A version of this article was first published by The DCN in April 2023.
In recent times, the global supply chain has experienced a series of unanticipated strains. The combined effect of the Covid-19 pandemic, shipping congestion, protectionist political actions, lack of product and the conflict in Ukraine caused many in the supply chain to question how global trade may be conducted in the future.
The golden age of globalisation has shifted with additional references to the need for sustainable and resilient supply chains and enhanced recognition of domestic interests in trade negotiations. New terms have arisen, such as ‘friend shoring’, as countries have looked to alliances not solely based on trade, but more openly based on political, strategic and defence interests.
Those in the supply chain have looked beyond their traditional trading and investment focus to other countries and regions to diversify their source of products to manage the risks shown up by more recent crises.
Earlier observations
Some of the changes have been positive such as the reduction in barriers on trade in pharmaceuticals and personal protective equipment in times of health crises, including the removal of tariffs on such products.
There seems to be more interest in facilitation of trade including adoption of international digital trading platforms and electronic documentation in place of traditional paper documents.
However, many of the other changes have seen non-traditional issues included in free trade agreements (FTAs), increasingly to secure other aims more consistent with environmental, social and governance (ESG) issues. An article written earlier last year discusses these changes in greater detail.
Now, some 12 months later, the movement towards inclusion of social and national interests as a fundamental part of the international trade agenda has further developed, in no small part as a recognition that relying on overseas countries for essential goods and services may no longer be sound policy.
The United States (US) — an example of recent changes
By way of example, we can look at developments in the US which reflect this change in the agenda, both in rhetoric and in action (or inaction). To quote from the introduction of an article by Keith M. Rockwell from the Hinrich Foundation in January 2023 entitled ‘The missing trade in US trade policy’:
“What senior US trade officials say about trade these days speaks volumes. What they do not say speaks louder still.
“Gone is the traditional trade terminology, imports, exports, tariffs, market access, and consumer choice. The new trade policy lexicon – worker-centric, reshoring, friend-shoring, resilience – illustrates the sea change underway in the US.
“The deep skepticism on trade that was once the currency of anti-globalization activists or long protected corners of US industry is now expressed openly and regularly by US trade officials. The level of political toxicity on trade is so high that the word ‘trade’ appears all of six times in the 58-page Biden-Harris Economic Blueprint released in September, and only then as part of official agency names.”
Examples which illustrate change in the US that can be seen are as follows:
- The tightening of the ‘buy American’ restrictions in government procurement markets requiring the threshold for domestic content to increase to 75% by 2029, including an increase to 60% in 2022.
- The adoption of the Inflation Reduction Act providing tax credits, subsidies and other financial incentives to American manufacturers and consumers to achieve environmental outcomes if they are sourced from US or the countries with which US has trade agreements. This includes subsidies of USD$465 billion for green energy, electric cars and semiconductors (the latter which also reduces US reliance on overseas sources for semiconductors).
- The US lead on the proposed Indo-Pacific Economic Framework (IPEF) which contains no tariff reductions or improved market access provisions but focusses on four core pillars of work, being trade (including digital trade and facilitation of trade), supply chains, cleaner energy and tax and anti-corruption measures.
- The absence of substantial mention of multilateral trade initiatives in President Biden’s State of the Union address on 7 February 2023.
- The prominence given to worker-centred trade policy, combatting forced labour, supply chain resilience in trade and digital trade in the Biden Administration’s 2023 Trade Policy Agenda and 2022 Annual Report issued by the Office of the United States Trade Representative (USTR) on 1 March 2023.
- The perception that the centre of trade policy has moved from its traditional home at the USTR to being administered by the United States Department of Commerce (DOC) which is focussed on the defence and promotion of American industries and protection of US Technologies.
The US has also relied on other initiatives to advance its own interests, by way of defence and strategic agreements with ‘friendly’ nations such as the AUKUS, the Quad Partnership and the well-established Five Eyes network. These supplement and support its economic, trade and defence interests. In the near future, it is anticipated that there may be more focus by the US on its relationships with India and Indonesia, which will be the third and fourth largest economies by 2050.
It’s not just the US
The US is not the only country moving along these lines and such a move by other countries will create political tensions and economic inefficiencies. However, there are times where compromises must be made. Andrew Hudson, Partner of Customs & Trade at Rigby Cooke Lawyers, recalls from his education in economics, there was recognition of a ‘second best’ world in which perfect outcomes are not always achieved, and in the trade context, that ‘second best’ world acknowledged and protected legitimate domestic interests.
Historically, Australia has always placed certain restrictions and limitations on its trade with the world. While some have been rolled back over time, such as the reduction in tariffs, there were always restrictions on certain foreign trade and investment into Australia. In recent times, these restrictions have increased. Restrictions include action requiring disclosure of foreign influence or prohibiting foreign investment in critical infrastructure.
Australia is also party to many of the same defence and strategic agreements with the US. The federal government has also committed to invest heavily in Australian manufacturing capacity, both to replace some of that which had been replaced by imports over time, especially in advanced manufacturing. This has not meant that Australia has resiled from its active pursuit of FTAs, where currently it needs more than the US. That work is continuing apace with recent significant developments with India and the United Kingdom, and the prospect of a deal with the European Union. However, there is also more open recognition that FTAs and the wider trade debate will be subject to more pronounced national interests and protections.
How does industry respond?
The message is reasonably clear. Industry needs to appreciate that we are in a world with multipurpose trade policy and that consideration needs to be given to a broader series of influences than may have previously been the case.
It is vital to understand what is coming down the pipeline whether locally or overseas. In effect, there needs to be an investment in research into the drivers of trade, being law, politics, and economics, before they take effect.
Given the complexity of trade with regulation by so many different agencies domestically and abroad, it is time for companies subject to such regulation to consider the employment of trade compliance managers who look at all regulation at the border. Understanding of such issues as the impact of sanctions and other ESG regulation requires specific expertise.
Engagement with government at all levels is vital, both to be advised on what is happening as well as providing the base to communicate your specific interests. The Department of Foreign Affairs and Trade (DFAT), which oversees much of the conduct of our international trade initiatives, provides outstanding information on developments and actively welcomes engagement by industry. Other government agencies at the national and state level also provide significant assistance.
Considerations
It is imperative to ensure that your service providers of all types are aware of developments which may affect your business and have their own established networks to secure and provide advice on what is likely to happen. That enables industry to be prepared to manage change as opposed to being adversely affected by trade.
It is advisable to read widely from a several reliable sources locally and internationally. There are several brilliant sources whose output is readily available.
You may also consider joining and supporting relevant industry associations domestically and internationally. Not only do they represent your interests, but they also provide invaluable advance information on developments and how you can best implement necessary changes to practices.
Contact us
To discuss issues relating to customs and trade legislation or assistance in addressing any current trade or supply chain issues your business is facing, please contact our Customs & Trade team.
Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.
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