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  • Author: Judit Fabian
  • Publication Date: 03-2020
  • Content Type: Policy Brief
  • Institution: Urban Institute
  • Abstract: International trade is often framed in starkly divergent terms: either countries choose multilateral trade agreements (MTAs) and advance the cause of global economic liberalization, or they choose preferred trade agreements (PTAs) and put the entire system at risk. Canada has a long track record of pursuing PTAs and with the Trump administration’s opposition to multilateralism, and longstanding opposition in elements of the Republican and Democratic parties, this trend will likely continue. The question is whether progress will come at the expense of the global trade system. Some economists believe PTAs to be trade-diverting, reducing trade with more efficient producers outside the agreement. Others insist that PTAs can create trade by shifting production to lower-cost producers in one of the participating countries. One prominent contrary argument holds that PTAs lead to discontinuities in tariff regimes between countries and regions, increasing transaction costs, disrupting supply chains, creating opportunities for corruption and harming global welfare, especially in developing nations. While debate continues about the effects of PTAs, a closer examination suggests that worries are overblown about their negative impacts on global trade flows. Evidence indicates that they support rather than harm the international trading system. Countries shut out of PTAs are more motivated to seek out agreements in new markets, increasing liberalization overall. They may also seek a reduction in most-favoured nation (MFN) tariffs, which would deprive PTAs of their major tariff benefits. Studies have found complementarity between preferential and MFN tariffs, revealing that PTAs promote external trade liberalization. Even if a PTA reduces a given country’s incentive to push for multilateral liberalization, it raises the odds of that country liberalizing its trade to avoid getting left behind. PTAs are a response to the difficulties of securing sweeping multilateral agreements. The World Trade Organization (WTO) Agreements authorize them under GATT Article XXIV, GATS Article V, and the enabling clause, and the WTO facilitates a degree of governance over PTAs through its dispute settlement process. Over the past 25 years, countries have adopted these deals at a rapid pace. Between 1994 and 2005, the number of PTAs increased from 50 to 200. By April 2018, 336 were in effect. At the same time, global trade has increased significantly. Between 1994 and 2010, the volume of world merchandise exports more than doubled. The proliferation of PTAs has resulted in a rise in international trade governance, because the countries involved shape their relationships in line with the WTO agreements. This juridification makes PTAs subordinate to the international system rather than giving them room to dissolve it. Canada should therefore have no fear of pursuing PTAs within the larger framework of the effort to achieve multilateral trade liberalization.
  • Topic: Economics, International Trade and Finance, Governance, Trade, Donald Trump
  • Political Geography: Canada, North America, United States of America
  • Author: Minsoo Han, Hyuk-Hwang Kim, Hyelin Choi, Danbee Park, Jisu Kim
  • Publication Date: 03-2020
  • Content Type: Policy Brief
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: The shutdown of the GM Koreas Gunsan plant in May 2018 heightened social interest in the withdrawal of mutlinational corporations (MNCs). Against this backdrop, the forthcoming research The economic effects of multinational corporation withdrawal and policy responses studies the previous cases of MNC withdrawal, estimates the effects on labor market., and provides policy directions to address to the withdrawal. This note summarizes some of its important results.
  • Topic: International Trade and Finance, Economy, Multinational Corporations, Economic Policy
  • Political Geography: Asia, Korea
  • Author: Surendar Singh
  • Publication Date: 01-2020
  • Content Type: Policy Brief
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: India and South Korea enjoy strong economic and trade relations, shaped by a significant convergence of interest, mutual good will and high-level diplomatic exchange. Bilateral trade between the two countries has also increased after signing the Comprehensive Economic Partnership (CEPA). However, the overall trade balance is in favor of South Korea due to superior comparative advantage of Korea in manufacturing as compared to India. South Korean exports are high technology-intensive while India’s exports are low-value raw material and intermediate products. Both countries are members to a mega regional trade pact – the Regional Comprehensive Economic Partnership. Though India has decided to not join the RCEP at this stage it will continue the discussion to explore possible ways to join it. Assuming that India will join the RCEP sooner or later, it is important to analyze the potential impact of the RCEP to India-South Korea bilateral trade ties. This short policy paper compares the proposed provisions of the RCEP and CEPA. It shows that the RCEP is much more comprehensive an agreement compared to the CEPA, both in terms of coverage and scope. It also provides some insights on the likely implications of the RCEP, especially from the perspective of trade with China factored against the bilateral trade ties between India and South Korea.
  • Topic: International Trade and Finance, Bilateral Relations, Partnerships, Economic Cooperation
  • Political Geography: South Asia, India, Asia, South Korea
  • Author: Wendy Cutler
  • Publication Date: 07-2020
  • Content Type: Policy Brief
  • Institution: Asia Society Policy Institute
  • Abstract: Much attention has been focused on China’s unfair intellectual property practices and the imbalance in the U.S.-China trade relationship, but equally troubling are large-scale Chinese industrial subsidies, the behavior of state-owned enterprises (SOEs), and in general, the oversized and opaque role of the Chinese state in the economy. While the U.S-China phase one trade deal tackled some important sources of bilateral tension and aimed to boost Chinese purchases of U.S. goods and services, it was silent on industrial subsidies and related matters, leaving them for the next phase of negotiations, the fate of which is now in question. U.S. concerns on these matters are shared by other trading partners including the European Union (EU) and Japan. Yet despite widespread disapproval of such practices, building new global rules to combat subsidies has proven challenging. This is due to several factors, ranging from gridlock at the WTO, differences of views among like-minded countries on the required level of ambition, and uncertainty as to how best to approach the enormous complexities in China’s subsidies and related policies. The Organization for Economic Cooperation and Development (OECD) has sought to unpack this complexity, conducting recent studies of Chinese subsidies in two key sectors: aluminum and semiconductors. Both studies illustrate how Chinese subsidies are not simple cash handouts from the state to protected firms so that they can sell at favorable and distorting prices. The OECD finds subsidies can take various forms, including downstream or upstream help that trickles up or down to the firm that’s intended to benefit. They can take the form of favorable equity or debt purchases or bonds provided at below-market rates. And with interconnected global value chains, subsidies can effectively be granted covertly, intended to benefit one firm that might be several links away along the chain. In China, the problem is compounded by an opaque “party-state” structure that obscures not only the recipients of subsidies, but also the source. According to Mark Wu, a Harvard Law School professor who previously served as the Director for Intellectual Property in the Office of the U.S. Trade Representative, subsidies not only flow directly from government bodies in Beijing, but also indirectly through informal responses to directives — sometimes even left unsaid, but understood — from the Chinese Communist Party. Against this backdrop, the Asia Society Policy Institute (ASPI) convened two roundtables in the fall of 2019 and the spring of 2020 to discuss how best to build a new rules-based infrastructure that might combat such subsidies and prevent trade-distorting results such as unfair competition, market access barriers, and, above all, overcapacity in global markets. Experts from the private sector, think tanks, governments, and academia weighed in with possible solutions, which included: Negotiating new rules in the WTO; Using the WTO dispute settlement system, despite its often-discussed flaws; Forming ad hoc rules-based approaches, where possible, like the U.S-EU-Japan trilateral initiative; Plurilateral negotiations conducted on a sector-by-sector basis; Forming coalitions of like-minded trading partners to establish an alternative model, much in the way that the Trans-Pacific Partnership (TPP) was framed. During the roundtables, most experts agreed that there is no silver bullet that solves the subsidy and related issues on its own. And most agree that, left unaddressed, the problem is likely to deepen. The COVID-19 pandemic might even exacerbate it by leading to more state involvement in economies around the world and making it hard to discipline Beijing’s practices. Recognizing all of these real challenges that the international trade community faces, the roundtables reached the following key conclusions: Transparency on the scope, level, and nature of industrial subsidies is vital; Efforts to publicize the ongoing work in these areas, particularly that being done by the OECD, should accelerate; Turning research into tangible new policies is a key step; and Persuading China to agree to updated rules will be necessary, given that China is a singular contributor to overcapacity.
  • Topic: International Trade and Finance, Treaties and Agreements, Trade, Industry, WTO
  • Political Geography: China, Asia, North America, United States of America
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 09-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For years China has been one of the world’s most rapidly growing sources of outward foreign direct investment. Since peaking in 2016, however, Chinese outward investments, primarily to the United States but also the European Union, have declined dramatically, especially in response to changes in China’s domestic rules on capital outflows and in the face of rising nationalism in the United States. Concerns about growing Chinese influence in other economies, the ascendant role of an authoritarian government in Beijing, and the possible security implications of Chinese dominance in the high-technology sector have put Chinese outward investments under intense international scrutiny. This Policy Brief analyzes the most recent trends in Chinese investments in the United States and the European Union and reviews recent political and regulatory changes both have adopted toward Chinese inward investments. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the United States has cracked down far harder on the company than the European Union.
  • Topic: Economics, International Trade and Finance, National Security, Foreign Direct Investment, Investment
  • Political Geography: China, Europe, Asia, North America, United States of America
  • Author: Lee G. Branstetter, Britta Glennon, J. Bradford Jensen
  • Publication Date: 06-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries to many parts of the developing world, creating an innovation system that spans the globe. Like many aspects of globalization, including the offshoring of manufacturing over recent decades, the globalization of R&D raises concerns about US competitiveness and loss of technological leadership. At the same time, the spreading geographic location of innovation presents opportunities for US-based companies if the right policies are adopted to seize them. The research presented in this Policy Brief demonstrates that US innovators continue to remain involved in important ways in US MNCs' global R&D activities, and fears of a hollowing out of US capacity to innovate—based probably on previous fears about the hollowing out of US-based manufacturing—may be overstated. Indeed, the large and growing pool of highly educated scientists and engineers in the developing world could increase the rate of global productivity growth, to the advantage of US-based companies and the world in general. The authors conclude that a productive way to capitalize on the globalization of MNC R&D is not to oppose it but to combine emerging-market talent with MNC experience so that innovation can flourish to improve global living standards and fuel economic progress.
  • Topic: International Trade and Finance, Science and Technology, Multinational Corporations, Risk, Private Sector
  • Political Geography: North America, Global Focus, United States of America
  • Author: Edwin M. Truman
  • Publication Date: 04-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The International Monetary Fund (IMF)—a quota-based institution—faces a test of its survival as the linchpin of the global financial safety net. Its roughly $1.4 trillion in total financial resources is scheduled to begin to shrink in 2020. In 2015, IMF members committed to strengthening IMF financial resources in the 15th General Review of Quotas, which will end in December 2019. Over the past 25 years, the United States has led the way for a gradual redistribution of IMF quota shares toward faster-growing emerging-market and developing countries. Any significant redistribution of quota shares requires an increase in total quotas. Because of its share of votes in the IMF, the United States must agree to any change in quotas. The Trump administration, however, has signaled that it favors no such change. If the United States does not reverse its stance, IMF members will lose an opportunity to strengthen the institution at a time of global financial uncertainty. Truman says the United States could still change its position and recommends how other member countries should press it to do so.
  • Topic: International Trade and Finance, Politics, International Monetary Fund, Global Political Economy, Donald Trump, Economic Cooperation
  • Political Geography: North America, Global Focus, United States of America
  • Author: Simone Tagliapietra
  • Publication Date: 06-2019
  • Content Type: Policy Brief
  • Institution: Bruegel
  • Abstract: The new members of the European Parliament and European Commission who start their mandates in 2019 should put in place major policy elements to unleash the energy transition. It is becoming economically and technically feasible, with most of the necessary technologies now available and technology costs declining. The cost of the transition would be similar to that of maintaining the existing system, if appropriate policies and regulations are put in place
  • Topic: Energy Policy, International Trade and Finance
  • Political Geography: European Union
  • Author: Enea Gjoza
  • Publication Date: 11-2019
  • Content Type: Policy Brief
  • Institution: Defense Priorities
  • Abstract: The American economy, dollar, and banking system create unparalleled power for the U.S. in the global financial system. This power provides disproportionate influence over the world’s key economic and financial institutions, regulatory authority over major foreign companies and banks, and allows borrowing on favorable terms and in dollars, enabling long-term deficit spending.
  • Topic: Economics, International Trade and Finance, Hegemony, Sanctions, Finance, Global Political Economy
  • Political Geography: United States
  • Publication Date: 01-2019
  • Content Type: Policy Brief
  • Institution: Advocates Coalition for Development and Environment (ACODE)
  • Abstract: Chinese investment is flowing fast into Uganda, and spreading into the agriculture and forestry sectors. The government needs to keep pace with these developments so the benefits can be shared by Ugandans. A new analysis shows that, while the jobs and new businesses created are well received, the working conditions and environmental practices of Chinese companies are often poor. Many people evicted from their land to make way for new projects have not been compensated. To hold Chinese companies to account, government agencies, with support from NGOs, must share information about these investments and introduce stronger regulation — in particular to uphold community rights. In turn, Chinese companies must be more transparent, responsible and legally compliant. With a proactive and accountable strategy for Chinese investment management, Uganda could make major gains for sustainable development.
  • Topic: Development, Economics, International Trade and Finance, Foreign Direct Investment, Business , Accountability, Investment, NGOs
  • Political Geography: Uganda, Africa, China