Pacific Currents

Juan Navarro
Associate Faculty, Royal Roads University

Global value chains (GVCs) have been at the center of attention in both business and policy spheres around the globe for the past two years. Disruptions created in GVCs as a result of operational inefficiencies were only magnified by the COVID-19 pandemic. The discussions happening worldwide on the relevance of GVCs have allowed us to see how closely the world is interconnected via GVCs and how quickly local events can become a global matter, resulting in thousands of SMEs getting pushed out of business.

Global value chains have a critical role in the world economy and in our daily lives, representing more than two-thirds of global trade, providing essential products and services, and supporting jobs across a diversity of economic sectors ranging from agricultural and natural resources to traditional and high-tech manufacturing and a vast and diverse list of services.

While the ongoing discussions on GVCs have produced worthwhile conversations by creating more awareness and a better understanding of their relevance, we cannot deny that these discussions are not enough to remedy future disruptions that might happen as a consequence of new contingencies. Nor can they support efforts to build more resilient value chains after COVID-19.

Eduardo Pedrosa
Secretary-General, Pacific Economic Cooperation Council (PECC)

Christopher Findlay
Australian Pacific Economic Cooperation Committee (AUSPECC)
Honorary Professor, The Crawford School of Public Policy, Australian National University (ANU)

The signing of the Regional Comprehensive Economic Partnership (RCEP) on Sunday provided a much needed boost to the global trading system. It will create the largest single economic area in the history of the global economy, led by the ten ASEAN members plus its FTA trading partners it will cover a market of over 2.2 billion people, with a combined GDP of around US$26 trillion. Estimates suggest that benefits for RCEP members of around US$174 billion by 2030 according to numbers cited in PECC’s State of the Region Report this year.

The agreement has been 8 years in the making since ASEAN members agreed to the Framework for Regional Comprehensive Economic Partnership in 2012. The agreement will consolidate ASEAN’s existing trade agreements with partners: Australia and New Zealand; China, Korea, and Japan. India which had previously been part of the negotiations left last year.

Leo Guzman-Anaya¹
University of Guadalajara, Mexico
Member of PECC Mexico

Background

Mexico’s automotive industry experienced a wave of rapid growth after the 2008 financial crisis. It now ranks as the fourth major exporter and the seventh global producer of automobiles and fifth producer of auto parts. This position was achieved primarily because the industry has been characterized by global production networks with fragmentation of their production processes, where companies have searched for locations that favor cost optimization and manufacturing quality. In this sense, Mexico provided a developed and functional productive infrastructure, human capital endowment, and a growing internal market which stimulated the arrival of automotive Original Equipment Manufacturers (OEM) from north America, Europe, and Asia. Also, the favorable geographical location that provide entry to the north American market and a network of 13 Free Trade Agreements (FTA) with preferential access to 50 economies position Mexico as a preferred location for investment projects as reflected in an inflow of Foreign Direct Investment (FDI) in the automotive industry². Between 2008 and 2019, FDI flows to the industry experienced an annual average growth rate of 11.6% in real terms³.

Christopher Findlay, Honorary Professor of Economics at the Crawford School of Public Policy, the College of Asia and the Pacific, The Australian National University; Vice-Chair, Australian National Committee for Pacific Economic Cooperation

Fukunari Kimura, Chief Economist of the Economic Research Institute for ASEAN and East Asia (ERIA) and Professor of Economics at Keio University.

Shandre Thangavelu, Vice President of the Jeffrey Cheah Institute on Southeast Asia at Sunway University and Regional Director Southeast Asia at the Institute for International Trade, University of Adelaide.

COVID-19 has sent shock waves running up and down global value chains (GVCs). Social distancing and high levels of uncertainty have caused a significant drop in demand for goods, with GVCs carrying the economic shock through supplier economies. 

Recovery from the shock is anticipated once COVID-19 cases fall below a certain level, but financial fragility are likely to linger from the large negative wealth effects caused by the pandemic. Several stages of fiscal and monetary policy stimulus are likely to be introduced over the coming months across many economies.

Pascal Lamy
President of the Paris Peace Forum of the French Committee of the PECC
Former Director General of the WTO
&
Eduardo Pedrosa
Secretary-General, Pacific Economic Cooperation Council*

Even as some economies begin to relax their lockdowns, it is too early and too much is unknown to realistically assess the economic impact. The consequences of this crisis have been and will be felt across every aspect of human life. Although many uncertainties remain, whether sanitary, economic, social or political, we must make our best efforts to figure out what a post-crisis life might look like and prepare for it.

Submitted by Jane Drake-Brockman, Christopher Findlay, Yose Rizal Damuri and Sherry Stephenson

From 3D printing (3DP) and artificial intelligence (AI), to cloud computing, 5G, and the Internet-of-Things (IoT), digital technologies are prompting radical new business models offered through digital platforms, that promise unparalled productivity gains and global increases in standard-of-living.

Adoption of new technologies is also impacting traditional demand and employment patterns in highly disruptive ways and radically altering the nature of consumer and business transactions. The changes underway raise major questions for traditional domestic regulatory settings and for trade, investment, innovation and industry policies for the digital age. They point to an urgent need for reform of international trade governance especially at multilateral level. Digitally-enabled trade - lets call it e-commerce - is the big global trade growth story. We are on the cusp of a structural revolution, which ushers in the digital age. The trading system needs to get ready fast.

Services are integral to the industry transformations underway and their cross-border tradability is growing as a result. Recent estimates suggest 50% of traded services are already digitally-enabled compared with 15% of traded goods. Just as services are critical inputs into production of both manufactures and services, trade in digitally-enabled services (digitised services or e-services) is dependent on and underpinned by cross-border data flows. These are growing exponentially, now contributing more to global GDP than traded goods flows¹.

Simon J. Evenett
Economics Professor at the University of St. Gallen, Switzerland and Global Trade Alert¹

There is growing interest in the positive contribution trade policy could make in tackling the COVID-19 pandemic. In part, this reflects the well-founded concern that the effectiveness of health policy responses is being diminished by existing trade barriers and new curbs on the export of medical supplies.

Well-founded—given the resort to trade restrictions on medical supplies and soap summarised here. As of 27 March 2020, 64 export curbs on medical supplies have been introduced by 60 governments since the beginning of the year. Forty-nine of those export curbs have been announced since the beginning of this month, an indication of just how quickly new trade limits are spreading across the globe.

Judit Fabian
Visiting Researcher, Graduate School of Public and International Affairs, University of Ottawa

International trade is often framed in starkly divergent terms: either economies choose multilateral trade agreements (MTAs) and advance the cause of global economic liberalization, or they choose preferential trade agreements (PTAs) and put the entire system at risk. Canada has a long track record of pursuing PTAs and with the Trump administration’s opposition to multilateralism, and longstanding opposition in elements of the Republican and Democratic parties, this trend will likely continue. The question is whether progress will come at the expense of the global trade system.

Some economists believe PTAs to be trade-diverting, reducing trade with more efficient producers outside the agreement. Others insist that PTAs can create trade by shifting production to lower-cost producers in one of the participating economies. One prominent contrary argument holds that PTAs lead to discontinuities in tariff regimes between economies and regions, increasing transaction costs, disrupting supply chains, creating opportunities for corruption and harming global welfare, especially in developing economies.

Hugh Stephens
Distinguished Fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committee for Pacific Economic Cooperation (CANCPEC)

Back in October of 2016 when the Canada-EU Comprehensive Economic and Trade Agreement, (CETA) was on the cusp of closure, the negotiations hit a roadblock when the Belgian region of Wallonia blocked the necessary consensus for the EU to conclude with Canada. Chrystia Freeland, who was then the minister of international trade, walked out of the negotiations in Brussels and packed her bags to return to Canada. She lamented that “… it is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement – even with a country with European values such as Canada, even with a country as nice and as patient as Canada.” A core element of her argument was that Canada and Europe shared common values, and therefore the path to an agreement should have been open. As we know, a compromise satisfied Wallonia’s concerns, mainly regarding the so-called investor-state dispute settlement process which allows foreign invested companies to sue governments for alleged discriminatory practices that negatively impact their investments. Canada and the EU went on to sign the agreement, most of whose provisions came into effect on Sept. 21, 2017. The government of Canada has cranked up its communications machine and is touting CETA as “a progressive trade agreement for a strong middle class”.

Hugh Stephens
Distinguished Fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committe for Pacific Economic Cooperation (CANCPEC)

Canada-Japan relations are at a low ebb politically and need to be rescued by urgent and decisive action.

One of our largest trading relationships has been put at risk by the perceived snub offered to Japanese Prime Minister Shinzo Abe in Vietnam in November when Prime Minister Justin Trudeau missed a scheduled press conference intended to announce that Canada, Japan and nine other Trans-Pacific Partnership countries had reached agreement in principle on a revised trade pact. Worse still, it was Canada’s last-minute case of cold feet that almost sank the agreement.

It is time for a reset to restore this important bilateral relationship. The best way to do this is to double down now to resolve the outstanding differences between Japan and Canada that are hindering conclusion of what has been relabelled the Comprehensive and Progressive Trans-Pacific Partnership.

Hugh Stephens
Distinguished fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committee for Pacific Economic Cooperation (CANCPEC)

It hasn’t been a good few weeks for the Trudeau government’s “progressive” trade agenda.

First, the unwillingness of some countries to swallow elements of the progressive agenda was at least partially responsible for the sudden postponement of an announcement around the Trans-Pacific Partnership (TPP) last month in Vietnam. The announcement was expected to confirm that the 11 TPP economies had reached an agreement in principle to conclude the pact.

Then an expected agreement on the start of free trade talks with China did not materialize during Justin Trudeau’s Beijing visit earlier this week, blocked by Chinese objections to including “progressive elements,” such as labour and gender rights, in the negotiations.

In both cases, talks have not been completely derailed, but it is fair to say the outcome is not what was expected. And in both instances this progressive agenda has been fingered as a principal cause.

Given the fact that progressive trade is proving controversial, it is worth examining what the concept actually means. It has become the term of choice for the Trudeau government, a branding exercise that seeks to distinguish the Liberals from the Harper government. The thinking then goes, if the TPP — negotiated by the Conservatives — was unpopular with some elements of Canadian society, why not change the dial, add some “progressive” elements and even modify the name? Thus the new version of the TPP (with its 11 economy members, down from 12 since the United States backed out) is now the “Comprehensive and Progressive Trans-Pacific Partnership.”