Suddenly, the world’s biggest trade agreement won’t allow corporations to sue governments



The 16 nations negotiating the Regional Comprehensive Economic Partnership account for almost half the world’s population.
Shutterstock/Datawrapper

Pat Ranald, University of Sydney

The Regional Comprehensive Economic Partnership has been touted as the best hope for keeping world trade flowing after the attacks on the World Trade Organisation.

The WTO isn’t dead yet, but in a two-pronged attack, US President Donald Trump has been flouting the spirit if not the letter of its rules by on one hand imposing tariffs on China and other countries, and on the other blocking appointments to its appellate body. The latter means that after December the appellate body will no longer have enough members to hear new cases.

Although nothing like a proper replacement for the WTO (it would have 16 member nations instead of the WTO’s 164) the Regional Comprehensive Economic Partnership (RCEP) is being talked about as a backstop. The 16 RCEP members account for almost half the world’s population; among them China, India, Japan, Indonesia, Malaysia, Vietnam, Australia, and New Zealand.




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The RCEP negotiations have dragged on since 2012, in part because of what had been seen as a near intractable sticking point: so-called investor-state dispute settlement (ISDS) procedures.

ISDS was one of worst parts of the RCEP

The World Trade Organisation doesn’t have ISDS. In the WTO, governments can take action against governments under WTO rules but corporations can’t sue governments.

ISDS provisions, present in many one-on-one or regional trade deals, allow foreign corporations (but not local corporations) to take on governments.

When the Philip Morris tobacco company lost its case against the Australian government over plain packaging laws in Australia’s High Court, it was able to have a second go in an international tribunal using the ISDS provisions of an Australia-Hong Kong investment treaty. This right would not have been available to an Australian company.

Although Australia successfully had the case thrown out, it took it seven years and cost A$24 million. Australia recovered only A$12 million from Philip Morris.




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ISDS provisions were developed in the post-colonial period after World War II to compensate international investors for the direct expropriation or taking of property by governments. But over the past 20 years they expanded to include “indirect” expropriation, “minimum standard of treatment” and “legitimate expectations”, which do not involve taking of physical property and do not exist in many national legal systems.

Because the cases are very costly, they are mostly used by large global companies that already have enormous market power, including tobacco, pharmaceutical, agribusiness, mining and energy companies.

There are now 942 known ISDS cases, with increasing numbers against health and environment laws, including laws to address climate change.

The tide is turning against it

Legal experts like former High Court Chief Justice Robert French have noted they are conducted by temporary tribunals often presided over by practising advocates who can represent a corporation or government in one case and then sit on a tribunal the next, calling into question their independence. The decisions need not make use of precedents and have no appeals, meaning they need not be consistent.

Both the United States and European Union are moving against ISDS provisions. In January the 28 EU member states decided to terminate ISDS arrangements between themselves.

The EU is not including ISDS in any of its current negotiations, including those for a EU-Australia free trade agreement.

In the longer term, Europe is pursuing a controversial proposal for a permanent Multilateral Investment Court, which would once again allow foreign investors to sue sovereign governments but would address procedural concerns about temporary tribunals. It hasn’t yet gained support from the US, Japan, Australia or other key players, so is not likely to be implemented soon.

The US and Canada have excluded ISDS from their part of the new North America Free Trade Agreement, known as the United States-Mexico-Canada Agreement.




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Two institutions that oversee ISDS cases, the United Nations Commission on International Trade Law and the World Bank International Centre for Settlement of Investment Disputes, are conducting reviews of the system.

It looks as if the RCEP will be free of it

Australia is notoriously tight-lipped about international trade negotiations. But late last week Malaysia’s trade minister Datuk Darell Leiking revealed that Malaysia and each of the other 15 parties to the RCEP negotiations had agreed to exclude ISDS provisions from the deal.

Malaysia, India, Indonesia and New Zealand are all officially opposed to ISDS provisions, but this is the first public sign that all the RCEP countries have agreed to exclude it.

“Once the agreement is in force, which is within two years, the member states will re-look into it and see whether or not we are going to have the ISDS. But it must be an agreement made by all countries,” he is quoted as saying. “For now, there is no ISDS.”




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Opposition to ISDS is growing. The Australian government’s apparent agreement to remove ISDS provisions from the RCEP raises questions about why it is continuing to pursue such provisions in the Indonesian and Hong Kong trade deals currently being reviewed by the parliament’s joint standing committee on treaties.

It also raises the question of whether Labor, the Greens and the Centre Alliance, each of which has has policies opposing ISDS, will support the agreements when committee reports on them in mid-October.

But problems remain

Defeating ISDS in the RCEP will be a victory for social movements and governments concerned to retain public interest regulation.

But other problematic proposals remain on the RCEP agenda.

These include longer monopolies for medicines that would delay the the availability of cheaper medicines and would have the worst impacts in developing countries.

It remains to be seen whether this and other sticking points can be resolved and the negotiations completed by their current target date of the end of 2019.The Conversation

Pat Ranald, Research fellow, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The China-Trump trade war has spread to Australia. We’re now at risk of global currency war



The Australian dollar has already slipped, falling to its lowest point against the US since the global financial crisis.
Shutterstock

Hui Feng, Griffith University

When US President Donald Trump announced via Twitter on Friday that he was slapping tariffs on an extra US$300 billion of China’s exports, it was widely expected that China’s currency would slide against the US dollar.

What wasn’t expected was that on Monday it would break the seven Chinese renminbi (RMB) to the dollar barrier, a line held by China since 2008.

The RMB/USD exchange rate is tightly managed by the People’s Bank of China. The rate is permitted to move only 2% away from a midpoint fixed by the bank each day.

Although in its official statement the bank attributed the slide mainly to changes in demand and supply, the slide would not have happened had the bank not allowed it. In the past it spent as much as US$107 billion in a single month defending the renminbi.




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It is more reasonable to believe that the devaluation was a deliberate decision taken to offset the effect of the punitive tariffs.

By making China’s exports cheaper in US dollars it will neutralise the effect of Trump’s decision to impose tariffs that would make them more expensive.

But it will have far-reaching implications, so far-reaching as to suggest that Beijing has run out of alternatives.

In part, China is hurting itself…

The exchange rate – the external price of money – affects almost everything, including inflation in China itself, which will receive a boost as imports to China become more expensive.

Chinese inflation is already on the rise due to disruptions in supply of food staples such as pigs.

There isn’t much the People’s Bank of China can do to restrain inflation. Pushing up interest rates might choke the economy given that China’s GDP just posted its smallest quarterly gain since 1992.

It would also make it even more difficult for already heavily indebted state-owned enterprises and local governments to make payments on their debt.

If the Chinese think the currency is going to continue to fall they’ll attempt to take their money out of the country while it still has buying power.

Although the People’s Bank of China has demonstrated its capacity to control capital flight, it has increasingly had to do it using harsh measures that harm legitimate trade and investment.

The devaluation will essentially act as tax on net importers, which in China are households. This means it will work against China’s goal of rebalancing the economy away from investment to private consumption.

…and endangering global recovery

An RMB that breaches seven is also bad news for the global economy. It means weaker demand from China, which will depress global economic growth.

In that way it can be thought of as spreading the cost of US tariffs onto China’s trading partners, which are themselves likely to devalue in something of a currency war. The Australian dollar has fallen through 68 US cents, a low not seen since the global financial crisis.

Asian economies are also likely to devalue, among them South Korea, Vietnam, Thailand and Indonesia. The European Central Bank has also signalled rate cuts and other measures to bring down its exchange rate as has the Bank of Japan.

Other nations will devalue…

The US Fed itself will be under pressure to cut rates further in what the Pacific Investment Management Company has warned
could lead to a “full-blown currency war with direct intervention by the US and other major governments/central banks to weaken their currencies”.

On Tuesday Australia’s Reserve Bank signalled its willingness to cut interest rate again, although in our case the drop in the Australian dollar might have made it nervous. It would prefer a controlled rather than unpredictable decline in the dollar.

John Connally Jr, Richard Nixon’s treasury secretary, once said in 1971 that the US dollar was “our currency, but your problem”. He meant that the rest of the world had to live with whatever the US did for its own reasons.

…meaning none of them will win

As the currency of the world’s second largest economy increasingly moves to the centre of global trade, China is able to say much the same thing. But an international currency war could hurt China as well by endangering the still not complete international recovery from the global financial crisis.

The People’s Bank of China has tried to reassure the world that it “has experience, confidence and capacity to maintain renminbi exchange rate at a reasonably stable equilibrium”.

It might do more for confidence if it wound down its control, as have other countries, relying less on manipulating the exchange rate for strategic reasons.




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The Conversation


Hui Feng, ARC Future Fellow and Senior Research Fellow, Griffith University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia depends less on Chinese trade than some might think



Australia is vulnerable to any downturn in global markets due to a Chinese economic slump. But being dumped as a supplier by China is a different matter.
http://www.shutterstock.com

James Giesecke, Victoria University; Nhi Tran, Victoria University, and Robert Waschik, Victoria University

China now buys almost a third of Australia’s exports – about twice the value bought by second-placed Japan, and about nine times fifth-placed United States.

It’s a situation that sparks fears of a Chinese economic slowdown, or a backlash if we offend China’s government in some way, such as by criticising its actions in Xinjiang or in the South China Sea.

In February and March customs officials in Chinese ports reportedly held up Australian coal imports. This was interpreted as a signal from Beijing about moves in Canberra to limit Chinese influence in Australia.




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The Chinese government has a track record of using economic muscle to apply diplomatic pressure, including against Canada, South Korea and Palau.

“We are incredibly dependent on China – in some ways we are a state of China,” said business commentator Robert Gottliebsen. “China is now the world’s number two country and they will not stand for being lectured to by anyone — let alone a minnow like Australia.”



Is Australia really that dependent on China?

As a commodity exporter, Australia is vulnerable to any downturn in global markets due to a Chinese economic slump. This makes the fallout from the US-China trade conflict concerning.




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But being penalised as a supplier by China for some perceived diplomatic slight is a different matter.

Using a global economic model with many commodities and countries, we modelled the effect of Beijing permanently cutting China’s imports of Australian coal by 25%.

Australia’s coal exports to China in 2018 were worth about A$15 billion – or about 1% of what the nation spends on private and public consumption in a year.

One might think losing a quarter of coal exports to China will knock about 0.25% off our spending capacity. In economic terms that’s a big number. Our results, however, point to a much smaller loss – just 1/6th the impact, or about 0.04% lower national consumption. That equates to every person having $24 less to spend in a year.

Four determining factors

Any economic model necessarily abstracts from potentially important real-world elements, so its potential accuracy depends on the detail and data that goes into it.

So perhaps more important than the specific results of a cut to coal exports is how our modelling shows four interconnected factors determine to what degree the economy will be hurt by sanctions on any export.

The first factor has to do with the capacity to redirect exports to other markets. How easily can exporters find other buyers? How much will the price need to be cut to interest buyers? We call these “trade diversion effects”.

If Australia could not divert exports elswehere, China buying 25% less coal would see the volume of total Australian coal exports fall by about 6%. Our modelling shows the likely fall would be about 1/12th of this, at 0.5%.

The chart below shows our results. The blue line shows the effect on the total value of coal exports. The stacked columns show the effect of China’s cutback being offset by sales to other markets – notably Japan, South Korea and countries in Southeast Asia.



To sell more to another buyer, it’s likely exporters will need to reduce prices. Our model anticipates the Australian coal price will fall by about 3%.

The second factor is how easily resources can switch from coal production to other activities.

For any resource that can move to alternative uses, the impact of the trade sanction will be reduced. Labour is an example. A miner no longer needed to meet demand for coal will generally have skills transferable to other jobs, although this might require working at a lower wage in another region.

For any resource that cannot easily move – the capital invested in specific coal-mining equipment or transport infrastructure, for example – lower export revenue will mean lower profits from these assets.

How do lower profits affect Australian living standards? This depends on who owns the affected assets, and how much tax they pay.

So the third factor is the level of foreign ownership. More foreign ownership means more profits go overseas. This dampens any impact of lower profitability on Australian living standards.

For our modelling, we set foreign ownership of the coal industry at 80%, based on Reserve Bank of Australia estimates and an analysis of mine ownership in New South Wales coalfields. With just 20% of the after-tax profits staying in Australia, the impact of any change is minor.

The local economy, however, can also suffer due to lost taxes on the income of those foreign owners.

Taxation effects are the fourth factor.

Australian governments collect taxes through mining royalties (a tax on the value of production), corporate tax (on profits), and withholding tax (on interest and unfranked dividends).

We set the coal royalty rate at 8% of the value of coal production, and the taxation rate on foreign capital at 17% because the effective tax rate on foreign capital is about half the corporate tax rate.

A smaller cost than some think

With all these factors in play, our modelling suggests there is less to fear
from the Chinese government throwing its economic weight around than some think.

We think our conclusions probably hold for many of Australia’s exports to China, but acknowledge our investigation is preliminary.

For example, what would happen if the Chinese government decided to restrict the number of Chinese students studying in Australia? Finding new markets for education services might be tougher than for primary products. Resource redeployment might be easier, however.




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Notwithstanding these caveats, this type of modelling could provide a clear framework to assess Australia’s economic vulnerabilities.

Perhaps no price should be put on upholding and expressing our liberal democratic and human rights values, and protecting our security interests, but the cost of economic sanction might well be less than many fear.The Conversation

James Giesecke, Professor, Centre of Policy Studies and the Impact Project, Victoria University; Nhi Tran, Senior Research Fellow, Victoria University, and Robert Waschik, Associate Professor and Deputy Director, Centre of Policy Studies, Victoria University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Tory leadership race: it’s Jeremy Hunt (who?) vs Boris Johnson (yes, really), with the future of the UK at stake


Ben Wellings, Monash University

The United Kingdom will have another prime minister by the end of July, when members of the Conservative party choose between Jeremy Hunt (who?) and Boris Johnson (yes, really).

Aside from the morbid fascination of watching this from afar, this leadership contest matters because it will determine who will (presumably) lead the UK out of the European Union, with or without a deal.

One way or another, this will affect Australia’s future trade relationship with the UK.

Selecting a new Tory leader

Selecting a leader of the Conservative party (or Tories) used to be easy. As late as 2003, a series of potential candidates would be “sounded out” behind-the-scenes by grandees, including lords and senior MPs, to see if they wanted the honour of leading the party (and, as a happy by-product, the country).

As with all leadership positions, not everyone wanted the job. When the men in suits offered Sir Alec Douglas-Home the honour of being prime minister in 1963, he famously replied: “Please, please not me!”

They ignored him and he went on to become one of the least successful prime ministers in British history.




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But the sounding-out process was democratised in 1998 so that the party base could have a say. The process for electing a new leader of the Conservative party is that any or all members of parliament (MPs) can put their hat in the ring. If they gain enough support from fellow parliamentarians, they compete against each other in a series of votes among MPs, until there are only two contenders left standing.

At this point, the party members in the towns and shires (the so-called grassroots members) get to vote on who next becomes leader.

This innovation came at a moment in time when the Conservative membership was becoming highly unrepresentative of the country as a whole. And since the late 1990s, the number of members in the Conservative party is declining, the average age is increasing, and the membership is overwhelmingly white. This has led some people to describe the conservatives as “pale and stale”.

Johnson vs Hunt

This time round there were 10 runners. The field became “pale, male and stale” when the two female contenders, Esther McVey and Andrea Leadsom, did not gain the required number of votes to progress to the next round.

Eventually we got down to Hunt and Johnson.

Johnson, the former London mayor and foreign secretary, needs no introduction. Yet, despite a campaign mired in controversy about his personal qualities and his avoidance of most TV debates, Johnson was still in front among party members as of late June.

He may scandalise opinion outside the Conservative party, but the grassroots members still rate him. This is partly because he stands for leaving the EU without a deal on Oct. 31, 2019 – an article of faith among Brexit-supporting Conservatives.




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In contrast, Hunt, the current foreign secretary, is more measured and presents himself as the more likely of the two candidates to secure a deal with the EU, as Johnson is not taken seriously in Brussels.

What’s working against Hunt, however, is that he voted to “Remain” in the EU in 2016, leading some to call him “Theresa May in trousers”.

Of course, Johnson and Hunt’s respective positions on Brexit matter only so much because no change of leader affects the numbers in parliament. The real question then becomes, will the new leader call – or be forced into – a general election to break the parliamentary deadlock over Brexit?




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What this means for Brexit

Brexit has radicalised the Tory base, which is broadly in favour of leaving with a no deal (unlike the rest of the country). A no-deal, or hard, Brexit means the UK would leave the EU without any agreements in place to soften the economic shock of leaving its largest trading partner, the EU. This is now Johnson’s stated position.

Underlying this drift towards a hard Brexit is the de-alignment of voters from the two main parties, which has scared the Conservatives.

The success of the Brexit Party and a threat from the resurgent centrist and pro-Remain Liberal Democrats makes these challenging times for party strategists. In fact, the Conservatives are only united in their dislike of Labour leader Jeremy Corbyn.

Significantly, neither leadership contender really understands the multinational United Kingdom or seemingly cares about the strain Brexit is putting on the union.

Neither candidate has an answer to the Northern Ireland “backstop” issue, for instance, which seeks to avoid the reestablishment of a political border between the UK and the Republic of Ireland in Ulster (the source of past conflict). And a hard Brexit will see increased support for independence in Scotland.




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What’s more, the results of a recent YouGov survey of Conservative party members and their attitudes toward Brexit added more weight to the idea that Brexit is, essentially, an English nationalism movement.

So, in keeping with the permanent state of political misery induced by Brexit, any outcome of the leadership contest and the subsequent UK-EU politics will make almost everyone unhappy.

Both sides feel like they are losing. This is a result of the referendum format; in an election cycle, you at least think your side might have a chance next time.

But deep divisions over Brexit mean that the future of the Conservative party is at stake. Like turkeys voting for Christmas, if Johnson is elected leader, there may not be a next time for either the Conservative party or the United Kingdom.The Conversation

Ben Wellings, Senior Lecturer in Politics and International Relations, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Morrison warns of widespread pain if US-China trade tensions are not contained


Michelle Grattan, University of Canberra

Scott Morrison will warn of the danger of any further escalation in US-China tensions and declare Australia won’t let its relations with China be dominated by inevitable differences, in a major speech ahead of this week’s G20 meeting.

Walking a line between Australia’s major ally and its largest trading partner in a Wednesday address on the economic dynamics of the Indo-Pacific region, Morrison will stress the need for these two great powers “to resist a narrow view of their interests”, noting that with great power comes great responsibility.

He will also emphasise the range of Australia’s regional involvement and promote its willingness to play its role as a middle power in a moveable scene. “We won’t be fazed, intimidated or fatalistic”.




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Morrison’s speech to Asialink, issued ahead of delivery, follows his outlining of the re-elected government’s immediate domestic economic priorities on Monday.

“The world’s most important bilateral relationship – the US-China relationship – is strained,” Morrison says, pointing to the spreading collateral damage of the rising trade tensions.
“The global trading system is under real pressure. Global growth projections are being wound back. The impact of any further deterioration of the relationship will not be limited to these two major powers,” he says.

“The balance between strategic engagement and strategic competition in the US-China relationship has shifted.”

Australia has and would continue to welcome China’s growth and development, Morrison says.

“However, the ground has now shifted. It is now evident that the US believes that the rule-based trading system – in its current form – is not capable of dealing with China’s economic structure and policy practices.”




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Morrison acknowledges the legitimacy of many of the concerns about China, such as its intellectual property theft and industrial subsidies.

“The rules-based system is in need of urgent repair if it is to adequately respond to these new challenges, including the rise of large emerging economies, changing patterns of trade and new technologies,” he says.

“Our prosperity, and that of our Indo-Pacific partners, depends strongly on the maintenance of an open global economy and a rules-based trading system in which the rights of all states are respected.

“It will also depend on a positive, productive and cooperative bilateral relationship between China and the US,” Morrison says.

“As a rising global power, China also now has additional responsibilities.

“It is therefore important that US-China trade tensions are resolved in the broader context of their special power responsibilities, in a way that is WTO-consistent and does not undermine the interests of other parties, including Australia.

“It is in no-one’s interest in the Indo-Pacific to see an inevitably more competitive US-China relationship become adversarial in character,” he says.

“There are risks of further deterioration in key relationships and consequent collateral impacts on the global economy and regional stability.

“There is also the challenge of adjusting to the potential for decoupling of the Chinese and American economic systems, whether this be in technology, payments systems, financial services or other areas.

“But these are not insurmountable obstacles,” Morrison says.




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Australia would not be a passive bystander but would play its part, based on principles including a commitment to open markets with trade relationships based on rules.

While continuing to work with other partners in the region, Australia would also “deal directly with our great and powerful friends”.

Its relationship with the US “has never been stronger,” Morrison says.

“Our alliance with the US is the bedrock of Australia’s security, providing us with irreplaceable hard power capabilities and intelligence. Australia is a stronger regional power because of the US alliance.

“We are committed to working with the US internationally because we agree it has borne too many burdens on its own. Australia will continue to pull its weight.

“And we will work with the US to reform international institutions, including the WTO, to ensure they’re fit for purpose and serve their members’ interests.”

The government is also “committed to further enhancing our relationship with China” – a relationship with “many strengths”.

“While we will be clear-eyed that our political differences will affect aspects of our engagement, we are determined that our relationship not be dominated by areas of disagreement.

“The decisions we make in relation to China are based solely on our national interests, just as theirs are towards Australia, and these are sometimes hard calls to make.

“But they are designed always to leave large scope for cooperation on common interests and recognise the importance of China’s economic success. This success is good for China, it is good for Australia.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

What’s worse than the US-China trade war? A grand peace bargain


Giovanni Di Lieto, Monash University

It’s hard to tell if Donald Trump’s trumpeting of “substantial progress” in trade talks, leading to a cosy weekend at Mar-a-Lago to sign a deal with Chinese president Xi Jingping, represents reality.

Most observers, though, will be relieved by his decision to again defer his threat to escalate the US-China trade war and hike up tariffs from 10% to 25% on US$200 billion worth of Chinese imports. (The total value of US imports from China in 2018 was US$493 billion.)




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Trade wars are generally considered bad for everyone. KPMG has calculated a full escalation of the trade war – with a 25% tariff applying to all goods traded (worth US$604.5 billion in 2018) – would cost Australia A$58 billion over the next decade.

But far worse for Australia, and its Asia-Pacific neighbours, could be a deal to end the trade war, especially if it involves a grand geopolitical bargain between the US and China.

Bilateral world order

Considering the US administration’s hard-line approach, for a truly comprehensive deal to occur China would have to subscribe to a serious restructuring of its industrial system. This would ultimately mean phasing out covert state subsidies, liberalising its financial markets and giving up on meaningful technological competition in security-sensitive sectors.

But out of fear an ongoing trade war will harm its export-driven economic progress, and also as an expedient step for advancing its regional hegemony, China might eventually agree to all this as part of a grand bargain.

Essentially, a grand bargain with an “America First” US administration makes sense on the mutually beneficial assumption it would lay the foundations for a bilateral world order.

As part of the deal the US would dramatically reduce its strategic footprint from the Middle East through to the Korean peninsula. The advantage would be it could focus resources on limiting China’s naval role across Indo-Pacific trading routes.

Retreating to a more sustainable role as the indispensable maritime power across the Pacific and Indian oceans would leave China free rein to exert its weight on land in Eurasia.

The US might see that as advantage. Chinese regional hegemony inland would give Russia more to think about on its south-eastern border, rather than causing problems for US allies in eastern Europe. It would also put extreme pressure on India to finally evolve into a subsidiary power to the US maritime empire, one of the wildest strategic dreams in Washington.




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The downside would be that Russia might end up as a subservient commodity supplier to China’s regional empire. Russia’s geo-economic downgrade would strengthen European resolve to run independently of the US, one of the worst nightmares in Washington.

For China, the prize would be achieving the main strategic ambitions of its Belt and Road Initiative, ultimately controlling land trading routes from Beijing to Venice. The strategic cost would be abandoning its maritime ambitions.

Where this leaves Australia

Where would this bilateral world system vision leave Australia?

Certainly worse off than the current situation. With interlocking spheres of influence across the Indo-Pacific rim (US) and the Eurasian landmass (China), at best Australia would become a marginal economic and security appendage of the two hegemons.

Relegated to the role of a price- and rule-taking commodity supplier to China, Australia would remain only nominally a US ally. It would be a rather disposable buffer state at the frontier of two empires, caught between the economic and security crossfire of proxy conflicts.

Weaknesses and opportunities

Compared to this scenario, a protracted US-China trade war may well serve Australia’s national interests much better.

Though tariffs will weaken the global economy, it will hurt the US and China the most. It might even weaken their respective commercial and military grips on the Asia-Pacific region to the point that patterns of more distributed power relations could emerge.




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Economic analysis suggests many Asian economies are already relative winners, as tariffs motivate US and Chinese businesses to “decouple”.

Malaysia, Japan, Pakistan, Thailand and the Philippines lead the nations gaining from US and Chinese companies buying goods elsewhere. Vietnam, Malaysia, Singapore and India are the top beneficiaries from US companies shifting production away from China.

Several Asian countries have also seized the opportunity to play the US and China against each other.

The Philippines has revitalised relations with China to manage the South China Sea dispute more independently from the US. This has not stopped it remaining by far the largest recipient of US military aid in Asia.

South Korea has signed bilateral free-trade agreements with both China and the US, positioning itself as an intermediary that will allow American and Chinese companies to trade in a way that circumvents the tariffs.

Malaysia’s government has affirmed strategic neutrality by pulling back from deals that would put it in debt to Chinese investors.

This is arguably an unprecedented opportunity for Australia to start carving a more independent foreign policy.

Our interests lie in taking an active role in promoting a world system truly based on multilateral rules rather than great power relations.

The worst-case scenario for an ongoing US-China trade war is that it turns into real war. But that’s unlikely.

So long as it remains a manageable trade dispute, it is better for Australia, and much of the rest of the world, than trade peace leading to a bilateral world system.The Conversation

Giovanni Di Lieto, Senior Lecturer of international trade law, Monash Business School, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

A Trump-aligned World Bank may be bad for climate action and trade, but good for Chinese ambitions


File 20190130 108355 11qgq1d.jpg?ixlib=rb 1.1
A World Bank in sync with Donald Trump’s views about climate change and multilateralism would probably help to increase Chin’s role in international development and finance.
Shutterstock

Usman W. Chohan, UNSW

The seat of World Bank president is becoming vacant. Its president, Jim Yong Kim, will step down on January 31, three years earlier than his term formally ends.

His move – described as “sudden” and a “shock,” particularly since the World Bank has been going through significant internal restructuring – gives US president Donald Trump the chance to appoint a replacement more aligned with his outlook.




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This is because, since the World Bank’s establishment in 1945, the United States has had outsized influence as its largest shareholder. Its president has always been an American citizen nominated by the US government. Kim was chosen by the Obama administration in 2012.

Rumours circulated early on that Trump was considering his daughter Ivanka for the job. Even though that has since been denied, it’s likely he will choose a candidate sympathetic to his worldview.

This may mean a substantial change in the World Bank’s priorities. In particular, in two areas the bank has played an important and positive role: funding sustainable projects to deal with climate change (“climate resilience”); and encouraging robust international connectivity through trade.

Focus on climate resilience

The World Bank has put substantial emphasis on funding projects in developing countries that address climate change. Last financial year 32% of its financing – a total of US$20.5 billion – was climate-related.

Recently approved World Bank projects included climate resilient transport in the Oceania region (such as in Tonga and Samoa), and solar projects across Sub-Saharan Africa. This is all part of a detailed five-year Climate Change Action Plan underway since 2016.

This concern about the consequences of climate change stands in marked contrast to the Trump administration’s record.

Trump’s disregard of climate science is reflected in the defunding or reorganisation of climate-related research projects and institutions. His appointee to head the US Environmental Protection Agency, Scott Pruitt, played a key role in the US withdrawing from the Paris Climate Agreement and energetically worked to gut pollution protection regulations.

So there’s good reason to believe the Trump administration’s pick for the World Bank will reflect its hostility to climate security, and that the bank’s priority towards funding climate resilience will change as a result.

Antipathy towards multilateralism

The Trump administration has already sought to curb salary growth among World Bank staff. More severely, Trump’s National Security advisor, John Bolton, has argued the World Bank should be privatised or simply shut down.

This is part of a wider “antipathy towards multilateralism” that includes institutions such as the United Nations and the World Trade Organisation.




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Australia has to prepare for life after the World Trade Organisation


Trump’s belief that free trade has hurt the US is at odds with the World Bank’s long history of facilitating reforms designed to promote international trade.

Part of the original logic for the World Bank was that trade was seen as a means to create interdependence, and thus reduce economic conflict that might lead to war.

The Trump administration has shown it is more than willing to revert to an old-fashioned trade war.

Its tariff contest with China (which joined the WTO in 2001 with the World Bank’s help) is already hurting global manufacturing, with the International Monetary Fund downgrading its global economic growth forecasts as a result.

Though a Trump appointee might not upend the World Bank’s commitment to free trade in principle, the result might be an organisation less active in promoting multilateralism in practice.

Playing to China’s strengths

Ironically a Trump-compliant World Bank might result in promoting its sidelining to the advantage of China.

In its first six decades of existence the World Bank was an immensely powerful international institution. But its relevance to international development and finance is now being overshadowed by alternative funding mechanisms such as private-sector lending and particularly institutions related to Chinese international development initiatives.

China is planning through its Belt and Road Initiative to spend US$1 trillion on international infrastructure projects over the coming decade. Much of these are focused on Eurasian and African regions where the World Bank has struggled most to promote sustainable prosperity.

China has also has built a rival to the World Bank in the form of the Asian Investment Infrastructure Bank (AIIB), which has a sizeable balance sheet and a proactive approach to funding projects, including those in sustainable development.




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But in climate resilience and global economic integration, the World Bank still retains the mantle of global leader. Thus far it has welcomed cooperation with the AIIB, signing a memorandum of understanding in 2017.

Blunt its work in these two areas and the World Bank becomes more irrelevant. Combined with the organisation’s serious governance problems, which are most unlikely to be addressed by a Trump appointee, the future for the World Bank is not bright.The Conversation

Usman W. Chohan, Economist, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Government hopes Jerusalem compromise will smooth Indonesian trade deal


Michelle Grattan, University of Canberra

Scott Morrison has announced a compromise position that recognises West Jerusalem as Israel’s capital but does not move Australia’s embassy there until a peace settlement determines Jerusalem’s final status.

Instead Australia will simply establish a Trade and Defence Office in West Jerusalem.

The government briefed Indonesia before the Prime Minister outlined the new Australian policy in a speech in Sydney on Saturday.

Morrison’s announcement in the run up to the Wentworth by-election that Australia would consider moving its embassy from Tel Aviv to Jerusalem caused Indonesia – a Muslim country that is hostile to Israel – to put on ice the conclusion of the free trade agreement between the two countries. It also led to criticism from Malaysia. The government is hoping the compromise will mollify the Indonesians, and enable the finalisation of the trade deal.

In a speech strongly sympathetic towards Israel and condemning the “rancid stalemate” that had emerged in the negotiations to resolve the Israeli-Palestinian dispute, Morrison outlined Australia’s position.

“Australia now recognises West Jerusalem, being the seat of the Knesset and many of the institutions of government, is the capital of Israel.

“And we look forward to moving our embassy to West Jerusalem when practical, in support of and after final status determination”.

Morrison said Australia would start work now to find a suitable site for an embassy in West Jerusalem.

“Out of respect for the clearly communicated preference of the Israeli government for countries to not establish consulates or honorary consular offices in West Jerusalem, the Australian government will establish a Trade and Defence Office in West Jerusalem.”

Morrison said the defence aspect of this office would be concerned with defence industry, not diplomatic activity, because the Israeli defence ministry was in Tel Aviv.

He also said that “recognising our commitment to a two-state solution, the Australian government has also resolved to acknowledge the aspirations of the Palestinian people for a future state with its capital in East Jerusalem”.

Bill Shorten described the Morrison announcement as “a humiliating backdown”.

Shorten said the government had “walked away from their initial rush of blood to the head”.

Asked whether a Labor government would reverse the decision, Shorten said the ALP believed “Jerusalem should be recognised as the capital of both Israel and Palestine as part of the final stages of a negotiated two-state peace deal”.

Labor would do this “at the final stage and we’re not at the final stage of a two-state peace deal”.

Shorten said he hoped the trade deal with Indonesia would go ahead.

There was no immediate reaction from Israel because of the Jewish Sabbath. At the time when Morrison announced that Australia was considering moving its embassy, this was warmly welcomed by the Israeli Prime Minister, Benjamin Netanyahu, so the Israelis might be disappointed with the Morrison halfway house.

The official Indonesian reaction gave no indication about whether the Morrison announcement would be enough to move along the trade agreement. An Indonesian statement called “on Australia and all member states of the UN to promptly recognise the state of Palestine and to cooperate towards the attainment of sustainable peace and agreement between the state of Palestine and Israel”, based on a two-state solution.

The Sydney Morning Herald reported a member of the main Indonesian opposition coalition, Dian Islamiati Fatwa, a candidate for next year’s election, was critical of the announcement and said the free trade deal should be put on hold.
The Australia Palestine Advocacy Network denounced the Morrison announcement saying that it “was appeasing extremist elements of the party while further slamming closed the door to peace”

“As Israel claims exclusive sovereignty over all of Jerusalem and refuses to abide by United Nations resolutions calling it to withdraw from occupied East Jerusalem, we cannot give them a free kick,” said Bishop George Browning, President of the Australia Palestine Advocacy Network.

SUNDAY UPDATE: Malaysia slams Morrison Jerusalem decision

Malaysia has issued a strong statement opposing the Australian decision to recognise West Jerusalem as the capital of Israel.

As statement from the Malaysian government said: “Malaysia firmly believes that this announcement, made before the settlement of a two-state solution, is premature and a humiliation to the Palestinians and their struggle for the right to self-determination”

“Malaysia reiterates its long standing position that a two-State solution, in which the Palestinians and the Israelis live side by side in peace, based on the pre-1967 borders, with East Jerusalem as the capital of Palestine is the only viable solution to the Palestinian-Israeli conflict.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

G20 summit bring a truce in US-China trade relations – but it’s likely to be temporary


Tony Walker, La Trobe University

The United States and China have arrived at a temporary truce in a trade conflict that was threatening to further destabilise world equity markets, entrench a global slowdown and cause more damage to a rules-based international order.

Agreement by US President Donald Trump and his Chinese counterpart, Xi Jinping, to allow further negotiations before threatened tariff increases on Chinese imports come into effect is a welcome development.

However, this is a temporary respite, a short-term fix, not a long-term solution to myriad trade and other tensions that have put the US and China at odds with each other.

For their own purposes and in their own interests, Trump and Xi have come away from the Argentine capital with a deal that papers over differences that extend from China’s activities in the South China Sea to its mercantilist trade policies.




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As far as we know, China’s ruthless assertion of its sovereignty over disputed waters in the South China Sea was not a material subject for discussion in Buenos Aires except, possibly, in passing.

China’s rise and America’s relative decline ensure these global economic superpowers will continue to bump up against each other.

So, what was achieved and what are the prospects for an accord reached on the sidelines of the G20?

In their efforts to lower trade tensions and prevent a further erosion of global confidence, Trump and Xi agreed to a 90-day extension on the imposition of additional US tariffs on some US$200 billion of Chinese imports.

Trump had threatened to increase tariffs from 10% to 25% on an initial batch of Chinese imports from January 1. He had also flagged his intention to impose levies on another US$267 billion worth of imports if progress was not made in resolving broad-based trade differences.

A joint statement laid out a timeline for continuing negotiations. It reads:

Both parties agree that they will endeavour to have this transaction completed within the next 90 days. If, at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent.

In return for these temporary concessions, China agreed to:

… purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between the two countries. China has agreed to start purchasing agricultural product immediately.

China also agreed to crack down on sales of Fentanyl by making it a controlled substance. The US is battling an opioid crisis in which Fentanyl is a lethal component.

In retaliation for US trade actions, China had imposed duties on US$110 billion of imports. A principal component of this is soybeans, effectively killing one of America’s more lucrative export markets.

Trump has been under huge pressure from his Mid-Western rural heartland over a collapse in the Chinese market for American agricultural products.

The two sides also agreed to address structural problems in the trading relationship. These extend to five areas – forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft.

These are highly complex issues and unlikely to be resolved in the short term, if at all.

In the wash-up of the Xi-Trump discussions it appears China has got more out of the deal than the US – at least for now. It has secured a stay of execution for the implementation of tariff increases and forestalled, for the time being, tariffs on an additional bloc of Chinese exports.

In return, it has agreed to buy unspecified quantities of US products and to talk about differences.

Trump’s willingness to compromise after months of bombast reflects pressures from a shellshocked grain-producing constituency and alarm on Wall Street at prospects of a full-blown trade war.

From Beijing’s perspective, China has demonstrated that its growing economic heft has enabled it to avoid the appearance of yielding to US pressure.

If not a “win-win” for China – as Chinese officials are fond of saying – it is certainly not a “lose-lose”.

In a statement at odds with months of fire-breathing rhetoric over China’s allegedly perfidious trade practices, Trump hailed his understanding with Xi. He said:

This was an amazing and productive meeting with unlimited possibilities for both the US and China.

For their part, Chinese officials were more circumspect.

Foreign Minister Wang Yi said the talks were conducted in a “friendly and candid atmosphere”. The presidents:

agreed that the two sides can and must get bilateral relations right… China is willing to increase imports in accordance with the needs of its domestic market and the people’s needs.

Impetus for a face-saving deal in Buenos Aires has been prompted by growing concerns about the global economy. The signs of a slowdown are clear. Trade volumes had begun to moderate in the third quarter, heightening worries of a global retrenchment.

International Monetary Fund managing director Christine Lagarde at the G20 summit.
AAP/EPA/G20 handout

On the sidelines of the G20, the International Monetary Fund’s managing director, Christine Lagarde, noted:

Pressures on emerging markets have been rising and trade tensions have begun to have a negative impact, increasing downside risks.

In its October Outlook statement, the IMF warned about threats to global growth due to trade disturbances.

In their final communique, G20 leaders danced around contentious issues on trade to accommodate American objections to having the word “protectionism” inserted in the document.

In the end, participants settled on the need for reform of the World Trade Organisation to describe a world trading system that is falling short of its objectives. Washington has been agitating for a review of the WTO to strengthen its dispute resolution and appeal procedures.

The US has also objected to a continuing description of China as a developing country, with concessions that enable it to take advantage of less developed country status in its access to global markets.




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On climate change, Washington separated itself from the other G20 members. All, except the US, reaffirmed their commitment to the Paris Agreement. The US announced in 2017 it was pulling out of Paris.

Foreign policy specialists will be sceptical about a de-escalation of trade hostilities given the range of issues bedevilling the US-China relationship.

Reflecting a hardening of US attitudes towards China, and in contrast to the optimism that had prevailed for much of the past two decades, Ely Ratner in Foreign Affairs notes:

Even if tariffs are put on hold, the United States will continue to restructure the US-China economic relationship through investment restrictions, export controls, and sustained law enforcement actions against Chinese industrial and cyber-espionage.

At the same time, there are no serious prospects for Washington and Beijing to resolve other important areas of dispute, including the South China Sea, human rights and the larger contest over the norms, rules and institutions that govern relations in Asia.

A stiffening view in the US towards China is shared more or less across the board. In those circumstances, a temporary ceasefire in Buenos Aires is unlikely to be sustained.The Conversation

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The many ways Australia isn’t as pro-trade as we claim


Gabriele Gratton, UNSW

Chinese President Xi Jinping’s speech at the annual Boao Forum this week caused sighs of relief after a month of mounting threats of tariff escalations between China and the US. Instead, Xi pledged a “new phase of opening up”, including cutting tariffs on car imports.




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US President Donald Trump’s vision of the global economy as a zero-sum game is at odds with Australia’s experience: the mining and education booms that benefited millions of Australians were fuelled by the Chinese economic miracle of the last three decades.

History too is on the pro-trade side: when trade wars waged on both coasts of the Atlantic in the 1930s, claims of unfair competition became nationalist rhetoric, tariffs became guns, and the economic tragedy of a trade war turned into the real immense tragedy of the second world war.

With such powerful images in mind, we are rightly proud to defend the merits of a well-regulated free-trade world. But perhaps we may be too generous with ourselves. As it turns out, Australia is not innocent when it comes to anti-trade sentiments.

On July 1, 2018, the Australian government will extend GST to low value direct imports of physical goods. The mode of collection, designed to limit enforcement costs, relies on the voluntary participation of foreign retailers, with Treasury (perhaps optimistically) estimating compliance rates as low as 50%.

But border controls on parcels will remain a heavy burden on the budget. To cover the losses, the government is likely to impose a A$5-to-A$10 per-parcel levy on international retailers, in addition to GST. This is a new barrier to trade.

Many more barriers go unnoticed. Of course, the fragile and unique ecosystem of the continent needs to be protected, so we naturally impose some barriers to the importation of biologically sensitive material. The immediate economic costs for Australian consumers are large, albeit difficult to estimate precisely, but probably necessary to protect our environment from bio-threats to seeds, meat – and books.

Yes: books. Thanks to restrictions on the parallel importation of books, Australian publishers (including local representatives of multinational publishers) sell books written, published, and printed outside Australia, at much higher prices (in many cases, more than 50%) than what is charged for essentially identical goods just outside our customs.




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In 2009, the Productivity Commission concluded that this policy is a net transfer from Australian consumers to publishers and authors around the world. The Commission forgot to add that books feed knowledge, and a knowledge economy is critical to the future of our children. That is, if more expensive food damages consumers now, more expensive books damage the present as well as the future of the country. Despite the report, the policy stands. As a nation we chose to protect our publishers instead of our children’s future.

Our recent pro-trade score is not much better.

In 2016, the Anti-Dumping Commission found canned tomatoes exporters La Doria and Feger guilty of dumping – that is, selling products for less than they sell for in their own country. The government responded by imposing dumping duties up to 8.4% on all Italian tomatoes. Such anti-dumping retaliations are perfectly legal within the WTO framework, but often cover protectionist policies.

According to a 2017 WTO report, Australia was responsible for almost a third of all such retaliations among the G20 countries in 2016, second only to the US. Not bad for a nation that sees itself at the forefront of the fight for free trade.

To be fair, Australia has contributed to world peace with many unilateral free-trade decisions in the past. Car import tariffs are now a small fraction of what they were 30 years ago and may well be scrapped completely this year. But if we want to contribute to maintain this peace in the future, we may need more than the pride of feeling on the right side of history.

The ConversationThe government should stop flirting with Trump’s new anti-trade wave, and not be content with being excluded from Trump’s steel and aluminium tariffs. As a pro-trade nation, Australia should speak loud and clear.

Gabriele Gratton, Senior Lecturer in Economics, UNSW

This article was originally published on The Conversation. Read the original article.