California’s Services Sector Stands to Benefit from TPP

by Natalie Hatour

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The Trans-Pacific Partnership (TPP) agreement is expected to open up markets in the Asia-Pacific region for American firms and boost U.S. services exports (see most recent TPP post). At the state-level, the TPP also has the potential to generate opportunities for Californian services trade.

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The trade ministers from the 12 TPP countries officially signed the trade deal in Auckland, New Zealand yesterday. While the agreement still needs to be ratified at the country-level and has quite a ways until it goes into full effect, this formal signing brings the TPP another step towards its fruition.

A large amount of trade already flows between the Golden State and the 12 TPP nations. In 2011, California services exports to six of the nations that already hold existing free trade agreements with the United States reached $15.7 billion, which only makes up about 18% of California’s global services exports.

An overview of the TPP’s potential for California by the International Trade Administration cites an expansion of opportunities in the following service sectors: entertainment, telecommunications, software licensing, the Internet industry, retailing, and logistics/express delivery. More specifically though, the TPP consists of provisions pertaining to the electronic commerce (e-commerce) and telecommunications industries.

E-Commerce

The Washington D.C.-based Coalition of Services Industries noted “…the TPP would be the [first FTA] with an e-commerce chapter, creating a precedent for future trade negotiations, including the Trade in Services Agreement (TiSA) and the Transatlantic Trade and Investment Partnership (TTIP).”

The e-commerce chapter highlights the free cross-border flow of data, without the requirement to build data centers in the other TPP country. By expanding the global use of internet and cloud-based services, this provision especially helps small and medium-sized enterprises (which generally do not have the financial capacity to build data centers in every market they serve) serve more markets. According to a Los Angeles Times article, the overall “…loosening of restrictions on data and e-commerce could have a profound effect in California, where Silicon Valley continues to be a global industry leader,” and where Silicon Beach is growing as a major tech startup hub.

Telecommunications

Telecommunications service providers will benefit from decreased barriers to market entry and anti-competitive policy. With the goal of ensuring efficient and reliable telecommunications networks, TPP countries have agreed to promote pro-competitive network access provisions (such as in territorial co-location and pole access, and in international mobile roaming services). The TPP chapter also outlines the 12 countries’ commitment to transparency in regulatory processes, and in procedures regarding scarce telecommunications resources. Mixing California’s innovative and high-quality telecommunications with a larger digital platform to reach, California service providers could have the opportunity to directly connect to the various consumer and industry-based markets in the Asia-Pacific region.

The TPP’s provisions on intellectual property and copyright (highlighted in more detail in our previous post) can also have a huge impact on California’s entertainment, consulting, and architecture industries. In an interview with Southern California Public Radio, Stephen Cheung, President of the World Center Los Angeles, discussed the potential of the TPP giving firms more access to other markets, which could potentially be “a [less inhibiting and] great source of income for some of these service providers…without having to have a joint agreement with [a local] company in that country.”

By opening new markets to California firms and laying out provisions that reduce the costs and risks of conducting business in the Asia-Pacific region, the TPP will help support an increase in services exports, trade and investment flows, and economic and job growth in California.

 

Natalie Hatour is a member of the project support team at the Global Research Institute of International Trade. She earned her Bachelor of Arts at UCLA and a Master of International Business at Hult International Business, San Francisco. She has worked with the U.S. Department of State in Los Angeles, as well as with the U.S. Commercial Service in San Francisco and San Jose. Integrating her professional experiences with her graduate studies, Natalie is passionate about promoting public-private partnerships to expand international business and development opportunities. To learn more about Ms. Hatour, please click here.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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TPP Opens Doors for the U.S. Services Sector

by Natalie Hatour

The Trans-Pacific Partnership (TPP) agreement was signed between the United States and 11 other countries on October 5, 2015. As the agreement undergoes approval by each member country, the TPP presents opportunities for the U.S. services sector, which contributes greatly to U.S. economic growth and competitiveness in the global economy.

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The TPP still awaits approval by the U.S. Congress. In his 2016 State of the Union address, President Obama prompted Congress to quickly approve the TPP, as it would “…open markets, protect workers and the environment, and advance American leadership in Asia…[supporting] more good jobs here….”

According to a World Bank report, the TPP is projected to generate an annual increase of $100 billion for the U.S. economy. Looking at trade flows, while the United States holds an overall trade deficit, it has a trade surplus in services trade alone. In 2013, the U.S. held the world’s largest trade surplus of $230.5 billion, made up largely by travel, licenses services, financial services and professional services. That surplus, which reflects a greater number of U.S. cross-border services exports than imports, has supported 4.2 million U.S. jobs.

The TPP consists of provisions pertaining to the services sector, specifically in cross-border trade in services, financial services, and intellectual property (IP).

Cross-border Trade in Services

The cross-border trade in services chapter outlines the elimination of barriers to services trade (such as controls on the number of suppliers or transactions), and the encouragement of cooperation in professional, licensing and delivery services. While the United States is the largest services trading nation, services only account for 30% of U.S. exports. By removing restrictions and bans that hurt small U.S. businesses, such as the required establishment of an overseas office before it can supply a service, the TPP could create opportunities for U.S. businesses.

Financial Services

Financial services will benefit from increased investment and market access. For instance, financial service providers can sell or provide new financial services (based on certain conditions outlined in the agreement) across borders without requiring the supplier to first establish operations in the other country. This agreement will not, however, override a member country’s ability to regulate its financial markets and institutions.

In 2013, TPP member countries accounted for one quarter of U.S. services trade and $16 billion in U.S. financial services exports. Mixed in with Asia-Pacific’s standing as one of the main drivers of the world economy, the TPP’s guidelines for financial services trade can help expand market access and growth on both sides.

Intellectual Property

Small businesses benefit from the TPP rules regarding intellectual property. It will be easier for businesses, especially small businesses, “to search, register, and protect IP rights in new markets.” By addressing common threats (like piracy and counterfeiting) and promoting transparent IP regulations (just a few of the challenges addressed in its IP chapter), the TPP may give U.S. innovators a less-risky platform and opportunity to provide their goods and services to new markets in the large and fast growing, but still developing, Asia-Pacific region.

With the removal of non-tariff barriers, the protection of cross-border IP and data flows and the overall increase in regulatory cooperation expected to come out of the TPP, more market access opportunities can open up in the Asia-Pacific region for American firms, leading to a rise in U.S. services exports.

 

Natalie Hatour is a member of the project support team at the Global Research Institute of International Trade. She earned her Bachelor of Arts at UCLA and a Master of International Business at Hult International Business, San Francisco. She has worked with the U.S. Department of State in Los Angeles, as well as with the U.S. Commercial Service in San Francisco and San Jose. Integrating her professional experiences with her graduate studies, Natalie is passionate about promoting public-private partnerships to expand international business and development opportunities. To learn more about Ms. Hatour, please click here.

Posted in Asia, Cross-regional Free Trade Agreements, Free Trade Agreements, Guest Posts, International Trade, Latin America and the Caribbean, North America, Services, Trans Pacific Partnership (TPP) Agreement | Tagged , , , , , | Leave a comment

What China’s Currency Devaluation Means for US-China Trade

Following last week’s news about China’s economic slowdown and stock market crashes, China, once again, has devalued its currency. Debates continue as to what this most recent currency devaluation will mean for the global market. For example, Reuters reporters, Lu Jianxin and Patrick Graham, write:

But the central bank’s fixings have also helped drive the yuan down this week against other major currencies, including a 3.5 percent fall against the yen and 0.8 percent against the euro.

That raised concerns that China might be aiming for a competitive devaluation to help its struggling exporters.

For this reason, we are re-posting a blog essay from August 2015, written by a recent member of the GRIIT project support team, Yasmin Aljarki. In this essay, she outlines how China’s currency devaluation effects U.S. goods in the Chinese market and vice-versa.

100 yuan

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After a central bank devaluation last week, China’s yuan fell to a four year low. This has sparked fears of a currency war brimming, as other countries also feel the pressure to devalue their currencies. Financial markets have been on edge since the devaluation, bringing China’s economic strength into question.

Financial experts have seen the move to devaluation as a benefit to China, allowing potential export growth given its recent slump in exports this past year. Yet, others argue that despite the stimulation to China’s declining export industry, a much bigger devaluation would be needed to have a meaningful effect on China’s large economy. Furthermore, a weaker yuan would lead to a rise in the cost of imports, which could result in the fall of stocks and further harm the economy. Therefore, the collateral effect of the devaluation seems to outweigh any substantial benefit it would have to China’s exporters.

China’s central bank, the People’s Bank of China, has reassured markets that the devaluation will not be a recurring trend. Yet, the impact of the devaluation on the United States is apparent. A weaker yuan means a stronger dollar, which in turn would hurt U.S. manufacturers exporting to China, as American goods become more expensive.

Therefore, the impact on trade is apparent. The close link between the yuan and the dollar has a significant effect on trade between these two countries. Importers and exporters should continue to monitor the yuan, although it is unexpected that a devaluation as significant as this one is to occur again systematically.

Yasmin Aljarki is a part of the project support team at the Global Research Institute of International Trade. She has earned her Bachelor of Law at University College London and a Master of Law at the University of Southern California. Yasmin is now transitioning to the world of business and international trade, whilst earning a postgraduate certificate in International Trade & Commerce at UCLA. To learn more about Ms. Aljarki, please click here.

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A Platform That Allows You to Reach A Growing Audience

International Trade Examiner (ITE) invites its readers to become active participants in the content that appears on the blog. You will be able to offer your own perspective on issues relating to the global market economy.

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As an invited expert, you will benefit by:

1. Sharing the platform with other experts,

2. Having your work reach ITE’s followers via Facebook, Twitter, Google+ and e-mail combined, and

3. Engaging the community in issues pertaining to international trade.

Instructions for Guest Bloggers:

Word count: 250-600 words

Submission guidelines:

  • Microsoft Word document with the blog post
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  • Photo/image (optional – must be the original photo or image created by the author and relates to the story)
  • E-mail your guest blog post to tradeexaminer@gmail.com

All work must be the original ideas and research of the author. Any work or image that has been copied directly from another source without permission will not be accepted.

All articles must be relevant to the blog and well written. A piece that is well-written is one that:

  • Raises an interesting question
  • Explains why the question and information provided are important (i.e., passes the So what? question)
  • Presents sound evidence
  • Includes your own analysis of the data provided
  • Draws a clear conclusion based on the evidence presented
  • Written for either an academic, policymaking or business audience

Any piece that does not relate to international trade, consists of numerous spelling/grammatical errors, fails to provide facts to support an argument and includes disrespectful and foul language will not be considered for publication.

Related Topics (not limited to these topics):

  • How your business has been impacted by international trade
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  • Opportunities and challenges of free trade for consumers
  • Free trade agreements

If your piece is accepted, we will inform you via e-mail along with the expected publication date. (Note: Guest posts in which business owners discuss how they have been affected by international trade will also appear in the Global Research Institute of International Trade’s newsletter – www.griit.org.)

Thank you for your interest in contributing to ITE. I look forward to collaborating with you. You can contact me at tradeexaminer@gmail.com with any questions and/or concerns.

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U.S. House of Representatives Vote to Re-open Ex-Im Bank

The U.S. House of Representatives voted to re-open the Export-Import Bank (commonly referred to as the Ex-Im Bank) on Tuesday. However, the U.S. Senate still has to vote on this matter, which may not take place until December.

Despite the political impact in U.S. Congress and economic impact for many U.S. businesses, many still have not even heard of the Ex-Im Bank. ITE describes the history and function of the Ex-Im Bank as well as shed light on the controversy surrounding this particular institution.

Boycott in the Senate! What will happen in the House tomorrow?

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History and Purpose

The Ex-Im Bank was created in 1934 as a part of Franklin D. Roosevelt’s New Deal program and to help carry out his foreign policy goals. Eight decades later, the Ex-Im Bank assists small businesses through its export credit insurance to cover lack of payment from the buyer in a foreign market,  credit program for international buyers of U.S. goods and services, loans, and other financing programs for foreign buyers seeking to purchase U.S. capital goods and services. The Ex-Im Bank offers loans that other banks would not offer due to the high risks involved in exporting. With these lofty goals, the effectiveness of the Ex-Im Bank is under scrutiny.

The Ex-Im Bank’s contract was scheduled to end on September 30, 2014. The bank was reauthorized only until the end of June 2015 instead of for another five year period. Consequently, as of July 1, 2015, the Ex-Im Bank has stopped functioning altogether.

Arguments Against Reauthorization

Opponents of reauthorization argue that the Ex-Im Bank is just another form of corporate welfare. For example, Forbes contributor Dan Ikenson writes:

The collective evidence demonstrates…that Ex-Im largesse serves the interests of some U.S. companies at the expense of other U.S. companies.  Ex-Im facilitates exports and job creation for some U.S. companies, but inhibits exports, domestic sales, and jobs at other U.S. companies…It has possibly affected a reshuffling of jobs between industries and firms, but taking resources from one pocket of the economy and putting them into the other pocket does not create jobs or growth.

A YouTube video argues that the Ex-Im Bank wastes tax payers’ dollars and benefit special interests.

According to a CBS news report, Enron received over $650 million on overseas projects from the Ex-Im Bank. When the company went bankrupt, it reportedly owed the Bank $512 million.

Support for Reauthorization

Proponents of the Ex-Im Bank claim that this institution creates jobs without relying on U.S. tax payer dollars. Instead, according to proponents, the Ex-Im Bank actually generates revenue for U.S. tax payers.

President Obama said in 2012:

By reauthorizing support for the Export-Import Bank, we’re helping thousands of businesses sell more of their products and services overseas, and, in the process, we’re helping them create jobs here at home. And we’re doing that at no extra cost to the taxpayer.

According to Ex-Im Bank data, its services have generated $2 billion for US taxpayers.

Even Sallie James, a Cato Institute policy analyst who opposes Ex-Im Bank reauthorization, admits that the Bank does not waste tax payer money.

It is true that the Ex-Im Bank has not imposed a net burden on taxpayers in recent years. It has used revenues from fees and premiums to fund its activities. Congress allows the Ex-Im Bank access to interest-free funds from the Treasury for program and administrative expenses, with the expectation that offsetting collections will repay the Treasury in full.

As a matter of fact, the Ex-Im Bank only assists two percent of  annual U.S. exporters.

Another argument in favor is that foreign countries subsidize their exporters far more than the United States, which gives U.S. exporters a competitive disadvantage. While governments throughout Asia provide guarantees, loans and insurance to exporters ranging from $24 to $111 billion, the United States only provides $15 billion.

Is the Ex-Im Bank Government Waste?

No. As the figures show, the private sector still provides the majority (98%) of loans and other financial resources that U.S. exporters need. The Bank accounts for the remaining two percent. The Ex-Im Bank does not rely on U.S. tax dollars to function.

The examples of Enron, Boeing and Solyndra play into people’s fears of big government and wasteful spending. (The video above focuses on Boeing and Solyndra as examples of wasting taxpayer dollars to fund Ex-Im Bank.) However,  pointing to these companies as examples merely ignores the number of successful exporting companies that have actually benefitted from the Ex-Im Bank. For this reason, there is a strong push back from business associations and their members.

Lastly, because so few people are aware of the Ex-Im Bank, it is just an easy target. Opponents can attack such a small portion of export financing and pretend that the end of the Ex-Im Bank will have huge implications. Failure to reauthorize the Ex-Im Bank will only result in a number of business owners in general being locked out of the international market.

That is why U.S. business owners should pay attention to the political angle of international trade and get involved.

Do you think that U.S. Congress should reauthorize the Ex-Im Bank?

 See GPS’ Fareed Zakaria’s take from Sunday, July 6, 2014 at http://globalpublicsquare.blogs.cnn.com/2014/07/07/why-the-export-import-bank-matters/

Reprint from July 10, 2014 (with updates)

 

Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

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