Trade
Resetting China–Sri Lanka relations for a Biden presidency
Author: Ganeshan Wignaraja, Overseas Development Institute
During his visit to Sri Lanka on 28 October, US Secretary of State Mike Pompeo urged Sri Lanka to make a difficult but necessary choice with regards to its relationship with China. With US president-elect Joe Biden due to be inaugurated in January 2021, the time is ripe to reassess the state of China–Sri Lanka relations given Sri Lanka’s strategic location in the centre of the Indian Ocean.
China and Sri Lanka have enjoyed warm diplomatic ties since Sri Lanka first recognised China in 1950, supporting China’s accession to the United Nations and signing a rubber-rice barter deal in 1952. More recently, China’s global ascent has moved its diplomatic relations with Sri Lanka in a more commercial direction.
The Chinese debt trap remains a controversial issue. Since the early 2000s, China has become an important provider of commercial loans to Sri Lanka for infrastructure projects. There are claims that by accepting such loans Sri Lanka is now stuck in a ‘debt trap’. But Sri Lanka is not in a Chinese debt trap. Sri Lanka’s external public debt owed to China amounted to US$5 billion in 2018 or about 6 per cent of GDP.
Sri Lanka owes more of its external public debt to financial markets and multilateral and bilateral lenders than to China. The country’s generally high debt-to-GDP ratio over the past decade reflects the costs of a 30-year civil conflict, lacklustre post-conflict growth and notable currency depreciation.
The economic impact of Belt and Road Initiative (BRI) projects is another issue. The cumulative value of Chinese infrastructure investment in Sri Lanka amounted to US$13 billion between 2006 and August 2020. Some projects have brought greater benefits to Sri Lanka’s economy than others. The Colombo International Container Terminal has allowed the deep-water Colombo Port to become South Asia’s premier transhipment hub. The adjacent Colombo Port City, built on reclaimed land from the sea, could be a game changer for modern service sector growth and post-COVID-19 economic recovery.
But the benefits of some BRI projects in Sri Lanka remain questionable, including the Colombo Lotus Tower — a delayed telecommunications and leisure project. The rising imported inputs from China for construction projects in Sri Lanka have widened the significant trade deficit between the two countries. There are also less visible economic spill-overs from Chinese projects in terms of foreign investment from China into the Sri Lankan manufacturing sector, technology transfer and local job creation.
Senior Indian officials are concerned that a growing Chinese footprint risks violating Sri Lanka’s sovereignty and threatens India’s Southern flank and national security. Concerns have arisen that Hambantota Port — managed by a Chinese state-owned enterprise — could become a dual use commercial/military facility. The concerns grew following India’s skirmishes with China in the Himalayas. In an attempt to reassure India, the Sri Lankan Navy has emphasised that it manages port calls made by foreign ships and security at Hambantota Port. India–Sri Lanka defence cooperation has been bolstered by regular defence dialogues, navy exercises and training in India for the Sri Lankan armed forces.
Communist Party Politburo Member Yang Jiechi visited Sri Lanka just after Pompeo and provided a US$90 million grant for medical care, education and water supplies to tackle the COVID-19 pandemic. Meanwhile, the United States remains Sri Lanka’s largest export market and has donated US$6 million in COVID-19 assistance to Sri Lanka.
President Gotabaya Rajapaksa has since congratulated Joe Biden on his election, stating that he looks forward to working with him. Amid a likely continuation of US–China trade and technology rivalries, the Biden administration will likely expect Sri Lanka to match words with deeds.
As a small state without a large military, Sri Lanka should adhere to a strict non-aligned foreign policy in its relations with great powers, emulating the success of Singapore and New Zealand. Sri Lanka should also pursue transparent, market-oriented policies to reassure the United States and other investors. To further allay India’s security concerns, an India–Sri Lanka–Maldives maritime safety and security pact could be explored. These steps would permit Sri Lanka to better leverage its ties with China for post-COVID-19 economic recovery. This requires moving from a foreign borrowing relationship to one emphasising trade and…
Trade
Fixing fragmentation in the settlement of international trade disputes
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
Trade
WTO ministerial trading in low expectations and high stakes
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
Trade
Getting Vietnam’s economic growth back on track
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.
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