Axia Sourcing released the following six telling myths and realities related to global sourcing, breaking down common misconceptions about language-barriers, outsourcing partnerships, quality control and more. Global businesses can apply this knowledge to successfully navigate the world of sourcing while expanding business operations with confidence, regardless of the industry.
Countries utilize multiple platforms to open markets, set standards or other rules of trade, and resolve disputes. Progress in reducing barriers to trade and facilitating the flows of goods and services may be an outcome of negotiated free trade agreements between two or more countries or result from legally binding instruments agreed to in multilateral fora like the World Trade Organization (WTO).
In contrast, decisions in the Asia-Pacific Economic Cooperation (APEC) forum, a grouping of 21 economies that border the Pacific Ocean, are reached by consensus but undertaken on a voluntary basis. This format is credited with enabling members to “incubate” content for new trade negotiations and to work collaboratively on pragmatic regulatory and policy approaches to common challenges.
The APEC forum culminates each fall in a meeting of the 21 leaders, a gathering many associate with the annual “silly shirts” photo of top officials genially wearing the national garb of the host economy, rather than their typical business suit. However, the work of APEC goes on for many months before this fashion summitry takes center stage to solidify each member’s commitments.
This article introduces this cooperative, regional forum; highlights the priority focus areas set out by this year’s APEC host, Chile; and shines a spotlight on one such area – digital trade – as a case study into how APEC serves as a building block in the iterative process of co-creating norms for trade.
Spotlight on APEC
The 21 members of APEC, which includes economies as diverse as the United States and Papua New Guinea (last year’s APEC host), are home to almost three billion people and represent close to half of world trade.
When the organization formed in 1989, APEC had Australia, Brunei Darussalam, Canada, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and the United States as founding members. China; Hong Kong, China; and Chinese Taipei joined in 1991. Mexico and Papua New Guinea acceded in 1993, and Chile joined in 1994. In 1998, the addition of Peru, Russia, and Vietnam brought the organization to its current membership level.
Every year one of the 21 APEC member economies serves as the APEC Chair. Over the course of a year and typically in multiple cities, the Chair hosts a series of senior officials’ meetings, ministerial meetings, and a Leaders meeting. Ministerial meetings include gatherings of Trade and Foreign Ministers from each of the economies, as well as sectoral ministers overseeing other key areas, including energy, finance, and education. The host economy also welcomes the APEC Business Advisory Council (ABAC), up to three senior business leaders per economy, appointed by their governments, who provide private sector input into the APEC process.
Between 1989-1992, APEC dialogues were held at the senior official and minister level. In 1993, former U.S. President Bill Clinton began the practice of an annual leader meeting when he hosted an APEC meeting in Seattle. The following year, APEC leaders made a commitment to jointly work toward free and open trade in the Asia-Pacific by 2020. This commitment is known as the Bogor Goals for the Indonesian city where APEC leaders met in 1994.
A defining feature of APEC is that members voluntarily take actions to reduce barriers to trade and investment without a requirement to make legally binding obligations. Beyond a core focus on trade and investment liberalization, APEC also promotes business facilitation, with the goal of taking time, cost, and uncertainty out of doing business across the region, as well as technical cooperation, to boost the technical capacity of APEC’s less developed members to drive secure and sustainable economic growth.
From Idea to Fruition
Notable accomplishments within APEC include its work on environmental goods, where members have undertaken tariff reductions on a list of 54 environmentally friendly goods. This tariff-cutting effort laid the groundwork for ongoing negotiations at the WTO on an Environmental Goods Agreement with expanded product coverage.
Another key APEC deliverable has been the APEC Privacy Framework, which established principles and implementation guidelines for privacy protection, and which underpins the APEC Cross-Border Privacy Rules (CBPR) system. Currently, eight APEC members—Australia, Canada, Chinese Taipei, Japan, Korea, Mexico, Singapore and the United States—participate in the CBPR system.
APEC also delighted many travelers on the APEC circuit with the creation of the APEC Business Travel Card, which allows cardholders visa-free access to APEC economies for up to 90 days and special APEC fast lanes in the major airports of APEC members. According to the 2018 report of the APEC Committee on Trade and Investment to Ministers, as of the end of June 2018, over 278,000 cards had been issued.
Onward to Santiago
Like a Chilean fine wine, the business travel card is something nice to have in hand given the over 200 working group meetings, workshops, ministerial, academic, and business meetings taking place over Chile’s APEC year. Chile’s host year will culminate in the summit of the 21 APEC leaders in November in Santiago. As the host economy, Chile has identified four priority areas on which it seeks concrete deliverables:
Digital Society, an initiative encompassing efforts to develop cross-border digital trade standards and make needed changes to education and labor systems;
Integration 4.0, which seeks to tackle some of the newer sources of trade frictions and enhance connectivity through customs coordination and border automation;
Women, Small and Medium Enterprises and Inclusive Growth, an agenda designed to increase women’s participation in the economy and to enhance the ability of small and medium-sized business to realize the benefits of trade in the region, including in the area of digital trade; and
Sustainable Growth, which includes initiatives to protect the marine ecosystem and promote cooperation on both energy and smart cities.
Division of Labor on Digital Trade Rules
Chile’s focus on the digital economy reflects the priority that APEC leaders have increasingly placed on promoting sound policies to govern digital trade in the Asia-Pacific region. The spotlight on digital policy is also a good case study in the iterative way global trade norms are shaped and how an organization like APEC both influences and is influenced by parallel policymaking efforts.
APEC prides itself on its role as an incubator of ideas and driver of initiatives in emerging areas of trade that matter not only to the Asia-Pacific region, but also globally.
Dating back to its 1998 APEC Blueprint for Action on Electronic Commerce, which defined principles for the development of e-commerce in the region, APEC members have recognized that without a framework to govern the surge in digitally enabled trade, the full potential of digital technologies may not be realized. They also understood the challenges associated with designing regulatory frameworks that encourage growth while protecting privacy and security, particularly given differing domestic regulatory approaches on key issues like treatment of data. In its work on the various building blocks for digital trade – from cross-border privacy rules to trade facilitation and services liberalization – APEC has engaged multiple outside organizations, including the International Chamber of Commerce, the Organization for Economic Cooperation and Development (OECD), and the United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFAT), facilitating mutually beneficial idea exchange.
In 2016, 12 APEC economies signed the Trans-Pacific Partnership Agreement or TPP (the United States later withdrew). The TPP’s e-commerce chapter covered a range of traditional and emerging issues, including customs duties, electronic authorization and signatures, cross-border data flows, source code, cybersecurity, and privacy protections. Initiatives like the APEC Privacy Framework inspired certain TPP provisions but, unlike the APEC framework, what is now known as the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) is a binding agreement with enforcement provisions. The reforms required by the agreement, including prohibitions on data localization and protections for the movement of data, will set a new bar as CPTPP potentially expands to new members and as new trade agreements are forged.
For example, in mid-May, on the sidelines of this year’s APEC meeting of Ministers Responsible for Trade, Chile’s Minister of Foreign Affairs, Singapore’s Minister of Trade and Industry, and New Zealand’s Minister for Trade and Export Growth announced the start of negotiations towards a Digital Economy Partnership Agreement. The officials announced an intent to build on the CPTPP e-commerce chapter, but also look at emerging areas like digital identity and artificial intelligence. Any agreement reached between Chile, New Zealand and Singapore will be open for accession by other WTO members who can meet the high-quality standards to be established in the agreement.
Underscoring the iterative nature of trade policy building, the three APEC and CPTPP members indicated that their work would build on the work underway within APEC, the OECD, and other international forums; generate ideas for use by countries negotiating free trade agreements; and complement current WTO negotiations on e-commerce. In the latter talks, 76 WTO members (including all APEC members except Indonesia, Philippines, Papua New Guinea, and Vietnam) are working to create multilateral rules governing electronic transactions.
Culture and Consensus
APEC members leverage their APEC host year to drive progress on their national trade priorities in the spirit of collaboration and consensus. The various APEC meetings throughout the year also provide an opportunity to showcase the member’s unique achievements before large audiences of distinguished visitors, while also showing off the cities where the meetings take place. This year, for example, Chile will welcome more than 15,000 representatives of member economies, APEC observers, business leaders, and international press in Viña del Mar, Puerto Varas, and Santiago.
Shining a spotlight on the unique cultural offerings of a host economy – such as the Royal Barge Procession for APEC leaders on the Chao Phraya River in Bangkok in 2003 or China’s grand 2014 APEC welcome ceremony with light shows, singing, and dancing – is also a time-honored tradition. Unfortunately, the infamous “silly-shirted” photos tradition may be wavering. The last time the United States hosted APEC in 2011 in Hawaii, President Obama found APEC-like consensus agreement to nix the collective donning of aloha shirts and grass skirts, quipping, “I didn’t hear a lot of complaints about us breaking precedent on that one. I thought this may be a tradition that we might want to break.”
Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.
When it took effect in 1994, the North American Free Trade Agreement (NAFTA) created the largest trading market in the world. NAFTA lifted tariffs on the majority of goods produced and traded by the U.S., Canada and Mexico.
At that time, the three signatories had a combined365 million people and GDP totaling $6 trillion. Today, NAFTA encompasses a market of 500 million people with a combined GDP of $25 trillion.
NAFTA has been a boon for U.S. producers and consumers. Canada and Mexico are our number one and two export markets, respectively, as we exported almost $500 billion worth of goods to them in 2016. And of the 14 million American jobs supported by trade with Mexico and Canada, 5 million are a direct result of NAFTA. It is vital to our prosperity to continue that strong trade relationship.
But while NAFTA has been an overall success, the agreement needs to be modernized for the 21st century to reflect new developments, such as the advent of digital trade, e-commerce and communications. The Trump administration renegotiated NAFTA’s successor, the United States–Mexico–Canada Agreement (USMCA), which was a step in that direction. As trade policy junkies pore over the details to mixed reviews, one thing is certain: the new deal isn’t perfect, but it’s far better than no NAFTA at all.
USMCA includes new, largely positive, chapters on digital trade, e-commerce, and finance. Modernization – check. It also makes very modest improvements on some points of contention by lowering barriers to certain dairy markets in Canada and lowering U.S. barriers to sugar and peanuts. Lowering additional trade barriers – check.
But there are problematic new elements in this deal, including stricter country-of-origin requirements, which increase trade barriers. Not so good. Perhaps more troubling are the new minimum wage standards for Mexican auto workers, which will be massively complicated to comply with.
These kinds of protectionist policies drive up costs for everyone. Including domestic policies in free trade agreements may be a slippery slope for other trading partners to make unacceptable demands on U.S. policy.
But upending today’s strong North American trading relationships and returning to pre-NAFTA days would be a perilous path. Given the central role NAFTA has played in strengthening our economy and improving lives in all three countries, it’s important not to undermine its obvious benefits as the new agreement undergoes approval and implementation. There are two areas that pose specific concerns.
First, the administration must keep the U.S. firmly in NAFTA until the new deal is fully ratified and implemented. Failure to do so could unleash real and unnecessary damage on the American economy.
Terminating NAFTA before a new deal is in place would reduce market access for businesses throughout North America, causing unnecessary pain for thousands of businesses and their workers.
One study for the Business Roundtable estimated that terminating NAFTA would shrink the U.S. economy by up to 1.2 percent annually and reduce net employment by as many as 3.6 million jobs, while imposing higher prices on working families. Threats to pull out of NAFTA are only creating unnecessary uncertainty for businesses whose time would be better spent preparing for changes under USMCA.
Second, U.S. tariffs on Canadian and Mexican steel and aluminum should be eliminated immediately, irrespective of any update to NAFTA, as should U.S. tariffs on Canadian soft wood lumber. Moreover, the administration should drop its 232 investigation for new tariffs – autos and auto parts hardly constitute a national security threat.
Every day, newspapers are filled with stories of how American workers, businesses, farmers and consumers are bearing the costs of these tariffs.
There is little evidence to show that the tariffs enhanced the United States’ bargaining position during the USMCA talks, despite claims to the contrary. If anything, the new agreement occurred in spite of the tariffs. And without the tariffs, American workers and companies would have been spared unnecessary harm.
The administration is now planning to negotiate respective trade agreements with Japan, the European Union and the United Kingdom. This is a welcome step. But leaving metal, lumber, and auto tariffs in place or in play may give negotiators understandable pause and make them less willing to lower barriers and open markets.
It is time to chart a new course, one based on cooperation, not confrontation.
Washington, D.C. – The U.S. International Trade Commission (USITC) has released a new report slamming India’s trade, investment and industrial policies and detailing their impact on the U.S. economy.
According to the report, tariff and customs procedures as well as taxes and financial regulations “had the most significant effect on U.S. businesses while foreign direct investment caps and intellectual property policies also impacted companies across several sectors.”
If tariff and investment restrictions were fully eliminated and standards of intellectual property (IP) protection were made comparable to U.S. and Western European levels, US exports to India would rise by two-thirds and US investment in India would roughly double, the Trade, Investment, and Industrial Policies in India: Effects on the US Economy report said.
The USITC has been asked by the House Committee on Ways and Means and the Senate Committee on Finance to conduct a second investigation looking at policy changes under the new government. The agency expects to deliver the results to the Committees by September 24.
The report, prepared at the behest of the House Committee on Ways and Means and the Senate Committee on Finance, covers tariffs and customs procedures, foreign direct investment restrictions, local-content requirements, treatment of intellectual property, taxes and financial regulations, regulatory uncertainty, and other non-tariff measures such as unclear legal liability, price controls, and sanitary and phyto-sanitary standards.
India angrily responded to the USITC report, calling it a “unilateral action” that “has no validity.”
A senior official in the New Delhi government told the media that, “India was not party to the investigations and it is the U.S.’ internal decision. The U.S. government has not taken up the matter bilaterally or multilaterally with us. India’s position remains the same as it was last year.”
The USITC report is the second such report released over the past several years by the agency on the tariff and non-tariff trade barriers U.S. companies face while doing business with the Sub-Continent.
The Washington, D.C.-headquartered U.S.-India Business Council, the largest bilateral trade association in the U.S., took a somewhat conciliatory tone when responding to the USITC report.
“There is no doubt that U.S. companies face challenges in India, but many of these issues are institutional in nature and take time and a concerted effort by all stakeholders to resolve,” said Diane Farrell, acting president of the Washington, D.C.-headquartered U.S.-India Business Council.
“As this most recent report suggests, there is a lot of potential for both countries, and we are committed to working alongside our members and both governments to further develop and deepen the two-way commercial relationship,” she said.
President Barack Obama is scheduled to visit India later this month.
Washington, D.C. – If China is going to deal successfully with its economic challenges at home, “it must allow market forces to operate, which requires altering the role of the state in planning the economy,” according to the latest Report to Congress on China’s WTO Compliance compiled by the Office of the U.S. Trade Representative (USTR).
The country, the report added, likewise “must reform state-owned enterprises, eliminate preferences for domestic national champions and remove market access barriers currently confronting foreign goods and services.”
The report cited a “dramatic expansion in trade and investment” among China and its many trading partners since the country acceded to the WTO in December 2001.
U.S. exports of goods to China totaled $122 billion in 2013, representing an increase of 535 percent since 2001 and positioning China as the U.S.’ largest goods export market outside of North America, while U.S. services exports reached $38 billion in 2013, representing an increase of 603 percent since 2001.
Services supplied through majority U.S.-invested companies in China also have been increasing dramatically, totaling an additional $39 billion in 2012, the latest year for which data is available.
“Despite these results, however, the overall picture currently presented by China’s WTO membership remains complex, largely due to the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national champions in China’s economy,” the report said.
In 2014, as in past years, when trade frictions have arisen, the U.S. “pursued dialogue with China to resolve them,” it said.
But, when dialogue with China “has not led to the resolution of key trade issues, the United States has not hesitated to invoke the WTO’s dispute settlement mechanism.”
Since China’s accession to the WTO, the U.S. has brought 15 WTO cases against China, more than twice as many WTO cases as any other WTO member has brought against China, according to data supplied by the Geneva-headquartered global trade group.
In doing so, “the United States has placed a strong emphasis on the need for China to adhere to WTO rules, holding China fully accountable as a mature participant in, and a major beneficiary of, the WTO’s global trading system,” the USTR report said.
“The United States views economic reform in China as a win-win for the United States and China,” the report concludes “not only because the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises in China’s economy are principal drivers of trade frictions, but also because a sustainable Chinese economy will lead to increased U.S. exports and a more balanced U.S.-China trade and investment relationship will help drive global economic growth.”
Los Angeles, CA – The White House is optimistic on the chances that negotiators can forge a strong, comprehensive Trans-Pacific Partnership (TPP) deal that would impact 11 countries and encompass nearly 40 percent of the world economy.
“I’m much more optimistic about us being able to close out an agreement with our TPP partners than I was last year,” said President Barack Obama at a recent meeting of the President’s Export Council.
Confident that the administration could make a “strong case” in Congress for a TPP, Obama added, “It doesn’t mean it’s a done deal, but I think the odds of us being able to get a strong agreement are significantly higher than 50-50.”
According to the Office of the U.S. Trade Representative, the White House has held more than 1,500 meetings with members of Congress on TPP, including sharing negotiating text, and would continue to consult closely.
U.S. Representative Sander Levin of Michigan, the senior Democrat on the House of Representatives Ways and Means Committee, which has jurisdiction over trade, has said there was still a long list of “major issues” impacting the final make-up of the proposed trade pact.
Levin is calling for Congress to have more input into the deal, asserting that workers’ rights, access to medicines in developing countries and the phase-out period for U.S. tariffs on Japanese cars top the list of of major issues still to be resolved.
With the ongoing talks wrapping-up this week in Washington, D.C., negotiators may meet again next month in either the U.S. or Australia.
The 11 countries included in the TPP are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the U.S.
Los Angeles, CA – Australia and China, it largest trading partner, have inked a preliminary free-trade deal that would give Australia’s service industry unsurpassed access to the Chinese market and hand the Australian agriculture sector some significant market advantages over its U.S., Canadian and European competitors.
Under the terms of the “Declaration of Intent” deal, China will reportedly make 85 percent of Australian goods imports tariff-free from the outset, rising to 93 percent four years later, the Australian government said.
In return, Australia will lift tariffs on imports of Chinese manufactured goods and alter the threshold at which privately-owned Chinese companies can invest in non-sensitive areas without government scrutiny from 248 million Australian dollars ($218 million) to AU$1,078 million.
The pact would be signed soon after the first of the year and could take effect as early as March if it is endorsed by the Australian Parliament. No modeling has been done on the value of the free-trade deal, the government said.
The removal of tariffs on Australian farm products would give Australia an advantage over U.S., Canadian and E.U. competitors while negating advantages New Zealand and Chile have enjoyed through their free-trade deals with China, the government said.
According to press reports, stumbling blocks in the negotiations, which began in 2005, were Chinese protection of its rice, cotton, wheat, sugar and oil seed industries and demands for less Australian government restrictions on Australian companies and assets being sold to Chinese state-owned businesses.
Those specific areas were excluded from the agreement, which will be renegotiated in three years, reports said.
Two-way trade between Australia and China grew from $86 million in the early 1970s to $136 billion in 2013.
Geneva, Switzerland – The World Trade Organization has reduced its forecast for world trade growth in 2014 to 3.1 percent, a significant drop from the 4.6 percent it made in April.
In addition, it also cut its estimate for 2015 to 4.0 percent from its previous 5.3 percent forecast.
The downgrade “comes in response to weaker-than-expected GDP growth and muted import demand in the first half of 2014, particularly in natural resource exporting regions such as South and Central America,” the global trade group said.
Beyond the specific downward revisions, it said, “risks to the forecast remain predominantly on the downside, as global growth remains uneven and as geopolitical tensions and risks have risen,” while “international institutions have significantly revised their GDP forecasts after disappointing economic growth in the first half of the year,” said WTO Director-General Roberto Azevêdo.
When the last forecast was released in April 2014, conditions for stronger trade growth seemed to be falling into place after a two year slump that saw world merchandise trade grow just 2.2 percent on average during 2012–13, with leading indicators at the time pointing to an upturn in developed economies and Europe in particular.
“Although growth has strengthened somewhat in 2014, it has remained unsteady,” the WTO said with output in the US during the first quarter of this year falling by –2.1 percent, annualized rates and in the second quarter in Germany by –0.6 percent, “sapping global import demand.”
China’s GDP growth also slowed from 7.7 percent in 2013 to 6.1 percent in the first quarter of this year before rebounding in the second. The slow first quarter contributed to weak exports in trading partners.
“As a result of these and other factors, global trade stagnated in the first half of 2014, as the gradual recovery of import demand in developed countries was offset by declines in developing countries,” the WTO said.
Growth in trade and output “is expected to be somewhat stronger in the second half of 2014 as governments and central banks may provide policy support to boost growth, and as idiosyncratic factors such as harsh weather conditions in the US and a sales tax rise in Japan weighted on trade in the first half of this year begin to fade.”
However, the WTO said, “several risk factors on the horizon have the potential to produce worse economic outcomes.”
For example, it said, tensions between the European Union and the US on the one hand and the Russian Federation on the other over Ukraine have already resulted in trade sanctions on certain agricultural commodities, and the number of products affected could widen if the crisis persists.
At the same time, the continuing conflict in the Middle East “is also stoking uncertainty, and could lead to a spike in oil prices if the security of oil supplies is threatened.”
This is the moment, he said, “to remind ourselves that trade can play a positive role here. Cutting trade costs and broadening trade opportunities can be a key ingredient to reversing this trend,” said the WTO’s Azevêdo.
Peoria, IL – Construction and mining equipment maker Caterpillar Inc. is looking to offset a major decline in its overseas sales with a new strategy aimed at steeping up the marketing of remanufactured equipment, particularly in developing markets where both tariff and non-tariff trade barriers exist.
Overall, the company saw its global machinery sales decline by almost 10 percent during the three months ending in July with the greatest drop coming in Asia, where sales dropped 30 percent in both May and June, the company reported.
Construction sales for the period were down by 16 percent in China and by 14 percent in Latin America, it said.
But, the company has developed a new strategy to beef-up its sagging global business revenues by 20 percent by 2020, compared to a 2013 baseline.
According to its 2013 Sustainability Report, Caterpillar commonly faces a particular type of non-tariff barrier when remanufactured goods are classified as used goods, which cannot be imported under any circumstance or can only be imported after complying with special inspection, certification, or licensing regulations.
The tariff barriers it also faces, the report said, usually hinge on the excessive fees or taxes levied by some countries that significantly increase their customer’s cost of choosing a viable remanufactured product.
Both types of trade barriers most often come into play when customers seek to export their core parts and return them to Caterpillar in exchange for a remanufactured engine or component.
The company argues that as all of its remanufactured products carry the same durability, performance, quality and warranty equal to that of a new component, they should be treated as such.
That’s the line that Caterpillar management is reportedly taking with policymakers, government regulators and customs officials in several countries in an effort to open up their markets and expand remanufacturing options for the company’s customers.
To help it meet its 2020 growth goal, the company has developed a ‘job site efficiency’ (JSS) initiative “to help customers capture maximum value from their assets by improving on-site performance and sustainability,” particularly in the agricultural sector which now accounts for approximately 15 percent of Caterpillar’s total JSS volume.
According to the company, the results have been “significant.” On average, it said, agricultural customers have been able to reduce idle machinery times by 20 percent, and so-called “operator-caused events,” such as equipment wear and tear and safety issues, by 25 percent.