Helping Smaller Firms Thrive and Grow with Trade Policies

Helping Smaller Firms Thrive and Grow with Trade Policies

Policymakers should not assume that MSME firms will always stay MSMEs.  Yet frameworks in many economies seem designed to trap smaller firms into a set category and entrench them into a “small” mindset. There will always be MSME firms.  They form the backbone of most economies, as much as 97 percent of companies across Asia, employing the overwhelming share of workers.  The goal of MSME policies should be enabling the current crop of smaller firms to grow, allowing firms in the “medium” category to reach large scale in relatively short order, while encouraging new entrants to the MSME ranks. Trade policy is one tool to help MSMEs grow.  In most economies, the domestic market alone can be too small or even too competitive for success.  E-commerce and digital technology, however, have allowed MSMEs to reach regional or global audiences. 

Looking Ahead: Trade in 2019

Looking Ahead:  Trade in 2019

1.      US-China:  The biggest story is likely to remain the ongoing battle between the United States and China.  The most immediate deadline is March 1, when the US has promised to impose 25% tariffs on $200 billion in Chinese imports that are currently subjected to 10% tariffs, if the two sides cannot successfully negotiate their way out of the complaints lodged in the Section 301 case. Chinese officials are meant to travel to the US later in January to continue discussions, followed by more talks in mid-February.  Given the rapidly closing timeline, however, getting a satisfactory conclusion to the long list of US objectives is unlikely.  Three scenarios are possible: 1) US President Donald Trump accepts an outcome that does not really address the systemic complaints at the heart of the Section 301, but goes for a package that includes more Chinese purchases of US agricultural and energy goods plus some limited commitments on Chinese reforms; 2) the timeline is extended, as talks are making headway with a resolution closer to filling most of the Section 301 demands possible by mid-year; or 3) talks collapse and tariffs are imposed on the $200 billion in goods, ramping up to include all Chinese imports to the US before the end of the year.

RCEP: Still a Work in Progress

RCEP:  Still a Work in Progress

This was supposed to be the year that the Regional Comprehensive Economic Partnership (RCEP) trade negotiations finally wrapped up.  Once again, it will not happen. The 16 parties involved (Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam) have been talking since early 2013.  After 24 formal rounds, at least 9 ministerials, multiple informal meetings, and annual leader’s meetings, RCEP remains a work in progress. Why is it taking so long to get an agreement? The short answer is two-fold—a lack of sufficient political will and serious technical challenges in bridging the gaps between widely different member states.  The lack of political will seems surprising to many outsiders.  After all, at a time of rising global trade tensions, surely this is the best time to lock down an agreement in Asia to keep trade lanes open for mostly export-dependent trading states? 

The CPTPP Enters Into Force on December 30, 2018

The CPTPP Enters Into Force on December 30, 2018

After a long and arduous path, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade agreement is ready to enter into force on December 30, 2018! Six member states have completed ratification procedures to allow the entire agreement to begin before the end of this year: Australia, Canada, Japan, Mexico, New Zealand and Singapore. This means that for these six members, every provision in the CPTPP will enter into force on December 30.  Every tariff line will be reduced or eliminated, every service and investment sector that was pledged will be opened for CPTPP companies, all new rules on intellectual property rights start, all new customs procedures begin, new provisions for competition and state-owned enterprises kick in, labor and environment rules come into force, and so forth. 

The Challenge of Reforming the Global Trading System

Having negotiations just over rules will require flexibility by members because it will be much harder for members to return home and clearly point to “gains” from WTO changes.  In many places, adjustments to specific provisions could even lead to short term challenges. But without any way to address legitimate demands by many members to more accurately reflect the situation in the global trade regime in 2018 and beyond, the system itself is under increasing threat. We have forgotten how important the WTO has become to the business world.  It operates like air.  It is only when it is missing that it becomes obvious how much it was needed. Without creativity and flexibility by all members, the WTO is at risk of evaporating.  The focus ought to be on updating the global rule book, rather than increasingly carving up and out smaller and smaller bits of the economy to be tailored for various member interests.