Tag Archives: China

The Sino-American Challenge to Multilateralism

Rasheed J. Griffith, Guest Contributor

Nations don’t trade. Metaphors can both clarify and deceive. Trade is no exception. The current commentary on trade relationships between nations has elevated the commercial profit-loss mechanisms of international trade to an abstract state level apparatus. When we say states trade what we really mean is the firms in different states have commercial relationships. Firms have a singular motive: to make profit. Similarly to making the individual-firm distinction, we must always remember to make the state-firm distinction. This distinction is further amplified when we are discussing large economy states. They too have a singular motive: geopolitical dominance.

The persistent US trade deficit with China implies that US consumers are able to buy cheaper goods from China. But it is also a signal of the erosion of the US global geopolitical dominance caused by economic decline. In the US economy financial goods are replacing physical goods. The chart below shows the increase in the financial component of US GDP relative to manufacturing.

Americasfireeconomy

Stock market capitalization of the US relative to GDP is 153%. For China it is 65% and Germany 54%. I am familiar with arguments that claim this is not problematic because countries trust the US markets most.

The 2008 financial crisis gave a glimpse of what could happen to the US economy if the financial sector collapsed.

The US government was barely able to patch up the financial markets by using excessive money creation and debt redistribution (i.e quantitative easing) in 2008. This was a necessary move but it means the Federal Reserve System balance sheet is now bloated. In another crisis, quantitative easing will likely not be effective. At that point, the money and capital markets of the US will no longer be as attractive in the long term, resulting in the dollar losing its global reserve currency status. At this point, the geopolitical dominance of US will weaken. And the main adversary (which is now China) will strive to make sure the US remains in a weakened position.

Very few people seem to understand this. But the Communist Party of China (CCP) understands. In 1999, two colonels of the People’s Liberation Army published Unrestricted Warfare[1]. The book gave strategies for defeating the USA without direct conventional military engagement. One of the core strategies was the use economic policies to eat away at the US economy. Having China being the core manufacturing hub of the world was one such strategy. This was made explicit with the ‘Made in China 2025’ policy recently launched by the CCP[2].

China did not achieve its spectacular growth through free trade. All of China’s trade is managed by the CCP. When discussing the USA-China trade relationship we must always acknowledge that China has an authoritarian government that will create and implement policies that they believe will benefit China irrespective of what the Chinese citizens think or what multilateral organizations demand. When China ascended to the WTO in 2001 it was naively expected that China would conform to the rules of that organization. Authoritarian governments, however, do not follow neoliberal rules.

Starting around 1978 under Deng Xiaoping, the CCP began their reforms from Soviet style system wide planning to state capitalism directed by large and powerful state owned enterprises (SOEs)[3]. Although China ascended to the WTO in 2001, this model never changed. On the Fortune 500 list of largest global companies, China comes in a close second (120) behind the US (126). Japan (52) is quite far behind. But what is shocking is that 93% of the Chinese firms on the list are SOEs. The CCP heavily subsidies their SOEs, and creates rules specifically favorable to them; to the detriment of foreign entities.

The USTR Section 301 report identified several instances where China has violated the WTO rules to which it signed in 2001. These concern trading rights, import regulations, export regulations, intellectual property rights, technology transfer, foreign investment, and so on[4]. The US has complained to the WTO about China on 22 occasions and China has still persisted in violating the rules. The White House Office of Trade and Manufacturing report goes on the dissect the persistent economic aggressions of China[5].

What choice does the US have if it is not able to deal with China through WTO processes? Multilateral processes only work if everyone agrees to adhere to the same rules. Of course , though, these rules were largely set by the US. In dealing with China, the WTO is absolutely ineffective. There is no democratic fallout if China refuses to acknowledge multilateral rules (as seen explicitly in China’s absolute refusal to acknowledge the Philippine’s win in the Hague in matter of the West Philippines Sea/South China Sea). It is likely that any strong ruling in the WTO against China will similarly fall on deaf ears. (Similarly the US has substantially disregarded a WTO ruling after losing a case to Antigua).

In any case, it has gotten to a point where countries cannot simply halt or significantly decrease trade with China in the form of sanctions. The US, then, is forced to use geoeconomics – the use of economic instruments to further geopolitical goals.

As the President of the United States, Trump is right to engage China directly. His strategy is clever: robe a geostrategic containment engagement in bland terms of trade rhetoric. And this is by no means outside the modus operandi of the US. During the Cold War period the US actively practised a strategy of containment against the Soviet Union. In fact, China has accused the US of trying to economically contain China[6]. But of course, China has been engaging in geoeconomics as well recently.

For example, in 2012 China allowed farmers from the Phillipines to export their bananas to China but when the bananas arrived they were left to rot on the dock. This left the Philippines banana planters with neither stock nor payment (30% of Philippines banana exports go to China). This was used as a tactic to weaken the Philippines position when the tensions over the South China Sea were rising[7]. Another example is when China blocked rare earth metals to Japan almost crippling Japanese tech manufacturing, until Japan finally conceded, over another maritime dispute[8]. In both cases, the WTO was impotent.

What Trump gets wrong is that tariffs are not sufficient. And he failed to properly define a long term strategy to deal with China. Without such a strategy the US will continue ad hoc aggressions.

China has been shown to disregard all multilateral rules if it wants to. But even so, it is difficult being upset with China. China has succeeded in the most comprehensive and rapid poverty alleviation program in all of human history. China was able to lift over 600 million people out of poverty in less than 30 years[9]. Following along this path, it should be expected that the CCP is mounting a restoration of China to compensate for its decline after the late 1850s: the “century of humiliation[10]”. Few commentators remember that for 18 of the last 20 centuries China commanded a greater share of world GDP that any other country. Henry Kissinger reminds us that as recent as 1820 China “produced over 30% of world GDP – an amount exceeding the GDP of Western Europe, Eastern Europe, and the United States combines.”[11]

Wang Yi, however, recently attempted to assure the UN that China has no ambition of hegemonic dominance[12]. I believe that is an empty statement given Xi Jinping’s expansive Belt and Road Initiative (BRI) which has been added to the Party constitution of the CCP[13]. From the perspective of CCP, as Lee Kuan Yew frames it, China is not looking to become dominant; rather, it is looking to restore dominance. It is a different geopolitical mindset.

This to me is the crux of the Sino-American challenge. The US is right that China is not properly following WTO rules because it has disregarded many of those rules to accelerate its economic growth. And it has been exceedingly effective. But if China were to conform to the WTO rules, it would not match the model that has been so successful.

Multilateral trade rules were not designed by China to fit China’s model (authoritarian government, state capitalism). They were primarily designed by liberal democracies – the US in particular. Both of these nations have fundamentally different economic models and justifiable geopolitical reasons for disregarding WTO rules to protect (or increase) their geopolitical dominance.

We are living in a time of multilateralism. But this time is anomalous. Dani Rodrik has explained in detail why “free trade agreements” have little to do with free trade[14]. Those agreements are primarily political documents. In fact, “76 percent of existing preferential trade agreements covered at least some aspect of investment (such as free capital mobility) by 2011; 61 percent covered intellectual property rights protection; and 46 percent covered environmental regulations”[15]. These are political documents that attempt to alter a nation’s domestic policies with the preferences of international actors.

This is not possible with a powerful authoritarian government. It is a grave error to treat China as just another Western country; like how you would treat Japan. China is an ideological adversary to the US that has now become an economic adversary. When at odds with geopolitical motives multilateralism always fails. Geoeconomic escalation is not only justified but it is inevitable.

Rasheed Griffith’s professional interests include Southeast Asian Monetary Policy and AML Compliance. He may be contacted at rasheed.j.griffith AT gmail.com. You can also follow him on Twitter at @RasheedGriffith

[1] http://www.c4i.org/unrestricted.pdf

[2] https://supchina.com/2018/06/28/made-in-china-2025/

[3] https://orca.cf.ac.uk/99467/1/Publication_2016_IJEMSc.pdf

[4] https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF

[5] https://www.whitehouse.gov/wp-content/uploads/2018/06/FINAL-China-Technology-Report-6.18.18-PDF.pdf

[6] http://www.atimes.com/article/us-tariffs-are-containment-beijings-message-fed-by-the-white-house/

[7] https://www.asiasentinel.com/society/the-china-philippine-banana-war/

[8] https://www.nytimes.com/2010/09/23/business/global/23rare.html

[9] https://en.wikipedia.org/wiki/Poverty_in_China#Poverty_reduction

[10] https://www.theatlantic.com/china/archive/2013/10/how-humiliation-drove-modern-chinese-history/280878/

[11] https://www.amazon.com/China-Henry-Kissinger/dp/0143121316

[12] http://usa.chinadaily.com.cn/a/201809/30/WS5bafb647a310eff303280520.html

[13] https://idsa.in/idsacomments/what-the-inclusion-of-bri-in-the-chinese-constitution-implies_jpanda_071117

[14]https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/what_do_trade_agreements_really_do.pdf

[15] Limão, Nuno. 2016. “Preferential Trade Agreements.” NBER Working Paper 22138, March

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US-China Trade Tensions: What may these mean for the Caribbean?

Alicia Nicholls

On-going trade tensions between the United States of America (US) and China reached a new low point last week. Beijing cancelled upcoming trade talks with Washington in the wake of US President Donald Trump’s announcement of tariffs on a further $200 billion dollars’ worth of Chinese imports, starting September 24th. The Chinese government announced that it will retaliate with tariffs on a further US$60 billion dollars’ worth of US imports.

US-China relations have had turbulent periods throughout the years, but the Trump Presidency has taken a markedly more aggressive stance to Beijing’s purported unfair trade practices which the US President blames for China’s large merchandise trade surplus with the US, estimated to be US$375 billion in 2017.

With the US as the Caribbean region’s main trading partner and China, a growing economic presence in the region, will the Caribbean be caught in the middle of this spat between the world’s two largest economic superpowers? And is there anyway in which the region could possibly benefit?

China-Caribbean Relations

It must first be noted that Caribbean countries’ policy towards the recognition of either the People’s Republic of China (PRC) or the Republic of China (ROC – Taiwan) is fragmented. Five (Belize, Haiti, St. Kitts & Nevis, St. Vincent & the Grenadines and St. Lucia) out of fifteen Caribbean Community (CARICOM) member States still recognise Taiwan as a sovereign State. Moreover, it was only this week that China opened an embassy in the Dominican Republic after that country severed ties with Taiwan earlier. As such, not all Caribbean countries have diplomatic or economic ties with the PRC, but the majority do.

In the midst of declining US presence in the Caribbean, Beijing has sought to fill the void through mainly bilateral engagement with individual Caribbean governments. China has become an increasingly important source of foreign direct investment, government loans, and development aid and cooperation. A growing number of infrastructure projects throughout the region have been built with Chinese funding and labour. The Chinese Government has also long provided generous government scholarships to Caribbean nationals whose countries recognize the PRC.

China-Caribbean trade flows have increased and China has widened its trade surplus with the region. According to Ambassador Dr. Richard L. Bernal in his insightful book “Dragon in the Caribbean”, while Caribbean countries’ imports from China have grown “substantially and rapidly”, Caribbean exports to China have increased, but not nearly in as robust a manner. The Chinese Ambassador to Barbados has been reported as stating last week that in “the first six months of this year trade volume between Bridgetown and Beijing reached US$79.8 million”, a rapid increase.

US-Caribbean Relations

While China’s deepened economic engagement with the Caribbean is relatively recent, US-Caribbean relations with the region it considers its “backyard” or “third border” are longstanding, dating back to colonial times. The US is not just the region’s largest trading partner, but since the late 1980s many Caribbean countries have benefited from duty-free, quota-free access for most goods to the US market under the Caribbean Basin Initiative, a non-reciprocal goods-only preferences programme.

The US is the major source market for Caribbean tourist arrivals, with the Caribbean Tourism Organisation reporting an estimated 14.9 million US arrivals to the region in 2017. US-Caribbean ties also manifest through the relatively large Caribbean-American diaspora which numbers approximately four million. The US is also a major (though declining) provider of foreign assistance to the Caribbean, and the Trump Administration has sought to scale back its assistance even further.

However, the Caribbean region’s geopolitical significance to Washington has diminished since the end of the Cold War, and so has the level of development assistance in recent years. The US-Caribbean Strategic Engagement Act, which had bi-partisan congressional support, was passed in 2016 and signed into law under the then Obama administration as Washington’s attempt to re-engage with the Region. A multi-year Strategy, as required under the Act, was published in 2017.

So, what may US-China trade tensions mean for the Caribbean?

It is still too early to tell whether there will or has been any economic fall-out from the US-China tariff war so far on Caribbean economies. Most Caribbean countries are services-dependent making them generally more insulated from direct fall-out from the tariff hikes on global goods supply chains. Commodities-based economies, however, might suffer from softening commodities prices due to reduced Chinese demand.

President Trump’s calculation may be that a trade war would be more damaging to China’s economy than to the US since it exports more to the US than viceversa. This gives Beijing less American imports on which it could levy tariffs. An already slowing Chinese economy would be further weakened by reduced American demand for its products.

One possible negative consequence of any severe downturn in the Chinese economy may be a reduction in Beijing’s economic largesse in the region. But, the US economy may not be immune either. Though the US economy grew 4.2% in the last quarter and unemployment is low, these fortunes could be reversed due to Washington’s erratic trade policy and recent tax cuts. American farmers in key states are already warning about the possible impact of the tariff hikes. A downturn in the US economy could have a ripple effect on Caribbean economies, especially those dependent on US tourist arrivals. It is also worth pointing out that China is the US’ largest creditor, with a stockpile of over US$1 trillion worth of US Treasury securities. Beijing may see this as a source of leverage in this economic war, but a mass sell-off by China of its US debt could also backfire.

Another possible channel of impact for Caribbean countries could be in the financial markets. Spooked by these trade tensions, investors may revert to less risky investment options, which may make bonds issued by emerging economies, like those in the Caribbean, less attractive, and also affect currency markets. Additionally, any downturn in the global economy precipitated by softening global demand due to the rising trade tensions and reduced investor confidence could have a ripple effect on the small open economies of the Caribbean. In its recently released Interim Economic outlook, the OECD warned that new restrictive trade measures were already impacting global trade flows, resulting in a slowdown in global trade volume growth in the first half of 2018.

An upside to the US-China trade tensions, and this may already be playing out, is that Chinese exporters, faced with these high tariffs in the US market, will be looking at alternative markets for their goods. In light of Washington’s anti-China stance, Chinese firms may also seek out more investment-friendly climates in which to invest. In this case, the Caribbean also hypothetically stands to benefit.

It should be noted as well that China increasingly sees itself as having similar interests to the Caribbean, and also as an ally to the region in multilateral fora. This week the Chinese government noted that it plans to step up its multilateral cooperation with the Caribbean Community (CARICOM), to help protect the integrity of multilateral institutions which have been increasingly under attack from the current unilateral stance taken by the Trump administration. WTO reform is one area in which China and the Caribbean could potentially collaborate, although China’s status as a developing country is one of the sore points for some WTO members, including the US.

There may also be greater opportunities for Caribbean countries to meaningfully increase exports to China. However, this is easier said than done. Caribbean firms looking to export to, or invest in China, will need to overcome barriers to market access and penetration, which are not just legal/regulatory in the form of non-tariff barriers, but also linguistic and cultural.

One way in which these barriers may be mitigated is by tapping into those persons who have knowledge of the Chinese market and culture. A growing number of Caribbean nationals have benefited from Chinese government scholarships. These persons not only speak the language, but know the culture and may have built up lasting contacts there. They could be employed as trade and investment liaisons in their countries’ diplomatic missions in China and their expertise used during trade shows to China. Local chambers of commerce, trade and investment promotion agencies, and individual firms looking to scope out the Chinese market, should also view these persons as useful sources of insights on the Chinese market and sources of contacts for exploring possible joint ventures and partnerships as market entry strategies.

Notwithstanding, it is still too early to state definitively what impact the current US-China trade tensions will have for the Caribbean region. As such, Caribbean leaders and the business community should continue to monitor the situation closely, looking for ways to mitigate any possible channels of impact, but also areas where opportunities may arise.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international 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.

BRICS Summit 2016: Five Key Trade Takeaways

Alicia Nicholls

The BRICS grouping, comprising of the emerging economies of Brazil, Russia, India, China and South Africa, held its 8th Summit in Goa, India under the theme “Building Responsive, Inclusive and Collective Solutions” October, 15-16, 2016. India currently holds the chairmanship of the five-nation grouping.

Here are the main trade takeaways from the Summit:

  1. Support for the WTO-based Multilateral Trading System

The BRICS leaders have reiterated their support for the rules-based multilateral trading system and the World Trade Organisation’s centrality. Leaders noted the increased spaghetti bowl of bilateral, regional and plurilateral trade agreements and advocated that these agreements should be complementary to the multilateral trading system. According to the Goa Declaration, BRICS leaders also encouraged parties to ” align their work in consolidating the multilateral trading system under the WTO in accordance with the principles of transparency, inclusiveness, and compatibility with the WTO rules.”

2. Continued support of Doha Development Agenda

Contrary to the G20 Statement where the Doha Development Agenda was essentially scrubbed from the trade vocabulary, BRICS leaders reiterated their support for advancing negotiations in the DDA, reflecting the sharply divided opinion on the future of Doha  which was demonstrated in the Nairobi Ministerial Statement. They also emphasised the importance of implementing the decisions taken at the Bali and Nairobi Ministerial Conferences and urged all WTO members to work together to ensure a strong development oriented outcome for MC11 and beyond.

3. Promoting BRICS Economic Cooperation

The BRICS leaders praised progress made so far on the implementation of the Strategy for BRICS Economic Partnership and emphasised the importance of the BRICS Roadmap for Trade, Economic and Investment Cooperation until 2020.

4. Improving intra-BRICS Customs Cooperation

The BRICS leaders commended the establishment of the Customs Cooperation Committee of BRICS and the signing of the Regulations on Customs Cooperation Committee of the BRICS in line with the undertaking in the Strategy for BRICS Economic Partnership to strengthen interaction among Customs Administrations.

5. Double intra-BRICS trade by 2020

In his plenary address, India’s Prime Minister Narendra Modi called on fellow BRICS leaders to double the value of intra-BRICS trade to $500 billion by  2020. According to Prime Minister Modi, intra-BRICS trade was $250 billion in 2015. He further noted that this target would require “businesses and industry in all five countries to scale up their engagement” and “for governments to facilitate this process to the fullest”.

The full text of the Goa Statement may be accessed here.

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.

Caribbean Countries Looking East for Trade and Investment

Alicia Nicholls

This week the Barbados Chamber of Commerce & Industry (BCCI) signed a Memorandum of Understanding with the  Foreign Economic Relations Board of Turkey. Further north, Jamaica recently announced that it is appointing investment ambassadors to the Middle East and India and Europe to explore business opportunities for Jamaicans. A few weeks ago Antigua & Barbuda’s government announced plans to establish an embassy in Iraq. Caribbean countries are increasingly courting Asian and Middle Eastern countries, with the aim of unlocking business opportunities for Caribbean exporters and business persons in eastern markets.

Why is the Caribbean looking East?

Caribbean countries’ eastern turn has its genesis in three main factors: firstly, the need to diversify their trade partners in an effort to lessen their vulnerability to economic slowdowns in their traditional export partners (the United States, Canada and the European Union). Secondly, there is the desire to promote South-South economic and political cooperation as a conduit for development. Thirdly, there is the recognition of the growing shift in the global balance of power away from Western capitals towards the East. Asian economies are expected to account for two-thirds of the world’s population and half of global GDP by 2025, according to the United Nations.

China has already solidified its position as a major investment and development partner in the region. Lamentably, Caribbean countries’ overtures towards the East have drawn criticism from some elements in Caribbean societies, with some expressing wariness about the timing given the political instability in the Middle East, the seemingly limited cultural affinity between Caribbean countries and the predominantly Muslim countries of the East, and the diplomatic fall-out some believe would occur if Caribbean countries engage too much with traditional western foes like Iran. However, many of these criticisms are both misguided and myopic.

Firstly, Western countries themselves have recognised this shifting balance of power and have sought to expand their presence in eastern markets, with the Trans-Pacific Partnership Agreement being just one example. Secondly, Caribbean countries have had diplomatic relations with most Asian and Middle Eastern countries for years. What is new is there is now more meaningful efforts at deepening relations through the establishment of embassies and consulates, negotiating visa waiver agreements, open skies agreements and protocols for cooperation.

Thirdly, contrary to popular belief, there are some cultural and historical links between the Caribbean and the East.  As a result of the indentured labour system during the colonial era and successive waves of immigration, East Indians comprise a plurality of the populations in Guyana, Suriname and Trinidad & Tobago and there are also sizable Chinese, Syrian and Lebanese diasporic communities in those countries, as well as a 70,000 person strong Javanese diaspora in Suriname. Jamaica, Barbados and Antigua & Barbuda have much smaller East Indian populations.

Many of these diasporic communities, whether immigrant or native-born, still hold on to cultural relics of their ancestral homeland, including music, religion, cultural norms and in some cases, language. After all, one of highlights of visiting Trinidad & Tobago is eating local Indian-based delicacies like roti and doubles. Additionally, walk into an East Indian owned store in the region and you are sure to find products which were  imported in bulk from the Indian sub-continent.

Another cultural link between the Caribbean and some Eastern countries is the love for cricket. Several West Indies players have played and/or are currently playing in the Indian Premier League (IPL). Some notable names include big names like Chris Gayle, Darren Sammy, Dwayne Bravo, Jason Holder, to name a few. It was also recently reported that seven Afghan players have been registered in the Caribbean Premier League draft. Bollywood star Shah Rukh Khan currently owns the Trinbago Knight Riders (formerly the Trinidad & Tobago Red Steel), Trinidad & Tobago’s franchise in the Caribbean Premier League.

Caribbean students are increasingly benefiting from scholarships offered by the governments of China, Taiwan, Japan, Korea and Malaysia to study in those countries.

Trade and Investment

While the limited data available shows that trade between Caribbean and Asian/Middle Eastern countries is minimal, the bilateral trade and investment relationship between Trinidad & Tobago and India is a good example of the potential which exists.

Data published by the Indian High Commission to Port of Spain (Trinidad & Tobago) shows that in 2014 India exported US $165.48m in goods to the twin island republic, and imported 68.42m. Examples of Indian FDI in Trinidad & Tobago include Bank of Baroda, the New India Assurance Co and Mittal Steel. Cultural industries trade also has huge potential. Trinidad & Tobago was one of the filming locations for the Bollywood film, Dulha Mil Gaya starring Shah Rukh Khan.

Barbados has signed double taxation agreements with the United Arab Emirates (2014) and, the Kingdom of Bahrain (2012), which are currently not yet in force but could be used as vehicles for Middle Eastern investment in Latin America and the Caribbean

Development Finance & Islamic Banking

Earlier this month, Guyana became the 57th member of the Islamic Development Bank (IsDB), joining Suriname to be the only two countries in the western hemisphere to be members of this multilateral development finance institution. Membership of the IsDB  will provide Guyana another means of access to concessional financing, including grants and interest-free loans. Guyana and Suriname also have full membership of the Organisation of Islamic Cooperation (OIC), a prerequisite to joining the IsDB. At the recently held 13th OIC Heads of Government Summit in Istanbul, Turkey, Suriname reiterated its intention to become  the hub of Islamic banking and finance in the Americas.

Tourism

The rising middle class in Asian and Middle Eastern countries represent a large untapped tourist market for both mainstream and faith-based tourism.  Halal tourism, which provides tourism and services meeting the requirements of Muslim religious rules and practices, is a growing niche in global tourism, not dissimilar to Kosher tourism which caters to persons of the Jewish faith. Several countries, including the predominantly Christian Philippines, have been repositioning themselves to benefit from the global rise in Halal tourism. It may be something which countries like Guyana, Suriname and Trinidad & Tobago, could explore given their greater familiarity with Halal customs.

Challenges

Exporting goods and services and promoting travel trade in a new market has its complications, from the need to conduct adequate market research so as to understand and meet consumer preferences, to familiarisation of regional exporters with cultural and business norms,regulatory standards and border requirements in the target market, as well as linguistic barriers. It might be easier at first to foster links with countries like India, Malaysia and Singapore where English is widely spoken and where there are some  cultural affinities.

Distance is also a major logistical factor in terms of both ocean freight and air travel. Open skies agreements would help promote greater travel and trade by freeing the air services framework from government interference. However, travel between the Caribbean and Eastern countries is currently time-consuming as it requires changing planes, and transiting through metropolitan hubs like London, Amsterdam or Miami. Nationals of some Asian and Middle Eastern countries require visas to transit through these hubs.  There is some hope, however. Air China commenced service from Beijing to Cuba via Montreal in Canada in December 2015. Although one still has to transit, there is only a three-hour stop over. As technological advancements improve the capacity and speed of long haul airliners, it is not unlikely that there could one day be direct non-stop flights between the Caribbean and Asian and Middle Eastern countries once there is sufficient demand, whether latent or effective.

If one includes China and India, eastern markets include a population of over 3 billion people which is ripe for tapping. As the middle class in Asia and Middle Eastern countries continues to rise, there will be greater demand for travel, and also greater scope for trade and investment between these regions. I believe there are also opportunities for greater engagement, exchange and learning between the Caribbean and eastern countries, particularly in areas like culture, education, technology and sports. Critically, there will be the need to foster linkages between private sector associations and educational institutions in both regions. The countries of the Caribbean Community (CARICOM) would also need to consider the feasibility of negotiating formal agreements for facilitating trade and investment with individual eastern countries or trade blocs like the Association for South East Asian Nations (ASEAN).

There is also the need for language training and cultural awareness between the peoples of the Caribbean and eastern countries. A good start is the Confucius Institutes at the University of the West Indies’ Mona, St. Augustine and Cave Hill Campuses which would assist in this process in so far as Chinese-Caribbean relations are concerned.

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.

OECD Trims Growth Forecast and Warns of Trade Deceleration in Latest Economic Outlook

Alicia Nicholls

The Organisation for Economic Cooperation and Development (OECD) has again trimmed its global growth forecast slightly downward in its second economic outlook for the year, reflecting the weakness in Emerging Market Economies (EMEs). The Paris-based grouping predicts global GDP will expand by just 2.9% in 2015, down from 3% forecasted in its Interim Outlook this September. Eight years into the crisis this is the weakest growth since 2009. In its report, the OECD noted that the outlook for EMEs is “a key source of uncertainty at present given their large contribution to global trade and GDP growth”.

While the OECD predicts that global trade and output will recover in 2016/2017 assisted by stimulus measures in China, in his address at the launch of the report, OECD Secretary General, Jose Angel Gurria, emphasised that this improvement is dependent on a variety of factors, including “supportive macroeconomic policies, investment, continued low commodity prices for advanced economies and a steady improvement in the labour market”.

In anticipation of the COP21 UN Climate Change Conference in Paris, the OECD’s Economic Outlook report includes a chapter on climate change which calls for urgent action to address this global issue. In his address Secretary General Gurria stressed “we are on a collision course with nature and we have to change course” and urged that  “the fragility of economic recovery cannot be an excuse for policy inaction”.

Key points from the Report 

  • Global output is expected to grow by 2.9 percent in 2015 (weaker than the 3 percent predicted in the September Interim Outlook), with a modest upturn to 3.3 percent in 2016 (slower than the 3.6 percent forecasted in the September Interim Outlook), provided there is smoothening of the slowdown in China and stronger investment in advanced economies.
  • In contrast to 2011 and 2012 where EMEs were propelling global growth, lacklustre EME growth, including recessions in Brazil and Russia and a slowdown in China have negatively impacted global output and trade growth in 2015.
  • Global trade growth has slowed and is precariously close to levels usually associated with a global recession. Noting the link between trade and economic growth, the OECD pointed out that softening Chinese demand for imports is responsible in part not just for the deceleration of global trade but has negatively affected growth in economies which are linked to the Chinese economy. In its report, the OECD noted that “a more significant slowdown in Chinese domestic demand could hit financial market confidence and the growth prospects of many economies, including the advanced economies”.
  • Growth in the Chinese economy is projected to slow to 6.8 percent in 2015 (up slightly from 6.7 percent in the September forecast), 6.5 percent in 2016 and 6.2 percent in 2017 as the Chinese economy rebalances towards consumption and services activity.
  • Advanced economies remain resilient so far. The growth forecast for the United States economy is 2.4 percent in 2015, 2.5 percent in 2016 and 2.4 percent in 2017. Despite steady recovery in output and in employment, workers pay is still subdued. The OECD has expressed its belief that the time is ripe for the Federal Reserve to raise interest rates. This would be the first interest hike by the US central bank since the recession began.
  • Although recovery in the Eurozone is expected to strengthen, growth projections were downgraded from the September Interim Outlook. Eurozone countries are now expected to grow by 1.8 percent in 2016 and 1.9 percent in 2017 thanks to lower oil prices, accommodative monetary policy and an easing of budget tightening.
  • The refugee surge to the EU is expected to promote labour force growth and help offset the effect of an ageing population but this will depend on several factors, including the skill set of the refugees and current labour market conditions.
  • Unemployment in OECD countries is expected to fall but there will still be 39 million people out of work in OECD countries, six million more before the crisis started.
  • Trade and investment protectionism, inequality and productivity are problems which must be countered in order for growth to be achieved. There is also need for accelerating structural reforms.
  • A well-designed climate change policies can bring an improvement in short term outlook.
  • The OECD will release a policy note looking at the labour market and fiscal impact of the European refugee surge in advance of the G20 summit in Antalya.

The full report and presentations on the OECD Economic Outlook may be found here.

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 read more of her commentaries and follow her on Twitter @LicyLaw.