Just as we did last year, our discussion of the trade landscape in 2022 will take a look at Brexit and the African Continental Free Trade Area (AfCFTA). How are they doing? Before getting to that, however, we must acknowledge the trade-related aspects of the double threats of the pandemic and climate change.
Addressing Existential Threats
The World Trade Organisation (WTO) has turned its attention to addressing the existential threats of disease and climate change. As the climate clock ticks down on the window to reduce greenhouse gas emissions and keep the world under the critical threshold of 1.5°C warming, several initiatives on trade and environmental sustainability have been developed by WTO members. While still unclear how quickly, if at all, these initiatives will develop, this topic will be on the agenda of the next WTO Ministerial and beyond. In addition to the broad approach of the Trade and Environmental Sustainability Structured Discussions (TESSD) initiative working to identify trade-related measures that can contribute to environmental sustainability goals, two other initiatives already target plastic pollution and developing sustainable plastics trade and phasing out the use of fossil fuel subsidies.
At the heart of the fight to conquer the COVID pandemic is the challenge of achieving equitable global distribution of diagnostics, vaccines, and therapeutics. Manufactured by a handful of companies, their right to control the production and distribution of these vital products is enshrined in the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. These companies are almost exclusively located in developed economies where willing persons are already receiving booster shots. Meanwhile, as of November 2021, less than 2.5% of the population in low-income countries had been fully vaccinated. Some WTO developing country members have proposed a three-year waiver to some provisions of TRIPS with respect to health products and technologies to facilitate the faster dissemination of the know-how to fight the disease. The Biden Administration has supported a waiver for covid vaccines. Other WTO members believe that TRIPS already provides for countries to adopt measures to protect public health. These members focus instead on increasing distribution. The heads of the International Monetary Fund, World Bank Group, World Health Organization, and the World Trade Organization have been meeting with the CEOs of leading COVID-19 vaccine manufacturing companies to address this issue. They have identified the 2022 global target of vaccinating 70% of the populations of all countries by the middle of the year. Whether this goal is achieved is a test of the world’s readiness to face the next global health crisis without adopting reforms to the TRIPS regime.
Supply Chain Disruptions Linger
The global pandemic has also shone a bright light on the vulnerabilities of the “Just-In-Time” supply chain which moves goods, 90% of it across oceans, just as they are needed for manufacturing or for stocking. While there were some earlier cracks in this finely tuned choreography, the real trouble began with the 2020 lockdown in China, stopping the outflow of goods from the world’s factory. As the rest of the world joined in the lockdown, demand slowed to a trickle for many products but mushroomed for others – masks and PPEs to fight the pandemic; then entertainment, food, and furnishings to stave off our boredom. However, workers for the factories and stores, ships and ports, trucks and trains fall ill, creating labor shortages in these areas essential to the flow of goods. Then, in the midst of the pandemic (March 2021), the “Ever Given” container ship got stuck in the Suez Canal, blocking traffic for six (6) days. The resulting backlog in orders, goods to be manufactured then shipped then unloaded remains with us, exacerbated by continued covid outbreaks, illness, and lockdowns. A factory may have all it needs for production, except for that one part stuck at the port waiting to be unloaded, or even across the world waiting to be manufactured or loaded. There is also a shortage of cargo space which has sent freight rates skyrocketing. Thousands of companies are permanently closing shop, creating more shortages. It will take several months for the system to right itself, experts predict. The lessons from this challenging period are being learnt but will also take some time to implement.
Brexit Implementation Challenges Continue
Britain has faced many challenges in adjusting to the new trading regime with the European Union. At this time last year, it had stopped operating within the rules of the EU single market and an EU-UK customs border was re-established. On January 1, 2022, the temporary rules in place to ease the transition ended. UK traders now need to complete full customs declaration on goods entering from the EU. To get the preferential rates negotiated with the EU they will have to prove that the products were made in the EU or UK. Entering goods must have a completed declaration and have received customs clearance even to leave the port of entry. All of this means more paperwork and delays. Goods moving from Ireland and Northern Ireland will be exempted from these requirements while the EU and UK pursue negotiations to amend the Northern Ireland Protocol. Negotiations are complicated by the often acrimonious relations between the two parties.
Also ended (as of January 3, 2022) is the right of British companies to use “.eu” as part of their domain name. Almost 50,000 UK companies have had their websites taken down. Ironically, included in this group is the website of a political group which campaigned for Brexit using the domain name “Leave.eu”. Its cynical attempt to move the website address to the Republic of Ireland so the company could remain in the EU was stymied by Irish politicians who refused to validate the move.
In 2022 we can, unfortunately, expect to hear more stories of challenges similar to those of 2021 as Britain continues to struggle with implementing Brexit.
African Continental Free Trade Agreement (AfCFTA) is One Year Old
We again take note here of the promise of this tremendous accomplishment by the 55 African countries which concluded the Agreement Establishing the African Continental Free Trade Area. The Agreement provides a roadmap to the vision of creating a single African market, building the trade ties stifled by colonialism and its aftermath. One year on, some countries are already taking advantage of the tariff-free access for their goods.
Most notably, after a successful pilot in the countries of the West African Monetary Zone, the Pan-African Payment and Settlement System (PAPSS) is now operational. PAPSS provides a cross-border infrastructure to enable payment transactions across Africa. The system ensures instant or near-instant transfers of funds between originators and beneficiaries in different countries and removes the delays and costs of foreign exchange transactions. Buyer and seller continue to operate in their local currencies, with PAPSS serving as the clearing, processing, and settlement agent in the transaction. The system does require the use of a local bank, which may preclude its use by many small and informal traders. This does not negate the value of PAPSS in serving the many large companies and formal enterprises across Africa.
One year into the Biden Administration, while tensions with China have not spiraled out of control, as they threatened to do under the Trump Administration, neither have they vanished. Under the Phase One U.S.-China deal concluded in 2020, China committed to purchase an additional $200 billion of U.S. goods and services by the end of 2021 in exchange for relief on the Trump tariffs. China did not meet this commitment. Despite the pandemic, the Biden Administration has announced that the tariffs on Chinese imports will remain in effect.
The Biden Administration had previously announced plans to conduct an overall policy review, the results of which have not been disclosed. It is nevertheless hoped that at some point tariffs will be reduced to focus on a more select group of goods. This approach would be in keeping with the Biden Administration’s more targeted approach to managing the relationship. There is cooperation in areas of mutual concern, such as climate change. There is also the surgical use of sanctions aimed at human rights abuses, notably for the Hong Kong crackdown and alleged use of China’s Uyghur population as forced labor. A law signed into force in December 2021 bans entry into the U.S. of all goods produced wholly or partially in the Xinjiang region of China, home to the Uyghur. Imports from specific companies, including high-tech providers, are also banned under the same assumption that they would be produced with the use of forced labor. This assumption can be rebutted by providing clear proof that the goods were not made with forced labor. Forthcoming regulations will provide more details and the law takes effect June 21, 2022. However, it is not hard to imagine smaller companies struggling to collect and keep such documentation. Corporations may need to assume greater control over all aspects of their supply chains if they seek to keep operating in Xinjiang. So, we can expect companies to move away from manufacturing in this region. Other countries also need to monitor the reach and scope of this law beyond U.S. shores. Impacted products include electronics, clothing and accessories, footwear, fruits, vegetables, and polysilicon used in the production of solar panels.
World’s Largest Trading Bloc Created
On January 1, 2022, the Regional Comprehensive Economic Partnership (RCEP) entered into force. The largest partner is not the United States, which is not a member, but China. Other members are the ten (10) Association of Southeast Asian Nation (ASEAN) countries, Japan, South Korea, Australia, and New Zealand. RCEP partners generate almost one-third of global output and contain one-third of the world’s population. Members have committed to reduce to zero tariffs on over 90% of goods trade among them. Its first multilateral agreement, RCEP is a big political and economic victory for China. It is expected to reap the most economic benefit, especially from its new trade ties with Japan and South Korea. China may also consider that it has achieved a victory of sorts over the United States, which, after the Trump Administration withdrew it from the Trans-Pacific Partnership Agreement (TPP), is not party to either of the two big trade agreements in the Asia-Pacific region.
Stay with us as we monitor these and other stories important to the trade landscape in 2022.
I am a seasoned international trade and customs attorney, and policy adviser for various companies and governments with a demonstrated history of successfully developing and implementing sustainable and dynamic trade programs. I am experienced in creating partnerships with various business-support organizations to drive compliance and growth in the international market.