Hello from Brussels, or rather virtually from Geneva, with a special edition of Trade Secrets: an interview with Ngozi Okonjo-Iweala. Charted waters this week looks at the problem for China caused by Belt and Road bad loans.
Keeping the container ship on track
World Trade Organization director-general Ngozi Okonjo-Iweala started our conversation by telling me she was sorry to miss Alan and has issued a standing invitation for him to head back to the shores of Lake Leman any time. Which is more than generous given he described his last trip as “dispiriting”. I am quoting Alan out of context, of course, so you should read his full write-up of the epic June 2022 ministerial.
A lot has happened to the global economy in the year since MC12, but rather less in trade policymaking circles. Okonjo-Iweala is a dynamo who spent the ministerial up at all hours knocking heads together, hoping to at least keep the WTO show on the road until the next one in 2024.
One can only imagine how frustrating life can be as the world’s top trade official. EU trade policy certainly moves as slowly as a container ship waiting for a slot at Long Beach.
The battery of unilateral defence instruments is working its way through the legislative process. I have called house on my Valdis Dombrovskis bingo card several times. “Concrete deliverables” from the EU-US Trade and Technology Council, a “window of opportunity” for the Mercosur trade deal and a global “critical raw materials club” are conjured many times but have yet to appear.
US trade representative Katherine Tai’s repeated references to parked disputes over Boeing/Airbus and steel tariffs (which may yet blow up again in October) hark back to the past rather than to the future.
Anyway, it turns out the merchants of Genève (cousins of the gnomes of Zurich) have been busy on the most pressing issue of our day — how to better accommodate China in the global trading system.
They are, along with the IMF and the World Bank, trying to add up the world’s industrial subsidies. The US and EU accuse China of providing soft loans and lossmaking pricing to allow their companies to seize market share and knock out the competition. Like Amazon, but with public rather than private money. However, it is hard to prove and therefore difficult to take measures against it sanctioned by the WTO.
“To put together a database of this is not an easy thing,” said Okonjo-Iweala. However, there is no choice. “Just having a debate without anything on the table is very difficult. It’s nothing more than accusations,” the Nigerian added.
Some tools, such as the Subsidies and Countervailing Measures agreement, “may not be fit for purpose”, Okonjo-Iweala said. But to change them you need evidence. (You also need consensus, I would add, which the WTO interprets as unanimity.) “I anticipate a very tough discussion. And that will not be easy, but we will . . . start that debate,” Okonjo-Iweala said.
She was more hopeful on reforms to the rules on digital trade. A longstanding policy means ecommerce such as screening films and downloading software is free of customs duties.
But some developing countries want to change this as more trade goes online since they believe they are missing out on revenue.
The moratorium was rolled over at MC12 until MC13. The DG hopes to get close to an agreement on something more permanent by then.
And more than 80 members have formed a plurilateral group to draw up rules, which others could join, which could be finalised within a year.
The growth in digital trade is “phenomenal”, Okonjo-Iweala said, boosted by the lockdowns caused by Covid-19. From 2020-22 it has grown by a quarter to $3.8tn annually, or 13 per cent of all trade.
Returning to the larger matter of goods trade, now worth $25tn, Okonjo-Iweala said that container shipping rates had dropped sharply and settled about 15 per cent above pre-pandemic levels. “Delivery times are returning to normal. So we think that supply chain issues are working themselves out,” she said.
She ended with a warning about the possible fragmentation of world trade into two broad blocs — I would say a US dominated “western” one and a China-dominated “southern” one. The WTO has warned of a 5 per cent loss in gross domestic product if that happened. Now it is revising up to 8.7 per cent — the opportunity cost of failing to create economies of scale and concentrations of expertise in the future.
“And if we look at emerging markets and developing countries, it’s even double-digit losses, 14 per cent. We cannot afford this. So that is why we are talking about fragmentation in trade as something we really need to avoid.”
As Okonjo-Iweala said: “If you didn’t have the WTO it would be the Wild West.” The movies might be more exciting, but life would be worse.
Charted waters
China’s Belt and Road Initiative has created an unfolding debt crisis for the world’s second-largest economy. The global financing scheme has made China the world’s largest bilateral creditor, but as the Financial Times’ global China editor James Kynge explains it has also become a millstone for Beijing as more than $78bn of debt has either been renegotiated or written off in the past 3 years.
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The chart is a warning sign of how risky much of this financing has become. But do not expect this to push Beijing to row back on a scheme that China’s president Xi Jinping branded the “project of the century” almost a decade ago. Besides, many countries still welcome the investment cash from China and are happy to accommodate the BRI framework to continue receiving this money. (Jonathan Moules)
Trade links
Western talk of reducing reliance on China’s economy is growing louder. Whether you call it de-risking or decoupling, James Crabtree argues it is delusional.
Never mind China. The EU has domestic strife after Poland and Hungary, never its most collegiate members, decided to block imports of Ukrainian grain. Farmers have complained that the cereal destined for Africa has remained stuck in their countries, depressing prices. Trade is, of course, a Brussels competence.
The IMF’s Africa head has called for extensive debt relief. Abebe Selassie told my colleagues Jonathan Wheatley and Aanu Adeoye that the continent needed “a Gleneagles-like moment”, referring to the G8 summit in Scotland in 2005 that led to the cancellation of $130bn of debt for dozens of poor countries.
Peter Foster’s Brexit Briefing is once again a must read for the latest in how the UK is innovating (or at least performing handstands) in trade policymaking. Here he reveals how the Windsor framework to ensure goods can flow more smoothly from Great Britain to Northern Ireland could lead to new universal labelling requirements.
Trade Secrets is edited by Jonathan Moules
Source: Economy - ft.com
