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REGIONAL WORKSHOP ONUsing Evidence-based Trade Policy for Achieving the Sustainable Development Goals in LDCS and
LLDCS
Session 1: Trade and Investment and Sustainable Development Goals: Trends for the Asia-Pacific Region
Mia MikicDirector
Trade, Investment and Innovation [email protected]
-30
-20
-10
0
10
20
30
40
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Ye
ar-
on
-ye
ar
pe
rce
nta
ge
ch
an
ge
Imports
Developed Asia-Pacifc Developing Asia-Pacific
Developing Asia-Pacific excluding China Total Asia-Pacific
-30
-20
-10
0
10
20
30
40
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Ye
ar-
on
-ye
ar
pe
rce
nta
ge
ch
an
ge
Exports
Developed Asia-Pacifc Developing Asia-Pacific
Developing Asia-Pacific excluding China Total Asia-Pacific
Merchandise trade in Asia and the Pacific
• Trade returned to its double-digit growth:
11.5% and 15% for exports and imports in
2017
• Manufactured goods remain dominant,
while the ones related to the global value
chain (GVC) were relatively resilient.
Source: APTIR 2018 Chapter 1, ESCAP (unreleased)
Merchandise trade is heavily concentrated within four East and North-East Asian economies (about 63%).
...
Hong Kong, China
8.1%
Philippines
1.0%
BD
0.6%
KH
0.3%
MM LK
UZ
China
33.5%
Japan
10.3%
Korea, Republic of
8.5%
Singapore
5.5%
Russian Federation
5.3%
India
4.4%
Viet Nam
3.7%
Thailand
3.5%
Australia
3.4%
Malaysia
3.2%
Indonesia
2.5%
Turkey
2.3%
IR
1.0%
KZ
0.7%
NZ
0.6%
PK
0.3%
AZ
PG
Asia-Pacific
Source: APTIR 2018 Chapter 1, ESCAP (unreleased)
Intraregional merchandise exports (share, by sub-region)
Subregion Year
Destination of exports
ENEA excl.
ChinaChina ENEA SEA SSWA NCA
Pacific
Asia-Pacifi
c
Rest of the world
East and North-East Asia (ENEA)
2017 17.4 14.1 31.6 12.9 5.2 2.1 2.6 54.4 45.6
2016 18.2 14.1 32.3 12.4 5.0 1.9 2.3 53.9 46.1
South-East Asia (SEA)
2017 18.8 14.9 33.7 22.8 5.5 0.6 3.4 65.9 34.1
2016 19.2 12.5 31.7 24.0 5.3 0.5 3.6 65.1 34.9South and
South-West Asia (SSWA)
2017 6.8 6.2 12.9 7.0 10.0 2.3 1.1 33.2 66.8
2016 5.2 4.0 9.2 5.6 8.4 2.2 1.0 26.4 73.6
North and Central Asia
(NCA)
2017 6.1 12.1 18.1 1.9 7.7 7.7 0.0 35.5 64.5
2016 6.2 11.3 17.6 1.7 8.2 7.8 0.1 35.3 64.7
Pacific2017 18.8 28.2 46.9 9.2 5.2 0.1 6.9 68.3 31.7
2016 21.4 30.0 51.4 9.9 4.5 0.2 7.9 74.0 26.0
Intra-Asian trade
intensity is higher for
South-East Asia and
the Pacific than for
other subregions.
North and Central Asia
and South and South-
West Asia still trade
more with the ROW
than with other Asia-
Pacific economies. Source: APTIR 2018 Chapter 1, ESCAP (unreleased)
For many Asia-Pacific economies trade in services constitutes a dominant part of their total trade.
Asia-Pacific’s share of world trade in commercial services has been growing (from 24.9% to 30.3% between 2005 and 2016).
Commercial services trade is important and growing
Trade in Commercial Services in Asia-Pacific 2017
ESCAP calculations based on the WTO trade database.
Restrictions on trade in commercial services:A rise in “Behind the border” measures of services sector
However…
FDI inflowFDI outflow
Decreased inflows due to
• timid growth and low commodity prices
• structural reforms towards higher value-added
industries in leading economies in the region.
Increase in outflows
• establishing the region as a main outward investor.
FDI: Liberalization continues in Asia and the Pacific
Merchandise trade in Asia-Pacific LDCs and LLDCs
Source: ESCAP calculations based on UNCTAD data; accessed Aug 7, 2018; http://unctadstat.unctad.org/
Inward FDI to Asia-Pacific LDCs and LLDCs
Source: ESCAP calculations based on UNCTADstat data Source: ESCAP calculations based on the OECD International Development Statistics online database
FDI Performance Index
• Measures a country’s relative success
in attracting global FDI
𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝐺𝑙𝑜𝑏𝑎𝑙 𝐹𝐷𝐼 𝐼𝑛𝑓𝑙𝑜𝑤𝑠
𝑆ℎ𝑎𝑟𝑒 𝑖𝑛 𝐺𝑙𝑜𝑏𝑎𝑙 𝐺𝐷𝑃
• Robust economic growth led to their
increasing share in global GDP, but
FDI inflows did not keep up.
• Given the size and growth of their
economy, AP LDCs and LLDCs
should do better in attracting FDI and
integrating in the global economy.Source: ESCAP calculations based on UNCTADstat data
( ≈ 1.1 for the Asia-Pacific region as a whole )
Sustainable Development Goals (SDGs)
Where does Asia- Pacific stands now?
• Very limited progress (even
regression) on some goals:
inequality; peaceful society;
SDGs related to environment.
• Significant achievement gaps
between sub-regions.
• Disparities between countries
increased, highlighting needs for
targeted support
Source: Asia and the Pacific SDG Progress Report 2017, UNESCAP https://www.unescap.org/sites/default/files/publications/Asia-Pacific-SDG-Progress-Report-2017.pdf
Goal 2, 7, 8, 10, 14, 15 and 17, in particular, require further efforts
Maintain Accelerate Reverse No Data
Promoting trade and investment is NOT just an end in itself – it is a critical mean to help achieve relevant SDGs
Efficient
agricultural
trade
Greenfield
FDI
Aid for Trade Preferential
treatment to
developing
economies
Targeted
TBT
measures
Trade-related goals, targets, and indicators…will be further discussed in session 5
Sustainable Trade Index 2018(Hinrich Foundation)
The capacity of 20 economies—19 in Asia along
with the US—to participate in international trade
in a manner that supports the long-term domestic
and global goals of economic growth,
environmental protection, and strengthened
social capital.
• Bangladesh quickly become a world leader in eco-
factories (after the Rana Plaza tragedy).
• In Cambodia: Inequality worsened dramatically
over the past two years.
• Laos made progress in reducing transfer emissions.
• Myanmar sharply reduced the share of natural
resources in trade.
OVERALL SCORE
Hong Kong, China 73.7
Republic of Korea 73.3
Singapore 71.4
Japan 71.3
United States of America 68.5
Taiwan Province of China 66.6
Sri Lanka 53.3
China 53.0
Vietnam 51.7
Philippines 51.2
India 50.6
Malaysia 47.7
Thailand 47.6
Indonesia 47.4
Brunei Darussalam 45.9
Pakistan 44.8
Bangladesh 42.4
Lao People's Democratic Republic 42.4
Cambodia 42.0
Myanmar 37.9Source: Hinrich Foundation
SDG 17: Partnership for the goals
The UN Conference on Trade and
Development (UNCTAD) says achieving
SDGs will require US$5 trillion to $7
trillion in annual investment.
Enhancing support to developing countries, in
particular the least developed countries and
the small island developing States, is
fundamental to equitable progress for all.
Source: UNDP; sustainabledevelopment.un.org
Selected References: • Asia-Pacific Trade and Investment Report 2017: Channelling Trade and
Investment into Sustainable Development https://www.unescap.org/publications/APTIR2017
• SDG Interlinkages Analysis & Visualization https://sdginterlinkages.iges.jp/visualisationtool.html
• OECD International Development Statistics (IDS) online databases http://www.oecd.org/dac/financing-sustainable-development/development-finance-data/idsonline.htm
• UNCTADstat data http://unctadstat.unctad.org/EN/Index.html
• For Inward FDI Performance Index, see World Investment Report 2011, UNCTAD http://unctad.org/en/PublicationsLibrary/wir2011_en.pdf
• Sustainable Trade Index 2018 http://hinrichfoundation.com/trade-research/sustainable-trade-index/
REGIONAL WORKSHOP ONUsing Evidence-based Trade Policy for Achieving the Sustainable Development Goals in LDCS and
LLDCS
Session 1A. Incentives to Foreign Investors: Some insights on how to use them to promote
sustainable FDI
Mia MikicDirector
Trade, Investment and Innovation [email protected]
Which investor incentives does your country provide?
Preferential CIT rate/ CIT exemption Lower tax rates for specific sectors or investors are common among
developing countries and LDCs
Preferential VAT rate/ VAT exemption Value-added tax the most important indirect tax in many countries
Targeted tax holidays A temporary reduction or elimination of a tax offered to companies,
usually conditioned on requirements such as location and exporting status
Duty-free imports Relief from/reduction of import duties on goods used for production, such
as machinery and essential material
Cash grants Direct financial support in the form of cash
Property assistance Help with locating properties; property tax abatement
Investment allowances and credits The right to deduct a certain share of the investment value of a company
from its taxable income
Accelerated tax depreciation Allowing companies to deduct the costs of assets faster than their value
actually declines
Training of labour /
Guaranteed or cheaper loans /
Other tax and non-tax incentives /
Discussion:
• Which instruments are cost-
based? Profit-based?
• Why differences?
• Pros and cons?
The design of financial incentives
Preferential CIT rate / CIT exemption
Preferential VAT rate / VAT exemption
Targeted tax holidays
Duty-free imports
Cash grants
Property assistance
Investment allowances and credits
Accelerated tax depreciation
Training of labour
Guaranteed or cheaper loans
Other tax and non-tax incentives
• Favours high-profit-margin investments that
would have occurred anyways
• Favours short-term investments
• Tend to be abused through profit-shifting
• Actual fiscal cost unknown
• Typically not based on performance such as
job creation or amount invested
Serious limitations of profit-based instruments
Preferential CIT rate / CIT exemption
Preferential VAT rate / VAT exemption
Targeted tax holidays
Duty-free imports
Cash grants
Property assistance
Investment allowances and credits
Accelerated tax depreciation
Training of labor
Guaranteed or cheaper loans
Other tax and non-tax incentives
Importance of financial incentives
• Limitations of profit-based incentives
• Tax avoidance and evasion (shifting profits between companies; characterizing existing capital as new)
• Corruption / rent-seeking
• Fiscal losses resulting from the non-collection of taxes
• Administrative cost
• Market / economic distortions
• Retaliation (from competing investment destinations)
But financial incentives have unintended outcomes…
Source: https://www.oecd.org/ctp/49836864.pdf; Global Investment competitiveness report 17-18
More important factors
A. Investment climate
More important factors
B. Country characteristics
Summary
Resource- and market-seeking FDI
are less responsive to incentivesMake incentives more targeted
Issues Recommendations
Efficiency-seeking FDI requires
more favourable investment climate
Unnecessary revenue loss and abuse
of tax incentives
High administrative costs,
economic distortion, corruption
Developing countries lack high-
quality investment environment
Form mid-term strategies to improve
elements like infrastructure and improve
FDI competitiveness
Avoid using too much incentives
and protect revenue base to support
mid- and long-term strategies
Shifting from profit-based incentives
to cost-based ones, and keep
incentives temporary
Increase transparency, reduce
discretion, and consolidate the legal
basis
Selected References:
• Annual Report on Exchange Arrangements and Exchange Restrictions 2016file:///Users/willshang/Desktop/Bhutan%20TA%202018,%20presentations/FDI%20session/AREAER_2016_Overview.pdf
• The tax incentives database, ADB https://aric.adb.org/taxincentives#
• Global Investment Competitiveness Report 2017/2018 https://www.worldbank.org/en/topic/competitiveness/publication/global-investment-competitiveness-report
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