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Top Policy Trends 2020: Trade

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Shifts in 2020

Trade uncertainty between the US-China and UK-EU should not distract companies from two shifts to watch in 2020. The first is the continual trend in shifting supply chain strategies. Large multinationals are responding not only to changing trade rules, but also to future markets and emerging 4IR technology platforms. And economies are seizing the opportunity to move up the global value chain and diversify their trade portfolios. For example, India in September lowered its corporate tax rate, and dropped the rate for some new manufacturing firms to 15% from 25%.

The second shift is one of the more overlooked consequences of trade policy flux, but is accelerating the first shift: the rising discipline to gather data about cross border activities to comply with or make the case for exclusions. Governments will rely on more granular trade data to enforce trade rules at home and rebuild trust among partners. Businesses will rely on data analysis to find trade preferences, reduce the cost of goods in must-win markets, guide supply chain strategies, and stay compliant.

53% of CFO respondents rank trade among top 3 policies most impactful to their business.

Source: PwC Election 2020 Poll, November 2019

The five influencers

US Congress

Negotiations over the United States-Mexico-Canada Agreement (USMCA) underscore the Congressional role in trade agreements, which could broaden the scope of activities covered under trade deals (and demand for different types of trade data to ensure compliance). For example, improved labor conditions in Mexico are a priority for Democrats in Congress. If USMCA is ratified, it will set the tone for future trade negotiations that high labor standards in developing countries are a condition for preferential access to the US market. The USMCA requires the three nations to adhere to international standards of labor protections and is expected to include enforcement mechanisms to ensure that all three countries continue to be in compliance.

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US Customs and Border Protection (CBP)

Increased automation at the border has made trade data more visible to traders as well as governments. As a result, trade audits and sampling methods are improving. CBP expects to continue to experiment with advancing digital technologies, after a pilot test of blockchain to verify certificates of origin on imported goods. The US in 2016 laid the groundwork for stronger inter-agency collaboration. With the help of US Customs Centers of Excellence and Expertise (CCEEs), CBP is now able to hone in on issues, in addition to efficient trade compliance, that affect industries, not just companies. CPB also enforces US trade laws and regulations on behalf of other federal agencies, with their own sets of standards for products entering the US.

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US-Japan trade pact

Bilateral agreements like the one struck between the US and Japan demonstrate a more limited ambition by the US, which has under the Trump administration rejected multilateral agreements requiring concessions by the US. The deal has a limited scope, setting a standard for some exports, such as lower tariffs on some agricultural products, and digital provisions that aim to ease cross border data flows. It also leaves scope for future negotiations, such as over auto imports to the US or increased market access into Japan.

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US Trade Representative (USTR)

This small agency directs White House trade negotiations, and coordinates trade matters with other federal agencies. Its role in reviewing requests for tariff relief from US importers has put the USTR web portal at the center of many importer trade strategies. Over 10,000 requests for exclusions from the first two tranches of additional tariffs on imports from China were submitted. One analysis found that only around one in four were approved for exemptions. The USTR reviews the requests, and has the authority to approve or deny the requests.

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Labor rights and sustainability

The May 10th Agreement authored by House Democrats has set the trend to broaden trade agreements to include developed-country standards on labor and environment. The USMCA is likely to be the first and largest multilateral agreement ratified that fully reflects this new world, and it will have implications for all future US trade agreements. Separately, as part of a focus on sustainability, private entities are now acting where they see government failures, as in the Paris coalition.

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63% of c-suite respondents looking to shape trade policy plan to increase lobbying efforts and budget.

Source: PwC Election 2020 Poll, November 2019

How to prepare for the shift

Organize and analyze trade data. The hunger for more data on trade activity, physical and virtual, is one of the few certainties emerging from a year of turmoil in global trade relationships. Automation should be used when possible, in part to preserve custom-savvy resources for more analytical tasks. Business leaders should be in a position to quickly determine which products would be affected by tariffs or other types of emerging trade requirements and to quantify potential exposures. Automation solutions have matured, including PwC’s Connected Supply Chain.

At the same time, prepare for demand for different types of data to grow. Interest in using trade deals to advance sustainability practices or worker rights in developing nations is gaining traction among some US lawmakers and advocates. Globally, governments and trade specialists are seeking to plug yawning knowledge gaps in trade statistics on value-added terms and digital business, including e-commerce. The data will feed into insights into non-goods trade, which in turn will influence new policy directions for trade and tax. 

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Scott McCandless

Partner, Tax Policy Services, PwC US

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