Opinion

The Great Debate

Why North America is stronger than its parts

Twenty years ago NAFTA, the most ambitious free trade agreement negotiation of its time, gave birth to a profound transformation of the economies and the regional value chains of Mexico, the United States and Canada. Trade dramatically changed the relationship between the three countries, though asymmetries of power and economic vitality persist.

This week, at the North American Leaders Summit in Toluca, Mexico, Presidents Obama and Peña Nieto, together with Canadian Prime Minister Stephen Harper, continued a dialogue about trade, economic growth and the energy revolution in North America. A priority for all parties should be the continued economic integration of the three countries — the region’s greatest hope for job creation and prosperity.

Since 1994 NAFTA, in terms of trade, has triggered a rising tide, lifting boats in all three countries. The numbers are compelling: more than $1 trillion of trade in goods and services annually between the three partners; $1.2 billion of daily trade between Mexico and the U.S.; 6 million U.S. jobs directly related to trade with Mexico; and Canada and Mexico buying more U.S. products than any other nation on the face of the earth.

To understand these numbers in the context of the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) — the two ambitious and critically relevant trade negotiations the U.S. is currently pursuing — the combined exports of the United States’ two neighbors is more than six times that of the other TPP nations, and U.S. exports to Mexico and Canada exceeds those to all EU nations.

But beyond the importance of North America as a marketplace, NAFTA led to one of the most significant trade realignments of any economic bloc: today, Mexico, the United States and Canada have become partners in manufacturing. Through production sharing, the countries are actually building products together, such as automobiles and aerospace parts.

Corporate tax reform: California points the way

The arcane, outdated and inefficient U.S. corporate tax code is costing our country jobs, factories, industries and tens of billions of dollars of badly-needed tax revenue each year.

Our tax system is supposedly based on the idea that U.S. companies should pay taxes on all profits, no matter where they are earned. Yet this is undermined when companies are allowed to “defer” taxes on profits made in other countries until those funds are repatriated to the United States.

This loophole encourages multinational corporations to move production and intellectual property, such as patents and trademarks, out of the country. Or they juggle their books to make it appear that a major portion of their income is made outside the United States. Then they keep it abroad, expecting to persuade legislators to give them “tax holidays” that allow them to repatriate the funds with minimal tax consequences. (The last holiday in 2004 offered a 5.25 percent tax rate). This set of incentives has resulted in up to $2 trillion of profits staying out of the country to defer taxation. This amount grows every year.

What unites Democrats? Republicans!

Back in 1901, Finley Peter Dunne’s character Mr. Dooley said, “The Dimmycratic Party ain’t on speakin’ terms with itsilf.” Is that happening again now? You might think so, given the talk about a populist revolt on the left.

But Democrats are in fact remarkably united on most issues. They agree on everything from increasing the minimum wage, to extending unemployment benefits to raising the debt ceiling.

Yes, there are divisions emerging over trade and energy. But it’s not anything like the bitter confrontations we used to see among Democrats over civil rights and the Vietnam War. It’s also not anything like the bitter civil war that’s broken out in the Republican Party. No one is threatening to walk out.

Don’t let data protection turn into protectionism

We live in a global, digitally networked world. Cloud, mobile and in-memory technologies are its engines. Our new world has no boundaries; there is a huge potential for growth, employment and new business models. But it also comes with challenges for policy and industry.

In response to leaks about the U.S. National Security Agency’s widespread surveillance, there have been lots of understandable concerns globally. Unfortunately, some parties have suggested building fortresses around national data.

I believe that the new technologies and the free flow of data are essential to spurring innovation and expanding international trade. This is only possible if consumers and citizens trust the digital economy and use it extensively. We in industry must work with policymakers in all markets to create clear and transparent rules that both protect the legitimate rights of citizens, consumers and companies and promote cross-border data flows.

Obama: Building trade to build growth

The Obama administration has quietly embraced the most ambitious agenda on trade and investment liberalization in the past two decades.

The United States is currently juggling no fewer than five high-level trade negotiations: free trade talks with the European Union; the Trans-Pacific Partnership (TPP) talks with a dozen Asia-Pacific countries; a new Information Technology Agreement covering trade in high-tech goods; negotiations on liberalizing services trade though the World Trade Organization, and a last-ditch effort this week to agree on new trade facilitation measures at the WTO ministerial meeting in Bali.

This about-face on trade from President Barack Obama’s first term is remarkable.

Don’t miss the boat on trade facilitation

Trade ministers open their meeting in Bali Tuesday with the aim of creating a new multilateral trade reform package worth more than $100 billion to the global economy. The deal — focusing on measures to cut red tape at borders — would be a welcome shot in the arm for both global trade and for the World Trade Organization itself.

This may come as a surprise to some. Indeed, you could be forgiven for thinking that the Doha Round of multilateral trade negotiations had quietly died after a 10-year struggle. But in fact, work has continued in the World Trade Organization — and in capitals around the world — to capture some of the gains from what was once billed as the most ambitious trade round ever. The first multilateral trade agreement in almost 20 years now stands tantalizingly within reach.

The package on the table in Bali includes important provisions on agriculture and development, which would give greater transparency and additional safeguards for international trade. Top billing should go to “trade facilitation” reforms that would streamline border and customs procedures the world over.

China’s commitment to growth will drive the global economy

From outside China, the Bo Xilai trial looks like the Chinese news event of the year, one of the preoccupations of Western media, along with corporate corruption and the clampdown on American and European companies. Yet these issues are no more than sideshows to the most important economic event of recent times, the unveiling and ratification of a major program for reforms for the next decade, which will occur at the Chinese government’s third plenum in November. The reforms promise to bring another great leap forward in China’s dramatic ascent.

Chinese officials will reveal how long China will need to make the transition from an investment-led, middle-income country to an innovative, consumer-driven, high-income one — and thus when it will become the world’s largest economy. Can China circumvent what we know as “the middle-income trap” that has for decades denied high-income status for Latin America and Asian countries like Malaysia and Thailand?

The challenges that China’s new leadership faces in pushing for rising levels of innovation, entrepreneurship and skills will be the main discussion points this week at the New Champions summit in Dalian, China, organized by the World Economic Forum under the leadership of executive chairman Klaus Schwab. The summit recognizes the important truth that China’s degree of success will determine global growth: it will determine whether the twenty-first century will be the Asian century, and whether by mid-century Asia — which not long ago represented just 10 percent of the world economy — will represent half or just a third.

An agenda to boost Africa’s economy

A lot can happen in a year. This time last year, U.S. businesses and NGOs bemoaned the Obama administration’s perceived indifference to Africa. Now, they’re trying to find out how to catch the wave of interest. Major new initiatives, including Power Africa and Trade Africa, unveiled during President Obama’s first true trip to Africa this summer, as well as a reinvigorated push to renew the African Growth and Opportunity Act fully two years before it’s due to expire, have given U.S.-Africa watchers a lot to consider. But what — and when — is enough for U.S. policy in Africa? What more can be done in the year ahead? How do things really shake out for investors, civil society and Africans? Here are three additional areas the Administration should consider as it deepens its commitment to the continent:

1. Invest in Africa’s equity and commodity markets. ­Despite all the interest in Africa’s economic growth and investment potential, it’s still very hard to invest on the continent. Of its less than 30 stock markets, only a few exchanges really offer modern processes and back-end technology to facilitate daily transactions. As Todd Moss from the Center for Global Development notes in a recent paper, some African exchanges trade less in a whole year than New York does before “their first coffee break.” As a result, for institutional investors who need to take large positions or who have fiduciary requirements for daily liquidity, Africa remains almost entirely off-limits. In an era of algorithmic and high-speed trading, Africa’s antique market infrastructure is a major barrier to entry for much needed foreign direct investment.

Innovation is perhaps most evident in commodity exchanges. A number of projects in East Africa are taking off — including the East Africa Exchange (EAX), a private initiative founded by Heirs Holdings, Berggruen Holdings and 50 Ventures, which was launched in January this year. The eponymous Eleni LLC, a consultancy focused on developing private exchanges, builds off the rapid success of Ethiopia’s commodity exchange and the work of Eleni Gabre-Madhin, its founder. Both efforts build the critical architecture necessary for productivity growth in economies that still remain predominantly agrarian.

The public supports a transatlantic trade pact – for now

The long-discussed free trade agreement between the United States and the European Union was formally endorsed by President Barack Obama in his State of the Union address to Congress. Obama asserted that “trade that is fair and free across the Atlantic supports millions of good-paying American jobs.” A prominent presidential endorsement will not prevent a long and disputatious negotiation, but a trade pact could yield potentially huge economic rewards — and also provoke serious political opposition on both sides.

A U.S.-EU trade and investment agreement has been talked about for two decades but never actively pursued. On both sides of the Atlantic, there has been fear that any such deal between the world’s two largest economies would disadvantage poorer nations. A U.S.-EU accord was deemed less desirable because greater economic benefits could be gained from a global trade agreement involving more countries. Trade experts worried that it would undermine the legitimacy of the World Trade Organization. Moreover, based on past bitter disputes over frozen chickens, bananas, genetically modified organisms and other food and agricultural products, a U.S.-European Union agreement was deemed too politically fraught and difficult.

Now, with Europe in recession, the United States unemployment rate stubbornly high and both regions groaning under public indebtedness, Brussels and Washington are looking for ways to stimulate jobs and growth without spending money. Liberalization of trade and investment is seen as one way to do that.

China bashing: A U.S. political tradition

In every U.S. presidential election, the major party candidates vie to see who can appear tougher on China. Once the election is over, however, the substance of U.S. policy toward China usually changes little and is far more pragmatic than the campaign rhetoric. There are ominous signs, though, that things could be different this time.

The accusations have been among the most caustic ever. Republican presidential nominee Mitt Romney has denounced the Obama administration for being “a near-supplicant to Beijing” on trade matters, human rights and security issues. An Obama ad accuses Romney of shipping U.S. jobs to China through his activities at the Bain Capital financier group, and Democrats charge that Romney as president would not protect U.S. firms from China’s depredations.

In large measure these jabs resemble a quadrennial political ritual. Ronald Reagan repeatedly criticized President Jimmy Carter for establishing diplomatic relations with Beijing. Bill Clinton excoriated the “butchers of Beijing” in the 1992 campaign and promised to stand up to the Chinese government on both trade and human rights issues. Candidate Barack Obama labeled President George W. Bush “a patsy” in dealing with China and promised to go “to the mat” over Beijing’s “unfair” trade practices.

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