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Trade

Russia and Afghanistan’s partnership of convenience

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Russian Foreign Minister Sergei Lavrov welcomes member of Taliban delegation Alhaj Mohammad Sohail Shaina during the multilateral peace talks on Afghanistan in Moscow, 9 November 2018. (Photo: Reuters/Sergei Karpukhin

Author: Claudia Chia Yi En, NUS

The signing of a provisional deal between Russia and the Taliban in September 2022 marks the Taliban’s first known major international economic deal. But beyond the announcement that Russia will supply gas, oil and wheat to Afghanistan, the payment and pricing details have not been released to the public. How the two countries will navigate international sanctions and their exclusion from the global banking system remains unclear.

This deal comes against the backdrop of active trade talks between the Taliban and its regional neighbours and Russia’s discussions with several non-Western countries on long-term oil contracts. The economic value of Afghanistan–Russia trade relations might be dismal, but more bilateral engagements and partnerships are a positive diplomatic asset for Russia and the Taliban. They show the international community that neither country is isolated.

The Taliban has been striving to diversify its trading partners and enhance relations with its regional neighbours. International sanctions, followed by the freezing of assets by the United States, have affected Afghan businesses. Since August 2021, the economy has shrunk by 20 to 30 per cent.

The ongoing humanitarian crisis, along with an increase in violent attacks by other militant parties, has worsened living conditions. The incoming winter pressures the Taliban to hastily secure oil and gas imports. Negotiations with Iran, Kazakhstan and Turkmenistan are ongoing. In July 2022, the Afghan Ministry of Commerce and Industry signed a contract with a Turkmenistan oil company to supply fuel at a discount and inked an agreement with Iran to purchase oil.

The Taliban initially had high expectations for Chinese investment, but this has not materialised. Beijing remains reluctant to invest and harbours suspicions about the Taliban’s commitment to cut ties with the Turkistan Islamic Party, formerly known as the East Turkestan Islamic Movement. Khan Jan Alokozay, the vice president of Afghanistan’s Chamber of Commerce and Investment, publicly stated that ‘there has not even been a penny of investment by China’.

Russia is a natural choice for the Taliban because it is an existing trade partner with significant energy resources. The Taliban has remained neutral regarding the Ukraine–Russia conflict, officially calling for restraint on both sides.

Despite being bogged down in the Ukraine crisis and facing ongoing European disentanglement from its oil and gas, the Russian economy seems to be resilient against these shocks. In September 2022, the International Monetary Fund forecasted that Russia’s GDP will decline by 3.4 per cent, an adjustment from its earlier forecast of an 8.5 per cent fall.

Russian oil companies have been enticing non-Western buyers with discounts, insurance coverage and alternative payment schemes. Countries like Sri Lanka, India, Turkey and China have continued to purchase oil from Russia amid international sanctions. Cheaper prices are attractive for countries facing rising inflation, supply chain disruptions and economic setbacks due to the COVID-19 pandemic. The October 2022 clash between Saudi Arabia and Washington over plans by the OPEC+ to cut oil production also drew speculations within the US that Riyadh is siding with Moscow.

Despite their provisional trade deal, it does not appear that the Kremlin will officially recognise the Taliban. The clearest indication yet is the exclusion of the Taliban from the September 2022 Shanghai Cooperation Organisation (SCO)’s summit in Samarkand, Uzbekistan. Whether Afghanistan will retain its observer status at the SCO is unknown, given that the international community has not recognised the Taliban as the legitimate government of Afghanistan.

Aside from issuing statements on helping the Afghan economy, the summit discussions highlighted that the region is more concerned with how best to protect themselves against any potential spillover of violence from Afghanistan.

Russian President Vladimir Putin has repeatedly expressed his wariness of militants camouflaging as refugees from Afghanistan crossing into neighbouring states and plotting acts of terror. The so-called Islamic State (IS) has reportedly increased its anti-Russia propaganda. They have lambasted Russia as a ‘crusader government’ and ‘enemy of Islam’, actively encouraging their supporters to inflict harm on the country.

The 5 September suicide bombing of the Russian embassy in Kabul exemplified Russian concerns about the Islamic State of Khorasan Province…

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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.

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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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