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Trade

‘Phase one’ US–China trade deal better than no deal

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Containers are seen at the Yangshan Deep-Water Port in Shanghai, China, 19 October 2020 (Photo: Reuters/Aly Song).

Author: Bashar Malkawi, University of Arizona

The ‘phase one’ trade deal between the United States and China entered into force on 14 February 2020. As part of this agreement, China agreed to make structural reforms, open up its financial services and strengthen intellectual property. China also pledged to buy at least US$200 billion in additional US goods and services over 2020 and 2021.

But after almost two years, complaints have arisen about China not meeting its obligations. According to some statistics, China has reached only 62 per cent of that target, raising the question of compliance and enforcement under the phase one deal.

The United States and China agreed to an innovative approach as part of their agreement, detailed in chapter seven. The phase one deal created the Trade Framework Group to discuss the agreement implementation, led by the US trade representative and a designated Chinese vice premier, with a bilateral evaluation and dispute resolution office for each party.

As in a typical trade agreement, a complaining party can submit an appeal to the office of the party complained against when an issue arises. If the issue is not resolved, it can be raised to the designated deputy US trade representative and Chinese vice minister.

If the concerns of the complaining party are not resolved at that level, then ‘the parties shall engage in expedited consultations in response to the damages or losses incurred by the complaining party’. If the parties do not reach a consensus, the complaining party can suspend an obligation under or adopt ‘a remedial measure in a proportionate way’.

The language used creates room for wide interpretation. Rather than achieving the purported goals of managing trade peacefully, the dispute resolution language may lead to an escalation of trade tensions. Under the terms of the phase one deal, it is the complaining party who determines whether there is a violation of the agreement, rather than an independent panel or tribunal. The deal is also not clear on the remedial measures that can be taken by the complaining party and for how long these measures can be taken.

So under article 7.4, the United States can unilaterally determine whether a violation has occurred, the duration of the suspension of concessions and the severity of this suspension.

The question of whether the United States will take unilateral measures to enforce the phase one deal remains. Though US officials have made statements indicating that this is likely, evidence suggests that enforcement under the phase one deal may not happen.

When the United States takes action, China can either accept the remedial measure — along with a promise not to retaliate — or withdraw from the phase one deal. The latter option is more harmful than taking the remedial measure.

From an economic perspective, any targets achieved under the deal are better than no deal or reverting to trade wars with China.

From a geopolitical perspective, there are few alternative venues to force China to abide by its trade obligations. The World Trade Organisation (WTO) is in bad shape, especially its Appellate Body, ‘the crown jewel’ of the organisation, which has the final say on trade disputes. Over the years, the Appellate Body has developed a strong tradition of precedents. This, in part, subjected it to criticism mainly by the United States and eventually led to blocking the appointment of Appellate Body judges. It is also doubtful whether the phase one deal is legitimate under WTO rules, since it prohibits measures such as bilateral voluntary export restraints and orderly marketing agreements that limit the import of certain products.

There is also the question of whether the substance of the deal is legitimate. The purpose of this deal is to manage trade instead of correct market problems between the United States and China. One of the main provisions of the deal is that China engages more heavily in trade with the United States. The phase one deal creates trade diversion whereby imports of US goods into the Chinese market would replace imports from other countries. Therefore, the United States and China walk a fine line so as not irritate their relations with other countries such as the European Union, Brazil, and Australia.

This provision of the deal can be attributed to the misdiagnosis of the market issues between these two countries by former US president Donald Trump. According to Trump, the root of the market issues between the United States and China was the trade deficit. But managing trade to improve…

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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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