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Trade

US–Japan trade and Trump’s political trophy

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US President Donald Trump reaches out to shake hands with Japan

Author: Editorial Board, ANU

US President Donald Trump and Japanese Prime Minister Shinzo Abe inked the US–Japan Trade Agreement to much fanfare on 25 September 2019. Abe declared the deal a ‘win-win’ for both sides while Trump has emphasised that it ‘a huge victory for America’s farmers, ranchers and growers’. Yet the deal is positioned as an initial agreement in the midst of ongoing negotiations. With an estimated liberalisation rate of 60–70 per cent on a trade value basis, it falls far short of the comprehensive standards expected of bilateral accords under World Trade Organization rules. So why the rush to get a limited deal?

Trump’s need for a political trophy is motivated at least in part by the slew of crises facing his administration and the need to refocus public attention on a positive achievement.

Trump is facing impeachment inquiries by US Congress after the whistleblower complaint alleging abuse of public office. Mr Trump is said to have put pressure on Ukrainian President Volodymyr Zelensky to investigate Democratic Party presidential frontrunner Joe Biden — under the implied threat of withholding US$391 million earmarked for military aid. These revelations have seen Trump’s support decreasing with even a public opinion poll by the partisan Fox News showing a majority of respondents in favour of impeaching Trump.

The US–China trade war is wreaking havoc on US farmers. Given the peculiarities of US gerrymandering and the Electoral College system, farmers in battleground states such as Iowa, Michigan, Pennsylvania and Wisconsin were a key group that helped Trump over the line in his November 2016 electoral victory. But with his proclaimed goal of bringing back manufacturing jobs to the United States, such as in the steel and auto industries, Trump went trigger happy slapping tariffs on countries that are key US agricultural export markets, such as China, Europe, Canada and Mexico. These countries felt compelled to retaliate with tariffs of their own, and US farmers bore the brunt of the costs from the decreased competitiveness of US agricultural goods. The US–Japan Trade Agreement is intended to provide at least the appearance of some relief and Trump will hope to stave off any electoral opening the Democrats are sniffing for in the Farm Belt.

The Office of the US Trade Representative has emphasised ‘Trump’s leadership’ in securing this early agreement eliminating or reducing tariffs on ‘over 90 per cent of US food and agricultural products imported into Japan’. This includes reducing Japanese tariffs on US beef and pork exports to Japan worth US$2.9 billion, in line with the rates for competitor countries who are members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). It further eliminates tariffs on US$4.3 billion of US foods such as nuts, berries, wine and cheese.

For its part, the United States will eliminate or reduce tariffs ‘on 42 tariff lines for agricultural imports from Japan’ valued at US$40 million in 2018, such as ‘flowers, persimmons, green tea, chewing gum, and soy sauce’ as well as some Japanese industrial goods including ‘machine tools, fasteners, steam turbines, bicycles, bicycle parts, and musical instruments’. There is also a separate agreement on digital trade aimed at securing the free transfer of data across borders and preventing tariffs on ‘digital products such as videos, music and e-books‘ covering an estimated annual US$38 billion in trade.

The US-Japan Trade Agreement is marred however by it omissions and one-sidedness. While the United States did not get everything it wanted — and tariffs will remain on LPG, aircraft, semiconductor manufacturing equipment, rice, bourbon and whiskey — most of the concessions were made by Japan.

As Aurelia George Mulgan explains in our lead article this week, despite Japan’s concessions on agriculture, nothing was done to resolve the question of tariffs on Japanese automobiles. ‘There was no abolition of existing 2.5 per cent tariffs and only a temporary stay of additional car tariffs under Section 232 of the Trade Expansion Act (the imposition of higher auto tariffs on national security grounds)’.

This raises critical questions. Why has the Abe government ‘de facto prioritised cooperation with Trump’s re-election goals while ignoring multilateral trade negotiation principles’? And why, after successfully leading the conclusion of the CPTPP and the Japan-EU Economic Partnership Agreement, has Abe undermined ‘Japan’s much-touted claim to be the flagbearer of free trade’?

The simple answer,…

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Trade

Fixing fragmentation in the settlement of international trade disputes

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Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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WTO ministerial trading in low expectations and high stakes

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The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Getting Vietnam’s economic growth back on track

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Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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