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.
The EU and Japan have been building up a formal set of economic cooperation agreements since 1987. (Appendix 1). Today, the EU is the third largest trading partner of Japan, while Japan is the 7th largest trading partner of the EU. Both sides see significant economic potential for deeper cooperation, in terms of job creation and export revenue. However, absent free trade agreement (FTA), exporters still faced some substantial import duties and difficulties in compliance, particularly with standards. This prompted the establishment of JEEPA, the first FTA between the two parties. The commitment between the two to get this through is obvious. A large part of JEEPA negotiations was focused on regulatory issues or non-trade measures. Chapters are dedicated to addressing newer challenges of global trade like e-commerce, capital movements, intellectual property and corporate governance.
Broadly, we assess the usefulness of the Japan-EU Economic Partnership Agreement
(JEEPA) based on the breath and extent of tariff cuts, where we assume that better quality
trade agreements have steeper tariff cuts over shorter time periods. Looking at the tariff schedules of the two parties, Japan appears to be more conservative in cutting tariffs. Its tariff schedule has a longer phase out period of 20 years versus the EU’s, which 15 years. It also has more exclusions in its tariff schedule than the EU – various goods in 12 chapters are not covered, compared to 6 for the EU. Japan only agreed to eliminate tariffs for 62 chapters of goods upon entry into force (EIF) whereas the EU promised 67. Compared with the status quo, however, EU-Japan still provides some significant benefits for exporters in both markets. Tariff rates on specific products of key interest can be high and any reductions are likely to result in new market access for both.
The start of a piece in yesterday’s TheStreet summarized a common viewpoint on the US withdrawal from the Trans-Pacific Partnership (TPP) trade agreement, when it said: “You can’t lose what you never had…” In fact, you can. It is becoming increasingly obvious that American companies are losing ground. The damage is two-fold—the United States has chosen to sit out from the TPP and it is also not benefiting from the range of trade deals that crisscross Asia, giving preferences to competitors in the region in key markets. Adam Behsudi nicely showed this week in Politico how international trade agreements are directly affecting farmers from one county in Iowa.