Connect with us

Economy

In defense of the European Parliament: China is not a market economy

Published

on

Sometimes the driest debates lead to the hottest arguments. That paradox was on full display on May 12th when the European Parliament set out to air its grievances with China’s pretense of receiving Market Economy Status (MES) by the end of the year.

In a non-legislative resolution backed by 546 MEPs, the Parliament sent out a strong signal that it would use a “non-standard methodology” in treating China’s exports to the EU as long as Beijing doesn’t satisfy the five basic criteria required to qualify as a market economy. Even if the EP’s resolution carries no legal value in and of itself, China’s reaction was swift, with the Foreign Minister accusing the EU of breaking its WTO promises, and China’s former chief WTO negotiator Long Yongtu saying the resolution is protectionist and goes against globalization.

However, both Chinese officials are wrong – and while the European Parliament has too often succumbed to populist temptation or petty power plays in its institutional tug-of-war with the other European institutions, the majority of MEPs were clearly in the right.

The first issue that needs explaining is what this rather technical brouhaha is all about. Essentially, the MES China covets would be the ultimate status symbol for the leadership as it would bestow recognition upon the country that it is playing according to market-rules – and that by extension the Party’s third way, “Socialism with Chinese Characteristics” philosophy has paid off. On the practical side, the MES enhances the access of Chinese exports to third countries, including the European Union, and would make it far harder for regulators to slap China with anti-dumping tariffs and other retaliatory trade measures. With the European bloc beset by grave uncertainties in the steel and aluminum sector, which have suffered after world prices were driven down by unfair Chinese overproduction, concerns about relaxing protective levies have spiked.

Indeed, according to the European Commission, China produces 325 million metric tons of excess steel a year, or twice Europe’s entire production. This production spree has put at risks tens of thousands of jobs across the continent, most poignantly the 15,000 British jobs that Tata Steel will axe if it cannot sell its UK assets this year. Trade and worker unions alike have been turning the screws on the Brussels bureaucrats and have threatened with massive strikes if their industry isn’t protected from China’s avalanche of underpriced steel.

In this tense context, it’s obvious why the European Parliament caved in. But putting aside the pressures coming from the street, the EP’s justification was nevertheless sound: China is very far off from respecting the minimum standards for a market economy, as they are set out under European law. Concluding otherwise would be not just a probable death sentence for large swathes of Europe’s industrial production, but also in blatant contradiction of European regulations.

The EU’s five criteria are concerned with a) the nature and frequency of governmental intervention in the decision-making process of companies, b) the lack of government distortions in “the operation of enterprises linked to privatization;” c) the use of non-discriminatory, transparent company laws; d) an effective, transparent legal system protecting property rights; e) and a “genuine financial sector which operates independently from the state.” According to a 2009 paper, China had fulfilled only one criteria – the one linked to privatizations – with a lot more ground to cover for the remaining four.

Indeed, as recently as April, the European Commission expressed its deep concerns with China’s overbearing state in handling the affairs of state owned companies (SOEs), when it investigated a proposed joint venture between China General Nuclear Power Corporation and EDF. After regulators concluded that Chinese SOEs involved in the energy sector have no independent decision making powers whatsoever, the EC took the unprecedented step of analyzing the market impact of the deal by looking at the entire corpus of SOEs involved.

This decision is perhaps the most obvious example of China’s total disregard for market rules as it sets in stone the fact that 45 of the Fortune 500 companies, are under the direct control of the Chinese Communist Party with a combined worth of $4.5 trillion. The EC’s reasoning nullifies therefore any semblance of corporate independence in the Middle Kingdom and provides fodder to those arguing that the Chinese state is directly responsible for the overcapacity issues in the steel industry for example.

It is widely expected that the Commission’s reasoning will be rehashed in the upcoming review of yet another Chinese deal involving one of the SOEs from the energy sector – the proposed tie up between Syngenta and ChemChina, Beijing’s largest outbound investment to date, clocking in at $43 billion. The deal is already strained by delays and subdued market expectations, insofar that any further hand wringing stemming from regulatory concerns could easily derail ChemChina’s hopes of becoming the world’s largest agro giant.

Rebuffing critics, the European Parliament took the only course of action that was available to it and sent a strong message that China is simply not prepared to join the ranks of other market economies. At this point, even if the political will to award China MES exists in certain European quarters, the Parliament’s resounding “no” has undoubtedly made them reconsider.

Continue Reading
Comments

Economy

Côte d’Ivoire: Robust growth under the looming threat of climate change impacts

MD Staff

Published

on

According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.

“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.

However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.

As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.

This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”

The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.

The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.

Continue Reading

Economy

A future of work based on sustainable production and employment

Simel Esim

Published

on

On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.

As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.

In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.

A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.

I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.

Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.

We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.

The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.

Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.

As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.

Source: ILO

Continue Reading

Economy

Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed

MD Staff

Published

on

Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.

“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.

The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.

The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.

The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.

In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.

To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.

The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.

Continue Reading

Latest

Intelligence11 hours ago

Russian Hackers: The shadowy world of US and Gulf hacks just got murkier

The covert Qatar-United Arab Emirates cyberwar that helped spark the 13-month-old Gulf crisis that pits a Saudi-United Arab Emirates-led alliance...

Middle East12 hours ago

Risk of Decreased Relief Funding for Palestinian Refugees

The United Nations Relief and Works Agency (UNRWA) recognizes the current United States Department of State’s Secretary of State Rex...

Americas13 hours ago

Flip-Flops and Foreign Policy: How American Tourist Behavior Hinders U.S. National Security

Dear American tourist, When you are in great European cathedrals, palaces, and important historical sites, would it be possible for...

South Asia13 hours ago

India Ranked at Top as the Most Dangerous Country for Women

Thomson Reuters Foundation in its recent survey released on June 26, 2018 ranked India as the most dangerous country in...

Middle East14 hours ago

Iranian Terror Plot Motivated by Threat of Regime Change

Last month, Belgian authorities arrested a married couple of Iranian origin after it was discovered that they were in possession...

Newsdesk16 hours ago

New Satellite Data Reveals Progress: Global Gas Flaring Declined in 2017

New satellite data released today shows a significant decline in gas flaring at oil production sites around the world in...

Energy17 hours ago

Global energy investment in 2017 fails to keep up with energy security and sustainability goals

The electricity sector attracted the largest share of energy investments in 2017, sustained by robust spending on grids, exceeding the...

Trending

Copyright © 2018 Modern Diplomacy