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ARGENTINA/ UNIÓN INDUSTRIAL ARGENTINA (UIA)- GBC PRESIDENCY

POSSIBLE AGREEMENTS IN A MORE CHALLENGING WORLD

The UIA Executive Director, Diego Coatz, and the coordinator of the entity’s Study Center, Daniela Rozenbaum, reflected on the impact of COVID-19 on national and regional productive circuits, and the new strategies necessary to face the new situation.

“The coronavirus unleashed an unprecedented international crisis, which will leave severe impacts both economically and geopolitically. From Argentina, in addition to facing the direct impacts of this crisis, we have the challenge of facing, in a more adverse scenario than before, a strategy of sustainable international insertion in the time that it manages to overcome the pendular changes of the last decades. Reaching basic consensus will be central in a world where tensions are accelerating and marked by uncertainty.

The coronavirus unleashed an unprecedented international crisis, which will leave severe impacts both economically and geopolitically. From Argentina, in addition to facing the direct impacts of this crisis, we have the challenge of facing, in a more adverse scenario than before, a strategy of sustainable international insertion in the time that it manages to overcome the pendular changes of the last decades. Reaching basic consensus will be central in a world where tensions are accelerating and marked by uncertainty.

The pandemic will leave strong consequences at the international level. The world economy will suffer the greatest crisis since 1929. A drop in economic activity of around 5% [1] is expected, more acute than in 2009, when world activity had decreased 0.1%, and also more widespread, with an impact in a greater number of countries. A sharp drop in international trade and investment flows is also expected. All of these variables were already fragile before this crisis. The world showed low growth in activity (2.9% in 2019), stagnant international trade (it fell 0.2% in 2019 and represented just over 20% of world GDP, well below the 30% that had touched early 2000s) and a drop in foreign direct investment (it was 2% of world GDP in 2019, far from 4.5% in 2000). In short, the limitations of globalization to generate economic prosperity were present before the pandemic, and they will be greater from now on.

This crisis will also leave profound changes in the modes of production and consumption. On the one hand, it will accelerate processes that were already underway, such as those related to Industry 4.0, digitization and electronic commerce. Having strong, diversified industries that use frontier technology proved to be central in many countries to guarantee the provision of essential goods, medical equipment and for the development of diagnostic tests. The presence of 4.0 technologies also strengthens production safety and hygiene systems and enables the rapid production of new demanded goods, for example, from the use of additive technologies (3D printers) that facilitate the production of new products with less need. of machinery and infrastructure.

On the other, it will revalue the environmental agenda that had previously gained ground. The lockdown episodes in the central countries highlighted the importance of tackling strategies that decouple production from waste generation. It is a matter of producing again, but reducing the environmental impact, and giving greater impetus to circular economy strategies. Technologies 4.0 will also be key in this aspect, since they allow a more efficient use of materials.

In addition to the economic impacts, the crisis will leave sequels in geopolitical terms. In this field, pre-existing stresses will also be expected to accelerate. The dispute between the United States and China will be more intense and will be reflected in more nationalism and trade protectionism. These two countries have increased the use of non-tariff barriers the most in recent years.

This will also deepen the questioning of global value chains. Before the coronavirus, countries were discussing their places within the chains and facing strategies to insert themselves in the links with the highest added value. There was a slow process of investment reshoring, in which the countries that had decentralized the production process were promoting the repatriation of companies to their places of origin.

Another consequence at the international level is the growing economic weakness of both Brazil and Europe, traditional trading partners of our country. In both places, the coronavirus has strongly impacted, increasing economic and political fragility. The impact at the local level will be noticeable and will go beyond the loss of exports. Brazil’s weakness erodes its regional leadership at a time when addressing the challenges posed by the new international scene demands greater coordination in the region.

Finally, the crisis has once again highlighted the weakness of the multilateral decision-making spaces and the leadership gap both at the international and regional levels. These spaces are central to developing countries like Argentina, where international organizations manage to channel certain demands that would not otherwise take place in such an asymmetric world. If the world to come was already complicated before the coronavirus, now we will have to face greater uncertainty in a more defensive world.

Challenges and opportunities

All this panorama brings new challenges for Argentina’s international insertion. At the same time that we will have to overcome the strong economic and social impact that the coronavirus will leave, it will be needed to outline a new insertion strategy.

Both central and emerging countries are taking the initiative in the face of this new reality with ambitious plans both for containing the crisis and for subsequent recovery. The plans range from fiscal and monetary measures to overcome the crisis, to measures to accompany the reconversion of processes, promote the incorporation of technology, increase productivity and identify markets and business opportunities.

Faced with the revaluation of industry and industrial policy, we have an opportunity ahead. Argentina is the third industrial network in Latin America. It has the highest productivity in the region and is diversified in terms of sectors and regional presence. Despite the pendulum policies in production and science, we still have an important scientific-technological system, with a ratio of researchers per capita higher than that of the region, and considerable investment in R&D. In terms of resources, the availability of both natural resources in agriculture, energy and minerals (still with great potential for their development) and human resources indicates that there is a horizon if we manage to channel a development project.

But all these assets are not enough on their own. They also require a realistic vision of the current world, that is aware of the obstacles that lie ahead, and a strong commitment to face them. It is a priority to define the guiding principles that allow us to get out of strategic insolvency, that lack of a roadmap with which Tokatlian illustrates the inability of our elites to agree on foreign policy.

A pragmatic foreign policy, with a strategic vision and adapting tactics to achieve specific objectives, requires thinking about external relations from a new production and value-adding model. Argentina is already an industrial country and must seek an international insertion that is in tune with the development of its industrial capabilities. It will be key to care for and strengthen our industrial network, as well as to generate initiatives that improve our competitiveness. It is important that the trade negotiation agenda is intelligently formulated, where greater integration effectively achieves better commercial performance by generating foreign exchange and employment.

Finally, strengthen a regional perspective that promotes productive complementarities. Compared to other export destinations, Mercosur has a strategic nature: it is the main destination for industrial exports. Faced with the questioning of global value chains, the challenge is to strengthen regional chains and extend them throughout Latin America.

Facing this difficult agenda implies, above all, being fully aware of it. In a less harmonious world, our strength lies in our resources but also in our possible agreements to design and advance a program consistent with our reality and sustained over time.”

Source: UIA website

AUSTRALIA/ AUSTRALIAN INDUSTRY GROUP (AIG)

Business conditions still negative in June

The Australian Industry Group Australian Performance of Business Index (Australian PBI) lifted by 1.8 points to 33.6 in June, pointing to a further contraction in activity in response to the COVID-19 pandemic but at a slightly slower pace than in May (results below 50 points in the Australian PBI indicate deteriorating business conditions, with lower numbers indicating a faster pace of deterioration in the month).

Business conditions remained negative across almost all sectors in June, with bright spots evident in food, grocery and medical manufacturing and related wholesaling. Some sectors are benefiting from easing of activity restrictions in some states of Australia.

Ai Group Chief Executive, Innes Willox, said:

“Business activity contracted again in June, despite some easing of trading restrictions across Australia. Production and new orders improved but remained firmly in contraction while the decline in employment continued. This latest data suggests that the negative impact of COVID-19 activity restrictions on Australia’s manufacturing, services and construction industries will continue well into the second half of this calendar year. The pricing indices indicate that Australia experienced price deflation in the second quarter of 2020 as demand evaporated across the economy,” Mr Willox said.

The Australian PBI is a weighted composite of Ai Group’s Australian Performance of Manufacturing Index (Australian PMI®), Australian Performance of Services Index (Australian PSI®) (released today and available at this link), and Australian Performance of Construction Index (Australian PCI®).

Australian PBI key findings for June

The Australian PBI rose by 1.8 points to 33.6 in June (all figures seasonally adjusted). This suggests a further contraction in activity, albeit at a less severe pace than in May, as various activity restrictions began to ease in some locations around Australia.

The PBI production / activity index lifted by a further 3.2 points to 31.4 in June. Large reductions in output and activity remain evident across the economy. Indeed, across all the sectors that are included in the PBI, only the ‘food & beverages manufacturing’ and ‘chemicals & related manufacturing’ sectors have not reported large sustained drops in activity since late March.

The PBI employment index dropped by 1.6 points to 33.4 in June, indicating further falls in employment in Australian businesses.

The PBI new orders index rose by 2.6 points to 32.7 in June, indicating further falls in orders but at a slowing pace. Consumer-facing businesses in some locations are benefiting from lifting activity restrictions, with flow-on benefits to parts of wholesaling and manufacturing; other large industrial, commercial and professional sectors reported further declines in orders from regular customers and few new customers. The PBI supplier deliveries index remained at 32.6 points in June – its lowest level since 2009.

The PBI capacity utilisation index fell by 2.6 percentage points to a new record low of 67.4% of existing capacity (on average) across all business sectors. Record low capacity utilisation suggests rising unemployment and falling business investment from here.

The PBI input prices index fell by a further 11.1 points to a new record low of 51.4 points in June. This reflects deflationary cost pressures as local and global demand falls.

The PBI selling prices index fell by a further 1.8 points to a new low of 36.0 points in June. This reflects depressed local sales for many businesses and mounting deflationary pressures. The RBA expects headline inflation (CPI) to have turned negative in Q2 of 2020 and for prices to rise by an average of just 0.25% over the year to December 2020.

The PBI average wages index fell by 5.5 points to 39.9 in June, having briefly recovered in May on the back of the JobKeeper subsidy after April’s record low. The ABS estimates 55% of all businesses were accessing Jobkeeper in May, to support their employees’ incomes.

Source: AIG website

AUSTRALIA/ AUSTRALIAN INDUSTRY GROUP (AIG)

Updated Defence strategy, a timely response to geopolitical tensions

“The announcement today of a new updated strategy for Australia’s defence arrangements is a strong and timely response to rising geo-political tensions and uncertainty. The directions announced will make Australia more resilient and better equipped to meet potential challenges and will require further development of domestic defence industry capabilities,” Innes Willox, Chief Executive of the national employer association Ai Group said on July, 1st 2020.

“Ai Group welcomes the 2020 Defence Strategic Update and the 2020 Force Structure Plan, which set clear strategic objectives for the nation and provide long-term funding certainty for Defence, including a $270 billion investment to 2029-30.

“The Prime Minister’s announcement gives recognition to the role of the Australian defence industry in building and sustaining Australia’s strategic and economic resilience. To achieve our national objectives, we will need greater investment in raising domestic defence industry capabilities including in the defence industry workforce.

“While there has been an increased emphasis on developing these capabilities in recent years, today’s announcements will require a significant ramping up of current efforts. Ai Group’s Defence Council is determined to continue to work constructively to ensure this ramp up is achieved in ways that meet national objectives and provide value for money for Australia’s taxpayers.

“A key part of delivering this value for money and return on our defence investments is to ensure that spending contributes to a competitive defence industry linked into global supply chains and to leverage new industry capabilities and workforce skills across a broader range of domestic and global opportunities. This includes procurement decisions that take into account the benefits delivered through local sustainment as well as technological and skills transfer.

“Ai Group welcomes the commitment to the long-term budget plans and 2020 Force Structure Plan. There are a range of new opportunities that have the potential to generate long-term sovereign industrial Australian capabilities. We look forward to more detail coming forward in the future for the individual projects, to allow defence industry the opportunity for more detailed decision-making on investment and workforce skilling.

“We welcome the emphasis on cyber security, including the investments in multinational information sharing systems and the upgrade of joint intelligence training facilities. These investments will improve the cyber security of defence industry members and should provide opportunities for the Australian defence industry. Related to these initiatives is the Government’s announcement this week of the investment of $1.35 billion in the Cyber Enhanced Situational Awareness and Response package.

“Given the rapidly evolving state of cyber threats and attacks, including the Government’s recent announcement about malicious cyber activity against Australian organisations, it is essential that our nation is sufficiently resourced and supported through industry and government collaboration to ensure national security and to protect businesses and the community against global cyber crime and related threats.

Source: AIG website

GERMANY/ Bundesverband der Deutschen Industrie eV (BDI)

REFORM OF THE WTO AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES

BDI issued a position, in June 2020, assessing the proposal made by the Trilateral Initiative of the USA, Japan and the EU.

Principal recommendations:

While the rulebook of the WTO contains disciplines on subsidies, there is a lack of coher-ent and comprehensive rules to effectively address market distortive practices particularly in the area of subsidies (beyond export subsidies). This regulatory gap must be ad-dressed quickly und sufficiently.
▪ The EU should pursue multilateral, plurilateral (in the best case, under the WTO) and bilat-eral efforts (such as in free trade agreements) to develop new disciplines on industrial sub-sidies and state-owned enterprises.

▪ German industry welcomes the proposals of the Trilateral Initiative (EU – Japan – United States) on appropriate disciplines. It is an important step forward to restore fair competition.

▪ If the WTO Agreement on Subsidies and Countervailing Measures (SCM) cannot be mod-ernized multilaterally, a plurilateral agreement could prove a viable interim step.

▪ The EU should reform its countervailing measures (CVM). The framework for CVMs should be strengthened and its application should be facilitated. In the future, CVMs should be designed in such a way to more fully address the market-distortive effects of foreign SOEs and industrial subsidies.

▪ BDI welcomes parallel investigations of dumping and subsidies, which reflect the reality of the trade distortive effect of industrial subsidies.

▪ In order to direct countervailing measures properly, the monitoring and reporting of indus-trial subsidies across sectors needs to be improved markedly. German industry supports more stringent disciplines for notifying subsidies at the WTO and a more effective enforce-ment mechanism.

▪ German industry supports the introduction of new types of subsidies as put forward by the proposal.

▪ German industry recognizes the growing importance and value of trade in services and supports all efforts within the WTO to further the negotiation process on services.

Source: BDI

BUSINESS EUROPE

WHAT TRADE CAN DO FOR CLIMATE

In June 2020, Business Europe issued a position paper proposing a number of measures and areas of action on multilateral, bilateral and unilateral level that can contribute to the promotion of climate action through trade policy.

European businesses support the EU ambition to reach net-zero greenhouse gas emissions (climate neutrality) to reach the objectives of the Paris Agreement. BusinessEurope published its energy and climate strategy1 in April 2019 to explain the five key framework conditions and related actions on how this could be achieved by around mid-century, the last condition of which concerns the climate actions taken by other major economies.

The publication came amidst intense ongoing discussions on how the EU could better leverage its trade policy to achieve its climate policy objectives. Not only should this be seen in the context of the potential effects that global trade can have on emission levels2; it is essential to also promote the positive contributions from bilateral and multilateral trade on reaching climate objectives. This paper lists several ways in which trade agreements could contribute to the global climate agenda. European businesses support high standards in the environmental area and pursuing these standards also in our trade agenda can boost the competitiveness of European businesses and make trade more climate-friendly.

That said, it is important that the European Green Deal takes a systematic and holistic approach to the trade and climate agenda. The sustainability triangle of climate action, competitiveness, and security of supply of energy and critical resources remains central. Furthermore, in order to enable the distribution of European state-of-the-art technologies globally, the market access element in trade policy is of paramount importance. It is therefore essential that the design of policy options linking the trade and climate agendas strike a careful balance between ensuring a global level-playing field to support European competitiveness and enhancing access to foreign markets while effectively complementing domestic climate-related measures.

The risk that production is transferred from the EU to other countries with lower ambitions for emission reduction, or because EU products are replaced by more carbon-intensive imports (“carbon leakage”) as well as the threat of more companies deciding to gradually favour investments outside of the EU (‘investment leakage’) is real as long as global actions are not aligned and is impacting the European economy and the labour market. Such leakage effects also have a negative impact on overall global emissions, given that production standards in many other regions are not as high as in Europe.

Highlights:

Environmental Goods Agreement (EGA): Renewed efforts should be focussed on resolving the conceptual and political deadlock in the negotiations of the WTO Environmental Goods Agreement. Furthermore, including services embedded in environmental goods would make a future EGA more efficient and should therefore be seriously explored. The design of the EGA must avoid new administrative burden for companies, e.g. in customs procedures and in view of rapid technological development. The list should therefore be regularly reviewed.
Industrial subsidies and the role of SOEs as one of the main factors leading to overcapacities need to be well framed and effectively disciplined at WTO level. Sectoral negotiations, e.g. in the steel and aluminium sectors, are welcome to address the most critical sectors.
An agreement on Article 6 under the Paris Agreement’s Rulebook on carbon markets should be concluded as soon as possible.

The UNFCCC negotiations should also continue to be used by the European Commission to share experiences on other aspects such as policy frameworks and standards.
The EU should work together with third countries to harmonise standards, labels and regulatory frameworks in order to boost the functioning of global value chains and facilitate the commercialisation of green products and services.
Future bilateral agreements could explore options on targeted provisions on trade in “environmental goods and services”, including non-tariff barriers, and aim to reach more ambitious commitments in this area providing that these measures go hand in hand with a guarantee of effective market access and an environmental level playing field. The scope of such provisions should adjust to the needs of the negotiating partner, work on the basis of rewarding rather than punitive actions, and reflect their real level of economic development and climate ambition.
In the ongoing process towards an update of the negotiating mandates and broadening of the agreements a trade and sustainable development chapter should be foreseen with specific attention to the needs of the respective partner countries.
Businesses stand ready to explore possibilities on how companies can be involved in specific capacity building exercises and projects for technical assistance in developing countries.
BusinessEurope supports the strengthening of enforcement of existing scope and content in TSD chapters. A dialogue and incentive-based approach with the established system of dedicated government bodies (TSD Committee and Trade Committee) and the civil society structures (Domestic Advisory Groups and Civil Society Forums) should be maintained. Further efforts can be made to make the procedure more effective by including specific timelines for each of the actions.
The Commission should also consider additional options on how to use public procurement to boost climate action both inside and outside of Europe and assess criteria on how environmental and climate standards in procurement offers can be taken into account in a coherent approach also within Europe. The initiative to develop instruments to calculate the lifecycle costs for certain products is welcomed.
Climate change and sustainable development aspects should be enhanced in the upcoming revision of the EU GSP Regulation, together with measures to strengthen implementation of existing provisions.

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