Brexit, Not All Bad

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Background

The aim of EU was to avoid another devastating war in Europe by making its countries economically interdependent. Laws are designed to allow free movement of goods, services, money and people within EU member states.

Despite the undoubted idealism of its founders and the good intentions of so many leaders, the EU has proved a failure on so many fronts. EU regulation has overridden UK’s sovereignty. The trade agreements have limited UK’s growth potential with the rest of the world. EU immigration policies have benefited non-Brinton Europeans more than Britons. Far from providing security in an uncertain world, the EU’s policies have become a source of instability and insecurity.

Politics

Only 3.6% of the European Commission members are British, and the European Commission is unelected, which has the monopoly of proposing all EU legislation which it does in secret. It also has the power to issue regulations which are automatically binding in all member states.

The British Parliament will only be able to opt out of EU laws if the British government is able to get 55% of the other EU nations’ parliaments to join it in cancelling the law. EU laws are automatically incorporated into British laws without the consent of British Parliament.

Economics

Falling EU Economy

Figure 1: EU GDP to Global GDPdata.png

The share of EU economy has been falling, and it stands at 23.7% of global GDP today, and it is projected to decline even further.(See Figure 1) Plus, UK is now exporting less to the EU than they did 10 years ago. 51.4% of UK’s current exports are to EU, while only 5% of UK’s business exports are to EU. The EU promotes the trade in goods over services – it was not built for Britain, which is a world leader in services, especially financial services. The UK’s exports to the rest of the world are growing twice as fast as the UK’s exports to the EU.(See Figure 2) Britain is the only EU state that sells more outside the union than to other members.

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Growing Global Market

The decline of the portion of EU GDP to global GDP indicates more market growth opportunities outside of Europe. The UK’s three fastest growing export markets are outside the EU(Chile, China and the United Arab Emirates) (See Chart 1), and leaving EU will provide UK with the freedom to to negotiate its own free trade deals.

Chart 1: Top 10 countries ranked by UK export growth, 2013 versus 2012

2013 value (£m) 2013 rank % of total UK exports 2012 value (£m) % change year-on-year
Chile 1,168 40 0.4 677 72.5
China 12,400 7 4.1 10,538 17.7
United Arab Emirates 6,228 10 2.0 5,364 16.1
Hungary 1,254 37 0.4 1,111 12.9
India 5,261 14 1.7 4,666 12.8
Poland 3,896 22 1.3 3,458 12.7
Turkey 4,102 20 1.3 3,684 11.3
Saudi Arabia 3,398 24 1.1 3,087 10.1
Qatar 1,529 33 0.5 1,393 9.8
Irish Republic 19,024 5 6.2 17,532 8.5

Although EU has been actively negotiating trade deals with major economies like Japan, India and the United Arab Emirates, but they have all either been suspended or are barely moving. For example, EU has been negotiating free trade deals with India, the biggest emerging market, for more than 8 years, but it is going nowhere, because there are so many interest groups in EU, and it is nearly impossible to reach an agreement. However, Iceland, not a member of EU, has successfully reached a free trade deal with China two years ago. Without doubt, a bigger and stronger country like UK will  have no difficulty in having better deals with the rest of the world.

As the 5th largest economy in the world, UK has some power and influence so that it will not necessarily lose all of benefits from EU. Some countries, like New Zealand, have already stated interest in maintaining a trade agreement with the UK even if it leaves the EU.

Immediate Cost Saving

Leaving the EU would result in an immediate cost saving, as the country would no longer contribute to the EU budget. This money, approximately 340 million euros per week, can be used to increase the education budget and also invest in scientific research technology development. Most importantly, this money can be used to reduce the government deficit.

Immigration

UK has lost its control on boarders because of EU’s immigration policy. Basically, everyone with an EU passport can enter UK, no matter you are a criminal or a terrorist. However, for non-EU residents, UK has placed a number limit on the people allowed working in the UK from outside the EU. This number is usually reached within 6 months every year. This is interpreted as an discrimination against people outside the EU. This policy is also bad for the development of UK, as talents from EU cannot work there once the cap is reached.

Conclusion

Although the mass media are claiming that leaving EU will do no good to both UK and EU, it is not necessarily true. After leaving EU, UK will regain the control of its policies as well as its boarders, and more importantly, UK will have the opportunity to have freer trade deals with other countries.

For EU, it is time for them to implement reforms to the bloc. The idea of making the whole Europe to function like one single country is always a utopia. With different development stages and cultural backgrounds, member countries are difficult to reach an agreement. The EU should a bloc of countries that trade together freely, other than the second United States.

 

Resources:

http://time.com/4207785/these-5-facts-explain-the-debate-over-brexit/

http://www.telegraph.co.uk/finance/comment/11968813/Three-reasons-why-Britain-needs-Brexit.html 

http://www.bbc.co.uk/guides/zgjwtyc 

http://www.telegraph.co.uk/finance/economics/11967049/Brexit-is-a-life-or-death-matter-for-Britains-farmers.html

http://www.independent.co.uk/news/uk/politics/eu-referendum-michael-goves-full-statement-on-why-he-is-backing-brexit-a6886221.html

http://www.telegraph.co.uk/news/newstopics/eureferendum/12175398/EU-Referendum-everything-you-need-to-know-about-British-sovereignty.html

https://uk.finance.yahoo.com/news/2020-eu-members-adopt-euro-170015496.html

http://www.telegraph.co.uk/finance/economics/10935617/After-2020-all-EU-members-will-have-to-adopt-the-euro.html

https://www.gov.uk/government/speeches/pms-statement-following-european-council-meeting-19-february-2016

https://www.youtube.com/watch?v=ZbEZNhFY9TA

http://www.economist.com/blogs/graphicdetail/2016/02/graphics-britain-s-referendum-eu-membership

https://www.youtube.com/watch?v=7IWOjb86-EM

http://www.ft.com/intl/cms/s/3/6df1db7a-e159-11e5-8d9b-e88a2a889797.html#axzz44Mdpnmer

http://www.telegraph.co.uk/news/2016/04/01/french-more-keen-on-brexit-than-british-says-major-poll/

http://www.economist.com/news/britain/21695958-hostility-large-scale-european-union-migration-could-decide-referendum-let-them-not-come

http://leave.eu/

 

 

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New Tax Policy on China’s Cross-border E-commerce: Is it a disaster?

Screen Shot 2016-04-16 at 10.04.18 AMAn arrivals area at Shanghai airport is seen littered with goods that Chinese tourists have chosen to dump after their overseas trips, rather than pay hefty new import duties. Photo: weibo.com

Last week, the photo posted on Weibo and other public platforms intrigued a hot discussion, showing numerous skin-care products scattered on the floor at the customs check area at Pudong International in Shanghai. Most people are worried about the new tax policy. It is said that Chinese tourists who bring in foreign goods worth over RMB 5,000 are required to pay hefty tax. And they would be treated as smugglers if they carry suitcases full of luxury items. Some students who are going back for summer vocation have already packed up their luggage and are even angry with the sudden action by the customs.

Actually, it is not the case. It is a rumor for the reason that such policy on travelers is an existed one. People have got used to lax implementation of rules in the past, but airports Customs have now decided to take the new rule seriously.

China sets new online import tax rules – source: youtube

 

On April 8, 2016, China did kick off a new tax regime for cross-border e-commerce trading, triggering mixed feelings among buyers and sellers on both side. According to the new regulation, products purchased online will no longer be treated as personal postal articles but as imported goods, which carry tariffs, import VAT and consumption tax.

Screen Shot 2016-04-16 at 7.11.43 AM.pngsource: diapiper-insights/publications-tax update

Besides, the new policy only allows a maximum of RMB 2,000 per single cross-border transaction and a maximum of RMB 20,000 per person each year. Goods that exceed these limits will be levied the full tax for general trade, which will be a disaster for the people live on cross-border trading.

Not surprisingly, the public believes that consumers will be forced to pay more than usual when they ship online. The new tax regulation will make imported products more expensive on e-commerce platforms, including baby formula, home appliances and clothes and shoes. However, other than the rising price on luxuries products, the new tax regime will bring about some advantages to China.

First, it can stimulate the consumption of domestic products rather than the imported goods, which is part of Beijing’s efforts to stem capital outflow. And it will also push the domestic producers to improve the quality of domestic products in order to attract the consumers.

Second, the new policy can speed up customs clearance so that consumers are able to receive most orders from overseas within two weeks. In the past, it could take two to five months if it need customs clearance.

Third, it can help the Chinese government to fight with the smugglers. Since some Chinese prefer the quality of imported products rather than the domestic ones. And most luxuries products are much cheaper abroad than bought in China. Many people abroad even live on buying products abroad and then mail them to the Chinese consumers. They will mail them as private products to avoid the taxes and make a profit with the difference. It is not easy for the customs to supervise since it is a grey zone. You cannot imagine how large the industry is. While with the new tax policy, the profit will decrease by a large proportion so that it will not be an attractive business. Qiu Huang, director of cross-border platform under e-commerce platform JD.com, said that though the new policy may deter some consumers’ desire to buy, it will benefit the whole industry in the long run. The new policy will benefit traditional imports and real economy, he said, adding that it will also prevent tax evasion and improve market order. Companies with more product variety and higher ability to readjust supply chains and products structure will get more development chances, while those that solely relied on price competition and imported products through illegal means will be regulated, he said.

Last but not least, in surveys, Chinese consumers list product safety and quality as top desires for buying foreign products online, so price increases may have effects not that large. For example, according to the survey, Zhang Jingxue, who is a staff of Tsinghua University as well as a young mother, believes that the price growth for baby formula will have limited influence. “Milk powder is a daily necessity, and I think a 10 percent price rise will not change the consumption habit for most people,” she said.

In conclusion, everything has its pros and cons. For the new tax policy of China, I will say the long-term economic benefits will outweigh the inconvenience brought to the consumers.

References:

Tax policy won’t derail online retail sector: http://www.ecns.cn/2016/04-13/206478.shtml

China imposes new taxes on goods purchased through foreign websites: https://www.internetretailer.com/2016/04/08/china-imposes-new-taxes-goods-bought-through-foreign-websites

Xinhua Insight: China’s cross-border e-commerce bids farewell to “tax-free” age: http://news.xinhuanet.com/english/2016-04/08/c_135262157.htm

China increases taxes on cross-border e-commerce retail imports:https://www.dlapiper.com/en/us/insights/publications/2016/04/china-increases-taxes/

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Brexit – Will Britain’s trade be any freer by leaving the EU

On Thursday 23 June, Britain will hold a referendum on whether or not to remain a member of the European Union. Prime Minister David Cameron’s Conservative Party is deeply divided on ‘Brexit’. Much of this debate has revolved around the implications of an exit for British trade and investment. While Britain may be relieved from some EU constraints with an exit, it is doubtful that Britain will enjoy more regulatory sovereignty.

cameron_wide-2076677c3d27ea7c28f027632e896a02ec0efc16-s800-c85Dan Kitwood/Getty Images

For those on the exit side, they say that membership of the single market imposes too many regulations on Britain, and that Britain’s trade with countries outside Europe would be higher if it left. Those on the other side counter that the single market has boosted trade and investment between Britain and the rest of the EU, and conclude that leaving would weaken Britain’s economy.

The EU’s single market employs three tools to boost trade. First, it eliminates tariffs on goods. Second, it establishes the right of companies and people to sell their goods, services or labor, or to invest, in other member-states. Third, it reduces the cost of potential exporters having to comply with 28 different rule books.

However, there are two ways in which the UK’s membership of the single market may constrain its trade with non-European countries. The first is membership of the EU’s customs union. Trade is tariff-free between member-states, but the EU sets tariffs on imports from outside the bloc. The second is the way in which the EU removes non-tariff barriers: in doing so, it may regulate at a European level in a way that makes trade with non-European countries more difficult. Together, these may divert British trade from lower cost producers outside the EU, to higher cost ones inside. If more trade is diverted than created, Britain may gain by leaving the single market.

But a question here it that – if Britain exit, would it achieve the result of a more favorable trading environment that it desires? Or, would it effectively negotiate its own right within or outside the EU? It is clear that if Britain were to from full membership of the EU Britain, it will need to erect and manage new trading relationships. Among all the options, hardly any is straightforward and favorable for Britain.

One option is to sign a free trade agreement with EU. However, an FTA with the EU would not leave Britain free to set its own regulations. As part of any deal with the EU to create an FTA, the EU would make demands on labor market rules and health and safety, and in all likelihood competition policy would be subject to mutual regulatory oversight.

Another option is that Britain join the European Economic Area (EEA). British firms would have unimpeded access to the single market and would continue to benefit from the EU’s trade deals with other countries. But Britain would have no say over EU trade policy, and in order to qualify for EEA membership, the UK would still have to abide by EU regulations while enjoying very little input into the drafting of those regulations.Also, the UK could opt to trade with the EU under WTO rules. The UK would not have to comply with EU regulations, but it would face the EU’s Common External Tariff (CET) and substantial NTBs to trade.

Also, the UK could opt to trade with the EU under WTO rules. The UK would not have to comply with EU regulations, but it would face the EU’s Common External Tariff (CET) and substantial NTBs to trade.

Given the constraints outlined above, it is doubtful that UK would be any freer outside the EU. It would not be as powerful as it may seem in negotiating an FTA with EU. Meanwhile, it would find it very difficult to negotiate trade agreements with non-EU countries and it would hardly be better off by trading under other rules than the ones it currently enjoys. So, would the UK realize its envisage of liberalization of trade through Brexit? Probably not.

 

References:

http://www.abc.net.au/radionational/programs/rearvision/what-happens-if-britain-leaves-the-eu/7248152

https://www.cer.org.uk/insights/would-britain’s-trade-be-freer-outside-eu

http://www.global-counsel.co.uk/system/files/publications/Global_Counsel_Impact_of_Brexit_June_2015.pdf

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How the US Could Fix Tax Inversions

The Obama administration is attempting to tighten the US tax code. The modifications thus far aim to make it more difficult for companies to avoid federal corporate profits without making it illegal. Doing so requires legislation from Congress (U.S. Department of the Treasury). In response to globalization, corporations developed massive legal teams to lower their tax rate, finding loopholes that provide tax exemptions (Collins, Shackelford 152). Tax inversions – or the acquisition of a US company by a foreign parent – allow corporations to pay their taxes to a different government with a lower tax rate. Outside nations are incentivized to lower their tax rates (Devereux and Loretz 765). Tax inversions have received a lot of attention in the US press in particular, but also cause problems in the larger picture of world trade. The United States government can and should take action to abate the practice of corporate tax inversions to benefit global trade as a whole.图片 1       Source: OECD

A corporate tax inversion is a legal practice whereby a corporation acquires a smaller subsidiary abroad to change its country of domicile and take advantage of a more favorable tax rate. US multinational corporations prefer this as they pay one of the world’s highest corporate tax rates at about 35 percent (OECD). While inversions are technically legal, they deprive the domestic government of tax revenue that would have been collected on the foreign profits. US multi-national corporations face a higher tax burden than US domestic-only corporations (Collins, Shackelford 167). That is quite a bizarre finding. Essentially, an independent company headquartered and operating in the United States pays a higher tax rate than an identical company owned by a foreign corporation. The US multi-national pays a higher tax rate on profits earned in the US, and it also pays the same tax rate on profits earned abroad. Meanwhile, the foreign multinational pays the foreign tax rate on its profits. Tax inversions have an impact domestically because they deprive the government of tax revenue, while the corporation continues to benefit from domestic government spending on infrastructure, technology, and legal systems (Obama).(click Obama to watch the video). However, tax inversions are not just an issue for the US.

The World Trade Organization (WTO) repeatedly condemns such practices of “Extra-Territorial Income Exclusion” (ETI). In 2006 for example, the WTO states: “The US FSC/ETI tax subsidies have been declared in violation of WTO rules by a WTO panel, the two WTO Appellate Body reports and two WTO compliance panels” (Delegation of the EU to the UN). Tax inversions can incentivize competition among governments in a so-called “race to the bottom” to lower tax rates to draw rich companies and increase revenue. As Devereux and Loretz found, “tax competition in its most extreme form may not be a desirable outcome” (765). Just because a company attracts many corporations does not mean it will maximize tax revenue. It is in the best interest of all participants in world trade, that sovereign nations ban favorable tax treatment for companies abroad (Devereux and Loretz 765). The WTO has allowed European Union nations to enforce economic sanctions on the US as a deterrent for tax inversions (Delegation of the EU to the UN). As previously mentioned, the Obama administration has attempted to make tax inversions more complicated by plugging some of the leaks in the US tax code (U.S. Department of the Treasury). Despite the efforts made thus far, the real solution lies in the US government’s ability to reform tax policy, so that US companies have no incentive to turn themselves into US multi-nationals.

True corporate tax reform will allow the US to eliminate the incentives for tax inversions. One way to do this would be to tax companies based on where profits are earned only. Lowering the tax rate removes part of the incentive for US companies to seek lower tax rates. Taxing profits where they are earned ensures that a company would still need to pay the US tax rate on profits earned domestically. Many countries already employ a territorial system. Relatively few companies have completed corporate tax inversions so far, but the practice is on the rise. It would serve world trade well to address the problem before it becomes even more complex

Works Cited

Collins, Julie H., and Douglas A. Shackelford. “Do U.S. Multinationals Face Different Tax Burdens Than Do Other Companies?”. Tax Policy and the Economy 17 (2003): 141–168. Web.

Devereux, Michael P., and Simon Loretz. “WHAT DO WE KNOW ABOUT CORPORATE TAX COMPETITION?”. National Tax Journal 66.3 (2013): 745–773. Web.

Obama, Barack. “Remarks by the President on the Economy.” The White House. The White House, 05 Apr. 2016. Web. 12 Apr. 2016. https://www.whitehouse.gov/the-press-office/2016/04/05/remarks-president-economy-0

Pomerleau, Kyle. “Everything You Need to Know About Corporate Inversions.” Tax Foundation. Tax Foundation, 04 Aug. 2014. Web. 13 April. 2016.

https://www.treasury.gov/press-center/press-releases/Pages/jl0405.aspx

“Table II.1. Corporate Income Tax Rate.” Table II.1. Corporate Income Tax Rate. Organisation for Economic Co-operation and Development, 12 Apr. 2016. Web. 12 Apr. 2016. https://stats.oecd.org/Index.aspx?DataSetCode=TABLE

“WTO Condemns US Tax Subsidies; EU Calls on US to End Illegal Tax Breaks for Boeing, Others.” EU@UN –. Delegation of the European Union to the United Nations, 13 Feb. 2006. Web. 11 Apr. 2016.

http://eu-un.europa.eu/articles/en/article_5683_en.htm

 

 

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Korean Wave Boots Economic Growth

Introduction:

Korean Wave or hallyu refers to the growing popularity of Korean entertainment, culture, dramas and music in other countries, particularly in East and Southeast Asia. China and Japan were first exposed to South Korean dramas in 1990s. However, Korean dramas also became popular in Middle Eastern countries, such as Iran. With the exports of Korean dramas, Kpop music sprung up.

The Korean government took full advantage of such culture phenomenon and utilize its media industries to expand exports of Korean dramas and pop music. This expansion has greatly contributed to South Korea’s economy.

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Korean wave seems to have entered a golden age. Such culture phenomenon not only benefits to tourism and exports of related products, but also help improve Korea’s national image. Korean governments are spending a lot of money in developing such business. In 2013, the South Korean government budget related to Korean Wave increased by 27.3%, equivalent to $68.7 million. Thanks to Korean Wave, improved national image leads to increasing exports, and therefore leads to the growth of manufacturing industry.

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Hallyu definitely has positive influences on the economy of South Korea. According to analysis conducted by Hyuandai Research Institute, when exports of culture products increase by 1%, exports of all consumer goods increase by 0.03%. Economic effects of Korean Wave-related business, including production, added value and employment, reach $4.87 billion per year.

When it comes to China, it is reported that the Korean Wave started in China sometime around 1997 when the drama What is Love All About provoked great reactions among Chinese audience after its broadcast. Since then, Korean television dramas have taken airtime on television channels with faster and faster speed. With the development of Internet, more and more Korean drama resources could be watched online. Because of high popularity, Chinese video websites give a long price for popular Korean dramas. More and more people in China are willing to pay the copyright.

Korean stars have made a big impact on the consumer culture, including food, fashion, make-up trends and even plastic surgery. Overseas fans travel to Korea to buy those products. The economic effect of the Hallyu was estimated to be $11.6 billion in 2014, an analysis by Korea Trade-investment Promotion Agency and the Korea Foundation for International Culture Exchange. And the cosmetics industry enjoyed the biggest growth, increase by 57%, as tourist from other countries vising Korea boosted sales. Tourism also left positive effect on employment since the industry created 24,520 jobs.

There is no doubt that Hallyu greatly stimulate exports. Exports of culture content and consumer goods increased by 8.4% in 2014, which was $6.16 billion. The increase is 2.3% higher than the country’s total export growth in 2013, indicating that Korean Wave led in overall exports.

As Hallyu moves towards the future, it will have a greater role in South Korea’s economy.

 

Reference:

http://www.elon.edu/docs/e-web/academics/communications/research/vol2no1/09suejin.pdf

http://blogs.transparent.com/korean/the-korean-wave/

http://businesskorea.co.kr/english/news/lifestyle/5623-hallyu-splash-economic-effects-korean-wave-underwhelming-past-15-years

http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=3003773

 

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World Trade: The Real Picture

World has witnessed a faster GDP growth than growth in global trade since Great Recession. Numerous attempts have been made to explain this lackluster growth in global trade. Besides, it has raised questions on the cause of this slow growth time and again. The value of global goods trade fell by 13.8% in 2015 as per the recent reports from CPB World Trade Monitor. Some of the probable explanations have also been provided like falling commodity prices, the rising USD, stagnant demand along with slow economic growth mainly in emerging markets. Blame also goes to rise in protectionism policies and lack of liberalization of new trade. Sluggish demand and factor prices are some of the cyclical factors which are responsible for almost 75% of the lowering of trade, as published by McKinsey Global Institute. A faction of economist also Speculate that reasons like development of global supply chains and China increasing its dependency from exports to domestic consumption led growth are some of the structural issues along with cyclical factors that explains the slowdown substantially.

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Figure 1 World and regional trade volume growth since mid-2009 Note: Trade volume measured using average of merchandise export and import volume indices, seasonally adjusted; baseline quarter: 2009Q3.

SourceWTO and UNCTAD

The situation looks less severe in terms of growth. Average export and import volume indices, considered as metrics of global and regional trade, have increased since the end of financial crisis in 2009Q3. Since then, global trade has grown by more than 30 percent in cumulative terms. As the chart depicts, Asia traded more than 45% late last year as compared to 6 years ago. It outwitted the rest of the region in merchandise trade. However, one cannot deny the trend of sluggish growth since 2009 which is evident from the second chart.

Zilinsky-figure-2

Figure 2 Growth in global trade volume, quarter-over-quarter Source: WTO and UNCTAD

These depressing figures show up in the middle of a series of meetings which inaugurated with governors of central bank and finance ministers meeting in Shanghai at their G-20 summit of February 2016. These series of meetings would continue until September 2016 G-20 Leaders Summit. Though the objective of structural reform did not mention trade facilitation and liberalization, the ministers in these meetings acknowledged the crucial contribution of trade and investment growth with their special emphasis on weaknesses.

With Chinese leadership and a revamped working group on investment and trade, trade received some special attention on the agenda of G-20. There were three main issues very close to trade being discussed in their first meeting in January 2016. These were mainly, building of Global Value chains, multilateral trading system and promoting global investment. Greater involvement of all the parties is required. However, starting from conclusion of WTO Doha round to executing the 2008 moratorium on protectionist measures and restrictions on new trade, a wide range of G-20 commitments in the history are yet to be realized.

After global financial crisis G-20 platform was crucial in grooming a mutual understanding that in the act of favoring domestic markets by raising tariffs, nations are actually pursuing dirty economics. It is however found that there have been over 3500 new protectionist rulings by G-20 members since 2008. Moreover, 81% of these protectionist measures are still active as of today. This is an indication of how jurisdictions have distorted the world market by their policies of indirect, non-tariff barriers to trade and competition. Some of these are subsidies to local players and unnecessary requirements at the local level. It is high time governments realize that these inefficient trade-related rulings not hamper domestic economic performance but also hinder efficient allocation of resources and affect growth in trade adversely.

References:

Galston, W. A. (2016). The Trans-Pacific partnership: The view from the Obama administration. The Brookings Institute Research, http://www.brookings.edu/blogs/fixgov/posts/2016/01/28-obama-perspective-on-tpp-galston; visited on March 21st, 2016

Mauldin, W. (2015). Top house democrat on trade Sander Levin rejects Pacific agreement; The Wall Street Journal; http://blogs.wsj.com/washwire/2016/02/18/top-house-democrat-on-trade-sander-levin-rejects-pacific-agreement/; visited on March 21st, 2016

Lawrence, R. Z. (2016). Studies of TPP: Which is Credible?; Peterson Institute for International Economics; http://blogs.piie.com/trade/?p=553; visited on March 21st, 2016

Mauldin, W. (2015). The Trans-pacific in 11 questions; The Wall Street Journal; http://blogs.wsj.com/briefly/2015/10/05/trans-pacific-partnership-at-a-glance-2/; visited on March 21st, 2016

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Environmental Effects of Trade – Development and Destruction

Behind its glorious appearance of hiking GDP, international trade has also caused irreversible destruction on ecosystem, especially for developing countries in the tropical area. The development of comparative advantages for emerging markets and deepening of global economy interconnection come with a price in terms of pollution, greenhouse gases, deforestation and desertification.

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Tropical Countries suffer

International trade can affect sustainable economic development and environment several ways. First, the profit-seeking pressure from free trade can encourage production activities to shift to places where the environment is less sustainable, such as coffee beans planting and logging in Tropical countries. Second, trade liberalization changes the pattern and level of world consumption as well as production, and the effects of these changes go beyond the economic terms into both environmental and ideology terms. Third, trade influences the process of economic development, creating fresh opportunities for the profitable use of productive resources.

Since the 1980s, the increasing the demand for agriculture, crop and livestock products grew accompanying with the rising global trade. With relatively low competitive products, developing started their trade by exporting natural resources in exchange of the capital-intensive goods such as machinery. As a matter of fact, countries in the tropics are among the largest global exporters of key agricultural commodities such as oil palm, rice, soybean, sugarcane and cassava.

However, the only choice to catching up with the surging demand with limited territory is to convert their forest for agricultures and livestock production, which caused a unmeasurable environmental loss totaling US$1.7 trillion in terms of biological diversity and ecosystem balance. The red list on International Union for Conservation of Nature and Nature Resources states that up to 30% of species threats are due to international trade with developed countries such as the UK and US in products grown using destructive practices.

Amazon Forest – More Worries Ahead

chart-amazonThe dispute on Amazon forest has been a hot environmental issue for a long time. Although the primary cause for deforestation in the Amazon forest is the mismanagement of Brazil government regarding the excessive cattle ranching and commercial logging, international trade does play an crucial role in accelerating the process. Natural depletion of fuel woods, fruits, nuts, mushrooms has push the eco-system in the verge of collapse and an urgent argument of international  collaboration are proposed.

In 2007, Greenpeace also came up with a plan to stop deforestation in the Amazon by creating financial incentives to promote forest protection and in 2009 climate change negotiations in Copenhagen, the “Redd” mechanism proposed that richer countries could offset their carbon emissions by paying to maintain forests in tropical regions. By no means, we can see from the charts above that Brazil did implement sone of these suggestions, yet more aggressive and  efficient way of protect this ‘lung of earth’ shall be in plane in the following years.

Green Label – Positive Progress

Eco-Friendly-Packaging
From 1990s, the European Council Regulation encouraged “environmentally-friendly” packaging of all products traded within the EU. Plenty of manufacturers viewed this “green packaging” measurement as discriminatory and a barrier to free trade, especially for Germany which failed to get approval from EU for its supposedly “eco-friendly” packaging. Although the large scale of adjustment for production line was not cost effective at the time, this policy proved to be a helpful step toward an environmentally-sound Union.

Next Step

Traditionally, we argue that free trade can benefit countries and create a win-win for both parties, yet taking the environmental factor into account, there are indeed winer and loser in trade: For the importing country, any decrease in resource depletion of the imported product represents an additional gain; For the exporting country, the environmental cost of supplying the global market is am additional loss. 

However, the trade-off between economic development and environmental destruction is reconcilable. As incomes rise, demands on resources increase, but at the same time, income growth can also lead to more effective demands for better environmental quality.

In addition, increased incomes make investment in resource-conserving strategies both more affordable and more attractive. Higher incomes and better employment opportunities widen the range of choices thus leaving fewer rural people dependent on environmentally fragile areas, such as steep hillsides, for subsistence.

Technology enhancement for the production process is important for sustainable growth, and an international consensus to put the healthy eco-system in the priority shall be settled sooner than later for the greater good.

Reference:

http://inhabitat.com/the-worlds-love-of-coffee-is-causing-the-destruction-of-natural-habitats-and-ecosystems/

http://blogs.nature.com/news/2012/06/international-trade-puts-species-in-peril.html

https://www.sciencedaily.com/releases/2016/03/160323082517

http://www.theguardian.com/environment/2009/may/31/cattle-trade-brazil-greenpeace-amazon-deforestation

htmhttp://www1.american.edu/ted/projects/tedcross/xtrop14.htm

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