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Erasing the Global Gains from the WTO Government Procurement Agreement?

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Erasing the Global Gains from the WTO Government Procurement Agreement?

Government purchases are a trillion-dollar opportunity for U.S. businesses

Governments buy a wide variety of goods and services from the private sector, from bridges and road construction to power plants and digital infrastructure to office and hospital supplies. In 2018, global government procurement amounted to $11 trillion or 12 percent of global GDP. The U.S. government procurement market alone was $837 billion in 2010.

While most countries have regulations to ensure government procurement is handled in a fair and transparent manner, procurement processes are susceptible to a high incidence of corruption, particularly in the form of undue influence on the bidding outcomes of public contracts.

Enter global procurement trade disciplines

The first agreement on government procurement – called the “Tokyo Round Code on Government Procurement” – was negotiated in 1979 by a small group of countries who wanted to develop a set of harmonized rules governing public procurement that would set a high standard for transparency and openness. That agreement was subsequently renegotiated as the Agreement on Government Procurement (GPA) in 1994 as part of the creation of the World Trade Organization (WTO), and members agreed to further expand the GPA in 2012. As of May of last year, when Australia became the most recent member to join the GPA, 48 countries were party to the Agreement, with 34 countries having observer status (including 10 of those in active negotiations to join the agreement). The GPA now covers $1.7 trillion in government procurement activities from its member countries.

The GPA includes general disciplines to ensure fair, open and transparent procurement processes for products that exceed a dollar threshold specified by the agreement. Additionally, each country has committed to a “schedule” which specifies which of its entities and purchases are subject to the agreement. Countries typically exclude defense and national security purchases from the agreement as well as set-asides for small, minority-owned and veteran-owned businesses. Disputes under the GPA can be raised through the WTO dispute settlement system.
value of global procurement

Some WTO members but not all

The GPA is a so-called “plurilateral” agreement, meaning only a subgroup of WTO member countries are party to it, and therefore the WTO’s most-favored-nation principle does not apply. Rather, the countries that are parties to the agreement grant each other access to their government procurement markets under the terms of the GPA, but that access is not offered to WTO member countries that are not GPA members.

The United States includes similar procurement language from the GPA in its bilateral free trade agreements, like the recently negotiated U.S.-Mexico-Canada Agreement. All told, the United States has procurement agreements with 58 countries, including the GPA countries and countries with which it has separate free trade agreements.

Even for countries that are not GPA members, the rules in the agreement have become the accepted norms for government procurement globally, with most countries aspiring to this level of fairness and transparency, even if they don’t implement the GPA fully.

The relationship between GPA and “Buy American” requirements

Prior to the GPA, Congress enacted a series of domestic content statutes to ensure that public procurement projects funded by U.S. tax dollars benefit U.S. firms and workers. The Buy American Act of 1933 requires federal government procurement of U.S.-origin articles, supplies and material or manufactured products to be produced “substantially all” from domestic inputs. While equipment can have a minimal amount of foreign content to qualify, the allowed amount is extremely low. The act generally also allows a price preference for domestic end products and construction materials.

Buy American requirements may be waived under three circumstances: (1) if a decision is made that it is in the public interest to do so; (2) if the cost of U.S.-made products is unreasonable; or (3) if the products are not available in sufficient quality or quantity from U.S. producers. Since the GPA was negotiated, a fourth circumstance was introduced: Buy American can be waived with respect to procurement bids originating from countries that have provided reciprocal access to their own domestic procurement markets.

A push for expansion?

The Trump administration is reportedly reviewing the benefits of the WTO’s Government Procurement Agreement. As reported to the WTO, the United States offered more procurement opportunities to foreign firms in 2010 (the last year for which data are available) than the next five largest GPA parties combined, which include the European Union’s 27 members, Japan, South Korea, Norway and Canada. The United States may open as much as 80 percent of federal contracts to foreign suppliers, whereas the European Union, Japan and Korea may open somewhere between 13 and 30 percent of central government contracts to foreign suppliers.

However, a U.S. government review that offered those calculations also points out that lags and inconsistencies in foreign government data reporting, data gaps, and a lack of methodology for reporting on sub-federal procurement, make it difficult to determine GPA benefits with accuracy.

And while foreign suppliers are able to compete for certain U.S. government contracts, the GPA and bilateral free trade agreements enable U.S. companies to compete in the nearly $2 trillion dollar government procurement market in the other signatory countries, an opportunity that would be significantly limited by withdrawal from the GPA. In many cases, such as sales of medical devices and medicines to state-run hospitals, software for government agency use, sales of power equipment, and the construction of hard infrastructure, the GPA offers the primary form of access by U.S. companies to foreign markets.

Worse than losing reciprocity

Ironically, American withdrawal from GPA would also complicate the ability of U.S. companies to sell their products to the U.S. government. Very few U.S. products today are 100 percent American. Supply chains of U.S. companies are increasingly global, meaning that even products manufactured within the United States are likely to have non-U.S. components or materials. Today, U.S. companies selling equipment to the U.S. government containing non-U.S. content from a GPA signatory country are not subject to the Buy American Act. However, if the United States were to withdraw from GPA, Buy American regulations would apply, potentially disqualifying U.S. companies from selling products that contain foreign content to the U.S. government.

Participation in the GPA not only maintains U.S. companies’ ability to compete for foreign contracts, it also gives the U.S. government leverage to negotiate greater market access under better terms by seeking to expand coverage. This may be particularly important as economies grow around the world and begin to spend higher percentages of their budgets on government procurement. Also, the race is on to set technology standards around the world such as 5G. If U.S. companies cannot bid to secure government contracts, they may find themselves on the outside of key growth markets, ceding them to competitors from Europe, Canada, Japan and China.

Another way to improve the WTO

While the global trade rules in the GPA seem like an arcane subject, the agreement has had a profound impact on government procurement practices globally. It opened an enormous government procurement market for the signatory countries – including the United States – and created a set of open and transparent regulations that even non-signatories countries work toward. Working within the agreement to improve and expand coverage would benefit U.S. suppliers not just to compete overseas, but to compete for contracts here at home.

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Orit headshot

Orit Frenkel is the Executive Director of the American Leadership Initiative, which is advancing a new smart power paradigm of American global leadership. She is also the President of Frenkel Strategies, a consulting firm specializing in trade and Asia. Previously she spent 26 years as an executive for GE and before that as a trade negotiator at the Office of the U.S. Trade Representative.

This article originally appeared on TradeVistas.org. Republished with permission.

trump

Trump Signs USMCA Into Law But Not Everyone is Cheering

President Donald Trump signed the United States-Mexico-Canada Agreement (USMCA) into law at a Jan. 29 White House ceremony, officially canceling the North America Free Trade Agreement (NAFTA). “The USMCA is the largest, most significant, modern, and balanced trade agreement in history,” Trump told admirers and the press. “All of our countries will benefit greatly.”

“Thanks to the unyielding dedication of President Trump, the United States will now have a fair and reciprocal trade agreement with Mexico and Canada,” reacted U.S. Secretary of Labor Eugene Scalia. “USMCA will bring jobs, increased trade and stronger economic growth to our already record-setting economy, growing GDP by as much as $235 billion and adding as many as 500,000 new jobs.

“President Trump has delivered on a promise,” Scalia continued. “This historic agreement will level the playing field for American workers, preparing American businesses for the demands of a 21st Century economy. The Department of Labor stands ready to fully implement USMCA to the benefit of American workers.”

An independent report by trade credit insurer Atradius found the USMCA “has reduced trade policy uncertainty in North America, shielding Mexico and Canada from any global tariffs on cars the U.S. might impose on national security grounds.”

But not everyone was cheering. “USMCA is only marginally better than previous trade deals and doesn’t do nearly enough to create American jobs, increase workers’ wages, or protect workers and the environment,” states Groundwork Collaborative, an initiative dedicated to advancing a coherent, persuasive progressive economic worldview and narrative. “Trade is like every other economic issue: It is only really working when it is working for ALL people, not just the wealthy and well-connected. USMCA doesn’t meet that standard and is a major missed opportunity.

U.S.-China trade

Are You Prepared for the Outcome of the U.S.-China Trade War?

For exporters, importers, manufacturers and investors who are heavily involved in U.S.- China trade, the recent agreement provides potentially immense benefits – but still doesn’t end their uncertainty or anxieties about what the future may bring.

Every participant in U.S.-China trade should now be reassessing his or her own expectations and strategic plans for not only surviving the trade war but, as importantly, for maximizing business success.

Clearly, preparation is essential for businesses to thrive and avoid suffering substantial harm at a time when critical political, economic and legal factors beyond a company’s control are constantly changing.

To help business owners and senior executives shape business and legal strategies tailored to their company operations, I’ll first clarify what the U.S. and China have decided and what is still in play. I’ll then lay out possible scenarios and the strategic approaches that executives should consider taking to protect themselves and position their businesses for future success.

The New Phase 1 Agreement

Under the signed agreement China will:

-Buy at least $200 billion of additional US exports in goods and services over the next two years, on top of amounts it imported in 2017, in the following areas:

-$78 billion of manufactured goods including vehicles and industrial machinery

-$52 billion of energy products, including crude oil and LNG

-$32 billion of agricultural and food products

-$38 billion of financial and business services

-Open its financial sector by abolishing limitations on foreign ownership of Chinese securities by April 1, 2020 and ensure market access on a non-discriminatory basis for US securities, insurance and fund management companies.

-End its longstanding practice of requiring US companies to transfer technology to Chinese companies as a condition for obtaining market access.

In exchange, the U.S.:

-Suspended a planned tariff scheduled to go into force on December 15th covering $156 billion of apparel products (Tranche 4B) and lowered the tariff rate from 15 percent to 7.5 percent on another group of apparel products (Tranche 4a)

The signed Phase 1 deal also requires China to:

-Adopt an action plan to make major structural changes for protecting US intellectual property

-Implement a dispute resolution mechanism that puts in place “strong procedures” for the US and Chinese parties to resolve disputes fairly and expeditiously

Under the Phase 1 agreement, the U.S. will maintain its current tariffs of 25 percent on $250 billion in Chinese products and 10 percent on an additional $300 billion of Chinese consumer goods.

FUTURE SCENARIO #1:

The U.S. and China Reach a  Phase 2 Deal & Comprehensive Settlement

Without question, the Phase 1 agreement signed on January 15th is a game-changer for U.S.-China trade relations – the likely beginning of the end of the trade war.

Phase 1 represents the first time since the opening shots of the trade conflict, approximately 20 months ago, that the parties have found common ground and enshrined it in a binding legal agreement. With public expectations for a complete settlement raised by both President Trump and President Xi, negotiators are now incentivized to reach agreement on the remaining U.S. and Chinese demands.

Even though most previously existing tariffs still remain in place, it is now realistic to anticipate a broad negotiated settlement in a Phase 2 deal that includes a sharp reduction in tariffs, Chinese implementation of necessary reforms, and a far more balanced U.S.-China trade relationship. A settlement of this kind would significantly expand business opportunities for American companies to export more products to China and to import more Chinese products to the United States.

Consequently, both exporters and importers can and should now formulate and implement plans as part of their business strategies for improved trade relations with China that seemed highly unlikely and unrealistic only a few weeks ago.

U.S. Importers

To prepare for the possible elimination of high tariffs imposed by the U.S. and China during the trade war as well as other beneficial reforms, key  executives of U.S. importers should  ask the following questions:

-How can we expand the quality and quantity of Chinese products we import?

-To what extent will a sharp reduction of tariffs improve the competitiveness of the products we import in various S. market sectors?

-If Chinese companies curtail their practice of forcing transfer of U.S. intellectual property, how will this help us expand our China-based supply chain?

-If the Chinese government significantly reduces its subsidies for competitive Chinese companies, what kind of openings for increased imports will this create?

-In what ways can and should we encourage our Chinese business partners to invest in the U.S. by building factories here for which our company could handle marketing and distribution?

U.S. Exporters

To  take advantage of China’s Phase 1 agreement to buy $200 billion in U.S. export products during the next two years on top of amounts it imported in 2017 as well as to prepare for the elimination of high tariffs in Phase 2, key  executives of U.S. exporters should ask  the following questions:

-How can we expand the quality and quantity of products we export to China?

-In what sectors of the Chinese market will the products we export become more competitive?

-How will the potential reduction of government subsidies to our Chinese competitors allow us to penetrate the China market more effectively?

-In what areas should we explore new relationships with Chinese companies for producing finished products that include the American intermediary goods we export?

-To what extent will a full Phase 2 settlement of the trade war and the reforms accompanying it enable the U.S. government to modify the controls it currently imposes on specific exports?

FUTURE SCENARIO #2:

The U.S. and China continue their negotiations for a Phase 2 deal but find it difficult to reach agreement

Despite agreement on a Phase 1 deal, the tensions and uncertainty of U.S.-China negotiations mean the U.S. and China may face complications and delays reaching a meaningful Phase 2 deal requiring new Chinese commitments and an end to high U.S. tariffs.

Factors that could slow down the process of reaching a Phase 2 agreement include various threats by the Trump administration:

-Delisting Chinese companies from S. stock exchanges

-Blocking a range of public and private pension funds and university  endowments  from making certain investments in China

-Putting other capital controls on U.S. private sector investment in China to protect against opaque Chinese company accounting and business practices

-Broadening scrutiny of potential Chinese investments in the United States on national security grounds

-Expanding checks by the Securities and Exchange Commission (SEC) of Chinese companies that do business in the S.

-Disrupting the flow of capital between Hong Kong and mainland China if China does not adequately respect the autonomy of Hong Kong

Each of the U.S. measures described above would likely cause China to take reciprocal retaliatory actions – just as China has responded to U.S. tariffs with reciprocal tariffs of its own on American products.

At stake in the Phase 2 negotiation are issues that will determine whether the Trump administration achieves its core objectives in the trade war, including:

-Stricter rules to strengthen information security for cross-border data flows of American companies that do business in China

-Limiting the subsidies by China’s government to state-owned companies which facilitate unfair competition

The issue for Phase 2 that is likely of greatest importance to American importers is whether an agreement removes U.S. tariffs on more than $500 billion in Chinese products that threaten the well-being of their businesses.

Given the uncertainty of reaching a follow-on Phase 2 agreement, key executives of U.S. importers and exporters should ask the following questions:

U.S. Importers

-If a Phase 2 agreement with China does not materialize, how should we plan to modify the sourcing of products we currently import from China to avoid high tariffs?

-What kind of exploratory discussions with suppliers outside China should we initiate as a hedge against uncertainty and continuing tension in S.-China trade relations?

-To prepare for a possible shift in import strategy, should we participate in the Customs Trade Partnership Against Terrorism (CTPAT) program that reduces the number of Customs examinations, accelerates Customs processing times and expedites border crossing privileges?

-What measures can we take to lower cost and raise efficiency to improve the competitiveness of Chinese-origin products in the S. market?

-Does our supply chain include middlemen who resell products to us at a marked-up price? If so, can we utilize the established “first sale rule” under U.S. law that allows us to avoid paying any duty on the amount of the mark-up?

U.S. Exporters

In light of continuing uncertainty about the Phase 2 negotiations, exporters should ask themselves:

-How can we modify the quantity and type of our exports to China in light of unfair competition from state-owned companies receiving government subsidies?

-If existing Chinese tariffs remain in place for the foreseeable future, how will that affect sales of our products in the Chinese market?

-How will increased U.S. controls on exports of American products to China affect our business strategy?

-If the U.S. imposes new tariffs on China and China retaliates, how can we manage and mitigate the likely negative impact on our sales in China?

-In light of the trade obstacles we now face and may continue to face, how should we modify our export strategy for China?

FUTURE SCENARIO #3:

The U.S. and China break off discussions on a final Phase 2 settlement of the trade war after negotiations fail and they pursue hostile trade policies toward each other

If the U.S. and China cannot reach a meaningful trade agreement in 2020, it is likely they will break off negotiations and pursue hostile trade policies toward each other. In this case, some or all of the following economic and political developments are likely to occur:

-The trade war will evolve into a major, multifaceted dispute – the equivalent of a cold war – that involves geopolitical and security disputes as well as trade issues

-Both the U.S. and China will find it difficult to stop a vicious cycle of retaliation and counter-retaliation on trade and other issues

-China and the S. will strive to consolidate their own trade blocs that exclude the other country – potentially decoupling the U.S. and Chinese economies/financial sectors

-China will enhance the role of its state-owned businesses using increased subsidies

-The U.S. will significantly expand its restrictions on trade with China by delisting Chinese companies from U.S. exchanges, blocking public and private U.S. investments in China, enacting much more restrictive export controls, ending most Chinese investment in the United States, exercising greater scrutiny by the SEC of Chinese companies and taking other restrictive measures

Outlook for Importers and Exporters

While future events could potentially reignite the trade war and eventually lead to a breakdown in U.S.-China relations, this dire prospect should not be the immediate focus of planning and preparation by importers, exporters, manufacturers and investors. The collapse of normal economic and trade relations represented by Scenario #3 is only likely to occur after China and the U.S. go through an extended period of uncertainty, tension,  and deterioration in trade relations described in Scenario #2.

Companies involved in U.S.-China trade should therefore base their business and legal planning on the high probability that the trade war will likely evolve either toward a settlement of most outstanding issues or toward continuing uncertainty characterized by the inability of negotiators to resolve remaining differences.

It would be a major mistake at this time to take a “wait and see” approach or bet exclusively on either Scenario #2 or Scenario #3 coming to pass.

For this reason, importers, exporters, manufacturers and investors should focus on modifying their business/legal strategies to take advantage of the potentially immense benefits of the Phase 1 agreement and preparing contingency plans for either a Phase 2 agreement or the occurrence of Scenario #2 in trade negotiations with China – the two scenarios that are most likely to materialize between now and the end of 2020.

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Donald Gross  is  founding  partner  of  Donald  Gross  Law,  an international trade law and strategy advisory firm in Washington, D.C. (https://www.donaldgrosslaw.com). He participated in U.S. negotiations with China as a Senior Adviser for International Security Affairs at the State Department from 1997 to 2000, and as Counselor of the U.S. Arms Control and Disarmament Agency from 1994 to 1997. He is the author of The China Fallacy: How the U.S. Can Benefit from China’s Rise and Avoid Another Cold War(Bloomsbury, 2013). He can be reached at don@donaldgrosslaw.com.

china

China Seeks to Redraw the Global Trade Map

Don’t Forget About Belt and Road

It’s a busy time for trade news. Headlines report every twist in the U.S.-China trade war, Brexit nears another deadline, and the U.S.-Mexico-Canada Agreement (USMCA) only just passed in Congress after a year of domestic debate. In Asia, countries are negotiating “mega” trade deals like the Regional Comprehensive Economic Partnership (RCEP) and the China-Japan-South Korea deal, while the United States is favoring “mini” or partial deals like the initial U.S.-Japan Free Trade Agreement. The WTO’s dispute settlement mechanism is stalling out without a functioning appellate body. The list of negotiations goes on.

All the while, China moves forward with its ambitious hard infrastructure plan to connect continents through its Belt and Road Initiative. The results will have a serious long-term impact on global trade. Policymakers are working to get their arms around its implications. Here are the basics everyone should know.

What is the Belt and Road Initiative?

Announced by Chinese President Xi Jinping in 2013, China’s Belt and Road Initiative is made up of two parts: The Silk Road Economic Belt (a “belt” by land) and the 21st Century Maritime Silk Road (a “road” by sea). Inspired by the historic trade routes forged between Asia and Europe and that once bustled with traders swapping silk, spices, tea, paper, and gunpowder, China is driving a state-planned version around its own vision of China-centered global trade.

The project has gone by many names: Launched as “One Belt, One Road” (OBOR), it’s now referred to as the “Belt and Road Initiative” (BRI). The plan redraws and expands China’s modern land and sea routes through new roads, railways, ports, bridges, power plants and more.

BRI spans some 138 countries, collectively home to 4.6 billion people and $29 trillion in combined GDP, an area the Chinese have loosely divided into six corridors. The biggest is the China-Pakistan Economic Corridor (CPEC), where China has spent an estimated $68 billion to date.

According to the American Enterprise Institute, Pakistan has received the most Chinese construction funds ($31.9 billion) along the BRI so far, followed by Nigeria and Bangladesh, but China is also investing heavily in more developed economies like Singapore ($24.3 billion), Malaysia and Russia. Construction projects have focused mostly on the power, transport and property sectors.

BRI Spending FN

$1 Trillion Price Tag

The World Bank estimates investment in BRI totals $575 billion so far. Firms like PWC and Morgan Stanley estimate the final cost at around $1 trillion over the next 10 years. To put that number in perspective, the U.S. spent just $13.2 billion ($135 billion in today’s dollars) to help rebuild western Europe after World War II under the 1948 Marshall Plan.

The $1 trillion price tag is just a drop in the bucket compared to the overall infrastructure needs of the region. The Asian Development Bank estimates that Developing Asia will need to invest $1.7 trillion a year in infrastructure to maintain its growth, respond to climate change and eradicate poverty. This adds up to over $26 trillion in total investment needed by 2030.

$26 trillion needed in infrastructure

Many participating BRI economies are in desperate need of infrastructure to expand trade. Trade in BRI corridor economies is 30 percent below its potential, and FDI is 70 percent below potential, according to a recent World Bank report. The BRI has the potential to increase trade, encourage foreign investment and reduce poverty by lowering trade costs. If fully implemented, the World Bank says it could end up increasing global trade between 1.7 and 6.2 percent. But improvements need to be implemented to make this a reality.

Opportunity Costs

For BRI to live up to its potential, the World Bank says China and participating countries must work to deepen policy reforms like increasing transparency, improving debt sustainability, and mitigating environmental, social and corruption risks along the belt and road.

Large infrastructure projects are notoriously difficult to execute. But risks are heightened along the BRI, where limited transparency along with weak economic fundamentals and governance make debt sustainability a real concern. The World Bank estimates 12 of the 43 BRI corridor economies are at risk for deterioration in their debt sustainability outlooks.

China has been criticized for using “debt-trap diplomacy” along the BRI to take advantage of developing countries unable to repay large debts. One frequently cited example is Sri Lanka’s Hambantota Port, which was handed over to a Chinese state-owned company in 2017 after the Sri Lankan government was unable to pay its bill for the Chinese-built port. China now holds a 99-year lease on the strategic port.

Some countries have been able to successfully renegotiate their BRI debt with Chinese banks. Malaysia recently refinanced its East Coast Rail Link project from over $15 billion to $10.7 billion after Malaysian Prime Minister Mahathir Mohamad initially cancelled $22 billion worth of BRI projects. Myanmar scaled back a major port project from $7.3 billion to $1.3 billion in 2018.

In a study of 40 cases of China’s external debt renegotiations with 28 different countries, research firm Rhodium Group found that asset seizures were rare and debt renegotiations in the form of write-offs, deferral and refinancing were far more common.

Rebranding the Belt and Road

Facing growing criticism abroad, BRI leaders announced at the second major BRI forum held in Beijing in April 2019 that the project would be getting a facelift. The joint statement says BRI investments would focus on “high-quality” cooperation, green development, and debt sustainability moving forward.

China’s Ministry of Finance also released a debt sustainability framework (DSF) for the BRI. The Chinese DSF closely mirrors the World Bank-IMF DSF, which has been used for over 20 years as a framework to guide countries and investors on how best to finance development needs while avoiding potential build up of excessive debt. The World Bank-IMF DSF requires regular debt sustainability analyses (DSAs) measuring a country’s projected debt burden, vulnerability to economic and policy shocks, and assessing the risk of debt distress.

While the introduction of the Chinese DSF is a welcome step toward improving debt sustainability along the BRI, there are still outstanding questions about how China will actually implement it. For example, Chinese officials have not yet indicated whether the DSF will be binding, or how transparent the DSF process will be.

All Roads Lead Back to Beijing

There’s plenty of trade news to vying for our attention nowadays. But China’s Belt and Road Initiative should not get lost in the shuffle. Beyond building roads and bridges in developing countries, the BRI also has serious implications for trade in areas like 5G technology, arctic trade and even space travel.

The U.S. response to the BRI has varied. The Obama administration followed a “Pivot to Asia” approach, negotiating the Trans-Pacific Partnership (TPP), a mega-trade deal excluding China. President Trump scrapped the TPP days after coming to office. His administration has since passed the BUILD Act which authorizes the U.S. government to invest up to $60 billion in developing countries across Asia and Africa.

But the United States’ muted response may be too little too late. With every new BRI project, China is physically laying the groundwork for new trade routes across the region. If successful, BRI means all roads will lead back to Beijing.

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Lauren Kyger

Lauren Kyger served as Associate Editor for TradeVistas. A former Research Associate at the Hinrich Foundation, Lauren is also a Hinrich Foundation Global Trade Leader Scholar alumna. She recently joined the National Committee on U.S.-China Relations as digital content manager.

This article originally appeared on TradeVistas.org. Republished with permission.
corruption

Corruption is a Costly “Hidden” Tariff

Hidden costs

Tariffs, quotas and sanctions are all overt hurdles to free trade that increase the costs of commercial exchanges or even prohibit them. But not all barriers to trade are written down in law or even apparent on the surface. Some lurk in the form of money changing hands under the table.

The Organisation for Economic Co-operation and Development (OECD) in a recent report identified corruption as one of the most costly non-tariff barriers in global trade, particularly for low and low-middle income countries. Acting as a “hidden tariff,” a lack of integrity in trade can be just as damaging to trade relations as any legalized restriction.

Corruption wreaks direct costs such as skimmed revenue and outright theft, but can also create health and safety risks as officials look the other way on dangerous cargo. At the firm level, the OECD estimates informal payments and corruption add a “tax” of anywhere from five to ten percent of the value of company sales in markets where corruption is normalized. Combined, these effects will damage countries’ economic welfare over the long run.

corruption adds tax

Trading in bribes

Burdensome regulations and opaque bureaucracy often go hand in hand. The more complex regulation is, the greater the cost of compliance, and the more attractive bribery becomes as an end run around the bureaucracy and the easier corruption is to hide. When governments maintain quotas and other quantitative restrictions, administrative procedures to allocate them also create opportunities for mischief.

Corruption in trade is damaging to business in a number of ways. The added costs consume resources that could be spent bringing down prices or improving quality. Corruption also distorts private sector competition – firms that do best are the ones that can best work the corrupt system, not necessarily the ones that provide the most value. Companies unwilling or unable to engage in corruption are limited or barred from providing their goods and services in that economy.

High levels of corruption also make international firms unwilling to invest due to the added risks. Local citizens, particularly those in emerging economies, feel this damage through a lack of access to affordable, quality products, reduced job opportunities, and insufficient allocation of government resources to public services due to missing tax revenue.

World Bank lost revenue at customs borders

Greasing wheels at the borders

The World Bank estimates that corruption generates losses of about $2 billion each year in lost revenue collection at customs borders.

Complicated rules, a lack of oversight, and the discretionary power characteristic of many customs administrations provide opportunities for corruption at all levels. Whether it takes the form of slipping an agent money at a customs check to let goods through or fudge some paperwork, or large-scale fraud involving officials all the way to the top, corruption can be widespread and corrosive. As former Secretary General of the World Customs Organization, J. W. Shaver, once put it: “There are few public agencies in which the classic pre-conditions for institutional corruption are so conveniently presented as in a customs administration.

In one high profile example, a 2015 investigation in Guatemala uncovered systemic corruption in their customs authority. In return for bribes, importers were allowed to under-report shipments to avoid import taxes on a large scale, costing the country millions. Mass protests with citizens calling for transparency and accountability led to the vice president’s resignation.

Sometimes corruption is less bold but equally systemic. Superstore giant Walmart has recently come under fire for looking past bribery within its supply chain. In 2019, the U.S. Securities and Exchange Commission (SEC) investigated Walmart under the Foreign Corrupt Practices Act for deliberately ignoring corruption risks and red flags in its dealings in India, China, Brazil and Mexico. In India, many payments were less than $200, but together totaled millions. Walmart is paying $238 million to settle the investigation.

WCO quote about customs

Dangers of turning a blind eye

Beyond lost revenue, when customs officials turn a blind eye to nefarious shippers, human lives are put at risk. In 2015, chemicals that were falsely declared in China’s Tianjin port exploded, resulting in over 150 deaths. Investigations found that bribes were paid to sidestep safety regulations. The incident worsened when firefighters used water on the fire, unaware (due to deliberate mislabelling) that the type of chemicals involved would detonate upon reaction with the water.

Solutions that could pay off

There is an argument that, in some cases, so-called “informal payments” may actually facilitate trade in situations where government regulatory hurdles and inefficiencies are hard to overcome. However, greasing the wheels in this manner fails to remove systemic incentives to engage in corrupt behavior.

The trouble is, there is no one-size-fits-all solution to the problem of corruption in international trade. The most pressing risks must be targeted to ensure safety and integrity while avoiding over-burdensome rules and red tape that hamper trade and economic growth.

The OECD suggests a mix of approaches. Broad, high-level government support is needed to tackle corruption within customs administrations and border control. The penalties for bribery offenses must be stiffened and applied. The private sector must be engaged to monitor practices in their global supply chains. And, the OECD suggests writing transparency and anti-corruption provisions into trade agreements.

Beyond business and borders

Corruption is a quantifiable hidden tariff on individual commercial transactions. What’s harder is to measure the extent to which corruption, perpetrated in drips over the course of years, damages broader economic prosperity.

If open markets and greater trade benefit ordinary people, as we know they do, then tackling corruption to promote legitimate trade would have positive impacts on the well-being of millions around the world.

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Alice Calder

Alice Calder received her MA in Applied Economics at GMU. Originally from the UK, where she received her BA in Philosophy and Political Economy from the University of Exeter, living and working internationally sparked her interest in trade issues as well as the intersection of economics and culture.

This article originally appeared on TradeVistas.org. Republished with permission.

U.S.-China

U.S.-China Trade War of 2019 Spills into 2020 for Ports, Shippers and Manufacturers

The Jan. 15 signing of a U.S.-China Phase One agreement did spawn a sigh of relief among those troubled by the trade tensions between the two nations. But six days later, a warning came from a couple experts closely watching the unfolding events on behalf of ports, shipping lines and manufacturers. The crux of that warning? Stay tuned.

“This is a truce,” said Phil Levy, chief economist at Flexport, a San Francisco-based freight forwarding and custom brokerage company. “This is not the end of the trade war.”

Levy shared that opinion as he joined his company’s CEO Ryan Peterson in leading a webinar on Jan. 21 that was listened in on electronically by some of their 10,000 clients in more than 200 countries. Those who rely on the company’s expertise in ocean, air, truck and rail freight, drayage & cartage, warehousing, customs brokerage, financing and insurance–all informed and powered by Flexport’s unique software platform—heard Levy say of the U.S.-China trade war: “We haven’t seen a retaliatory escalation of this magnitude in the post-World War II era. … This really was a 2019 story that worsened throughout the year.”

He pointed to a graphic that showed trade between the world’s two biggest economies fell markedly last year, and that no one overseeing trans-Pacific supply chains were immune from economic harm. Many webinar participants could relate as 64 percent of Flexport’s customers rely on the trans-Pacific trade routes, according to Peterson.

Yes, the Phase One deal was a positive first step, but Levy pointed to some examples of lasting victims from the trade war. It exposed the continued “decay,” as the economist put it, of the World Trade Organization (WTO), which is supposed to prevent the escalation of trade disputes. The “keeper of peace” amid trade tensions was largely frozen out of U.S.-China talks and, therefore, silent as events transpired.

A second heavy blow came in December 2019, when the WTO’s appellate body ceased to function, according to Levy, who noted that the formation of the “WTO system was one of core achievements since World War II.”

Peterson found equally worrisome the first-ever disappearance of peak season when it comes to shipping. As many known, imports grow during the fall and really heat up by November’s holiday shopping season. That not happening in 2019, couple with a steady decline is U.S. imports from China after years of solid growth, is a reason for concern, according to the CEO, who maintained, “global trade is down due to tariffs.”

For one thing, not having a peak season to rely on, coupled with steadily declining trade, “from our perspective makes life very hard to plan for,” Peterson said.

He did see on the horizon what many may view as a green lining: lower freight fees and consumer prices. “Lower prices do sound good,” Peterson conceded, “until someone goes bankrupt. We want stability, predictability. Things getting too cheap is unpredictable. You are playing with fire.”

Feel the burn? Peterson called our current “degree of uncertainty relatively unprecedented. We learn about things in a tweet. Was that really implemented or not?” As an example, he cited France proposing a digital tax and President Donald Trump striking back with threats of tariffs on cheese and wine. “Is that policy or not?” Peterson asked rhetorically. “Right now it’s a tweet. It makes it very hard to plan for.”

Levy warned “there is no safe play.” You can withstand the brunt of the tariffs and see what that does to your bottom line, or you can figure out a way to work around them and then have a trade deal come along with no way to return to normal operations quickly enough.

As Peterson pointed out, it’s not just the sting of the tariffs but the amount of paperwork and other adjustments one must handle while trying to remain agile. That time takes away from other things you need to be doing with your business.

Speaking of time away, Levy believes there will be no further movement in deescalating trade tensions between the U.S. and China until after America’s November presidential election. He suspects that China agreed to the Phase One conditions, which were much more weighted against that country than the U.S., “to buy a year of peace.” He added that China could be playing it coy in the weeks ahead as Beijing awaits the outcome that determines whether they will continue to deal with Trump or a new White House occupant. “If Trump loses, it’s likely the trade agreement will change anyway,” Levy said.

In the meantime … uncertainty. Peterson noted that one Flexport client had to close a manufacturing plant due to the tariffs. Levy held onto the hope that an eventual U.S.-China trade deal will be beneficial economically, pointing to markets that opened up with the U.S.-Mexico-Canada Agreement replacing the North American Free Trade Agreement. But you never know, as evidenced by USMCA having also resulted in some restricted trade, particularly in the automobile sector. “That was disappointing,” he admitted.

Don’t be surprised if the pain ultimately spreads, as Levy predicted what will happen after the U.S.-China trade war comes to a head. “There are a lot of signs the president will turn his trade policy focus away from China and toward Europe,” said Levy, who later noted Trump has also begun accusing Vietnam of cheating when it comes to trade.

So what to do about all this?

“My stance is there is nothing more important than agility, the ability to adapt,” Peterson said of dealing with tariffs, real or threatened. “It can mean restructuring a supply chain or seeking exemptions.” Companies that foster a culture with an ability to adapt can look at these challenges, Peterson says, and respond: “Bring it on, bring on the change.”

trade deals

Is It Just a Phase? Redesigning Trade Deals in the Age of Trump.

Comprehensive is Out, “Phased” is In

Within the first few months of the Trump Administration in 2017, the U.S. Trade Representative issued a report identifying intellectual property theft and forced technology transfer as crucial sources of China’s growing technological advantage at the expense of U.S. innovation. Tariffs would be applied until a trade deal to address these practices could be reached.

But expectations had to be reset early in the negotiations – China’s offenses cannot be pinpointed to one set of laws, regulations or practices, and so the complex wiring of China’s national approach cannot be untangled or rewired in one pass, in one agreement, even if China shared that goal. An agreement this ambitious would have to be built in phases.

In presenting the “Phase One” agreement signed between the United States and China on January 15, U.S. Trade Representative Robert Lighthizer said the deal represents “a big step forward in writing the rules we need” to address the anti-competitive aspects of China’s state-run economy. And it is a serious document.

Beyond its detailed provisions, the strategic and commercial impact of the deal will take more time to evaluate. What is clear in the meanwhile, is that this administration has departed from the standard free trade agreement template.

Comprehensive agreements are out. Partial or phased agreements are in.

Something Agreed

It’s common in trade negotiations to whittle down differences, leaving the hardest issues to the end. Early wins keep parties at the table, building a set of outcomes in which the parties become invested and more willing to forge compromises around the remaining difficult issues. One way to avoid settling for deals that leave aside the most meaningful – and often hardest – concessions is to stipulate that “nothing is agreed until everything is agreed.”

For this administration, however, the art of the deal is – quite simply – closing the elements of the deal available. With China, that may be the best and only way for the United States to achieve a deal. And it may very well represent significant progress. At turns, a larger deal looked as if it would collapse under its own political weight in China. Some things agreed is probably a better outcome than nothing agreed.

A Way Out or a Way Forward?

The deal lays down tracks for more detailed intellectual property rights and newer prohibitions on forced technology transfer. Among other commitments, the deal also breaks ground on previously intractable regulatory barriers to selling more U.S. agricultural and food products in China including dairy, poultry, meat, fish, and grains. But it does not address subsidies provided to China’s state-owned enterprises, a complaint shared by all of China’s major trading partners, Having dodged the issue for now, China may have created an advantage by stringing out its commitments over phases.

The Trump administration brought China to the table with billions in tariffs on imported goods. While compelling, it is not a durable approach. The U.S. macroeconomy is withstanding the self-inflicted pain, but tariffs have real and negative effects on U.S. farmers and business owners who will vote in November. Even a temporary tariff détente is a welcome respite, but uncertainty remains. And while we wait to see if the provisions on intellectual property and technology transfer prove fruitful, what of the lost agricultural sales for U.S. farmers and sunk costs for U.S. businesses?

As part of the deal (a part that gets phased out), China committed to shop for $200 billion in American goods and services over the next two years, including more than $77 billion in manufactured goods, $52 billion in energy products, $32 billion in agricultural goods and $40 billion in services. If fulfilled, the purchases in Phase One would appear to solve the problem of waning U.S. exports to China, but that was a problem of our own making so the administration might only merit partial credit for this part of the deal.

Journey of a Thousand Miles

Of course, the Trump administration’s phased and partial approach to reaching trade deals may simply stem from impatience or a focus on the transactional – comprehensive deals take too long to complete. But the approach may also make sense if these deals are stepping-stones in a bigger, longer game.

In a June 2018 report, the White House offered a taxonomy of 30 different ways the Chinese government acquires American technologies and intellectual property, including through U.S. exports of dual-use technologies, Chinese investments in the United States, and the extraction of competitive information through research arms of universities and companies in the United States.

Ambitious as it is, the administration is not limiting itself to the new Economic and Trade Agreement to solve all the problems it identified. The Department of Justice has initiated intellectual property theft cases, the Department of Commerce is expanding controls over the export of dual-use technologies, and the Treasury Department oversees a process to tighten reviews of proposed inward investments.

A Chinese proverb says that “a journey of a thousand miles begins with a single step.” Concerns the administration will not limit or end its quest with Phase One were evident in the letter from President Xi read aloud at the signing which urged continued engagement to avoid further “discriminatory restrictions” on China’s economic activity in the United States.

Just a Phase?

Beyond engagement with China, the administration has nearly consistently favored partial deals, with the U.S.-Mexico-Canada agreement (USMCA) the exception. NAFTA needed to be modernized. Our economies have changed too much for the deal to keep pace without some upgrades. Could the modifications have been achieved without replacing the deal? Probably, but perhaps not politically, or it might have been done years sooner. NAFTA’s facelift as USMCA offered a chance for the administration to fashion provisions it intends for broader application, such as those on currency and state-owned enterprises. Though it replaced NAFTA, USMCA changes constitute a partial re-negotiation.

With Japan, the administration set much narrower parameters, hiving off-market access and digital trade as an initial set of deliverables. Last September, President Trump finalized a partial trade deal with Prime Minister Abe that went into effect on January 1. Limited in scope, it encompasses two separate agreements that only cover market access for certain agriculture and industrial goods and digital trade.

The White House characterized the partial deal as a set of “early achievements,” with follow-on negotiations on trade in services, investment and other issues to commerce around April this year. But crucially, the partial deal enabled the United States to avoid addressing its own tariffs on autos and auto parts, which comprise nearly 40 percent of Japan’s merchandise exports to the United States, while securing access to Japan’s market for U.S. agricultural exports.

The United States also restarted talks in 2018 on a partial trade agreement with the European Union that is stalemated over whether to include agriculture.

Walking Alone?

Preferential market access deals are an exception to WTO commitments. WTO members have agreed that free trade agreements outside the WTO should cover “substantially all trade” among the parties and that staging of tariff reductions are part of interim arrangements, not an end state. But with comprehensive negotiations stalled in the WTO itself, members are trying new negotiating approaches such as focusing on single sectors, like information technologies.

Although there was little mention of state-owned enterprises and subsidies in the U.S.-China Phase One deal, something important happened on the margins of that ceremony that received little attention: The trade ministers of Japan, the United States and European Union released a joint statement proposing ways to strengthen the WTO’s provisions on industrial subsides, which they called “insufficient to tackle market and trade distorting subsidization existing in certain jurisdictions,” a reference to China. The statement proposed elements of new core disciplines – a first phase if you will in launching more formal negotiations among WTO members.

The deal signed with China this week envisions reforms to China’s laws, regulations and policies as they apply to any foreign company operating in China, not just the American ones. Perhaps our trading partners see it (only partially) as a go-it-alone strategy and partially as a way to create a corps of provisions that can be migrated to the WTO.

Phase One trade deal - foundation for future US-China trade relations?

Construction Phases: Trump’s Real Estate Mindset

How is the real estate business like trade policy? It isn’t, except in the mind of Donald Trump. Buildings can be demolished or imploded in seconds. A giant hole is dug before its replacement is built. The builder then pours the concrete foundation constructs the frame long before wiring the interior and installing the finishes.

Maybe a phased trade deal represents the opportunity to reset the footing and frame out a solid structure for the future of US-China trade relations – and the finishing touches will come later.

Access the full agreement.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.
iranian

US Imposes Additional Sanctions on Key Sectors of Iranian Economy

On Friday, January 10, 2020, President Trump issued a new Executive Order, “Imposing Sanctions With Respect to Additional Sectors of Iran” (“E.O.”), which authorizes the imposition of sanctions against persons operating in or transacting with Iran’s construction, mining, manufacturing or textile sectors. The E.O. also imposes secondary sanctions against foreign financial institutions (“FFIs”) that engage in “significant financial transactions” within these sectors. Concurrently, the US Department of the Treasury, Office of Foreign Assets Control (“OFAC”), designated several Iranian and third-country metal producers and mining companies, a number of senior Iranian officials, and third-country entities that have transacted in the Iranian metal and mining sectors. This Legal Update provides a brief summary of these new sanctions and designations and discusses their impact on US and non-US businesses and financial institutions.

Designations. Concurrently with the E.O., OFAC designated several Iranian and third-country entities, including 17 Iranian metal producers and mining companies (described as the largest metals manufacturers in Iran); an Oman-based steel supplier; a network of three China- and Seychelles-based entities; and a vessel involved in the purchase, sale and transfer of Iranian metals products, as well as in the provision of critical metals production components to Iranian metal producers. OFAC also designated, pursuant to pre-existing authorities, several senior Iranian officials who have “advanced the regime’s destabilizing objectives.”[i]

New Targeted Sanctions. The E.O. imposes sanctions on the construction, mining, manufacturing and textile sectors of the Iranian economy, expanding on those already imposed on the country’s energy, shipping and financial sectors under Executive Order 13846 (“E.O. 13846”) and the iron, steel, aluminum and copper sectors under Executive Order 13871 (“E.O. 13871”). The aim of the new E.O. is to “deny the Iranian government revenues, including revenues derived from the export of products from key sectors of Iran’s economy, that may be used to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence.” The new sanctions come amid rising tensions between the United States and Iran and only days after targeted, tit-for-tat military actions by both countries.

The E.O. authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to block all property and interests in property that are in the United States, or within the possession or control of any US person, belonging to any person (meaning an individual or an entity) determined to:

1. be operating in the construction, mining, manufacturing, or textile sectors of the Iranian economy;

2. have knowingly engaged, on or after January 10, 2020, in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with one of the aforementioned sectors of the Iranian economy;

3. have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any persons whose property and interests in property are blocked pursuant to the E.O.; or

4. be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the E.O.[i]

Importantly, the E.O. authorizes the Treasury Department to designate as a Specially Designated National (“SDN”), any “person,” including non-Iranian and non-US persons, who operates in or knowingly engages in a significant transaction in these sectors of the Iranian economy. The E.O. also permits the Treasury Secretary to designate other sectors of the Iranian economy to be subject to sanctions in the future.

Secondary Sanctions on Foreign Financial Institutions. In addition to the targeted sanctions discussed above, the E.O. permits the Secretary of the Treasury, in consultation with the Secretary of State, to impose correspondent account and payable-through-account (“CAPTA”) secondary sanctions on any FFI that, on or after January 10, 2020, knowingly conducts or facilitates any “significant financial transaction”:

i. for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with one of the aforementioned sectors of the Iranian economy; or

ii. for or on behalf of any person whose property and interests in property are blocked pursuant to this order.

CAPTA sanctions “may prohibit the opening, and prohibit or impose strict restrictions on the maintaining” of such accounts in the US by FFIs determined to have engaged in the conduct described in the E.O.

Impact of the New Iranian Sanctions and Related Designations

The E.O. expands on the sanctions already put into place against Iran following the reimposition of secondary sanctions against the country announced in May 2018 and as expanded under E.O. 13846 (sanctions against Iranian energy, shipping and financial sectors) and E.O. 13871 (sanctions against Iranian iron, steel, aluminum and copper sectors).

Under the current sanctions regime, it remains prohibited for US persons—including US-owned or -controlled entities—to engage in virtually any transaction, directly or indirectly, with Iran without OFAC authorization. US persons are further prohibited from transacting without authorization with those persons and entities designated by OFAC and added to the SDN List, including via this recent round of designations.

The new sanctions introduced by the E.O. increase OFAC’s ability to sanction non-US persons, as the E.O. enables the United States to designate and block the property and interests in property of those non-US persons operating in or engaging in significant transactions with the construction, mining, manufacturing or textile sectors of Iran.[i] This has the effect of cutting off such non-US persons from the US financial system (and the US market more generally). Businesses with a presence in the European Union may continue to face challenges as they take into account this enhanced sanctions authority in light of the EU blocking statute, which prohibits EU companies from direct or indirect compliance with certain US sanctions laws, including Iranian sanctions.

It remains a secondary sanctions risk for FFIs (and non-US businesses) to knowingly engage in significant transactions involving certain Iranian persons on the SDN List.[i] Additionally, as discussed above, CAPTA sanctions may be imposed against FFIs who conduct or facilitate any “significant financial transaction” in one of the sectors of the Iranian economy specified in the E.O., regardless of whether such transactions have a US nexus. FFIs and non-US businesses may now include an evaluation of significant transactions in the Iranian construction, mining, manufacturing or textile sectors as part of their Iran sanctions risk assessments.

While the E.O. does not define either the term “significant transaction” or “significant financial transaction,” we suspect that the Treasury Department will apply a standard similar to previously issued guidance published in relation to E.O. 13871. Accordingly, such a determination will likely be based on a multifactor, totality-of-the-circumstances assessment of a broad range of factors, including the size, number and frequency of the transactions or services; their type, complexity and commercial purpose; and the level of awareness of the institution’s management.[i]

Since reinstating secondary sanctions in 2018, the United States has only designated non-US entities under secondary sanctions in a few limited circumstances.[i] However, this E.O. joins a series of preexisting Iran-related secondary sanctions authorities[ii] and further extends the extraterritorial reach of the Iran sanctions program to advance US policy objectives.

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Endnotes

[1] See Press Release, Treasury Targets Iran’s Billion Dollar Metals Industry and Senior Regime Officials (January 10, 2020), available at https://home.treasury.gov/news/press-releases/sm870

[1] The E.O., by its terms, does not apply with respect to any person for conducting or facilitating a transaction for the provision (including any sale) of agricultural commodities, food, medicine, or medical devices to Iran.

[1] The blocking provision of the E.O. requires that the property or interests in property comes within the United States or within the possession or control of a US person (e.g., through use of the US financial system in such transactions).

[1] See OFAC FAQ 636, available at https://www.treasury.gov/resource-center/faqs/sanctions/pages/faq_iran.aspx

[1] See OFAC FAQ 671, available at https://www.treasury.gov/resource-center/faqs/sanctions/pages/faq_iran.aspx

[1] See, e.g., OFAC, “Iran-related Designations; Issuance of Iran-related Frequently Asked Question,” (Sept. 25, 2019), available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20190925.aspx (adding Chinese tanker companies to the SDN list due to their alleged role in transporting Iranian oil).

[1] See, e.g., Mayer Brown Legal Update, “US to Reimpose Secondary Sanctions Against Iran Amid EU Opposition” (May 9, 2018), available at https://www.mayerbrown.com/en/perspectives-events/publications/2018/05/us-to-reimpose-secondary-sanctions-against-iran-am Executive Order 13846, “Reimposing Certain Sanctions With Respect to Iran,” (Aug. 6, 2018).

About the authors:

Tamer Soliman is a partner in Mayer Brown’s Washington DC and Dubai offices, global head of the firm’s Export Control & Sanctions practice and a member of the International Trade practice.

Ori Lev is a partner in Mayer Brown’s Washington DC office and a member of the Financial Services Regulatory & Enforcement practice and the Consumer Financial Services group.

Yoshi Ito is a partner in Mayer Brown’s Washington DC office and a member of the International Trade and Public Policy, Regulatory & Political Law practices.

Brad Resnikoff is a partner in Mayer Brown’s Washington DC office and a member of the Financial Services Regulatory & Enforcement practice.

Liz Owerbach is an associate in Mayer Brown’s Washington DC office and a member of the firm’s Export Control & Sanctions and International Trade practices.

Brad Cohen is an associate in Mayer Brown’s New York office and a member of the Litigation & Dispute Resolution practice.

Charleston Harbor

Charleston Harbor Deepening Project: Federal Funding Confirmed

Following President Donald Trump’s signing of the FY2020 Energy and Water Appropriations bill on December 20th, South Carolina Ports Authority is pleased to announce the Charleston Harbor Deepening Project is officially confirmed for complete funding. Details on the announcement noted Trump’s inclusion of the $138 million project previously, creating opportunities for direct appropriations from Congress.

“This huge infusion of federal funding reflects the importance of ensuring South Carolina has a deep harbor capable of handling mega container ships,” S.C. Ports Authority Board Chairman Bill Stern said. “We are grateful to the Trump Administration for recognizing the value a 52-foot depth in Charleston Harbor brings to the Southeast. Thank you to our Congressional delegation, Governor McMaster, and the state and local leaders who have supported this critical project and worked tirelessly to complete it.”
The project is currently being projected for completion in 2021 at a 52-foot depth to withstand 19,000 twenty-foot TEU vessels without concern for tidal or navigation restrictions.
“The Charleston Harbor Deepening Project is one of the most significant infrastructure projects in S.C. history,” Newsome said. “A 52-foot deep harbor will ensure we remain competitive for decades to come as bigger ships bring more cargo to S.C. Ports. A thriving port drives economic development and attracts business to the state, which ultimately creates high-paying jobs for South Carolinians. Port operations generate a $63.4 billion economic impact on the state each year and create 1 in 10 S.C. jobs.
This amount is in addition to the $108 million from the Army Corps of Engineers’ work plans, a $50 million state loan, and the $300 million (estimated state share) set aside by S.C. General Assembly in 2012.
“We have been working diligently on this project with the U.S. Army Corps of Engineers for 10 years and it is great to see construction progressing. This impressive progress would not be possible without the unwavering support from the S.C. Legislature, who set aside funding years ago,” S.C. Ports COO Barbara Melvin said. “Today, we are incredibly grateful to our Congressional delegation and the Trump Administration for funding this vital project to completion.”
China

Amid US-China Trade Battle, Here is how America can Remain the World’s Strongest Economy

The Communist Party of China has laid plans for a century of unlimited Chinese power and, with it, the end of the American era. However, we still can — and must — bet big on the future of American economic power. The best antidote to China’s ambitions is to ensure America’s continued economic and technological preeminence.

Far too many strategists, investors, and policymakers accept China’s economic preeminence as an inevitable outcome, given the country’s enormous population and potential for growth.

As the business community looks toward a “partial trade deal” to unwind tariffs and reduce trade hostility between the world’s two largest economies, we must understand that non-negotiable problems in U.S.-China relations will accelerate if China closes the gap with the United States in terms of economic and technological power. With the right strategic mindset and a focus on domestic productivity, America can not only win the economic and technological contest but also turn the tide in the U.S.-China competition for global power.

China’s bid for global power is built on its economic ascendency, which is based on engagement with the United States and our allies. Chinese companies are capturing global markets and climbing the ranks of the Fortune Global 500 by taking advantage of stolen or coerced foreign intellectual property and state-orchestrated market distortions. The Communist Party is converting China’s technological power into a dystopian surveillance state and a military that is focusing its capabilities on the United States and our partners.

Chairman Xi Jinping calls regularly for Chinese forces to “prepare to fight and win wars,” while converting civilian industrial technology into military power through “civil-military fusion.” Meanwhile, China’s current account surplus is employed for global influence, buying “strategic partners” with intercontinental projects like the “Belt and Road Initiative” and state-backed acquisitions of foreign firms.

U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives.

The People’s Republic of China is a challenge to America’s values and concept of world order. U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives. So, where do we go from here?

Focus on GDP

The first step must be a focus on accelerating U.S. productivity growth. U.S. productivity growth need only increase from 1.3 percent a year to 2.5 percent for U.S. GDP to remain ahead of China’s for the entirety of the 2020s, the decade in which many expect China’s economy to surpass America’s.

By 2030, economic leadership will be easier to maintain as China’s demographic problems set in. Such a productivity increase is realistic, given that productivity growth from 1995 to 2008 was higher than 2.5 percent.

Protect America’s edge

The second step is to preserve our edge in advanced and emerging technologies. America must remain ahead of Communist China, not only in hard sciences, but also in the actual production of advanced goods and services.

If America competes against China only through soybean and oil production, we will fail to counter China in advanced industries such as robotics, semiconductors, aerospace and biopharmaceuticals. China is gaining in these and other technologies and industries and could eventually have a decisive advantage over the United States.

As Alexander Hamilton warned 200 years ago, America can’t be great if it is a “hewer of wood and drawer of water.” We must out-invent and outproduce China in advanced technology and industrial goods.

Maintaining U.S. advantage will require collaboration between government and corporations towards national goals in science, engineering and industry. This approach has long served our nation in times of international struggle and led to lasting commercial and national security breakthroughs.

New and Big

In order to attain these goals, Washington must think new and big. New in the sense of a bipartisan consensus that productivity growth and technological competitiveness must be national priorities.

Big in the sense of big and bold proposals. Here are three: First, implement a robust research, development and investment tax credit that will stimulate innovation and investment on American soil. Second, establish a series of well-funded “moonshot” goals to ensure American leadership in emerging industries such as advanced robotics and quantum computing. Third, develop a national productivity strategy that will take the best ideas of government and industry and focus on building the next $10 trillion in annual U.S. GDP by 2030.

Half a century ago, under the leadership of President John F. Kennedy, America faced a Communist superpower that believed that it would “bury” the United States, much as Chinese Communist leaders today believe that the 21st century belongs to China. Kennedy reminded us then that America would “bear any burden” and “meet any hardship” to prevail in that consequential time.

In the end, it was the power of the American economy, the power of American technology, and the power of American industry that brought victory over our ambitious foe. We must unleash these forces once again, wrestle them into national service, and build on toward the greater good — an American era that can and must prevail.

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Dr. Jonathan D.T. Ward is the author of “China’s Vision of Victory” and founder of Atlas Organization, a strategy consultancy on US-China global competition. Follow him on Twitter @jonathandtward

Dr. Robert D. Atkinson is the president of the Information Technology and Innovation Foundation and the author of “Big is Beautiful: Debunking the Mythology of Small Business.” Follow him on Twitter @robatkinsonITIF..

This article originally appeared on FoxBusiness.com. Republished with permission.