Brexit:Does it help or does it harm the UK?

                                                       Comments due by May 5 , 2016

ON JUNE 23rd Britons will vote on whether their country should stay in the European Union. They face a bewildering range of estimates of the potential economic effects of a Brexit. By 2030 Britain’s GDP could be as little as a fraction of a percentage point below the level it would otherwise reach, or as much as 9.5 percentage points lower, depending on just whom you ask and what they assume about the future. While such analyses are useful (particularly in their clarifying agreement that Brexit would do at least some damage to the British economy over the next 15 years), they are also guilty of providing a spurious sense of precision. When attempting to predict the fate of the British economy after Brexit, it is useful to keep two rules of thumb in mind. The first broad principle should hearten the Brexiteers: over long periods, GDP per person in Britain has risen surprisingly steadily (see top chart). It has usually taken a war to cause that growth to deviate much from the underlying trend—although there was a long and painful slowdown during the 1920s and early 1930s, when Britain stuck doggedly to a contractionary monetary policy. As soon as Britain abandoned the gold standard in 1931, it was off again on a long streak of steady growth (briefly interrupted by the disruptions of the second world war). Indeed, stable growth in output per person continued until the financial crisis of 2007­08. Joining the EU in 1973 does not seem to have accelerated it much, just as crashing out of Europe’s system of pegged exchange rates in 1992 did not slow it down. Other seminal events— the loss of Britain’s empire in the post­war years, or its balance ­of ­payments crisis and IMF bailout in 1976—also seem to have had no impact on the trend. Past performance is no guarantee of future returns, but Britain’s history suggests that the costs of Brexit will probably not be as large or as lasting as the more dire prognostications maintain. As the Remain campaign often points out, membership of the European Union has not prevented Britain being one of the most flexible, and least regulation ­bound economies in the rich world. That flexibility would help Britain adjust to the shock of Brexit, as would the demand ­boosting drop in the pound that would almost certainly follow a vote to leave. However, a modest cost is still a cost. Moreover, whether a member of the EU or not, Britain is a European country, deeply and irrevocably linked to the fortunes of the continent. As annoying as it must be to the Leave campaign, only 21 miles (33km) of the English Channel separate Britain from France (and there is no distance at all between Northern Ireland and the Republic of Ireland, or Gibraltar and Spain). From Paris, Brussels and Amsterdam, it is a far shorter train journey to London than to Berlin. Britain is thoroughly, helplessly European, and always has been, since its first prehistoric settlers blundered over the land ­bridge from the continent. The European connection has big implications. Trade with far ­off countries is costly, in terms of money and time. A paper published in 2012 by David Hummels of Purdue University and Georg Schaur of the University of Tennessee finds that every day goods are in transit adds a cost equivalent to a tariff of between 0.6% and 2.1%. Countries therefore trade most heavily with close neighbours. More than 50 years ago Jan Tinbergen, a Dutch economist, observed that trade seemed to follow a “gravity model”, meaning that trade flows were a function of both the distance between trading partners and their size (or economic “mass”). They were Britain’s dominant trading partners three centuries ago, when Europe accounted for 75% of British trade. And they are Britain’s dominant trading partners now, accounting for roughly 50% of its trade, despite the fact that the rest of the world accounts for a much bigger share of global economic activity now than it did in the 18th century (see bottom chart). In fact, trade between Britain and the rest of the EU is larger than geography alone would predict, according to a recent analysis by the Centre for European Reform, a think­tank. It calculates that the flow of goods and services across the Channel is 55% greater than distance and economic mass alone would imply. What is more, that extra activity is a genuine bonus. It is almost entirely made up of new economic activity that would not otherwise take place, rather than exchanges diverted from partners outside the EU by the single market’s external tariff. The integration fostered by European institutions nurtures cross­border supply chains and trade in services—a British speciality. Britain’s exports of services to the EU are larger than those to North America, Japan and the BRICs combined. The EU, in effect, shrinks the distance between European economies even further. Tilting at geography In other words, the push for Brexit is quixotic. However close the cultural affinities between Britain and its partners in the Anglosphere, the contribution of their trade to British output is much smaller than the EU’s, as are the contributions of the world’s big emerging economies. A Brexit would not delink Britain’s economy from the rest of Europe; it would merely worsen the terms on which trade is conducted and reduce Britain’s influence in European affairs. History suggests that the choice to leave the EU would probably not prove a calamitous one in economic terms. That does not mean it would be astute.

How serious is the global economic slow down?

                                                         Comments due by April 22, 2016
  
IS THERE a global economic crisis on the horizon? Probably not. Is the world in danger of falling into recession? Not soon. Yet the IMF’s latest update of its forecasts is nevertheless resolutely downbeat. Speaking this week in Washington, DC, its chief economist, Maurice Obstfeld, outlined yet another downward revision to its prediction for global GDP growth. It is likely that the next revision will again be down. One of the big threats to the world economy, he said, is from “non­economic risks”—fund ­speak for grubby politics. A world economy stuck in the doldrums, he cautioned, may be a perilous place politically. The actual forecasts are far from horrible. The fund nudged down its estimate of global growth for 2016 from 3.4% to 3.2%. That is still a shade faster than in 2015. The revisions are broadbased: America, Europe and the emerging world as a bloc all saw similar downgrades (see chart). The forecast for sub ­Saharan Africa was pared back the most, in large part because of a gloomier outlook for oil­ rich Nigeria, the continent’s biggest economy. The recent recovery in crude prices will take some pressure off oil producers, but “we won’t be seeing prices at the $100 a barrel level for some time, if ever,” said Mr Obstfeld. Of biggish economies, only China escaped a downgrade. The fund is more confident than it was in January that stimulus measures there will work. But there is a concern about the quality of China’s growth, said Mr Obstfeld, as fresh credit is directed towards sputtering industries. The scenario the fund seems most concerned about is a steady slide in global GDP growth that feeds on itself by discouraging investment, thereby exacerbating political tensions, which in turn make fixing the economy even harder. Brazil shows how a bad economy can be made worse by political paralysis. Low growth might add to the “rising tide of inward­looking nationalism” in 4/15/2016 System says slow | The Economist http://www.economist.com/node/21696883/print 2/3 the rich world, said Mr Obstfeld. Politics in America is moving against free trade. And there are various threats to 4/15/2016 System says slow | The Economist http://www.economist.com/node/21696883/print 3/3 Europe beyond the perennial problem of Greece. The refugee crisis has already put pressure on the European Union’s open­borders policy and there is a “real possibility” that Britain might leave the EU. The IMF has some familiar remedies for the global economy: keep monetary policy loose, augment it with fiscal stimulus where possible and add some pro ­growth reforms to the mix. Such action is needed to insure against the risks the fund identifies. But the world should also be making contingency plans for a co­ordinated response if a financial shock hits. “There is no longer much room for error,” said Mr Obstfeld, with a certain weariness.

NAFTA : Is It Beneficial ?

Comments due April 15, 2016 "It's shipping jobs out of the country!" "No, it's creating jobs in the U.S.!" "It's the reason we have a trade deficit with Mexico!" "No, the deficit is plunging because of our exports there!" And so go the arguments about continuing the North American Free Trade Agreement (NAFTA), and extending it to include Latin America and the Caribbean in a Free Trade Area of the Americas (FTAA).We all have a stake in this issue, whether we're involved with a manufacturing or service industry. If jobs are moving out of the country, traditional thinking is that unemployment should increase and fewer people will buy goods or services, which will eliminate even more jobs in an ever-increasing downward spiral. But are jobs really being eliminated, or are they actually increasing because of NAFTA? Organized labor, some environmental groups and many politicians are very much opposed to NAFTA and any extension of it. They say that global trade shifts manufacturing jobs out of the U.S. to lower wage countries. They have a point. However, with NAFTA or without it, low wage jobs are going to migrate to the place of least cost, and for many industries that may not be in the U.S. The fact is, labor in the U.S. is significantly more costly than in most third world countries -- especially low-end labor for manufacturing. Companies that don't understand this and act accordingly, won't be in business long. For many, there are two choices: move low wage jobs to least cost countries, or find ways to automate. Either way, these jobs will be eliminated. Some argue that by moving these jobs, U.S. companies are supporting poverty level wages and living conditions abroad. Consider the recent flap over Nike paying what are called sub-subsistence wages in Asia. But in these locations, such wages are reasonable, given the cost of living there. They buy the necessities of life and in many cases quite a bit more. These workers are beginning to improve their lives, albeit bit by bit. As with Mexico, the population is starting to save and is now buying more goods and services from the U.S.! Life without these jobs would be much harder, economic and living conditions might never improve, and we would have fewer exports. Many economists credit NAFTA with reversing the devastating effects of the recent Mexican currency devaluation and recession. With little hard currency, Mexicans couldn't afford to buy much. With capital now flowing back into their country, in part due to jobs moving there, they are able to buy more imports -- from the U.S. For example, recent increased Mexican demand for U.S. autos, specialized heavy machinery, telecommunications and other high-tech equipment has sharply decreased our previous $1-billion average monthly Mexican trade deficit. Mexico's economy has grown steadily for the past several years, in part due to NAFTA, which means even more U.S. exports. Of course, along with gaining the advantage of low-wage manufacturing costs, it is also the responsibility of global companies to provide decent housing and living conditions for their workers -- and many are doing so. They also are improving the local infrastructure, such as roads and communication systems, in order to get raw materials to production facilities and finished goods to shipping points. We must realize that the world economy is changing, whether we like it or not. U.S. companies must be able to compete on the world stage, which means we must understand that our competitive advantage is not in low-end manufacturing. It is in "knowledge work" -- producing goods and services which require a high degree of skill and training. Therefore, we must let these low-level jobs go elsewhere. However, we must also fund training programs for our displaced workers. We must move these people into the better paying jobs of high-tech manufacturing, as well as other functions that are not subject to export, such as administration, sales/marketing, research, accounting, human resources, etc. Many socially conscious and responsible organizations are sponsoring such training programs. Former Labor Secretary Robert Reich has suggested tax incentives for companies investing in worker skill training -- a good idea. But for workers finding themselves out of work and with no "knowledge" skills, we must urge the public sector to provide this training and a path to better jobs. Some estimate that since 1992, nearly 20 million new jobs have been created in the U.S., in part due to the 1994 NAFTA agreement. Total trade between the NAFTA partners -- the U.S., Canada and Mexico -- rose from $293 billion in 1993 to more than $475 billion in 1997, and has increased since. That spells sales and profits for U.S. companies and high paying jobs for American workers.If such increases within NAFTA are possible, think what might happen if we extend the partnership to include Latin America and the Caribbean, with the Free Trade Area of the Americas (FTAA). Our "knowledge work" industries would thrive.

Trump, Sanders and Free Trade

                                                      Comments due by April 8, 2016

Donald Trump and Bernie Sanders have something in common. Both are hostile to the free trade deals that Barack Obama has been negotiating, and both have been campaigning on a platform of putting American workers first.

One thing is certain: if either of these two political insurgents makes it to the White House, there will be no great rush to provide easier access to the world’s biggest market. The agreement that Obama has been seeking with the European Union, the Transatlantic Trade and Investment Partnership (TTIP), will be dead in the water.

Hillary Clinton has been more supportive of trade deals in the past but has grown noticeably less enthusiastic as it has become clear that the tougher line adopted by Sanders resonates with many Democrats.

What is TTIP and why should we be angry about it?

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Trade has turned into a political issue in the US. Presidential hopefuls are expected to have a view on the transpacific partnership, imposing sanctions on China for currency manipulation and whether the US should have signed the North American Free Trade Agreement with Mexico and Canada in the early 1990s.

The same applies in the UK, where the Brexit debate has forced both sides to develop an instant expertise in the different sort of trade regimes that exist between the EU and the rest of the world. There are intense debates about the merits – or otherwise – of the Norwegian model, the Swiss model and the World Trade Organisation (WTO) model, and detailed forecasts about the economic costs and benefits of each.

An early sign that trade policy was no longer merely the preserve of political nerds came with the groundswell of opposition in Europe to TTIP. This was billed originally as something largely apolitical: an attempt to harmonise rules and regulations in the US and the EU so there were fewer barriers to trade.

Yet the TTIP is deeply contentious. Opponents say “harmonisation” is not some boring, technocratic exercise, but rather a race to the bottom that will dilute quality controls and safety standards. But it has been the idea of an investor state dispute settlement (ISDS) system, under which corporations could challenge decisions made by governments, that has proven particularly toxic.

 Millions of ordinary Americans support Donald Trump. Here's why

Thomas Frank

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It was not that long ago that freer trade was thought to be a good thing. The WTO was set up at the end of the Uruguay round of trade liberalisation talks, which ended in late 1993. At that point, it was assumed that there would soon be further global agreements to cover unfinished business in areas such as agriculture and services.

Few imagined that it would take until 2001 to begin another round of talks and that these would drag on for 14 years before being abandoned. The assumption in the early 1990s was that the world was entering a new era of globalisation, to match that of the late 19th century, in which there would be free movement of capital, people and goods.

The first world war put paid to what has been dubbed one era of globalisation. Brexit, rows over TTIP, Europe’s attempts to halt the flow of migrants and the “America first” approach adopted by Trump and Sanders all send out the same message: the retreat is underway from another period of globalisation.

This process has had a number of phases. It was always obvious that there would be winners and losers from globalisation, since it involved companies moving production from high cost to low-cost parts of the world. Factories in the west closed, but consumers benefited from cheaper goods. Initially, the winners easily outnumbered the losers, although the losses suffered by the losers were bigger than the gains for the winners.

But the last period of globalisation was a lot more fragile than it looked. It was built on the availability of easy credit, as became painfully apparent in 2007, when the financial markets froze up and trade collapsed on a scale not seen since the Great Depression of the 1930s.

There has been no return to pre-crisis days. Recovery has been much more modest than in previous economic cycles and world trade is barely growing. Unemployment has remained high in the eurozone and even in those developed countries where it has come down – the US and the UK – wages have remained under pressure.

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The recession and its aftermath have meant an increase in the number of people who think that the economic system may be working for the owners of multinational corporations and the global super rich, but is not working for them.

The sense of unhappiness has been fanned by two other factors. First, the recovery has been skewed in favour of the haves rather than the have nots, largely because while earnings have been depressed, asset prices have been going up fast. Second, the traditional parties of the centre appear to have nothing to offer other than a return to the debt-sodden, finance-driven world that led to the crisis in the first place.

As in the retreat from the globalisation era that ended the first world war, voters are turning their backs on mainstream politicians and looking instead to those that can articulate their sense of being ignored or left behind. Hence the support for Trump, Sanders, Jeremy Corbyn, and Marine Le Pen in France, all of whom come from outside the mainstream.

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Politics is grappling with what the economist Dani Rodrik has called an“inescapable trilemma”: the ability to have any two of democracy, global integration and the nation state, but not all three simultaneously.

One solution, according to Rodrik, would be global federalism, an attempt to align the scope of politics to that of global markets. The EU could be considered an attempt to test out the viability of this approach. Europe’s current difficulties suggest that a global polityremains some way off.

Another answer, he suggests, would be to put global economic integration ahead of domestic objectives. This would mean a return to the pre-1914 world of the gold standard, unfettered capital flows and unchecked migration. Incompatible with mass democracy and the growth of welfare states, it risks intensifying the backlash against globalisation.

Finally, Rodrik says there could be a recognition that there can only be so much global integration, with controls on the free movement of capital, people and goods. This was pretty much the settlement that was brokered after the second world war, but unpicked from the mid-1970s onwards.

If history is any guide, this process has further to run. It took more than three decades, which included two world wars and the Great Depression, for a new economic order to emerge. Efforts to turn the clock back failed, old solutions to economic problems no longer seemed to work, banks failed, deflation set in, and free trade was replaced by protectionism and economic nationalism. This all seems worryingly familiar from the perspective of 2016.

On Trade, Angry Voters Have a Point

                                                   Comment by March 31, 2016
Were the experts wrong about the benefits of trade for the American economy? The nation’s working class had another opportunity to demonstrate its political clout Tuesday, as primary voters went to the polls in Illinois and Ohio, Rust Belt states that have suffered intensely from the loss of good manufacturing jobs. Last week, the insurrection handed Michigan’s Democratic primary to Bernie Sanders while continuing to buoy the insurgent Republican candidacy of Donald Trump. Voters’ anger and frustration, driven in part by relentless globalization and technological change, may not propel either candidate to the presidency. But it is already having a big impact on America’s future, shaking a once­ solid consensus that freer trade is, necessarily, a good thing. “The economic populism of the presidential campaign has forced the recognition that expanded trade is a double­ edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr. What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade­offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs. In a recent study, three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — raised a profound challenge to all of us brought up to believe that economies quickly recover from trade shocks. In theory, a developed industrial country like the United States adjusts to import competition by moving workers into more advanced industries that can successfully compete in global markets.
They examined the experience of American workers after China erupted onto world markets some two decades ago. The presumed adjustment, they concluded, never happened. Or at least hasn’t happened yet. Wages remain low and unemployment high in the most affected local job markets. Nationally, there is no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced earnings by $213 per adult per year. In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs. “These results should cause us to rethink the short­ and medium ­run gains from trade,” they argued. “Having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the literature to more convincingly estimate the gains from trade, such that the case for free trade is not based on the sway of theory alone, but on a foundation of evidence that illuminates who gains, who loses, by how much, and under what conditions.” Global trade offers undeniable benefits. It helped pull hundreds of millions of Chinese out of poverty in a matter of a few decades, an unparalleled feat. It ensured Apple could benefit from China’s ample supply of cheap labor. Consumers around the world gained better ­priced, better ­made goods. Still, though trade may be good for the country over all — after netting out winners and losers — the case for globalization based on the fact that it helps expand the economic pie by 3 percent becomes much weaker when it also changes the distribution of the slices by 50 percent, Mr. Autor argued. And that is especially true when the American political system has shown no interest in compensating those on the losing side. The impact of China’s great leap into the market economy — which drew hundreds of millions of impoverished peasants into the manufacturing sector, mostly making goods for export to the United States and other wealthy nations — is waning. China’s wages are rising fast. Its exports and economy are slowing. Trade with other parts of the world has not been as disruptive. For all the criticism of Nafta, most economists assess its impact on American workers as modest. Trade flows with Mexico were smaller and more balanced than those with China. American manufacturing employment remained fairly stable in the years after Nafta came into force in 1994, plummeting only after China entered the World Trade Organization in 2001 and gained consistent access to markets in the United States. The Chinese export onslaught, however, left a scar on the American working class that has not healed. That disproportionate impact suggests Washington officialdom might do well to reassess its approach to future trade liberalization. Most important, it points to reconsidering how policy makers deal with trade’s distributional consequences. It doesn’t mean walling off the United States from the rest of the world, but it does mean learning from the experience of other advanced nations that had a much healthier response to China’s rise. Germany, for example, not only received a surge of Chinese imports, but also experienced an onslaught of imports from Eastern European countries after the collapse of the Soviet bloc. But it managed to maintain a more balanced trade because German manufacturers increased their exports to all these countries too, offsetting the job losses from import competition. Mr. Autor suggests that Americans’ low savings rate was a big part of the story, coupled with foreigners’ appetite for accumulating dollar assets, which helped keep American interest rates low and the dollar strong, in that way fueling a persistent trade deficit. But other factors were at work. Robert Gordon of Northwestern University suggested to me that Germany’s highly skilled workers were harder to replace with cheaper Chinese labor, limiting though not totally eliminating outsourcing. Germany’s stronger labor unions also put up more of a fight. Washington played its part, too. In their new book “Concrete Economics” (Harvard Business Review Press), Stephen S. Cohen and J. Bradford DeLong of the University of California, Berkeley suggest that ultimately, it was the fault of American policy choices. The United States might have leaned against China’s export ­led strategy, they argue, perhaps by insisting more forcefully that Beijing let its currency rise as its trade surplus swelled. It might have tried to foster the cutting­ edge industries of the future, as government had done so many times before, encouraging the shift from textiles to jumbo jets and from toys to semiconductors. What Washington did, instead, was hitch the nation’s future to housing and finance. But Wall Street, instead of spreading prosperity, delivered the worst recession the world had seen since the 1930s. Even at best, they write, the transformation of banking and finance has “produced nothing (or exceedingly little) of value.” So where should policy makers go from here? There are no easy answers. Tearing up existing trade agreements and retreating behind high tariff barriers — as Mr. Trump, and perhaps Mr. Sanders, would have it — would be immensely unproductive. It would throw a wrench into the works of a wobbly world economy. And reneging on international treaties would vastly complicate the international coordination needed to combat climate change. But in any future trade liberalization — including the Obama administration’s pending Trans ­Pacific Partnership deal, if it is to go forward at all — policy makers must be much more careful about managing the costs. Mr. Autor suggests any further deals to increase trade should be gradual, to give much more time for exposed companies and their workers to retool and shift into other jobs and sectors. Perhaps most important, the new evidence from trade suggests American policy makers cannot continue to impose all the pain on the nation’s blue­ collar workers if they are not going to provide a stronger safety net. That might have been justified if the distributional costs of trade were indeed small and short­ lived. But now that we know they are big and persistent, it looks unconscionable.

TPP and Australia.

         Comments due by March 11, 2016

Australia and the Trans-Pacific Partnership: what we do and don't know

Malcolm Turnbull calls it a ‘gigantic foundation stone for our future prosperity’ but we’ll have to take his word for it until full text of the deal is released.

           

Robb, who signed the regional trade pact with counterparts from 11 other nations in New Zealand on Thursday, dismissed opponents of the deal as “the usual suspects” who would not be persuaded by a new inquiry.
He also played down the risk of the Australian government being sued under controversial investor-state dispute settlement (ISDS) clauses, pointing to carve-outs for health and environmental measures.
Hundreds of protesters gathered outside the SkyCity building in Auckland to object to the signing of the agreement on Thursday.
Opposition within Australia has also been building. Before the meeting, 59 organisations, including the Australian Fair Trade and Investment Network, World Vision, the Public Health Association of Australia and numerous unions, signed an open letter calling on the government to take up the Productivity Commission’s offer to assess the costs and benefits.
“In the absence of such independent assessments we consider that the TPP poses grave risks to the public interest and ask you to oppose the implementing legislation,” they wrote in a letter to Australian MPs.
But Robb flatly rejected the request. “No we won’t, because they’re all the usual suspects, I’ve got to say,” he told the ABC.
“Most of the people driving that campaign have been opponents of free trade for decades. They’re entitled to that view, but nothing that would come out of an inquiry would change their mind.
“There’s nothing that they’ve said that convinces me that they’re genuine about this ... I think the community accepts that we’ve got 25 years of uninterrupted economic growth in Australia, we’ve got millions of jobs which have come off the back of Australia opening up and participating in these sorts of major agreements around the world with all of our trading partners.”
The prime minister, Malcolm Turnbull, has described the TPP as a “gigantic foundation stone for our future prosperity” but recent World Bank analysis suggested Australia stood to gain only a modest increase in gross domestic product by 2030.
Of the 12 participants, only the US would experience a lower GDP gain, the report said. By contrast, Vietnam’s GDP could rise by 10%, and Malaysia’s by 8%.

Robb told Sky News there was “a war by modelling” occurring. He pointed to a US Department of Agriculture study that showed Australia’s agriculture sector would be the “biggest winner by a country mile”.
“There are so many parts of this agreement that are very difficult to model,” the minister said.
Investor-state dispute settlement clauses allow companies to access an international tribunal if they believe actions taken by a host government breach its investment obligations.
Robb cited the failure of the Philip Morris case against Australia’s plain packaging measures, which the tobacco giant pursued under a Hong Kong investment treaty.
He said the company had lost that case “using one of the older versions of the ISDS, the pre-2000 version [but] it’s got stronger in terms of protecting public policy on health and environment since then”.
“I’m very confident that what is in the TPP which protects public policy on health and environment will ensure that we are safe,” Robb said.
After Thursday’s signing event, the trade deal will be presented to the parliaments of participating nations.

TPP trade deal will expand Australia's economy by less than 1%, World Bank reveals

Government continues to trumpet Trans-Pacific Partnership’s ‘enormous benefits’ despite analysis showing Australia’s growth will be worse than 11 of the other 12 countries in the deal

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Patricia Ranald, the convener of the Australian Fair Trade and Investment Network, accused Robb of “shooting the messenger” and failing to address genuine community concerns.
“We are not opposed to trade,” she said. “We are making the point that the TPP is not mainly about trade at all. Australia already has free trade agreements with nine of the 12 TPP countries, and a World Bank study shows there will be minuscule trade gains after 15 years.”
But the Australian Chamber of Commerce and Industry said the deal had many potential benefits for Australia, including reducing costs in global supply chains. The chamber’s chief executive, Kate Carnell, said the 2,000-page document was “incredibly complex” and small businesses needed support to understand the new trade arrangements.

A New Trade Facilitation Agreement

                                                Comments due March 4, 2016

As the global economy struggles to emerge from its chronic slow-growth stall, policymakers are increasingly focused on an energetic opportunity to help jump-start economic growth: the adoption of the landmark Trade Facilitation Agreement (TFA) that is now nearing ratification and implementation. By helping reduce trade costs and by helping enhance customs and border agency cooperation, a recent WTO report has found, the successful implementation of the TFA’s provisions could boost developing-country exports by between $170 billion and $730 billion per year. The OECD has calculated that the implementation of the TFA could reduce worldwide trade costs by between 12.5 percent and 17.5 percent.

Buoying the spirits of those who hailed the broad support for TFA at December’s ministerial conference of the World Trade Organization (WTO) in Nairobi, 68 countries have already ratified the agreement. The number of county-by-country ratifications is fast approaching the total of 107 required for the TFA to go into effect. Adopted in December 2013 at the WTO’s conference in Bali, the TFA is the WTO’s first-ever multilateral accord, having won approval from all 162 WTO member nations. The agreement contains provisions for expediting the movement, release and clearance of goods traveling across borders. It also sets out measures to promote cooperation among customs and border authorities on customs compliance issues.

A recent seminar at the World Bank Group – convened by the Trade Facilitation Support Program (TFSP) of the Trade and Competitiveness Global Practice (T&C) – explored the provisions of the TFA and learned of the increasingly active role of the private sector in supporting the TFA’s enactment. Awareness and momentum are building as a new coalition of private-sector firms – the Global Alliance for Trade Facilitation – mobilizes business support for TFA’s effort to speed and strengthen cross-border commerce. As the seminar heard from Norm Schenk, who serves as the chairman of the International Chamber of Commerce’s (ICC) Commission on Customs and Trade Facilitation, members of the alliance plan to meet in Washington this week to explore strategies for promoting the TFA’s adoption.

As a mechanism for business engagement in the TFA process, the Geneva-based coalition was launched as a platform for public-private cooperation to advance the implementation of key provisions of the TFA, said Schenk, who in addition to his ICC role is the vice president of global customs policy and public affairs for the express delivery firm UPS. Organizations supporting the alliance include the ICC, the World Economic Forum and the Center for International Private Enterprise. The alliance also seeks synergies with the work of such international bodies as the World Customs Organization, the WTO and United Nations Conference on Trade and Development (UNCTAD).

The alliance aims to build a broader understanding of the benefits of trade facilitation; establish multi-stakeholder dialogues on trade; mobilize public-private partnerships by engaging local businesses and associations; provide technical and financial assistance in support of capacity-building; and pursue benchmarking and evaluation based on established business metrics.

Launched by T&C in 2014, the TFSP now offers support to almost 50 countries that have committed to implementing reforms to align with the TFA. By helping developing countries implement trade facilitation reforms, the TFSP aims to stimulate increased cross-border trade and investment, thus spurring job creation in the economies of all trading nations. As the TFSP’s leader, Bill Gain, told the seminar, the program is central to the WBG’s support for implementation of the TFA, complementing the WBG’s broader efforts on trade facilitation. Total WBG support for trade facilitation – including both “hard” and “soft” infrastructure – is currently more than $7 billion.

The TFSP has worked with client countries that are focused on such priorities as setting up or strengthening national trade facilitation committees; conducting legal analyses of gaps in the way their national regulations would comply with the TFA; strengthening specific measures like advance rulings, post-clearance audits and simplified procedures for expedited shipments; and implementing national “trade portals.” The TFSP is supported by seven donor partners: the European Union, the United Kingdom, Norway, Switzerland, Australia, Canada and the United States.

As the TFA advances toward adoption, T&C and the TFSP are committed to helping client countries anticipate how to implement its provisions, and are eager to continue a wide-ranging dialogue with the Global Alliance for Trade Facilitation. Three ideas of where we could focus our collaboration include:

• Data, analytics and diagnostics. Through the TFSP, we have conducted detailed assessments of the gaps that need to be addressed for the full implementation of the TFA in 41 countries, based not just on reviews of legislation but on operational assessments of what is required. The Global Alliance, through its private-sector focus, could be in a strong position to complement this with data gathered by private-sector operators on trade facilitation performance at the country level. That could help analyze the problems that need to be faced, and it could also support the continuing monitoring of reform.
• Supporting reforms to implement the TFA at the country level. Diagnostics and analytics are the first step. The real challenge is implementing lasting reform at the country level. We could work with the Global Alliance to pilot collaboration at the country level, building on our respective strengths, to support reform.
• Improving global collaboration and advocacy on the TFA. The World Bank Group, along with the WTO and a number of other international organizations, was a founding member of the “Annex D” group of organizations supporting the implementation of the TFA. The informal group collaborates on assistance at the country level, disseminates information about experiences in implementing TFA reforms, and advocates for effective implementation. Working with the Alliance on this global agenda related to the TFA could help strengthen our respective efforts.

China and the Global Economy

                                                Comments due by Feb. 26, 2016

Weighed down by currency fluctuations, stagnant demand and volatility among commodities, international trade ultimately will hamper and constrict global economic growth this year, according to a report released Monday by the Organisation for Economic Cooperation and Development.

The OECD releases a handful of reports each year to highlight its short- and long-term growth projections, and Monday's report marks the second consecutive downward revision of note in the last few months.

In part because of a "deeply concerning" negative trend in trade growth, the organization bumped down its 2015 economic expansion estimate to only 2.9 percent from September's 3 percent, OECD Secretary-General Angel Gurría said in a statement Monday. That September headline number already had been bumped down from a 3.1 percent projection in June.

For comparison's sake, the global economy grew by more than 3.3 percent in 2014 and by nearly 3.2 percent the year before. Should 2015's projection hold, it would be the worst year for global growth since 2009.

"Since the crisis, we have become used to a familiar pattern: springtime optimism followed by downgrades in growth forecasts as the year progresses. 2015 is no different," Gurría said. "Global trade, which was already growing slowly over the past few years, appears to have stagnated and even declined since late 2014, with the weakness centering increasingly on emerging markets, particularly China. This is deeply concerning, as robust trade and global growth go hand in hand.

"Over the past five decades, there have been only five other years in which trade growth has been 2 percent or less, all of which coincided with a marked downturn in global growth," Gurría said, noting that "the slowdown in China" is "hitting activity in key trading partners."International trade is expected to expand by only 2 percent this year, according to the OECD. That's down significantly from the 3.4 percent trade growth seen in 2014 and would be one of the worst expansion numbers the world has seen in years.

China for years has been considered an international commerce titan, but the country's import and export numbers have been going downhill fast in recent months. Trade data released Sunday showed Chinese exports in October were down 6.9 percent year over year, markedly worse than the 3.7 percent shortfall seen in September. Imports, meanwhile, plunged 18.8 percent year over year.

Exporting nations who have relied on Chinese firms and consumers to buy their products have mostly fallen on hard times in response. Russia and Brazil, in particular, are examples of nations who have slipped deeper into recession as Chinese demand cools. The OECD projects the Russian economy will contract 4 percent this year, while the Brazilian economy will shrink 3.1 percent.

But those countries are essentially getting hit with an economic double whammy from China. Not only are Chinese industries buying smaller quantities of their goods, but because China accounts for such a huge percentage of global commodity consumption, a slowdown there will affect prices around the world. Commodity exporters like Brazil and Russia are now forced to sell their products at a cheaper rate worldwide just to make a sale, which means their profit margins even outside of China are vulnerable.Both nations are heavy exporters of raw materials and commodities like iron ore and crude petroleum. Brazil exports more products to China than it sends to any other nation, according to the Observatory of Economic Complexity. And China is the second-most popular destination for Russian exports, according to the OEC.

"Europe and the U.S. are small industrial commodity users compared to China. China consumes almost 50 percent of global industrial commodity consumption. And so if China slows down, the demand for industrial commodities goes down," Swiss investor Marc Faber said in an interview earlier this year on CNBC's "Trading Nation." "It affects all of the resource producers."

America is largely shielded from trade fluctuations because its economy is primarily consumer-driven rather than export-dependent. The OECD notably didn't revise U.S. growth down at all in its latest series of projections, highlighting America's reliance on consumer spending rather than trade to push its economy forward.That includes Canada as well. America's neighbor to the north slipped into a recession earlier this year in part because of pricing and demand volatility for some of its primary exports. Minerals, metals and precious metals – all of which have been vulnerable to price fluctuations in recent months – account for nearly 41 percent of Canada's exports, according to the OEC.

Still, a weakened and volatile international marketplace can change the dynamics of how the U.S. does business on a global scale. Data from the Census Bureau in September showed China surpassed Canada as America's No. 1 trade partner so far this year in terms of goods alone.

Canada had long enjoyed a trade relationship with the U.S. that no other country could match, but China this year managed to shake Canada loose. American imports of Canadian goods were down more than 10.5 percent in the first nine months of the year compared with the same window last year, largely a result of further depressed oil prices in 2015.

Canadian trade with the U.S. could have been bolstered by the controversial Keystone XL pipeline extension project that had been batted around for years before President Barack Obama ultimately declined to grant his necessary approval last week. The pipeline would have stretched nearly 1,200 miles and helped to connect oil facilities in Western Canada with the Gulf Coast. Conservatives counting on the deal to generate temporary jobs and bolster America's diminished oil industry were far from pleased with Obama's move.

"The long-term growth of the U.S. economy is intimately linked to our trade and investment relationships with Canada and Mexico," Matthew Rooney, director for economic growth at the George W. Bush Institute, said in a statement Friday. "How can it not be in our national interest to build the roads, bridges and pipelines that carry those goods and services?"

Those hoping global growth would be jump-started by a massive U.S.-Canada pipeline project now will need to look elsewhere. And while the OECD expects trade and overall growth to pick up in 2016 and 2017, there's still a lot of time for conditions to turn south.

"The global outlook is something of a good news/bad news story," a team of researchers at IHS Global Insight wrote in a research note last month. "The good news is that the (known) threats to global growth will likely not kill the expansion. The bad news is that any acceleration could easily get delayed another year."  (US News)

TPP Is it helpful?

                                           
                                             Comments due by Feb. 19, 2016

Lawmakers and presidential candidates are having their say about the 12-nation Pacific Rim trade accord that is President Obama’s top economic priority in his final year in office. But lately the liveliest debate over the deal is among blue-ribbon economists.

On Monday, it was the critics’ turn: Economists from Tufts University unveiled their study concluding that the pact, called the Trans-Pacific Partnership, would cause some job losses and exacerbate income inequality in each of the dozen participating nations, but especially in the largest — the United States.

Supporting the authors at the National Press Club was Jared Bernstein, who was the top economic adviser to Vice President Joseph R. Biden Jr. during Mr. Obama’s first term.

Each side in the economists’ debate has criticized the economic model that the other used to reach its results, while opponents and supporters of the trade accord have quickly seized upon whichever analysis buttressed their own views.The conclusions of the Tufts economists contradict recent positive findings from the Peterson Institute for International Economics and the World Bank about the trade pact, which would be the largest regional accord in history and would bind nations including Canada, Chile, Australia and Japan.

Michael B. Froman, Mr. Obama’s trade representative, plans to join other trade ministers in Auckland, New Zealand, on Thursday for the formal signing of the trade deal, which they finished in October after years of negotiations.

The future of the deal, however, depends on the approval of a sharply divided Congress. The administration is believed to lack enough support for passage, though votes are not expected until after the November election. Some other nations are delaying their own ratification processes pending American action.

Election-year pressures are not helping the president’s cause, as leading candidates in both parties are opposing the trade agreement.

Donald J. Trump, the leading Republican candidate, told the conservative website Breitbart News over the weekend that as president he would stop what he called “Hillary’s Obamatrade.”

Hillary Clinton, the leading Democratic contender, has criticized the final agreement after praising it while it was being negotiated. She continues to be assailed by her main rival for the nomination, Senator Bernie Sanders of Vermont, for her early support.

Against this backdrop, the economists from prestigious universities and research institutions have been providing their takes and debating their differences just as intensely, though with more scholarly reserve.

The analysis from the Global Development and Environment Institute at Tufts was titled “Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement,” and was written by the economists Jeronim Capaldo and Alex Izurieta, with Jomo Kwame Sundaram, a former United Nations economic development official.

The authors wrote that they used “a more realistic model” for their analysis, and that previous reports that projected economic benefits from the trade accord were “based on unrealistic assumptions such as full employment” and unchanging income distribution.

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The Tufts report projected that incomes in the United States would decline by a half-percentage point compared with the change expected without the Trans-Pacific Partnership. The Peterson Institute’s report, by economists from Brandeis and Johns Hopkins universities, projected that incomes would rise by half a percentage point.

The Tufts paper also projected that the overall economies of the United States and Japan would contract slightly. Employment in the United States would decline by 448,000 jobs; total job losses in the dozen nations would be 771,000 — a small share of the nations’ total work forces, yet hardly a selling point for leaders seeking to ratify the trade agreement.

The Obama administration has acknowledged that some jobs would be lost, especially in manufacturing and in industries that employ workers with lower skills, but it has said that those losses would be offset by new jobs created in export-reliant industries that pay more on average. The Peterson Institute report offered evidence for that argument, while concluding that there would be no net change in overall employment in the United States.

The other parties to the pact are Mexico, New Zealand, Peru, Malaysia, Vietnam, Singapore and Brunei.

“Economic gains would be negligible for other participating countries — less than one percent over 10 years for developed countries, and less than three percent for developing countries,” the Tufts report said.

It also had bad news for countries, including China, that are not parties to the Trans-Pacific Partnership, whose participants account for nearly 40 percent of the world economy.

“We project negative effects on growth and employment in non-T.P.P. countries,” the report said. “This increases the risk of global instability and a race to the bottom, in which labor incomes will be under increasing pressure.”

The authors’ explicit criticism of models and data used by other economists provoked swift counter-criticism. Robert Z. Lawrence, a professor of international trade and investment at the Kennedy School of Government at Harvard, and a senior fellow of the Peterson Institute, wrote a blog pieceon Monday expounding on why the institute’s analysis was “superior on all counts” and better suited to specifically gauging the impact of megatrade agreements.