Year on year growth in demand for liquid natural gas (LNG) has mostly come from developing countries. Are the increasing imports of LNG a positive outcome or a road to increasing dependency on external sources?

Trends in LNG Exports

Two main trends associated with LNG exports and imports have emerged in the last few years. Growth in LNG imports has come from developing countries. Certain patterns have also emerged in countries contributing to the growth of the liquid natural gas industry.

From a geographic perspective, the main regions accounting for growth in LNG imports are Asian countries. Particularly, countries in Asia which are in South and Eastern Asia.

Another pattern in the imports of LNG has been the increasing exports from countries which are already world leaders in fossil fuel exports. Qatar, Australia and the United States are some of the leaders.

The Key Importance of Pricing

The price of liquid natural gas, compared to other fuels has played a role in the imports of this fuel type. The price of LNG exports from the US has steeply declined since 2014. With lower prices, how will the increasing imports to developing countries will affect their foreign relations and the economy?

The countries from which developing countries buy liquid natural gas, play an important role. The developing countries which saw most grow in LNG imports, imported the fuel mostly from developed countries.

Foreign relations also affect the buying process. Buying from neighboring countries or allies is, after all, different than buying from countries with whom relations aren’t as warm. While buying from allies has only given marginal benefits to countries like Bangladesh and Qatar, India’s purchase of LNG from the United States has facilitated their relations in other areas.

Economic Downsides of LNG

A cheaper energy source like LNG also has its downsides. Imports from external sources, while economical in the short term, could decrease energy independence of the importing countries in the long term. There are several examples in developing countries where LNG is a trade-off between independence and diversification. Turkey has diversified its energy sourcing by increasing LNG imports, and Chile is preparing to use LNG imports once again.

However, the overall trend has not been beneficial to energy source diversification and independence in developing nations. Particularly, in South American countries. Countries like Brazil have decreased LNG imports and its role as an energy source.

Liquid natural gas exports are divided between government-controlled companies and private ones. The political implications of importing gas from one or the other type of seller also differ. With the growing entanglement of public and private enterprises in the energy sector, it may seem as if state and non-state actors and their differences are being blurred. Yet, in developing countries, there are still large and expanding differences (politically-motivated decisions, prioritization of internal development rather than lower costs).

The Pros and Cons of Developing Countries’ Rising Dependence on LNG

From economic point of view, increasing LNG imports in developing countries could deliver both positive and negative long term impacts. The cheaper and sometimes cleaner energy source should reduce costs of production and the negative effects of pollutants.

On the macro level, in countries where LNG fuel is used by individuals, effect on their disposable income is bound to appear. In two developing countries with largest growth in LNG imports (China and India), the energy source could increase disposable incomes because of being relatively cheaper compared to other fuel sources, and decreases in price.

Governmental spending on energy generation and fuel sourcing is also bound to be affected. While LNG is a cheap source of energy, and a good tool for increasing the speed of economic growth (in the form of lowering expenditure of businesses on their energy and fuel needs), it could be damaging for long term economic development.

Time to Think Long-Term

Without investments into now more expensive — but cheaper in the long term renewable energy — developing countries face a perilous future. They could be left with only a more expensive source of energy, and the infrastructure for it. Moreover, spending becomes an even larger gamble because of LNG imports being subject to price volatility due to non-energy related factors.

There is some uncertainty to this hypothesis. Because renewable energy infrastructure costs are decreasing year by year, choosing to not invest into it in the present could be an economical decision. Yet, spending billions on energy infrastructure which will get relatively more expensive in the future, is also not the most rational decision.

Such dilemmas are not faced by exporters. For LNG exporting countries, several benefits come from the exports of this fuel type. Because of the early set prices of liquid natural gas exports and their mild fluctuation, there is less volatility and room for manipulation. Hence, liquid natural gas exporting countries can use this benefit for convincing potential importers, and making easier sales.

Stronger ties with importing countries are a given. In many countries, LNG trade relationships have brought on a larger concern for political developments in the parties on the other side of the trade. However, energy ties are far less impactful and strong when countries with already strained relations, or private enterprises engage in the trade. LNG exports haven’t given a strong push for better relations of China and the US.

Boosting Domestic Production of LNG

The development of domestic gas industry so far has been the most noticeable benefit for the exporting nations. It not only allows to better serve exports, but also to have a fallback for increasing domestic demand.

In contrast to exporting countries, for countries importing the fuel, it expands dependence on external sources. LNG contracts can be difficult to renegotiate, and in times of price drops, not all buyers have been able to take advantage of them.

A drawback for imports of LNG into developing countries is the infrastructure requirement and difficulties that come with it for developing countries. Pakistan has experienced a slow pace of building of LNG infrastructure, even with 4^th place in growth in imports in 2018. For other liquid natural gas importing countries in the developing world, the mission to build more objects is often impossible without loans.

This drawback of importing LNG is often compounded by a lack of qualified workforce and a skills shortage for solving problems with the gas infrastructure objects. Outside help is often a necessity both for normal operations, and for accident management.

The increasing development of the domestic industry is a benefit all exporting nations can reap. Exports of other fuels also promote better relations between countries. Yet, not all benefits come without a cost to the other side. LNG exports have one benefit for the exporters, which is also a drawback to the importers. Importing nations not only buy the LNG from certain nations, but also the expertise and loans to import the fuel. In cases like these, many developed nations with sales of LNG, also guarantee sales of related products.

The push to make a choice between fossil fuels, including liquid natural gas, and renewable energy will increase in the future. If the premise of decreasing costs of renewable energy will follow, then the current use of LNG is the most beneficial choice for developing countries.

Factors working against savings on energy in developing countries have been high infrastructure costs, need for external financing, and not always placing value on the cheaper energy options. There are several reasons why they are bound to deliver to deliver a low impact. These include improving financial states of developing countries and decreasing shipping and infrastructure costs. Yet, even with low impact of the current issues, they are a damaging effect to both present and future savings.

With LNG, savings also extend to pollution. Liquid natural gas is a good alternative to oil and coal, which are often used as energy sources in developing countries. In the present, alternative energy sources for largest importers of LNG don’t necessarily have to be a priority, especially when energy flow disruptions are unlikely.

With ongoing processes having a positive effect on energy diversification in developing countries, larger LNG imports are more of a strong push for growth, rather than dependency.

L'articolo Is Rising Demand for Liquid Natural Gas a Zero-Sum Game? proviene da InsideOver.

The Malacca Strait has been become an important choke point for global trade. What is the possibility that this strait will become a bargaining chip in the future? Malacca strait connects four countries in Southeast Asia: Indonesia, Malaysia, Singapore and Thailand. The majority of traffic through the strait comes from ships sailing to China.The strait also has an important role in military operations. However, the Malacca’s importance has mainly increased because of the growing numbers of commercial ships passing through the it.

Why Has the Malacca Become a Focal Point of International Trade?

The strait’s importance for international trade comes from its geographic location, and the current international trade structure. Malacca is conveniently located in Southeast Asia, on the corridor from the Indian to the Pacific Ocean. With the current world trade structure based on East-West trade, the strait’s location enables high ocean shipping traffic.

With over 80,000 vessels passing through the strait every year, the strait is the second-busiest in the world, and the first busiest in Asia. Although important for all of world’s trade, the strait holds different value for certain countries.

For Indonesia, Malaysia, Singapore, and Thailand, the strait not only brings diplomatic and economic benefits. It also brings drawbacks, such as the responsibility for protection of ships in the strait. Malacca’s management requires protection from threats of piracy and unsanctioned use of the strait.

While the strait’s countries and those nearby to it are increasingly using the strait and militarizing it, location is not all that there is to to the strait’s importance. Other factors which play a role in commercial shipping viability increase the strait’s importance to countries farther away from it. These factors are relatively better environmental conditions and the presence of foreign navies.

Future Challenges for the Malacca Strait

Malacca’s importance to the facilitation of international trade is high. However, in the future, several environmental and political challenges could negatively impact the role of the strait. The shallowness of the strait, and the fact that it is managed by four countries creates a whole new set of problems.

The shallowness of the strait can be corrected through efforts of the four countries of the strait. Yet, a rather uncomplicated issue, such as allowing patrol boats to cross marine boundaries when chasing pirates, still has not been solved. With several countries having to agree to a decision, negotiations become harder to conclude. If the same trend continues, cooperation on larger projects in Malacca could be deferred.

The location of the strait and its importance to international trade has been used by Indonesia, Malaysia, Singapore and Thailand. Either in direct benefits from other powers, or through offering better conditions in the strait in exchange for financial benefits, the Malacca is a vital chip in the hands of the four countries.

Diplomacy in Southeast Asia has long been based on emphasizing mutual benefits, rather than withholding of them. Solving issues through worsening conditions in the strait, rather than negotiations and exchanges, would also require strong diplomatic power. The four countries don’t have as much diplomatic power as the superpowers using the strait, to be able to leverage the location of Malacca for their gains without harm.

The countries whose companies use the strait are also mostly allies of Indonesia, Malaysia, Singapore and Thailand. Although this condition ensures an easy passage through the strait, it is a preventative measure against the four countries using the location advantages in negotiations. Can this state continue in the future, or will the countries of the strait will start leveraging their power?

Trade Tensions Could Soon Easily Up in the Malacca

Trade tensions, and the different points of view of the four strait countries regarding the resolution of them, are the most likely reason the strait could become a point of division between the countries.

Future trade tensions between the main users of the strait and their allies could negatively impact the operations in the Malacca. Relocation of manufacturing operations, analyzed in The Consequences of Chinese Manufacturing Migration, both from China into Southeast Asian countries, and from US to cheap manufacturing countries, is bound to become a major issue.

The race for jobs and tax income by governments against relocating manufacturers, is transitioning from being a one-region issue. It is affecting countries previously having benefited from the same issue. Using a major shipping route for the four Southeast Asian countries in order to push for different business conditions is not unimaginable.

External tensions are always a potential negative influence for easy passage through important routes. Yet, internal tensions between the four countries of the strait also can harm the operations of the strait. Tensions between Malaysia and Singapore over disputed borders are a significant issue because of their relevance to marine borders. If an escalation were to occur, it would be a direct threat to the operations in the strait of Malacca.

Proxy Trade War Location: Malacca Strait

It is not unreasonable to suggest that Malacca strait could become a proxy location for a conflict between countries. Malacca shares similarities with other straits and passages which have been used as proxy locations for conflicts (Suez Canal, Bab el-Mandeb). These similarities are an important role in oil transit, commercial shipping, and countries of the strait having smaller diplomatic power than some of the largest users. Nevertheless, cooperation between the neighbors of the strait and a united stance against any issues is a strong deterrent against any conflict.

Good relations between the four countries of the Malacca strait has been a constant since the founding of ASEAN in 1967. Even with different political systems, and external alliances, Indonesia, Malaysia, Singapore, Thailand have continued to peacefully manage the strait.

For the four countries, the peaceful and easy transition of vessels to the strait is not only a matter of political convenience. The successful passage of vessels through the Malacca brings in direct income in the form of port visits and ship repairs. Indirect income, from the jobs created to service primary income sources, also plays an important role. A blockade of the strait would also cause significant loss – totaling over $9M in just a day.

Blocking the passage through the Malacca for political gains would mean giving up the direct and indirect income from it. Not only that, the affected population could deal a blow to the politicians attempting negotiation by hostile measures. The population of the provinces of the three countries closest to the strait – Indonesia, Malaysia and Singapore, is over 45 million. While not all of the population has financial ties to the strait, any blocks of transit to the strait would impact millions of individuals and voters.

Deterrents to Conflict in the Malacca Strait

A deterrent against conflicts in the strait is its benefits to all four countries to which the strait belongs to. Even with differing sizes of maritime boundaries, all of the four countries have managed to carve out benefits from the strait.

Certain conditions and benefits would have to change, and only then the strait could become a point of division. Increasing tension over maritime boundaries, or a push from ally countries using the strait, could disrupt the flow of shipping in the strait. Even if the disruption of the shipping were to happen, increasing diversification of trade routes has enabled shipping through nearby southern straits – Sunda and Lombok.

Diversification of trade routes has been the mark of the start of the 21^st century. Enabled by changing environmental conditions or funding from economic growth, this diversification has delivered plenty of economic benefits. Trade route is diversification is also often touted as a security benefit. A country with different routes for trade, should be less susceptible to a blockade of one having a large effect on it.

Without diversification initiatives, countries reliant on shipping and oil transportation through Malacca would encounter massive losses. A nearby state East Asian state, China, would see four fifths of its oil supply blocked.

Nonetheless, trade route diversification is not an end-all solution against straits becoming bargaining chips in the hands of their managing countries. Trade route diversification, and a lower reliance on world’s main straits, including Malacca, could create an illusion of security. One where more attention is paid to the fact of diversification, rather than the security of the routes.

L'articolo Will the Malacca Strait Become the Center of a Global Power Struggle? proviene da InsideOver.

The TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline is an important and long-sought after project for the four countries involved, however it is in an unstable region of the world. What is the likelihood that it will encounter security challenges in the future?

Putting The TAPI Pipeline In Context

The location of the TAPI pipeline gives important signals about the countries participating in the laying out and planning of it. The location of the pipeline will also influence the future cooperation between the four countries. The chosen route of the pipeline shows what challenges the four countries are coping with. The route of the pipeline is not an optimal line. Some divergences from the line of shortest distance are due to the terrain and natural objects, such as the forested areas in eastern Afghanistan.

Others come from unsolved political and military problems. In Afghanistan, the pipeline bypasses central Afghanistan, and was instead laid in western area of the country. This layout is because of Taliban’s influence in the central region of the country, and insurgents who are supporting the now defunct Daesh (ISIS).

In Pakistan, the area of western and central Balochistan has not been used because of political instability as well. However, Balochistan province in Pakistan—long known for insurgent and terrorist activities—will have some of the pipeline pass through it. A reason for it could be the improving security state and the dire need for gas connections in that region.

Pipeline Power

The TAPI pipeline’s connecting pipes will join neighboring regions in gaining better and cheaper access to fuel. The areas of countries which the pipeline will cross will also get more internal power due to the important infrastructure line going through them. The increased internal power shouldn’t cause many security problems, as the benefits from the TAPI pipeline far outweigh any potential downsides.

The TAPI pipeline is, without a doubt, a large move forward in terms of partnership between Central and South Asian countries. This fact stays true even when the mutual participation of India and Pakistan is excluded from consideration.

TAPI To Give Bilateral Boost

Politically, the TAPI pipeline will strengthen bilateral relations, provide opportunities for increasing state revenues, and modify the balance of power in the region. A connection with a pipeline means that at least neutral relations need to be kept between the countries connected by it. Neutral or better relations are required to ensure the successful functioning of the pipe without any breaks or interruptions. This will create more opportunities for mutual engagement between the countries of the TAPI as they work towards this common goal. A new opportunity for mutual engagement is essential, as the bilateral relations between several countries involved the pipeline, such as Afghanistan-Pakistan and India-Pakistan, aren’t particularly friendly at this time.

Joint projects, rounds of negotiations and agreements with other parties will improve the negotiating skills of the parties participating in them and bring new ideas to the table. For internally and externally-faced government institutions of Turkmenistan, Afghanistan, Pakistan and India, the three decades of negotiations concerning the TAPI pipeline have been an exercise on how to push forward against significant political and financial challenges.

How Much Gas Will TAPI Move?

The TAPI pipeline will transport 33 billion cubic meters of gas every year. This number is over 30 billion cubic meters larger than the annual consumption in Afghanistan. However, quantities that exceed that amount by 12 and 22 billion cubic meters are consumed annually in Pakistan and India, respectively. Even if unequal, the amount of gas transferred through the pipeline will bring a new step forward for the energy markets of these countries.

The revenues for transit countries from the TAPI pipeline is one of the more visible benefits. Not only will the TAPI pipeline connect countries with lower access to natural gas to ones with vast natural gas reserves (Turkmenistan), it will also create a system of paying transit fees, and additional revenues for the countries receiving them.

Who Pays Who?

India will pay TAPI transit fees to Pakistan, which in turn will pay them to Afghanistan. For Afghanistan, the revenue from the transit fee for the pipeline will total just over 1 percent of the country’s GDP. That’s a great deal when Turkmenistan is meeting difficulties with securing financing (such as negotiations not being concluded in over two years), and the pipeline is helping to bring additional funds to a country torn between the government and insurgents.

The idea of the Turkmenistan-Afghanistan-Pakistan-India pipeline has always included solely the four countries. Nevertheless, another major regional player had also expressed interest in the past. The country has been Iran, which has completed construction on the first part of the Iran-Pakistan gas pipeline, and has offered a gas swap deal to Turkmenistan. While the Iran-Pakistan pipeline project could have become a strong contender to the TAPI, now it is moving to becoming a complimentary connection between western to south Asia.

No Evident Environmental Opposition To TAPI

The most common opposition to gas pipelines generally comes from environmentalist groups. Local residents of the areas which the lines cross are also often opposed to the laying of the pipes. In the case of TAPI opposition to it non-existent at least at the present time.

In fact, Afghanistan’s Taliban could’ve have been the main opposition against the pipeline. The pipeline will go through Taliban-controlled areas, and the revenues from gas transit will go to the Afghan government. Yet, the opposition to the TAPI from the Taliban has never formed. It is very likely that Taliban will expect payments for the transit of the gas from Taliban-controlled areas, and as insurance money for not disrupting the flow of gas. Official statements made by the Taliban demonstrate their support for the project. Moreover Pakistan—as a party to the TAPI pipeline—has more than enough power to influence the Taliban’s decisions. Nevertheless, there have already been doubts about the Taliban’s motivation for supporting the pipeline.

From the potentially most vocal opposition—Afghanistan’s Taliban—a decision to accept the laying of the pipes is close to a security guarantee. The Taliban is known for attacking important buildings and infrastructure in Afghanistan as a way to attack the central government. The current relationship between the Taliban and Afghanistan’s government is strained to say the least. The developing Taliban-USA peace deal should be a further incentive to not sabotage the operations of the TAPI.

Insurgent Concerns In Turkmenistan And Pakistan

The presence of militant groups in the four countries also can compromise the security state of the pipeline. Multiple insurgent groups operate in Pakistani and Indian regions which the TAPI pipeline will go through. Nonetheless, they could become less of threat through decreasing poverty and increasing economic growth in the region. This could indeed be the case, since poverty has been confirmed to be the primary cause for terrorism in the region.

Returning Turkmen militants from Syria could become the most serious problem. Limited response capabilities of the country’s security services and porous borders, have been found to be some of the most serious security problems facing the country and region as they plot to organize attacks. However, the TAPI is a very much needed step for export destination diversification for Turkmenistan’s government. Turkmenistan’s difficult economic state —with gas being the main export of the country—will push the Turkmen government to put the security of the pipeline first, especially, when it contributes to the diversification of gas export destinations.

External militarized groups and neighboring sovereign states are the least likely security challenges. Attacks from foreign terrorists in the four countries aren’t common, even if that threat is growing. Although some of the four states have strained relationships with their neighbors—such as India’s relationship with China—they are not at the level of sabotage and incursion. Far more conflict potential lies in intra-TAPI relations, rather than with countries not party to the TAPI.

Ensuring Infrastructure Security

The security challenges will have similar impacts on the four countries of the TAPI. For all four countries the security challenges will increase the attention that is needed in terms of ensuring infrastructure security. They won’t present new threats, but will require additional resources—particularly in Afghanistan. Organizing additional military presences and security measures near the pipeline could become a challenge to the country, considering its military is already engaged in a conflict with the Taliban and armed insurgent groups.

Security challenges affecting the TAPI pipeline are almost inevitable. Even if they are inevitable, however, the benefits the pipeline has brought and will bring should reduce their impact and are a cause for optimism.

L'articolo Is The TAPI Pipeline A Security Challenge Waiting To Happen? proviene da InsideOver.

The Arctic Silk road project is said to be mainly another way for China to secure trade channels. Yet it is worth asking how this project could also increase China’s diplomatic power. Any route becomes more valuable the more destinations it connects, and the more costs it allows users to save.

What Is The Arctic Silk Road?

The Arctic Silk road, or the Northeast passage—in case of further melting of ice—would connect five countries (including China and Russia) in a maritime trade route from Asia to Europe. Considering the growing manufacturing power of Southeast Asian countries, trade increase between EU and China, and the rising concentration of manufacturing in Asia, the Northeast passage could become one of the world’s most important trade lanes.

Even with China’s Belt and Road initiative, the southern land route from China to its closest European neighbor would take over 5,000 kilometers to pass from Western China to Bulgaria. The northern railway connecting China to Eastern Europe is over 3500 kilometers long. If the Arctic Silk road opened, the distance would be longer by two to or three times, respectively. However, because of lower maritime shipping costs compared to rail and truck shipping, the longer distance wouldn’t be a cost disadvantage.

The Vital Future Importance Of The Arctic Silk Road

Because of the countries the Northeast passage could potentially connect—and the savings it would bring—this road should become very important in the future. Use and ownership of other polar routes has long been a goal for countries bordering them. The two other most anticipated routes are the Northwest Passage and the Transpolar sea route. The Arctic Silk road would connect East Asia and Northern Europe. Contrarily, the Northwest Passage and the Transpolar route would ensure shorter connections between East Asia and North America, and also Europe.

In the article Northwest passage: the future of shipping has arrived, the Northwest passage is found to be a route that could reduce shipping costs from East Asia to the Eastern Coast of US, and deliver benefits like increasing economic activity in the countries managing the passage. The Northwest passage is indeed a promising route.

The Transpolar Sea Route

The Transpolar sea route is the polar route that could be used at the most distant point in the future, compared to the Northwest and Northeast passages. The Transpolar sea route—although the hardest pass through—would offer the “most direct route for trans-Arctic shipping”, according to the Arctic Institute. The Transpolar route would also offer the most benefits, but its state makes them very hard to reach.

Marine Shipping Has A Bright Future

Cheaper sea shipping due to reductions in distance seem to be the future. This is even more the case when jet fuel costs remain high, and alternatives such as biofuels are priced even higher. Reductions in fuel costs could make air transportation a far more accessible mode for shipping. However, the outlook remains favorable to marine shipping.

The opening up of polar routes could present not only economic, but also diplomatic benefits to countries using and governing them.

China’s Five Principles

The Five Principles of Peaceful Coexistence and the development of the domestic economy are the base of China’s diplomacy. The base of Chinese diplomacy is comprised not only of guiding principles, but also goals to achieve. In the 21^st century, China’s diplomacy has concentrated on using trade and infrastructure to pursue the development of its domestic economy. However, the interest in the Northeast passage reveals a far different strategy.

Maritime shipping from China to Europe through the Northeast passage—instead of the current route through the Suez Canal—would cross a shorter distance by just over 1,000 kilometers. Investment into this route would offer only marginal distance savings. The investment would be large, as this route is rarely navigated even by icebreakers. These facts show that cost reduction benefits can’t be the main reason for the attention being put into the Arctic Silk Road project.

Looking at countries competing with China for global power should reveal its goals, and needs for achieving them. From an economic perspective, older manufacturing giants such as Germany and Japan have been undoubtedly concerned with the transfer of manufacturing and know-how into a lower cost country.

To reason with these countries diplomatically, China needs leverage to influence trade negotiations, and to sway third parties. When foreign investments and aid aren’t a viable course of action, new ties in an international organization (the Arctic Council), and common concerns (trade between Asia and Europe), are a better way of influencing decisions and having leverage.

Diplomatic Benefits To China From An Arctic Silk Road

Compared to other polar routes, the Arctic Silk Road could become the most valuable of all. Trade between Asian and EU countries has remained stable in the past decade. With increasing infrastructure connectivity, increases in trade are bound to happen in the future. Hence, participating in the development of the Northeast passage gives not only direct diplomatic benefits to China, but moreover the new infrastructure connection should increase trade even more. Along with it, closer ties between countries participating in it can be expected.

From a military diplomacy perspective, China’s strengthening military (both in budget and in activity increases), is a growing issue with its neighbors. For some, it’s just a cause for concern. For others—such as the Philippines—China’s military activities are a cause for action.

Participation in negotiations for the future of the Arctic Silk road, and influencing them, would give China benefits in the area of military operations. Joint projects, participation in the same projects, funding of common initiatives, and actions beneficial to several sides help to improve military diplomacy. China’s observer status in the Arctic Council not only affords the opportunity to perform these activities, but also to build goodwill through a neutral forum.

China’s Need For Natural Resources

Looking into the future, certain issues could push China to use the leverage Arctic Silk road will give. The growing need for natural resources outside of China’s territory could be a problem that will require diplomatic leverage to solve. China’s demand for natural resources both for export and for the needs of its population is projected to grow year-by-year. Saturation could decrease the pace of growth, but demand will still remain steady.

China imports large quantities of natural resources from foreign countries. Any difficulties with imports would clash with the demand from China’s. Beijing’s increasing operations in an important trade route would put the country in a stronger negotiating position for access to natural resources. When a steady access to resources is imperative for growth, using power gained by participating in the management of important trade routes is not unusual.

There are still areas in China’s diplomacy where changes could expand China’s power. Being a true superpower requires not only a strong economic position, but also strong cultural exports and ties with intercontinental allies. Initiatives and exports mainly pushed by governments aren’t always influential, and diplomacy mainly based on trade will always be viewed through the lenses of benefits and disadvantages.

With growing economic and trade power, and being the second-largest largest economy in the world, it would seem that diplomacy and diplomatic power should not be an important concern for China. Yet, without enough diplomatic strength, even great trade prospects aren’t always a guarantee against disadvantageous actions by other countries. China’s input into the future of the Arctic Silk road will deliver the power that the country needs in multiple ways, which is why they are focused on the project.

L'articolo Arctic Silk Road: Expansion Of China’s Diplomatic Power? proviene da InsideOver.

Many countries have set up agencies to attract Foreign Direct Investment (FDI). Have they been successful in their goal? Or are these investment promotion agencies a trap for voters, instead of an effective mechanism?

Notably, agencies attracting FDI have become an almost necessary governmental agency. Out of 36 OECD member states in 2017, 19 (52.8%) had an autonomous public agency for foreign investment promotion. 32 out of 36 had some kind of an investment promotion agency. Additionally, the World Association of Investment Promotion agencies boasts over 100 members.

With competition for trade and investments heating up, these agencies show promise. In 15 years from 2003, the world’s FDI inflows increased by $800B. Part of this increase can be attributed to the agencies working effectively to attract FDI, as shown by research.

Agencies created to increase FDI inflows can prop up local industries and improve their financial status. The most direct impact is, of course, the higher FDI inflows the agencies work to achieve. However, secondary impacts can be just as important.

The transfer of know-how is an important benefit of foreign investments to local economies. Attracting foreign companies, which have the know-how local industries lack, can help to improve the quality of already existing operations or to help launch new industries. The automotive industry in Asia is partly developed because of the know-how transfers from foreign companies.

Foreign investments often are conducted through joint local partnerships. The partnerships with foreign companies can create easier access to funds for the local companies, compared to loans or other types of funding.

Agencies whose purpose is to attract FDI make these goals easier to achieve through targeting relevant foreign businesses and through easing the process of foreign investments.

Governmental corruption can misdirect the goals of FDI agencies. Kickbacks to local government officials for their support to foreign investments are a common problem. Autonomous governmental agencies, with lower oversight from the central government, then become easier targets for corruption.

Lack of differentiation between the valuable and harmful foreign investments is a problem with many FDI agencies. Foreign investments directed solely into low skills jobs, set up a time bomb of potential problems.

A problem occurs when investment promotion agencies only have a goal to increase foreign investments, without differentiating between long- and short-term ones. This can make economies more vulnerable to the flight of services investments. This has been often the case with services centres relocating from high to middle-income countries.

Not all countries have had negative experiences with FDI. Germany and Ireland received the highest net inflows of FDI in the EU in 2018. Have investment promotion agencies contributed to the $169B inflows into the two countries?

Ireland is a great example of how a governmental agency can support economic development. Decades-long work and a flexible approach to investments has contributed to Ireland being one of the top countries in the EU for foreign investments.

IDA (Irish Development Agency), Ireland’s foreign investment promotion agency, has played a critical role in this process. Consistent actions and adaptability to the changing economic environment, are the key reasons for IDA’s success.

However, it is doubtful whether Ireland’s investment promotion agency is the strongest factor in attracting foreign investment.

Low taxes and a good regulatory environment are far stronger incentives than any work that can be conducted by a government-affiliated agency. Moreover, out of Ireland’s over 187 thousand employed by foreign companies, 130,000 (almost 70%) employees are employed by US companies. An 8.5 percentage point difference between the corporate tax rates, and historic ties between the countries, are important pull factors for establishing operations in Ireland.

Going by the internalisation theory, the removal of competition; and the advantages firms posses in some activity, determine a firm’s decision to engage in FDI. Germany, as the top destination for FDI inflows in EU, seems to be a contrarian example. Its highly competitive economy, and a strong presence of local businesses should discourage foreign firms from investments.

High-quality investment promotion work or similar factors then should influence the decision’s of businesses to invest in Germany. However, as historic ties partly explain the large percentage of Ireland’s employees employed by US businesses, part of Germany’s FDI numbers are also explained by social ties. Opposite to Ireland’s experience, migrants to Germany from high-income countries are a positive influence on FDI flows, research finds.

Because of the influence of foreign direct investments in the economic booms of many countries, FDI inflows have been made into a political goal. This has prompted many countries not only to create investment promotion agencies, but also to give autonomy for their choices. There is data that points to the conclusion that promises of foreign investment are a powerful bait for voters. Given that, it becomes clear that higher funding and more autonomy shouldn’t always be given to the agencies.

The establishment of investment promotion agencies does not always contribute to higher foreign investment. The highly variable, and dependent on outside factors, performances of investment promotion agencies show that. As bureaucracy, and along with it, the inefficiency of governmental agencies tends to grow over time, the impact of government investment promotion agencies is bound to worsen over time.

Corruption can also make agencies working to attract foreign investments more of a bait to voters, than an effective force. Any governmental agency can easily become corrupt. Especially, if less oversight is put on it. When autonomous or semi-autonomous investment agencies are a common sighting, doubts arise on whether less control should be given to an area dealing with large financial transfers.

As a direct influence on voters, new agencies to attract FDI are also a powerful political tool. Promises of higher FDI has been found to increase voting preference for politicians, it is not unreasonable to extend the association to agencies working to attract FDI. When their mixed results, and highly variable performance is considered, high accountability is imperative for success.

Focusing on good foreign relations with other countries could be an alternative to the creation of new governmental agencies with just one goal. A favourable political climate is, after all, is one of the factors that influence a business’s decision to invest in a foreign country.

Research shows that good foreign relations do contribute to a better local response to foreign investments, and that good or bad foreign relations influence the choice to which countries foreign investments flow to.

Nevertheless, are good foreign relations all that it takes to build a better economy? The question should be whether good foreign relations create better economies, or do prospering economies contribute to good foreign relations.

If good foreign relations would be a direct way to better economic outcomes, then all it would take for poor nations to develop is to improve their foreign relations. That is not the case since the lack of infrastructure and an underdeveloped labour force are far more powerful blocks to development.

Stable and improving economic indicators of a country should push other countries to seek financial benefits. One way to get to them is through diplomatic means.

Economic growth is a positive influence on FDI flows. The link between higher development and higher FDI inflows exists. Moreover, out of the top 10 FDI host economies in 2018, the developed ones received hundreds of billions of dollars more than the developing ones.

Yet, when country-to-country agreements can take decades to ratify, diplomacy starts to look like an ineffective method for increasing economic growth. After all, even after ratification, it takes a decade to double bilateral trade after an FTA is signed.

FDI itself shouldn’t always be the goal. The development of internal industries and their players could be far more beneficial in the long-term. Yet, if investment promotion is necessary, high accountability should prevent it from turning into political bait for voters.

L'articolo Are Agencies for Attracting FDI a Trap for Voters? proviene da InsideOver.

Renewable energy projects and businesses surged in the 2010s. Yet, fossil fuel energy sources remain a big player in the energy market. What will be the consequences of the EU – through the European Investment Bank (EIB) – essentially ending funding for fossil fuel energy?

Renewable Energy In The EU

The current state of renewable energy in the EU is a highly segmented one. Neither renewable nor fossil fuel energy production makes up the majority share of the total energy market, according to data released by the European Commission. Although there is policy shift aimed at decreasing energy production using solid fuels, the three largest production sources in the EU continue to be nuclear energy, solid fuels and gas (over 60 per cent of the current total energy production).

The share of renewable energy out of total energy production in the EU is currently composed of around 13 per cent wind, 10 per cent hydro, four per cent solar and three per cent biomass energy production. Although all feature the same concept of energy production, they contribute to the growth of renewable energy production unequally.

Wind Power Surging

Wind energy has been the main growth source. By comparing the same months from 2016 and 2019, a stable 2 per cent increase can be seen. Additions of new wind energy facilities look to be the primary cause of growth. Decreasing costs associated with wind energy production are also contributing to further growth. Renewable energy market share growth also looks to be partially caused by the decline of the share of fossil fuel-based energy. Together, increasing production costs for coal energy and the end of governmental support for fossil fuel projects are working according to the EU’s 2050 Long-Term strategy.

Public Opinion On EU Support For Clean Energy

Public opinion about the direction the energy industry in the EU is developing towards could be an important factor. On one side, in Eurobarometer survey released in September 2019, 90 per cent of respondents agreed that “the EU must ensure access to clean energy”. However, the support for investments into clean energy in the next decade ranges from 29 per cent in Slovakia to 65 per cent in Sweden – clearly a substantial difference. Hence, because of intra-EU differences, public opinion could direct the development of the energy sector to a different path. Disagreements between regions with already well-developed renewable energy sectors, and those without, could emerge.

The Renewable Energy Picture Outside The EU

Outside the EU, the share of renewable energy out of the total gross electricity consumption is higher in all EU candidates (except Turkey), compared to the EU’s share. The main drivers of renewable energy are also quite different. The four candidate countries with a higher share of renewable energy sources than Turkey’s all boast ample hydroelectric and solar resources, thus taking advantage of a readily available renewable energy source.

The Asian renewable energy market presents a mixed landscape. Most Asian countries are either rich with fossil fuels or are importing fossil fuels for energy production from their neighbours. In Asian countries rich with fossil fuels – particularly West Asian countries – renewable energy projects are taking off. Increasing the share of energy generated from a readily available resource, such as solar radiation, will take time. Nevertheless, it is one of the best regions to develop this source of energy. Creating a stable source of electricity generation from a readily available resource should provide insurance against any future volatility.

In Asian countries with lower reserves, renewable energy development isn’t a top priority. Even with lower fossil fuel reserves, the countries can either import fossil fuels from their neighbours, or use their domestic resources in cases where populations are small enough.

The Economics Of Renewable Energy

The competitiveness of industries and the businesses making them up depend on several factors. According to Porter’s Analysis, factors like new entrants into the industry and bargaining powers of suppliers and buyers make an industry more or less competitive. On the business-level, businesses become more competitive through increasing market shares and most times, decreasing good or service prices.

This is why the decreasing financial supporting for fossil fuel energy projects is going to make a negative contribution to competitiveness in the short term, and a positive one in the long term.

The threat of new entrants into the energy industry is going to decrease because of decreased funding for fossil fuel energy projects. Since fossil fuel-based energy producers could see a decline in their share of the total energy output and will have to cope with higher production costs, their competitiveness will decrease. Although competitiveness will decrease in the short term, funding being redirected to renewable energy projects should eventually increase its level.

For businesses where energy is an important component of production, the decision to end funding support from the side of the EU will have a negative contribution to the production process. Renewable energy production has only been falling to the lower price range of fossil fuel energy. This means that businesses will see energy costs for production remaining the same, or even increasing with lower funding for fossil fuel energy projects.

The individual differences between energy production in the regions of EU are quite large. Household electricity prices can differ as much as two times between Western and Eastern EU members. Different energy production sources also dominate in different EU regions. Southern EU states produce energy mostly from oil, gas and coal, while other energy sources dominate in Northern EU states.

There is also strong intra-region variation. Oil, gas, and coal electricity production shares range by 15.1 percentage points in-between Northern EU neighbours Finland and Sweden, for example. Certain regions are going to be better off because of the decrease in funding from the European Investment Bank for fossil fuel energy projects. Northern and Eastern states could see even more funding for renewable energy projects. At the forefront of renewable energy production as the total share of electricity production in the EU, Northern and Eastern states could hit even higher market shares.

Western and Southern regions will be hit the hardest by this measure. These are the regions where renewable energy production is in the under 10 per cent range. Dealing with lower funding from the EIB could prove to be difficult.

The Future Of Energy In The EU

The future of the energy industry depends whose needs are ultimately put first. For businesses, choosing the still cheaper fossil fuel-based energy could be the right choice. For the public, clean energy is important, but unequally so in different member states of the EU. If the same trends will continue, a larger discussion on the demands and perspectives of the public and businesses should emerge.

Fuel costs for energy production are also going to play a role in the direction the industry will be going towards. The majority of the energy produced in the EU is made from nuclear and fossil fuel sources. The prices of the two materials could increase in the future. This could be the case because of the rising costs of new nuclear reactors and ever-volatile fossil fuel prices. However, it is possible that more efficient building of new nuclear facilities could solve the rising cost problem. If this happens, nuclear energy is likely to maintain its share out of the EU’s total, while fossil fuel’s share will decline even further.

Components for renewable energy facilities could become cheaper or more expensive in the future. On one side, technology related to renewable energy is developing. Along with it, the efficiency of renewable energy production facilities could become more affordable. On the other, storage costs pose a challenge to further decreases in costs. Even if the costs of building the facilities will rise in the future, they could be offset through predicted increases inefficiency.

The inevitable fact of energy consumption in the EU is that it will grow significantly in the coming decades. Demand for electricity will grow, and possibly at even faster rate if industries reliant on electricity use will continue to develop. Legislative initiatives by the EU have aimed to increase energy savings. These measures to decrease energy consumption have only been partially successful (for example resulting in a seven-year decrease, then increases). Increasing demand and funding being redirected to still developing energy technologies could produce new challenges in the future.

Negative consequences for businesses and certain regions of the EU could be the price paid for the ended funding for fossil fuel projects. It remains to be seen whether this step to achieve long-term energy goals will be the better choice when weighed against its negative consequences.

L'articolo As Support Ends For Fossil Fuels What’s The EU’s Next Energy Source? proviene da InsideOver.

Japan’s refusal to continue with the Regional Comprehensive Economic Partnership (RCEP) under the possibility that India will not be a participant brought serious doubt to the whole agreement. Both China and Japan are looking to break into the Indian market. Which country will pay the largest price for this opportunity?

The text of any full version of the RCEP has not been made available to the public. Nevertheless, the comments released by country leaders point that its main direction is to decrease tariffs between signatory countries.

Japan and China are the two different manufacturing leaders of Asia. Japan, with its manufacturing know-how built in the 20th century, is competing with the fairly recently leading manufacturing prowess of China. The two manufacturing leaders of the continent are also dissimilar because of the size of their labour forces (China’s 805M  to Japan’s 66M), exports per capita ($1,696 to $5,090), and innovation (GII rank 14th to 15th).

Although dissimilar on many grounds, businesses and governments of both countries are actively searching for new and bigger export opportunities. India, and its 860M working-age consumers, are a very attractive option to both China and Japan’s exporting businesses.

Current trilateral relations between China, Japan and India are focused on increasing trade, competition for trade access; and territorial disputes. Japan-India are a natural exception, as they don’t share a border. As for China-India and China-Japan, territorial disputes have been souring the relations between countries for many years.

Alliances based on mutual non-financial benefits have been established (China’s and India’s defence, Japan’s and India’s science and technology). The alliance between Japan and India is currently the most stable and has delivered positive change to the countries including joint infrastructure and business initiatives. India’s relations with Japan and China are inevitably different because of the presence, or a lack of territorial disputes.

India’s decision to pull out of the RCEP is mostly an internal issue.

However, there is more at play here. India’s foreign relations are better with Japan than with China, and both countries are looking for better export opportunities to India. Delaying any action on the RCEP then allows India not only to appease internal opposition but also to gain bargaining power over other diplomatic disputes. Amending the agreement to suit the needs of a country of a billion, then also becomes an easier task.

Trade, and the structures of the economies of the three countries, are a major influence on the relations between China, India, and Japan.

For Japan, India offers a suitable exports destination. Some of the top exports from Japan, in 2017, have been machines (36% of all exports), metals (8.3%) and chemical products (8.3%). India’s top import categories are similar to Japan’s top exports. Out of the top 5 imports, three of them correspond directly to the three aforementioned product categories.

For China, India is a nearly perfect market. Not only the cheaper Chinese goods segment would find a large consumer base in India (an opposition to this move has already formed in India). Improving trade ties would allow China to harness more power in any diplomatic disputes.

Closer trade ties brought on by the lowering of tariffs would likely bring a better perception of both countries, in case of increasing exports. It could be an advantage in any territorial dispute talks – concerning contested territories by China and India.

Indian economy and its consumers are not the last in the list of concerns for China and Japan. Both China and Japan have similar trade and economic goals in India. Yet, the benefits offered by the Indian economy to the East Asian countries are different.

India offers the completion of these goals for China: a growing market for low-cost producers and a market for high tech exports (a good boost to “Made in China 2025”).

For Japan, better trade conditions with India could deliver the very needed boost for manufacturing output, and a surge in economic activity and new businesses.

These benefits and goal completion would occur both because of the present conditions of the Indian economy, and its future trajectory. The future growth or the direction of development of India could change. Yet, the present conditions India offers to Japan and China are already very attractive.

India disagreeing to enter the RCEP puts the whole process on hold and diminishes the benefits offered by the deal to China and Japan. Both countries already have trade agreements with the ASEAN (the original initiator of this deal). India’s decline to enter the agreement then makes the RCEP a far less useful tool to Japan and China. Better trade conditions won’t make up for the fact that the most promising market for the two East Asian countries is out of the deal.

Japan and India have signed a comprehensive agreement in 2011. On the other side, the issue of a China-India FTA was most recently raised again in 2018. China would gain more from the RCEP with India in it. For Japan, the benefits would be smaller, as it already has signed a comprehensive agreement with India. The agreement has contributed to the abolishment of the majority of tariffs previously imposed by the two countries.

Increasing trade is often a precursor to warmer relations between nations. For China, better relations with India would allow them to exploit the South Asian nation’s geographic location for trade. The Hindustan peninsula offers wide access to routes to Africa and the Middle East.

Moreover, compared to China, India’s access to the Indian Ocean, and the Arab Sea, allows ships to bypass South East Asian nations and the Strait of Malacca when travelling west. With China’s infrastructure interests directed at western locations (Nepal railway project, Belt and Road), India’s location would fit in with current infrastructure plans of China.

India’s geographic location, and opportunities offered by it, are less beneficial to Japan. 79% of Japan’s exports go to other countries in Asia (mostly East Asia), or eastwards to USA. Hence, there’s a smaller incentive to develop a better relationship with the country due to its geographic location.

The main direction of India benefiting from the competition for the access to this market is by growing its negotiating power. Whether it is in territorial, or trade negotiations, India will be able to take a stronger stance. After all, the two manufacturing superpowers are likely to try to match the demands of a growing market. Also, to work hard for the benefits lower trade barriers would offer.

The clearest direct benefit of China and Japan competing, to India, is the financial support that will be granted to the country. There’s already precedent to this: China has given $31.65B of aid in the period of 2000 – 2014, according to AidData. Japan has been providing financial assistance to India since the mid-20th century.

Japan has provided assistance to India in areas which benefit Japan strategically, as argued in Japan’s development assistance to India. If the Japanese government will perceive India not being in the RCEP as a threat to the country’s strategic interests, then more assistance could be expected.

Japan and China have many different reasons to compete for the Indian market. The two manufacturing powerhouses would flourish in the Indian market with lower trade barriers. Secondary reasons for the push for India to sign the RCEP agreement stem from benefits for foreign relations India’s entry would bring. The country that needs India’s market for immediate growth, will pay the highest price to ensure India’s signing of the Regional Comprehensive Economic Partnership.

L'articolo China, India and Japan: Who Will Pay the Largest Price? proviene da InsideOver.

Bickering between Argentina and Brazil, in face of the ratification of EU-Mercosur FTA, could be a turn for the worse for the trade block. Are Brazil’s worries about Argentina unfounded, or will the new president of Argentina threaten the stability of the whole region?

Argentina’s and Brazil’s relations improved markedly after the election of Mauricio Macri as the president of Argentina. The two presidents, elected for the first time, Macri and Jair Bolsonaro, were elected on similar political platforms and promises to their electors.

The status of presidents elected for the first time put the two politicians on equal footing based on experience as the leaders of their respective countries. Although the time both Bolsonaro and Macri were simultaneously was only a year-long, the relations between the two countries remained stable.

This productive partnership is changing with the election of Alberto Fernández as the president of Argentina.

It’s important to employ a wider look to understand why relations between Argentina and Brazil took a turn for the worse so suddenly. It’s easy to put blame solely on different political platforms of the current leaders of the two countries. However, worries about the growing power of Argentina or Brazil from either countries did not stop cooperation in the past.

The critique Bolsonaro directed at Fernandez came even before his inauguration as a president. This shows that political decisions are not the root cause of the disagreement.

Rather, it is important to look at the internal matters of the two countries.

Internal opposition to elected politicians often indirectly affects the foreign relations between different countries.

In the case of Brazil and Argentina, the Brazilian president’s low approval polls, and the growing opposition, is likely to be a major cause of negative attitudes to the newly elected leader of Argentina.

Evangelical voters, and those looking for an alternative for socialist parties and their past presidents, are a fast-growing group in Brazil.

To gain the support of the group before the fast-approaching elections in 2022, Bolsonaro is very likely taking a stance against a politician that holds ideological views this group doesn’t support.

Any political disputes between the leading member states of Mercosur are bound to destabilise the whole block. This situation has already been a reality in 2015 when Brazil and Argentina disagreed on the issue of trade, and the relevance of Mercosur.

The South American countries, two largest by GDP in the whole continent, are also the leading members of Mercosur. Out of the four current active members of the trade block, Argentina and Brazil are largest by territory, exports, and population.

Paraguay and Uruguay, don’t boast such statistics. However, the two countries have managed to influence Mercosur (most notably with Uruguay pushing for a relaxation of the ban on bilateral FTAs). Although less powerful than the leading members, if the two countries chose the optimal strategy according to economics research (threats to leave), they could negotiate for better conditions.

The powerful impact disagreements between the leading members is not only caused by the sizes of their economies. Argentina and Brazil have many common areas, where disagreements and even stalling negotiations, can negatively impact the Mercosur.

Using trade and political blocks to solve trade problems between members isn’t an unusual occurrence. However, trade problems solved through trade block framework, often concern all or the majority of members of them. This is not the case with Argentina, Brazil, and the Mercosur.

As previously mentioned, the bilateral disagreement has happened in 2015. A possible disagreement on trade between Argentina and Brazil has become a new challenge in 2019.

This time, it concerns the Common Export Tariff (placed on imports into the block). The previous president of Argentina, Mr. Macri, agreed with Brazil’s ideas about the tariff. However, the new president Mr. Fernandez does not support this step. This has caused threats from the side of Brazil to leave Mercosur. A disagreement between two members is now a cause of worry for the whole integrity of the block.

Different takes of Brazil and Argentina on where, and at what speed, should the block’s development be moving, is a problem. For each of the two countries, the block delivers different benefits. Brazil, for one, is said to be using the block as a step to gain more power on the worldwide level.

Argentina, in contrast, is argued to use Mercosur for its free trade market. The two different benefits to the leading member states then contribute to quick destabilisation of the whole block, in case any of the states’ benefits are threatened.

Mercosur’s internal trade delivers different benefits to the member states. This is only natural when the sizes of the members’ economies vary from Brazil’s GDP PPP of $3.37T to Uruguay’s of $81.16B.

For Argentina, Paraguay, Uruguay, free trade in the block is an important export opportunity. The three countries have seen a yearly average growth in exports of 4.14%, since free trade among the member countries became reality in 1995.

Gauging the full benefits of 23 years of free trade is difficult. That’s because for the same period, before free trade in the Mercosur, the average yearly growth in exports of the three countries stood at 9.12% – almost 5 percentage points higher.

For Brazil, the block delivers trade benefits. Nevertheless, other benefits have been prioritised by the country. These have been stronger positions in negotiations and growing political influence.

Mercosur’s external trade is just starting to take off. The signing of one of the most important FTAs, with the EU, happened in 2019. The FTA should contribute to increases in exports of all members of Mercosur – just at different quantities. Negotiating as a block, instead of each separate country, allowed the members to leverage the size of the Mercosur’s market in pursuit of better deal conditions.

As a political discussion and development platform, Mercosur has engaged in solving disputes between member states. Whether Mercosur can be stated to be a successful platform for conflict resolution, depends on the weight given to its successes and failures.

Successes, like the increasing role of the smaller states (a concern for Paraguay and Uruguay), are indicators of Mercosur functioning successfully as a platform for resolving a range of disputes.

The failures, such as the Argentina’s enactment of anti-dumping tariffs on Brazilian goods, if their impact is given weight, they would show the four-member block to be an ineffective and an inefficient platform for trade dispute resolution.

Since the members prioritise country-level concerns, then the platform, from an internal perspective, has been a successful aid.

Individual concerns, rather than block-wide problems are often given priority in Mercosur. Hence, it would seem that the trade block could easily fall apart given four different opinions. Even if the worries about other heads of states are often driven by internal political matters, rather than a genuine concern for foreign relations.

Since Mercosur delivers important benefits to each member, then even changing heads of state are unlikely to destabilise the foundation of the block.

Greater integration, and a movement towards supra-nationalism, could be the solution for any future country-level concerns destabilising the whole block. This solution would clash with the determination of each member to not give away individual political power. Yet, it would increase the confidence in the trade block and its members and would allow to avoid unnecessary political tension.

L'articolo Will Political Differences Split the Mercosur Trade Block? proviene da InsideOver.

ASEAN is one of the few successful examples of a trade bloc in an emerging region. The latest ASEAN business and its parent summit produced many interesting resolutions and outcomes. How will they influence the trade blocs and Southeast Asia’s future?

The ASEAN 2019 Business and Investment Summit crystallized the trade blocs joint political positions. It also brought new views on business into light. The summit which ran from 2nd to 3rd of November ended on a largely positive note.

The most important joint political statements reaffirmed were the movement to a unified position on the South China Sea, and greater digital connectivity.

A common theme in the summit was how innovative businesses and models should be supported.

Before the summit began, the main goals were set as the movement into the digital age, and human development and empowerment.

From a social standpoint, activist groups also influenced the goals and discussions of the summit. Before the summit, Rohingya supporters sent demands to the leaders of ASEAN member countries. Discussion panels about human rights were a part of the summit.

The main outcomes of the summit have been the development of the RCEP agreement, a new direction for intra-bloc relations, and business development in SE Asian countries.

India’s exit from the RCEP is not necessarily a failing on the part of the ASEAN members or the potential members of the RCEP agreement.

Demolishing trade barriers has helped many of the world’s economies achieve massive growth in GDP, trade diversification, and the wealth of residents. Yet, even a good solution may not be the exact fit for a certain economy.

India is still a developing economy and not a mature one. India’s trade balance has been negative and continued to decrease and now for the past 15 years, lowering import barriers for the RCEP would have compounded this negative balance of trade tendency for India.

Intra-bloc relations have deepened because of the 2019 summit. Multiple leaders urged to increase the bloc’s unity on foreign problems.

Written resolutions do not always turn into active projects. Yet, the united front on digital economy and empowerment, is a strong indicator of declarations becoming actions.

Business and investment talks at the summit show that a new age of business is coming to ASEAN. Multiple calls from some of the members of the ASEAN for a move to business 4.0 (a reference to the fourth industrial revolution) show that the bloc has chosen to rapidly innovate, instead of going through the usual course of development.

From a geographical standpoint, the push for innovative businesses and business models could be the answer to the trade bloc’s members’ reliance on agricultural commodities and goods exports. Innovative digital businesses are less dependent on location and aren’t dependent on worldwide commodity price fluctuations. Increasing the share of digital business could create a strong and stable business ecosystem in the ASEAN.

The 2019 summit will be an influential one. The trade bloc members will feel the impact from its outcomes both directly, and indirectly. SE Asia and the whole of Asia will become different because of the outcomes of the ASEAN summit, and the related Business and Investment summit.

India pulling out of the RCEP agreement will undermine its benefits. Nevertheless, the majority of the potential signatories of it shouldn’t find more drawbacks than benefits for them individually.

The RCEP centres around opening up trade barriers, through the lowering of tariffs and a phaseout of them. Out of all potential signatory countries, only Malaysia and Thailand face some of the same concerns that caused India to decide to not pursue the signing of the agreement. A significant share of exports of both Thailand and Malaysia belongs to machines and chemical products – similar to India. Being a signatory of the RCEP would mean an increased risk of a potential decline in these exporting industries. That’s the reason why India’s Mr Modi took the step to pull India out of the negotiations

Malaysia and Thailand are unlikely to pull out. Increasing trade liberalisation in the region would benefit these already strong exporting economies. Geopolitical alliances and allies also could have played a part in India’s decision to withdraw. The unending land territorial disputes with China, in the face of a phaseout of trade barriers to Chinese goods, would have likely not been a popular decision with some voters. That’s not the case with Malaysia and Thailand, whose disagreements with China aren’t as complex as India’s.

Major geopolitical trends in Asia will be affected by the outcomes of the ASEAN 2019 business summit.

A theme of discussions and resolutions in the Business and Investment summit was the digital age and innovative businesses. Members of the summit agreed that increasing cooperation is needed. Prime Minister of Malaysia, Mr Mahathir, said that “[…] we need to overcome the separation of the members of the ASEAN countries”.

Association of South East Asian Nations, from its founding, has laid foundations to a stronger South East Asia. Increasing development of the region through cooperation should spur states in other regions of Asia. Whether increasing digitalisation of the region and its businesses will contribute to the whole continent’s state, or just the region’s, remains to be seen.

ASEAN previously released an indirect resolution on its stance about the South China Sea islands, and the wider Pacific Ocean territory (The ASEAN outlook on the Indo-Pacific). The resolution called for peaceful dispute resolution. The division of Asian countries on this issue will decline, as the parent event of the Business and Investment Summit, the ASEAN summit, ended with progress made on the code of conduct agreement for the South China Sea.

Asia, as a region, is opening up to free trade with other trade blocks or countries. The recent free trade agreements between the European Union and Japan, Republic of Korea, and Singapore have facilitated trade between mostly East Asian countries, and the 2nd largest economy in the world.

As every trend, it won’t last forever. More and more Asian, and particularly East and South-East Asian economies will become mature ones in the next few decades (Republic of Korea, Singapore). The terms of previously signed free trade deals may then no longer suit the needs of these countries.

Each trade deal is also causing increasing discussions in the continent about the benefits of trade agreements. The discussions have led to increasing pressure on local politicians for talks and signing of free trade agreements (India is the clearest example).

Along with corruption issues (Asia Pacific region received an average score of 44 in the 2018 edition of CPI) and economic inequality in the region, the pressure could lead new political parties into power.

The wider continental trend is to increase free trade and to lower tariffs on foreign products. It is a way of gaining access to lucrative markets. The doubts about intra-regional trade could lead to a diverging consensus on trade in the continent. Consequently, declining opportunities for access to lucrative markets.

Countries, and their allies, which have already signed agreements with trade partners, could slow down the phaseout of tariffs. Increasing doubts about the benefits of FTAs by countries like India have a strong possibility to become a wider anti-free trade trend.

Diverging opinions on wider regional trends are an inevitable consequence of meetings where countries with very different economies meet. South and South East Asian nations members range from island to continental states, and from those relying on agricultural exports to full services economies.

A way to increase cooperation could be information exchange. H. Milner in International Theories of Cooperation Among Nations, argues that even critics of the parent theory, agree that greater information sharing and communication, should strengthen cooperation between governments. The greater cooperation will be needed, as in the next decade, some of these nations will have to deal with major territorial and economic decisions (South China Sea islands, the RCEP).

ASEAN is not only its trade component, it is also a fruitful political forum which facilitates development through cooperation. From the outcomes of the summit, the region’s future will take an increasing turn towards digitalisation. However, due to many differences between the members, joint actions could meet resistance.

L'articolo What Does the ASEAN Business Summit Mean for the Region’s Future? proviene da InsideOver.

Almost five years after the industry development plan was announced, growth in GDP and development are needed both for China, and investors into this country. Will “Made in China 2025” will be able to create this boost?

The capabilities of “Made in China 2025” to create a GDP boost depend on the execution of the plan. The main parts of the plan are: digitalization of manufacturing, increase of efficiency, and innovation. The main goal of “Made in China 2025” is to push all Chinese manufacturing into one, producing more technical and higher-value products.

The plan will respond to increasing worries about China’s competitiveness beyond simple manufacturing, the growing labour costs, and the competition with cheaper labour countries.

Almost five years after the reveal of the plan, the execution of it has centred around the establishment of manufacturing innovation centres, initiatives for intelligent manufacturing and quality management.

Assessment of the success of “Made in China 2025”, will only be possible a few decades into the future and only when it will be finally realised (according to the same plan). Yet, the past five years of the execution of the plan, have made it possible to analyse some parts of the plan. Particularly, the establishment of new, high tech manufacturing zones.

These zones, each focused on manufacturing a different subset of high tech products are not a new idea. Industrial zones developed with the support of governments have been used by many governments to boost manufacturing. Yet, China’s innovation centres are approaching this idea a bit differently. Promotion of “[…] cooperation and profit-sharing between centres” should boost productivity. Nonetheless, the better know-how of older manufacturing countries, and patents numbers by companies in China still trailing behind, will outweigh this different approach for a long time.

The subsets of the manufacturing industry chosen to be developed in “Made in China 2025” show a move in the right direction. Additional investment into the medical devices subset, is a fitting response to both worldwide trends in health, and trends in the medical sector. As people all over the world are living longer, more health problems are bound to appear. With this, increases on all spending in medicine are due to follow.

Spending in the medical sector shows increases fuelled not only by the increasing life expectancy; increases in spending are also partly caused by spending on medical technology – good news for a country that is working to develop this subset of an industry.

For any industry to enter a stage of growth, an adequate number of workers with the right skills, or willingness to be trained, have to be present. China’s labour force has adapted to work in factories. Yet, the stringent tertiary education admissions could block the growth of an industry, which requires more technical skills.

To meet the demands of a new direction in manufacturing, either more students will have to be accepted into tertiary education institutions, or the number of places intended for non-technical subjects will have to be lowered. The repercussions of these decisions very likely could be the lower value of university diplomas, or a shortage of workers intended for non-technical roles.

China has chosen a bit of an unconventional path to transforming the education of its workforce. By supporting the transformation of universities into applied technology universities, promoting the activities of key businesses in education institutions, and encouraging the establishment of foreign research institutions in China, PRC will largely avoid the devaluation of tertiary education.

The main possible shortcoming of this plan is its more optimistic, than realistic, view of Chinese manufacturing landscape. Movement of both foreign, and domestic manufacturing businesses away from China, because of rising wages, shows that one of the selling points of Chinese manufacturing is its labour costs.

A decision to increase China’s production of more expensive and technical products would appear, at first glance, a good solution to combat this trend. However, this will only work if Chinese businesses will be able to repeat the success that low-cost manufacturing has brought. Will this happen? Time and the ability to attract and develop original ideas will tell.

>Even with perfect execution of the plan, changes in worldwide manufacturing can decrease the probability of this plan succeeding. Manufacturing businesses moving back to developed countries, and the movement of simpler manufacturing to emerging countries, will present a challenge to new high tech manufacturing in China. Both shortly, and a few decades later.

It’s easy to fall into the trap of thinking that only the increase of manufacturing firms can deliver sustained growth. If a new factory means more jobs and even higher incomes, then more factories should be the right choice for growth. However, Brandt and Zhu in Accounting for China’s growth have found out that an increase in efficiency, rather than growth in numbers, has delivered growth in China.

It’s impossible to deny that manufacturing, even its most basic operations, has lifted out many lowest-income countries out of poverty. Moving away from agriculture, and onto manufacturing-based economy, leads to production of higher added-value products and a lower dependence on volatile commodities prices.

Following this type of thinking, a development of Chinese manufacturing onto one specialising in the production of high tech products should lead to even higher development. After all, if manufacturing is the way out of poverty, a “higher” level out of manufacturing should bring even higher incomes. This is a very likely possibility, if the role of work culture, know-how, and innovation is forgotten. Without them, a highly advanced businesses simply will struggle to succeed.

Manufacturing is often dependent on natural resources and their extraction. A movement into high tech manufacturing of machines and equipment, still hinges on world commodities prices. Especially, the prices of metals. Since metals prices are volatile even in the context of commodities, China’s sustained growth could be threatened by this volatility.

Manufacturing of high tech goods in the industries that “Made in China 2025” aims to target, has only been a temporary fix for economic growth in developed countries. Instead, many countries, or trade and economics blocks, are moving towards an even greater opening of trade.

China’s free trade potential is limited, and its FTAs are geographically oriented towards Asia. The low western penetration makes trading less geographically and economically diverse – a challenge for growth.

As any other industry, advanced manufacturing can create sustained GDP growth, if constant innovation and competition is present. Competition in this sector is high both in China and in the world. As for constant innovation, it will be a challenge at least in the next few decades. Mainly because of China having to catch up to countries with more advanced high tech manufacturing industries.

The development of the manufacturing industry has been credited with helping China to become a more prosperous and globally competitive country. A new plan for the largest industry of PRC can deliver a similar success story. Nevertheless, the skills and knowledge gap, and a labour force which would have to change, could make this plan less successful.

L'articolo Will “Made in China 2025” Create a New Economic Boost? proviene da InsideOver.