Are We Witnessing The Demise of the Box?

Will the World Reject the Undeniable Benefits of Globalization?

This article originally appeared in Global Trade Magazine on August 8, 2016

Cargo Container

Marc Levinson’s book The Box, published on the fiftieth anniversary of the first container voyage in April 1956, tells the story of how a simple container, made a phenomenon known as globalization possible.

As the title suggests, the box developed by Malcom McLean, founder of a trucking company based in Red Springs, North Carolina, and one of the company’s original drivers, made the world smaller and the world economy bigger by the introduction of intermodal shipping which connected markets globally.

What exactly is globalization?

It seems to have different meanings to different people. It affects not only international commerce but also ideas and governance. As far as trade goes, globalization is a very old story with trade routes dating back to the Roman Empire and the Middle Ages in Europe. But containerization and intermodal transportation brought globalization to new heights and created the global marketplace that we take for granted today.

What has globalization brought us? It has brought economic growth but not everywhere. It has created jobs but it has also displaced workers in certain industries. It brings consumers more choice and lower prices, but some question whether consumers enjoy the benefit of lower prices with currency manipulation. It has given businesses access to foreign markets, but this is no easy feat for small and medium-sized enterprises given crossborder regulatory and other impediments and risk inherent in doing business in emerging countries.

On the positive side, let’s take the example of South Korea. In the four decades since the Korean War, South Korea has been transformed from a developing country to one of Asia’s most vibrant, manufacturing powerhouses that has virtually eradicated poverty, malnutrition, and illiteracy. It has increased its per capita gross domestic product (GDP) more quickly than any of its neighbors since the 1960s, according to McKinsey & Co.

In an article entitled “Globalization: What the West can learn from Asia,” Iiaz Nabi states that “[g]lobalization has been hugely beneficial to Asia. Japan, South Korea, Taiwan, Malaysia, Singapore, Hong Kong, Thailand, and have reaped lasting benefits from worldwide investment flows, knowledge exchanges, and rapid economic growth. And while globalization undoubtedly made the rich even richer, the poor also benefited.”

So how has the anti-globalization movement evolved? Why has the Trans-Pacific Partnership (TPP) become a flash point in the U.S. Presidential election? Why is there such a clamor to close borders to the stuff we buy every day?

Anti-trade sentiment is not new. It has been brewing for some time. Demonstrations protesting globalization date back to 1988 at the annual meetings of the International Monetary Fund (IMF) and have recurred in Paris at the G7 meetings in 1989, at the 50th anniversary of the IMF and the World Bank in Madrid in 1994, and at the World Trade Organization (WTO) Ministerial Conference in Seattle in 1999. It has now become commonplace for protests to occur on the sidelines of meetings of international organizations and other summits.

In 2001, Barry Bosworth and Philip Gordon explained in their Brookings article “Managing a Globalizing World: An Overview” that globalization was so controversial because it creates both winners and losers, referring to the workers in U.S. manufacturing whose jobs were displaced through trade as losers in globalization. They also noted that most countries make only minimal efforts to compensate the losers and pointed to the domestic conflicts long evident in the U.S. in the textile, steel and automobile industries.

Brookings’ Nabi explains that Asia has not suffered from the same political blowback that western developed countries have experienced because Asian governments have invested heavily in human capital by education and health as well as made public investment in infrastructure to attract foreign investment.

Boswell and Gordon also point to the disparities between developed and developing countries, with richer countries reaping the benefits of global trade and investment. As they point out, most economists contend that the poorer countries of the world need more integration into global economy for access to capital and trade and investment necessary to raise living standards. This very disparity between poor and rich countries has created difficulties for the WTO and has arguably led to its lack of success in its Doha Development Round.

Are we ready to examine how to reap the greatest benefits of globalization for all citizens and countries? Are we ready to have an intelligent discussion? Or have we forgotten the lessons of history like the disastrous economic effects of Smoot-Hawley tariffs?

While globalization needs some tweaking, we should take note of one of the major successes of globalization: poverty alleviation. In 201l, Laurence Chandy and Geoffrey Gertz reported in YaleGlobal that the world was in the midst of the fastest period of poverty reduction ever seen. While they acknowledged that the hows and whys of this trend will be debated for years to come, they state that the broader trends of the rise of globalization, the spread of capitalism, and the improving quality of economic governance have enabled the developing world to begin to close the gap between rich and poor countries.

Is the world in 2016 at a tipping point on globalization? Should we throw out the baby with the bath water and stop putting stuff in those boxes that traverse our oceans and travel our highways and rail corridors to our stores and manufacturing facilities?

Evelyn M. Suarez is expressing her personal views as a Washington, D.C.-based international trade lawyer and consultant. She is Founder and Principal of The Suarez Firm and is President of the Association of Women in International Trade (WIIT).

Will the Elephant in the Room Trample Trans-Atlantic Business?

Originally published on the WIIT blog on July 6, 2016. Written by Evelyn M. Suarez and Seth Goldschlager.

TTIP was already in trouble because neither the U.S. nor Europeans took seriously the perfect storm that was brewing.

The news from the UK was hardly announced when Jose Bové, the French agri-activist and Euro MP, who earned his first Luddite stripes through media-savvy trashing of McDonalds and then GMO test beds in France, couldn’t contain his glee.

Read More

Trade Facilitation and Trade Enforcement Act of 2015

Under Trade Facilitation and Trade Enforcement Act of 2015 CBP to Investigate Allegations of Evasion of Antidumping and Countervailing Duty Orders

On February 24, 2016, President Obama signed into law The Trade Facilitation and Trade Enforcement Act of 2015 (TFTE).  TFTE is the first major customs law enacted since the Customs Modernization Act, which was enacted in 1993 as part of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182 (1993).

As to trade enforcement, the law covers three important issues: (1) importer-of-record identification; (2) intellectual property protection; and (3) antidumping and countervailing duty evasion.  This document focuses on evasion of antidumping and countervailing duty orders contained in Title IV of the Act, which is separately titled as the Enforce and Protect Act of 2015.  Title IV sets forth deadlines for Customs & Border Protection (CBP) to investigate allegations of antidumping and countervailing duty evasion.  A timeline for such investigations, prepared by the Office of Regulations & Rulings (OR&R) is available here.

The law requires CBP to make its determinations based upon substantial evidence as to whether the subject merchandise entered the United States through evasion.  CBP is to use techniques, more familiar to the U.S. International Trade Commissions and the U.S. Department of Commerce (DOC) in antidumping and countervailing investigations, of issuing questionnaires, conducting verifications and utilizing adverse inferences.

If CBP makes a determination of evasion, CBP shall: (1) suspend the liquidation of unliquidated entries of merchandise subject to the determination and that enter on or after the date of the initiation of the investigation; (2) extend the period for liquidating unliquidated entries of merchandise covered by its determination and that entered before the date of initiation; (3) notify the DOC of the determination and request that the DOC identify the applicable antidumping/ countervailing duty rates: and (4) require the posting of cash deposits and assess duties on the involved entries.

The person affected by CBP’s determination may file an administrative appeal to CBP within 30 days, which must be decided de novo within 60 days.  The appeal decision is subject to judicial review at the U.S. Court of International Trade (USCIT).  The standard of review at the USITC is whether the determination, finding or conclusion is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.

During his testimony before the Senate Finance Committee on May 11, CBP Commissioner Gil Kerlikowske said that CBP will generally take a tougher enforcement stance on U.S. trade laws than in the past, including through aggressive use of the Enforce and Protect Act of 2015 to fight trade remedy duty evasion.  He also said that CBP would issue an interim final regulation for implementing the new law’s duty evasion provisions within the statutory deadline of 180 days, which would occur in late August.

If you would like further information on this aspect of TFTE, please do not hesitate to contact Evelyn Suarez via the Contact form or at esuarez@suarezfirm.com.

Transborder Integrity Initiative

transborder integrity initiative

About Us

The Transborder Integrity Initiative ™ is a network of entities engaged in international commerce seeking to promote, by collective action, transparency and integrity in the importation and exportation of merchandise worldwide, with a focus on emerging countries.  Two pillars support our objectives:

Read More

U.S. Trade Policy & Korea

Why Do Recent Developments in U.S. Trade Policy Matter to Korea?

By Evelyn M. Suarez and Gillian Jaeger

Busan is the busiest port in Korea.This post originally appeared on The Spectrum Group website.

Over the past four decades South Korea has experienced incredible economic growth and global integration to become a high-tech industrialized economy. In 2004, South Korea joined the trillion-dollar club of world economies.  However, one of the long-term challenges that the South Korean economy faces today includes its heavy reliance on exports.[1]  Global markets are clearly of critical importance to South Korea.  In addition, Korean companies have major investments in many places around the globe, e.g., in the U.S., the EU and Mexico.  It is a fair statement that trade and investment are the lifeblood of South Korean economic growth.

The United States and Korea have strong economic ties in terms of trade and investment.  In fact, the U.S. and Korea already have a bi-lateral free trade agreement (Korea-U.S. Free Trade Agreement or KORUS).  Korea is the 6th largest trading partner of the U.S. and two-way trade in goods totaled $145 billion in 2014.  Nearly 95% of consumer and industrial products will be duty free by 2017, creating even more significant business opportunities for both countries.

So why should Korean companies care about the other agreements that the U.S. is negotiating?  One reason is its heavy dependence on export markets.  Also, Korean companies have investments in countries covered by those agreements.  For example, the Korean automotive sector has significant investments in Mexico, which could benefit greatly from the Trans-Pacific Partnership (TPP) (although they already receive benefits from NAFTA).

Korea also has strong ties to the EU, with whom they also have a free trade agreement. The EU and South Korea are important trading partners. South Korea is the EU’s eighth largest export destination, whereas the EU is South Korea’s fourth export destination (after China, U.S. and Japan). In 2014, EU imports from South Korea totaled 38.8 billion EUR, the main product categories are machinery and appliances, transport equipment and plastics. The EU records a significant surplus in trade in services with South Korea.  In 2013 EU exports of services to South Korea amounted to 10.6 billion EUR, compared to imports of 5.6 billon EUR.  South Korean investments in the EU have increased substantially from 13.1 billion EUR in 2010 to 18.9 billion EUR in 2013, representing 0.5% of the total inward foreign direct investment (FDI) in the EU. Over the same period, EU investments in South Korea decreased slightly from 37.5 to 32.6 billion EUR, representing 23.8% of the total FDI in South Korea.

International trade with the U.S. and EU has significant effects on the U.S, EU and the South Korean economies. Thus, the Trans-Atlantic Trade & Investment Partnership (TTIP) is important to all.  Korean investments in both the U.S. and the EU could benefit from the TTIP.

The analysis of the question of why Korean companies should care about TPP and TTIP is far from simple.  Let’s examine more closely the two major regional trade pacts that the U.S. is pursuing and consider how they impact South Korea.

TPP, a historic regional trade pact involving 12 countries, including the United States, Japan, Canada, Mexico, Australia, Vietnam, Malaysia, and Chile, was concluded on October 5, 2015.  TPP countries represent 40 percent of global GDP, 25 percent of global exports, and 30 percent of global imports.  TPP is a high standard 21st Century Agreement, which includes comprehensive market access, eliminating tariffs on all goods representing some 11,000 tariff lines as well as non-tariff barriers to goods and services and investment.

TPP seeks to promote a regional approach to commitments by facilitating the development of production and supply chains among TPP members and addresses crosscutting trade issues, such as regulatory coherence, competitiveness and business facilitation, digital trade among other things.  It also contains special provisions for small-and medium-sized enterprises to enable them to engage more effectively and successfully in the global marketplace and provides capacity building for lesser-developed countries in the pact.  TPP also builds on the labor and environment provisions of past free trade agreements.   The impact of TPP provisions, such as regulatory coherence, digital trade and covering small- and medium—sized enterprises should provide significant advantages to companies in the region.  TPP is notable in that it includes some of the biggest economies and also the least developed ones.

Why would Korea be interested in joining TPP?  According to Mireya Solis, Senior Fellow, Foreign Policy Center for East Asia Policy Studies:

For South Korea, the benefits of TPP membership are multifold: sizable gains from trade, greater bargaining power in ongoing negotiations with China and Japan to tackle non-tariff barriers, the rationalization of its FTA noodle bowl, and the consolidation of a forward-leaning alliance with the United States.  For a country with ambitions to become an international trade hub, absence from a major platform to promote Asia-Pacific economic integration would be a lost opportunity.[2]

Some of the benefits could include sizable potential gains from trade.  It is also said that a mega Free Trade Agreement (FTA), like TPP, can enhance production network efficiencies by allowing for accumulation of origin, significantly reducing costs of investing and trading for importing and exporting firms.  It can provide integration into the regional supply chain and rationalization of FTA spaghetti bowl rules and rules of origin.  Intermediate goods account for 68% of Korea’s total exports.  Loss of position in TPP intermediate goods market, which amounts to over $2 trillion, can have an adverse impact on all Korean industries.  Japan would be the biggest benefactor.  Inclusion in TPP could also provide greater bargaining power in dealings with China and Japan to address non-tariff barriers.  Finally, it could be important to Korea becoming international trade hub.

Yet, TPP was completed and Korea was not included.  The question is raised in regards to what should be the way forward for South Korea in regard to TPP?  Some say that once TPP is passed by the U.S. Congress that there may be a second tranche of countries, such as Korea, the Philippines, Colombia and others.   Of course, the first hurdle will be passage of TPP legislation by the U.S. Congress in an election year.  The second will be deciding whether TPP is good for Korea and if the answer is yes – negotiating its way into the pact.

Meanwhile, the United States is also negotiating with the European Union the Trans-Atlantic Trade and Investment Partnership (TTIP), which combined with TPP, would cover nearly 60 percent of global GDP.  TTIP is also described as an ambitious, comprehensive and high-standard trade and investment agreement.  It differs from TPP in that it is an agreement between two major trading partners as opposed to TPP, which involves 12 countries at different levels of development.  That said, TTIP is not an easy negotiation given that what is left to negotiate are the tough issues.  Also, certain issues such as Technical Barriers to Trade, Sanitary-Phytosanitary measures and regulatory cooperation tend to drill down to the 28- member state level thereby complicating the negotiations.  Nonetheless, the parties have committed to the ambitious goal of completing negotiations by the end of 2016.  The 13th Round was just completed in New York on April 29, 2016, and the parties plan to have additional rounds in July, September and December.

Why would Korea care about an agreement between the U.S. and the EU?   Like TPP, TTIP can have an impact on Korean companies given their investments in both the U.S. and the EU.  The regulatory aspects of the Agreement could also benefit Korean companies.

Moreover, pundits say that TPP and TTIP are templates for future economic agreements among the world’s most developed and least developed countries given the lack of success at the World Trade Organization (WTO).  Thus, at a minimum it makes sense for Korea pay attention to these developments.  The question is raised as to how proactive Korean companies would want their Government to become?

 Evelyn M. Suarez and Gillian Jaeger are members of The SPECTRUM Group, a premier government consulting and congressional relations firm in the Washington D.C. area since 1993.

[1] https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html

[2] Solis, Mireya, South Korea’s Fateful Decision on the Trans-Pacific Partnership (Brookings Sept. 2013).