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A Cleaner, Greener Future. What Does This Entail for Trade In Asia?

Posted by Noel Chow

9/6/17 1:26 PM

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With the Brexit in full motion, the Britons should never have to worry about the infamous Euro-sausage ever becoming a threat to the English banger again. That should put many an Englishman at ease (watch the 1984 Christmas Special of the BBC’s “Yes Minister” if you are pondering the origin of this joke). The prospect of losing the liberty to fill up at the gas station though, is probably less of a laughing matter, especially if petrol and diesel powered vehicles have been a way of life for at least the last 60 years if not longer.

If there was anything Britain and France could agree on, it’s the fact that health problems resulting from air pollution was costing both countries millions a year in lost productivity. France, followed shortly by Britain became the first two countries in the world to pledge a roadmap towards a complete ban on the sale of petrol and diesel vehicles by 2040.

So what does this mean? If history is anything to go by and trends in international relations are a reliable indicator for predicting state actions, it is likely these two economic powers will start looking for other economic powers to form a bloc and start negotiating a joint effort. As soon as the bloc gathers momentum, they will start forming pressure groups looking to “recruit” more “members” to the negotiations with some sort of multilateral agreement being the likeliest goal. Predictably, if the president of the United States continues in his belief that climate change is a hoax and no corrective action is needed, the momentum will probably swing eastwards towards Asia.

As history has shown us, multilateral agreements take a great deal of time to negotiate and tend to endure years of stalemate before they conclude, if they ever conclude at all. But suppose the hypothetical multilateral agreement on the ban of petrol and diesel vehicles involving major European and Asian economic powers did materialize… then what? Let’s start by assessing what the likelihood is of an initiative like that realistically being even conceived, let alone materializing.

For starters, it is time to recognise that there is a growing public sentiment in favour of clean technology, especially amongst the younger population (read this BBC article if you are still not convinced). One might perhaps argue that this in itself is not necessarily an indicator that a multilateral accord of this scale is on the horizon. Fair enough.

Then consider this. An increasing number of leading global corporations are introducing CSR initiatives as part of their corporate culture. These corporations wield plenty of influence. To top it off, few, if any, of the emerging corporate superpowers in the last 3 to 5 years have been energy companies. As the social status of traditional sources of energy wane in light of recent celebrity endorsements of “Go Green” campaigns and going green eventually becomes a fashion statement (some say it already is), governments of the future will likely have nothing to lose in terms of the popular vote by taking a more radical approach on conservation – especially if France and Britain prove to be a success.

Therefore, there is a realistic chance of this happening, and if it does, we might just start seeing results much earlier than 2040 should idealists form the majority of voters in the predictable future.

There can only be one outcome if that happens: as soon as automotive manufacturers get the sense there is a material chance of enough governments gravitating towards an international alliance, the first course of action is probably to make a judgment call on what alternative energy source they have developed that they can power their vehicles with. More importantly, what they can realistically mass-produce (noting that a decision once made can be irreversible for the next few years).

Solar, hydrogen, and compressed air have all been experimented with, but rechargeable lithium-ion batteries (not without environmental concerns of their own) seem to be the alternative power source of choice.    

So what needs to be thought of when it comes to customs and cross border trade compliance? Supposing this became a reality, the outcome is conceivable. Auto-makers, in order to be successful, will need to stop operating less like auto-makers and more like smartphone makers.

The world’s existing infrastructure is insufficient to support a sudden surge in the population of battery-powered cars but if the population grows over time, auto-makers will likely adapt by developing friendlier, smaller mechanisms for the vehicle to be hooked up and recharged at home.

And while smart phones are not dutiable in most parts of Asia, the vast majority of cables and accessories used to charge the devices are. So unless the vehicle can be wirelessly charged, we are looking at duties as high as 30% when importing a standalone replacement cable.

Duties though, should not be something automakers are unused to – other than alcohol and tobacco, few things in Asia are more dutiable than motor vehicles. But it will certainly mean having to become accustomed to aspects of classification, valuation, and FTA strategies that were not traditionally part of an automotive supply chain. But if the emphasis is going to be on saving the planet, who’s to say they won’t negotiate a drop in duties on those. Exciting times ahead.

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Topics: Asia

Written by Noel Chow

Noel joined Tradewin from a major US multinational where he was a key member of the APAC global trade compliance team in Singapore. He brings with him a combined 10 years of industry and consulting experience in trade, customs and transfer pricing having previously worked with a diverse clientele across industry groups as a consultant with the Big 4. He holds a law degree from the University of London and a Masters in International Law from the University of Malaya researching WTO law. His academic works in the area of WTO law have been published in peer reviewed law journals.