William Krist's Blog, page 48

Turning Hope into Reality: OECD Economic Outlook, December 2020

Economic Outlook: Policies can turn hope of recovery into reality







A brighter outlook but recovery will be gradual
Faster vaccine deployment and better cooperation for its distribution would boost confidence and strengthen the pickup but continued uncertainty risks further weakness

Vaccination campaigns, concerted health policies and government financial support are expected to lift global GDP by 4.2% in 2021 after a fall of 4.2% this year. The recovery would be stronger if vaccines are rolled out fast, boosting confidence and lowering uncertainty.

Delays to vaccination deployment, difficulties controlling new virus outbreaks and failure to learn lessons from the first wave would weaken the outlook.

The bounce-back will be strongest in the Asian countries that have brought the virus under control but even by the end of 2021, many economies will have shrunk from 2019 levels before the pandemic.

Forecasts are highlighted by the light grey background


Source: OECD (2020), “OECD Economic Outlook, December 2020”, OECD Economic Outlook: Statistics and Projections (database). Created with Datawrapper

To read the full report, please click here.

 

2020 Report To Congress of the U.S.-China Economic and Security Review Commission

INTRODUCTION

In 2000, Congress established this Commission to monitor and report on the national security implications of the U.S.-China economic relationship. Over the years, we have tracked the People’s Republic of China’s (PRC) accountability to its global commitments, including those made in its accession to the World Trade Organization. Two decades later, the Chinese Communist Party (CCP) selectively adheres to its global economic, trade, and political obligations and has abandoned any concern for international opinion. Now the CCP envisions itself atop a new hierarchical global order in which the world acquiesces to China’s worldview while supplying it with markets, capital, resources, and talent.

The novel coronavirus (COVID-19) pandemic has focused public attention on China, but the PRC’s ambitions are neither new nor secret. For decades, the CCP has made its ambitions clear through industrial policy and planning documents, leadership speeches, and military directives. Under General Secretary Xi Jinping, however, the CCP is aggressively asserting its interests both domestically and globally.

In the past, the CCP focused its attempts at economic dominance on legacy sectors of steel, aluminum, and transportation, among others. Its current goals are to dominate the world’s newest and most cutting-edge industries, including biotechnology, semiconductors, artificial intelligence, and clean energy. Though the focus of China’s industrial policies is changing, the government’s strategy and objectives retain the same mercantilist and coercive tools: compelling foreign entrants to transfer technology to their domestic competitors for limited market access, lavishing generous subsidies on state-owned enterprises and domestic national champions, and leveraging illicit methods, including cyber-enabled theft, to obtain valuable intellectual property and mountains of data.

China’s security laws threaten the arrest of anyone who criticizes China, its leaders, or its policies. This threat now extends to Americans inside China as well as those who live in or travel to countries that have an extradition treaty with China. Foreign journalists live in fear of detention or expulsion.

The CCP claims to protect the interests of the Chinese people. Its true purpose, however, is to protect its own existence and grow its power, no matter the costs. Party leaders judge any sign of criticism to be too great a risk to CCP rule. The CCP’s response is harsh and swift whether reacting to the single voice of a doctor raising health alarms about the emergence of COVID-19, to internal criticism, or to millions of peaceful prodemocracy demonstrators in Hong Kong. This year, the CCP undertook new levels of effort to silence critics and prevent the flow of information.

COMPREHENSIVE LIST OF THE COMMISSION’S RECOMMENDATIONS

Chapter 1: U.S.-China Global Competition

Section 1: A Global Contest for Power and Influence: China’s View of Strategic Competition with the United States

The Commission recommends:

1. Congress adopt the principle of reciprocity as foundational in all legislation bearing on U.S.-China relations. Issues to be considered in applying this principle should include but are not limited to the following:

• The ability of journalists and online media to operate without undue restriction;

• The ability of nongovernmental organizations to conduct meaningful engagement with civil society;

• Access to information, including but not limited to financial and research data; • Access for social media and mobile apps from U.S. companies;

• Access for diplomatic personnel, including but not limited to diplomats’ freedom of travel and ability to meaningfully exchange views with the host country public; and

• Market access and regulatory parity, including but not limited to companies’ ability to participate in trade, investment, and financial market transactions, cross-border capital transfer, and protections of intellectual property.

2. Congress direct the U.S. Department of State to produce an annual report detailing China’s actions in the United Nations and its subordinate agencies that subvert the principles and purposes of the United Nations. Such a report would at a minimum document the following:

• China’s actions violating United Nations treaties to which it is a party;

• China’s actions to influence the votes of United Nations members, including through coercive means;

• China’s actions to nominate or support candidates for United Nations leadership positions that do not adhere to United Nations standards for impartiality or are subject to the influence of the Chinese government;

• Actions by nationals of the People’s Republic of China and others currently holding United Nations leadership positions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;

• Actions by nationals of the People’s Republic of China serving in functional positions in United Nations organizations impacting hiring practices, internal policies, and other functions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;

• Actions by Chinese military and support personnel engaged in United Nations peacekeeping operations that are inconsistent with the principles governing these missions, including China’s deployment of these personnel to protect its economic interests and improve the power projection capabilities of the People’s Liberation Army; and

• The number and positions of United States personnel employed by the United Nations and its agencies.

3. Congress expand the authority of the Federal Trade Commission (FTC) to monitor and take foreign government subsidies into account in premerger notification processes.

• The FTC shall develop a process to determine to what extent proposed transactions are facilitated by the support of foreign government subsidies.

• The definition of foreign government subsidies shall encompass direct subsidies, grants, loans, below-market loans, loan guarantees, tax concessions, governmental procurement policies, and other forms of government support.

• Companies operating in the United States that benefit from the financial support of a foreign government must provide the FTC with a detailed accounting of these subsidies when undergoing FTC premerger procedures.

• If the FTC finds foreign subsidies have facilitated the transaction, the FTC can either propose a modification to remedy the distortion or prohibit the transaction under Section 7 of the Clayton Act, which prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

4. Congress direct the Administration, when sanctioning an entity in the People’s Republic of China for actions contrary to the economic and national security interests of the United States or for violations of human rights, to also sanction the parent entity.

5. Congress amend the Immigration and Nationality Act to clarify that association with a foreign government’s technology transfer programs may be considered grounds to deny a nonimmigrant visa if the foreign government in question is deemed a strategic competitor of the United States, or if the applicant has engaged in violations of U.S. laws relating to espionage, sabotage, or export controls. Association with a foreign government’s technology transfer programs can include any of the following:

• Participation in a foreign government-sponsored program designed to incentivize participants to transfer fundamental research to a foreign country via a talent recruitment program or in a foreign government-sponsored startup competition;

• Acceptance of a government scholarship that requires recipients to study specific strategic scientific and technological fields, to return to the foreign country for a government work requirement after the scholarship term ends, or facilitates coordination with talent programs;

• Association with a university or a department of a university that the U.S. government has designated as a participant in the foreign government’s military-civil fusion efforts; or

• Status (current or past) as a scientist, technician, or officer for a foreign military, if the applicant does not disclose such information when applying for a visa.

Section 2: The China Model: Return of the Middle Kingdom

The Commission recommends:

6. Congress hold hearings to consider the creation of an interagency executive Committee on Technical Standards that would be responsible for coordinating U.S. government policy and priorities on international standards. This Committee would consist of high-level political appointees from executive departments with equities relating to international technical standards, including the Department of Commerce, the Department of State, the Department of Defense, the Department of Energy, the Office of Science and Technology Policy, and other agencies or government stakeholders with relevant jurisdiction. The Committee’s mandate would be to ensure common purpose and coordination within the executive branch on international standards. Specifically, the Committee would:

• Identify the technical standards with the greatest potential impact on American national security and economic competitiveness;

• Coordinate government efforts relating to those standards;

• Act as a liaison between government, academia, and the private sector to coordinate and enhance joint efforts in relation to standards;

• Manage outreach to counterpart agencies among U.S. allies and partners;

• Set funding priorities and recommendations to Congress; and

• Produce annual reports to Congress on the status of technical standards issues and their impact on U.S. national security and economic competitiveness.

Section 3: China’s Strategic Aims in Africa

The Commission recommends:

7. Congress require the Office of the U.S. Trade Representative, within 180 days, to prepare a report on China’s use of rules of origin intended to benefit countries eligible for the African Growth and Opportunity Act (AGOA) to ensure AGOA countries obtain the benefit of favorable trade policies and China is not using them to circumvent U.S. trade policies.

Chapter 2: U.S.-China Economic and Trade Relations

Section 2: Vulnerabilities in China’s Financial System and Risks for the United States

The Commission recommends:

8. Congress enact legislation establishing a China Economic Data Coordination Center (CEDCC) at the Bureau of Economic Analysis at the U.S. Department of Commerce. The Center would be mandated to collect and synthesize official and unofficial Chinese economic data on developments in China’s financial markets and U.S. exposure to risks and vulnerabilities in China’s financial system, including:

• Data on baseline economic statistics (e.g., gross domestic product [GDP]) and other indicators of economic health;

• Data on national and local government debt;

• Data on nonperforming loan amounts;

• Data on the composition of shadow banking assets;

• Data on the composition of China’s foreign exchange reserves; and

• Data on bank loan interest rates.

9. Congress request that the Administration prepare a report on the research and development activities of the affiliates of U.S. multinational enterprises operating in China and the implications of such activities for U.S. production, employment, and the economy.

Section 3: U.S.-China Links in Healthcare and Biotechnology

The Commission recommends:

10. Congress enact legislation to require ancestry and health testing services to (1) require explicit consent from customers to provide, sell, lease, or rent to any party individual data that is aggregated for the purposes of research; and (2) disclose to customers any parent company or subsidiary relationship.

11. Congress establish a new U.S. national laboratory focusing on biotechnology or designate an existing U.S. national laboratory to focus on biotechnology.

12. Congress consider establishing a “Manhattan Project”-like effort to ensure that the American public has access to safe and secure supplies of critical lifesaving and life-sustaining drugs and medical equipment, and to ensure that these supplies are available from domestic sources or, where necessary, trusted allies. Such a project would supplement the recommendation the Commission made in its 2019 Annual Report that Congress hold hearings with a view toward enacting legislation requiring the U.S. government to procure medicines only from U.S. production facilities or from facilities that have been certified compliant with U.S. standards.

To read the full report, please click here.

2020_Annual_Report_to_Congress

Alexander A. Bowe is a Policy Analyst on Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Kendra Brock is a Research Assistant on Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Erik Castillo is an Operations Support Specialist at the U.S.-CHINA Economic and Security Review Commission.

Jameson Cunningham is the Director of Congressional Affairs and Communications at the U.S.-CHINA Economic and Security Review Commission.

Kevin Fashola is a Congressional Fellow at the U.S.-CHINA Economic and Security Review Commission.

Christopher P. Fioravante is the Director of Operations and Administration at the U.S.-CHINA Economic and Security Review Commission.

Benjamin B. Frohman is the Director of Security and Foreign Affairs Will Green, and a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Charles Horne is a Research Coordinator and Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Sierra Janik is a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Anastasya Lloyd-Damnjanovic is a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Kaj Malden is a Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Leyton Nelson is a Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Emma Rafaelof is a Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Nargiza Salidjanova is the Director of Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Howard Wang is a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Daniel W. Peck is the Executive Director of the U.S.-CHINA Economic and Security Review Commission.

2020 REPORT TO CONGRESS of the U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION

COMPREHENSIVE LIST OF THE COMMISSION’S RECOMMENDATIONS

Chapter 1: U.S.-China Global Competition

Section 1: A Global Contest for Power and Influence: China’s View of Strategic Competition with the United States

The Commission recommends:

1. Congress adopt the principle of reciprocity as foundational in all legislation bearing on U.S.-China relations. Issues to be considered in applying this principle should include but are not limited to the following:

• The ability of journalists and online media to operate without undue restriction;

• The ability of nongovernmental organizations to conduct meaningful engagement with civil society;

• Access to information, including but not limited to financial and research data; • Access for social media and mobile apps from U.S. companies;

• Access for diplomatic personnel, including but not limited to diplomats’ freedom of travel and ability to meaningfully exchange views with the host country public; and

• Market access and regulatory parity, including but not limited to companies’ ability to participate in trade, investment, and financial market transactions, cross-border capital transfer, and protections of intellectual property.

2. Congress direct the U.S. Department of State to produce an annual report detailing China’s actions in the United Nations and its subordinate agencies that subvert the principles and purposes of the United Nations. Such a report would at a minimum document the following:

• China’s actions violating United Nations treaties to which it is a party;

• China’s actions to influence the votes of United Nations members, including through coercive means;

• China’s actions to nominate or support candidates for United Nations leadership positions that do not adhere to United Nations standards for impartiality or are subject to the influence of the Chinese government;

• Actions by nationals of the People’s Republic of China and others currently holding United Nations leadership positions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;

• Actions by nationals of the People’s Republic of China serving in functional positions in United Nations organizations impacting hiring practices, internal policies, and other functions that appear to support the interests of the Chinese government in violation of United Nations impartiality standards;

• Actions by Chinese military and support personnel engaged in United Nations peacekeeping operations that are inconsistent with the principles governing these missions, including China’s deployment of these personnel to protect its economic interests and improve the power projection capabilities of the People’s Liberation Army; and

• The number and positions of United States personnel employed by the United Nations and its agencies.

3. Congress expand the authority of the Federal Trade Commission (FTC) to monitor and take foreign government subsidies into account in premerger notification processes.

• The FTC shall develop a process to determine to what extent proposed transactions are facilitated by the support of foreign government subsidies.

• The definition of foreign government subsidies shall encompass direct subsidies, grants, loans, below-market loans, loan guarantees, tax concessions, governmental procurement policies, and other forms of government support.

• Companies operating in the United States that benefit from the financial support of a foreign government must provide the FTC with a detailed accounting of these subsidies when undergoing FTC premerger procedures.

• If the FTC finds foreign subsidies have facilitated the transaction, the FTC can either propose a modification to remedy the distortion or prohibit the transaction under Section 7 of the Clayton Act, which prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

4. Congress direct the Administration, when sanctioning an entity in the People’s Republic of China for actions contrary to the economic and national security interests of the United States or for violations of human rights, to also sanction the parent entity.

5. Congress amend the Immigration and Nationality Act to clarify that association with a foreign government’s technology transfer programs may be considered grounds to deny a nonimmigrant visa if the foreign government in question is deemed a strategic competitor of the United States, or if the applicant has engaged in violations of U.S. laws relating to espionage, sabotage, or export controls. Association with a foreign government’s technology transfer programs can include any of the following:

• Participation in a foreign government-sponsored program designed to incentivize participants to transfer fundamental research to a foreign country via a talent recruitment program or in a foreign government-sponsored startup competition;

• Acceptance of a government scholarship that requires recipients to study specific strategic scientific and technological fields, to return to the foreign country for a government work requirement after the scholarship term ends, or facilitates coordination with talent programs;

• Association with a university or a department of a university that the U.S. government has designated as a participant in the foreign government’s military-civil fusion efforts; or

• Status (current or past) as a scientist, technician, or officer for a foreign military, if the applicant does not disclose such information when applying for a visa.

Section 2: The China Model: Return of the Middle Kingdom

The Commission recommends:

6. Congress hold hearings to consider the creation of an interagency executive Committee on Technical Standards that would be responsible for coordinating U.S. government policy and priorities on international standards. This Committee would consist of high-level political appointees from executive departments with equities relating to international technical standards, including the Department of Commerce, the Department of State, the Department of Defense, the Department of Energy, the Office of Science and Technology Policy, and other agencies or government stakeholders with relevant jurisdiction. The Committee’s mandate would be to ensure common purpose and coordination within the executive branch on international standards. Specifically, the Committee would:

• Identify the technical standards with the greatest potential impact on American national security and economic competitiveness;

• Coordinate government efforts relating to those standards;

• Act as a liaison between government, academia, and the private sector to coordinate and enhance joint efforts in relation to standards;

• Manage outreach to counterpart agencies among U.S. allies and partners;

• Set funding priorities and recommendations to Congress; and

• Produce annual reports to Congress on the status of technical standards issues and their impact on U.S. national security and economic competitiveness.

Section 3: China’s Strategic Aims in Africa

The Commission recommends:

7. Congress require the Office of the U.S. Trade Representative, within 180 days, to prepare a report on China’s use of rules of origin intended to benefit countries eligible for the African Growth and Opportunity Act (AGOA) to ensure AGOA countries obtain the benefit of favorable trade policies and China is not using them to circumvent U.S. trade policies.

Chapter 2: U.S.-China Economic and Trade Relations

Section 2: Vulnerabilities in China’s Financial System and Risks for the United States

The Commission recommends:

8. Congress enact legislation establishing a China Economic Data Coordination Center (CEDCC) at the Bureau of Economic Analysis at the U.S. Department of Commerce. The Center would be mandated to collect and synthesize official and unofficial Chinese economic data on developments in China’s financial markets and U.S. exposure to risks and vulnerabilities in China’s financial system, including:

• Data on baseline economic statistics (e.g., gross domestic product [GDP]) and other indicators of economic health;

• Data on national and local government debt;

• Data on nonperforming loan amounts;

• Data on the composition of shadow banking assets;

• Data on the composition of China’s foreign exchange reserves; and

• Data on bank loan interest rates.

9. Congress request that the Administration prepare a report on the research and development activities of the affiliates of U.S. multinational enterprises operating in China and the implications of such activities for U.S. production, employment, and the economy.

Section 3: U.S.-China Links in Healthcare and Biotechnology

The Commission recommends:

10. Congress enact legislation to require ancestry and health testing services to (1) require explicit consent from customers to provide, sell, lease, or rent to any party individual data that is aggregated for the purposes of research; and (2) disclose to customers any parent company or subsidiary relationship.

11. Congress establish a new U.S. national laboratory focusing on biotechnology or designate an existing U.S. national laboratory to focus on biotechnology.

12. Congress consider establishing a “Manhattan Project”-like effort to ensure that the American public has access to safe and secure supplies of critical lifesaving and life-sustaining drugs and medical equipment, and to ensure that these supplies are available from domestic sources or, where necessary, trusted allies. Such a project would supplement the recommendation the Commission made in its 2019 Annual Report that Congress hold hearings with a view toward enacting legislation requiring the U.S. government to procure medicines only from U.S. production facilities or from facilities that have been certified compliant with U.S. standards.

2020_Annual_Report_to_Congress

Alexander A. Bowe is a Policy Analyst on Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Kendra Brock is a Research Assistant on Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Erik Castillo is an Operations Support Specialist at the U.S.-CHINA Economic and Security Review Commission.

Jameson Cunningham is the Director of Congressional Affairs and Communications at the U.S.-CHINA Economic and Security Review Commission.

Kevin Fashola is a Congressional Fellow at the U.S.-CHINA Economic and Security Review Commission.

Christopher P. Fioravante is the Director of Operations and Administration at the U.S.-CHINA Economic and Security Review Commission.

Benjamin B. Frohman is the Director of Security and Foreign Affairs Will Green, and a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Charles Horne is a Research Coordinator and Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Sierra Janik is a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Anastasya Lloyd-Damnjanovic is a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Kaj Malden is a Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Leyton Nelson is a Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Emma Rafaelof is a Policy Analyst in Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Nargiza Salidjanova is the Director of Economics and Trade at the U.S.-CHINA Economic and Security Review Commission.

Howard Wang is a Policy Analyst in Security and Foreign Affairs at the U.S.-CHINA Economic and Security Review Commission.

Daniel W. Peck is the Executive Director of the U.S.-CHINA Economic and Security Review Commission.

To read the full report, please click here.

Taming the US Trade Deficit: A Dollar Policy for Balanced Growth

Conclusion

After decades of neglect, the ongoing trade deficit has led the US economy far down an unsustainable and increasingly dangerous path of net international debt. It has also contributed meaningfully to the erosion of US manufacturing jobs (even if its effect is less important than the effect of technological trends). Based on the effects of the 2014–15 dollar appreciation, a dollar policy that shrinks the US trade deficit from 2.5 percent of GDP to zero would likely increase manufacturing output by 1.8 percent of GDP to a level 16 percent higher than it would otherwise be. Employment in manufacturing would rise significantly.

The new dollar policy would not impose any targets or restrictions on exchange rates. Instead it would ramp up or down intervention in the foreign exchange market or taxes on capital inflows as needed to lean against prospective trade imbalances.

Correcting the trade deficit is far less urgent than dealing with the COVID-19 pandemic. But eliminating the deficit sooner rather than later would benefit the United States. Moreover, in an era in which monetary and fiscal policies are perceived to have less room to maneuver than they once did, the temptation to abuse exchange rate policy to achieve growth at the expense of a country’s trading partners is likely to be great. The United States should take a principled leadership role in establishing standards of behavior consistent with a gradual narrowing of global imbalances to make growth more sustainable and beneficial for all.

President Trump’s strategy for reducing the US trade deficit failed; the deficit only widened under his policies. It is time for a new strategy guided by sound economic theory and evidence. A more activist US dollar policy, as argued in this Policy Brief, is not only fully consistent with US international obligations, it would also help bring about the sustainable and balanced growth outcomes espoused by the IMF and the G20 countries.

To read the full policy brief, please click here.

pb20-15

Joseph E. Gagnon has been a senior fellow at the Peterson Institute for International Economics since September 2009, and was visiting associate director in the Division of Monetary Affairs (2008–09) at the US Federal Reserve Board.

© 2020 Peterson Institute for International Economics. All rights reserved.

COVID-19 AND BEYOND: TRADE AND HEALTH

The following communication, dated 23 November 2020, is being circulated at the request of the delegations of Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, Republic of Korea, Mexico, New Zealand, Norway, Singapore and Switzerland.

The COVID-19 crisis has had an enormous social and economic impact, with more than 1.1 million deaths and more than 43 million confirmed cases, resulting in a huge strain on the health care sector and the largest economic shock the world has experienced in decades. The recent WTO forecast suggests that world trade in 2020 will contract by 9.2% compared to 2019. The World Bank estimates that in a pessimistic scenario, where COVID-19 outbreak persists, the global GDP could shrink by almost 8% in 2020.
Desiring to make international trade a powerful tool to help contain the pandemic and contribute to economic recovery, the signatories of this communication invite all WTO Members to start working on a Trade and Health Initiative, draft elements of which are presented in the Annex.
The WTO Secretariat reports that, since the beginning of the crisis, 88 WTO Members have taken trade measures that had either restrictive or facilitating character. It appears that today still over 70 WTO Members have measures in place that restrict exports of medicaments, medical supplies or food. At the same time, Members that implemented liberalizing measures such as temporary tariff suspension, expedited regulatory approvals and streamlined customs procedures, were able to facilitate trade to their benefit and thus strengthen supply chains.
Notwithstanding positive unilateral actions taken by Members, a global health crisis requires a coordinated global response. Public health emergencies will not be effectively addressed without resilient, robust and well-diversified supply chains that operate in a predictable trading environment. If we are to meet the unprecedented challenge of ensuring availability of essential medical goods, including vaccines, in these turbulent times, we must enhance our cooperation.
In this context, the WTO, as the cornerstone of the international trading system, can help deliver an effective global response to crisis situations. Through seeking multilateral solutions, we can be better prepared to fight both COVID-19 and future pandemics.
With this objective in mind, we call on WTO Members to make their utmost efforts to prevent further disruptions in the supply chains of essential medical goods. As set out in the Annex to this Communication, we propose specific actions relating to export restrictions, trade facilitation, technical regulations, tariffs, transparency and review, and call for the WTO to enhance its cooperation with other relevant international organizations, such as WHO, WCO, OECD as well as G20, given the context of the on-going evaluations of the global response to COVID-19. These proposed actions are not intended to be prescriptive and do not cover the universe of possible measures that could support trade in essential medical goods. Rather, they reflect emerging best practices and should provide sufficient flexibility to be adapted to differing national circumstances.
Recognizing that multilateral outcomes generate the greatest possible common good, we strongly encourage all Members to undertake actions set out in the Annex and join us in the work on a WTO Trade and Health Initiative.
The first step in the work on the Trade and Health Initiative could take the form of a joint statement of all Members, which should be adopted in early 2021. In addition to helping fight the pandemic in the short-term, such a statement would be intended to serve as a confidence-building measure. The short-term actions under the Trade and Health Initiative could also serve as a starting point for negotiations on new WTO commitments, which, ideally, could be concluded at the 12th Ministerial Conference. Some signatories to this communication have also signalled an interest in exploring commitments relating to tariffs in the healthcare sector and liberalization of relevant logistics, distribution and transport services, among others.
We realize that the challenges related to the scarcity of essential medical goods, now alleviated to some extent by the response on the supply side, may be repeated at the moment of the development of a vaccine or new medical treatments. In this context, we welcome the COVID-19 Vaccine Global Access Facility (COVAX), a global pooled procurement mechanism for COVID-19 vaccines, managed by Gavi, the Vaccine Alliance, the Coalition for Epidemic Preparedness Innovations (CEPI) and WHO. This mechanism is critical in securing an equitable share of vaccines for all Members of the international community. As we strongly support the objective of this facility, we call on WTO Members to ensure that any export-restricting measures do not pose a barrier to the delivery of necessary supplies under the COVAX facility.
We recognize the collaborative efforts of private and public stakeholders in the research and development of COVID-19 diagnostics, vaccines and treatments. We encourage the industry to take actions to ensure access at affordable prices to COVID-19 diagnostics, vaccines and treatments for vulnerable populations and support voluntary pooling and licensing of IP rights to accelerate the development of such diagnostics, treatments and vaccines and scaling up their production. We recognize the importance of the IP system in promoting R&D and innovation for access to effective treatments. We note that the flexibilities provided by the TRIPS Agreement and reaffirmed in the Doha Declaration on the TRIPS Agreement and Public Health remain available to protect public health and to promote access to medicines for all.

ANNEX: DRAFT ELEMENTS OF A “TRADE AND HEALTH” INITIATIVE

A successful fight against COVID-19 and any future pandemic requires increased cooperation of WTO Members. In order to ensure accessibility of essential goods during a pandemic, disruptions in the functioning of supply chains must be minimized, and efforts must be made to support their resilience and robustness.

In response to pandemic-related challenges in international trade, Members could agree on a joint statement on a new Trade and Health Initiative. The objectives of such an initiative would be to enhance the capacity of the trading system to respond to the public health emergencies and to support improvements in the resilience of supply chains.

The initiative could include the following immediate actions in response to the current COVID-19 crisis, which reflect emerging best practices, and which could pave the way for new WTO commitments.

EXPORT RESTRICTIONS

Members will:

review and promptly eliminate unnecessary existing restrictions on exports of essential medical goods necessary to combat the COVID-19 pandemic;1 and
exercise restraint in the imposition of any new export restrictions, including export taxes, on essential medical goods and on any prospective vaccine or vaccine materials.

In doing so, Members will:

ensure that any measures deemed necessary to prevent or relieve critical shortages are implemented in a manner that is targeted, transparent, proportionate and temporary and consistent with WTO obligations;
give particular consideration to the interest of the least developed and developing countries, many of which have scarce manufacturing capacities and are highly dependent on imports, in order to avoid a negative impact of such measures on their access to essential medical goods; and,
ensure that any trade measures, including export restrictions, do not disrupt the provision of humanitarian shipments of essential medical goods, nor the work of the COVAX facility in distributing vaccines.

Any export restrictions should be promptly notified to the WTO and published on a domestic website. The notification should include justification of the measures and an explanation of how the measure is consistent with the WTO agreements and why it was considered targeted and proportionate to the objective pursued. Equally, if following the review referred to above, Members decide to continue to maintain export restrictions, upon request, they will provide justification for the continuation of the measures and an explanation as above.

The period of validity of such measures should be as limited as possible and ideally, it should not exceed 3 months, subject to a possible extension. In any event, the duration of export restrictions should not exceed the duration of the state of public health emergency.

The above actions would help ensure equitable distribution of scarce essential medical goods and vaccines amongst WTO Members, in particular the most vulnerable ones.

CUSTOMS, SERVICES AND TECHNICAL REGULATIONS

Members will:

share experiences as regards the trade facilitating measures that have been put in place in response to the COVID-19 crisis with a view to establishing best practices in the context of a crisis. Members will consider to what extent they can be made permanent. Such measures may include digital customs procedures, and services such as freight, logistics, distribution and transport, which have proven an effective tool for members to facilitate the frictionless movement of essential medical goods across borders.
cooperate in the exchange and implementation of best practices in the area of standards and technical requirements and, through collaboration within relevant international organisations, work towards enhanced regulatory alignment with the aim of facilitating trade and reducing adaptation costs for manufacturers of essential medical goods.

To this end, Members will fully engage in the work of the relevant WTO bodies, including the TFA and TBT Committees as well as the Council for Trade in Goods and Council for Trade in Services.

TARIFFS

Members will make best endeavours to temporarily remove or reduce tariffs on goods that are considered essential to fighting COVID-19 pandemic, as far as possible, taking into account national circumstances. Members may choose the method of implementation of such a temporary tariff removal or reduction, which could take the form of emergency duty relief programs. The indicative list of COVID-19 related goods, established by the WCO and WHO2 could be helpful in the determination of the product scope.

TRANSPARENCY AND REVIEW

Members will respond swiftly to requests for information on trade measures adopted during the present health crisis, including on measures undertaken to implement this initiative, from any other Members.

Members will engage fully with the trade monitoring exercises done on a regular or an ad hoc basis in the WTO, including the bi-annual Trade Monitoring Report, and pay particular attention to complying with all WTO notification requirements during the Covid-19 crisis. The monitoring and notification of measures should allow for a quick identification of disruptions in the supply chains and allow Members to enter into consultations with a view to avoiding such disruptions in the shortest possible timelines.

The WTO Secretariat shall make a summary report on the actions implemented by Members under the Initiative which should be made available by the date of the 12th Ministerial Conference. Members will provide any requested information or clarification to the WTO Secretariat for the purpose of the preparation of such a report.

COOPERATION OF THE WTO WITH OTHER ORGANIZATIONS

Members commend the work of the WTO Secretariat resulting in an extensive database of measures related to COVID-19 and a range of dedicated studies and reports allowing them to have a comprehensive and accessible overview of the situation. WTO Secretariat is encouraged to continue that work, focusing on the causes and effects of the disruptions in the supply chains of essential goods and drawing on research of other international organizations.



Given the need to enhance pandemic preparedness and respond to current and future pandemics, WTO Director-General is strongly encouraged to intensify cooperation with other relevant international organizations such as the WHO, WCO, WIPO, OECD, UN as well as the G20 with the aim of improving the analytical capacity of Members to monitor market developments in trade and production of essential medical goods. This would enhance Members’ preparedness for a health crisis and contribute to the creation of an early warning mechanism in the event of critical shortages of essential medical goods.

CONSIDERATIONS FOR THE 12TH MINISTERIAL CONFERENCE

As a next step under the Trade and Health Initiative, Members will take stock of the effectiveness of the above actions at the 12th WTO Ministerial Conference with a view to adopting possible commitments regarding trade in essential medical goods.

To download the document, please click .

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Don’t Graduate – Grandfather: Canada, Trade and the Least Developed Countries

Canada and some least developed countries (LDCs) have enjoyed a growing trade relationship over 17 years, thanks to the liberalization of Canada’s Least Developed Country Tariff (LDCT). In 2003 Canada, following the EU’s “Everything but Arms” initiative, dropped to zero all tariffs against imports from the 47 LDCs except for supply-managed products and made the criteria for zero tariff treatment – the rules of origin – more generous.

LDC exports to Canada in 2017 represented just under $4 billion, around one per cent of total Canadian imports (or, more colloquially, about two hours of Canada-U.S. trade.) Their importance lies in their sector specificity; the majority of manufactured exports are apparel. After the 2003 liberalization, Bangladesh and Cambodia became the second and third largest suppliers of apparel to Canada after China, as much an achievement in import diversification for Canada as in export growth for Bangladesh and Cambodia.

Between 2003 and 2017, Bangladesh’s year-over-year exports to Canada grew at an average rate of 22 per cent, Cambodia’s at 58 per cent, Laos at 17 per cent and Nepal at 10 per cent. On the other hand, Canada’s exports to Bangladesh grew six-fold between 2004 and 2018. Bangladesh is now Canada’s fourth largest importer of pulses.

The 2003 market opening was enabled by of a GATT/WTO rule that facilitates preferential arrangements for countries on the United Nations’ Least Developed Countries list; effectively, the world’s poorest countries. Canada’s initiative was a near-impeccable preferential arrangement. It grew trade in both directions between Canada and some low-cost exporters without the bother of negotiations for bilateral free trade agreements, and without significant trade diversion. Together with the EU liberalization (and subsequent liberalizations in several other countries), it contributed to both export-led growth and poverty reduction in some least developed countries.

Canada’s relationship with these LDCs could change shortly. Along with six developing island countries and mineral-rich Angola, Bangladesh, Myanmar, Laos and Nepal are scheduled for graduation from the UN/WTO list of least developed countries (three were eligible as far back as 2018), and Cambodia has begun to meet the criteria for graduation. Graduation could mean the loss of the preferential tariff treatment that contributed to a rapid increase in exports in the last 17 years. Of the countries that are about to graduate, or have been graduated, the developing island countries export very little to Canada. Angola’s mineral exports enter duty free anyway, but the remaining countries – Bangladesh, Myanmar, Laos, Nepal and at some point Cambodia – are now heavily integrated into the Canadian apparel market. Apparel has become the primary manufactured export for most of these countries. Graduation therefore could have consequences for Canadian consumers, and for economic growth and poverty reduction in the countries concerned. Later, we discuss this problem specifically with reference to Bangladesh.

The earliest date for graduation is 2021; the latest date so far is 2024. Canada may agree to Bangladesh’s request for a three-year deferral from 2021, particularly in light of COVID-19’s impact on the economy, or it could follow the EU, which is reportedly considering a phased-in graduation process of three years, 2021-2024. If LDCs graduate, they will be subject to the tariffs and rules of origin of Canada’s General Preferential Tariff (GPT). Graduation is not restricted to Canada and the EU. During the World Trade Organization’s Doha round of multilateral trade negotiations, several WTO members offered similar concessions; graduation from the LDC list will require WTO members to consider whether to extend or terminate preferential treatment for the graduating LDCs.

Canada can continue duty-free treatment – to grandfather the zero tariff and maintain LDC treatment for as long as it deems desirable. It is also in Canada’s interests to do so; the relationship with the Asian LDCs has been a win-win for both sides. Graduation could cost Canadian consumers and exporters alike and if both the EU and Canada graduate these countries, it could stall economic growth and poverty reduction efforts in the LDCs.

This paper maintains that while COVID-19’s impact makes a short-term deferral likely, it makes more sense to look long term at both the trade and development implications of graduation for both Canada and the LDCs. It recommends that Canada continue preferential treatment for an extended period of time or simply leave the low tariffs in place.

Dont_Graduate_Grandfather_Canada_Trade_and_the_Least_Developed_Countries

Fauzya Moore is an Ottawa-based consultant and writer. She has worked as a Senior

Economic Advisor at the various iterations of Global Affairs Canada, and also as a Senior  Advisor on Governance at the Treasury Board of Canada. She is also a graduate of the Harvard  Kennedy School (2009) where she held both a Fulbright scholarship and a fellowship from the  Ash Centre for Governance and Innovation. She has worked in both the developed and  developing world.

To download the full report, please click here.

Making U.S. Foreign Policy Work Better for the Middle Class

The United States should use its tremendous wealth and power to shape a global economic recovery that will help advance middle-class well-being. It should reject a zero-sum mentality and recognize that a collapse in the global economy would be disastrous for all Americans.

Summary 

If there ever was a truism among the U.S. foreign policy community—across parties, administrations, and ideologies—it is that the United States must be strong at home to be strong abroad. Hawks and doves and isolationists and neoconservatives alike all agree that a critical pillar of U.S. power lies in its middle class— its dynamism, its productivity, its political and economic participation, and, most importantly, its magnetic promise of progress and possibility to the rest of the world. And yet, after three decades of U.S. primacy on the world stage, America’s middle class finds itself in a precarious state. The economic challenges presented by globalization, technological change, financial imbalances, and fiscal strains have gone largely unmet. And that was before the novel coronavirus plunged the country into the worst economic crisis since the Great Depression, exposed and exacerbated deep inequities across American society, led long-simmering tensions over racial injustice to boil over, and launched a level of societal unrest that the United States has not seen since the height of the civil rights movement.

If the United States stands any chance of renewal at home, it must conceive of its role in the world differently. That too has become a point of rhetorical consensus across the political spectrum. But what will it actually take to fashion a foreign policy that supports the aspirations of a middle class in crisis? The Carnegie Endowment for International Peace established a Task Force on U.S. Foreign Policy for the Middle Class to answer that question. This report represents the conclusion of two years of work, hundreds of interviews, and three in-depth analyses of distinct state economies across America’s heartland (Colorado, Nebraska, and Ohio). It proposes to better integrate U.S. foreign policy into a national policy agenda aimed at strengthening the middle class and enhancing economic and social mobility.Five broad recommendations bear highlighting up front.

First, broaden the debate beyond trade. Manufacturing has long provided one of the best pathways to the middle class for those without a college degree, and it anchors local economies across the country, especially in the industrial Midwest. It makes sense, therefore, that so much of the debate about the revival of America’s middle class is centered around the effects of trade policy on manufacturing workers. But while millions of manufacturing jobs have been lost in the United States, other economic forces beyond global trade have also played a major role in the decline. In this sense, debates about “trade” are often a proxy for anxieties about the breakdown of a social contract—among business, government, and labor—to help communities, small businesses, and workers adjust to an interdependent global economy whose trajectory is increasingly shaped by large multinational corporations and labor-saving technologies.

Moreover, the majority of American households today sustain a middle-class standard of living through work in areas outside manufacturing, especially in the service sectors where the United States has competitive advantages. Many of these Americans generally support the trade policies of past decades that have largely served them well. In a February 2020 Gallup poll, 79 percent of Americans agreed that international trade represents an opportunity for economic growth.1 Many of these Americans are less concerned with overhauling past trade policies and are more preoccupied with how military interventions and changes in the United States’ global commitments, among other aspects of foreign policy, might affect their security and economic well-being.

Middle-class Americans are not a monolithic group. Their interests diverge. Different aspects of foreign policy impact them differently, including across gender, racial, ethnic, and geographic lines. Getting trade policy right is hugely important for American households but it is not a cure-all for the United States’ ailing middle class and represents only one element of a broader set of middle-class concerns about U.S. foreign policy.

USFP_FinalReport_final1

Salman Ahmed (co-editor and project director) is a nonresident senior fellow at the Carnegie Endowment for International Peace. 

Wendy Cutler is vice president of the Asia Society Policy Institute

Rozlyn Engel (co-editor) is a nonresident scholar at the Carnegie Endowment for International Peace and a professor of the practice in economics at the U.S. Naval Academy.

Daniel M. Price is co-founder and managing director at Rock Creek Global Advisors.

David Gordon is a senior adviser for the Geoeconomics, Geopolitics, and Strategy Program at the International Institute for Strategic Studies

Jennifer Harris is a senior fellow at the Hewlett Foundation.

Lieutenant General (Retired) Douglas Lute e is a distinguished chair at West Point, president of Cambridge Global Advisors, and senior fellow at Harvard’s Belfer Center. 

Christopher Smart is chief global strategist at Barings and head of Barings Investment Institute.

Jake Sullivan n is a nonresident senior fellow at the Carnegie Endowment for International Peace and co-chair of National Security Action.

Ashley J. Tellis s is the Tata Chair for Strategic Affairs and a senior fellow at the Carnegie Endowment for International Peace.

Tom Wyler r is the senior vice president for global strategy at PSP Capital. 

To read the full report, click here. 

Elevating Middle-Class Interests in Foreign Economic Policy

The United States should use its tremendous wealth and power to shape a global economic recovery that will help advance middle-class well-being. It should reject a zero-sum mentality and recognize that a collapse in the global economy would be disastrous for all Americans.

Summary 

If there ever was a truism among the U.S. foreign policy community—across parties, administrations, and ideologies—it is that the United States must be strong at home to be strong abroad. Hawks and doves and isolationists and neoconservatives alike all agree that a critical pillar of U.S. power lies in its middle class— its dynamism, its productivity, its political and economic participation, and, most importantly, its magnetic promise of progress and possibility to the rest of the world. And yet, after three decades of U.S. primacy on the world stage, America’s middle class finds itself in a precarious state. The economic challenges presented by globalization, technological change, financial imbalances, and fiscal strains have gone largely unmet. And that was before the novel coronavirus plunged the country into the worst economic crisis since the Great Depression, exposed and exacerbated deep inequities across American society, led long-simmering tensions over racial injustice to boil over, and launched a level of societal unrest that the United States has not seen since the height of the civil rights movement.

If the United States stands any chance of renewal at home, it must conceive of its role in the world differently. That too has become a point of rhetorical consensus across the political spectrum. But what will it actually take to fashion a foreign policy that supports the aspirations of a middle class in crisis? The Carnegie Endowment for International Peace established a Task Force on U.S. Foreign Policy for the Middle Class to answer that question. This report represents the conclusion of two years of work, hundreds of interviews, and three in-depth analyses of distinct state economies across America’s heartland (Colorado, Nebraska, and Ohio). It proposes to better integrate U.S. foreign policy into a national policy agenda aimed at strengthening the middle class and enhancing economic and social mobility.Five broad recommendations bear highlighting up front.

First, broaden the debate beyond trade. Manufacturing has long provided one of the best pathways to the middle class for those without a college degree, and it anchors local economies across the country, especially in the industrial Midwest. It makes sense, therefore, that so much of the debate about the revival of America’s middle class is centered around the effects of trade policy on manufacturing workers. But while millions of manufacturing jobs have been lost in the United States, other economic forces beyond global trade have also played a major role in the decline. In this sense, debates about “trade” are often a proxy for anxieties about the breakdown of a social contract—among business, government, and labor—to help communities, small businesses, and workers adjust to an interdependent global economy whose trajectory is increasingly shaped by large multinational corporations and labor-saving technologies.

Moreover, the majority of American households today sustain a middle-class standard of living through work in areas outside manufacturing, especially in the service sectors where the United States has competitive advantages. Many of these Americans generally support the trade policies of past decades that have largely served them well. In a February 2020 Gallup poll, 79 percent of Americans agreed that international trade represents an opportunity for economic growth.1 Many of these Americans are less concerned with overhauling past trade policies and are more preoccupied with how military interventions and changes in the United States’ global commitments, among other aspects of foreign policy, might affect their security and economic well-being.

Middle-class Americans are not a monolithic group. Their interests diverge. Different aspects of foreign policy impact them differently, including across gender, racial, ethnic, and geographic lines. Getting trade policy right is hugely important for American households but it is not a cure-all for the United States’ ailing middle class and represents only one element of a broader set of middle-class concerns about U.S. foreign policy.

USFP_FinalReport_final1

Salman Ahmed (co-editor and project director) is a nonresident senior fellow at the Carnegie Endowment for International Peace. 

Wendy Cutler is vice president of the Asia Society Policy Institute

Rozlyn Engel (co-editor) is a nonresident scholar at the Carnegie Endowment for International Peace and a professor of the practice in economics at the U.S. Naval Academy.

Daniel M. Price is co-founder and managing director at Rock Creek Global Advisors.

David Gordon is a senior adviser for the Geoeconomics, Geopolitics, and Strategy Program at the International Institute for Strategic Studies

Jennifer Harris is a senior fellow at the Hewlett Foundation.

Lieutenant General (Retired) Douglas Lute e is a distinguished chair at West Point, president of Cambridge Global Advisors, and senior fellow at Harvard’s Belfer Center. 

Christopher Smart is chief global strategist at Barings and head of Barings Investment Institute.

Jake Sullivan n is a nonresident senior fellow at the Carnegie Endowment for International Peace and co-chair of National Security Action.

Ashley J. Tellis s is the Tata Chair for Strategic Affairs and a senior fellow at the Carnegie Endowment for International Peace.

Tom Wyler r is the senior vice president for global strategy at PSP Capital. 

To read the full report, click here. 

Outlook for U.S. Agricultural Trade

FY 2021 U.S. Exports Forecast Up $11.5 Billion to $152.0 Billion; Imports at $137.0 Billion

U.S. agricultural exports in Fiscal Year (FY) 2021 are projected at $152.0 billion, up $11.5 billion from the August forecast, driven by higher soybean and corn export values. The projection for soybean exports is up $5.9 billion to a record $26.3 billion due to higher unit values, strong demand from China, and record volumes. Corn exports are forecast up $4.2 billion to $13.2 billion as a result of reduced competition, higher unit values and record volumes. Cotton exports are forecast up $300 million to $5.3 billion based on higher unit values. Wheat exports are projected at $6.2 billion, up $200 million, on higher unit values and slightly larger volumes. Overall major agricultural bulk commodity exports are forecast to increase 24 percent from the previous projection. Livestock, poultry, and dairy exports are forecast unchanged at $32.3 billion, as lower exports of pork and hides and skins offset increases in beef and poultry. Horticultural exports are forecast down $500 million to $34.5 billion due to expected decreases in miscellaneous products. Agricultural exports to China are forecast at a record $27.0 billion, an increase of $8.5 billion, largely due to strong soybean and corn demand. China is expected to once again become the largest U.S. agricultural market, a position it last held in FY 2017.

U.S. agricultural imports in FY 2021 are forecast at $137.0 billion, up $1.0 billion from the August forecast, led by expected increases in horticultural products. Horticultural imports are forecast up $400 million to $70.2 billion on increases in fresh fruit and vegetable imports.

Economic Recovery and Uncertainty in 2021

The global COVID-19 pandemic has already inflicted major setbacks to countries’ gross domestic product (GDP) around the world. Expectations of real GDP numbers have improved from the initial lockdown contractions, but recovery forecasts are still marked by uncertainty and prone to future setbacks. Several promising vaccine developments have provided increased optimism, pushing global equity markets higher and adding to hopes that GDP growth may return strong in 2021. Overall, global real GDP growth is expected to fall by about 4.4 percent in 2020. This is slightly less severe than was previously feared back in June. Global trade volume, which declined 9.2 percent in FY 2020, is expected to increase 7.2 percent in FY 2021. The expected economic recovery in 2021 will be shaped by both regional and overall global success in containing the COVID-19 pandemic, in addition to boosting consumer spending.

Despite upward revisions to 2021 growth projections, projected real GDP remains below pre-pandemic levels. Economic recoveries will be dependent on the status of the pandemic and public health initiatives, including the successful distribution of vaccines. The U.S. economy contracts by 4.3 percent in 2020, with optimism for a recovery of 3.1 percent growth in 2021. The Eurozone economy declines by a more severe 8.3 percent in 2020, leading to a larger correction and a greater projected 2021 real GDP growth rate of 5.2 percent. The service-sector-dependent advanced economies continue to face enormous challenges imposed by the pandemic. Declines in consumer spending in recreation, food services, and travel account for most consumer demand declines. Savings rates continue to remain above pre-pandemic levels, signaling cautious consumer sentiment. The high savings rates hold potential for a large and swift economic recovery next year.

Real GDP in North America grows by a projected 3.3 percent in 2021 after a contraction of 4.9 percent in 2020. Canada and Mexico experience significant GDP declines in 2020, down 7.1 percent and 9.0 percent, respectively. These larger contractions factor into the larger rebounds forecast for 2021. Canada grows by 5.2 percent and Mexico by 3.5 percent.

South American real GDP collectively declines by 8.1 percent in 2020, with a 3.6 percent growth rate in 2021. Having faced negative GDP growth just prior to the pandemic, Argentina is expected to have real GDP decline by 11.8 percent in 2020. This substantial contraction allows ample room for future growth. Numerous recent policy changes help Argentina to grow by 4.9 percent in 2021. Experiencing notably weaker growth than recent years in the wake of the pandemic, China is expected to have real GDP growth of 1.9 percent in 2020. In 2021, China’s growth rate returns to previous trend levels and grows at a rate of 8.2 percent. This return to large growth is dependent on many variables, including public health conditions, which have reduced consumer sentiment and caused the recovery of retail sales to lag the rest of the economy. Industrial production has and will continue to support China’s economic trajectory, but its success is also conditional on the recovery of its trading partners. Japan will improve from a 5.3 percent decline in GDP in 2020 to 2.3 percent growth in 2021. South Korea will improve from a decrease in GDP of 1.9 percent in 2020 to 2.9 percent growth in 2021.

Forecast reductions in tax revenue present additional challenges for rising debt levels due to pandemic-related fiscal spending across the globe. Governments reliant on high oil prices for financing public expenditures are expected to face tighter budgets going forward. International financial institutions, such as the International Monetary Fund (IMF), however, have responded to the financial pressures by stating an increased tolerance for higher public debt in the short-term, as well as temporary debt moratoriums. Relaxation of debt burdens will allow countries to respond to the crisis with fiscal policy; however, it could increase pressure to cut expenditures in the future.

These forecasts still hold an atypically large margin of error, particularly to the downside, since the forecasts rely on public health and economic variables that are difficult to predict. For example, the IMF’s October World Economic Outlook forecast includes a protracted recovery scenario due to difficulty containing the spread of the virus and a delayed release of a vaccine. In this scenario, they estimate global GDP is 3 percent lower in 2021 than in their baseline forecast. There is also greater uncertainty in these forecasts due to changes in consumer preferences and behavior, which have dramatically shifted from the pre-pandemic world. It is yet to be seen how many of these changes will persist in the future.

To read the full report, please click here.

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Bart Kenner is an Agricultural Economist in the Economic Research Service at the United States Department of Agriculture.

Hui Jiang is an Agricultural Economist in the Economic Research Service at the United States Department of Agriculture.

Agricultural Provisions of the U.S.-Mexico-Canada Agreement

USMCA’s Potential Trade Effects Beyond NAFTA

Many stakeholders have credited NAFTA with facilitating agricultural trade in North America by reducing tariffs and other market access barriers and by providing a stable and improved trading environment in the region. Studies conducted to estimate the incremental effect of USMCA indicate modest increases to regional trade in North America. For example, a study commissioned by the Farm Foundation estimated that USMCA would generate a net increase in annual U.S. agricultural exports to Canada of $450 million—about 1% of U.S. agricultural exports under NAFTA in 2017. Similarly, the U.S. International Trade Commission (USITC) assessed that U.S. agricultural exports would likely increase 1.1% in year six of USMCA implementation compared to its 2017 baseline export levels. Another study, conducted by the International Monetary Fund, estimated small gains in regional trade from USMCA compared with NAFTA; with respect to agriculture, it found modest gains to the region, primarily benefiting Canada. 

A study by economists at the University of Georgia says that USMCA may lead to losses for Georgia’s small fruit and vegetable producers because of subsidized imports from Mexico. The study was limited in scope and did not examine the broader impact of USMCA on other agricultural and nonagricultural sectors, other states, or the effects at the national level for the three USMCA signatories.

Issues for Congress

Congress has an interest in the implementation of USMCA because of its constitutional authority over foreign commerce and its long-standing involvement in U.S. farm policy.

Regarding market access, Congress may monitor Canada’s implementation of its commitments regarding U.S. dairy products, poultry products, and eggs. Some Members of Congress have raised concerns that Canada’s dairy TRQ allocation may not be consistent with its commitments under USMCA.

Congress may also monitor the implementation of the various nontariff provisions that the three countries agreed to under USMCA, such as assurances by Canada and Mexico that they will provide the same treatment to U.S. proprietary food formula and alcoholic beverages as they provide to their domestic products. Some Members of Congress have raised concerns that Mexico has not taken actions to fulfill its commitments regarding improving access for U.S. cheeses and agricultural biotechnology products46 and that Canada is making insufficient progress toward a protocol to allow the registration of U.S. wheat varieties in Canada.

Efforts by the USMCA signatories to establish a coordinated approach for greater harmonization of SPS rules, rules governing trade in products created with agricultural biotechnology, and rules pertaining to geographical indications may also be of interest for congressional oversight. This subject has drawn the attention of some Members of Congress, who have suggested that USTR and USDA use the GI provisions in USMCA as a model for other trade agreements. 

USMCA has also expanded access for Canadian peanut butter, dairy, sugar, and sugar-containing products to the United States. Congress may monitor how this improved access to the U.S. market affects U.S. producers in these sectors and the U.S. rural economy more broadly.

Congress may also use its oversight and legislative authority to address the effects of COVID-19 pandemic on greater integration of the North American market. The COVID-19 pandemic has placed unexpected stresses on food supply chains, with bottlenecks in farm labor, processing, transport, and logistics, particularly in developing countries such as Mexico. According to a report by a market intelligence company, Mexico has faced logistics and transportation difficulties including shortages of shipping containers, which could affect Mexico’s ability to trade perishable and packaged food products with the United States.

To download the full report, please click here.

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Anita Regmi is a Specialist in Agricultural Policy for the Congressional Research Service.