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From Global Trade Review (GTR) | By Eleanor WraggEight years after the official start of negotiations, the Regional Comprehensive Economic Partnership (RCEP) – a free trade agreement covering almost a third of the world’s population and 30% of global GDP – is now a reality. The deal, concluded between China, the 10 Asean member states, Australia, New Zealand, Japan and South Korea, is almost unrivalled in its complexity. Its 20 chapters plus 17 annexes and 54 schedules of commitments manage to cover market access, rules and disciplines, and economic and technical cooperation between what are 15 very different trading nations. The agreement pulls together a pan-Asian basic standard for trade that goes beyond the terms provided by the World Trade Organization (WTO), supporting regional integration and engaging emerging markets and developed economies. Although the RCEP was an Asean initiative, it is regarded by many as a China-backed alternative to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a deal that excluded China but included many Asian countries. For the first time, RCEP brings together China, Japan and South Korea in one trade agreement, roundly cementing the primacy of the Asia-Pacific region in global trade. However, not all is rosy in the RCEP area, as Australia and China are currently embroiled in a trade dispute that has rolled on since China imposed an 80% tariff on barley imports from Australia and an outright ban on beef imports from four major producers, citing compliance issues. Nonetheless, for many onlookers, the general mood seems to be one of optimism about the deal’s potential to bring the region together. “RCEP may prove to be the tonic Asia needs to recover from the pandemic-induced slump,” says Stuart Tait, regional head of commercial banking for Asia-Pacific (Apac) at HSBC. “Although international trade continues to face uncertainty, the signing of RCEP underscores the belief that market openness will lead to greater economic growth for more. Intra-Asian trade, which is already larger than Asia’s trade with North America and Europe combined, will continue to power global economic growth and pull the economic centre of gravity towards Asia.” Common rules of origin Because many of the RCEP signatories already have bilateral trade pacts with each other, there’s little in the way of immediate tariff reduction in the pact’s 510-page document. Indeed, the average tariff of Asean countries on imports from RCEP partners had already dropped from 4.9% in 2005 to 1.8% currently. However, the agreement now delivers a single set of rules covering all 15 markets, making trade simpler and reducing compliance costs for exporters. The biggest win in the deal is the creation of a common rule of origin certificate, which harmonises the information requirements and local content standards for businesses in the RCEP member countries. Effectively, this means that parts from any member nation would be treated equally, which Euler Hermes calculates will boost merchandise exports among signatories by around US$90bn a year on average, giving companies an incentive to locate their supply chains within the trade region – likely leading to a further boost for intra-regional trade, which already makes up close to three-fifths of total trade activity in the Apac region. Another deal without the US The signing of RCEP marks the second mammoth Apac trade deal that excludes the US, after President Donald Trump pulled the country out of the CPTPP in 2017. With the International Monetary Fund (IMF) forecasting that the region will regain an average growth rate of over 5% by 2021, US exporters need access to its lucrative markets if they are to share in post-pandemic economic growth. In a statement, Myron Brilliant, head of international affairs at the US Chamber, said: “The US Chamber welcomes the trade-liberalising benefits of the newly signed regional comprehensive partnership agreement but is concerned that the United States is being left behind as economic integration accelerates across the vital Asia-Pacific region. China has become the most important trading partner for most of the Asia-Pacific, and its central role in the RCEP will only cement this position. While the Trump Administration has moved to confront unfair trade practices by China, it has secured only limited new opportunities for US exporters in other parts of Asia.” He calls for the US to adopt a more “forward-looking, strategic effort” to maintain its economic presence in the region, or risk “being on the outside looking in as one of the world’s primary engines of growth hums along without us”. President-elect Joe Biden’s plans for the region are yet to be seen, but hopes are high among US exporters that, at the very least, the incoming administration may consider a return to the CPTPP fold. Door still open for India Trans-Pacific issues aside, the next step for RCEP will be working through the barriers to India’s accession. The country withdrew from negotiations last year due to mismatches between its protectionist-leaning trade policies and the market access commitments required by the deal. However, during the signing of the deal, RCEP signatories were keen to leave the door open for the South Asian nation. “We would highly value India’s role in RCEP and reiterate that the RCEP remains open to India,” they said in a joint statement. “As one of the 16 original participating countries, India’s accession to the RCEP agreement would be welcome in view of its participation in RCEP negotiations since 2012 and its strategic importance as a regional partner in creating deeper and expanded regional value chains.” The post RCEP: a shot in the arm for Asia’s supply chains, a blow to the US appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Finbarr Bermingham
Economists at National Australia Bank (NAB) have downplayed the impact of trade tariffs between the US and China, saying instead that the key battleground will be technology and intellectual property (IP).
Tariff barriers may “shave a few percentage points off global GDP” in the very worst case scenario, but are relatively immaterial in the grand scheme of things, Christy Tan, head of markets for Asia at NAB, told a press conference in Hong Kong yesterday.
“The trade deficit and US$200bn [to be cut off the US trade deficit] by 2020 is just a number. At the end of the day, if China is not buying from the US, it’s buying from Brazil, or South Korea, for instance. If the US is not buying from China, it’s not going to just manufacture locally, it will shift its demand to India, Sri Lanka, etc. The key issue is technology and IP.”
China is looking to increase its role as an important player in tech industries such as electric vehicles and artificial intelligence (AI).
President Xi Jinping has clearly laid out plans for China to become a leader in innovation, spearheaded by the “Made In China 2025” initiative to upgrade the country’s industry. It’s been described by the Council on Foreign Relations as “the real existential threat to US technological leadership”, but according to Tan, it is “not up for negotiation”.
Meanwhile, the US has long harboured concerns over China’s alleged IP theft, as well as its heavy government support for such industries.
Dinny McMahon, a fellow at the MarcoPolo programme of the Paulson Institute and author of the recent book China’s Great Wall Of Debt, tells GTR that China will replicate the heavy subsidies it applied to traditional industries in the technology space over the coming years.
“China’s vision of how it becomes a rich nation, how it builds new drivers of growth, is a big bet on new industries: robotics, electric vehicles, semiconductors. It wants a forced march to become a global leader in those industries, and that requires the same techniques it applied to heavy industries in the past,” he says.
These opposing stances appear to place the superpowers on a path for further collisions.
The US has already hit Chinese smartphone maker ZTE with paralysing sanctions, barring it from importing from US companies. As a result, China’s second-largest telecoms company has this week been forced to halt major operations, after being banned from purchasing the Google Android software and Qualcomm chips on which it depends.
ZTE was penalised after breaking the terms of previous sanctions laid on after it was found to be shipping goods to Iran and North Korea, then subsequently lying about it.
Huawei, China’s largest smartphone company, appears to be next in the US’ crosshairs. AT&T and Verizon have already dropped plans to sell Huawei phones, amid allegations of stolen IP, while it is also alleged to be under investigation for flouting US sanctions on Iran.
The US government has also blocked the sale of a number of US companies to Chinese buyers, including the proposed takeover of Moneygram by Alibaba-owned Ant Financial.
If further sanctions are handed down, Tan expects an immediate retaliation.
“China responded immediately [to ZTE sanctions], by hiking the tariffs on sorghum by 178.6%. China is making its presence felt, sending the message clearly that if you hit tech and IP, there will be retaliation where it hurts quite badly, the US agri sector. Steel and aluminium are small issues in the grand scheme of things. Tech and IP is something that is going to be long drawn,” she says.
As it stands, tit for tat tariffs have seen the US government place levies on products ranging from washers and solar panels to aluminium and steel. In addition to the whopping levy on sorghum, a cereal used in livestock feed, China has retaliated with tariffs on products such as fruits, nuts and frozen pig parts.
In high-level trade negotiations which are set to resume next week, the US is demanding that China cut its trade surplus with the US by more than US$200bn – the logic of which was questioned by NAB analysts at the briefing.
“It’s hard to frame a trade negotiation in that way, trying to put a numerical value on reducing your bilateral trade deficit. They are pretty meaningless things, they’re a consequence of savings and investment decisions by thousands of people. So the idea that you can make it some numerical number by lowering it by US$200bn is not an economic reality. No economist would frame it like that,” said Peter Jolly, global head of research.
The post Forget tariffs, tech will be the key battleground in trade war appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Finbarr Bermingham
Yes Bank has launched a solution that uses robotics to digitise part of the trade finance payments process.
The tool automates the submission of the bill of entry, an account of traded goods entering the port.
A robotics solution then verifies the documentation, which is submitted digitally, by cross-checking it with the Indian government’s Import Data Payment and Monitoring System (IDPMS) or Export Data Processing and Monitoring System (EDPMS). Payment is then released, with the bank saying it has the potential to reduce payment turnaround time by 80%.
Yes Bank plans to roll the solution out to 2,000 corporate clients servicing markets in China, the US, Singapore, Germany and Hong Kong. The plan is to eventually “extend to other segments as appropriate, eventually to all trade finance products wherever applicable,” Asit Oberoi, global head of transaction banking, tells GTR.
The development comes one year after the Reserve Bank of India launched the IDPMS and EDPMS systems to help digitise trade in India, a move which has been widely hailed as improving efficiency in India.
“This solution would not have been possible without the visionary introduction of the IDPMS and EDPMS by the RBI,” Oberoi says.
It also comes on the back of the biggest financial fraud in India’s history. At a branch of Punjab National Bank (PNB), fraudulent letters of undertaking (LOUs) were used over a seven-year period to skim US$1.7bn from confirming banks overseas.
The RBI has responded by banning the LOU, while the clamour to further reduce the dependence on paper-based solutions among India’s trade finance banks has grown. Oberoi declined the chance to comment on the PNB situation, but did note that “import finance from overseas lenders on an LOU for direct import is not available now”.
Yes Bank claims to be the first Indian bank to digitise this part of the trade cycle, but there have been moves from foreign banks to take advantage of the RBI’s digital agenda.
In October last year, Deutsche Bank launched TradePay, the first paperless import payment solution in the country. The solution uses IDPMS to verify import payments by checking them against details made available by the client on the system, eliminating the need for clients to share any physical documentation.
This followed Citi launching a solution which allows clients to share import payment information with the bank by quoting the RBI’s IDPMS number, without having to share documents. This was launched in April 2017.
In the wake of the PNB fraud, we can expect to see digitisation gain pace. International banks have been reluctant to accept guarantees from import financing Indian banks, which has been choking importers from vital capital.
The post Yes Bank launches robotics tool to automate part of trade finance cycle appeared first on Global Trade Review (GTR).