Trade

Global Manufacturing Economic Report – October 10, 2014

Here is the summary for this month’s Global Manufacturing Economic Update: 

The International Monetary Fund (IMF) slightly downgraded its global outlook earlier this week, with Asia, Europe and South America growing slower than expected three months ago. The IMF now expects world output to expand 3.3 percent and 3.8 percent in 2014 and 2015, respectively, down from 3.4 percent and 4.0 percent as estimated in its July report. One notable exception to this downward trend was the United States, with the IMF raising its 2014 forecast from 1.7 percent to 2.2 percent real GDP growth. This reflects recent strength in the U.S. economy, particularly when compared to other nations. To be fair, the IMF had more optimistic expectations for growth coming into this year, projecting 2.8 percent growth in 2014 in its January report. After disappointing growth in the first quarter, however, it lowered its outlook projections, much like everyone else.

One of the bigger challenges remains Europe. The Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) continued to decelerate in September, with activity just shy of being stagnant. New orders contracted for the first time since June 2013, when the Eurozone was emerging from its deep two-year recession. Indeed, the fear is that Europe will once again sink back into recession, with contracting levels of activity seen in four nations in September: Austria, France, Germany and Greece. Of particular note on this list was Germany, the largest economy in Europe. Real GDP was unchanged in the second quarter, down from 0.2 percent growth in the first quarter. Meanwhile, both industrial production and retail sales were higher in August. We will get new production data next week, and it is expected to be softer. For its part, the European Central Bank kept its monetary policies unchanged, but there is an expectation of further stimulus in the coming months.

Meanwhile, Brazil, Russia, India and China also continue to experience softness. Brazil shifted into its fifth contraction so far this year, but investors are cautiously optimistic about the upcoming runoff election between incumbent President Dilma Rousseff and Aécio Neves, who is favored by business leaders. Russia, India and China are growing, but just barely. China’s manufacturing sector has shown signs of stabilization, but stronger growth remains elusive. A number of key economic indicators in China have continued to decelerate this year, including industrial production, and it is likely that real GDP will decline from 7.5 percent growth in the second quarter to 7.3 percent in the third quarter. India’s PMI figure in September was at its lowest point this year, and Russian exports continue to fall. Nonetheless, it was not all bad news in the emerging markets. For instance, Indonesia, Turkey and Vietnam had their paces of new orders shift from negative to positive for the month, which bodes well for them.

The U.S. trade deficit narrowed marginally in August, although export growth remains sluggish so far this year. Looking at the top 10 markets for U.S.-manufactured goods, four countries (Brazil, Germany, Hong Kong and South Korea) experienced contracting levels of activity in September, which hampers our ability to sell products there. In addition, Canada, Japan and the United Kingdom also had marginally deteriorated demand and output in September, even as each continues to grow modestly. In contrast, manufacturing activity in Mexico and the Netherlands accelerated slightly in September.

U.S. trade negotiations in the Asia Pacific are moving forward with major meetings in Australia and China later this month and next. United States–European Union negotiations face increased controversy and new leadership at the EU Commission and Parliament. And, with the World Trade Organization’s Trade Facilitation Agreement facing a continued stalemate, there are efforts to move the information technology talks to a conclusion and engage in the detailed environmental goods talks. The U.S. Export-Import Bank was granted a nine-month extension, but manufacturers remain highly concerned that continued uncertainty will put U.S. exporters at a disadvantage in global markets. Efforts continue to move forward on a host of trade legislation, including Trade Promotion Authority, the Miscellaneous Tariff Bill, customs reauthorization and the Generalized System of Preferences.

Chad Moutray is the chief economist, National Association of Manufacturers. 

markit pmi for top 10 markets - oct2014

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NAM Urged President to Address Trade Facilitation with Indian Prime Minister

Last week, NAM President & CEO Jay Timmons was joined by several other trade association leaders in calling on President Obama to prioritize in his meeting with Indian Prime Minister Narendra Modi the importance of India playing a positive role in the global economy, including by addressing concerns about India’s ongoing blockage of a global agreement on trade facilitation. The World Trade Organization (WTO) agreement, agreed to last year in Bali, would simplify customs procedures and facilitate the movement of goods across borders and is estimated to provide a more than $1 trillion stimulus to the world economy once implemented.

In the weeks leading up to a key July 31 deadline, India blocked implementation of the WTO Trade Facilitation Agreement. The agreement set a July 31 deadline for the WTO’s General Council to accept notifications of Category A commitments, adopt the Protocol of Amendment, and open the Protocol for acceptance. Hours before the final deadline, the WTO announced it had not been able to find a solution to the impasse.

In remarks yesterday to the Global Services Summit, WTO Director General Roberto Azevedo said the WTO “is facing a challenge the gravity of which is hard to overstate.” Azevedo said he remained hopeful that WTO members could resolve the differences blocking implementation of the TFA and move on to completing a work program to finish the long-running Doha Round of trade talks, which began in 2001. The umbrella Trade Negotiations Committee is scheduled to meet on October 6.

Earlier this week, The WTO’s Preparatory Committee on Trade Facilitation met to review 32 new notifications from developing countries received since the last meeting informing the WTO of their Category A commitments, demonstrating the strong interest globally in implementing this agreement. Category A commitments are those commitments countries promise to implement immediately when the TFA enters into force.

The NAM remains committed to the objectives outlined in the TFA, and NAM leaders have been vocal about manufacturers’ concerns over India’s recent actions. In a Wall Street Journal Op-Ed on August 11, Timmons wrote that India’s “high-stakes gamble risks hurting economic growth worldwide while calling into question India’s respect for its international commitments. In an Op-Ed for The Hill, NAM Vice President Linda Dempsey noted that India’s recent actions “create new skepticism about whether the Modi government is fully committed to the type of reforms that are critical for India’s own growth and its international competitiveness.”

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Global Manufacturing Economic Update – September 12, 2014

Here is the summary for this month’s Global Manufacturing Economic Update: 

Net exports have been a drag on the U.S. economy so far through the first half of this year, with manufacturers continuing to experience sluggish sales growth in international markets. With that said, the U.S. trade deficit narrowed a bit in July to its lowest level in six months, with growth in goods exports outpacing growth in goods imports. Petroleum trade accounted for a significant portion of the change in each, and in general, energy has helped to narrow the deficit from that of a couple years ago. Another positive note was the fact that each of the top-five trading partners for U.S.-manufactured goods experienced increases in manufactured goods exports year-to-date relative to the same time frame last year using non-seasonally adjusted data.

Along those lines, manufacturers worldwide saw modest growth, with a slight improvement from the month before. The J.P. Morgan Global Manufacturing Purchasing Managers’ Index (PMI) rose marginally, up from 52.4 in July to 52.6 in August. The good news is that this marks the 21st straight month of expanding activity globally; yet, it is also clear that the pace of growth has not changed much this year. Still, manufacturing activity in August expanded in 9 of the top 10 markets for U.S.-manufactured goods, an improvement from just five markets in May.

Nonetheless, the data also show signs of softness, most notably in Europe and in China. Real GDP in the Eurozone fell 0.2 percent in the second quarter, with recent industrial production and retail sales data trending lower, as well. The Markit Eurozone Manufacturing PMI declined from 51.8 to 50.7, its lowest level since July 2013, when Europe was just emerging from its deep recession. Still, the economic health of various European nations varies widely, ranging from deteriorating activity in France to relatively robust growth in Ireland. For its part, the European Central Bank has once again lowered interest rates in the hope of spurring more economic activity and additional lending. With these actions and slow growth in Europe, the euro has depreciated against the dollar, down from a recent high of $1.3924 for one euro on May 6 to yesterday’s close of $1.2921 on September 11.

Meanwhile, Chinese manufacturers have reported expanding levels of activity for three straight months (June to August), which by itself is progress after starting the year with five months of contraction. However, the HSBC China Manufacturing PMI declined from 51.7 to 50.2, or just barely above neutral, with decelerating levels of new orders, output and exports. Moreover, while real GDP in China picked up slightly from a year-over-year pace of 7.4 percent in the first quarter to 7.5 percent in the second quarter, we expect to continue to see an easing in growth rates moving forward. We have also seen decelerating rates of growth—albeit still healthy ones by our standards—for industrial production, fixed asset investments and retail sales. Slower growth in China has also helped to pull down overall manufacturing activity in the emerging markets.

U.S. trade talks continue this month with both Asia-Pacific nations and Europe, while the World Trade Organization seeks to move forward both trade facilitation and environmental goods discussions. Domestically, a range of trade and international financing legislation awaits action, including the reauthorization of the Export-Import Bank of the United States, whose charter expires on September 30.

Chad Moutray is the chief economist, National Association of Manufacturers. us trade deficit - sept2014

 

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Advancing Trade, Strengthening Transatlantic Partnership

Open trade is one of the best hopes for the long-term success of manufacturing in the United States as our manufacturers increasingly seek to access the world economy. The NAM has prioritized international engagement because by working closely with government leaders, our allied business organizations and manufacturers overseas, we can enhance our impact, strengthen and grow commercial relationships and expand markets and opportunities for manufacturers throughout the United States.

That is why today I am in Spain, at the invitation of Sen. Tim Kaine (D-VA), to be part of a U.S. delegation to the U.S.-Spain Council Annual Forum to discuss transatlantic trade issues with Spanish leaders and our counterparts. The United States and the European Union already have the world’s largest commercial relationship, but major opportunities for increased trade and investment between the United States and European Union remain untapped. Most important from a commercial perspective is the Transatlantic Trade and Investment Partnership (T-TIP) agreement, which I have been asked to discuss as part of a panel tomorrow that includes Deputy U.S. Trade Representative Michael Punke, Spanish State Secretary for Trade Jaime García-Legaz and Chairman of the U.S. Chamber of Commerce in Spain Jaime Malet.

T-TIP has the potential to expand markets for manufacturers in Europe and the United States and to enhance the global competitiveness of industry on both sides of the Atlantic. It’s vital that manufacturers’ priorities, such as removing unnecessary barriers and red tape at the borders, regulatory coherence and robust intellectual property and investment protections, are incorporated in any agreement. I intend to make that case—and to emphasize that it is well past time to seize opportunities like T-TIP and expand our commercial relationships in ways that will jump-start greater economic opportunity and remove the obstacles to trade.

Jay Timmons is the President and CEO of the National Association of Manufacturers

 

 

 

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Moving the U.S.-India Relationship from Aspirations to Action

In his recent Independence Day speech, India’s Prime Minister Narendra Modi laid out his vision for a future driven by innovation and aimed at improving the lives of all Indians. To achieve a “Digital India”, his government plans to build the infrastructure necessary to ensure all Indians have access to essential public services and information.

It’s a critical focus and surely an inspiring signal to his constituents and international partners. After all, innovation is essential for the growth of any nation in the 21st century. By embracing the potential of technology, the people of India can connect and unite like never before. From improving access to education and embracing the diverse benefits of telemedicine, to increasing the country’s electronic manufacturing capabilities, even those living in the far remote expanses of rural India could benefit.

The Obama Administration was quick to praise Modi’s approach and to highlight opportunities for collaboration.  In comments at the New York Foreign Press Center, U.S. Assistant Secretary of State for South and Central Asia Nisha Biswal expressed “a great deal of desire to look and see what we can do to create or stand up a infrastructure platform that would allow American companies to be able to focus their tools, their technologies, their capabilities around the priorities that have been identified by the Indian Government.”

Indeed, there is “a great deal of desire.” But translating Modi’s grand vision into reality will be difficult, and so far there’s been more talk than action. India continues to maintain discriminatory industrial policies that are blocking U.S. exports of the very information and communication technology products Modi will need to achieve a “Digital India.”  Widespread copyright piracy and weak protection of intellectual property rights in India are discouraging innovation and investment.

While other countries are opening their markets and undertaking the kinds of legal and economic reforms necessary to build and sustain a modern digital economy, India is falling further behind.  Between 2013 and 2014, India slipped ten places in the global innovation index  and now ranks a disappointing 76th in the world. According to the 2014 World Economic Forum’s Global Enabling Trade Report, India’s trading regime ranks 96th out of 132 countries in terms of enabling trade.

Modi’s government is still in its early days, and manufacturers remain hopeful that positive progress can be achieved and that a promising bilateral commercial relationship can get back on track. If India’s new leadership is serious about taking the actions necessary to achieve their vision, the NAM and American businesses stand ready to work with them.

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Exporters for Ex-Im: Bank A “Valuable Tool” For Commercial Cleaning System Exporter

Bob Toews, vice president of Kaivac Inc., says his company is defined by its entrepreneurial spirit. That resourcefulness helped them design a no-touch commercial cleaning system that can clean floors 30 times better than a mop – in a fraction of the time.

Their patented cleaning system has appeal across the globe. It’s used in London Heathrow and Amsterdam Airports, to name a few, as well as the iconic Louvre Museum in Paris. But as is the case for many businesses looking to tap into global demand, Kaivac found the Export-Import Bank to be a valuable asset in making those deals possible.

Kaivac is based in Hamilton, Ohio, and has 50 employees. When the company started to explore potential new markets, Toews said the company networked through friends and family to reach new customers. Their success, however, was limited by the fact that they needed required cash in advance for overseas sales.

The company needed to offer credit terms to grow, but the availability of private sector credit insurance did not, according to Toews, “reach down to their level.” In 2010, Toews started using Ex-Im Bank credit insurance and got five international customers qualified.

“Offering foreigners credit terms was a big benefit. It ratcheted up their interest and ability to buy,” he said

The result has been a significant uptick in overseas sales. Toews said that last year, the company doubled their export sales – about half of which were supported by Ex-Im credit insurance. In fact, the company has just hired another person solely dedicated to selling the cleaning systems internationally.

Toews says Ex-Im is so valuable because it is “a great tool to reach markets that are hard to reach without it.” He is disappointed about the current fight in Congress for reauthorization but is confident the benefits of Ex-Im will shine through.

“At the end of the day,” Toews noted, “what other programs really help small businesses?”

“Exporters for Ex-Im” is a blog series focused on the importance of the Export-Import Bank to manufacturers. To learn more or to tell Congress you support reauthorization of the Export-Import Bank, visit http://www.nam.org/Issues/Trade/Ex-Im-Bank.aspx.

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Timmons in WSJ Op-Ed: Delhi Holds Trade Growth for Ransom

Less than two weeks after India took a hard and unexpected stance against a previously agreed upon WTO Trade Facilitation Agreement (TFA), the international community is still reeling and contemplating the possible repercussions.  NAM President and CEO Jay Timmons recently outlined in a Wall Street Journal (WSJ) Asia op-ed the impact India’s decision to block an agreement that would have added an estimated $1 trillion boost to the global economy based on domestic concerns could have on global development:

Though India’s economic future was looking bright with the newly elected Indian Prime Minister Narendra Modi’s promise to improve India’s business environment, followed by Finance Minister Arun Jaitley’s budget speech confirming that India was ready to facilitate trade and cut through some of the country’s red tape, the nation’s actions to block this critical agreement have signaled business as usual.

Why? New Dehli says it is protecting its agricultural programs, but many WTO members are calling its bluff. Timmons believes that India is using the deal as leverage since the global agreement requires consensus from all WTO members to move forward.

“This high-stakes gamble risks hurting economic growth worldwide while calling into question India’s respect for its international commitments,” said Timmons in the piece. Even more disappointing is that a trade facilitation agreement would stand to support growth in developing countries the most.

The bottom line is that the agreement would have benefitted all countries working to grow their economies by lowering international transaction costs. India boasts the world’s third largest economy and missed an opportunity to emerge as a world leader in trade and to show the world that it is indeed “open for business.”

As Timmons referenced in the WSJ, India must realize, “a trade-facilitation agreement that delivers on its promise will require strong coordination and assistance from donor countries, international financial institutions, multilateral organizations and the private firms.” All nations will benefit from a more open trading system.

Thousands of U.S. firms trade and do business across the Asia-Pacific region and globally, resulting in the injection of much needed foreign investment into both developing and developed countries. The new Government of India is well aware of this benefit and has expressed public commitment to opening up its borders to international trade on behalf. It is time Prime Minister Modi makes good on those claims to turn the tide on protectionist trade policies and focuses on future opportunities to prove to the international community that India is a viable and worthy trade partner.

Read the full text of Timmon’s piece here.

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Protecting Innovation and Creativity in India; A First Step to Stronger Bilateral Trade and Investment Ties

This week, senior officials from the Office of the U.S. Trade Representative (USTR) are visiting India to continue discussions on various bilateral trade issues, including intellectual property (IP) rights. The talks are a precursor to a long-awaited India-US Trade Policy Forum scheduled to take place later in the year. They are a welcome opportunity to consider how both nations can benefit from stronger IP protection and enforcement.

India’s recent actions to block a WTO Trade Facilitation Agreement that could have added an estimated $1 trillion to the global economy raised serious concerns about Prime Minister Modi’s commitment to opening India’s market and incentivizing overseas investment. India’s actions dealt a particular blow to poor countries, which would have benefitted disproportionately from a trade facilitation deal. According to the OECD, full implementation would have reduced international transaction costs for low and lower middle income countries by up to 15 percent.

However, there’s still time for India’s new government to break from the protectionist policies of the past. The fact that dialogue between India and the United States is even taking place is a step in the right direction. And few steps would have a greater impact on promoting economic growth and jobs in India and repairing a damaged bilateral trade and investment relationship than reforming India’s patent regime and strengthening IP protection and enforcement.

India’s economic present and future depend on technology and creative industries. The Indian Software Product Industry Roundtable believes the country has the potential to build a US$ 100 billion software product industry by 2025. Bollywood is already the world’s largest film industry, and gross receipts have almost tripled since 2004. Yet by almost any measure, India’s climate for IP protection and enforcement consistently ranks among the very worst in the world.

According to the U.S. Chamber of Commerce, India’s IP environment ranks dead last among 25 industrialized and emerging economies measured against 30 factors that are indicative of IP regimes that foster growth and development. The country’s long track record of rampant copyright piracy and repeated steps to deny, revoke and compulsory license patents on innovative medicines have earned it a place on USTR’s Special 301 Priority Watch List for a record 26 straight years.

If Prime Minister Modi really wants India to be “open for business,” as he stated repeatedly on the campaign trail, then his government must put in place measures to protect new ideas and technologies – including bringing patent rules in line with global norms, reforming copyright laws to better protect creative industries and safeguarding confidential business information.

Implementing measures that strengthen IP protection and enforcement in India would be a welcome first step to improving trade relations with the US and would signal to the world that India is serious about becoming a global economic leader for years to come.

Manufacturers in the United States expect USTR to make a clear case for reform and real results leading to a more mutually beneficial trade and investment partnership this week. We hope India will listen.

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Global Manufacturing Economic Update – August 8, 2014

Here is the summary for this month’s Global Manufacturing Economic Update:

The International Monetary Fund (IMF) predicts that world output will grow 3.4 percent in 2014, down from 3.7 percent in its April forecast. Much of the downward movement stems from weaker-than-expected data from the first quarter. In the United States, for instance, real GDP declined by a disappointing 2.1 percent, and even with a rebound in the second quarter, the economy expanded by just 0.9 percent in the first half. Fortunately, manufacturers are mostly upbeat about the second half, and the IMF predicts 1.7 percent and 3.0 percent growth in the United States for 2014 and 2015, respectively. Europe is anticipated to grow 1.1 percent this year, and the Chinese economy should increase by 7.4 percent. While the emerging markets as a whole have started to see signs of improvement, notable weaknesses still exist in Brazil, Russia and South Africa, to name just a few. Geopolitical risks abound, of course, with crises around the world also negatively impacting activity.

The good news is that global manufacturing activity continues to expand modestly, with the pace little changed in July from June. New orders, production and employment growth slipped a little for the month, but exports picked up. In July, 8 of the top 10 markets for U.S.-manufactured goods had expanding economies, with Brazil and South Korea contracting once again. Among the expanding nations, Canada and China saw accelerating levels of manufacturing demand and production in July, with relatively decent growth seen in both the Netherlands and the United Kingdom. At the same time, manufacturers in the United States have continued to rebound from softness earlier in the year. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) increased to its highest level since November on strong output and sales growth.

The Chinese economy has begun to stabilize, with manufacturers in China expanding for the second straight month. New orders, exports and production growth all strengthened in July, and we anticipate a pickup in industrial production and fixed-asset investment rates when they are released next week. China’s real GDP has increased slightly, from 7.4 percent at the annual rate in the first quarter to 7.5 percent in the second quarter. Meanwhile, Eurozone manufacturers have now expanded for 13 straight months, but activity has decelerated since January. Confidence measures have weakened, year-over-year inflation remains very low and the unemployment rate stayed elevated (even as it fell to 11.5 percent). Still, the latest industrial production and retail sales have reflected a rebound.

In general, we have seen the U.S. trade deficit narrow over the past couple years as we have become less dependent on foreign sources of energy. In June, the trade deficit was at its smallest level since January, as goods imports declined at a faster pace than goods exports increased. Still, we continue to see relatively slow growth for U.S.-manufactured goods exports, which have increased 1.7 percent year-to-date. Ideally, we will see improvements moving into the second half, as the current pace represents a deceleration from last year’s 2.6 percent rate of growth.

The last month saw important progress in ongoing trade negotiations with Europe and 11 Pacific Rim nations, as well as environmental goods talks in the World Trade Organization (WTO). However, India and others successfully blocked agreement on a global trade facilitation package that would add an estimated $1 trillion to the world economy, potentially setting up a last-ditch effort to revive the deal in September. Responding to rising tensions in the Ukraine, the United States and the European Union (EU) imposed fresh sanctions on Russia in the financial, energy and defense sectors.

With Congress now in recess for the month of August, manufacturers are engaging Senators and Representatives in their states and districts and gearing up for action in the fall on a range of stalled trade measures—including reauthorization of the Export-Import Bank, Trade Promotion Authority, a miscellaneous tariff bill and the Generalized System of Preferences. A House bill that would provide access to federal civil enforcement for trade secrets theft is fast gaining cosponsors, laying the groundwork for a Judiciary Committee markup and possible passage in September. The planned official visit of India’s new Prime Minister, Narendra Modi, to Washington at the end of next month will provide another opportunity to address outstanding trade and investment barriers in that important market.

Chad Moutray is the chief economist, National Association of Manufacturers. 

manufactured exports growth - aug2014

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India’s Protectionism and Africa’s Economic Opportunities

Over 40 African heads of state and government are in Washington this week to discuss ways we can work together to promote economic growth and development in Africa.

But what if working together to open markets and reduce barriers in developing countries turns out to be the best way to promote growth in Africa? With industrialized countries in North America, Europe and elsewhere now largely open to African products, the continent’s greatest chance to drive future export growth may come from reducing high barriers in major developing country markets like India.

The U.S.-Africa Leaders Summit aims to promote economic growth and development by fostering stronger trade and investment ties. The United States has and can contribute much to that goal. Through the African Growth and Opportunity Act (AGOA), it has eliminated tariffs on substantially all African exports. Africa is home to some of the world’s fastest growing economies, and manufacturers in the United States are eager to invest and strengthen economic partnerships across the continent.

Yet overall, some 70 percent of tariffs developing country exporters face are applied by other developing countries, and the protectionist challenge is even greater in particular regions of the world. According to the World Bank, tariffs imposed by India and other South Asian countries on imports from developing countries are frequently five times as high as the rates imposed by industrial countries.

Reducing those tariffs is critical, the Bank says, because nearly 90 percent of the stimulus to developing country exports following past tariff cuts has come from liberalization by other developing countries.

Sadly for Africa, India and others in a position to lead in lowering barriers and contributing to growth and economic development are moving in the opposite direction. A Global Trade Alert study found G20 economies collectively imposed 692 protectionist measures between 2008 and 2010, and India and other emerging markets were among the biggest sinners. Many of those measures harmed the commercial interests of least developed countries – 70 percent of which are in Africa.

Just last week, India single-handedly thwarted a WTO deal that would have drastically cut the cost of moving goods across borders in Africa and around the world. According to the Peterson Institute of International Economics, a successful trade facilitation agreement would have added $1 trillion to the global economy.

Developing countries stood to gain the most. An OECD study found full implementation would have reduced international transaction costs for low and lower middle income countries in Africa and elsewhere by up to 15 percent.

Unfortunately, India seems bent on pursuing policies that are standing in the way of African exports and African development. This week, African countries and the United States have an opportunity to make common cause and to look at ways to work together to reduce trade barriers in India and other emerging markets.

With so much to gain from cooperation, we can’t afford to miss this chance.

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