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Trade

China’s mercantilist threat to ASEAN is exaggerated

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ASEAN Secretary-General, Lim Jock Hoi, is greeted by Chinese Foreign Minister, Wang Yi, before a meeting in Beijing, China, 12 June, 2018. (Photo: Greg Baker/Pool via Reuters)

Author: Christian Bachheimer, SOAS

China’s growing influence on ASEAN affairs has featured increasingly in international news. The dominant narrative is that China is deploying a mercantilist strategy to drive ASEAN acquiescence to matters of diplomatic importance for China, forcing ASEAN states to choose between China and the United States. But ASEAN’s trade in goods and investment data from China and other geopolitical alliances from 2015 to 2019 present a different narrative.

ASEAN-5 — Singapore, Thailand, Malaysia, Indonesia and Vietnam — collectively constituted 84 per cent of ASEAN’s US$3.1 trillion GDP in 2019 and accounted for over 90 per cent of its trade and investment flows. Data analysis of trade in goods for 2015–2019 reveals that the main geopolitical blocs consisting of the ‘US alliance’, ‘Atlantic alliance’ and ‘China bloc’ did not evolve as a share of ASEAN-5’s economies. The China bloc — China, Hong Kong and Macao — represented 20 per cent of trade with ASEAN-5 in 2015, and 21 per cent in 2019. 

The US alliance — Japan, South Korea, Thailand and Australia — leads trade with ASEAN-5, adding US$143 billion over five years to reach US$741 billion in 2019. The China bloc only reached US$543 billion. The Atlantic alliance consisting of the United States and European Union added US$117 billion, growing from 19 per cent to 21 per cent of ASEAN-5 trade.

ASEAN-5 is not becoming reliant on trade with China. Trade in goods as a percentage of GDP reflects economic interdependence. From 2015 to 2019, the US alliance and the Atlantic alliance maintained a level with ASEAN-5 of 29 and 20 per cent, respectively. ASEAN-5’s ratio with the China bloc decreased from 20 to 18 per cent. Only Vietnam significantly increased trade in goods with the China bloc, rising from 38 to 48 per cent. But Vietnam also boosted the same ratio with the US alliance, rising from 63 to 79 per cent.

On the Foreign Direct Investment (FDI) front, China remains a relatively small player. The US and Atlantic alliances still dominate ASEAN-5’s investment landscape. From 2015 to 2019, the US and Atlantic alliances cumulatively invested US$346 billion, more than three times the US$99 billion bankrolled by the China bloc in ASEAN-5.

The average FDI inflow into ASEAN-5 stood at US$144 annually between 2015 and 2019. The China bloc increased its FDI from US$7.9 to US$21.9 billion, pushing its share of the ASEAN-5’s FDI inflow from 7 per cent to 12 per cent. Meanwhile, the US alliance increased its FDI from US$43.9 to US$70.9 billion, causing its share of ASEAN-5’s FDI inflow to rise from 37 per cent to 39 per cent. 

On the annual importance of FDI inflow as a proportion of ASEAN-5 GDP, China went from 0.4 per cent in 2015 to 0.8 per cent in 2019. The US alliance went from 2.1 per cent in 2015 to 2.7 per cent in 2019, reinforcing its position. The China bloc’s share of FDI stock grew from 6 per cent in 2015 to 8 per cent in 2019. Over the same period, the Atlantic alliance and the US alliance remained relatively constant at 37 per cent and 31 per cent respectively.

The much lauded Belt and Road Initiative (BRI) is not as large as has been trumpeted, despite the US$739 billion pledged to ASEAN. The BRI accounted for US$9 billion in annual investment into ASEAN-5’s US$144 billion average annual FDI inflows. For the last five years, the BRI has contributed US$4 billion to the Indonesian annual average FDI inflow of US$17 billion, and US$1.5 billion to the Malaysian average annual FDI inflow of US$10 billion. Thailand has not received any BRI investment so far, rebutting the country’s tilt towards China narrative.

While the BRI benefits select countries, it is not shifting ASEAN-5’s allegiances. The BRI also faces pushback, and is unpopular at home while its funding challenges and completion difficulties continue to accumulate. Contrary to what media reports suggest about China achieving diplomatic leverage through its oversized trade and investment involvement, China’s economic role has remained stable over the last five years.

China’s involvement in Southeast Asia should not trigger concern over a mercantile system. The China bloc’s focus on its domestic market and mounting mistrust it has faced in ASEAN countries have stalled its trade leverage, particularly as ASEAN-5 has maintained a carefully diversified trade and investment portfolio.

Competition can actually empower ASEAN-5 to extract trade concessions and investments from both sides — Vietnam is a typical case. While the…

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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.

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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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