By controlling large volumes of data, officials believe they can gain economic advantage in the digital economy and be better positioned to counter the market power of the giant platforms. But advocates of data sovereignty may be misguided. Researchers cannot yet ascertain if economics of scale and scope in data will yield competitive advantage. However, the hoarding of data by nations or firms may reduce data generativity and the public benefits of data analysis.

In this essay, Professor Susan Ariel Aaronson of George Washington University provides an overview of data governance and trade, and the defensive reactions of governments around the world as data becomes more central in today’s economy – and how trade agreements may facilitate rather than limit restrictions.

To read the full report from the Hinrich Foundation, please click here. 

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The Trump Administration attributed this shift in policy to its determination to close a large and persistent gap between U.S. and foreign government practices that it said disadvantaged or discriminated against U.S. firms. In addition, it justified many of its tariff actions—particularly those against China—by pointing to alleged weaknesses in WTO dispute settlement procedures and the inadequacy or nonexistence of WTO rules to address certain Chinese trade practices. It also cited the failure of past trade negotiations and agreements to enhance reciprocal market access for U.S. firms and workers.

While the Biden Administration is reportedly reviewing the previous administration’s trade policies, most analysts do not expect any immediate changes to Section 301 actions or to the tariff exclusions on U.S. imports from China.

To view the full report from the Congressional Research Service, please click here.

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There are currently too few promising projects in the clinical trial pipeline to guarantee at least one vaccine soon. More projects need to pass through the development pipeline in parallel. Vaccines should ultimately be widely available to all who need them at low cost.

Private life-sciences companies under-invest in vaccine development, especially when compulsory licensing and/or price regulations are imposed. Public funding is needed to reduce the risks of investing in vaccine development, and also to balance compulsory licensing and/or price regulations with incentives for private firms.

The public funding being put into identifying COVID-19 vaccines is too limited to carry enough projects through so that at least one vaccine, and preferably more, become available at large scale and low cost. Public budgets for these efforts need to be multiplied up several times over. We propose a staged support scheme to tackle the COVID-19 vaccine challenge and a moon shot programme to meet the challenge of future pandemics. We calculate the public budget needed to ensure supply of COVID-19 vaccines. Although substantial, the budget represents a bargain compared to the avoided health, social and economic costs.

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The current conflict with China over its highly restrictive trade barriers and violations of American intellectual property rights (IPRs) has created a dilemma for U.S. companies that depend on Chinese partners to manufacture goods under their labels or provide critical parts and components for their global operations. Intellectual property–copyrights, patents, trademarks, and processes–represent the “crown jewels” of U.S. high technology and are critical to maintaining our commercial and military edge against an ever more assertive Chinese challenge. President Trump’s call for U.S. companies to get out of China has intensified many companies’ ongoing efforts to reduce the role of Chinese partners in their global “supply chains.” Getting out of China requires relocating to somewhere else. The President has acknowledged that most of this production is unlikely to come home to the U.S. because of higher costs and other factors. The President and Congress can help the relocation of U.S. production to countries and regions that are strategically beneficial to U.S. security and economic interests by:

• Using and significantly broadening the vision for the landmark October 2018 BUILD Act (Better Utilization of Investments Leading to Development) to help facilitate the relocation of U.S. companies from China to nearby Southeast Asia countries or other suitable locations.
• Using the new International Development Finance Corporation (DFC), the main feature of the Act, to significantly support U.S. private investment in Vietnam, Malaysia, Indonesia and other developing countries in Southeast Asia through loans, loan guarantees, political risk insurance and in some cases limited equity investments for private sector projects.
• Using the U.S. Agency for International Development (USAID), State, Commerce, Energy and other relevant departments and agencies to promote the necessary legal, policy, regulatory reforms and private sector and governmental capacity to help make potential relocation countries better able to attract and accommodate expanded U.S. manufacturing and services investment.

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USMCA would make notable changes to NAFTA provisions on intellectual property (IP)—creations of the mind embodied in physical and digital objects. IPR are time-limited rights that governments grant to inventors and artists to exclude others from using their inventions and creations without permission. IP is a key source of U.S. comparative advantage; advancing IPR protection globally has been a U.S. trade negotiating objective since 1988 (P.L. 100-418). IPR trade agreement provisions were first included in NAFTA and, subsequently, the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The 2015 Trade Promotion Authority (TPA, P.L. 114-26) retains prior U.S. trade negotiating objectives for U.S. trade agreements to “reflect a standard of protection similar to that found in U.S. law” (“TRIPS-plus”), and adds new objectives to combat cyber theft and protect trade secrets.

IP-intensive goods and services are an important part of U.S. trade with Canada and Mexico. The United States has expressed concern over certain IPR policies in both countries in recent years.

To read full report, click here

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The survey results this year are decidedly mixed. While actual business performance was strong in 2018, confidence in the future has weakened considerably. Investment is slowing and revenue growth expectations are lower than in recent years. China’s regulatory environment has improved and its growing consumer market is still a lure. However, market access barriers still impede foreign businesses and over a quarter of members are redirecting investment originally intended for China.

Business Performance: Profitability in 2018 remained consistent with previous years, with 76.8% of companies reporting profits. Logistics companies all reported profits, as did 93.3% of chemicals firms and 89.9% of pharmaceuticals, medical devices and life sciences firms. Real estate, engineering and construction services fared poorly, with only 36.4% profitable.

Revenue growth estimates for 2019 are weak. Only 50.5% of companies expect revenues to beat their 2018 numbers. 27.1% of companies anticipate lower revenues, markedly up from the 6.1% that projected lower revenues for 2018. 47.6% of automotive companies anticipate lower revenues.

Five-year optimism dropped by one fifth to 61.4%, against historical rates of 80-90%, while pessimism about the future rose by 14.0 percentage points. The most downbeat industries included non-consumer electronics and chemicals.

Investment: 47.1% of companies expect to increase their China investment in 2019, versus 61.6% in 2018. 22.5% of manufacturers plan to decrease investment in 2019.

Challenges: Over the next 3-5 years, 57.8% of our members rated an economic slowdown as their biggest challenge, with U.S.-China tensions a close second (52.7%).

In many areas, China’s regulatory environment is better, though difficulty obtaining required licenses (56.7%), a lack of IPR protection and enforcement (56.4%) and procurement practices favoring domestic competitors (51.3%) were viewed as hindrances by more than half of respondents.

Operational challenges have decreased, with inefficient government bureaucracy (down 22.0 percentage points) and corruption and fraud (down 20.4 percentage points) seeing the most progress. But these are still viewed as hindrances by 56.5% and 48.6% of respondents, respectively.

Rising costs (90.3% viewed as a hindrance) and domestic competition (80.9%) remained the top two challenges for the third year in a row.

69.4% of businesses believe that their Chinese competitors are faster to market. 71.2% of respondents believe their product quality is more advanced than at competing Chinese firms.

35.6% of survey respondents see the U.S.-China trade tensions continuing for 1-3 years, and 12.7% expect them to continue for 3-5 years. 16.9% believe the trade tensions will continue indefinitely.

Opportunities: 59.2% of respondents said increasing consumption will be the top factor to benefit their industry in the next 3-5 years, a slight increase from last year (58.0%) and the year before (56.5%). Similarly, 40% of those increasing investment in China in 2019 report doing so due to the growth potential of the Chinese market.

Policy & Trade Environment: 53.4% of companies say that they are either delaying or reducing investment as a direct result of the U.S.-China trade tensions, with only 4.5% increasing investment in response. Over a quarter of respondents (26.5%) have redirected investments originally planned for China to other locations in the past year – up 6.9 percentage points from last year.

The technology, hardware, software and services industry reports the highest level at 40.0%.

28.9% of members believe expanded government dialogues would best help the U.S. achieve its trade objectives with China, and 23.2% chose investment and market access reciprocity as the most effective tool.

INTRODUCTION

The tariffs imposed by the U.S. and China had little impact on company profitability in 2018, but in combination with the government’s deleveraging process, their impact is being felt now. Revenue growth projections have lowered, optimism about the future has waned, and many companies are redirecting investment originally planned for China. Thirty percent of members believe that the tensions in the U.S.- China relationship will continue for three or more years, a worrying outlook given the gains from 40 years of trade.

Despite the travails created by the trade war and a slowing economy, many American companies still see a profitable future in China. The allure of China’s consumption story remains intact, so too the government’s commitment to improving lives. Policy changes in healthcare have opened and accelerated access to best-in-class drugs, and American drug companies have benefitted as a result. Three-quarters of pharmaceutical and medical device firms expect increased revenues in 2019.

The record therefore is mixed. While levels of optimism are the lowest in many years, nearly half of companies are increasing investment in 2019. Even though an economic slowdown is our members’ greatest fear for the next three to five years, many businesses are expanding outside tier-1 cities. Global supply chain disruptions are spurring manufacturers to rethink their strategies, and many are diversifying production out of China. Yet others, emboldened by a weaker renminbi see fresh opportunities.

Still, with no sign of a trade agreement, 2019 will be a difficult year; without a trade deal, 2020 may be worse. The majority of our members are opposed to the tariffs, preferring that China and the U.S. engage in dialogue to resolve outstanding trade and investment issues. However, a significant percentage believes that the U.S. government should use reciprocity as a tool to achieve its trade objectives. The causes of their dissatisfaction are the same problems that have plagued foreign businesses for years, and which China has failed to properly address.

Market access, for example, remains restricted. Obtaining licenses is also not easy, report 56.4% of our members. And 56.0% of companies say that a lack of IPR protection and enforcement remains a hindrance to business. Alleviating these problems would address some of the American government’s primary complaints about China’s unbalanced trade and investment environment.

China has made progress. Members report that the regulatory and operating environment has improved in several areas, including better tax administration. Corruption and fraud are less of a concern than in the past. Such improvements in the business environment don’t just benefit U.S. companies.

If China made similar progress in transparency, rule of law and better protection of intellectual property, it would spur both domestic and foreign companies to invest more. It would also encourage some of the companies now leaving to instead remain.

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Japanese Prime Minister Shinzo Abe announced at the closing session of the 2018 summit in Buenos Aires that this year’s Osaka summit would include as priority agenda items the promotion of free trade, global health, climate change, and women’s empowerment. And at the World Economic Forum in Davos in January 2019, he added global data governance to the agenda — proposing the ‘Osaka Track’ that would promote the free flow of data across borders ‘with trust’ and prevent any one nation from hoarding its data.

Although there was support in general at the Osaka summit to further facilitate the free flow of data, countries such as India, China, and South Africa opposed attempts to interfere with their domestic data governance systems.

On climate change, 19 members reiterated their commitment to the Paris climate accord, but the United States alone — as in Buenos Aires — committed only to reducing its greenhouse gas emission. Still, all 20 members supported the ‘Osaka Blue Ocean Vision’, an initiative proposed by Japan to address the problem of marine plastic waste by reducing additional marine plastic litter to zero by 2050.

On trade, the Osaka leaders’ declaration stated, ‘We strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open’. But the absence of any mention of fighting protectionism was notable, wording that was rejected by the United States.

That there were no major blunders at the Osaka summit meant that Abe could declare the meeting — the first time Japan hosted the G20 — a success. Seated as the summit chairman between US President Donald Trump and Chinese President Xi Jinping, Abe was able to appeal to observers that he was playing a central leadership role on the world stage.

His main audience, of course, was the Japanese public, who would be voting less than a month later in the Upper House elections. The election outcome would determine whether Abe and his coalition partners retain enough seats to proceed with his top policy priority — revising for the first time the Japanese Constitution.

Most analysts judge the summit to have been ‘successful’ in that no leader walked out and a leaders’ declaration was announced, but few believe that any major breakthroughs were achieved. In this sense, the Osaka summit evinced more show than substance. But the summit contributed to the Japanese public’s perception that Abe is a world-class leader, which means that it achieved Abe’s goal of increasing the likelihood of his Liberal Democratic Party minimising its losses in the Upper House elections.

Although the G20 summit is a multilateral forum, many of the more consequential issues and meetings in Osaka were bilateral. In many ways, the summit was overshadowed by the US–China trade war and the temporary truce announced following a meeting between Trump and Xi; the warming of Japan–China relations reflected by a cordial meeting between Abe and Xi in which they agreed on Xi’s state visit to Japan in 2020; UK Prime Minister Theresa May’s confrontation with Russian President Vladimir Putin over the Salisbury Novichok poisonings.

US–Japan relations also featured heavily, especially after widely-reported statements by Trump expressing dissatisfaction with the US–Japan Security Treaty because it was ‘unfair’ — obligating the United States to go to the defence of Japan but not vice versa.

Recognising the limitations of the multilateral forum, Abe himself held bilateral meetings in Osaka with nearly 20 leaders, including Trump, Xi, Putin, European Council President Donald Tusk, Indian Prime Minister Narendra Modi, and Australian Prime Minister Scott Morrison.

Abe’s rejection of a bilateral meeting requested by South Korean President Moon Jae-in was widely interpreted as retaliation for recent South Korean actions — unilateral dissolution of the foundation created in South Korea as a result of the 2015 bilateral agreement on ‘comfort women’, a South Korean destroyer radar ‘locking in’ a Japanese patrol aircraft (denied by South Korea) in 2018, and recent verdicts by the South Korean Supreme Court relating to Japanese companies’ actions during Japanese colonial rule and World War II. This rejection was a way for Abe to show his base, immediately before the Upper House election, that he remains ‘tough on South Korea’.

But the event that attracted by far the most media attention was the meeting between Trump and North Korean Chairman Kim Jong-un in the Demilitarized Zone between North and South Korea on 30 June. Although Trump and Kim portrayed the meeting as a spur-of-the-moment impromptu event triggered by Trump’s Twitter message aimed at Kim, it turns out to have been a carefully orchestrated media event designed to create maximum suspense and drama.

Trump the reality TV host and Kim the son of movie maniac Kim Jong-il were a perfect couple to steal the thunder from the relatively uneventful multilateral summit in Osaka. For Trump and Kim, their historic meeting was bilateral showmanship at its best. To what extent it leads to achieving the US goal of complete, verifiable, and irreversible dismantlement of nuclear weapons in North Korea and to what extent it is merely a delaying tactic by Kim to buy more time to develop his nuclear arsenal and missiles remains to be seen.

As long as the Trump administration with its ‘America First’ bilateral approach continues, the prospects for truly revitalising multilateralism, including at the G20, remain dim.

bilateralism-takes-the-lead-after-the-osaka-g20-summit

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The charge sheet was extensive. While previous administrations gave ‘Beijing open access to [the American] economy and brought China into the World Trade Organization’ (WTO) in the hope that political freedom and economic liberalisation would advance, that ‘hope has gone unfulfilled … and Deng Xiaoping’s famous policy [of reform and opening] now rings hollow.’

In addition to directly challenging America strategically and undermining the American role in upholding the international rules-based order that’s been cobbled together since the end of World War II, the Chinese Communist Party (CCP) ‘has also used an arsenal of policies inconsistent with free and fair trade … to build Beijing’s manufacturing base, at the expense of competitors— especially America’. This includes tariffs, quotas, currency manipulation, forced technology transfer, intellectual property (IP) theft and industrial subsidies—the extent of which has been well documented—occurring at a scale unmatched by any postwar economy and constitutes a violation of WTO and other treaties. Such ‘wholesale theft of American technology’ is especially grievous, as it’s being used by Beijing, according to Pence, to turn ‘plowshares into swords on a massive scale’.

Moreover, China is misusing its economic size and weight in the form of ‘debt diplomacy’ to extend ill-gotten leverage over smaller countries and to ‘exert influence and interfere in the domestic policy and politics of [the US]’. In a scathing assessment, Pence argued that ‘previous administrations all but ignored China’s actions—and in many cases, they abetted them’. Then he offered the main point of the speech, which was to declare: ‘But those days are over.’

To be sure, the individual complaints made against China weren’t new. More broadly, the George W Bush administration initially characterised China as a rising challenger and ‘strategic competitor’ before taking the softer line of urging Beijing to become a ‘responsible stakeholder’ in the international system under American leadership. Barack Obama’s ‘pivot’ to Asia recognised China as a rival, and concerns about Chinese trade practices and IP theft preceded the Donald Trump administration.

[To read the original column, click here.]

Copyright © 2019 Australian Strategic Policy Institute. All rights reserved.

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