Seven Major Trade Developments of 2016: Trade Year in Review & Look Ahead
Popular support for global trade took its greatest hammering in 2016 than it has in recent times. Below are seven of the major international trade developments in 2016 and some thoughts on what 2017 may bring.
1.Continued slowdown in Global Trade Growth
Global merchandise trade growth continued to be lacklustre in 2016, according to the World Trade Organisation (WTO). The WTO in its September update downgraded its forecast for global trade growth for 2016 to 1.7% from the April forecast of 2.8%, and for 2017, to between 1.8% and 3.1% from the April forecast of 3.6%.
According to the Director General Roberto Azevedo in his Annual Report, if realised, this would be the slowest pace of global trade growth and output since the global financial and economic crisis in 2008. The reasons proffered were a fall in import demand and a slowdown in global GDP (particularly among emerging economies such as China and Brazil but also some deceleration in North America).
Trade restrictive measures remain high. According to the DG’s Annual Report, 182 new trade restrictive measures (outside of trade remedy measures) were put in place by member states since the last report. The monthly average represented a reduction from 2015 but the Director General cautioned that “this does not mean that we are on a downward trend. Rather, it seems to be a return to the somewhat steady levels we have witnessed since 2009.”
2. UK votes to leave the European Union
The first political bombshell of 2016 came on June 23rd when voters in the United Kingdom voted for the UK to withdraw from the 28-member European Union, its largest trading partner. Then UK Prime Minister, David Cameron, who backed the “Remain” camp, voluntarily resigned after the result.
The value of Sterling has fallen significantly since the Brexit vote, improving the price competitiveness of UK exports. A BBC report noted that in the three months following the vote, the UK economy grew 0.5% on average, which while slower than the previous quarter, was higher than the rate predicted by many economists. However, the vote has created a climate of uncertainty not just with regard to the City of London’s future as the financial hub of Europe, but also what level of access UK exporters would have to the EU single market once a withdrawal agreement is concluded pursuant to Article 50 of the Lisbon Treaty. In other words, will there be a “hard” or “soft” Brexit ?
The new Prime Minister, Theresa May’s slated timeline of making the Article 50 notification by the end of March 2017 is now in doubt. The UK High Court held in R (Miller) v Secretary of State for Exiting the European Union that a parliamentary vote was needed which may extend the timeline (and that is if Parliament votes in favour of making the notification). The May-led government appealed and the UK Supreme Court is expected to render its judgment in R (on the application of Miller and Dos Santos) v Secretary of State for Exiting the European Union and associated references early this year.
3. Donald Trump is elected US President
In another unexpected political twist, billionaire businessman, Donald Trump, defeated establishment favourite, democratic nominee Hillary Clinton, in the November 8th US Presidential election poll. President-elect Trump will take office on January 20, 2016 but already many have questioned what will be the US’ new trade orientation in light of Mr. Trump’s trade policy proposals during and since the campaign.
Both Canada and Mexico have indicated their willingness to come to the negotiating table in regards to renegotiating the North American Free Trade Agreement (NAFTA). It is not clear what will be the fate of the Trans-Atlantic Trade and Investment Partnership (TTIP) which was being negotiated between the US and the EU or any of the fourteen other free trade agreements under negotiation by the US. Additionally, the nature of the US’ continued involvement in the plurilateral negotiations of the Trade in Services Agreement (TISA), the Environmental Goods Agreement (EGA) and the Fisheries Subsidies Agreement, is uncertain.
There are also concerns about a possible trade war between the US and China. Mr. Trump has promised to name China a currency manipulator and has also stated he would impose a tariff on Chinese imports.
4. EU & Canada sign CETA
One agreement does appear to have bucked the trend. After nearly being derailed by the Belgian region of Wallonia, the Comprehensive Economic and Trade Agreement (CETA) was finally signed by the European Union and Canada in October, 2016. The Agreement will need the approval of the EU and Canadian parliaments into order to take full effect.
One major question is what impact will the UK’s possible impending departure from the EU have on CETA especially given that the UK is Canada’s largest EU trading partner. A Bloomberg report quotes Canada’s Trade Minister, Chrystia Freeland, as stating that once the European Parliament passes CETA, Canada will have a trade deal with Britain which can be built on. There would be no need for a separate trade agreement with the UK.
5. Maersk acquires Hamburg Süd
The world’s largest shipping company Maersk acquired the German container shipping line, Hamburg Süd, the world’s seventh largest operator. It was noted in the press release announcing the acquisition agreement that Hamburg Süd would continue as a separate brand. The Wall Street Journal reports that the deal, which is estimated to be worth $4 billion dollars, would boost Maersk’s presence on North-South shipping routes and would make the shipping company the leading player in and out of Latin America.
Overcapacity due to larger vessel capacity but weaker demand has plagued the global container shipping industry and has seen declines in global shipping rates. According to a report by American Shipper, credit rating agency Moody’s “holds a negative outlook for the shipping industry in 2017”. With declining profitability, it is likely that more mergers and acquisitions may follow in order to create scale in an industry which remains quite fragmented.
6. Paris Climate Agreement comes into effect
The Paris Climate Agreement, agreed by 195 countries at the UNFCCC’s COP21 in December 2015, came into effect, which is great news for the planet and especially for small island developing states and coastal states which are the most vulnerable to the ravages of climate change.
While there is concern about whether the incoming US administration will adhere to the Agreement, the Agreement’s entry into force will have several possible impacts on global trade trends. Firstly, there may be increased trade in climate-friendly and renewable energy products as businesses and countries seek to reduce their carbon footprint in line with commitments made by countries under Nationally Determined Contributions and in line with businesses’ corporate social responsibility goals. Concomitantly, there might be reduction in trade in fossil fuel and other environmentally dangerous products.
More trade disputes are likely as a result of climate change policies implemented by member states which may be deemed to be protectionist or discriminatory to other member states’ exports. The challenge for states will be in crafting environmental policies to promote a low carbon economy which also conform with their trade obligations.
7. Oil producing nations reach deal to cut oil output
On November 30, 2016 oil producing nations, including member countries of the Organisation of Petroleum Exporting Countries (OPEC), reached a deal for the first time since 2008 to cut back oil production in order to stem a two-year glut. According to Wall Street Journal reporting, the deal would lead to 558,000 barrels less of crude oil per day and represents almost 2% of global oil supply. Saudi Arabia, the largest producer, has committed to cutting back its output by 4%, according to The Economist’s reporting.
Oversupply has led to two years of oil prices dropping to unprecedented lows, to the detriment of some oil-producing economies, most notably Venezuela but a much needed reprieve for oil importing nations. In the wake of the announcement, the price of Brent crude surged to over $50 a barrel, the highest in over a year. However, both oil prices and WTI futures fell shortly thereafter amidst skepticism about whether output would actually be reduced in light of higher output by oil-producing countries that same month.
The “success” of this deal depends on several factors, including to what extent can an increase in US shale production compensate. Recall also that President-elect Trump has also promised to increase US production in order to ensure energy dependence. It will also depend on whether Russia will follow through with cutting output, and whether OPEC members themselves actually adhere to their own proposed production cuts.
So what does this deal mean for trade? For starters, expect higher fuel costs to lead to higher freight and production costs.
What does this mean for 2017?
In light of the above, what does 2017 portend? At the time of this article’s writing, we are just hours into 2017. The good news is that we are ever closer to the Trade Facilitation Agreement coming into force.
However, the biggest buzzword for 2017 is uncertainty. A growing rise in populist anti-trade, anti-immigrant fervour has led to the election of Donald Trump, while anti-EU sentiment was one of the contributing factors underlying the UK Brexit vote. Will the election of anti-EU, anti-trade governments continue and what does this mean for the future of that trade bloc? Several European elections scheduled for 2017, including the French presidential elections (with the leader of the right wing Front National, Marine LePen, a strong candidate), the German presidential and parliamentary elections and the Netherland elections.
Besides this, will the UK actually make its Article 50 notification? Will Donald Trump follow through with his promise to jettison the TPP and renegotiate NAFTA and will there be a trade war between the US and China? What about global trade? Will we see a pickup this year? Turning to the multilateral trade negotiations, what progress (if any) will be made at the WTO’s Buenos Aires ministerial this December? Will OPEC members follow through with the proposed cuts? No one knows.
Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.