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Trade

Economic distancing from China and the world would carry heavy costs

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Workers are busy extracting copper at a local factory which resumes production, Hengfeng county, Shangrao city, east China's Jiangxi province, 13 April 2020. (Photo: Reuters via fachaoshi).

Author: Shiro Armstrong, ANU

The health and economic crises from the coronavirus are unlike anything the world has experienced since the Great Depression and Second World War. The global community is at risk of repeating the mistakes of the 1930s and undoing the foundations of lasting peace and prosperity that were forged in the ashes of that war.

The world needs more globalisation to overcome the COVID-19 health and economic crises, not less. There’s little doubt that developing a vaccine and eradicating the virus will require a global effort in cooperation, collaboration and coordination, even if those qualities now seem in short supply. This effort is the key to economic recovery, too.

Two related forces gathering momentum in many countries will make the world poorer, weaker and less secure.

One is economic nationalism: to bolster onshore production, put up barriers to foreign investment and shorten supply chains to the point that they avoid crossing borders. That’s the North Korean model of eliminating risk in international economic engagement. The other force is to decouple or drastically reduce dependence on the Chinese economy. The distinction between the two is not as clear-cut as the proponents of the latter want to believe. Free trade that excludes China is not free trade.

Producing masks, hand sanitisers and ventilators to top-up imports during a global shortage makes sense. Restricting exports of that equipment to other countries, as many are already doing, makes no sense at all if critical domestic needs have been met. Shortages won’t be filled by imports when others are also restricting exports.

Supply chains that are concentrated onshore are more vulnerable to other kinds of shocks. A natural disaster or home-grown crisis could wipe out whole industries. The best insurance against drought or crop failure in one part of the world is openness to supply from producers all around the world. The key is to manage supply chain risk, not to avoid it.

More supply chains run through China than any other country, as it’s the low-cost ‘factory of the world’ at scale. That gives China a huge stake in the established open, rules-based multilateral system, even if some in China don’t understand that and act otherwise. Chinese policymakers intervening in international markets increases the cost of doing business with China for the rest of the world. Beijing knows that the credibility of its commitments to the global economic order is central to maintaining living standards and, therefore, social and political stability. Reminding Beijing of what China has at stake and engagement in the protection and expansion of rules will reinforce the rules-based order to everyone’s benefit.

China owes its prosperity to participation in this order. Had it not made and largely abided by the commitments it gave to the WTO in 2001, it could never have become the dynamic, globally interconnected economy it is today. For either Beijing or its trading partners to risk undoing these accomplishments by turning away from the institutional order that delivered them prosperity would be a huge mistake. It is not a matter of trust but one of self-interest in binding and enforceable commitments.

Mutually beneficial trade and investment create real stakes in partner countries that help to constrain some of the worst impulses of national leaders.

High trade shares with China are not a liability but evidence of success. Government policy shouldn’t aim to diversify away from that success but to ensure proper international governance is maintained to manage it. The key is to manage the risks from economic engagement, not to avoid them, including with China.

The public debate in Australia, and elsewhere, about reducing dependence on the Chinese economy has been turbocharged by the breakdown in trust between Australia and China in the context of US–China strategic competition and the fight over the narrative around the COVID-19 pandemic.

Governments can intervene in the market to slow or stop business with China, as President Trump has done. The Japanese government has allocated 220 billion yen (US$2 billion) in subsidies to onshore production and a further 23.5 billion yen (US$219 million) to strengthen supply chains with Southeast Asia. These measures are largely aimed at reducing dependence on the Chinese economy. Yet it’s not clear how this corporate welfare will stop companies from selling to the Chinese market or investing further in China. Policies that might be effective in reducing interdependence will come at…

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Trade

Fixing fragmentation in the settlement of international trade disputes

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Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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WTO ministerial trading in low expectations and high stakes

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The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Trade

Getting Vietnam’s economic growth back on track

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Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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