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Learning the right lessons from Chinese sanctions on Australian imports



A chef cooks Australian lobster at at an Australia's food booth at the third China International Import Expo (CIIE) in Shanghai, China, 6 November 2020 (Photo: Reuters/Aly Song

Author: Shiro Armstrong, ANU

From May 2020 Beijing blocked the import of roughly a dozen Australian goods for which China was the major market, cutting imports worth around AU$20 billion (US$13.4 billion) annually. The deteriorating political relationship between Canberra and Beijing was the proximate cause but a trade deal between Beijing and Washington involving increased Chinese imports of US agricultural and other goods was also a factor.

Such large disruptions to trade are costly and threaten economic security. But retreat from openness and economic engagement is not the answer — that’s a pathway to a poorer and much less secure world.

Australia’s exports to China remained steady in 2020 and grew by 14 per cent in 2021 and 6 per cent in 2022, all while the global economy suffered from COVID-19 lockdowns and economic downturns. Australian exports of iron ore, which could not be readily sourced by China from elsewhere, and the rapid growth of other commodities like lithium exports, led the way. China accounted for over 40 per cent of Australian goods exports during that time and helped Australia weather the economic effects of the COVID-19 pandemic.

Australia is no stranger to having one country dominate its international trade shares. In the past Japan, the United States and the United Kingdom have accounted for around as much as China does today. This geographic specialisation is a sign of Australian success in utilising its economic endowments and taking advantage of opportunities internationally. Australia has put in place institutions and economic policy settings to manage these highly interdependent economic relationships and successfully dealt with occasional shocks in their fortunes.

Chinese trade sanctions caused Australian exporters — especially of wine and lobster — huge losses. But most exporters quickly found other markets as Chinese imports of barley, coal and other commodities did not slow and opened up other demand. Flexible markets in Australia helped but the crucial external source of resilience was an open multilateral trading system which ensures that trading options remain open. Contestable markets crowd out the effects of weaponised trade but there are adjustment and political costs.

Australian exporters found other markets mainly due to a multilateral trading system which ensures that trading options remain open. Neither exporters nor the Australian government knew exactly where those markets would be ahead of the event. The redirection of trade was led by market opportunities. At the centre of that system is the WTO, which despite its weaknesses, holds together the trading system with a patchwork of WTO-plus free trade agreements built around it.

Two dozen WTO members, including China and Australia, have signed onto the Multi-Party Interim Appeal Arbitration Arrangement so that WTO rules are enforceable even while the United States holds the system hostage with its veto of the appointment of arbitration judges. Australia has cases against China in the WTO that will be enforceable through China’s commitment to the MPIA. Japan has also joined, a major development that signals Japanese commitment to take a lead on international economic rules.

As the world’s largest trader, China has a huge stake in the existing multilateral trading system. China’s non-observance of the spirit of multilateral trade rules, like that of the United States and Europe, and its gaming of the system are not reasons to give up on the WTO. Chinese efforts at economic coercion have almost entirely failed and in every case its actions have backfired economically or politically.

It is possible to find ways to mitigate and diffuse trade risks by deepening involvement and strengthening rules, rather than by avoiding engagement. Economic engagement builds national wealth and power — and when combined with multilateral rules, broadens the range of strategic policy options available to national policymakers.

A China that is much less integrated into the global economy is one with far fewer political constraints and thus is much more of a security risk.

Russia’s strategic use of gas supplies against Europe is sometimes cited as a counterpoint to the argument for interdependence. But Russia was not integrated into European supply chains and European energy dependence on Russia is qualitatively different from economic interdependence in East Asia. Interdependence underpinned by multilateralism effectively diffuses risks.

Nowhere is the power of multilateralism understood better, and is it exercised…

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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

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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

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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.

Source : Getting Vietnam’s economic growth back on track

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