Global Trade January 2017 March 2018 issue

Global Trade January 2017

News, events and analyses related to global trade and snippets of changing trade matrix during the month of January 2017


MES Status

Not so ‘market’able

It seems, for China, to be recognised as a market economy will take more than the stipulated 15 years. China that joined WTO on December 11, 2001 had agreed to be treated as a non-market economy (NME) for 15 years, after which it would get the market economy status (MES). However, EU, US and Japan have refused to play ball when the 15 years were over.

Most of China’s trading partners believe that the country does not operate on a free market economy basis, and a large number of products exported by China are in some manner or the other subsidised by the government. A market economy status would mean that it would be much more difficult to impose anti-dumping duties on China, and expose domestic producers to unfair competition from Chinese manufacturers.

Chinese media held Japan responsible for the turn of event, calling it ‘a new wave of mistrust in East Asia’. However, both US and EU have also refused to change the protocol by which they evaluate China’s market economy status. The US in December imposed anti-dumping tariffs on Chinese washing machines. The European Commission had originally favoured the granting of market economy status to China, but the slew of anti-dumping cases regarding steel products has forced it to change its stance. Approximately half of EU’s anti-dumping investigations concern non-market economies (NMEs), of which about 85% involve imports from China.

As for India, which is China’s ninth largest exports destination, an MES status for China could have a devastating effect on domestic producers. India too has, over the years, imposed anti-dumping duties on a cross-section of products imported from China.
Meanwhile, China has decided to fight back and has filed a dispute with the WTO over the approach used by US and EU to calculate anti-dumping measures against Chinese exports. But, for now, China will remain an NME for these countries.



Bilateral Trade

A Ray of Sunshine

Beating all odds, including the news of Donald Trump’s victory in US presidential elections, Mexico registered an unexpected $200 million trade surplus in November 2016. Exports of manufactured goods posted double-digit growth and oil exports rose from a year before, according to Mexico’s National Statistics Institute. This is against a $900 million deficit in October 2016 and $1.57 billion deficit in November 2015.

Post US Presidential elections, Mexico’s economy has been under stress. The peso dropped to 20.75 pesos against US dollar on December 1, 2016, which is an all time low. Inflation also rose in the first half of December to touch 3.48%. Mexican factory exports fell by at least 5.9% in October, by far the biggest drop since January 2013. Reports suggest that the sudden drop is due to inconsistent demand from US, one of its largest importers. Interestingly, despite a fall in trade figures, Mexico continues to be a large trading partner for US. Meanwhile, US Department of Commerce has reported that Mexico exported goods worth $245.3 million to US in 2016 (till October). Analysts fear if Trump does impose duties on imports from Mexico in the form of border tax, the economy may be in for a nightmare.



Foie Gras

Virus attack

In what is being considered a blow to the foie gras industry, an outbreak of a highly contagious H5N8 bird flu has been detected on a duck farm in the south-west of France.

The country had already been facing an export ban due to a previous outbreak and was expected to declare itself a bird-flu free country last month. But, after the December 2, 2016 discovery, the country must wait for another 90 days before it starts exporting foie gras beyond EU.

Though French farmers and officials insist that the virus poses no threat to humans and the produce is fit for consumption, stringent regulations in Japan, the largest importer, means that this lucrative market will be out of bounds for exporters of foie gras. Egypt and Hong Kong had also previously banned French poultry due to a disease outbreak.

The holiday season is when demand for French foie gras explodes. In 2008, France exported foie gras worth €62.6 million. However, after the bird flu outbreaks, exports fell to €57.5 million in CY2014 and further to €55 million in CY2015. The new outbreak could mean a further decline in exports.



GDP Growth

In Search of Sunshine

As far as economic growth is concerned, Singaporean authorities will be happy that 2016 is over! The uncertainty in the trade climate and a fall in demand has put the country’s economy under pressure. According to the Monetary Authority of Singapore (MAS), Singapore’s economy contracted 2% quarter-on-quarter (seasonally adjusted annualised rate) in Q3 2016, a deterioration from the average 0.1% q-o-q expansion seen in the first half of the year.

The decline was largely caused by a pullback in the trade-related sectors, alongside a softening in modern services activity. However, the domestic-oriented cluster registered a pickup in growth momentum, with strong expansions in education, health and social services. MAS also indicated that growth will remain modest in 2017. To make matters worse, the Singapore dollar dropped to 1.45 against US dollar on December 22, hitting its lowest level since 2009. Singapore seems to be in desperate need of some good news in 2017.



Custom Duties

Raising barriers

With the rise in dollar value and a decline in the tourism sector (owing to the ongoing terrorism threat), 2016 was a bad year of Egypt. In a move to reduce its swelling trade deficit, Egypt has decided to increase import duties on more than 300 products – for some products, the duties have jumped to as high as 60%.

According to a Finance Ministry statement, the purpose of the increase was to “attract more investment, increase productivity and ultimately help reduce the growing trade deficit, which is currently at $49 billion.”

It has been reported that importers have expressed their displeasure over the measure. Egypt is a country that heavily relies on imports, so this means the cost of many basic goods will increase too! Meanwhile, the ministry has clarified that this change does not apply to countries that have an free trade agreement (FTA) with Egypt.




Leaving. Again!

Indonesia will leave OPEC for the second time! In the recently held OPEC meeting in Vienna, an agreement had been reached to cut down daily crude production to prop up prices. Indonesia too was asked to cut its petroleum production by 37,000 barrels per day (bpd), which is about 5% of its output.

However, post the meeting, Ignasius Jonan, the Indonesian Minister for Energy and Mineral Resources said that as per Indonesia’s budgetary needs for 2017, the maximum cut that can be accepted was 5,000 bpd. It’s worth noting that revenues from oil are an important component of the country’s economy. Interestingly, it has only been a year since Indonesia re-joined OPEC. The country had left OPEC in 2009 after becoming a net oil importer.


Trade Facilitation


Trade Friendly Nations

Despite its disappointing GDP growth figures and forecast, Singapore still has a reason to cheer! The World Economic Forum and Global Alliance for Trade Facilitation, which releases the Global Enabling Trade Report every two years, has put Singapore on the top in its 2016 report. The report assesses the performances of 136 economies with regards to the Enabling Trade Index. The assessment is based on domestic and foreign market access; border administration; transport and digital infrastructure; transport services; and operating environment.

As for India, it jumped four ranks to settle at 102nd position. But, despite moving up the rungs, the report states that issues such as high costs of trade due to delays in transportation, theft and red-tapism are effecting trade in India. The report also adds that various import procedures are a burden in India and a large section of the population had difficulty participating in trade.

Countries, other than Singapore, that found themselves in the top 10 list include Netherlands followed by Hong Kong, Luxembourg, Sweden, Finland, Austria, UK, Germany and Belgium.


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