Topic: International Trade and Finance

1. Mitigating Global Fragmentation in Digital Trade Governance: A Case Study

Author:: Douglas Lippoldt
Publication Date:: 01-2023
Content Type:: Working Paper
Institution:: Centre for International Governance Innovation
Abstract:: Digital trade is growing rapidly, and regulators are trying to keep up. Concerns about privacy, consumer protection and national security demand regulatory attention, but too much regulation risks stifling digital trade. Current-generation trade agreements need to find the right balance between regulatory and liberal approaches to e-commerce. This paper looks at how five leading digital economies (Canada, the European Union, Japan, Singapore and the United States) are using regional trade agreements to address concerns while enhancing trade.
Topic:: Economics, International Cooperation, International Trade and Finance, Governance, and Digitalization
Political Geography:: Global Focus

2. China/United States: Europe off Balance

Author:: Thomas Gomart and Marc Hecker
Publication Date:: 04-2023
Content Type:: Special Report
Institution:: Institut français des relations internationales (IFRI)
Abstract:: As French President Emmanuel Macron (accompanied by Ursula von der Leyen) is on a state visit to China, some twenty Ifri researchers decipher the stakes of the U.S./China/Europe strategic triangle. This 16-text study follows Olaf Scholz’s visit to Beijing (November 2022) and precedes that of Emmanuel Macron (April 2023). It comes especially one year after the beginning of a geopolitical and geoeconomic shock of a rare magnitude: the invasion of Ukraine by Russia. The War in Ukraine or the Return of Bloc Geopolitics? The war in Ukraine has broken ties between the European Union (EU) and Russia for the foreseeable future, particularly in the field of energy, though not without consequences in the Middle East, Africa, and the Indo-Pacific. Furthermore, this war has become the main show of active indirect confrontation between the United States—which has provided military support to Ukrainians, with help from its European allies—and China, which has supported Russia politically and economically. In February 2022, Moscow and Beijing declared their “no limits friendship”; in March 2023, Xi Jinping offered his personal support to Vladimir Putin after the International Criminal Court issued a warrant for his arrest. In its position on the political settlement of the Ukraine crisis, presented in February 2023, China stated: “All parties should oppose the pursuit of one’s own security at the cost of others’ security, prevent bloc confrontation, and work together for peace and stability on the Eurasian Continent”. China is no more of a mediator than the United States: it would be unrealistic to believe so. We appear to be witnessing a return of bloc geopolitics, albeit in a starkly different context than that of the Cold War (1947-1991). Globalization has produced strong economic and technological interdependencies that make any prospect of decoupling very costly, if not impossible. Economic partners are no longer necessarily military allies, and vice versa. In other words, a gap is opening up between geopolitical perceptions and geoeconomic realities. The term “decoupling” is popular in the United States, though much less so elsewhere. The rejection of bloc geopolitics is particularly acute outside of the West, where a “pragmatic” approach to foreign policy is often promoted. The Saudi foreign minister summed this up during the World Policy Conference in December 2022: “Polarization is the last thing we need right now. […] We need to build bridges, strengthen connections, and find areas of cooperation”. A few months later, China pulled off an extraordinary diplomatic coup by brokering a deal to restore relations between Riyadh and Tehran. For the EU, the situation is particularly delicate: Europe is in the Western camp, but a severing of ties with Beijing would cause a crushing economic blow. In 2022, China accounted for more than 20% of the EU’s imports, while the United States accounted for around 12%. By 2030, the EU’s GDP is expected to rise to $20.5 trillion, compared to $30.5 trillion for the United States and $33.7 trillion for China. In January 2023, the President of the European Commission declared at Davos: “We still need to work and trade with China, especially when it comes to this transition. So, we need to refocus our approach on de-risking, rather than decoupling”. For its part, Beijing has encouraged European aspirations of “strategic autonomy”, understood in China as a form of detachment from the United States. At the same time, the EU is constantly strengthening its military, technological, financial and energy ties with the U.S. This collective study notes a hypothetical search for balance on the part of the Europeans, faced with a war on their territory (the Western peninsula of the heartland), who cannot escape Sino-American mechanisms, and who do not form a monolithic whole. It also analyzes the strategy of several important actors outside our continent, and shows that, from Ukraine to Taiwan, via Africa and the Middle East, Europeans have little room for maneuver. This is why the study proposes recommendations to try, at a crucial moment, to reinforce their positioning.
Topic:: Foreign Policy, Climate Change, International Trade and Finance, Science and Technology, European Union, and Industry
Political Geography:: China, Europe, and United States of America

3. The Russian-Ukrainian War: An Opportunity to Strengthen the AfCFTA

Author:: Steve Tametong and Venessa Aboudi
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: The world had hardly covered from the horrors of the COVID-19 pandemic when it was once again tested on February 24, 2022, by the outbreak of war between Russia and Ukraine. The consequences of this war are quite significant for humanity. On the economic level, the Russian-Ukrainian conflict has highlighted the disadvantages of globalization, understood as a process marked by the interconnection and interdependence of world economies. The inflationary shock and the food crisis resulting from the inoperative nature of import channels for certain basic necessities from Russia and Ukraine have demonstrated the fragility of the economies. With regard to African countries, in particular, the prices of several basic food products (wheat, flour, rice, maize, bread, vegetable oil, etc.) have risen sharply. Indeed, most African countries are almost dependent on the import of agricultural products and seeds from the two belligerent countries. These imports correspond to 35 billion US dollars of imports each year (1). This appears to be an incongruity given the extent of arable land on the African continent. The low production and especially processing capacity increases the dependence of African economies on the import of these basic products. The outbreak of the Russian-Ukrainian conflict makes it possible to question the economic resilience of African States, that is to say, their “capacity [ to] keep output close to [their] potential despite a shock ” (2). Above all, it offers the opportunity to analyze the economic and commercial potential of the AfCFTA in the process of building the resilience of African economies to external shocks. Indeed, the AfCFTA was officially launched in January 2021 with the main objective of “creating a single market for goods and services facilitated by the movement of people in order to deepen the economic integration of the African continent…” (3). This policy note is structured around the idea that the Russian-Ukrainian conflict, in view of its socio-economic consequences on the African continent, offers an opportunity for African countries to work toward the strengthening of the AfCFTA. So that it appears as a real pole of competitiveness and inter-African trade likely to counter the shocks and uncertainties of the dynamics of world trade. Before analyzing the AfCFTA as a pole of production and export of African products (II), it is necessary to take stock of the socio-economic consequences of the Russian-Ukrainian war on African economies (I).
Topic:: Security, International Trade and Finance, Military Strategy, Free Trade, Peace, and Russia-Ukraine War
Political Geography:: Africa, Russia, Europe, and Ukraine

4. The African Continental Free Trade Area: A boon for the “Africa We Want” by 2063?

Author:: Jean-Cedric Kouam
Publication Date:: 01-2023
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: One of the major objectives set by the African Union (AU) in Agenda 2063, is to achieve a “prosperous Africa, based on inclusive and sustainable growth”. To ensure the prosperity of the people, especially of women and youth, member states have, in the first ten years of the adoption of this agenda, taken a number of initiatives to strengthen economic integration of the continent. Among these initiatives, the implementation of the African Continental Free Trade Area (AfCFTA) in January 2021, occupies a prominent place. In launching the AfCFTA, and making it effective, the intention of the AU is to overcome the historical fragmentation and isolation of the various African economies. The challenge is to open them up to new global trade opportunities and improve transport and communication links across the continent. However, not all AU member countries have ratified this major project. The objective of this article is to take stock of the economic integration process that has been set in motion with the effective entry into force of the AfCFTA. It highlights, on the one hand, the main reasons that justify the reluctance of states that have not yet signed the AfCFTA agreement and, on the other hand, outlines the opportunities offered by AfCFTA for an Africa that wants to emerge as a strong, united and influential player and partner on the world stage.
Topic:: International Trade and Finance, Regional Cooperation, Free Trade, and African Union
Political Geography:: Africa

5. Can the World Trade Organization be saved? Should it?

Author:: Alan Wm. Wolff
Publication Date:: 05-2023
Content Type:: Policy Brief
Institution:: Peterson Institute for International Economics
Abstract:: Heads of state, trade ministers, and academics have repeatedly called for reforming the World Trade Organization (WTO), the institution charged with the stewardship of the global trading system. The durability and worth of the WTO are being increasingly questioned despite the fact that by almost all objective measures, it has been a great success, with world trade growing much faster than global GDP over the last 75 years. However, past success does not guarantee future performance. This Policy Brief examines the institution’s most serious defects and the multitude of challenges it faces. It suggests the institution needs to evolve to reach broad-based international trade agreements, adding much needed new rules to the world trade rulebook and developing effective means to settle disputes that would render the rules of the system enforceable once again.
Topic:: Economics, International Trade and Finance, Treaties and Agreements, and World Trade Organization
Political Geography:: Global Focus

6. Saving the WTO from the national security exception

Author:: Warren Maruyama and Alan Wm. Wolff
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: For any member of the World Trade Organization (WTO) not making alternative arrangements, enforceability of the rules of the global trading system, a distinguishing feature of the WTO, ceased to exist on December 11, 2019, because the United States blocked appointments to the Appellate Body of the WTO dispute settlement mechanism. A major obstacle to the United States accepting any resolution of this impasse—thus permitting dispute settlement to once again be binding on all WTO members—is settling the issue of whether claims of national security to legitimize trade measures are reviewable. This is a red line for the United States, which argues this claim is nonreviewable. In the emerging area of great power competition, the United States is unlikely to accept a return to fully effective WTO dispute settlement absent a compromise that finds determinations of national security nonjusticiable. This paper offers a compromise: There would be no adjudication of whether a trade measure was justified under the WTO’s national security exception, but those WTO members adversely affected would have an immediate right to rebalance trade concessions themselves by imposing retaliatory trade measures against the WTO member invoking the exception.
Topic:: Economics, International Trade and Finance, National Security, and World Trade Organization
Political Geography:: Global Focus

7. Industrial policy for electric vehicle supply chains and the US-EU fight over the Inflation Reduction Act

Author:: Chad P. Bown
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The Inflation Reduction Act (IRA) of 2022 provoked a transatlantic trade spat. After the law was passed, the Biden administration addressed some of the concerns raised by the European Union by writing controversial rules to implement the legislation. These regulations are expected to have complex effects that, in some instances, may offset the intended impact of other provisions in the original legislation. This paper examines how the law, its implementing regulations, policy decisions on leasing, as well as potential critical minerals agreements all have the potential to affect the electric vehicle (EV) supply chain. The EV case study showcases the political-economic complications involved in US and EU attempts to cooperate over clean energy transition policy to address the global externality of carbon dioxide emissions. EVs are but one example of the challenge facing partners with integrated supply chains and similar levels of economic development that share concerns about climate change, rising inequality, workers, other social issues, and democracy itself. The EV conflict laid bare the differing US and EU prioritization of these issues relative to economic efficiency, World Trade Organization rules, the approach to nonmarket economies, and national security vulnerabilities that arise from depending on an authoritarian regime such as China for import sourcing of critical inputs.
Topic:: Industrial Policy, International Trade and Finance, European Union, Supply Chains, and Electric Vehicles
Political Geography:: Europe, North America, and United States of America

8. Harnessing allied space capabilities

Author:: Robert Murray, Tiffany Vora, and Nicholas Eftimiades
Publication Date:: 04-2023
Content Type:: Policy Brief
Institution:: Atlantic Council
Abstract:: The United States’ vast network of alliances and partnerships offers a competitive advantage—this is especially evident in outer space. Often characterized as a global commons, space holds value for all humankind across commercial, exploration, and security vectors. As technological advancements trigger a proliferation in spacefaring nations, the United States and its allies and partners are confronted with new challenges to and opportunities for collective action. This series examines how US space strategy can recognize the comparative advantages of allies and partners in space and best harness allied capabilities.
Topic:: Security, Defense Policy, International Trade and Finance, National Security, Science and Technology, Space, Institutions, and Defense Industry
Political Geography:: Europe, Eurasia, Canada, United States of America, and Indo-Pacific

9. The NewSpace market: Capital, control, and commercialization

Author:: Robert Murray
Publication Date:: 04-2023
Content Type:: Working Paper
Institution:: Atlantic Council
Abstract:: Commercial opportunities in space-based technologies are expanding rapidly. From satellite communications and Earth observation to space tourism and asteroid mining, the potential for businesses to capitalize on these emerging technologies is vast and known as “NewSpace.”1 The NewSpace model is important for governments to understand because the dual-use nature of space, specifically its growing commercialization, will influence the types of space-based technologies that nations may leverage, and consequently, impact their national security paradigms. By capitalizing on the private sector’s agility and combining it with the essential research efforts and customer role played by the public sector, the NewSpace industry can play a critical function in addressing current and future national security challenges through public-private codevelopment. As the NewSpace industry expands, the role of government is evolving from being the primary developer and operator of space assets to facilitating their commercialization, while still prioritizing key advancements. US and allied governments can capitalize on this competitive landscape by strategically investing in areas that align with their national security objectives. However, it is crucial for them to first understand and adapt to their changing roles within this dynamic environment. Indeed, the benefits of the burgeoning NewSpace industry extend beyond the United States. International collaboration and competition in this area can lead to faster technological advancements and economic gains. The global NewSpace landscape is driving down costs, increasing access to space, and fostering innovation that can improve not only economic well-being, but also impact national security models. To that end, this memo will examine the broad state of the space market, discuss the industry drivers, and propose recommendations for US and allied policymakers as they consider future government investments in those enabling space-based activities that support wider national security ambitions.
Topic:: Defense Policy, International Trade and Finance, National Security, Science and Technology, European Union, Space, and Defense Industry
Political Geography:: Russia, China, Eurasia, Canada, Asia, and United States of America

10. Impact of economic sanctions on net commodity-producing and net commodity-consuming countries

Author:: Sergio R. Vale and Eduardo Viola
Publication Date:: 01-2023
Content Type:: Journal Article
Journal:: Revista Brasileira de Política Internacional (RBPI)
Institution:: Instituto Brasileiro de Relações Internacionais (IBRI)
Abstract:: The war in Ukraine has had a marked economic impact. However, since Russia is a net producer of important commodities, the impact of sanctions on its economy was less than expected. But what would happen if there was a war involving a country that was a net importer of commodities? In the case of a possible China-US conflict over Taiwan, the impact on the world economy would be different, with a deeper recession around the world, but the impact on the Brazilian economy would still be positive on account of the possibility that would remain of agricultural exports to China.
Topic:: Agriculture, Economics, International Trade and Finance, Sanctions, Commodities, and Exports
Political Geography:: Russia, China, Europe, Ukraine, Taiwan, Asia, North America, and United States of America

11. Current Capabilities and Future Potential of African Textile and Apparel Industries

Author:: Lindsay Whitfield and Chema Triki
Publication Date:: 01-2023
Content Type:: Policy Brief
Institution:: Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:: The textile and apparel industry is a globalised industry characterised by a high degree of dependency and fragmentation in global supply chains. From the mid-20th century, cotton textile and apparel manufacturing production relocated from industrialised to developing countries, particularly in Asia, and was quickly followed by the emergence of the petrochemical industry and synthetic fibre production in East Asian countries, while South Asia continued to focus on cotton and natural fibres. China, Bangladesh, and Vietnam are currently the central players in global apparel supply chains, with China and increasingly Vietnam having vertically integrated industries with access to a diverse range of fabrics and thus a large product portfolio. The largest apparel consumer markets are concentrated in Europe, North America, and other wealthy countries such as Japan, as they have higher purchasing power and economically larger markets. Large emerging economies such as China and India largely supply their domestic markets but have not yet become major destination consumption markets for other developing economies. Changes in international trade over the past 30 years fostered the textile and apparel global value chain dynamic. These changes were marked by opening trade borders, lowering tariffs, tax breaks or subsidies offered by various governments, and free trade agreements. Low labour costs and lower production costs have shaped the decisions of global actors to relocate their operations from one country to another. Current global trends are set to transform the global value chains of textiles and apparel again. These trends include increasing production costs in China, the drive to shorten supply chains post-Covid pandemic through nearshoring and seeking countries with yarn-to-garment (or vertical) production capabilities, and a sustainability shift. These trends are leading global apparel buyers to diversify their sourcing away from China and Asia more generally and to consider new supply bases. These structural trends in the industry, together with the AfCFTA, represent a window of opportunity for African countries. African industry actors and their governments should build new textile and apparel industries that seek to participate in global and regional markets and engage with global technologies and international partnerships. Attracting foreign firms with the necessary technical, organisational, and managerial capabilities is essential. The AfCFTA represents a powerful tool to respond to the verticality need of the industry, considering the current production levels of raw materials, but also an opportunity to increase the number of African countries with industrial capabilities in textile and apparel. The ongoing negotiations on rules of origin will significantly impact the continent's potential to create synergetic regional value chains.
Topic:: Development, Industrial Policy, International Trade and Finance, Business, Supply Chains, and Textile Industry
Political Geography:: Africa

12. Formula for a Crisis: Protectionism and Supply Chain Resiliency—the Infant Formula Case Study

Author:: Scott Lincicome, Gabriella Beaumont-Smith, and Alfredo Carrillo Obregon
Publication Date:: 01-2023
Content Type:: Policy Brief
Institution:: The Cato Institute
Abstract:: It has become accepted wisdom in Washington that the COVID-19 pandemic revealed how openness to international trade and investment increases U.S. vulnerability to economic shocks and contributes to widespread shortages of food, medicine, and other essential goods. This official narrative, however, ignores ample economic research showing that, while disruptions are inevitable in a modern economy, the alternative to free trade—a protectionism‐driven onshoring of global supply chains—carries its own risks and can even heighten vulnerability by inhibiting natural market adjustments to economic shocks. The infant formula crisis, which lasted for most of 2022 and was unique to the United States, provided an unfortunate real‐world lesson in this regard.
Topic:: International Trade and Finance, Free Trade, Resilience, COVID-19, and Supply Chains
Political Geography:: North America and United States of America

13. Who Learns More from Afar? Spatial Empirical Evidence on Manufacturing and Services

Author:: Nina Vujanović
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper investigates spatial dependence of FDI knowledge spillovers in manufacturing and services using spatial panel techniques applied to the 2006-2014 Bureau Van Dijk’s Amadeus firm-level dataset for Croatia and Slovenia. The paper finds diverse results across the two sectors. The distance between regions does not hinder the absorption of foreign knowledge in manufacturing despite the strong market-stealing effects operating within regions as well as spatially. On the other hand, FDI knowledge spillovers decrease service productivity within regions, because of market-stealing effects operating strongly across a smaller geographical scale. However, its impact is lost as knowledge spillovers from more distant neighbours are accounted for, because the poaching of local labour is impeded by distance due to rising costs of labour mobility. The research indicates that for knowledge absorption, geographic distance plays differing roles in manufacturing and services, due to the different nature of the production process.
Topic:: Development, International Trade and Finance, Foreign Direct Investment, Manufacturing, Econometrics, and Competition
Political Geography:: Europe, Croatia, and Slovenia

14. Assessing Digital Leadership: Is the EU Losing out to the US?

Author:: Dario Guarascio and Roman Stöllinger
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: Since Leontief’s (1953) seminal work on the factor content of trade, the validity of the Heckscher-Ohlin-model has been judged not only on the basis of formal tests of the theory but also tested against prior expectation. In this vein, this paper uses the Heckscher-Ohlin-Vanek (HOV) approach to investigate whether supposed US leadership in the digital domain can be traced back to digital task endowments embodied in labour services. In a comparison between EU member states and the US, we find that the latter is more intensive in digital tasks than the EU and that this difference is explained by both an intensity-effect (US occupations being more digital-task intensive) and a structural component (relatively more digital-task intensive occupations). Viewed through the lens of the HOV theorem we find that the US is abundant in digital tasks relative to non-digital tasks, while the opposite is true for the EU. The standard tests for the predictive power of the HOV theorem are high and in line with the results for labour in previous literature.
Topic:: International Trade and Finance, Foreign Direct Investment, European Union, Digitalization, and Competition
Political Geography:: Europe and United States of America

15. Employment Effects of Offshoring, Technological Change and Migration in a Group of Western European Economies: Impact on Different Occupations

Author:: Michael Landesmann and Sandra Leitner
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper estimates conditional demand models to examine the impact of offshoring, technological change, and migration on the labour demand of native workers differentiated by four different types of occupational groups: managers/professionals, clerical workers, craft (skilled) workers and manual workers. The analysis is conducted for an unbalanced panel of five economies Austria, Belgium, France, Spain, and Switzerland covering the period 2005-2018. Our results point to important and occupation-specific effects: offshoring seems to have beneficial employment effects for native craft workers in this set of economies, while negative effects for native manual workers across a wide set of industries (including manufacturing and services industries) and managers/professionals in manufacturing. Furthermore, there are important distinctions whether offshoring occurs in other advanced economies, in the EU13 or in developing countries. The analysis of the impact of technological change shows the strong positive impact which the additional IT equipment has on most occupational groups of native workers (with the exception of manual workers), while robotisation in manufacturing showed strongly negative impacts on the employment of all groups of workers and especially of craft workers. Increasing immigrant shares in the work forces showed strongly negative impacts on native workers – however, considering only the partial substitution effects and not including the potential for productivity and demand effects – and this is mostly accounted for by immigration from low- to medium-income source countries.
Topic:: International Trade and Finance, Migration, Labor Issues, Immigration, Foreign Direct Investment, Employment, Competition, Income Distribution, and Offshoring
Political Geography:: Europe, France, Belgium, Spain, Switzerland, and Austria

16. Functional Specialisation and Working Conditions in Europe

Author:: Sandra Leitner, Roman Stöllinger, and Zuzana Zavarská
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: Specialisation in value-chain functions is one of the new phenomena introduced by global value chains (GVCs). This report investigates the effects of functional specialisation on labour markets in fabrication and R&D activities as the two polar cases of value-chain functions, whereby the former is associated with factory economies, while the latter is characteristic of headquarter economies. More precisely, a metric similar to revealed comparative advantage is used to study the effect of relative functional specialisation on wages and non-wage working conditions. In line with the GVC literature emphasising power relations and organisational aspects of production networks, we are able to identify differentiated effects for functional specialisation patterns on wages in EU member states at the industry level across time. While relative functional specialisation in fabrication tends to hold back wages, functional specialisation in R&D has a positive effect on wage progression, controlling for labour productivity, GVC participation and numerous labour supply- and labour demand-side factors. The use of a constructed ‘sharp’ instrument allows giving these results a causal interpretation. Conversely, both functional specialisation measures are found to improve some non-wage working conditions, namely workers’ physical environment and their work intensity, which is evidence against a potential ‘race to the bottom’ effect of functional specialisation along GVCs. The effect is stronger for relative specialisation in fabrication than for relative specialisation in R&D.
Topic:: International Trade and Finance, Labor Issues, Foreign Direct Investment, European Union, Labor Market, Value Chains, and Wages
Political Geography:: Europe

17. Determinants of Functional Specialisation in EU Countries

Author:: Aleksandra Kordalska and Magdalena Olczyk
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper aims to identify factors that determine functional specialisation (FS) in global value chains (GVCs) in European Union countries. We focus on fabrication and R&D as two opposite business functions in terms of their character and their potential of creating value-added. To make our results robust two different approaches to measuring functional specialisation are used – an FDI-based approach and a trade-based approach. To assemble a relative functional specialisation index, for each approach we use the same metric – a revealed comparative advantages index. Our results suggest a positive effect of wages on specialisation in an R&D function, and a negative impact on FS in fabrication. Increasing labour productivity boosts both specialisation in fabrication and in R&D. The results are robust to different model specifications and different time intervals. The instrumental variables method allows us to interpret the results as causal relationships. Additionally, human capital and labour skills foster FS in R&D (only in FDI data), and growing employment makes FS in fabrication increase. The growth of GDP per capita positively affects functional specialisation in R&D activities. Among GVC participation measures, we confirm the importance of increasing backward linkages to explain the boost in fabrication activities. Dividing a full sample into a group of EU15 countries and a group of Central Eastern European countries we observe that patterns for the EU15 are similar to those for the full sample, while for CEE countries wages are insignificant and labour productivity affects FS in fabrication only.
Topic:: International Trade and Finance, Foreign Direct Investment, European Union, Economy, Value Chains, and Competition
Political Geography:: Europe

18. Regulatory Convergence within Technical Barriers to Trade

Author:: Mahdi Ghodsi
Publication Date:: 09-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper analyses how regulatory convergence in different categories of technical barriers to trade (TBTs) imposed on imports of goods in information and communications technology (ICT) globally affected the values, volumes, and unit values of imported goods during the period 1996-2019. Keywords cited in TBTs that are notified to the World Trade Organization (WTO) give an indication of the regulatory objectives behind the imposition of TBTs. MAST also classifies TBTs based on their applicability, procedural and administrative uses, factors which will also be taken into consideration in the analysis. However, objectives of TBTs may provide better insights to policymakers. TBTs are non-discriminatory measures that are imposed unilaterally on all trading partners and on domestic producers. It is not feasible to analyse unilateral TBTs in a gravity setting, as they are excluded by the introduction of country-product-time fixed effects that control for multilateral resistances. However, regulatory convergence in TBT categories is a bilateral time-varying variable that is analysed in a gravity model in this paper. The empirical results suggest that regulatory convergence between trading partners in some TBT categories stimulates import values and volumes. However, the impact is very heterogeneous across TBT objectives and classes and across ICT product categories.
Topic:: International Trade and Finance, Communications, World Trade Organization, Foreign Direct Investment, Regulation, Information Technology, and Competition
Political Geography:: Global Focus

19. Trade Balances and International Competitiveness in Cyber-physical, Digital Task-intensive, ICT Capital-intensive and Traditional Industries

Author:: Alexandra Bykova and Roman Stöllinger
Publication Date:: 05-2023
Content Type:: Special Report
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: In this report, we analyse the international competitiveness of the EU in four industry groups over the period 1995-2018. The groups are delineated by specific factor intensities, where these intensities are assessed from digital tasks performed by labour services and ICT capital stocks. The EU’s positions relating to trade balances, revealed comparative advantages and unit value ratios are assessed relative to its main competitors, such as the US, China, Japan and South Korea. The trade specialisation patterns confirm EU advantages in traditional industries, which still represent the largest part of global trade, and in the group of digital task-intensive industries. In the cyber-physical group of industries, which are characterised by both high digital task and ICT capital intensities, the EU records a trade deficit, although this has been receding in recent years. Competitiveness indicators depict heterogeneity among EU countries. The loss of international competitiveness for some technology front-runners is a worrying sign. On the positive side, however, a reduction in trade deficits or an improvement in product quality and market shares is evident for certain EU countries, especially in the Central European region.
Topic:: International Trade and Finance, European Union, Trade, Digitalization, and International Competition
Political Geography:: Japan, China, Europe, Asia, South Korea, and United States of America

20. Export impact on dividend policy for big Colombian exporting firms, 2006–2014

Author:: Federico Merchan
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: This paper studies the impact of exogenous export demand shocks on firms’ dividend policy using firm specific real exchange rate variation as instrumental variable. IV exclusion restriction is plausibly satisfied because real exchange rate shocks were unanticipated -partly explained because of international oil price fluctuation-, and first stage results confirm relevance condition fulfillment. The results indicate that big private Colombian exporting firms decree dividends as a way to mitigate the agency cost generated by exogeneous exports variation via higher free cash flow and cash flow volatility, especially in poor managerial quality firms. Evidence supports agency cost theory and denies signaling.
Topic:: Development, Emerging Markets, Globalization, International Trade and Finance, and Exports
Political Geography:: Global Focus

21. China as an International Lender of Last Resort

Author:: Sebastian Horn, Bradley C. Parks, Carmen M. Reinhart, and Christoph Trebesch
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: This paper shows that China has launched a new global system for cross-border rescue lending to countries in debt distress. We build the first comprehensive dataset on China’s overseas bailouts between 2000 and 2021 and provide new insights into China’s growing role in the global financial system. A key finding is that the global swap line network put in place by the People’s Bank of China is increasingly used as a financial rescue mechanism, with more than USD 170 billion in liquidity support extended to crisis countries, including repeated rollovers of swaps coming due. The swaps bolster gross reserves and are mostly drawn by distressed countries with low liquidity ratios. In addition, we show that Chinese state-owned banks and enterprises have given out an additional USD 70 billion in rescue loans for balance of payments support. Taken together, China’s overseas bailouts correspond to more than 20 percent of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China's Belt and Road Initiative. These findings have implications for the international financial and monetary architecture, which is becoming more multipolar, less institutionalized, and less transparent.
Topic:: Debt, Emerging Markets, International Trade and Finance, Financial Crisis, Belt and Road Initiative (BRI), and Sovereign Debt
Political Geography:: Africa, China, and Asia

22. To Russia with Love? The Impact of Sanctions on Regime Support

Author:: Robert Gold, Julian Hinz, and Michele Valsecchi
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: Do economic sanctions affect internal support of sanctioned countries’ governments? To answer this question, we focus on the sanctions imposed on Russia in 2014 and identify their effect on voting behavior in both presidential and parliamentary elections. On the economic side, the sanctions significantly hurt Russia’s foreign trade — with regional-level variation. We use trade losses caused by the sanctions as measure for regional sanction exposure. For identification, we rely on a structural gravity model that allows us to compare observed trade flows to counterfactual flows in the absence of sanctions. Difference-in-differences estimations reveal that regime support significantly increases in response to the sanctions, at the expense of voting support of Communist parties. For the average Russian district, sanction exposure increases the vote share gained by president Putin and his party by 13 percent. Event studies and placebo estimations confirm the validity of our results.
Topic:: Globalization, International Trade and Finance, Sanctions, Economy, and Russia-Ukraine War
Political Geography:: Russia and Eurasia

23. Exchange Rate Pass-Around

Author:: Matthieu Crozet, Julian Hinz, and Federico Trionfetti
Publication Date:: 04-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: In January 2015, The Swiss Franc (CHF) appreciated unexpectedly against the Euro by approximately 15%. We document a new fact: French firms that exported to both the Swiss market and the Eurozone also exhibited a sudden change in their export prices to the Eurozone. We coin this the “exchange rate pass-around” effect. We rationalise this fact with a simple model based on the endogenous decision of some firms to give up pricing-to-market and opt for single-pricing to all markets. An important implication of this finding is that single-pricing may be one of the causes of the incomplete pass-through. This mechanism has so far remained unexplored in the literature, which may have led to overestimating the importance of other factors. Based on monthly French export data, our empirical analysis confirms the existence of the pass-around. Firms directly affected by the CHF exchange rate shock increased their prices in neighboring markets by 0.8% compared to other exporters. The effect was stronger for firms with lower ex-ante price heterogeneity across markets and for firms with smaller trade costs to Switzerland. However, the effect was short-lived. As time passed, exporters tended to decouple the prices they set on the Swiss market from those for the Eurozone, and the pass-around effect faded.
Topic:: International Trade and Finance, Markets, Monetary Policy, European Union, and Exchange Rate Policy
Political Geography:: Europe

24. Blowback: The Effect of Sanctions on Democratic Elections

Author:: Matthieu Crozet and Julian Hinz
Publication Date:: 04-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: Sanctions are meant to coerce political adversaries through economic measures. However, evidence for their effectiveness is scarce. In this paper we assess the impact of sanctions on a democracy — France — by studying the electoral consequences of the sanctions and countersanctions imposed between Russia and Western countries. Contrary to most of the existing literature we find clear evidence for exposure to the sanctions to cause an increase in the vote share for pro-Russian (and far-right) candidates during the French 2017 presidential election. Locally, the impact on voting is substantial. Back-of-the-envelope calculations indicate that about 16,300 votes for the main far-right candidate can be directly attributed to the sanctions’ impact. This is the total number of votes cast in a medium-sized French city. It is however not nearly enough to have affected the outcome of the election at the national level.
Topic:: Globalization, International Trade and Finance, Sanctions, and Elections
Political Geography:: Russia, Europe, and France

25. Who is to suffer? Quantifying the impact of sanctions on German firms

Author:: Holger Görg, Anna Jacobs, and Saskia Meuchelbock
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: In this paper, we use a novel firm level dataset for Germany to investigate the effect of sanctions on export behaviour and performance of German firms. More specifically, we study the sanctions imposed by the EU against Russia in 2014 in response to the annexation of Crimea and Russia's countermeasures. We find a substantial negative effect on both the extensive and intensive margin of German exports. While the negative effects are strongest for firms exporting products subject to trade restrictions, we provide further evidence on the indirect effects of sanctions. Analysing the impact on broader measures of firm performance, we document that the cost of sanctions is heterogeneous across firms but overall modest. Our results reveal that the negative impact of the shock was concentrated primarily among a small number of firms that were highly dependent on Russia as an export market and those directly affected by the sanctions.
Topic:: Foreign Policy, Globalization, International Trade and Finance, Sanctions, Russia-Ukraine War, and Firm Dynamics
Political Geography:: Russia, Europe, and Germany

26. Africa’s Businesswomen – Underfunded or Underperforming?

Author:: Charles Ackah, Holger Görg, Aoife Hanley, and Cecília Hornok
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: While the recent success of Africa’s ‘Lionesses’ – successful female entrepreneurs - is internationally celebrated, less is known about how liquidity can fuel the success of the ‘Lionesses’ and other businesswomen. Using information from a panel of over 800 male- and female-owned businesses in Ghana (ISSER-IGC survey), we capture a measure of underfunding, in addition to data on supplier credit, equity and other finance sources. Our regressions reveal a female-to-male productivity gap of between -11 to -19 percent, values similar to estimates for other African countries. However, when the relationship between gender and productivity is mediated by financial constraints, the gender performance gap disappears. Accordingly, female business-owners who indicate that funding is not a problem, are associated with higher productivity than males, all things equal. In a finding new to the literature, our regressions reveal the importance of supplier credit for Africa’s businesswomen.
Topic:: Globalization, International Trade and Finance, Women, Business, Productivity, and Liquidity
Political Geography:: Africa and Ghana

27. Rewriting the Future of America’s Maritime Industry to Compete with China

Author:: Michael Roberts
Publication Date:: 10-2023
Content Type:: Special Report
Institution:: Hudson Institute
Abstract:: For decades, companies outside the United States have dominated the international commercial shipping and shipbuilding industries. At various times since World War II, Japan, Korea, and certain European countries have been able to leverage their export-driven manufacturing economies and government support to become world leaders in commercial shipbuilding and major players in international shipping. The People’s Republic of China (PRC) has taken that strategy to a new level and now produces more than half the large commercial ships delivered annually, controls scores of seaports in dozens of foreign countries, and owns almost one-fifth of the global commercial fleet. American commercial shipbuilders and US flag shipping companies have long faced fierce headwinds in international markets and have seen support from the US government dwindle. The US reset its maritime policies in the 1990s when America was the sole superpower and the security benefits of a robust commercial maritime industry were in doubt. By the end of 2022, Americans owned only 3 percent of the 55,000 ships in the global commercial fleet, including just 178 large US flag cargo ships, 85 of which are committed to international trade (see tables 1 and 2 below for a breakdown of US and global commercial fleets). The emergence of the PRC as a challenger to America’s global leadership has forced sweeping changes in US policy and spending priorities to boost America’s economic and military security. This report recommends that the US reform its policies governing America’s commercial maritime industries because shipping and shipbuilding are core components of national power. These industries remain especially crucial in the twenty-first century, as international trade is more important to a healthy American economy today than ever before. Yet Americans have almost no control over the maritime logistics systems that feed the US economy. The pandemic-induced supply chain crisis showed how much damage can be done when those systems break down.
Topic:: International Trade and Finance, National Security, Maritime, Industry, Domestic Policy, and Supply Chains
Political Geography:: China, Asia, North America, and United States of America

28. The power of control: How the EU can shape the new era of strategic export restrictions

Author:: Tobias Gehrke and Julian Ringhof
Publication Date:: 05-2023
Content Type:: Policy Brief
Institution:: European Council on Foreign Relations (ECFR)
Abstract:: Technology is increasingly a battleground in the strategic competition between the US and China. Western technology contributes to China’s military modernisation as well as the development of Russian weapon systems. The US is restricting trade in key technologies with China and pushing EU member states to follow its lead. To better defend its interests, the EU needs to develop clearer policies on China and security, including pursuing the ‘de-risking’ of its relations with Beijing. The EU must develop a new strategic technology doctrine and upgrade its export control policy. This more coherent stance will enable the EU both to act where necessary but also to defend itself and its member states from future pressure from China – and the US.
Topic:: Security, International Trade and Finance, European Union, and Exports
Political Geography:: China, Europe, and United States of America

29. EU-Pacific Talks: Trade relations with the Indo-Pacific

Author:: Eliška Prostřední
Publication Date:: 04-2023
Content Type:: Special Report
Institution:: Europeum Institute for European Policy
Abstract:: Overall, the debate focused on the diversification of global trading partners and how to achieve it. Speakers also discussed the threats associated with dependence on only a few strong countries, which can then take the position of rule makers. The whole debate was linked to the possibilities of global trade with countries that are part of the Indo-Pacific region. Writes Eliska Prostřední in her report on the debate "EU-Pacific Talks: Trade relations with the Indo-Pacific".
Topic:: International Trade and Finance, Partnerships, Diversification, Trade, Debates, and Economic Dependence
Political Geography:: Europe and Indo-Pacific

30. Building Worker Power in Global Supply Chains: Lessons from Apparel, Cocoa, and Seafood

Author:: Judy Gearhart
Publication Date:: 09-2023
Content Type:: Working Paper
Institution:: Accountability Research Center (ARC), American University
Abstract:: This working paper is about the campaigners and worker organizers in the global South and North who have challenged the persistent lack of government and corporate accountability for workers’ rights in the apparel, cocoa, and seafood industries. The transnational coalitions that have formed across these and other industries have driven significant innovations in global supply chain governance and reshaped international trade and development policies. This paper documents and draws lessons from the transnational organizing that has enabled these groups to sustain coalitions over many years, evolve their strategies and tactics for challenging power holders, and strengthen the influence of national global South organizers.
Topic:: Development, International Trade and Finance, Governance, Cocoa, Labor Rights, Supply Chains, Textile Industry, and Seafood
Political Geography:: Global South and Global North

31. Regulating the International Digital Economy, with Trade and Innovation in Mind

Author:: Douglas Lippoldt
Publication Date:: 06-2022
Content Type:: Working Paper
Institution:: Centre for International Governance Innovation
Abstract:: The international digital economy is growing rapidly, and the fragmented governance framework is struggling to keep pace. Global entities such as the World Trade Organization and regional trade agreements offer a patchwork approach to governance. This paper illustrates the importance of governance in relation to private-sector innovation and recommends next steps to enhance governance, close gaps and promote further innovation. Better definition and international alignment of the framework for governance of digital trade and data could lead to greater privacy, trust and security.
Topic:: International Cooperation, International Trade and Finance, Regulation, Digital Economy, and Innovation
Political Geography:: Global Focus

32. Developing EU Trade Incentives: A Support Tool for Refugee Self-Reliance and Host Community Resilience in Turkey

Author:: Basak Kale
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: IEMed/EuroMeSCo
Abstract:: The European Union (EU) is developing innovative mechanisms to investigate the root causes of migration in order to offer better socioeconomic opportunities both to migrants and host communities. These mechanisms and actions require multi-country bilateral and regional assistance tools to support different partner countries. Innovative and out-of-the-box ideas include multiple countries and various stakeholders. They are developed to provide cooperation solutions in different regions to have a wider impact on the causes and implications of migration. Despite these efforts, political, social, economic and environmental causes continue to generate human mobility around and beyond the immediate neighbourhood of the EU. The Arab Spring and the civil war in Syria have been creating human mobility in the EU neighbourhood. The war made approximately 7 million Syrians flee to neighbouring countries. Turkey is hosting around 3.7 million Syrians and another half a million asylum seekers and refugees from other regions (DGMM, 2021; UNHCR, 2021). The presence of Syrians in Turkey, together with other refugees benefitting from international protection, has become protracted. The efforts to create durable solutions in the form of “voluntary return, resettlement or local integration” have not yet successfully provided sustainable solutions. Turkey does not pursue an official state integration policy to integrate asylum seekers, refugees and the Syrians under temporary protection (STP). However, STPs, asylum seekers and refugees are becoming increasingly integrated into their host communities through informal and local integration mechanisms (Kale & Erdoğan, 2019). The delay in the access to formal employment and challenges in receiving formal employment permits aggregate the difficulties in the inclusion of refugees into formal employment schemes. Summer 2015 has shown that when there is a lack of economic and employment opportunities for asylum seekers, refugees and persons under temporary protection the incentive to have onward movement to other countries persists and the possibilities of integration in host communities stay low. It is clear that resilience-building and livelihood support through formal work is essential for vulnerable populations to have dignified living conditions in host countries. The EU-Turkey Statement in 2016 triggered the development of changes in the legal framework of international protection and migration policy. The Statement paved the way for the preparation of regulations on work permits for persons under temporary and international protection (Official Gazette, 2016). Legal developments targeted the acceleration of the economic integration of refugees into the Turkish labour market through formal employment. However, the difficulties in getting formal work permits resulted in only 132,000 issued until 2019. This indicates that approximately 4% of the STP working population has formal employment (UN Turkey, 2020). This percentage more or less matches the International Labor Organization (ILO) estimations (ILO, 2020). As a result, the majority of the refugee population is working informally, underpaid (Balkan & Tümen, 2016), without formal social and health security mechanisms, in unskilled jobs that are not wanted by Turkish citizens (Sunata, 2017). Informal employment has been a key element contributing to the lack of durable solutions and a protracted process. In Turkey, informal employment is widespread even among the host community members. It is estimated that there is about 30% of labour in host community among all sectors working unregistered. Informal employment is higher in sectors such as agriculture but significantly lower in the industrial sector. The COVID- 19 pandemic has also aggravated the increasingly poor state of the Turkish economy (Akay Ertürk, 2020). Previously, there were continuous efforts through FRIT (Facility for Refugees in Turkey) and 3RP (Regional Refugee and Resilience Plan) projects with programmes focusing on improving the employability of refugees in the Turkish labour market as well as support for the entrepreneurship capacities of the refugees in accessing the formal labour market. However, under the current economic conditions these projects are failing to generate a significant long-term impact on employment for refugees (Özçürümez & İçduygu, 2020). These projects provide short-term trainings or restricted employment possibilities while including a very limited number of participants. In addition, the COVID-19 pandemic conditions have shown that these livelihood support arrangements when they are not based on rights-based approaches overtime can transform back into humanitarian aid services (Kale & Yavçan, 2020). Long-term policy planning needs to include other incentive mechanisms that will cover multi-country and multi-region solutions. In the long run, if vulnerable populations in the host societies turn into the most vulnerable requiring humanitarian and emergency aid, the incentive for secondary movements to third countries can be high.
Topic:: International Trade and Finance, Regional Cooperation, European Union, and International Community
Political Geography:: Europe and Turkey

33. Refining the EU’s Geoeconomic Approach to Trade Policy

Author:: Sjorre Couvreur
Publication Date:: 11-2022
Content Type:: Policy Brief
Institution:: EGMONT - The Royal Institute for International Relations
Abstract:: The great powers are adapting their policies to a new geoeconomic context. When looking at the EU’s strongest external policy tool, trade policy, one could ask if the EU is doing enough? This policy brief makes recommendations on how to improve the buy-in of Member States for trade-security initiatives, advance cooperation between DG Trade and the EEAS, and avoid escalation in an age of geoeconomics.
Topic:: International Trade and Finance, Regional Cooperation, Hegemony, and European Union
Political Geography:: Europe

34. China’s Belt and Road Initiative: Successful economic strategy or failed soft-power tool?

Author:: Jyrki Kallio
Publication Date:: 09-2022
Content Type:: Policy Brief
Institution:: Finnish Institute of International Affairs
Abstract:: The Belt and Road Initiative (BRI) is part of China’s efforts to integrate its neighbouring countries into its economic sphere, thus increasing China’s security in its immediate neighbourhood while facing an increasingly hostile international environment due to its rivalry with the US. In reality, the BRI has evolved into an umbrella term for various infrastructure and development projects with no unified object or strategy. The projects should, in principle, increase goodwill towards China, and correspondingly boost its influence, but in practice they are mainly aimed at economic benefit. The results of the BRI, especially as a soft-power tool, are ambiguous. Its ideational basis is thin, consisting mainly of China’s critique towards the “hegemony of the West”. This reduces the BRI to a hollow slogan with little appeal apart from the pragmatic gains. However, the BRI is here to stay for the duration of Xi Jinping’s rule because China’s foreign policy is often driven by prestige. The BRI is enshrined in the Communist Party’s Constitution in order to both add weight to the initiative and to increase the Party’s prestige with its success, modest as it may be.
Topic:: Economics, International Trade and Finance, Infrastructure, Hegemony, and Belt and Road Initiative (BRI)
Political Geography:: China and Asia

35. New Dynamism in ASEAN and East Asia: The Role of the RCEP as a ‘Living’ Agreement

Author:: Shandre Mugan Thangavelu, Fukunari Kimura, and Dionisius Narjoko
Publication Date:: 12-2022
Content Type:: Policy Brief
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This policy brief highlights the importance of maintaining open regionalism and economic and regional integration for sustainable and inclusive regional and global growth in the Association of Southeast Asian Nations (ASEAN) and East Asia. With rising global uncertainties and global value chain (GVC) disruptions, the region requires a new economic and social agenda beyond trading arrangements, and the alignment of global, regional, and domestic policies and structural issues. The Regional Comprehensive Economic Partnership (RCEP) is expected to provide a new institutional framework under the built-in institutional feature (Chapter 18) of the agreement.
Topic:: International Trade and Finance, Regional Cooperation, Regionalism, and Global Value Chains
Political Geography:: Asia and ASEAN

36. The Indo-Pacific Partnership and Digital Trade Rule Setting: Policy Proposals

Author:: Lurong Cheh
Publication Date:: 12-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: The idea of the Indo-Pacific was borne from a global trend that has (re)oriented the centre of the world’s economic gravity to the East. Accelerating digital transformation to harness gains from technology are in countries’ common interests. The launch of the Indo-Pacific Economic Framework for Prosperity tends to supplement economic benefits to the Indo-Pacific. Becoming more deeply involved in the digital economy will require Indo-Pacific members to commit to new international norms on digital trade, of which trade liberalisation of electronic transmissions, free flow of data with trust, cybersecurity, and intellectual property rights protection must be prioritised.
Topic:: Development, International Trade and Finance, Regional Cooperation, and Digital Economy
Political Geography:: Asia and Indo-Pacific

37. Japan and the Regional Comprehensive Economic Partnership (RCEP)

Author:: Mie Oba
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This paper aims to clarify the role of Japan in the process leading up to the establishment of the Regional Comprehensive Economic Partnership (RCEP). While emphasising that respect for the centrality of the Association of Southeast Asian Nations (ASEAN) was a principle of RCEP, Japan played a leading role in the process of RCEP negotiations. For Japan, RCEP is one of the fruits of its strategy in East Asia/Asia-Pacific that began the mid-1990s to protect and increase the interests and advantages of Japanese business and retain Japan’s political leverage in the region. When substantial negotiations for RCEP began in 2013, its importance for Japan was secondary to other free trade agreements (FTAs) including the Trans-Pacific Partnership, China–Japan–Korea FTA, and Japan–European Union FTA. However, the Government of Japan and the business community had set a lot of economic and strategic goals in promoting RCEP. After the withdrawal of the United States (US) from the Trans-Pacific Partnership, RCEP was seen as an essential framework for establishing a rules-based regional order in the Indo-Pacific region. Although it was after India’s withdrawal from the RCEP negotiations, Japan further emphasised the importance of RCEP as the measure to sustain and foster the rule-based regional order and simultaneously pursued the conclusion of negotiations and the establishment of high-level rules, achieving some success. Ultimately, the havoc brought about by the coronavirus disease (COVID-19) pandemic and the sense of crisis in the traditional liberal international order caused by the intensifying strategic competition between the US and China, drove the conclusion of RCEP. RCEP will be increasingly important for economic order in Japan and Asia in the coming years. Ironically, as the strategic competition between the US and China escalates and leads to a surge in protectionism, the economic and strategic importance of RCEP – an FTA that incorporates China – is becoming more significant as a measure to counter unilateralism and protectionism. In addition, RCEP needs elements that address globalisation’s adverse effects and pitfalls, in areas such as the environment, labour rights, and a reduction in the disparity between the rich and poor.
Topic:: Development, Economics, International Trade and Finance, and Regional Cooperation
Political Geography:: Japan and Asia

38. RCEP Services Liberalisation: Key Features and Implications

Author:: Ramonette B. Serafica and Intan Murnira Ramli
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: The Trade in Services Chapter of the RCEP Agreement establishes the rules for the progressive liberalisation of trade in the region and sets out regulatory disciplines to mitigate barriers to competition. Considered the most significant feature of the RCEP agreement compared to other FTAs of ASEAN is the scheduling of market access commitments using the negative list approach. Thus, an immediate challenge for members that initially adopted the positive list is the transition to the negative list scheduling approach. Furthermore, members will need to implement competitive and robust regulations in liberalising services. Developing countries, especially LDCs, might also face capacity constraints to fully take advantage of the market access given by the RCEP partners.
Topic:: International Trade and Finance, Regional Cooperation, Liberalism, and Progressivism
Political Geography:: Asia and ASEAN

39. Impact of the Regional Comprehensive Economic Partnership (RCEP): A Global Computable General Equilibrium (CGE) Simulation

Author:: Ken Itakura
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This study estimates the potential economic effects of the Regional Comprehensive Economic Partnership (RCEP) by using a recursively dynamic computable general equilibrium (CGE) model, which incorporates the global supply chains (GSCs) structure, also referred as the global value chains (GVCs). The tariff reduction schedules for the RCEP agreement are incorporated in addition to other large FTAs, such as the CPTPP. Second, the structure of GSCs is included in the CGE model to take into account the importance of trade in intermediate goods and services. This study implements the RCEP simulation scenarios for tariff reductions, services trade liberalization, logistic improvements, and investment commitments. Results show that the real GDP of RCEP members increases by $675 billion in total, of which ASEAN grows by $160 billion
Topic:: Economics, International Trade and Finance, Tariffs, and Supply Chains
Political Geography:: Global Focus

40. International Production Network in the Next Generation and the Role of RCEP

Author:: Mitsuyo Ando, Fukunari Kimura, and Kenta Yamanouchi
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This paper attempts to discuss the potential role of RCEP from the perspective of two kinds of international division of labor, i.e., machinery international production networks (IPNs) and digital-related services trade. To consider the possible contribution of RCEP to the widening and deepening of IPNs, we first provide an overview of machinery IPNs in ASEAN and East Asia by employing international trade data, a value-added based index for global value chain (GVC) activities using international input–output tables, and a gravity equation exercise. Then, we focus on trade in two global innovator services – information and communication technology (ICT) services and other business services exports – to foresee the future of the new international division of labour and highlights some policy issues. RCEP should be an evolving, living one. In terms of liberalisation and facilitation as well as international rule-making, which cover the whole region, RCEP is expected to revise and upgrade the contents to support the dynamic international division of labour in East Asia. At the same time, RCEP may play an important role in reducing policy risks due to ad hoc trade policies based on political intension and defending the rules-based trading regime for the regional economy.
Topic:: Economics, International Trade and Finance, Labor Issues, and Digital Economy
Political Geography:: Asia and ASEAN

41. Potential Impact of RCEP and Structural Transformation on Cambodia

Author:: Shandre Mugan Thangavelu and Vutha Hing
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This paper examines the potential impact of the Regional Comprehensive Economic Partnership (RCEP) on the Cambodian economy in terms of trade, output growth, and employment. It also provides quantitative (structural gravity model estimation and simulation) and qualitative trade policy evaluation in terms of exports, output, and the structural transformation of the economy in global and regional value chains. The results highlight the importance of RCEP for the pandemic and post-pandemic recovery and the structural transformation of the Cambodian economy. The paper also provides key policy recommendations to fully maximise the benefits of RCEP for Cambodia for inclusive and sustainable growth.
Topic:: Economics, International Trade and Finance, Regional Cooperation, and Global Value Chains
Political Geography:: Asia and Cambodia

42. The Implications of the Regional Comprehensive Economic Partnership (RCEP) for Asian Regional Architecture

Author:: Shiro Armstrong and Peter Drysdale
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: East Asia’s Regional Comprehensive Economic Partnership (RCEP) came into force in 2022 as the world’s largest free trade agreement. RCEP was concluded, signed and brought into force in the face of major international uncertainty and is a significant boost to the global trading system. RCEP brings Australia, China, Japan, South Korea and New Zealand into the same agreement with the ten member ASEAN group at its centre. It keeps markets open and updates trade and investment rules in East Asia, a major centre of global economic activity, at a time of rising protectionism when the WTO itself is under threat. The agreement builds on ASEAN’s free trade agreements and strengthens ASEAN centrality. One of the pillars of RCEP is an economic cooperation agenda which has its antecedents in ASEAN’s approach to bringing along its least developed members and builds on the experience of capacity building in APEC and technical cooperation under the ASEAN Australia-New Zealand Free Trade Agreement. There is an opportunity to create a framework that facilitates deeper economic cooperation that involves experience-sharing, extending RCEP’s rules and membership at the same time as strengthening political cooperation. The paper suggests some areas that might be best suited to cooperation — that is confidence and trust building instead of or before negotiation — and discusses how non-members such as India may be engaged and the membership expanded. Options such as multilateralising provisions and becoming a platform for policy convergence and coordinating unilateral reforms are canvassed.
Topic:: Economics, International Trade and Finance, Regional Cooperation, and Architecture
Political Geography:: Asia and ASEAN

43. Restrictiveness of RCEP Rules of Origin: Implications for Global Value Chains in East Asia

Author:: Archanun Kohpaiboon and Juthatip Jongwanich
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This chapter aims to examine the restrictiveness of rules of origin (RoO) in the Regional Comprehensive Economic Partnership (RCEP) and other key multilateral free trade agreements (FTAs) in East Asia with a view to facilitating the operations of existing global value chains (GVCs). The analysis begins with dissecting PSRs in the RoO Chapter in these FTAs and quantifying them. The key finding is that product-specific rules in RCEP are the most flexible compared to the other multilateral FTAs and more facilitative to GVC operations. This is driven by RCEP-specific features, such as high intra-member trade and the member coverage. The main policy inference is that a full cumulation clause is needed in RCEP to allow a regional value content alternative to be in full effect. Harmonisation in RoO provision across these multilateral FTAs remains a challenge for ongoing negotiation. Monitoring the dynamics of RoO as well as the FTA utilisation is needed so that these multilateral FTAs could be a true stepping stone for trade liberalisation in the broader World Trade Organization multilateral trading system.
Topic:: Economics, International Trade and Finance, Regional Cooperation, and Global Value Chains
Political Geography:: Asia and ASEAN

44. Centrality and Community: ASEAN in the Regional Comprehensive Economic Partnership

Author:: Soo Yeon Kim
Publication Date:: 09-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This paper examines the Association of Southeast Asian Nations’ (ASEAN) role in the formation of the Regional Comprehensive Economic Partnership (RCEP) agreement. The RCEP project proceeded as trade governance has shifted from the multilateral trade regime under the World Trade Organization to free trade agreements and where the geopolitics of Asia has cast a shadow on the progress of regional integration efforts. The analysis in this paper focuses on ASEAN centrality, both as a concept and practice, in influencing the launch and progress of RCEP. Conceptually, ASEAN centrality is about the capacity of the 10-member group to help launch negotiations for the RCEP agreement and to shape its provisions for governing trade. In practice, the RCEP agreement consolidates and significantly unravels the numerous overlapping trade agreements between ASEAN, 38 in all between individual ASEAN members and its five RCEP partners, Australia, China, Japan, the Republic of Korea, and New Zealand. The paper also examines the relationship between the ASEAN Economic Community (AEC) and RCEP. RCEP provides for further tariff liberalisation between ASEAN members and its five RCEP partners and thus expands the zone of preferential treatment for goods exported from ASEAN and other RCEP members. RCEP also consolidates rules of origin requirements under one agreement, providing for diagonal cumulation and common rules of cumulation for agreement partners. The RCEP provisions can greatly facilitate production and trade along regional supply chains, thus accelerating the progress of the AEC as a single market and production base. Moving forwards, RCEP and ASEAN’s place in it, is likely to be shaped by challenges and opportunities from the Comprehensive and Progressive Transpacific Partnership and the Biden administration’s Indo-Pacific Economic Framework (IPEF) initiative. The ASEAN members with overlapping membership in the IPEF and RCEP will be pivotal in determining areas of cooperation. Regional integration will thus continue to be shaped by ASEAN centrality, and its progress will shape the ASEAN community.
Topic:: Diplomacy, Economics, International Trade and Finance, and Regional Cooperation
Political Geography:: Asia and ASEAN

45. Regional Comprehensive Economic Partnership: Economic Backgrounds of ASEAN and Its Dialogue Partners

Author:: Keita Oikawa, Fusanori Iwasaki, and Shujiro Urata
Publication Date:: 09-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: We overview the economic backgrounds of the countries participating in the Regional Comprehensive Economic Partnership (RCEP) negotiations and two Association of Southeast Asian Nations (ASEAN) Dialogue Partners – the United States (US) and the European Union (EU) – to understand their economic relationships before the signing of the RCEP and their economic interests in the RCEP. We discover that the 16 countries participating in RCEP negotiations vary in terms of economic size, income level, growth pattern, share of trade in the economy, and foreign direct investment (FDI) flows. Additionally, both lower- and higher-income ASEAN Member States (AMS) have received a large amount of FDI, in contrast to Japan and the Republic of Korea (henceforth, Korea), which have seen more FDI outflows from their countries than inflows. In terms of bilateral FDI inflows and outflows, as a centre for regional FDI, Singapore attracts FDI from developed countries (including the US and the EU) and reinvests it in India and other AMS. As an FDI hub, Singapore promotes liberalised regional markets to attract advanced country investors. By examining bilateral trade relationships, we find that as the centre of manufacturing in the world, ASEAN and China have participated in international production networks that also include Japan and Korea since 2000. Japan and Korea have maintained competitiveness in intermediate goods in the region’s production networks, while China notably exports final products to the US and the EU. Amongst the 16 countries participating in RCEP negotiations, India has not had a significant presence in the production networks. Indeed, India has expanded its bilateral trade deficit with China, which probably caused India to withdraw from RCEP negotiations to protect its manufacturing industry. Simulation results of the impacts of the RCEP, using a computable general equilibrium (CGE) model (Global Trade Analysis Project model), show that the countries participating in RCEP negotiations – particularly the less developed AMS – would gain greatly from lowering services trade costs and investment liberalisation. India would also gain significantly from the RCEP. In contrast, countries not participating in RCEP negotiations (the US and the EU) would experience small negative impacts of the RCEP through trade diversion effects.
Topic:: Diplomacy, Economics, International Trade and Finance, and Regional Cooperation
Political Geography:: Asia and ASEAN

46. Trade Facilitation in RCEP Countries

Author:: Weixiang Wang and Shandre Mugan Thangavelu
Publication Date:: 09-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: The trade facilitation under the Regional Comprehensive Economic Partnership (RCEP) is critical for regional trade and economic cooperation amongst the 15 member countries. This chapter examines the trade facilitation under RCEP using the available datasets on the trade facilitation index and compares the current trends in trade facilitation across RCEP countries in terms of four dimensions: the World Trade Organization’s Trade Facilitation Agreement, digital trade streamlining, ease of doing business, and trade logistics performance. The study finds that RCEP countries have improved significantly in trade facilitation measures, but they vary across the countries. For example, China should further enhance its performance in cross-border paperless trade, whilst the Association of Southeast Asian Nations countries should improve their performance in the documentary compliance of trade, the infrastructure of trade, and trade logistics performance.
Topic:: Economics, International Trade and Finance, Regional Cooperation, and Regionalism
Political Geography:: Asia and ASEAN

47. Comparison of the Regional Comprehensive Economic Partnership (RCEP) and Other Free Trade Agreements (FTAs)

Author:: Innwon Park
Publication Date:: 08-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This study evaluates the desirability of RCEP by comparing it with other mega-lateral FTAs. Evaluating the member-specific scale effects of the FTAs, we find that RCEP will generate significantly larger gains compared with the CPTPP. Evaluation of the provision-specific depth effects of RCEP suggests the possibility of positive gains but these gains may not be significant compared with those derived from the CPTPP. The existing CGE model analyses reveal that RCEP will generate greater gains than the CPTPP. RCEP will be more desirable for China, Japan, and the Republic of Korea and the estimated gains for ASEAN will notably increase as the model explicitly specifies the diagonal ROO cumulation scheme. Considering the sequence of implementing FTAs, we find that the CPTPP will generate greater gains for dual members, but the marginal gains enjoyed by RCEP members will not be substantial.
Topic:: Diplomacy, International Trade and Finance, Regional Cooperation, Free Trade, and Economic Cooperation
Political Geography:: Asia and ASEAN

48. Australia’s Interests in East Asia’s Regional Comprehensive Economic Partnership

Author:: Shiro Armstrong
Publication Date:: 08-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: The Regional Comprehensive Economic Partnership (RCEP) agreement was seen as important for Australia economically and politically from its inception. RCEP economies account for roughly two-thirds of Australia’s total trade and being part of an Association of Southeast Asian Nations (ASEAN)-led initiative that progressed broader East Asian economic integration was consistent with the structure of Australia’s trade interests and with Australia’s support for the multilateral trading system. Australia has a track record of pursuing regional cooperation that supports multilateral trade and for supporting regional integration that is outward oriented. RCEP became more important economically, politically, and strategically throughout its negotiations. It furthered East Asian economic integration that avoided fragmentation but also to entrench the ASEAN Economic Community project. Concluding RCEP took on greater importance and urgency as a ballast against the rising protectionism globally in the latter half of 2010. The ASEAN–Australia–New Zealand Free Trade Area (AANZFTA) included an economic cooperation agenda focused on capacity building that was seen as a success for its members and shaped Australia’s approach and support towards economic cooperation being a pillar of RCEP. Negotiations for RCEP were chaired and led by Indonesia and ASEAN. Australia played a proactive role in pushing for high standards – credible market access commitments and new rules – in negotiations. Australia was one of the RCEP member countries that was also negotiating the Trans-Pacific Partnership (TPP) in parallel. The interest in the TPP was to keep the United States productively engaged in the region and to further rule-making and liberalisation amongst the TPP members. Having overlapping membership between the TPP and RCEP would mean that there was less chance of significant divergence or inconsistencies between them, although the approach differed. The deterioration of Australia’s economic and political relationship with China makes the RCEP framework potentially more important for facilitating the rebuilding of trust and confidence.
Topic:: Diplomacy, International Trade and Finance, Regional Cooperation, and Economic Cooperation
Political Geography:: Asia, Australia, and ASEAN

49. Changes in Trade and Investment Policies in Thailand and the Implications for Medium-term Growth

Author:: Archanun Kohpaiboon and Juthatip Jongwanich
Publication Date:: 08-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: his paper addresses the noticeable changes in trade and investment policies in Thailand in the new millennium and assesses their impact. These changes began with trade policy changes from the World Trade Organization to free trade agreement (FTA)-induced liberalisation, followed by changes in investment policies, all of which are to boost firms’ productivity and medium-term growth. Our results suggest that the policy changes are yet to produce the output the government expects. The signed FTAs’ impact on trade has been limited so far and has occurred selectively on certain product lines, as did the FTA-induced direct investment. Similarly, changes in investment policies had the impact of enticing direct investment but this varied across investors’ nationalities. The impact on firm productivity is also limited and found only for investment promotion policies. Our analysis highlights the role of traditional tools, i.e. trade openness, research and development, and skills upgrading, in fostering firm productivity. Whilst FTAs and investment promotion could be used as a catalyst for firms to enhance productivity, other supporting factors are also needed.
Topic:: International Trade and Finance, Regional Cooperation, Investment, Free Trade, and Economic Cooperation
Political Geography:: Asia and ASEAN

50. FDI Spillover Effects: Evidence from the Philippines

Author:: Rafaelita Aldaba and Angel Derrickvhel Quejada
Publication Date:: 08-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: Using firm-level data in manufacturing, this chapter examines the impact of foreign direct investment (FDI) spillover effects on domestic firm performance. Through knowledge spillovers, FDI inflows affect the performance of domestic firms. Overall, there is some evidence to show that horizontal and forward spillovers from FDI have a significant positive impact on the performance of domestic firms. However, in terms of backward spillovers, the impact of FDI on the performance of domestic firms is negative and significant. The diffusion of backward spillover effects to domestic firms has remained limited due to the weak competitiveness of domestic firms and their inability to absorb the technology or knowledge being transferred. To strengthen the absorptive capacity and productivity of domestic firms, the chapter suggests a more comprehensive approach that would combine industrial policy to improve and develop domestic parts and supplier firms with measures to create an environment conducive to the creation and expansion of FDI backward spillovers. These include upgrading industry participation towards higher segments of global value chains, innovation, human resource development, upskilling and reskilling the workforce, and liberalising ecozone regulations affecting the transactions between multinational corporations and companies outside the economic zones.
Topic:: Economics, International Trade and Finance, Foreign Direct Investment, and Investment
Political Geography:: Philippines and Oceania

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COLUMBIA UNIVERSITY PRESS