Asia

RCEP – benefiting from “America first”

Monday, November 16th, 2020

Only yesterday – on October 15 – the Regional Comprehensive Economic Partnership (RCEP) Agreement finally was signed after eight years of complicated negotiations, altogether over 30 rounds. https://asean.org/storage/2020/11/Summary-of-the-RCEP-Agreement.pdf

These negotiations included the ten already co-operating ASEAN trading partners: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Singapore, Thailand, Viet Nam and the five “deal newcomers” of China, Japan, South Korea, Australia and New Zealand. These countries amount to as much as 2.2 billion people or around 30 percent of the global population and GDP.

Without more detailed information right now one may conclude that RCEP – after all national ratifications – will be the starting point for the largest free trade zone in the world. Initially, President Obama and the U.S. wanted to be part of the negotiations as well. This plan was shattered by President Trump and his “America first” policy; certainly not a good idea – not even for the U.S. itself.

Comments – the U.S. and the EU in a weakened position (Sweden included) 

¤ Right now: China the main winner – the U.S. and the EU the main losers.
No further explanation is needed to underline that China clearly sticks out as the most powerful economic player of the 15 RCEP countries – in regions geographically not too far away and, consequently, already China’s main trading partners when summarizing the whole RCEP area. The objective of the trade agreement is to include over 90 percent of all traded goods for free trade and roughly two thirds of all cross-border traded services according to the following official source: https://www.mti.gov.sg/-/media/MTI/Newsroom/Press-Releases/2020/11/Press-Release-on-the-Regional-Comprehensive-Economic-Partnership-Signing.pdf.

However, some applicable time horizon cannot be found in available documents. Usually, it takes quite some years until major trade agreements have come into place completely.

¤ Really “fait accompli”?
Currently, I do not see toughly pressing obstacles for the introduction and – later on – continuation of the RCEP. However, new events sometimes change things. We still do not know about the speed of the complete abolition of all the different tariffs – may be much more slowly than many experts assume today.

Furthermore: Will President (Elect) Biden work for an American joining later on which would include new negotiations? We never know. But we probably can expect that Biden will be looking for (somewhat) more relaxed relations to China –whatever this may lead to.

¤ The EU needs much more cross-border co-operation in Asia – but not with India or China.
The EU’s trade with the expanding 14 RCEP states (China excl) is, of course, much more limited than China’s. In my view, only a much more co-operative EU will have a chance of really successfully being able to compete with China in the other RCEP countries.

However, it would be wrong to see India as an alternative to the RCEP. The answer can only be RCEP and India which has been suggested. Besides, India has been invited again to join the RCEP. This is not in line with current Indian ambitions – but who knows what will happen in 10 years or so?

¤  Return to a multilateral trade treaty – indeed good news.
In recent decades China and the U.S. have developed more and more into promoters of bilateral trade agreements. Theory and research, however, prefer clearly multinational trade deals.

The RCEP finally means a step into the right policy direction!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China and the U.S. election

Tuesday, November 3rd, 2020

During my many visits to China I used to get the impression that the Chinese mostly looked at the U.S. with mixed feelings – feelings that also included some kind of admiration. The American dream of developing from a poor origin to a wealthy person attracted many Chinese on micro levels. Some kind of capitalist socialism or vice versa was born in the 1990s.

Politically, China and the U.S. kept quite some distance in the new millennium all the same. Tensions continued during Bill Clinton’s presidency but his support for China’s entry into the WTO in 2001 was appreciated. This move turned out to be the main driver for China’s rise to become the largest economy in the world (in terms of total GDP and PPP), together with the simultaneously ongoing globalization. President Obama’s relations to China had a number of ups and downs as well. President Trump, finally, could be increasingly regarded as an opponent to China during the past four years.

In 1997, professor David Shambaugh wrote in Current History (September) that “China and the United States are likely to be the dominant world powers in the twenty-first century. It is imperative that these two continental giants learn to live and work together productively and cooperatively”. Altogether, the conclusion above on the two leading world powers turned out to be right – but the recommendation of working together did not really come true, particularly not in the past four years. Biden could make some difference – but probably not in a significant manner.

The Trump years of 2017-2021 – and now?

President Trumps leitmotiv of “America first” did quite some harm to China, the global economy and also to the U.S. itself, particularly due to the revival of protectionism. This is certainly a bad development. But what do the Chinese themselves feel about today’s election?

Despite many unfriendly words from the Trump-administration, the Chinese support Trump’s aversion or doubts against traditional allies such as NATO and his attempt to weaken American (Western) democracy. Chinese media also take the chance of describing the superiority of its authoritarian system, exemplified by what the official China calls the victory against the covid-19 crisis. China remains the top issue for the Chinese and certainly not the U.S. The result of the presidential election in the U.S. does not make a major difference – neither to President Xi Jinping or the Chinese people (according to my own understanding of Chinese press). However, there is no clearly visible preference for Biden either.

Competition with the U.S. will remain the keyword for the future of China – when it comes to the economy, technology, research and military power. However, in my view three possible and necessary changes may happen in the future with a President Biden: a (somewhat) stronger priority of  the environment, a (somewhat) better political predictability and a more polite style of communication between the two superpowers.

And we should not give up hope for better cooperation!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Giving Asia Its Due in Global Financial Regulation *

Tuesday, January 10th, 2017

With US inward turn, China should get a bigger role to bolster system

Global cooperation on financial regulation has become increasingly important and valuable over the last decade, but its effectiveness cannot be taken for granted. Following November’s U.S. presidential election, Asia, and particularly China, needs to take a more central role to ensure the viability of the global system.

Compared with other modes of international economic cooperation, the global financial regulatory system is in a nascent stage of development. It is made up of a network of diverse organizations and groupings, many of them without legally binding authority, with the Financial Stability Board acting as a coordinating hub.

This system has grown in importance, particularly since the global financial crisis, and its impact has been overwhelmingly positive. The Basel Committee on Banking Supervision, for example, has helped to limit cross-border competitive distortions resulting from incompatible prudential rules and has been increasingly forceful in monitoring national compliance with its agreed standards. The widespread adoption of the International Financial Reporting Standards Foundation’s accounting principles has greatly enhanced the international comparability of listed companies’ profit statements, even if not yet on a universal basis. The Global Legal Entity Identifier Foundation has opened the way toward universal interoperable financial data formats by issuing codes to transaction participants that function in a way comparable to the internet protocol addresses that underlie the World Wide Web.

Such arrangements are even more valuable as the global financial system becomes increasingly multipolar and interconnected, enhancing the need for joint work by public financial authorities on a commonly agreed basis.

Aside from the above organizations, key participants in the regulatory system include treaty-based organizations such as the Bank for International Settlements, which hosts the Financial Stability Board, the International Monetary Fund, the World Bank, and the Organization for Economic Co-operation and Development and its Financial Action Task Force. These are complemented by independent groups such as the International Organization of Securities Commissions, the International Association of Insurance Supervisors and the International Forum of Independent Audit Regulators. The roots of the treaty-based institutions can be traced to the second quarter of the 20th century, but none of the other entities in this global network are more than 45 years old.

The global financial regulatory system has long been lopsided and in need of change as the emergence of new financial powerhouses, particularly in Asia, has challenged the dominance of North American and European states.

Significant improvement has flowed from the 2008 shift to tackling financial and economic issues at Group of 20 leaders’ summits from Group of Seven nation summits. The membership ranks of the Basel Committee and the Financial Stability Board, for example, have been expanded to include major emerging economies and financial centers.

But blatant imbalances remain. On a recent count, all but one of the 27 most senior leadership positions in this system were held by nationals from North Atlantic countries. Almost all entities in the network are similarly headquartered in the North Atlantic region, the only exception being the soon-to-be-established permanent secretariat of the International Forum of Independent Audit Regulators in Tokyo.

Challenges ahead

The system’s institutional fragility is about to be tested by the incoming administration of U.S. President-elect Donald Trump. His “America first” stance will surely create multiple challenges for all international cooperation frameworks, and financial regulation will be no exception.

The response to this test should include an accelerated rebalancing and reform of the global regulatory system to ensure its viability in the new environment. Asia, and specifically China, should claim a much more central position in the system than is currently the case and other nations should facilitate this evolution.

Specifically, China should propose highly qualified officials, of which it has an increasing number, for positions of leadership in global financial regulatory bodies and engage more proactively in their various workstreams. As with action against climate change, and given Europe’s current internal difficulties, China is fast becoming the indispensable anchor for sustainable joint efforts at the global level and should invest accordingly in its representation in global discussions.

In this context, Europe should streamline its presence in the system, as a logical consequence of its own ongoing reform and thus leave room for greater Asian and Chinese leadership. Specifically, Europe’s banking union implies that the representation of individual euro-area countries in bodies in charge of financial stability has become anachronistic and should be replaced by euro-area or EU-level participation. The Basel Committee is a case in point. Now that banking supervisory policy has been comprehensively pooled within the euro area, the separate membership of Belgium, France, Germany, Italy, Luxembourg, the Netherlands and Spain should be phased out.

The relevant bodies should then demonstrate their continued relevance by further improving the system’s effectiveness, even if the new U.S. administration does not initially join some of the resulting initiatives. For example, the Bank for International Settlements, IMF and others should further harmonize formats for financial statistics and data collection. Global regulatory standards should be forcefully developed in new areas in which their need is increasingly evident, such as derivatives. And steps should be considered toward establishing a global level of supervision for limited but critical segments of the financial system, starting with those with no likely fiscal or quasi-fiscal impact in a crisis, such as credit rating agencies or audit firms.

The events of the past decade have amply demonstrated the need for strong global regulatory and supervisory arrangements to keep the inherent risks of cross-border financial integration in check. The prospect of a more unilateralist America should force a rapid realignment in China, other Asian countries and Europe, so that the existing, beneficial financial regulatory system is not left to unravel.

Nicolas Veron
Senior fellow at Bruegel, an economic think tank in Brussels, and a visiting fellow at the Peterson Institute for International Economics in Washington.



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* Both the author and Nikkei Asian Review gave us the permission to re-print the article. Thanks to them. The article was initially published on December 26, 2016.