William Krist's Blog, page 26
March 30, 2022
Export-Import Bank 2021 Annual Report
In FY 2021, EXIM authorized a total of $5.8 billion in loans, guarantees and insurance that supported an estimated $9.2 billion in U.S. export sales and an estimated 39,000 U.S. jobs.
EXIM_2021_AnnualReport_web
To read full report by The Export-Import Bank of the United States (EXIM), please click here.
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March 11, 2022
Making Moscow Pay – How Much Extra Bite Will G7 & EU Trade Sanctions Have?
Following the revocation of MFN treatment of Russian goods, the members of the G7 and European Union (EU27) can raise import tariffs sharply. We outline three trade sanction scenarios in this computation-based brief and report their predicted effects on Russian GDP, on bilateral exports, and on Russian job losses. Once the Russian economy has adjusted, the most severe trade sanction scenario is expected to result in a permanent GDP reduction of 1.06%, in bilateral Russian exports to the G7 and EU27 nations falling by 70.9%, and in 522,000 job losses from the Russian energy sector. Losses on this scale for Russia amount to a third of the estimated GDP gain from its WTO accession. The same scenario is estimated to result in 206,000 job losses in the G7 and EU27 and to reduce their joint GDP by 0.06% permanently.
Making_Moscow_Pay_by_Revoking_MFN_11_March_2022_finalised
To read the full report from the St. Gallen Endowment for Prosperity Through Trade, please click here.
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The impact of Western sanctions on Russia and how they can be made even more effective
Western sanctions on Russia have been quite effective in two regards. First, they stopped Vladimir Putin’s preannounced military offensive into Ukraine in the summer of 2014.
Second, sanctions have hit the Russian economy badly. Since 2014, it has grown by an average of 0.3 percent per year, while the global average was 2.3 percent per year. They have slashed foreign credits and foreign direct investment, and may have reduced Russia’s economic growth by 2.5–3 percent a year; that is, about $50 billion per year. The Russian economy is not likely to grow significantly again until the Kremlin has persuaded the West to ease the sanctions.
The-impact-of-Western-sanctions-on-Russia-and-how-they-can-be-made-even-more-effective-5.2
To read the full report by The Atlantic Council, please click here.
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March 8, 2022
US Policy Options to Reduce Russian Energy Dependence
Russia’s invasion of Ukraine has brought into stark relief the national security consequences of European reliance on Russian natural gas and global reliance on Russian oil. Russia accounts for more than a third of all natural gas consumed in Europe and is the second-largest oil exporter in the world, which is constraining US, European, and other allies’ responses to Russian aggression in Ukraine. This note outlines specific policy options available to the US government to reduce EU and global dependence on Russian energy, while continuing to reduce greenhouse gas (GHG) emissions.
US-Policy-Options-to-Reduce-Russian-Energy-Dependence
To read the full report by the Rhodium Group, please click here.
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U.S. Government Imposes Expansive, Novel and Plurilateral Export Controls Against Russia and Belarus
In response to Russia’s further invasion of Ukraine, and Belarus’ enabling of it, the Commerce Department’s Bureau of Industry and Security (BIS) has amended the Export Administration Regulations (EAR) to impose significant Russia- and Belarus specific controls on exports, reexports and transfers of many different types of U.S.- and foreign-produced commodities, software and technology, which are collectively referred to as “items.” U.S. and non-U.S. companies with, and that choose to continue, any direct or indirect involvement with Russia or Belarus will need to spend a significant amount of time studying the rules and updating internal policies and procedures to ensure compliance.
In sum, there is little that can be exported or reexported that involves Russia or Belarus, or Russian or Belarusian entities, directly or indirectly, without requiring an analysis of complex and novel U.S. and allied and partner country export controls. To ensure compliance, one will need to determine, at a minimum, (i) which items of interest are identified on the EAR’s Commerce Control List as controlled for “AntiTerrorism” reasons; and (ii) which foreign-made items are produced using technology, software or equipment that is subject to the EAR.
A simplistic, imprecise, but nonetheless helpful way of thinking about the new controls is the following:
If the item at issue is of a type described on the Commerce Control List, whether U.S.- or foreign-produced, then it generally cannot be shipped from anywhere to anyone in Russia or Belarus for any reason without a license or other authorization.
If the item at issue is of a type not described on the Commerce Control List (i.e., an EAR99 item), whether U.S.- or foreign-produced, then it generally can be shipped to Russia or Belarus, so long as it would not be for a military end use, a military end user or involving an entity on the Entity List.
The purpose of the new controls is “to protect U.S. national security and foreign policy interests by restricting Russia’s access to items that it needs to project power and fulfill its strategic ambitions.” The rule does this by leveraging the “global dominance of U.S.-origin software, technology, and equipment (including tooling)” to largely block the export and reexport of U.S.- and foreign-produced items that are essential inputs for sectors important to the Russia and Belarusian economies, primarily their defense, aerospace and maritime sectors. The related purpose of the parallel controls against Belarus is to restrict its access to items “it needs to support its military capabilities and preventing such items from being diverted through Belarus to Russia.”
The rules reflect an extraordinary amount of export control cooperation and coordination among close allies and partner countries that has not been seen since the end of the Cold War. In particular:
The allies and partner countries have agreed to a common licensing policy of denial for exports of controlled items to Russia and Belarus. Until these rules, the standard had been one of “national discretion,” which allows each country to make its own licensing decisions without a need to coordinate with other countries.
The allies and partner countries have each agreed to impose their own unilateral controls on items that only the United States has historically controlled, namely AntiTerrorism-controlled items. Until these rules, allies and partner countries have been reluctant to, or did not have the legal authority to, impose controls on items that were not identified in one of the four primary multilateral export control regimes.
The rules’ extraterritorial controls on foreign-produced items do not apply if the items are produced in countries that commit to imposing substantially similar controls to those of the United States. This creates an incentive for other countries to cooperate, reduces the negative impacts of unilateral controls on U.S. industry and reduces the incentive to design out U.S.-origin content or items produced with U.S. technology or tools.
Indeed, the rules create a whole new paradigm, structure and purpose for coordinated export controls. That is, traditional multilateral export controls since the end of the Cold War have been focused on regulating weapons of mass destruction, conventional weapons, and the bespoke and dual-use commodities, software and technologies necessary for their development, production or use. In contrast, these rules have a much broader purpose, which is the plurilateral 1 control over exports to specific end users and the types of items important to a country’s strategic economic and military objectives. In particular, the White House stated that these “actions will ensure that the military as well as the aerospace, maritime and high-technology sectors do not obtain U.S. technology goods and technology that can be used to support Russian technical maintenance and innovation.” Export controls are being used as, and to enhance, economic sanctions tools.
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To read the full report by Akin Gump, please click here.
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March 1, 2022
2022 Trade Policy Agenda & 2021 Annual Report
The Biden Administration recognizes that trade can––and should––be a force for good. Done right, and in coordination with other policy disciplines, it can grow the middle class, redress inequality, and level the playing field by promoting fair competition. We remain committed to upholding a fair and open global trading system – one that follows through on our trading partners’ longstanding commitment to conduct economic relations with a view to raising standards of living, ensuring full employment, and promoting sustainable development.
To realize these goals, we must take stock of what has worked and what has not. This requires us to identify and rethink aspects of the existing trading system that incentivize or enable unfair competition.
Competition in a global market provides Americans access to a wider variety of goods and services at competitive prices. But, too often our existing global trade rules have rewarded advantages that are not based on fair competition – or American values more broadly. Consumers in the global marketplace are also wage earners and producers, and members of broader communities that feel the effects of our trade policies. A trade model that promotes exploitation, whether of workers or the environment, is not efficient– it is a form of unfair competition. And it is not sustainable.
For these reasons, the Administration continues to advance its worker-centered trade policy. We are standing up for workers’ rights – but it is more than that. We are promoting a broader agenda of fair competition to ensure that workers are competing on the basis of skills and creativity, not exploitative cost advantages. We are laser-focused on working with partners and allies to chart new trade rules that do more to advance decarbonization and other critical environmental standards, support U.S. farmers, promote sustainable and resilient supply chains, and combat the COVID-19 pandemic. Through this approach, we can harness fair competition and support the American middle class with increased prosperity while promoting core American values.
2022 Trade Policy Agenda and 2021 Annual Report
To read the full report from the United States Trade Representative, please click here.
China’s Digital Ambitions: A Global Strategy to Supplant the Liberal Order
China’s global export of digital infrastructure provides a foundation for the party-state to gain greater access to, and control over, data internationally, while also affording new avenues for Chinese digital companies to gain greater market access that can be leveraged to advance the government’s strategic interests. Most debate on the issue underestimates the risks associated with the ways control over digital infrastructure can enable future efforts by the party-state that undermine the interests of countries whose data is being accessed and used. For example, control over digital infrastructure can allow for collection of data that, when aggregated, creates greater visibility of a society, enabling other efforts to subvert democratic debate. It can also embed standards that go against liberal democratic values by enforcing authoritarian definitions of risk rather than democratic definitions. Ultimately, however, the largest issue is that China has a political system that is fundamentally different from liberal democracies and that is embedded in the digital technologies and infrastructure researched and developed in China and exported globally.
The coming decades will require democracies to work together to recreate an international system that privileges their values. As the PRC accelerates its efforts to build an alternative digital system for an illiberal international order and it gains acceptance from other authoritarian regimes, those countries that value rule of law, transparency, individual rights, and free markets will need to act in concert. Democracies will be forced to confront a competitive world in which the PRC and other authoritarian regimes seek to drive wedges in open societies and coerce acceptance of an illiberal order. Resisting those efforts will require leadership from multiple capitals, business leaders, and wider civil society. The sooner those leaders align policies, manufacturing, and R&D toward a common digital infrastructure that excludes the PRC, the more likely democratic nations will be able to protect the interests of their citizens.
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To read the full report by the National Bureau of Asian Research, please click here.
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USTR Strategic Plan 2022-2026
This strategic plan of the Office of the United States Trade Representative (USTR) has been developed in accordance with the USTR’s obligations under the Government Performance and Results Act (GPRA) Modernization Act of 2010 to help USTR plan for the next five years following FY 2021. Assistant United States Trade Representatives (AUSTRs) and other senior USTR officials collaborated in developing the plan. While non-government parties did not contribute to the preparation of this plan, the report considers the advice received from USTR’s statutorily mandated Advisory Committees. The report also considers advice from Trade Policy Staff Committee (TPSC) agencies, the Government Accountability Office, and the United States Congress.
USTR FY 2022 - FY 2026 Strategic Plan
To read the full report from the Office of the U.S. Trade Representative, please click here.
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February 28, 2022
Russia Sanctions: Climbing the Escalation Ladder
We have written previously about the logic behind the use of economic sanctions, stating that they are “a critical element of the foreign policy toolkit of both national governments and international bodies.” They are an effort to change a country’s behavior without resorting to military action, which is what we see playing out today. The United States, along with other members of the international community, is imposing “unprecedented” sanctions on Russia in response to last week’s invasion of Ukraine.
Initially, debates waged as to the scope, severity, and efficacy of the first round of sanctions on Russia. However, with the latest round of actions—selected banks being removed from the global financial messaging system SWIFT and restrictive measures being imposed on the Russian Central Bank (CBR)—the commitment of members of the international community is clear. Understanding the impact of these actions, however, is key. The bottom line is that these sanctions will have a significant impact on Russia’s overall economy, and average Russians are already feeling the cost. The sanctions target Russia’s domestic financial system, causing bank runs and forcing Russia’s central bank to continue hiking rates and/or to use its foreign exchange reserves. Furthermore, we believe that the CBR will have to institute strict capital controls and possibly declare a bank holiday as bank runs accelerate and demand for foreign exchange continues to rise sharply. As a result, we anticipate seeing negative growth in an economy that has already been hindered by increasing isolationism.
Even though we are seeing some of the most serious sanctions imposed on a country in recent history, there is still an escalation ladder and, if necessary, the United States and others can continue scaling up sanctions. These could include removing energy transactions-related exceptions from sanctions against the Russian banking system, shutting down further Euro-based transactions, and prohibiting transactions in the secondary market for existing Russian debt.
This paper will systematically look at additional sanctions that have been or could be imposed on Russia in several key areas: global payments systems, access to the U.S. Dollar, sovereign debt, hydrocarbon exports, and export controls. Equally important, it will not only analyze the effects of these latest sanctions on the Russian economy but also the broader implications for international financial markets. For example, one of the biggest impacts on the global economy is likely to be on trade. While details on how the new sanctions affect energy are still emerging, we do know that sanctions on its central bank will make it more difficult for Russia to export energy and other commodities. As a result, we may see commodity prices surge.
Sanctions are the pre-eminent tool of economic statecraft, and President Biden and other world leaders have made it clear that these sanctions were only a first step, leaving the door open for further escalation should Russian aggression continue. In the coming days we will see limits placed on so called “golden passports,” the launch of a transatlantic task force so that today’s financial sanctions are enforced and not circumvented, and a battle will be waged against “disinformation and other forms of hybrid warfare.” In other words, we have yet to reach the top of the ladder.
IIF_RussiaSanctionsPaper_2022
To read the full report by the Institute of International Finance, please click here.
February 23, 2022
OECD Handbook On Competition Policy In The Digital Age
Competition authorities face a complex environment when addressing potential misconduct in digital markets. In particular, many concerns relate to conduct, strategies and innovations that are ambiguous in their effect because they hold significant procompetitive potential, such as seamlessly integrated services, greater transparency, dynamic pricing, lower searching costs from price comparison websites, and the convenience of e-commerce. Businesses also benefit, including small businesses that enjoy greater access to consumers and the ability to leverage large platform network effects. However, these benefits may also have a corresponding competition harm. Algorithmic pricing may be a tool for collusion. Network effects and economies of scale and scope can increase the effectiveness of exclusionary conduct by dominant firms. The centrality of digital platforms in certain markets can enable vertical foreclosure, or the imposition of restraints that limit the intensity of competition. And the underlying characteristics of digital markets could give rise to tipping, meaning that the effects of abusive conduct may be particularly serious in these markets.
Thus, dealing with potential misconduct in digital markets will often require a careful balancing act. The grey zone between clearly procompetitive and clearly anticompetitive conduct seems to have become bigger, while the risks of not intervening have become more serious. Further, there are concerns that novel forms of misconduct, such as algorithmic collusion, can be difficult to detect, and in some cases harder to prosecute under current competition laws. This has led to questions about whether certain concepts must be revisited, ranging from the definition of a collusive agreement, to the application to digital markets of theories of harm focused on vertical integration in network industries.
In sum, the OECD’s work on misconduct in digital markets has found that many of the core principles, analytical concepts, and areas of concern continue to be relevant. However, authorities will need to be on the lookout for new forms of misconduct and new tools for detection and analysis. At the same time, there is growing consensus that some concerns cannot be addressed under current enforcement frameworks, either because they do not apply, or they may not be effective in rapidly-changing markets, and as such might need a degree of ex ante regulation.
oecd-handbook-on-competition-policy-in-the-digital-age
To read the full report from the OECD, please click here.
William Krist's Blog
