There has never been a more appropriate time for the business community to stand up for international trade and investment. With a stubborn impasse at the World Trade Organization on Trade Facilitation, increasing opposition to investment protections in regional trade agreements and disappointing setbacks on Capitol Hill regarding Trade Promotion Authority legislation, the moment is right for taking stock of the global trade environment and for reviewing which policies best promote economic growth, create jobs and lead to sustainable development.It is against this backdrop that USCIB organized its first annual trade conference on October 30, “Exploring New Approaches to Trade, Investment and Jobs: Insight and Impact for Business from the OECD,” with a keynote dialogue from United States Trade Representative Michael Froman.
The conference covered a wide range of trade and investment topics including global value chains (GVCs), regulatory barriers, investment protections in trade agreements, the pros and cons of plurilateral agreements such as the Transatlantic Trade and Investment Partnership and the uncertain future of the Trade Facilitation Agreement (TFA).
Hosted by the USCIB Foundation, the Business and Industry Advisory Committee (BIAC) to the OECD, and the OECD (Organization for Economic Cooperation and Development), the full-day event at the St. Regis Hotel in Washington, D.C. highlighted the OECD’s innovative work on trade and investment. The conference convened government officials, trade experts, and representatives from the OECD and the World Trade Organizations to review the global trade environment and discuss how the OECD’s work impacts job creation and trade negotiations around the world.
During the keynote dialogue with USCIB Chairman Terry McGraw, Ambassador Froman said his priority is to close good deals on the Transatlantic Trade and Investment Partnership (TTIP) with the EU and the Trans-Pacific Partnership (TPP) with Pacific Rim countries. He explained that the United States strongly supports multilateral multilateral trade liberalization, but with the current TFA stalemate at the WTO, the United States will not hesitate to explore other, regional trade agreements if the multilateral option isn’t successful. He noted that bilateral and regional trade agreements can also help get higher-standard rules agreed to globally via the WTO.
“The final deal is crystallizing,” Froman said about TPP. “There’s a lot of momentum around the table on getting it done in the near-term.”
Froman echoed statements made by President Obama earlier this year that the United States will sign to any trade agreement provided it is a “good one.”
McGraw commended Ambassador Froman for his leadership throughout the Obama Administration for charging ahead on an ambitious and robust U.S. trade agenda: “It’s all about achieving higher levels of economic growth, it’s all about job creation, it’s all about prosperity.”
Below is a summary of the event’s panel discussions. See also the event’s full agenda.
Global Value Chains: How Can Trade Policy Catch Up with Trade Reality?
Businesses are adapting to political, technological, and economic changes around the world by creating global value chains (GVCs), where companies move intermediate goods between countries in producing a final product. The path-breaking work of the OECD-WTO on Trade in Value Added (TiVA) finds that between 30 and 60 percent of G20 country exports are comprised of imported inputs, and services account for 42% of exports in value-added terms. Panelists discussed the impacts of GVCs on economic growth and the policies governments can pursue to reduce costs on companies that want to take advantage of GVCs.
Speakers included Cathy Novelli (U.S. State Department), Ken Ash (OECD), Ambassador Karan Bhatia (General Electric) and Rob Mulligan (USCIB).
Novelli stated that the statistical reality showcased in the OECD’s work hasn’t caught up to the reality on the ground. Traditionally, governments would focus on the end product in trade, but now GVCs make each intermediate step in the value chain just as important. GVCs are forcing policies to rethink how they approach trade and investment, and supply chains critical factors when crafting trade policy.
Mulligan concluded the panel by summarizing policies that impose undue costs on businesses, such as forced localization requirements, cross-border data flow restrictions, travel restrictions and poor governance. “We need regulators to understand that we can advance trade without sacrificing consumer safety,” Mulligan said.
Insights from the OECD’s Services Trade Restrictiveness Index (STRI)
Services are becoming an ever larger part of the global economy. However, regulatory barriers can increase the costs facing firms operating internationally and hold back growth and job-creation. The innovative OECD Services Trade Restrictiveness Index (STRI) released earlier this year documents the extent of restrictive measures on services which generate a huge proportion of the wealth and jobs in the most advanced economies.
Speakers, which included Ambassador Fernando de Mateo (WTO), Crawford Falconer (OECD), Mark Linscott (USTR), Damien Levie (EU Delegation to the U.S.) and Rick Johnston (Citigroup), weighed in on the STRI and gave their perspectives on how trade restrictions impact services. “STRI is a great tool for trade negotiators,” Linscott summarized nicely.
Johnston urged regulators to understand that trade agreements are about more than just tariffs. To that end, the STRI can help trade negotiators accept the new realities of global commerce and contribute to the overall trade and investment debate.
Why Investment Protections are Critical to Growth and Jobs
International investments foster growth, innovation and sustainable development, and these investments have been facilitated by strong protection for foreign investors in investment treaties. The OECD has developed a Policy Framework for Investment (PFI) that helps governments design and implement policy reforms to create an attractive robust, and competitive environment for domestic and foreign investment. At the same time, the OECD publishes an FDI Regulatory Restrictiveness Index that gauges the restrictiveness of a country’s FDI rules. These products are particularly relevant at a time when investor-state dispute settlement systems face increasing political opposition, especially in the context of the TTIP negotiations.
Panelists included Daniel Price (Rock Creek Global Advisors), Pierre Poret (OECD), Heinz Hetmeier (German Ministry of Economic Affairs and Energy), Michael Tracton (U.S. Department of State), Ambassador Shaun Donnelly (USCIB), and Kimberley Claman (Citigroup).
Donnelly captured USCIB member sentiment on the importance of investor protections in TTIP. “Personally, I find it hard to envision a comprehensive, high-standard and ambitious trade agreement absent strong ISDS provisions.”
Are Regional Trade Agreements Good or Bad for a Multilateral Trade Agenda?
With the uncertain future of the WTO’s multilateral trade agenda given the impasse on the TFA, many countries are looking to other regional and plurilateral trade agreements as alternatives. This panel considered whether regional agreements are a threat to the multilateral system, or whether they provide the stepping stones for preserving the momentum towards more open trade and investment, setting global standards which will ultimately be multilateralized. OECD has looked extensively into the question of whether deep provisions in RTAs can be multilateralized on a wide range of issues, from government procurement, to IP, transparency, competition, services and more. A synthesis of their findings has recently been published in a report entitled “Deep Provisions in Regional Trade Agreements: How Multilateral Friendly?”
Speakers included the Honorable James Bacchus (Greenberg Traurig Global Practice), Ambassador Susan Schwab (Mayer Brown), Iza Lejarraga (OECD), Clifford Sosnow (BIAC) and Ed Gresser (Global Works Foundation).
Sosnow noted that although nobody believes that regional trade agreements are a bad thing, they do have a “dark heart” because they’re exclusionary, and they discriminate against least-developed countries that have the fewest options available to them with regard to trade. But Schwab pointed out that it is not at all likely that the WTO will close a multilateral trade deal in a timeframe that is relevant to the business community. In the meantime, regional trade agreements are the next best option.
What’s Next for the Stalled WTO Trade Facilitation Agreement?
The final panel reviewed progress on the WTO’s Trade Facilitation Agreement since implementation was blocked by India in July. The trade facilitation element of the December 2013 Bali package has the potential to significantly reduce trade costs. The OECD has developed a set of Trade Facilitation Indicators that identify areas for action by governments and enable the potential impact of reforms to be assessed. According to OECD estimates, total costs for low income countries would be reduced by 14.1 percent, by 15.1 percent for lower middle income countries and by 12.9 percent for upper middle income countries.
However, panelists, which included Scott Miller (CSIS), Yonov Frederick Agah (WTO), Trudy Witbreuk (OECD), Ambassador Wayne McCook (WTO) and Leslie Griffin (UPS) all agreed that momentum on the TFA is slow and uncertain.
Griffin stated that business plays an important role in implementing trade facilitation as a source of expertise and capacity building, and as an advocate for countries like Dubai which “do the right things” regarding trade facilitation. Agah encouraged the business community to reach out to their governments to voice private sector interests.
“Beware of the gap between capacity and commitment,” Miller said at the panel’s conclusion. “Trade facilitation is not self executing. It does require work.”
Staff contact: Rob Mulligan