Category Archives: WTO

IMF raises global GDP growth forecast but protectionist policies a threat

Alicia Nicholls

The sharp downtown in global trade in recent years is both a symptom of and a contributor to low growth“. – Making Trade an Engine of Growth for All (IMF, WTO, World Bank Report of April 2017)

Protectionism leading to trade warfare is a ‘salient threat’ to global economic growth, warned the International Monetary Fund (IMF) economists, not for the first time, in their recently released World Economic Outlook for April 2017.

The good news is that the Fund’s April outlook was much more upbeat than its January 2017 outlook. According to the Fund, the global economy is projected to expand by 3.5 percent in 2017, a modest increase from its 3.4 percent projection in its January 2017 outlook but greater than the 3.1 percent growth in 2016. The Fund has maintained its outlook for 2018 at 3.6 percent.

The not so good news, as already noted, is that the tenuous economic recovery remains vulnerable to several downside risks, including protectionism. Bear in mind as well that the global economy expanded on average 4.2 percent between 1999-2008, so the projected rate of growth is still below the pre-crisis rates of growth.

The Fund’s most recent WEO report comes on the heels of the release by the World Trade Organisation (WTO) of its trade growth forecast which projected some recovery in global trade growth to 2.4 percent in 2017. Most readers would remember that 2016 saw the slowest rate of global trade growth since the global economic and financial crisis which coincided with the slowest rate of global economic growth in 2016 since 2009.

As noted by the WTO in its press release, “the volume of world merchandise trade has tended to grow about 1.5 times faster than world output, although in the 1990s it grew more than twice as fast.” However, dampened trade volumes have been linked to a subdued global economy and global trade grew less than global economic growth in 2016. Although, the WTO’s projected rate of growth for 2017 signals a cautious recovery, the rate of merchandise trade growth is still much lower than pre-crisis merchandise trade growth and the forecast risk is higher due to both economic and policy uncertainty.

The IMF’s most recent WEO also follows a joint report released by that institution, the WTO and the World Bank entitled “Making Trade an Engine of Growth for All: The Case for Trade and for Policies to Facilitate Adjustment” in which it was stated, inter alia, that the role of trade in the global economy is ‘at a critical juncture’, and arguing that further trade integration was important for stimulating global growth.

At the same time, the IMF warned that protectionism could lead to trade warfare, citing several factors in mainly advanced economies which have seen greater political support for nationalist and protectionist policies. There is good reason for this concern, stemming from protectionist turns and mercantilist rhetoric emanating from political quarters in advanced economies, namely the US and Europe. Moreover, the communique from the March 2017 G-20 Finance Ministers’ Meeting in Germany  saw, for the first time, the exclusion of the pledge to “resist protectionism”. On the multilateral front, although the WTO’s Trade Facilitation Agreement has come into effect, there has been little progress otherwise on multilateral trade negotiations.

Trade is an important driver of global growth, and helped to propel global growth in the latter half of the 20th century. Trade has also played an important role in boosting competition, productivity and improving living standards and productivity. However, there has been dislocation as a result of free trade. In the case of developing countries, there has been the negative impact of competition from cheaper subsidised (particularly agricultural) imports from advanced countries on domestic industries which have higher production costs due to lack of economies of scale and lower technology use. An Oxfam report noted the  negative impact on Mexico’s corn industry following the introduction of the North American Free Trade Agreement (NAFTA).

While the cheaper imports benefit consumers through lower prices, they, however, can negatively impact domestic industries and jobs, and with implications for countries’ balance of trade, and in the case of the agricultural sector, food security. This is an issue which has been noted by developing countries and development economists for years but only seemed to gain mainstream discussion once the effects became more palpable in advanced economies, such as the US and Europe.

However, this is not to suggest that trade is undesirable or that the negatives outweigh the positives. Trade, as the IMF has rightly noted, is an important driver of the global economy. It does, suggest, however, that there needs to be greater consideration of the “social impact” of trade policies and of the need to make trade policies much more inclusive by ensuring that the most vulnerable to the negative fall-outs of trade, such as women and the poor, are protected through supporting policies and mechanisms. As such, domestic policies to assist with, and mitigate, these trade-related adjustments are important, a point made in the joint report by the IMF, WTO and World Bank.

Besides protectionism, the IMF also noted faster than expected interest rate hikes in the US, aggressive financial deregulation, financial tightening in emerging market economies, geopolitical tensions, inter alia, as among the inter-connected downside risks to global growth. Furthermore, the IMF emphasised the importance that countries’ policy choices will have on the global economic outlook and on reducing risks to this outlook.

To read the full IMF WEO April 2017 report, please visit here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Advertisements

WTO Trade Forecast 2017: Cautiously Optimistic about trade growth recovery

Alicia Nicholls

After decelerating considerably in 2016, world merchandise trade growth is expected to recover to 2.4% in 2017. This is according to the cautiously optimistic trade forecast released today by the World Trade Organisation (WTO).

According to the WTO, although global merchandise trade volumes have historically on average grown 1.5 times faster than global GDP, this ratio has slowed to 1:1 since the crisis of 2008. Last year’s merchandise trade growth of 1.3% was the slowest pace of trade growth since the world economic crisis of 2008 and was linked primarily to a weak global economy.

In his press conference remarks, Director-General of the WTO, Roberto Azevedo, explained that early indicators, such as the record increases in global container shipping throughput, the high levels of global export orders, and the expected recovery in world economic output, point to a recovery in global trade in 2017.

However, the WTO Chief also cautioned that this forecast assumes that governments pursue the right policy mix and that forecasts of an expected recovery in global GDP are accurate. The report noted that trade growth could be negatively affected by governments’ trade, monetary and fiscal policies.

Indeed, the Director-General’s remarks to this point perfectly sum this up as follows:

Overall, I think that while there are some reasons for cautious optimism, trade growth remains fragile and there are considerable risks to the downside. Much of the uncertainty around the outlook is of course political — and not only geopolitical. Part of this is driven by people’s concerns about the impact that trade can have.

Given the high levels of uncertainty which have increased the forecast risk factor, WTO economists have also given a growth range of between 1.8 and 3.6% for 2017.

Observing that trade does cause some dislocation, the WTO Director General cautioned governments against protectionism and highlighted that innovation, automation and new technologies, and not trade, were responsible for eighty percent of the loss of manufacturing jobs.

The WTO’s forecasts for 2018 are much more optimistic, with a growth forecast of between 2.1 and 4.0%

For further information, please see the WTO Director-General’s press conference remarks here and the WTO’s press release here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

WTO Trade Facilitation Agreement: Why is it important for Caribbean Small States?

Alicia Nicholls

History was made on February 22nd when the World Trade Organisation (WTO) Trade Facilitation Agreement (TFA) finally came into force. Coming into effect some four years after its conclusion at the WTO’s 9th Ministerial held in Bali, Indonesia in 2013, the TFA is a momentous achievement for the world, but also a plus for Caribbean small States which, like other developing countries, stand to benefit the most from the Agreement’s full implementation. Indeed, WTO economists estimate that full implementation of the TFA “could reduce [global] trade costs by an average of 14.3% and boost global trade by up to $1 trillion per year.”

Economic growth was one of the three broad themes discussed at the 28th Intersessional Meeting of the Heads of Government of the Caribbean Community (CARICOM) held in Georgetown, Guyana last week. Trade, both intra- and extra-regional, is an important contributor to economic growth, employment and poverty reduction. CARICOM Secretary-General Irwin Larocque recalled that the Community “has identified the CARICOM Single Market and Economy (CSME) as the best vehicle to promote our overall economic growth and development”.

However, despite trade accounting for between 54-135% of Caribbean countries’ GDP according to World Bank data, the region’s share in global trade has been on a decline. Export performance and investment attraction remain lacklustre. Market and product diversification remain limited. Moreover, according to the last Caribbean Trade and Investment Report published in 2010, although intra-CARICOM merchandise trade was gaining momentum, it still only comprised “a minute portion of total CARICOM trade”.

Trade Facilitation can improve Caribbean trade

There is no one factor which explains the region’s declining trade performance or the still limited intra-CARICOM trade. For instance, a 2015 Compete Caribbean study noted that except for three countries, customs and trade regulations were found not to be a significant obstacle for doing business. With regard to intra-regional trade, high transportation costs remain one of the biggest barriers. However, with regard to extra-regional trade, a 2013 World Bank Report highlighted the low customs performance of Caribbean countries’ despite their high trade openness.  Another World Bank report noted that port handling charges in the Caribbean “can be two to three times higher than in similar ports in other regions”.

Unnecessarily burdensome border procedures and costly border fees make it difficult for exporters to access other markets, even where trade agreements or preferential arrangements exist. This is made even more difficult in cases where customs and other administrative procedures are opaque and rely largely on paper-based processes as opposed to electronic payments and e-documents. While large firms can invest the time, human and financial resources in navigating complex border rules and procedures in other markets, small-and medium sized enterprises (SMEs)’s often lack this luxury. Add in a foreign language, and it gets even more complicated. Improving trade facilitation can help boost Caribbean countries’ competitiveness, while facilitating policies and support structures can assist Caribbean firms’ access to regional and international markets. After all, States do not trade, firms do.

The TFA addresses one of the biggest constraints of SMEs seeking to do business internationally through the simplification, harmonisation and modernisation of customs procedures, while also fostering transparency and reducing transaction costs. The TFA includes provisions aimed at facilitating the release and clearance of goods through customs, requires States to publish rules and procedures and to establish contact points for enquiries, facilitates border agency cooperation, provides procedures for appeal and review and disciplines for fees and penalties, inter alia.

Developed countries have committed to implementing all of the provisions of the Agreement upon its entry into force, which means accessing those markets should be easier at least from a customs standpoint. Like other WTO developing country and Least Developed Country (LDC) Member States, Caribbean countries’ implementation of the TFA will be based on their ability to do so. Member States are allowed to schedule their commitments for the Agreement’s provisions into three categories: A, B, C, with category A commitments being those which the Member State can implement upon the Agreement’s entry into force (or within one year of entry into force for an LDC). Importantly for Caribbean countries, they will also have access to the Trade Facilitation Agreement Facility which was established to assist developing countries and LDCs in their implementation efforts.

In a world with increasingly globalised supply chains, the smooth flow of trade across borders is important for improving Caribbean countries’ competitiveness and ability to participate in Global Value Chains (GVCs). Implementing the reforms pursuant to the TFA can also be beneficial for intra-regional trade, through the harmonisation of customs procedures.

Trade facilitation has other benefits as well, as noted in the WTO study on this issue. An improved trade and investment climate increases the attractiveness of a country for foreign direct investors. Moreover, transparent customs procedures reduce the opportunity for customs fraud and corruption, and improves revenue collection. It should be noted that not only are foreign direct investment inflows critical for Caribbean economies, but customs and other import taxes remain an important revenue source for many Caribbean governments.

Trade Facilitation Measures in the Caribbean

The encouraging news is that several Caribbean countries have begun trade facilitation reforms, including improvements in port infrastructure and simplification of customs procedures in recent years. As was noted in the World Bank’s Doing Business Report – 2017, Antigua & Barbuda removed the requirement of a tax compliance certificate for import customs clearance, while Grenada streamlined its import document submission procedures.  Haiti has allowed the submission of supporting documents online under its SYDONIA electronic data interchange system.

Trinidad & Tobago was among the first countries to ratify the TFA, while Belize, Guyana, Grenada, Jamaica, St. Kitts & Nevis, St. Lucia and Dominica have also ratified the Agreement. Trinidad & Tobago (in regards to advance rulings) and the Dominican Republic (has not yet ratified the TFA) and Jamaica (authorised traders) are among several countries which have been identified as case studies in the implementation of trade facilitation measures.

With the help of a loan from the Inter-American Development Bank (IDB) Barbados (which has not yet ratified the TFA) has introduced an Electronic Single Window, part of a wider competitiveness programme. Through its Global Logistics Initiative, Jamaica is seeking to take advantage of its location in one of the world’s busiest shipping lanes to become the premier logistics node within the Americas. However, in light of increased competition from other parts of the world, particularly for global investment flows, there is the need for the region to increase the pace of its trade facilitation reforms.

What is next?

Given the benefits that the at-the-border and behind-the-border reforms pursuant to the TFA can have for regional SMEs and for facilitating Caribbean trade, it is hoped that other Caribbean countries will ratify the Agreement. For those which have not yet done so, ratification of the Agreement could serve as a powerful signal to investors of their commitment to trade and business facilitation.

Caribbean countries should move expeditiously to develop and implement national strategies for trade facilitation. This would involve assessing their country’s readiness to implement the various provisions of the TFA through identifying capacity gaps and implementation needs, on which basis they will categorise the provisions and make their notifications. Implementation capacity, of course, varies from one country to another. Caribbean countries should also continue to make use of technical and financial assistance and capacity building support for the implementation of the measures.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

WTO Trade Facilitation Agreement enters into force

Alicia Nicholls

Today the World Trade Organisation (WTO) Trade Facilitation Agreement, the first multilateral trade agreement to be concluded since the WTO came into being over twenty years ago, has entered into force. The Trade Facilitation Agreement aims to expedite the process of the movement of goods across  national borders and was concluded as part of the Bali Package coming out of the WTO Ministerial in 2013.

For immediate entry into force the Agreement needed to be ratified by two-thirds of the WTO’s membership, that is, 110 member countries. That threshold was met today when Chad, Jordan, Oman and Rwanda submitted their instruments of ratification.

As the World Bank’s Annual Doing Business Reports show, countries’ customs procedures can vary from a few to a multiplicity of steps, which can significantly increase the amount of time goods take to clear borders, which increases costs to both suppliers and consumers. As supply chains become  increasingly globalised, so is the need for more expeditious trade flows and standardisation of customs procedures. The Trade Facilitation Agreement’s provisions provide standards which were inspired by international best practices.WTO economists in the World Trade Report 2015 estimated that the Agreement would lower members’ trade costs by an estimated 14.3% on average.

Developing countries and Least Developed Countries (LDCs) have the option to determine their pace of implementation by designating each of the provisions according to one of three categories: A,B,C, with A being the commitments each country can undertake as soon as the Agreement comes into force. The Agreement also includes provisions on customs cooperation. A Trade Facilitation Facility was also created at the request of developing countries to assist them and Least Developed Countries in implementing the Agreement.

So far besides St. Vincent & the Grenadines, the following countries of the Caribbean Community (CARICOM) have ratified the TFA: Trinidad & Tobago, Belize, Guyana,  Grenada, Jamaica, St. Kitts & Nevis, St. Lucia and Dominica. Reforms undertaken by CARICOM countries pursuant to Agreement could help to facilitate the movement of goods trade within the Community through more simplified customs procedures and lower border costs. Like other developing countries, CARICOM countries would also be able to access the Trade Facilitation Facility to assist in their implementation of the Agreement’s reforms.

For further information, please see the WTO’s press release.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Dominica Ratifies WTO Trade Facilitation Agreement

Photo source: Pixabay

Alicia Nicholls

Dominica has become the latest Caribbean Community (CARICOM) member state to ratify the World Trade Organisation’s (WTO) Trade Facilitation Agreement, according to a WTO press release. On November 28, 2016 Dominica, along with Mongolia, deposited its instrument of acceptance to the WTO. These two ratifications bring the number of WTO member states to have ratified the Agreement to 100, just 10 shy of the number (two thirds of WTO membership) needed for the Agreement to go into effect, according to the press release.

The Trade Facilitation Agreement, which was concluded at the WTO’s Bali Ministerial in 2013, aims to lower trade costs by expediting the movement, clearance and release of goods, thereby cutting red tape, and improving cross-border customs cooperation on trade and customs compliance issues. Upon the request of developing and least developed country (LDC) WTO members, a Trade Facilitation Agreement Facility  was established in 2014 to assist them with implementing and gaining the benefits from the Agreement.

The WTO expects the Agreement to  boost global merchandise exports by up to $1 trillion per year if fully implemented. As I had noted in a previous post on the Agreement, ratification and full implementation  of the Trade Facilitation Agreement by all CARICOM states could also improve Caribbean regional integration by easing transaction costs of exporting across CARICOM states. Implementing these reforms would also send a strong signal to the international business community of these countries’ commitment to improving their ease of doing business.

The following other CARICOM countries have already ratified the Agreement: Trinidad & Tobago, Belize, Guyana, Grenada, St. Lucia, Jamaica and St. Kitts & Nevis.

The WTO press release may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

WTO Panel Rules US Tax Incentive to Boeing a Prohibited Subsidy

Photo source: Pixabay

Alicia Nicholls

In the latest saga of the on-going battle between aircraft giants Airbus and Boeing, a World Trade Organisation (WTO) dispute settlement body panel on November 28, 2016 has ruled that Washington State’s business and occupation (B&O) aerospace tax rate for the manufacturing or sale of commercial airplanes under Boeing’s 777X programme currently in development is a prohibited subsidy under the WTO’s Subsidies and Countervailing Measures (SCM) Agreement. The tax breaks to Boeing had been extended by Washington State in 2013 from 2024 to 2040.

The Dispute

The dispute DS487: United States — Conditional Tax Incentives for Large Civil Aircraft was brought by the European Union (EU) which claimed that seven tax incentives extended by Washington State to the civil aerospace industry, which would benefit Boeing’s 777x programme, constitute prohibited subsidies under Articles 3.1(b) and 3.2 of the WTO’s Subsidies & Countervailing Measures Agreement because they de jure require Boeing to use domestically assembled and not imported body and wings for its 777x jets.Such a measure would fall under a prohibited subsidy under Article 3.1(b) of the SCM Agreement as it is a subsidy tied to the use of local content. The EU had claimed that Boeing would gain over $5.7 billion in benefits from the measures.

Findings

The Panel found that all seven of the measures at issue were subsidies under Article 1 of the SCM but found that only the B&O aerospace tax rate for the manufacturing or sale of commercial airplanes under the 777X programme was a prohibited subsidy under the SCM Agreement as it was contingent on the use of domestic over imported goods.

The Panel recommended that the US withdraw this prohibited subsidy without delay and within 90 days.

With respect to the six other challenged measures, the Panel held that the EU did not demonstrate that the aerospace tax measures are de jure contingent upon the use of domestic over imported goods and were therefore not prohibited subsidies.

Reactions

Interestingly, both sides appear to have claimed victory which is perhaps not surprising as the WTO ruled only one out of the seven contested measures to be prohibited.

The European Commission has hailed the ruling a “major win” in its press release following the ruling. In that release EU Trade Commissioner, Cecilia Malmstrom is quoted as stating:

“Today’s WTO ruling is an important victory for the EU and its aircraft industry. The panel has found that the additional massive subsidies of USD 5.7 billion provided by Washington State to Boeing are strictly illegal. We expect the US to respect the rules, uphold fair competition, and withdraw these subsidies without any delay”.

Boeing’s rival, the EU-based Airbus termed it a “knock-out blow”. In its own press release, Airbus claimed that “Boeing has caused at least $95 billion in commercial harm to Airbus, opening the door to trade sanctions against the US in an equivalent amount.”

In its response to the ruling, Boeing stated that “the World Trade Organization (WTO) today rejected virtually all of the European Union’s challenges to the Washington state tax incentives”. Boeing’s General Counsel, J. Michael Luttig stated that “we fully expect Boeing to preserve every aspect of the Washington state incentives, including the 777X revenue tax rate.”

What next?

Either party can appeal the ruling and it is expected that this will occur. This dispute is just the latest in the 12-year old dispute between aerospace rivals Airbus and Boeing over the extent of “illegal” government support the manufacturers have received from EU member countries in the case of Airbus, and the US in the case of Boeing.

The ruling comes on the heels of a report by a WTO compliance panel released September 2016 which held that the EU had not complied fully with a ruling against support provided to Airbus in the EC and certain member States – Large Civil Aircraft dispute. In 2017 the WTO is also expected to issue its ruling on another case regarding US support for Boeing.

The full panel report may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

WTO: G20 Trade Restrictions remain high, despite slowdown in new measures

Alicia Nicholls

Despite a slowdown in new measures, existing trade restrictions among the G20 countries remain high. This is according to the World Trade Organisation’s (WTO) latest Report on G2o Trade Measures (mid-May 2016 to mid-October 2016) released November 10, 2016.

Some of the key findings of the sixteenth edition of this Report are as follows:

  • A total of 85 new trade-restrictive measures were implemented by G20 economies during the review period (mid-May to mid-October 2016).
  • This is an average of 17 new measures per month
  • The good news is that this is a decrease  from the 21 per month imposed in the previous reporting period (mid-October 2015 to mid-May 2016)but the WTO also cautioned that this is actually a return to the trend level for new trade-restrictive measures since 2009.
  • Of the 1,671 trade-restrictive measures (including trade remedies) recorded for G20 economies since 2008, only 408 had been removed by mid-October 2016.

As noted by the WTO, these  findings are of concern given the slowdown in global trade flows and the continuing economic uncertainty in the world economy.

The WTO in its recent downward revision of its trade forecasts is now predicting 1.7% growth in world merchandise trade volumes in 2016 (down from its previous forecast of 2.8%), the slowest rate of growth since 2009, and lower than global GDP forecasts of 2.2%.

I would also add that President-elect Trump’s tariff-happy rhetoric does not bode well for the future reduction of trade restrictive barriers if he does go through with his promises.

The WTO therefore noted that:

“It is imperative that G20 economies — collectively and individually — re-double their efforts to deliver on their commitment to refrain from taking new protectionist measures and roll back existing ones.”

The full report may be accessed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

 

« Older Entries