to close the gap by landing at regasification terminals close to major pipeline junctions. LNG terminals are multibillion dollar projects with long lead times to deal with permitting, licensing, procurement and construction. These projects proceeded at a slower pace as shale gas boomed. Today, the United States is awash in domestic supply. US natural gas prices are trending sideways in the range of 3.50 to 4.25 dollars per million British thermal units (BTU). Market price flexibility. Global natural gas supplies to end users are priced by regulation and market forces. The pricing mix varies regionally. Regions where prices are more responsive tend to feedback quickly those signals to supply. Natural gas prices in North America and the EU are more market-based, and price natural gas directly or indirectly, such as through reference pricing, where natural gas prices are tied to an oil index. For much of the previous decade, US demand outpaced supply, fueled by central bank easy credit policies. As the credit bubble inflated, demand and prices rose over a wide range of commodities and assets. Natural gas prices spiked mid-decade, peaking at 15.78 dollars per million BTU just before the credit bubble burst. Shale development. The price ramp-up funded a significant boost in North American exploration and production (E&P) and enabled a wide range of technological innovations. The development of shale gas supply was one of the more successful innovations. In the period 2009-12, dry gas production grew 15%, far outpacing the anemic economic growth of the time. Most E&P projects continued despite falling commodity prices. Traditionally, natural gas E&P focused on areas adjacent near or connected with crude oil deposits. However, large volumes of gas existed in the shale gas formations covering most of the United States. The price spikes and scaling made those formations economically viable ( see PROSPECTS 2014: Global oil markets - November 15, 2013). Price drop. The production surge from shale gas combined with the credit bubble collapse leaves US markets oversupplied. Prices were at a ten-year low last year, and the lowest in the world. Low prices are accelerating the shift of electric power production from coal ( see UNITED STATES: Shift from coal power will be gradual - December 3, 2013). They also make both the United States and Canada potential suppliers to global markets: the United States in the Atlantic Basin and Canada in the Pacific. LNG terminal operators are repositioning as exporters. In September, the US Department of Energy approved its fourth export facility with about 100 bcm of export capacity seeking licenses. Several LNG projects are in development in British Columbia and the Pacific Northwest. Global LNG market. The EU is a potential beneficiary of US supply, additional LNG supply could temper the competitive advantage enjoyed by Gazprom and central Asian suppliers of pipeline gas as the EU increases trading hubs on the continent. North American exports into the Pacific Basin would diversify supply coming from Qatar and Gazprom into a region seeing increasing demand. Japan's energy deficiency is growing, amplified the shutdown of its nuclear power plants. To close the energy gap, Japan is importing some 25 to 30 bcm more of LNG each year. These imports flipped Japan's trade role from net exporter to net importer, imposing significant current account challenges and pressure on the yen. Spot Market. Global LNG supply is approximately 380 bcm per year. Over the next 10 years, it is expected to reach 550-750 bcm per year to keep pace with demand. This growth is also transforming the deal structures creating greater liquidity in the LNG market. As North American gas enters this market, its more immediate effects will be felt in the spot market. Traditionally, LNG supply is committed to demand through a long-term contract mechanism. Approximately 20% of the LNG market trades under short-term agreements. Roughly, that volume is on the order of 75 bcm per year -- higher in the Atlantic Basin and Gulf, and lower in the Pacific. Asia tends to be a 'price-taker' under long-term agreements indexed to crude oil. As demand continues to rise at its current extraordinary rate, the draw reaches into other regions. Hence, additional supply tends to move towards Asia that will soften prices globally. Such softening undercuts the market power of global gas suppliers and LNG exporters. EU market. EU natural gas markets focus on supply security. EU markets are mindful of the steady decline in domestic production, prominent role played by Gazprom, and some experience with pipeline supply disruptions transiting Ukraine. To address disruption concerns, Gazprom is pursuing other pipeline projects into its EU market to isolate disputes with Ukraine. Collectively, these projects also promise to increase Gazprom's delivery capacity to well above 200 bcm per year. The next effect of LNG supply growth worldwide and US export capacity into the Atlantic Basin will provide options to EU markets. It is conceivable LNG can match Gazprom pipeline and promise some volume hedges. The United States may become the second largest energy supplier to the EU, pricing its gas roughly half that of the cargoes delivered to Japan. CONCLUSION: Rising demand for natural gas will encourage reform for US export regulations. Price differentials make the EU and Asia attractive markets for US natural gas, especially as shale production escalates in the medium term.
SUBJECT:Defence export regulatory reform. SIGNIFICANCE:The White House has launched an Export Control Reform (ECR) programme to improve the regulations for controlling the export of US weapons and dual-use goods. With suitable safeguards, foreign defence sales by US companies can serve US national security interests: fostering ties with allies and partners, enhancing US military technologies, increasing operational and tactical interoperability between the United States and other countries, and providing an additional customer base for US defence businesses. However, if poorly designed, the system will impede US exports without significantly benefitting US national security. ANALYSIS: Impacts. Increased exports are necessary to preserve the industrial base, given sequestration budget cuts limiting acquisitions purchases. Although NATO allies are most likely to benefit from looser regulations, their defence budgets are declining. http://search.proquest.com.libproxy.nps.edu/printviewfile?accoun... 1 of 5 9/7/2014 10:07 AM Industrial espionage may supplant exports as a main concern of proliferation. The existing export control system is viewed by many in Washington as overly complicated, excessively redundant and unduly protective. Defence exports are necessary for building the requisite economies of scale, but risk giving away US technological superiority to potential adversaries. To create a better system to balance these competing demands, the administration of President Barack Obama has established the goal of achieving four 'singularities' in the US export control system, namely a: single unified tiered control list for both dual-use and munitions exports; single licensing entity with standardised processes and jurisdiction over both munitions and dual-use items and technologies; single enforcement coordination entity with frequently updated consolidated list of banned end users; and single information technology system with a single online database for receiving, processing, and screening new license applications and end users. These goals follow-on previous reforms, but the prospect that they will serve as a major spur to export growth appear limited. Past reforms. Through regulatory reform, the administration has achieved greater predictability in the licensing system, making defence exporters more efficient and giving foreign buyers a greater degree of certainty. Pruning the lists. The administration has made progress toward updating the US Munitions List (USML). To facilitate the transfer of items from the USML to the less restrictive Commerce Control List, the administration has updated the definition of 'specially designed' for military application. The initial reforms have focused on relaxing restrictions on commercial space exports, especially satellites. Agency consolidation. Perhaps the most ambitious ECR attempt to streamline the process is to create a single US arms export licensing agency to reduce wait-times for export licenses and confusion about licensing. The Obama administration took a first step toward creating a single clearinghouse for handling export requests in 2010 with an executive order that created the Export Enforcement Coordination Center (E2C2). It brings together representatives from the different departments to enhance coordination. It also works as a single export 'fusion' entity to screen all license applications, coordinate investigations, synchronise outreach programmes and resolve potential conflicts in criminal and administrative export enforcement. Embracing foreign nationals. A 2011 Government Accountability Office study identified problems with the licensing system for foreign nationals, finding a seemingly contradictory pair of problems: that the regulatory system was both unwieldy and not sufficiently strict. New regulations in 2011 facilitated the transfer of defence articles to dual and third country nationals. Treatment of nationals of the NATO countries, Australia, New Zealand, and Japan is even more favourable under the new rules and Congress has ratified bilateral arms trade treaties with Australia and the United Kingdom. Remaining obstacles. http://search.proquest.com.libproxy.nps.edu/printviewfile?accoun... 2 of 5 9/7/2014 10:07 AM Although the administration has achieved some progress, there are numerous outstanding issues confronting the sector and potential difficulties in achieving reforms. Accommodating foreign nationals. Critics claim that the new regulations still impose a heavy burden on foreign and US companies by forcing them to create a system to ensure that their foreign national employees do not violate the substantive contact rule and the companies do not violate privacy laws. One recommendation is to grant the individual, agency or country a comprehensive blanket license once they have received an ITAR license. This option would be geared towards the academic community so that universities do not have to apply for a new license whenever they want to start a new project relating to military technology. Arms categorisation. The US defence industry hopes that the reforms will continue to remove items from ITAR's jurisdiction. However, even when the USML is trimmed down, the ITAR licensing procedure will hinder US companies and relations with countries. Although the administration has claimed that creating a single list of restricted national security exports would streamline the US arms export process, the new distinctions within the list could engender more problems with arbitrary distinctions. Costs. The Department of Defense's acquisition reform programme mandates integrating 'defence exportability features' into weapon systems. These should increase US military exports, increasing interoperability while reducing costs through larger production runs and other efficiencies. But debate continues within the Pentagon regarding who should pay for the endeavour. It also remains to be seen whether the foreign market, especially among allies, will be large enough to absorb increased supply ( see EUROPE: Defence summit will confirm further decline - October 7, 2013). Institutional impediments. The administration confronts the problem that different congressional committees favour different approaches, while executive branch leadership for export reforms weakened following the departure of key Cabinet members such as former Secretary of Defense Robert Gates and former Secretary of Commerce Gary Locke. The main obstacle to comprehensive export reform has traditionally been institutional rather than partisan or personal. The E2C2 may serve as a model for a future single agency that will coordinate licensing. Creating such an agency, though, would require legislation by a Congress still dissatisfied by the perceived problems with the Department of Homeland Security, created in 2003. Congress has been sceptical of executive policy consolidation ( see UNITED STATES: Fight over 'czars' hurts Obama policies - March 7, 2011). Outlook. The ultimate goal of the review process is to amend every category of the USML, but revising the List is a time-consuming process unlikely to be completed by the end of Obama's second term in January 2017. The creation of such a single list, moreover, requires congressional legislation. The Commerce and State lists will likely remain separate, albeit with clearer divisions between the two. The other envisaged reforms may take considerably longer, raising the obvious question of whether the next administration will be as committed to ITAR reform as the Obama administration and whether it will pursue the same reforms. CONCLUSION: Even if fully implemented, the ECR will leave many defects of the underlying International Traffic in Arms Regulations (ITAR) framework intact. Deeper changes would probably require major legislative action, which is unlikely in the remaining years of this administration given the absence of a congressional consensus on the issue. http://search.proquest.com.libproxy.nps.edu/printviewfile?accoun... 3 of 5 9/7/2014 10:07 AM
SUBJECT:India's tensions with the WTO -- and their wider economic implications. SIGNIFICANCE:India recently prevented the formalisation of the WTO trade facilitation agreement (TFA) due to the international trade body's failure to give due importance to the issue of public stockholding for food security. As one member of the G-33 -- a group of 46 developing countries -- India expressed concerns that the process of implementing the 'Bali package' (agreed in December 2013) had ignored this key issue. This position has led to strong criticisms of Prime Minister Narendra Modi's government, raising questions about its stand on India's global economic integration. ANALYSIS: Impacts. The new government's resistance to FTAs could further stall negotiations with the EU. Yet Delhi will be softer on areas where global integration is unavoidable, notably infrastructure finance and technology transfer. Modi will actively promote BRICS initiatives, partly to woo Chinese investment into India, keeping geostrategic talks on a separate track. The Bali package was strongly endorsed by the Congress-led United Progressive Alliance (UPA), which was in power until May. In fact, the UPA took credit for the successful conclusion of the Ninth WTO Ministerial Conference and for major decisions offering gains to a wide range of WTO members. This echoed the sentiments of WTO Director-General Roberto Azevedo who declared that the package would "benefit all", including those who rely on food security schemes. Delhi's volte-face?. During the past few months, India and other G-33 countries -- in keeping with the mandate of the Doha round -- had pressed the WTO to seek a permanent solution for meeting food security needs of developing countries when this was done through public stockholding of foodstuffs. However, Delhi became concerned when the process of implementing the Bali package transformed into a programme for TFA formalisation, failing to make progress on food subsidies. Heart of the dispute. The key problem is a provision in the Agreement on Agriculture (AoA), which states that when developing-country governments procure foodstuffs to meet domestic food security needs, the difference between the procument price of foodstuffs and their average international prices during 1986-88 -- called the "external reference prices" (ERP) in the AoA -- was to be included in their subsidies bill. Architects of the AoA -- who negotiated the key elements of the agreement in the late 1980s -- wanted acquisition prices to be compared with a "competitive price", the closest approximation of which was the international price. However, Delhi claims that after 28 years, these ERP are no longer "competitive", calling for a revision to the 1986-88 base period. This revision is imperative given that the AoA does not allow developing countries to subsidise their agriculture in excess of 10% of the value of agricultural production. If they violate this commitment, they risk being dragged to the Dispute Settlement Body of the WTO. This implies that if India is to implement the Food Security Act while complying with AoA stipulations, the ERP must change for the purpose of calculating agricultural subsidies. Delhi has not ruled out support for the TFA; rather, it seeks a parallel track on which the post-Bali agenda could deliver a permanent solution on the contentious AoA issue. The WTO had hoped to postpone a decision on food procurement until 2017. However, this agenda may need to be brought forward. TFA outlook. Yet even if this parallel track were established, TFA ratification would encounter new difficulties. Several developing countries -- including African and Latin American countries -- seek greater financial resources and capacity-building support before implementing the agreement. Notably, most developing countries will struggle independently to provide modern facilities at the border to facilitate trade, especially in IT. Spill-over risks. India's recent dispute with the WTO could spill into other areas of trade relations. FTAs. Although Modi seeks greater foreign investment -- and is seen as a liberal reformer by industry -- many elements in his Bharatiya Janata Party (BJP) are conservative and favour protectionism. Reflecing that tendency, the government has announced its intention to review FTAs signed by the UPA -- to test whether they are in India's interest. Indeed, in almost every case, India's has faced a worsening of its trade deficit vis-a-vis its FTA partners. With at least three of its FTA partners -- Malaysia, Japan and South Korea -- India exports less than the trade deficit it maintains with them. This concern was highlighted at the recent ASEAN meetings in Myanmar when Minister for Commerce and Industry Nirmala Sitharam skipped the signing of an India-ASEAN services FTA. These trends suggest that the new government is likely to be more circumspect on FTAs -- departing from its predecessor's position. BIPPAs agreements. Moreover, successive governments -- including one led by the UPA -- have indicated a desire to review India's Bilateral Investment Promotion and Protection Agreements (BIPPAs), which currently stand at 83. Delhi is concerned about the 'investor-state dispute settlement' mechanism that allows the foreign investors to take the host state to a private arbitration panel. In recent years, the government has found itself in adversarial positions vis-a-vis several foreign investors, and faced the threat of arbitration in international tribunals. (It has already lost one dispute involving the Australian miner White Industries and Coal India, in which the damages could well exceed 13 million Australian dollars (12.1 million US dollars).) Several other foreign investors, including Vodafone, have indicated that they could invoke this mechanism to resolve their disputes with the government. Nationalism versus economic liberalisation. Besides trade relations, nationalist preferences of parts of the BJP will prove difficult to overcome in multiple other areas (see INTERNATIONAL: Emerging markets face reform barriers - June 12, 2014). Notably, while the government has announced a lifting of ceilings on foreign direct investment in several sectors of the economy -- notably defence, insurance and pensions -- it is highly unlikely to allow foreign entities a controlling stake (see INDIA: Pensions reform promises long-term gains - August 12, 2014 and see INDIA: Insurance reform spurs investment opportunities - August 4, 2014). Yet, simultaneously, there is clearly scope for reform in specific sectors, such as infrastructure and manufacturing that require foreign technology and investment. Moreover, the government could advance investor-friendly policies in areas such as land acquisition and labour regulation. However, India's global economic integration will be incremental, and subject to internal nationalist and protectionist politics. CONCLUSION: Concluding the TFA without a permanent solution on public stockholding for food security would not give India legal certainty to implement its food security programme. Therefore, it is unlikely that Delhi will reverse its opposition. More broadly, Delhi's tiff with the WTO exposes nationalist and protectionist limits to the new government's embrace of economic globalisation in such areas as free trade agreements (FTAs) and the opening of key sectors to foreign investment.
A protectionist breakout threatens Peña Nieto's economic reform agenda.
Instead of tackling a complex new investment mission, the Fed should establish a clear portfolio wind-down process.
While the West stands ready to sanction Moscow, may are more worried about Putin has up hs sleeve
The global recovery is strengthening but remains weak. A global growth target, pursued by the G20, could significantly strengthen this recovery process. But such a macroeconomic target needs to be supported by microeconomic reforms.
PARIS – Central bankers are often proud to be boring. Not Mario Draghi. Two years ago, in July 2012, Draghi, the president of the European Central Bank, took everyone by surprise by announcing that he would do “whatever it takes” to save the euro. The effect was dramatic. This August, he used the annual gathering of top central bankers in Jackson Hole, Wyoming, to drop another bomb. Draghi’s speech this time was more analytical but no less bold. First, he took a side in the ongoing debate about the appropriate policy response to the eurozone’s current stagnation. He emphasized that, along with structural reforms, support for aggregate demand is needed, and that the risk of doing too little in this respect clearly exceeded the risk of doing too much.
Two years ago, Shinzo Abe’s election as Japan’s prime minister led to the advent of “Abenomics,” a three-part plan to rescue the economy from a treadmill of stagnation and deflation. Abenomics’ three components – or “arrows” – comprise massive monetary stimulus in the form of quantitative and qualitative easing (QQE), including more credit for the private sector; a short-term fiscal stimulus, followed by consolidation to reduce deficits and make public debt sustainable; and structural reforms to strengthen the supply side and potential growth. It now appears – based on European Central Bank President Mario Draghi’s recent Jackson Hole speech – that the ECB has a similar plan in store for the eurozone. The first element of “Draghinomics” is an acceleration of the structural reforms needed to boost the eurozone’s potential output growth. Progress on such vital reforms has been disappointing, with more effort made in some countries (Spain and Ireland, for example) and less in others (Italy and France, to cite just two).
In the first half of the 1990s, annual inflation averaged 40% in Africa, 230% in Latin America, and 360% in the transition economies of Eastern Europe. And, in the early 1980s, advanced-economy inflation averaged nearly 10%. Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity. They are wrong to do so. No matter how much central banks may wish to present the level of inflation as a mere technocratic decision, it is ultimately a social choice. And some of the very pressures that helped to contain inflation for the past two decades have been retreating.
This is the eighth update of The Economic Effects of Significant U.S. Import Restraints. During the more than 20 years since this series of reports began, U.S. tariff and nontariff measures on imports have fallen, and trade has expanded markedly. Over this period, the U.S. services sector has also increased in importance considerably, in both absolute and relative terms, with important implications for other sectors of the economy. The contribution of services to U.S. manufacturing is the subject of a special-topic chapter in this report. The United States is one of the world’s most open economies. In 2012, the average U.S. tariff on all goods remained near its historic low of 1.3 percent on an import valueweighted basis—essentially unchanged from the previous update in 2011. Nonetheless, significant restraints on trade remain in certain sectors. The U.S. International Trade Commission (Commission) estimates that U.S. economic welfare, as defined by total private consumption, would increase on average by about $1.1 billion annually relative to the 2012–17 baseline calculated by the Commission if the United States unilaterally ended (“liberalized”) all the significant restraints quantified in this report. Exports and imports would both expand by about $6.2 billion. These changes would result from removing import barriers affecting cheese, sugar, canned tuna, textiles and apparel, and certain high-tariff manufacturing sectors.1 Restraints on the services sectors are discussed qualitatively.
ROUTLEDGE TRADE -- MANUFACTURING
Having the raw material nearby is only an advantage if it is very costly to move that input around, which is more true of wood than it is of diamonds or even iron ore. Australia, despite its remoteness, is a major exporter of iron ore, but not of steel, while South Korea is an exporter of steel, though it must import iron ore. What the Finnish story indicates is that the more promising paths to development do not involve adding value to your raw materials – but adding capabilities to your capabilities. That means mixing new capabilities (for example, automation) with ones that you already have (say, cutting machines) to enter completely different markets. To get raw materials, by contrast, you only need to travel as far as the nearest port. -- DEVELOPING COUNTRIES COMPARATIVE ADVANTAGE PART OF CLASS
VERY GOOD VALUE CHAINS Participating in global value chains is an alternative way to learn by doing that is potentially more powerful than closing markets to foreign competition. It enables a parsimonious accumulation of productive capabilities by reducing the number of capabilities that need to be in place in order to get into business. This strategy requires a highly open trade policy, because it requires sending goods across borders many times. But this does not imply laissez-faire; on the contrary, it requires activist policies in many areas, such as education and training, infrastructure, R&D, business promotion, and the development of links to the global economy. USE IN ECONOMIC GEOGRAPHY PART OF THE CLASS
This suggests that all inequality (of outcomes) should not be viewed in the same way. Inequality based on successful rent seeking and privileged access to resources and market opportunities is highly toxic with respect to social cohesion and stability – and hence growth-oriented policies. In a generally meritocratic environment, outcomes based on creativity, innovation, or extraordinary talent are usually viewed benignly and believed to have far less damaging effects.
Persistent sluggish growth throughout the developed world has left major economies unusually vulnerable to the inevitable bumps in the road.
By 2011, it was clear – at least to me – that the Great Recession was no longer an accurate moniker. It was time to begin calling this episode “the Lesser Depression.”
The Washington summit comes eight years after the China-Africa leaders’ summit in Beijing that focused on the expansion of trade and investment between the two markets. The economic relationship between China an d Africa has blossomed since then. Between 2006 and 2012, the volume of trade be tween the two increased from $55bn to $200bn – twice as much as the volume of trade between Africa and the United States. The percentage of Chinese investment going to Africa is four times higher than that of the United States
But the Agoa initiative is due to expire next year, threatening the cornerstone of a US-Africa economic relationship worth nearly $60bn for businesses on both sides of the Atlantic. The renewal of Agoa will be a key priority as President Barack Obama brings close to 50 African leaders to Washington this week for the first ever US-Africa summit. Although a renewal of Agoa is expected, the White House is pushing for broader measures to boost African trade, acknowledging Agoa’s limits. President Obama said this week that while tariff preferences provided by Agoa “were important, they alone are not sufficient to promote transformational growth in trade and investment”. “For beneficiary countries to be able to utilise Agoa to its fullest, this programme must be linked to a comprehensive, co-ordinated trade and investment capacity-building approach with clearly stated goals and benchmarks.” Despite its successes, Agoa has shown its limits. A lthough African apparel exports to the US have surged from $264m in 2001 to more than $900m last year, few other industries have taken advantage of the trade agreement to grow on such a scale. Agoa-related trade is dominated by oil – last year $22bn of the $27bn of exports to the US under the deal came from oil and gas, along with petroleum products and coal. With the exception of South Africa – the continent’s most industrialised country which exports high-end goods to the US, including cars – the main beneficiaries of Agoa are oil-producing nations, notably Nigeria, Angola, Chad and Gabon.Indeed, total Agoa imports have slipped from a high of $67bn in 2008, partly because of slowdown in theUS economy, but also because of a fall in the US’s import of African oil and gas.
The African Growth and Opportunity Act has offered incentives for African countries to pursue reforms and open their economies since 1991. But it does not address the biggest challenges for small and medium-sized enterprises. President Obama should make it a priority to renew AGOA well beyond 2015, to provide predictability for manufacturers, buyers, and investors both in the US and Africa. The US should also work to make it more effective – for instance, by relaxing rules of origin and offering tax incentives to US companies investing in non-oil sectors. Renewing AGOA legislation in this way would offer an opportunity to facilitate the integration of African SMEs into global value chains. The US could also support programmes that include advisory services, marketing information, technology access and training, and access to equipment and warehouses ---Trade
India had originally given its blessing to the deal. But that was before a new government, led by Narendra Modi, came to power two months ago. New Delhi has in recent weeks insisted it wants to renegotiate deadlines set in Bali in order to bring forward negotiations to update the WTO rules that apply to subsidies it gives to farmers as part of a massive government programme to provide cheap food to poor people. In an effort to get what it wanted, India carried out a threat this week to block a procedural measure to the trade facilitation agreement from making the July 31 deadline set in Bali for its implementation. The failure to meet the deadline means the WTO’s members are even less likely to meet another in December to come up with a plan to deliver the rest of the Doha round of negotiations for a global trade deal. The Doha round was launched in 2001 and has since repeatedly broken down as a result of the failure of rich countries, such as the US, and emerging economies, like China and India, to narrow their differences. Putting it back on track would mean tackling much knottier issues such as agricultural subsidies in a new climate of distrust, say diplomats. The irony is that India and other developing countries are likely to suffer most from any collapse of the Doha round, say trade analysts. The US, EU and other key players such as Japan all have big regional trade initiatives under way, and are likely to find moving on much easier than India or smaller and more vulnerable states.TRADE
American companies shifting headquarters overseas
While free trade agreements are often framed in terms of the economic benefits they bring about, this report outlines 5 critical national security benefits that arise from the signing of free trade deals.
A BSTRACT This paper uses a computable model of trade to forecast the effects of the US–Korea free trade agreement on the manufacturing sector. The model uses the Eaton– Kortum methodology to explain intra-industry trade instead of the usual Armington assumption. It is parameterized using 2005 data for 15 industries and 53 countries. The results show that implementing KORUS would increase the US manufacturing exports to Korea by 56.9% and Korean manufacturing exports to the US by 18.9%. It would also increase manufacturing employment by 26,500 jobs in Korea and 34,200 jobs in the US. In addition, KORUS would lead to significant changes in the patterns of trade and produc- tion. The US and Korea would increase their specialization in the industries where they have strong technological comparative advantages. Finally, KORUS would increase welfare in both countries, but only modestly: by 0.27% in Korea and 0.013% in the US
This note reviews monetary and fiscal policies adopted by Japan, the United States and Eurozone periphery countries during the global financial crisis and subsequently. These countries all experienced similar economic problems; high public debt burdens, the deflation tendency, credit traps, inadequate aggregate demand and high unemployment.
The continuing slump confirms Jay C. Shambaugh’s observation (which appears in his paper in the new volume, What Have We Learned? Macroeconomic Policy After the Crisis (http://mitpress.mit.edu/books/what-have-we-learned)) that much of what happened during the global financial crisis was consistent with standard international macroeconomics.
Th e analysis we have presented here shows that the performance of US manufacturing employment since 2000 is not surprising. Th e decline was perfectly predictable given the overall weakness in US employment growth. Th e analysis also suggests that some of the explanations for US manufacturing employment over the past decade are fl awed and as a result policy prescriptions that rest on these explanations could be similarly fl awed. Th ese prescriptions tend to highlight the role played by international factors and trade and industrial policies policies in other countries and to overlook the more important role played by domestic productivity growth and demand. In addition they tend to stress unique features of American policies and performance and to ignore very similar declines in manufacturing employment experienced by other industrial countries, including those with large surpluses in manufacturing trade and more interventionist industrial policies. Our evidence also raises questions about claims that an industrial renaissance is the key to solving the problems facing relatively less-skilled US workers.
VERY GOOD -- ROUTLEDGE Manufacturing
The multilateral security system is stumbling around the world as it suffers from major structural weaknesses. Yet elements of it have worked surprisingly well in the current set of crises, from documenting atrocities in Syria to mediating in Ukraine. Despite setbacks, a mix of international officials and observers, soldiers and governments remain willing to stand up for the vulnerable and uphold that system.
The use of sanctions as an international cudgel has long been complicated by some nasty unintended consequences. For the United States and the world economy, one consequence could be particularly significant: The recent round of sanctions aimed at Moscow over the crisis in Ukraine could backfire on Washington by accelerating a move away from the dollar as the world’s reserve currency. While in the short run American actions against Russia’s oil and gas industry will inflict economic pain on Moscow, in the long run the U.S. government may lose some of its control over international finance.
it’s not just Iraqi Sunnis, but the entire Middle East that is detached from the global economy.
The 10-year yield is sliding primarily because demand for safety around the world is on the march again–for reasons closely linked to elevated geopolitical risk beyond American shores. The US dollar is still the world’s reserve currency and so the return of a risk-off environment draws investors to the world’s proxy for “risk-free” bonds. VERY GOOD
The problem with financial sanctions is that no one knows precisely how they will unfold – especially in an economy as large as Russia’s. If they prove to be more effective than intended, they will pose a serious threat to global financial stability. The restrictions on Russian banks operating in Europe and the US appear modest. The banks can still access money markets, cover their short-term financing needs, and count on the central bank for support. But investors’ risk appetite could easily shift, spurring them to withdraw large amounts of capital. Though Russia’s public debt is modest, its foreign-exchange reserves large, and its economy much stronger than in 1998, once the herd is running, it is impossible to stop it.
Another problem which faces Abe is that the results of his policy have been very unevenly distributed.Those who gained from the yen devaluation (shorting the yen) or from the rise in Japanese equities, or those corporates who made windfall profits on their sales have been the lucky ones, because the rest of the Japanese have been facing falling living standards.
Anecdotal evidence suggests high oil prices embolden leaders in oil-rich states to pursue more aggressive foreign policies. This article tests the conjecture in a sample of 153 countries for the time period 1947–2001. It fi nds strong evidence of a contingent eff ect of oil prices on interstate disputes, with high oil prices associated with signifi cant increases in dispute behavior among oil-exporting states, while having either a negative or null eff ect on dispute behavior in nonexporting states.
But, to an increasing extent, political insecurity, potential conflict, and deteriorating international relations pose a greater threat to economic progress than the post-crisis debate foresaw. CURRENT CRISIS
Few disagree that the U.S. as a superpower is fulfilling its responsibility in air strikes targeting the Islamic State of Iraq and Syria (ISIS) and airdropping food aid to stranded Yazidi Iraqis persecuted by the group. But some are questioning the overall human, political and social costs of such wars and the resources it takes away from the government, especially in job creation back home.
Kimberly Ann Elliott Most manufactured African goods enter duty-free, but US policy restricts important agricultural products. If the African Growth and Opportunity Act (AGOA) is to remain as a key part of US development policy in Africa, it needs to embrace the sector on which so many of the poor in Africa depend. According to World Bank data, more than 60 percent of Africans live in rural areas, and they are more likely to be poor than their urban counterparts. Yet, while almost all manufactured goods enter duty-free under AGOA and other trade preference programs, US policy (unintentionally) discriminates against agricultural sectors in which Africa could be competitive. More than a decade after AGOA’s implementation, African agricultural exports remain stuck at around 3 percent of total exports to the United States. The continent exported roughly 10 times as much to Europe as it did to the United States in 2012 (table 1), supplying 13 percent of extra-regional imports versus only 2 percent of US agricultural imports. Low productivity and difficulties in meeting sanitary and phytosanitary (SPS) standards contribute to Africa’s relatively poor agr icultural export performance overall, but lagging exports in the US market suggest that trade barriers also play a role.
Argentina has defaulted. The long-running court drama that ran for over ten years and pitted Argentina against a small group of holdout creditors was decided decisively in favor of the holdouts in June, and Argentina subsequently refused to make payments as required by the courts. As a result, neither the holdouts nor the holders of restructured external debt will get paid, resulting in S&P placing the country in “selective default.” (Payment on the restructured bonds was due June 30, and the grace period for making those payments expired yesterday.)
India has played the spoiler by refusing to sign th e global agreement on trade facilitation agreed at the Bali Ministerial of the World Trade Organisation in December 2013. The signing of the agreement would have resulted in the first global trade reform agreement in the history of the WTO. The Trade Facilitation Agreement aimed to boost trade byproviding for faster and more efficient customs procedures through effective cooperation between customs and other appropriate authorities. It also contains provisions for technical assistance and capacity building in this area. The Trade Facilitation Agreement seeks to cut red tape and relax customs rules. Although these measures — which include infrastructure upgrades, spending on automation and computerisation and improvements to documentation — would cost money, the agreement would have provided for international assistance to developing nations to help them build capacity. Trade facilitation improvements would boost the export competitiveness of goods produced by developing countries. It would level the playing field for many small and medium-sized enterprises whose ability to participate in international trade has been hampered by red tape. The proponents of the agreement see movement on trade facilitation potentially adding US$1 trillion to global GDP and generating 21 million jobs worldwide. But India has chosen to torpedo the deal because it thinks that there has been insufficient progress on talks about an issue its cares more about: food security and the stockpiling of grain.
The Trans-Pacific Partnership (TPP) began in 2004 as an inter-regional effort by four countries on the Pacific Rim to liberalize trade and investment. Ten years later it has grown to twelve member countries that represent 40 percent of global GDP, 26 percent of global trade, and 40 percent of US trade. It is the first major "twenty-first-century" trade negotiation encompassing not only tariffs and quotes but also new areas like regulatory cooperation, competition policy, environment and labor, and trade in digital goods and services. Find out what's at stake for the United States, who could benefit from TPP, and key sticking points of the agreement in the Atlantic Council's infographic. -- ROUTLEDGE -- TRADE
The United States is currently negotiating the Trans-Pacific Partnership (TPP), involving 12 countries across the Pacific, representing approximately 40 percent of global GDP and 40 percent of US trade . What is at stake for the US with TPP negotiations? Forging stronger geopolitical bonds across the Pacific Creating opportunities for sustainable economic growth for member economies Making American exports more competitive due to the removal of taxes and duties and streamlined regulatory processes Agreeing internationally on high health, labor, and environmental standards Providing balance to the growing geoeconomic and political power of China Strengthening trade bonds with Latin America, the United States’ fastest-growing trade partner Bridging the Pacific: Benefits across the board GEOPOLITICAL SYSTEM – TPP unites champions of democracy and free markets to strengthen the rules-based economic system in the face of state capitalism COUNTRIES – Free trade and liberalized investment serve as a catalyst for job creation and sustainable economic growth CITIES AND STATES– Each will benefit from greater competition and thus lower prices on services and goods SMALL- AND MEDIUM-SIZE BUSINESSES – TPP encourages regulatory cooperation leading to lower transaction costs, less paperwork, and new access to international markets CONSUMERS– TPP o.ers greater choice and lower prices on goods and services available for purchase WORKFORCE– TPP provides incentives to strengthen high labor standards across member states Key Sticking Points Intellectual property rights State-owned enterprises Agricultural subsidies Textile and automotive tari.s Pharmaceutical standards
Thanks to globalization and trade, middle-class incomes have more than doubled in countries like China and Indonesia, but still remain a fraction of those earned by the middle class in Europe or the United States . Meanwhile, in Europe, the United States and Japan, incomes for the middle class have stagnated even as their richest citizens accrue more wealth, profiting by investing in globalization ventures of all types. Growing inequality, polarization in politics, and the political influence of the wealthy suggest wages will continue to stagnate for the middle classes in the most advanced economies. “This calls into question either the sustainability of democracy under such conditions or the sustainability of globalization,” argues economist Branko Milanovic. Investing just a larger portion of the gains in infrastructure, education and other programs that benefit society as a whole could protect political systems, including democracy, as well as the globalization that benefits the world’s poor. – YaleGlobal
Efforts to salvage a landmark World Trade Organisation deal collapsed on Thursday after India refused to drop its objections, plunging the body back into a crisis of credibility. The collapse of the agreement to reduce red tape at borders around the world immediately drew a concerned response from business groups and came just seven months after it was reached by WTO members in Bali At the time, the trade facilitation agreement was celebrated as the first in the Geneva-based body’s almost two-decade history, which would provide a way forward for multilateral trade negotiations. Roberto Azevedo, the WTO’s Brazilian director-general, told members on Thursday night that his efforts to overcome Indian objections had failed before the expiry of a July 31 deadline set in Bali.
Enacted in 2000, AGOA gives about 7,000 products from sub-Saharan African countries access to U.S. markets free of import duty. Nearly 40 African countries are eligible to take part. "Given that Africa is home to the world's fastest growing middle class and six out of 10 of the fastest growing economies in 2014, it's easy to see why companies like General Electric Co, Caterpillar Inc and Procter & Gamble Co increasingly view engaging with Africa not as a choice, but as a necessity," Froman said. The head of the House Ways and Means trade subcommittee, Devin Nunes, told reporters Congress could package AGOA renewal together with fast-track power for trade negotiations, or trade promotion authority (TPA), and other outstanding trade issues. "We have so many of these trade issues that are basically standing behind TPA, we have got to get TPA first," he said. Exports from sub-Saharan Africa to the United States under AGOA and other trade preferences totaled $26.8 billion in 2013, according to USTR data. Most of those exports were petroleum products; non-oil goods accounted for just $4.9 billion. "That is still relatively modest and we want to see that grow," Froman said at an event sponsored by the Brookings Institution. The trade program has been criticized for disproportionately benefiting certain industries and a handful of countries, including Nigeria, South Africa and Angola.Some African leaders have also said their countries lack the skilled labor and infrastructure to take advantage of it. Several African countries, for instance, are plagued with poor roads and shortages of electricity, which leads to power rationing that interrupts manufacturing
sk anyone in European business what the most daunting longer-term issues confronting them are and it is unlikely to take much time before they cite energy costs. Even before Vladimir Putin’s Russia turned into the EU’s most belligerent neighbour, the reality was that Europe was facing a long-term energy crisis. The shale oil and gas booms have radically lowered the cost of energy in the US and given American manufacturing a competitive boost. That has caused more than a measure of angst among European businesses as they fret over their long-term international competitiveness. One solution to many in Europe seems obvious. With a vast new trade pact – the Transatlantic Trade and Investment Partnership – being negotiated with the US, there is a strong case for making sure the deal helps guarantee access to that same cheap energy. Moreover, as officials on both sides of the Atlantic have argued publicly, the ultimate goal of the exercise is knitting two ageing economies together as part of a strategic response to the rise of China and other emerging giants. Removing the barriers to trade for a key economic ingredient surely makes sense. Mr Putin has, of course, been doing his best to help that argument in recent months via his hardening stand on Ukraine and the annexation of Crimea. A massive natural gas deal with China sent a signal that Russia intended to reduce its reliance on European customers. This month’s downing of the Malaysia Airlines Flight MH17 over eastern Ukraine, seemingly by pro-Moscow rebels, will also undoubtedly rekindle the argument. The truth, however, is that a year after negotiations began, EU officials are becoming increasingly frustrated with the US over the energy component of TTIP. With good reason – discussions around one of the biggest potential prizes of the transatlantic deal are proceeding slowly. At the sixth round of negotiations in Brussels this month, EU officials were again pressing their case for the TTIP to include a separate “energy and raw materials” chapter. The US side, meanwhile, was again politely deferring the question. The case advanced by the EU has been very simple: energy represents a key component of the transatlantic relationship and ought to be tackled head-on, with its own legally binding chapter. Moreover, as a European Commission official pointed out in a leaked internal discussion paper, such a move would help Brussels sell TTIP to the 28 EU states at a time when the talks are facing an increasingly raucous opposition in Europe. The US has argued for a more nuanced approach. Washington’s policy is that signatories of trade deals with the US receive what is in effect domestic treatment when it comes to exports of liquefied natural gas. US trade officials also point out that Washington has not included a separate energy chapter in any trade deal since the North American Free Trade Agreement with Canada and Mexico, which went into effect 20 years ago. Energy can be dealt with perfectly well as a topic sprinkled through any agreement. But the debate is also one that President Barack Obama would rather not have right now.
Without a doubt, nafta has drastically expanded Mexican trade. Although exports began increasing several years before the treaty was finalized, when President Miguel de la Madrid brought the country into the General Agreement on Tariffs and Trade (the predecessor of the World Trade Organization) in 1985, nafta accelerated the trend. Mexico's exports leapt from about $60 billion in 1994 (the year nafta went into force) to nearly $400 billion in 2013. Manufactured goods, such as cars, cell phones, and refrigerators, compose a large share of these exports, and some of Mexico's largest firms are major players abroad. Moreover, the corollary of that export boom-an explosion of imports-has driven down the price of consumer goods, from shoes to televisions to beef. Thanks to this "Walmart effect," millions of Mexicans can now buy products that were once reserved for a middle class that was less than a third of the population, and those products are now of far superior quality. If Mexico has become a middle-class society, as many now argue, it is largely due to this transformation, especially considering that Mexicans' aggregate incomes have not risen much, in real terms, since nafta entered into force.
Abstract (summary) The North American Free Trade Agreement (NAFTA) was the first comprehensive free-trade agreement to join developed and developing nations, and it achieved broader and deeper market openings than any trade agreement had before. The economic, political, and social integration that has taken place in North America since NAFTA went into effect has made the region one of the most competitive on the planet. To ensure that the US economy continues to grow and remain competitive, the US needs to keep North America's supply chains working at maximum efficiency and global markets open to North American products, services, investment, and ideas. There are a number of actions the US could take, building on the NAFTA platform, to create new commercial opportunities. In order to maximize future growth, North American universities, think tanks, and business organizations will need to better educate the public about the tremendous gains that can come from increased regional economic integration.
Nuclear power remains the best way to reliably produce electricity for homes and businesses on a large scale. That is why the continuing deficit in nuclear innovation is so troubling -- and why Washington needs to seek additional strategies to incentivize and support nuclear innovation.
As much as other countries may envy this catalyst for domestic growth, they will not be able to replicate it, because only the US possesses the unique ingredients necessary to fully develop shale resources. A legal system that enshrines the private ownership of land and the resources below it, along with open capital markets and a reasonable regulatory system, has led to the growth of thousands of independent oil and gas companies, all of which are in intense competition with one another.
Skeptics point to three problems that could lead the fruits of the revolution to be left to wither on the vine: environmental regulation, declining rates of production, and drilling economics. But none is likely to be catastrophic. Since shale resources are found around the globe, many countries are trying to duplicate the US's success in the sector, and it is likely that some, and perhaps many, will succeed.
Recent advances in technology have created an increasingly unified global marketplace for labor and capital. The ability of both to flow to their highest-value uses, regardless of their location, is equalizing their prices across the globe. In recent years, this broad factor-price equalization has benefited nations with abundant low-cost labor and those with access to cheap capital. Some have argued that the current era of rapid technological progress serves labor, and some have argued that it serves capital. What both camps have slighted is the fact that technology is not only integrating existing sources of labor and capital but also creating new ones. This means that the real winners of the future will not be the providers of cheap labor or the owners of ordinary capital, both of whom will be increasingly squeezed by automation. Fortune will instead favor a third group: those who can innovate and create new products, services, and business models.
The politics and economics of what is appropriately dubbed “currency aggression” have been changing. Jobs do not seem to come back as quickly in the wake of economic downturns – and when they do come back, they leave a trail of economic and social dislocation.
By establishing the New Development Bank, the BRICS economies of Brazil, Russia, China, India and South Africa have made their biggest push yet towards redressing the economic world order.
Abstract The sugar program, a government-created cartel administered by the U.S. Department of Agriculture (USDA), costs consumers an estimated $3.5 billion annually and has reduced employment by more than 127,000 jobs since 1997. Through production and import controls, the USDA shifts the cost of the program in the form of higher prices to consumers, which also allows supporters in Congress to claim that the program costs nothing to the federal budget. Congress should reform or eliminate the sugar program and require the Congressional Budget Office to assess the real economic costs and benefits of all price-support programs QUITE A BIT MORE ON THE PROGRAM AND HOW IT OPERATES.
This paper looks at the trade policy landscape of the EU and the wider Europe, with a focus on issues arising from the signature on 27 June 2014 of Deep and Comprehensive Free Trade Agreements (DCFTAs) between the EU and three East European countries (Georgia, Moldova and Ukraine), and actual or prospective issues relating to the customs union of Belarus, Russia and Kazakhstan (BRK), and the Eurasian Economic Union whose founding treaty was signed on 29 May 2014. While the contrived collision between these projects has tragically induced Russia to break all the established international security norms by waging war against Ukraine, the present paper deals essentially with trade policy issues.
China has stepped up its purchases in the U.S. treasury market – that despite tensions and expectations that the country would pull back. “The Chinese government has increased its buying of U.S. Treasury this year at the fastest pace since records began more than three decades ago, data released Wednesday show,” reports Min Zeng for the Wall Street Journal. “The buying has been fueled by China's efforts to lift its export-driven economy by weakening its currency, the yuan, against the dollar, market analysts said, a strategy that encompasses hefty purchases of U.S. assets.” China holds 10 percent of the $12 trillion treasury market debt, the article notes, and China's $4 trillion in foreign-exchange reserves is the largest in the world. Short-term consequences include weakening the yuan against the dollar, a boost for China’s export markets but also stoking inflation, while keeping interest rates low for the United States, which encourages consumption. US spending is increasingly dependent on China’s purchases; the country’s influence over the treasury market is immense. Analysts have urged gradual slowing of the dangerous mutual dependency. An abrupt end to Chinese purchases or a rapid rise in US interest rates could destabilize both nations and the global economy
Though it is hard to cry for Argentina, the ruling in favor of the holdouts is bad news for the global financial system and sets back the evolution of the international regime for restructuring sovereign debt.
LONDON – Since 2008, global trade has grown slightly more slowly than global GDP. The Doha Round of World Trade Organization negotiations ended in failure. Transatlantic and transpacific trade negotiations are progressing slowly, held back by the resistance of special interests. But, though many experts fear that protectionism is undermining globalization, threatening to impede global economic growth, slower growth in global trade may be inevitable, and trade liberalization is decreasingly important.
I am skeptical that the BRICS Bank will be an effective development institution or rescue facility, and see serious risks that its good ambitions could be undermined by poor investments, bad policies, and even corruption. Here are five reasons why.
Europe is staring into the face of the kind of deflationary cycle that has paralyzed the Japanese economy for the better part of two decades. Prices are rising far more slowly than its central bank wants, against a backdrop of astronomical unemployment on much of the Continent.
as the time come to consider phasing out anonymous paper currency, starting with largedenomination notes? Getting rid of physical currency and replacing it with electronic money would kill two birds with one stone. First, it would eliminate the zero bound on policy interest rates that has handcuffed central banks since the financial crisis. At present, if central banks try setting rates too far below zero, people will start bailing out into cash. Second, phasing out currency would address the concern that a significant fraction, particularly of large-denomination notes, appears to be used to facilitate tax evasion and illegal activity.
re financial crises an inevitable feature of capitalism? Must the government rescue the system when huge crises occur? In his book Stress Test, Timothy Geithner, president of the Federal Reserve Bank of New York and US Treasury secretary during the 2007-09 crisis, answers “yes” to both questions. Yet these answers also harm the legitimacy of a market economy. It is bad enough if capitalism is crisis-prone. It is worse still if the state feels obliged to rescue those whose folly or criminality caused the damage, to protect the innocent. -- FUTURE LAST WEEK OF CLASS
When the talks started, the geopolitical justification offered for an EU-US trade deal was the rise of China and the need to get on the front foot in writing the rules of global commerce for the next century – particularly in a world where multilateral negotiations were stalled. “We need to maximise our influence by sticking together, and leading by example,” Karel De Gucht, the EU trade commissioner, told an audience in Poland on Friday. These days, however, the strategic reasoning more often has to do with the Ukraine crisis and the newly-aggressive Russia it has revealed. The signing in May of a $400bn, 30-year gas supply contract between Moscow and Beijing came as EU negotiators were again pressing their case for including an ambitious energy chapter in TTIP. Besides finding a way to accord European companies the same access to cheap oil and gas that their American counterparts now enjoy, EU negotiators also are eager to secure an alternative supply of gas to Russia in order to reduce members’ dependence on the country. For all the progress and the geopolitics, however, the reality is that the deal is facing a growing number of obstacles, many of them political. The shadow cast by the revelations that the US National Security Agency was listening in on Europeans, including Angela Merkel, the German chancellor, remains. It has made negotiations over how to guarantee the free transatlantic flow of data, something businesses argue is crucial in today’s economy, incredibly sensitive, even as officials have vowed to treat privacy issues in a separate agreement.
A surge in support for anti-establishment parties in last monthfs European Parliament elections has also complicated the politics of trade in the bloc. Some of the biggest winners in that election, such as Marine Le Penfs National Front, have actively campaigned against the deal. Even if a majority of the European Parliament that will eventually have to ratify a deal remains firmly pro-trade, there are fears the election result will begin to infect the national politics of EU member states. President Francois Hollande of France and his Socialist party, which has traditionally viewed the cause of free trade with a sceptical eye, have become vocal backers of the EU-US deal. But Ms Le Penfs strong showing in the May elections may be changing that. Already last week Laurent Fabius, the French foreign minister, was linking a looming heavy fine for BNP Paribas, Francefs largest banks, to the EU-US trade talks and threatening consequences, echoing a line first uttered by Ms Le Pen. The reality is that politics was having an impact on the negotiations even before the elections. Both sides have agreed to put off hard negotiations on some of the most controversial areas of discussion . such as agricultural tariffs . until after the seating of a new European Commission and November midterm elections in the US. The latter has already complicated President Obamafs efforts to secure gfast-trackh negotiating powers for trade deals. They have both also displayed a willingness to bend easily to politics. Vocal opposition in Germany and other EU member states to a proposed dispute settlement mechanism, which would allow foreign investors to take governments to international arbitration panels to seek compensation, caused the EU to suspend negotiations on the investment chapter earlier this year. The US has also stuck by its refusal to include financial services regulation in the negotiations, with the Treasury opposed on territorial ground. Some Democrats worry it would weaken post-crisis financial regulations such as the Dodd-Frank law. Privately, officials on both sides complain that the other seems stuck in limbo and unwilling to make what ought to be even easy decisions. gWhenever we bring something up with the US side they say: eThatfs very interesting, wefre willing to talk about it. But please donft mention it in public before the fourth of Novemberf,h when the US has midterm elections, says one senior EU official. There are other signs of tensions. The tabling of initial tariff offers from both sides in February triggered a pointed back and forth after Mr De Gucht complained publicly about the USfs glack of ambitionh. The episode has caused officials to move more deliberately on the offers on services and government procurement, though all are expected to have been tabled by the end of the summer. For now, the political will to overcome the obstacles and pull off a deal seems to be firm. Business groups are continuing to speak out in its favour. Mr De Gucht and Mr Froman are also determined to set the negotiations on an girreversibleh path, aides say. There are concerns about timing, however. Mr De Gucht is due to fly to Washington this week in part to try to keep the talks on track. If a deal is not concluded by the end of next year, the 2016 US presidential campaign could interfere, leaving its fate in the hands of Mr Obamafs successor. The trope in Washington is that trade votes rarely succeed in election years, although experts insist that a deal with Europe is likely to be less contentious than most the US has signed. Bernard Hoekman, director of the global economics programme at the European University Institute in Florence, argues that the biggest challenge on both shores of the Atlantic remains selling the value of a deal that is being negotiated behind closed doors. It is also difficult to make the case for a free-trade agreement when debates over inequality and globalisation are very much in the public conversation. Ultimately, making that case is going to depend on the deal itself and whether it ends up being as transformative as promised. gItfs fundamentally still the same challenge,h Mr Hoekman says. gHow much is going to be there? And is it really worth the effort in terms of the gains?h ------------------------------------------- Legal protections: clause at centre of disputes with states Until recently, ginvestor-state dispute settlementh was a term used mostly in trade and investment treaties to protect foreign investors from rogue actions by governments, usually in the developing world. These days the clauses are at the centre of negotiations on a trade deal between the advanced economies of the EU and the US. Faced with increasingly vocal opposition to ISDS articulated on social media and by member states including Germany, the European Commission was forced this year to suspend negotiations with the US over the investment chapter of the mooted Transatlantic Trade and Investment Partnership. œ What is at issue? ISDS clauses allow companies to take governments to international arbitration panels to seek compensation if they feel their investment has been hurt by government action. Until a few years ago cases were rare. But there has been a surge in filings by companies taking an ever broader view of what constitutes a legitimate cause for action. According to the Organisation for Economic Co-operation and Development, 57 ISDS cases were filed against governments in 2013, almost half of them in developed economies. œ Why is that contentious? Increasingly ISDS cases are based on regulatory actions rather than simple cases of expropriation. In a high-profile case, Philip Morris International has taken Australia to an arbitration panel over its introduction of plain-packaging laws for cigarettes. Vattenfall, the Swedish energy company, has challenged Germanyfs decision to phase out nuclear power. Eli Lilly has filed a case against Canada over a court decision invalidating two drugs. Opponents argue the cases have become a tool for big corporations to challenge domestic regulations. œ So whatfs the solution? EU and US trade officials argue that by closing loopholes and tightening the rules, an ISDS clause in a transatlantic deal would go a long way to ending abuses. It would also set an example for investment treaties both parties are negotiating with China and other countries Opponents, including some trade lawyers and the conservative Cato Institute, argue such a clause is simply unnecessary. The EU and US have functioning judiciaries that provide protection for foreign investors.
Business cannot solve society’s ills, but it is now the problem, says Lynn Forester de Rothschild t is no coincidence that the jargon of capitalism borrows so heavily from the language of human relationships: think equity, credit, trust, share, bond and fair value. Capitalism is an extension of these basic human aspirations, and has guided the world economy to unprecedented prosperity. Yet faith in market institutions has rarely been lower. This is not without reason. Markets mostly encourage a near maniacal focus on short-term financial results, tolerance of disparities of opportunity, and an apparent disregard for the common good. If these tendencies are left unchecked, the public cannot be expected to show faith in capitalism.
However cushioned the American energy basket might look, it is unwise to put all your eggs in it ENERGY SECURITY SECTION
Paris failed to detect BNP Paribas’ violation of international norms, INTERNATIONAL MONETARY SYSTEM SECTION
TODAY’S polarized debates about the role of government often boil down to a single issue: the size of government compared with the size of the overall economy, as measured in gross domestic product. -- USE IN GDP SECTION
Smart energy policies seem to be elusive. The US policy disappoints environmentalists and industry alike; Europe’s policy is economically disastrous but is getting people to change their habits; and developing-country subsidies aren’t helping the people they’re supposed to. At a point in time when even the Chinese are having second thoughts about the balance they have struck between pollution and growth, the United States should be concerned about how much it’s willing to give up environmentally to remain competitive with energy. But there are ways to balance out this equation without further harming the environment or the economy, according to economist Ed Dolan.
The zero-sum mentality Our Russian students had been brought up in a system where the central question, at least in dealing with strangers, was the quintessentially Russian Who is going to get the best of whom? The question reflects a belief that every human interaction with outsiders necessarily has a winner and a loser. The idea that arms-length business dealings with people to whom you owe no prior duty of loyalty could have mutual benefits was new. Some students caught on, some did not.
Today, the world’s major security risks stem from the wrath of societies or groups that feel alienated or left behind by the emerging liberal order. Moving forward, most security threats will issue from a wounded people determined to overcome perceived humiliations and recapture their self-worth. -- ECONOMIC SECURITY SECTION
Bretton Woods was, in essence, a deal between two nations whose policies were critical to global financial stability at the time: the United States, the world's dominant creditor nation, and Great Britain, its largest debtor. The former agreed to assist nations struggling with current account deficits and the latter to forswear competitive devaluation. Today, a roadmap to cooperative monetary reform appears out of reach politically. The world's largest creditor, China, and its largest debtor, the United States, seem wholly unwilling to sublimate their prerogatives in the monetary sphere—China to control its exchange rate, and the United States to control dollar interest rates—to any abstract conception of the global good. IMF WORLD BANK SECTION
The world’s leading economies are due on Tuesday to launch negotiations to reduce tariffs and other barriers to the global trade for green goods, amid warnings that reaching a deal could be more difficult than first thought. The US, EU, China and 11 other countries announced the push on the sidelines of the World Economic Forum in January, just months after US President Barack Obama made it a priority as part of his action plan to address climate change. But the negotiations that will get under way in Geneva this week will have to tackle issues that have caused similar efforts to break down in the past. These include how to define an “environmental good” and whether countries are prepared to remove protections for their own industries at a time when renewable energy is the subject of a growing number of trade disputes. Reducing trade barriers to green goods was one of the initial goals of the stalled Doha Round of trade talks into which Roberto Azevedo, the WTO’s Brazilian head, is now trying to inject new energy. But, even though the “plurilateral” negotiations are conducted within the World Trade Organisation and include countries responsible for the bulk of the trade in green goods, they are also viewed with suspicion by some developing countries. States such as India, and China in the past, have taken a dim view of US-led sectoral negotiations among a select group of WTO members, arguing that they undermine the multilateral system. “The politics of the negotiations are very challenging,” said Ricardo Meléndez-Ortiz, chief executive of the Geneva-based International Centre for Trade and Sustainable Development (ICTSD). The countries that signed up to the initiative in Davos pledged to expand on a list of 54 product categories nominated by Asia-Pacific Economic Co-operation (Apec) countries in 2012 as a priority for liberalisation. But just how they will do that is already the subject of debate. Some participants will make the case for the inclusion of any goods that can be shown to have an environmental benefit, while others are eager for a more defined list. The negotiations are also unlikely to tackle the trade in environmental services with the US and others hoping to see those remain as part of separate, broader services negotiations already under way. According to researchers at the ICTSD, the countries involved in the green goods initiatives account for some 85 per cent of global trade and the vast majority of commerce in the 54 Apec products. Participants such as Canada already offer duty-free access to its markets for 97 per cent of the goods on that Apec list, according to ICTSD. But others such as China, which has zero duties on just 28 per cent of the Apec list, will face a bigger challenge and could, as a result, prove to be tough negotiators. “The participation of China is very important politically,” said Mr Meléndez-Ortiz. “That doesn’t mean they are going to be an easy [negotiating] partner.” Just how far China would be prepared to go in lowering tariffs was unclear, Mr Meléndez-Ortiz said. But China may be willing to open its rapidly growing market further if a deal saw other countries remove non-tariff barriers and reduce the number of anti-dumping cases of which Chinese companies were now often targets, he added. The trade in green goods such as solar panels has grown rapidly over the past two decades as governments around the world have invested in developing in the industry and raised environmental standards. But the rise has also brought about vigorous efforts to protect these new industries, which Mr Meléndez-Ortiz likened to the trade battles over steel that governments fought in the 20th century.
U.S. oil prices climbed to $107.50 a barrel, near their intraday high for the year, on The Wall Street Journal’s report Tuesday that the U.S. government has allowed some exports of ultralight oil. In separate rulings that haven’t been announced, the Commerce Department gave Pioneer Natural Resources Co. and Enterprise Products Partners LP permission to ship a type of ultralight oil known as condensate to foreign buyers. The buyers could turn the oil into gasoline, jet fuel and diesel. The Commerce Department said in a statement that there has been “no change in policy on crude oil exports,” leaving analysts and investors scrambling to decide what the rulings mean. Oil-market and equity analysts weigh in on how the rulings could affect producers, refiners and oil prices. Citigroup: “The minor process that has been approved isn’t so minor and is something long expected – a ruling on how lease condensate can be transformed into a petroleum product, and thus exportable under general license. What is a notable step towards greater crude exports (though it would be classified as product exports) is that this is not through a condensate splitter or a distillation tower, but a simple stabilization unit.
Morgan Stanley: “The consensus view is that any change in the crude export policy is unlikely ahead of the US midterm elections, which made the timing of this decision particularly surprising. Given the unique nature of this permit, it appears that logic still holds. However, Pioneer’s success in arguing that a lightly processed condensate is a refined product shows the administration is being thoughtful about the crude export issue. Given this approval, we would expect other producers to be more aggressive/creative with export applications as well.”
Created in 1934, the Export-Import Bank supports U.S. exports by providing buyers with loans and credit guarantees. The bank also provides U.S. companies with insurance to protect against non-payment and guarantees for working capital loans. Most of its revenue is from guarantee fees, and it borrows money from the Treasury for loans, paying the government back from the interest it receives. Here are five things to know. WHAT DOES EX-IM BANK DO? Founded in 1934, the bank provided $27.4 billion in loans and guarantees in fiscal 2013 to support $37.4 billion in exports ranging from passenger jets to hair spray.WHY IS IT IN THE NEWS? The bank’s rolling charter expires on Sept. 30, with a coalition of political and industry critics reviving a failed 2012 effort to reduce its activities or close it down. Incoming House Majority Leader Kevin McCarthy said Sunday he wouldn’t support its reauthorization. WHAT DO CRITICS WANT TO CHANGE? Conservative opponents want to abolish an agency they maintain benefits a handful of large companies such as Boeing Co. and General Electric Co. and leaves taxpayers open to credit risks. Industry critics such as Delta Air Lines Inc. want to restrict support for jet sales made to overseas carriers. WHAT HAPPENS IF EX-IM BANK CLOSES? Supporters maintain U.S. companies would lose business as prospective buyers find goods too expensive or buy from overseas rivals still offering export credit financing. ARE OTHER COUNTRIES CLOSING THEIR EX-IM BANKS? No.
The U.S. has, with minor exceptions, banned the export of crude oil since the early 1970s. For most of the following decades this did not matter, as U.S. appetite for imported oil seemed insatiable. But it Matters now, and it will matter more in the years ahead. While it may seem paradoxical, exporting U.S. crude will increase, not reduce, domestic oil supplies and lower, not raise, domestic gasoline prices. Moreover, the crises in Iraq and Ukraine, and the disruptions in Libya and other countries, demonstrate the importance of growing, reliable U.S. oil production—and the urgency of lifting the ban in order to support that growth. There were two reasons for the original export ban. First, because of fear of inflation and panic about supplies in the 1970s, price controls were slapped on crude oil and refined products. But if cheaper pricecontrolled oil could be shipped to higher-priced world markets, it would undermine the price-control system. The second reason was to prevent the newly-flowing oil from Alaska's North Slope being sent to Japan instead of the U.S. West Coast. Yet oil price controls were abolished in January 1981, and the ban on exporting gasoline and other petroleum products was lifted a few months later. President Clinton excepted Alaskan crude from the oilexport ban in 1996, although the volumes have never amounted to much. With domestic production declining and the U.S. importing so much oil—60% of total consumption as late as 2005—there was no reason to re-examine the export ban. Domestic oil production has since dramatically surged—by 3.3 million barrels a day since 2008, a 66% increase. The International Energy Agency projects that the U.S. will in a few years overtake Russia and Saudi Arabia as the world's top producer. Yet the U.S. still imports about 30% of its oil. So why allow exports? The reason is that the new crude being produced—so called tight oil, or "light oil" recovered by hydraulic fracturing and horizontal drilling—is a poor match for refineries in the Midwest and along the Gulf Coast. Refineries have spent more than $100 billion in recent decades reconfiguring their equipment to process heavy, lower-quality imported oil from Canada, Mexico and Venezuela, as well as the new supplies coming from the Gulf of Mexico. They have been able so far to absorb the new light crude but are reaching their limit even as tight production keeps growing. If these reconfigured refineries run more light instead of heavy crude oil, they lose output capacity—and revenue—due to a mismatch of the light oil with their equipment. To make up for the lost revenue, refineries won't buy the light oil except at a discount, which could run as high as 20%. At that price, oil producers can't cover the cost of some of the new wells, and cash flows would decline. This means less drilling and lower crude production. Specialized new refineries can be built to handle light oil, but that can take years. Meanwhile, in a warning sign, discounts for light oil began to approach 20% late last year when key refining capacity on the Gulf Coast was offline for normal seasonal maintenance. Allowing exports would enable light-oil producers to get world market prices, and their revenues would flow back into higher investment in U.S. production. Meanwhile, refineries would continue to import heavier crude. The net volume of U.S. crude imports would be about the same, but the country would gain major economic benefits. We estimate that removing the export ban, combined with continuing innovation in production technologies, would lead to as much as 2.3 million barrels per day of additional production over the next 15 years, and new investment approaching $1 trillion. That increase would support an average of 860,000 more jobs over the same period and generate nearly $3 trillion of additional government revenues. Yet what about gasoline? How can U.S. crude oil receiving higher prices on world markets lead to lower prices at the pump? The answer is the difference between the gasoline and crude oil markets. U.S. gasoline is part of a freely traded global market. The U.S. both exports gasoline from the Gulf Coast and imports it on the East Coast because it costs less to import surplus gasoline from Europe than ship it by tanker from Texas. U.S. gasoline prices are set by global gasoline prices, not domestic crude oil prices. The additional domestic oil production that results from allowing exports means more oil on world markets—and lower prices. That means lower global gasoline prices and, because the U.S. gasoline market is part of that global market, lower prices for American motorists. We estimate this would reduce the price by as much as 12 cents a gallon, saving U.S. motorists $420 billion over 15 years. Although the rationale for the U.S. export ban disappeared decades ago, it didn't much matter for a long time. Now it does. Ending the ban would enable the U.S. to benefit significantly more from its oilproduction renaissance. As Iraq, Ukraine and Libya are making so clear, the sooner the better.
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Economic Integration, Midterm Exam
Emerging global trade trends.While first quarter indicators show that global manufacturing and trade failed to live up to optimism built into most forecasts at the end of 2013, key data for April suggest a significant improvement is emerging in the second quarter. Of the world's three big trading blocs, not only are the United States and the EU displaying a rising trend for imports, but China has also returned to growth. This, in turn, is driving them to register further gains in exports. The virtuous trade cycle developing in the big three is drawing in other closely associated Asian manufacturing economies. However, the trade outlook remains somewhat less favourable for Japan and for energy and commodity-driven economies.
Rally in emerging markets in lead up to the Ukrainian presidential election. The European Bank for Reconstruction and Development (EBRD) recently announced a dramatic downward revision to its 2014 GDP forecast for the emerging Europe region, mainly because of a severe deterioration in the outlook for Ukraine and Russia. However, the escalation in tensions over Ukraine -- perceived by investors to be a risk with potentially significant market implications -- is so far having only a muted impact on asset prices. Remarkably low levels of volatility in financial markets are increasing investor appetite for higher-yielding assets, buoying sentiment towards emerging markets (EMs).
Conflict minerals and business. The US Securities and Exchange Commission (SEC) recently issued guidance on what companies must disclose about verification regarding use of 'conflict minerals' in their supply chains. The rule applies to the Democratic Republic of the Congo (DRC) and nine other central African states, and affects over 6,000 domestic and foreign companies. The SEC's guidance responds to a District of Columbia Circuit Court of Appeals decision that invalidated one element of the SEC's original conflict minerals disclosure rule, but otherwise upheld the general SEC framework. In a subsequent ruling, the same court declined to block the June 2 deadline for companies to comply with the SEC rule.
Overcapacity -- and global steelmakers' diverging prospects. Despite warnings of unchecked global glut, steel output grew by another 3% in 2013, reaching 1,578 million tonnes (mt). China accounts for 46% of global output, but is plagued with oversupply estimated at 300mt. Stronger than expected demand from the developed world failed to offset slowing consumption rates in China, exemplified by the country's urban fixed-asset investment, which remained flat last year.
The investment and policy implications of 'secular stagnation'. 'Secular stagnation' -- the hypothesis that developed economies drift naturally toward anaemic aggregate demand growth -- shows few signs of altering the mainstream policy discourse. Yet if the idea has merit, investors will need to consider its (potentially severe) implications.
The impact of US tech investment in the developing world. As the prices of consumer technology fall ever-lower -- and as a result, low-cost technology becomes more prevalent throughout much of the developing world -- an increasing number of technology companies have expressed interest in expanding their operations to developing regions and consumers at the 'bottom of the pyramid'. US-based Google and Facebook have recently acquired startups and developed initiatives aimed at this purpose, and other companies and US government agencies have begun to expand technology research laboratories into developing regions.
Porter Section of the Class
The relationship between business model innovation and economic growth. In recent times, it has become common for relatively new companies, especially but not exclusively technology businesses, to grow almost exponentially from humble beginnings. These are often based upon a common theme, which is successful business model innovation in the context of an increasingly globalised economy.
Porter Section of Class
The larger emerging markets most at risk from a tightening in global liquidity. The possibility of faster than expected tightening in monetary policy from the US Federal Reserve has raised concerns over funding for borrowers in emerging markets (EMs). Similar conditions in the past have triggered severe recessions, often through currency crises.
Digital technologies are once again transforming global value chains and, with them, the structure of the global economy. What do businesses, citizens, and policymakers need to know as they scramble to keep up?
This new nationalism takes different economic forms: trade barriers, asset protection, reaction against foreign direct investment, policies favouring domestic workers and firms, anti-immigration measures, state capitalism, and resource nationalism. In the political realm, populist, anti-globalisation, anti-immigration and in some cases outright racist and anti-Semitic parties are on the rise.
Despite NAFTA’s inauspicious launch and subsequent charges made against it, the agreement can be credited with making important strides toward intraregional integration and higher living standards in all three countries. The interdependence of the United States, Canada, and Mexico is striking. For example, goods imported from Canada are estimated to contain 25 percent of US inputs and from Mexico, 40 percent of US inputs (Koopman, Powers, Wang, and Wei 2010). In 2013, about 14 percent of US merchandise exports went to Mexico, exceeding the combined total of merchandise exports to Germany, France, the United Kingdom, and the Netherlands. Since 1993, US trade with Mexico quintupled in nominal terms, whereas trade with the rest of the world increased three times. NAFTA promoted the integration of the regional energy market—particularly between the United States and Canada— which somewhat mitigated US reliance on imports from sources across the Atlantic, while encouraging greater energy indepen- dence within the region. 4 Many US jobs depend on exports—an estimated 2.6 million on exports to Canada and 1.9 million on exports to Mexico. 5 Following the approval of NAFTA, Mexico went into a fi nancial crisis that discredited its policies in the eyes of many. But the mid and late 1990s were a period of boom times in the United States, and fears that NAFTA would cause a surge of unemployment subsided. Indeed almost 17 million jobs were added to the US economy in the seven years following enactment of NAFTA, and the unemployment rate dropped from 6.9 percent to 4.0 percent. On the other hand, the last two decades have seen growing inequality in the United States and concerns that low-skilled jobs have been hollowed out both by advances in technology and the signing of trade agreements. Inevitably, in the 2000s, NAFTA again became a proxy for fear over job losses. But concerns about jobs during the initial NAFTA debate were badly distorted, and misstatements then are repeated today. It is widely understood that an expansion of two-way trade will shuffl e jobs between sectors of the economy: Importcompeting sectors will lose some jobs and export-oriented sectors will gain some. Yet most economists took the view that the net number of jobs gained or lost owing to NAFTA would be statistically insignifi cant in a US labor force that then numbered 110 million. In their analysis, Hufbauer and Schott (1993) calculated that the agreement could create 170,000 net US jobs “in the foreseeable future.” Advocates of NAFTA, including those at the Peterson Institute for International Economics, argued that the main payoff from NAFTA would be better jobs, not more jobs, as the US and Mexican economies were restructured according to the law of comparative advantage. But what economists had to say was lost in the political din of the 1990s and is often ignored in the contemporary debate over TPP and TTIP. Economic analysis of the channels by which trade agreements potentially lead to higher national output has made signifi cant advances since the 1990s,6 as has the understanding of the costs of job churn that inevitably accompanies economic restructuring in the wake of trade liberalization.7 (Churn refers to the phenomenon of large numbers of workers loosing and gaining jobs over a fi xed time period.) Yet the US political rhetoric surrounding trade agreements essentially channels the NAFTA debate of two decades ago. Proponents claim job gains and higher living standards; opponents claim job losses, lower wages, and corporate enrichment.
No proponent argues that North America entered a golden age after NAFTA. But critics are wrong when they blame NAFTA for ills that should not be laid at the agreement¡¦s doorstep and wrong when they dismiss the genuine achievements of the tripartite pact.8 In this Policy Brief, we fi rst answer six charges voiced by NAFTA critics and then sketch the positive case. Th e six central charges and our short responses are: ƒÞ NAFTA fostered a growing US trade deficit. ƒÞ Short response: Not perceptible. ƒÞ Trade with Mexico raised US unemployment. ƒÞ Short response: Not perceptible.Job loss depressed US wages, especially in manufacturing. ƒÞ Short response: In some cases, but not across the board. ƒÞ Th e boom in US agricultural exports turned rural Mexicans into illegal emigrants. ƒÞ Short response: No connection. ƒÞ Apart from agriculture, NAFTA abetted illegal immigration. ƒÞ Short response: Th e opposite. ƒÞ Mexican growth has not achieved the rate anticipated by NAFTA proponents. ƒÞ Short response: A fair criticism. While dubious at best, these charges have been repeated so often that they have congealed into conventional wisdom and are parroted even by mainstream journalists.9 Before addressing the charges, it¡¦s worth emphasizing that they are all directed at the US-Mexican experience. Yet NAFTA is a tripartite pact, and hardly anyone criticizes the US-Canada experience. In fact two-way trade and investment outcomes across the northern US border have been strong and almost uniformly positive.
Robert Gordon has painted a dark picture of the world’s longrun economic growth prospects. But if the past is any guide, he will likely prove to be far too pessimistic about the human capacity to innovate.
The Word Trade Organization (WTO) has re-iterated its ruling that the use of dolphinsafe labeling by United States trade authorities lacks genuine regulatory value. However, it has found that Mexicofs proposed solution to the issue would also be unhelpful. The update . published on April 21, but issued in a review in January . is the latest twist in the WTO case opened by Mexico back in April 2009. In its complaint, the Latin American government, on behalf of the countryfs industry, claimed the USf conditions for dolphin-safe labeling were discriminatory and unnecessary and violated trade regulations. gThe labeling at issue modified the competitive conditions in the US market to the detriment of Mexican tuna products and the US did not demonstrate that this stemmed solely from elegitimate regulatory distinctionsf. The organization, therefore found that the US edolphin-safef labeling measure was inconsistent,h WTO experts explained in the update. The WTO upheld part of Mexicofs claim in 2012, agreeing that the USf labeling measures were more restrictive than needed. Both Mexico and the US appealed the decision, however, and the US continued to deny the label to Mexican imports. Official data showed Mexican tuna sales in the US slumped to $121,259 in 2013, down from $1.45 million in the previous year. Figures last year were even worse than 2011Œs $298,000. In its latest update, the global watchdog said that a combined implementation of domestic and international procedures . a point made by the Mexican party . to ensure tuna sold in the US comes from dolphin-safe sources would be unhelpful. gThe alternative measure proposed by Mexico, AIDCP edolphin safef labeling combined with the existing US standard, would contribute to both the consumer information objective and the dolphin protection objective to a lesser degree than the measure at issue.h The news has fueled renewed concerns among Mexicofs tuna fishing and processing industry, who have voiced their frustration with the local press. Mexican tuna has access to the US market but, without the official dolphin-safe label, sales are very reduced.
Most of us have a mental image of what globalization looks like. It’s garment workers in an overcrowded Bangladeshi factory, making clothing that will end up on sale at a discount store in a strip mall. It’s container ships stuffed with consumer electronics from China headed for American ports, or tankers full of Middle Eastern oil fulfilling the world’s demand for energy. Those images aren’t wrong. But they are incomplete, and more so with each year that passes. That’s the key conclusion I take from a new study from the McKinsey Global Institute, the in-house think tank of the giant consulting firm. The researchers aimed to capture the full range of “global flows,” as they call them, that collectively represent the world’s interconnections. That includes not just trade in goods and services, but also the flow of money across national borders and of information through digital connectivity.
Global trade in knowledge-intensive goods — airplanes, pharmaceuticals, advanced electronics — rose at a nearly 8 percent annual rate from 2002 to 2012, compared with 6 percent for both capital-intensive but lower-tech goods (like petroleum and agricultural products) and labor-intensive goods (like textiles and toys). The same pattern is evident in the services sector. The sharpest growth, at 7 percent a year from 2002 to 2012, is in international trade of knowledge-intensive services — engineering and programming, royalties for intellectual property, and so forth. Less knowledge-intensive services, like travel and transportation (think spending on hotels and airline tickets), are growing more slowly.
It seems the People’s Bank of China (PBOC) cannot win. In late February, the gradual appreciation of the renminbi was interrupted by a 1 per cent depreciation (to $1:¥6.12). Though insignificant in overall trade terms, especially when compared with the volatility of floating exchange-rate regimes, the renminbi’s unexpected weakening sparked a global furor.
The TPP talks now look as if they could drag on indefinitely, with no real impetus to push the parties forward. Washington is by no means entirely blameless in this outcome. The US administration’s failure to secure ‘fast track’ authority provides no incentive for partners to US negotiations to step up to the plate, since Congress is likely to claim a second bite at the cherry. US demands that Japan reduce government intervention in agriculture and services are legitimate and consistent with the principles of open trade. But the US has also undercut those principles by limiting any significant market opening in US agriculture, by not changing its own domestic economic settings and by insisting that the Japanese government intervene (http://www.aei.org/article/economics/internationaleconomy/ trade/the-us-and-japan-choose-stagnation/) in automobile trade specifically to protect US vested interests. What is more and more clear is that the TPP and other mega-regional trade deals, ordered as they are around negotiations driven by one or other major centres of economic power, are problematic paths to fixing the global trading system. In the end they are captured by interests that overwhelm the principles essential to maintaining an international public good, such as the principle of most-favoured-nation treatment embedded in Article I of the WTO. These regional initiatives were supposed to shore up the global trading system. But, like their bilateral antecedents, they are unlikely to do anything of the kind. The health of the international trade regime now demands consideration by world leaders of the core principles by which it should be ordered. It’s time to stand back and give mature consideration to the principles that should govern international commerce today if the regime is to serve the global public interest and not the narrow interests of particular players, as appears more and more the case today. G20 leaders need to give this new priority. Affirmation of the centrality of the WTO in managing global recovery and engagement is the starting point. Engaging all the major centres of global influence inside and outside the WTO in pushing reform of world trade governance focused on a retreat from discrimination and the agenda beyond reciprocal trade negotiations is the next step.
Four nations in Latin America are developing an initiative that could add new dynamism to the region, redraw its economic map, and boost its connections with the rest of the world—especially Asia.
Starting April 25, the Bureau of Economic Analysis will release a new way to measure the economy each quarter. It's called gross output, and it's the first significant macroeconomic tool to come into regular use since gross domestic product was developed in the 1940s. Steven Landsfeld, director of the BEA, says this new macroeconomic tool offers a "unique perspective" and a "powerful new set of tools of analysis." Gross output is an attempt to measure what the BEA calls the "make" economy—the total sales from the production of raw materials through intermediate producers to final wholesale and retail trade. Valued at more than $30 trillion at the end of 2013, it's almost twice the size of gross domestic product, and far more volatile. In many ways, gross output is a supply-side statistic, a measure of the production side of the economy. GDP, on the other hand, measures the "use" economy, the value of all "final" or finished goods and services used by consumers, business and government. It reached $17 trillion last year.
Strategists have long feared that China's quest for natural resources would lead to ever-higher prices, a breakdown in trade and perhaps even wars. But a stunning rebuke to Chinese manipulation last week at the World Trade Organization is a sign that the global system is far more resilient than the worriers have claimed. The ruling made public on March 26 centered on the Chinese strategy of restricting exports of raw materials—most notably rare earth elements such as cerium and neodymium used in high-tech defense and energy systems—to give Chinese companies a leg up and inflict damage on other resource consumers. The WTO panel declared the restrictions illegal and opened the door to retaliatory tariffs from the United States, Japan and others. Analysts from elite universities to the Pentagon have worried that China is "locking up" commodities from crude oil to copper, building a mercantilist alternative to the system of global markets that the U.S. has long promoted as the best guarantor of resource security. The data point in a different direction. Chinese oil companies have bought properties from Angola to Canada, but most Chinese oil imports are procured on the open market. Moreover, most Chinese-owned oil produced abroad is sold to the highest bidder, not only shipped home. For some resources—notably iron ore, the second most traded commodity after oil—China's entry has actually pushed global trade in a more market-based, and less political, direction. Still, analysts argue that China's voracious consumption of natural resources push commodity prices up and cause havoc for economies around the world. Between 2000 and 2008, Chinese demand drove prices for a host of resources strongly higher. But fear of a never-ending price spiral is unfounded. Supplies from slow-moving projects in everything from African copper to Australian gas are finally becoming available to meet Chinese needs. High prices have also spurred remarkable technological innovation: One of the most notable developments has been the boom in U.S. shale gas and "tight" oil. This boom was induced by historically high prices and is now helping mitigate the risk of spiraling resource costs. Consumers around the world—including in China—are also adopting more-efficient technologies and processes, ranging from lightweight vehicle materials to steel recycling, reducing pressure on global resource markets and prices.
World energy markets have undergone seismic shifts over the past decade, driven by Asia’s rising energy demand; the new commercial viability of North American energy supplies such as shale gas, tight oil, and heavy oil; the boom in renewables technologies; and progress on improving energy efficiency. These changes are opening up powerful new opportunities for growing energy trade between North America and the Asia-Pacific region and for transitioning toward a cleaner energy future. Forging a new trans-Pacific energy trade and more integrated and efficient energy markets could have major benefits for both sides of the Pacific. As North America’s energy production continues to grow, both the United States and Canada will increasingly be looking for secure long-term sources of demand for those resources internationally. This is potentially a perfect match for Asia’s growing quest for more secure and environmentally sound energy supplies. The boom in renewables development and improvements in energy efficiency also provide new opportunities for technology trade and accelerating the transition toward a cleaner, less carbon-intensive energy mix. Nevertheless, while markets are moving rapidly, making the most of these changes will depend on the implementation of a multitude of new supporting policies, investment in critically important infrastructure, public support for energy exports from North America, and the development of more competitive, flexible, and transparent energy markets in Asia. Moreover, strong cooperation will be needed to manage the often rancorous trade disputes over new renewables programs and subsidies. Deepening ties will require strong leadership, vision, and collaboration to bring together the Asia-Pacific region’s political leaders, energy policymakers, communities, provincial and state governments, native populations, key players in the energy industry, and environmental groups to construct this new “virtuous circle” of trans-Pacific energy trade.
It’s unlikely that anyone can stop the flow of oil—one of the world’s most durable and sought-after resources. Nevertheless, since 1975, U.S. crude oil exports (with a few exceptions) have technically been banned. The president has executive authority to reverse the ban, but Congress and interest groups have begun to weigh in as U.S. oil production is projected to ramp up to 9.6 million barrels a day (bpd) in 2016—a peak not seen since 1970. Should the forty-year-old decision to ban U.S. crude oil exports be reversed? The right answer is murkier than those in favor or against suggest. In reality, it depends on what the new rules are for the array of new oils surfacing around the globe. Given the contentious politics surrounding this decision, a healthy debate is necessary to avoid falling into traps set by numerous unanswered questions. First, oil exports are only actually banned in theory. In reality it depends on how you define “oil.” While raw, unrefined American crude oil generally cannot be exported, there is no legal limit on exporting refined oil products. In fact, product exports have increased four-fold over the past eight years, to 3.6 million barrels per day in January 2014. While crude exports were once the industry hallmark set by the five nations that founded OPEC in 1960, today’s oil trade is increasingly driven by more valuable diesel, gasoline, jet fuel, fuel oil and petrochemical feedstocks. Through November 2013, the U.S. exported $120 billion in oil products, up 10 percent from a year earlier. New export-oriented refinery capacity in the Middle East and Asia will further tilt global trade from crude to oil products in the years ahead. Second, the world’s refineries don’t crave American oil given the way they are currently set up. Crudes are very different from one another and most nations in fact run their transport and industry on diesel and heavier residual fuels. Gasoline is not in high demand. Because of this international preference, the U.S.—the only nation that prefers gasoline to diesel—has recently invested tens of billions in Gulf Coast and Midwest complex refineries that are designed to maximize diesel exports by processing heavier global crudes. Thus, the majority of U.S. refineries—and a growing number of refineries overseas—cannot be fed a steady diet of America’s light-tight oils despite the ease of refining these oils into gasoline, jet fuel, and petrochemical feedstock. The reality is that the oil industry did not see the U.S. oil boom coming. As a result, U.S. oil is incompatible with the recently retrofitted refining sector that will require revamping to handle America’s fracked oils. Third, exporting oil won’t necessarily increase reliance on foreign supplies. It is true, for example, that U.S. oil imports from Nigeria witnessed a 50 percent drop between 2011 and 2012, the lowest since 1986. Angolan oil experienced even greater reductions. This was due in part to the boom in production from Texas and North Dakota as well as the idling in late 2011 of two refineries on the East Coast that were significant buyers of North Africa’s light crude. On the other hand, refining U.S. light-tight oils at home currently requires the blending of substantial amounts of heavy oil from Venezuela, Saudi Arabia, and Canada, which must be imported. The truth is that, despite newfound resources at home, the U.S. will never be free from foreign supplies in an increasingly oil-interdependent world. Fourth, some parts of the U.S. economy benefit from oil exports, others do not. While the decision to export oil is economically driven, it will not leave everyone better off. Exporting mounting U.S. oil supplies will benefit oil producers and refiners; keeping it at home will benefit the manufacturing sector. As for consumers, gas prices are unlikely to drop precipitously whether oil is exported or not. Global markets govern crude oil and petroleum product supplies. As such, sabotage in Nigeria, political problems in Libya, unplanned outages that reduce spare OPEC capacity, and future disruptions limit the effect rising U.S. production—or exports—has on global oil prices. Fifth, U.S. oil exports are not as bad for the environment as heavier foreign oils. While clearing the way for U.S. crude exports could make it easier to transport the bounty of North American oils to Asia and elsewhere, many fracked U.S. oils are some of the lightest and sweetest on Earth. This makes them naturally less polluting than other higher carbon and sulfur substitutes. U.S. oils are easier to transport, require less energy to refine, and result in lower yields of bottom-of-the-barrel residuals with the largest carbon footprints. Exporting U.S. oils to simple refineries may make environmental sense. The climate impacts of U.S. oil exports require further analysis before a clear-cut climate decision can be made. America is one of the first in line to win the unconventional oil lottery. But the queue is longer than it first appears. Canada, Venezuela, Brazil, Russia, Australia, Libya, and even China are stocked with an array of oils and other hydrocarbons that can be transformed into tomorrow’s highly demanded petroleum products. The burning question is whether America can manage the geoeconomic, security, and climate impacts of its new bounty of oils. If U.S. policymakers think through their position on oil exports and enact effective safeguards to minimize unintended consequences, they are well positioned to chart a way forward that others can follow. The Complexities of U.S. Oil Exports - Carnegie Endowment for International Peace Page 1 of 2
In sum, the right question is not whether or not to eliminate the U.S. crude oil ban. Exporting U.S. oil is part of a much larger and more important picture. The burning question is whether America can manage the economic, security, and climate impacts of its new bounty of oils.
he World Trade Organization ruled Wednesday that China broke trade rules by limiting the export of rare-earth metals in recent years, handing a victory to the United States, Japan, and other countries that have long accused Beijing of giving Chinese firms a powerful advantage over their foreign rivals by hoarding minerals essential to the manufacture of smartphones, solar panels, and batteries for hybrid and electric cars. In making formal a ruling that was first hinted at last fall, the WTO brushed aside China's claims that environmental concerns had forced it to restrict the sales of materials such as lithium and tungsten. The ruling will cheer lawmakers and freetrade advocates in the United States, who have for years warned that China's decision to keep many of the minerals for itself was threatening American businesses and national security by raising manufacturing costs and imperiling access to materials vital to the defense industry. But the WTO ruling, by slapping down limits on raw-material exports, could also have profound implications for the debate over whether or not to export part of the U.S. energy bounty. That's because the WTO said that countries can't limit exports just to ensure preferential access to raw materials for domestic industries. At issue is China's dominance in the mining, processing, and export of a class of minerals known as rare earths, which are used in everything from computer monitors to missile guidance systems. China controls more than 85 percent of the global market, down from 97 percent a few years ago. Unfair Trade Page 1 of 5 http://www.foreignpolicy.com/articles/2014/03/26/unfair_trade 3/30/2014 Once a relatively obscure, if not geologically rare, group of minerals with exotic names such as neodymium and yttrium, rare earths became increasingly important in recent years due to the massive growth of consumer electronics, advanced defense applications, and clean-energy products. Each advanced wind turbine today, for example, uses about 650 kilograms of neodymium; the roller-coaster in supply and demand for neodymium has sent prices skyrocketing and reeling in recent years. The WTO ruled today on complaints filed by the United States, European Union, and Japan in 2012. The complaints alleged that Chinese export duties and export quotas amounted to unfair trading practices by essentially subsidizing Chinese manufacturers at the expense of American, European, and Japanese rivals. China had argued that it was entitled, under WTO rules, to limit the production and export of rare earths on environmental grounds and in order to preserve a limited resource. Not so, said the WTO, which ruled that "China's export quotas were designed to achieve industrial policy goals rather than conservation."
Summary With the African Growth and Opportunity Act (AGOA) scheduled to expire in September 2015, the US Congress and Obama Administration will need to consider its status this year. This presents an opportunity to examine broader US support for trade-based development in Africa. Drawing upon analysis of firm-level competitiveness constraints and US trade capacity building programs, we outline a number of policy recommendations, including: (1) revising the AGOA eligibility requirements to include business environment criteria; (2) establishing a centralized policy body, with appropriate budgetary authority, to focus US trade-related programs; (3) increasing USAID support for regional bodies that are supporting integration and harmonized policies; (4) protecting and expanding funding for the Millennium Challenge Corporation; and (5) increasing support, through multilateral and other bilateral vehicles, for electricity and transport infrastructure.
With the African Growth and Opportunity Act (AGOA) scheduled to expire in September 2015, the US Congress will need to consider its status this year. Through preferential access to the US market, AGOA aims to: (1) expand US trade and investment with Sub-Saharan Africa; (2) stimulate economic growth; (3) encourage regional economic integration; and (4) facilitate greater integration into the global economy.1 This program has formed the cornerstone of regional trade relations since 2000. Beyond a straightforward extension, Congress and the Obama Administration must decide whether to: (1) expand AGOA’s preferential market access provisions; (2) adjust country eligibility requirements; and/or (3) modify existing US trade capacity-building programs. II. Market Access Provisions and Budgetary Considerations US domestic political dynamics present a challenging environment for expanding existing AGOA market access provisions. Currently, AGOA provides duty-free access covering roughly 96 percent of African product lines. This includes nearly 5,000 tariff lines covered by the Generalized System of Preferences (GSP) plus an additional 1,800 tariff line items added by the AGOA legislation. Apparel-sector tariff lines also qualify where countries have met the respective “apparel visa” requirements.2 Twenty-three African countries are currently eligible for this treatment.3 AGOA does not provide duty-free access for several key agricultural product lines, such as cotton and sugar. Continued domestic political sensitivities suggest that expanding market access provisions is highly unlikely in the immediate term. The GSP expiration in July 2013 has complicated the budgetary implications of extending AGOA preferences. The Congressional Budget Office (CBO) must provide a forecast of the foregone US customs revenue associated with the provision or extension of trade preferences.4 Since GSP historically has covered the majority of associated product lines, with incremental AGOA market access layered on top of it, it has accounted for the majority of US budgetary costs. However, Congress has not yet renewed the GSP regime after its expiration last year. Without GSP in place, CBO will score an AGOA extension at a much higher rate than in the past. Even if GSP is renewed prior to, or alongside, of AGOA, there will be congressional pressure to identify budgetary offsets. MUCH MORE -- ONE OF THE BEST ON AGOA
stagnation likely Germany is reshaping the European economy in its own image. It is using its position as the largest economy and dominant creditor country to turn members of the eurozone into small replicas of itself – and the eurozone as a whole into a bigger one. This strategy will fail.
If it does not act, the WTO is at risk of being pus hed aside, writes Robert Zoellick
Policy makers in the advanced economies at the core of the global financial crisis can make the claim that they prevented a new “Great Depression”. However, recovery since the outbreak of the crisis more than five years ago has been sluggish and feeble. These macroeconomic outcomes have to some extent been shaped by the policy mix predominantly adopted in those economies in response to the crisis, one in which very loose monetary policies have been combined with tight fiscal policies.
In Beijing, many observers regard the TPP a