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Clashing narratives hinder BJP dominance over India


Authors: Vignesh Rajahmani, KCL and Jeyannathann Karunanithi, Chennai

India’s general elections have now ended, with the last voting phase on 19 May 2019. In the final period, Indian Prime Minister Narendra Modi focussed his narrative on re-opening the festered wounds of the past like the 1984 anti-Sikh riots and the Bofors Scandal. This is a notable transition from earlier in the year, when the campaign rhetoric wove itself around terror attacks and the strikes in Kashmir.

India's Prime Minister Narendra Modi waves towards his supporters during a roadshow in Varanasi, India, 25 April 2019 (Photo: Reuters/Adnan Abidi).

This is also a stark shift from the previous narrative that revolved around quotas for the poorer unreserved sections of society and health insurance for 500 million Indians.

But a similarity between the 2014 and 2019 elections is in Modi’s Bharatiya Janata Party (BJP) creating and popularising a discursive discourse that jumps between a focus on broad development on one hand and an unhealthy focus towards Hindi nationalism on the other.

In 2014, the BJP peaked in India’s northern states — the so-called ‘Hindi belt’ — but performed poorly in the east and south. The post-2014 period saw the BJP striving to make inroads into these eastern and southern states with unclear electoral successes.

The country is struck with the conundrum posed by the clearly worsening relationship between GDP growth, which is rising, and societal development, which appears anaemic. The BJP is being blamed for this. Along with a greater focus on development and the need to unleash the innovative and entrepreneurial potential of the Indian youth, welfare as an assured public good has also entered the political vocabulary.

The opposition Indian National Congress party has made welfare its key pitch. Its manifesto promises include, among other things, a minimum income guarantee scheme for India’s poorest 20 per cent. The narrative of ‘wealth creation and the welfare of our people’ that underpins such schemes is a clear theme of the Congress party’s platform. The political significance of welfare is becoming particularly pertinent given the sharp fault lines widening between economic classes within castes. This, in turn, is pushing the economically disadvantaged to be foot soldiers for the hate campaigns and the muscular nationalism fostered by the BJP.

The 281 seats that the BJP won in the 2014 election were found to be extremely concentrated — six states alone (Bihar, Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh) contributed 194 seats. In these states, the BJP won 91 per cent of the seats it contested. In the 189 seats where the BJP and the Congress party were the top two vote-getters, the BJP won 88 per cent of them.

This revealed the BJP’s dominance in narrative construction and posturing in the 2014 election. But the Congress party’s narrative of welfare as a challenge to the BJP’s ‘Hindu state’ has since been better spelled out by the Congress, and its translation into votes is the first strike against the BJP’s electoral dominance. The recent pre-parliamentary election victories of the Congress party in the legislative assembly elections of Rajasthan, Madhya Pradesh and Chhattisgarh, along with the fight put up by the Congress party in Gujarat last year, reveal potential chinks in the BJP’s armour in this national election.

The geographic centricity of the BJP and their absence as a credible competitive party in regions outside the ‘Hindi heartland’ is attributed to the strong regional parties and states with a history of regional and sub-nationalistic undercurrents. In response to the muscular nationalistic rhetoric of the BJP, the regional parties are reinvigorating regional identities. They are also working out electorally strong socio-political coalitions around caste and religion, particularly in states such as Tamil Nadu, Andhra Pradesh, Telangana, West Bengal, Uttar Pradesh and Bihar. These parties have strong organisational abilities and a more intimate connection with the electorate.

Past elections suggest three inferences. First, a near stable vote-share of the regional parties has been hovering at around 50 per cent. In terms of seats, the tally for them has been over 200. Second, the growth of the BJP in these states has been at the expense of the Congress party rather than the regional parties. Third, the presence of the BJP in these states has been restricted to urban pockets.

With the Congress party opening negotiations with the regional political parties on the question of regional development, the fight against the BJP is gaining potency. In response, Modi himself is now hinting that he is also amicable towards the prospect of further potential coalition partners.

While the Congress party’s narrative is in line with the idea of an inclusive India, they are still yet to re-emerge electorally. Moreover, the regional parties have not done enough to contain the BJP’s ideological inroads into the non-BJP states.

But the antidote to the BJP’s ideological force does not necessarily need to be similarly ideological, as that could end up becoming exclusionary. Conversely, an inclusive narrative that accommodates the aspirations of all Indians as a diverse group of people could pose a serious challenge to the hegemony that the BJP is trying to build. That is not to say that such a force would not include the BJP, but an opposing alliance of this nature would own the bargaining power.

Vignesh Karthik Rajahmani is a PhD Candidate at the King’s India Institute, King’s College London.

Jeyannathann Karunanithi is a Political Analyst based in Chennai, Tamil Nadu, India.

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Using the WTO to address the China challenge


Author: Joshua P Meltzer, Brookings

The US–China economic relationship is at a critical juncture. Over the past year, the United States imposed tariffs ranging from 10–25 per cent on US$250 billion worth of Chinese imports. China retaliated by raising tariffs on US exports. Recently, the US government’s 10 per cent tariff on US$200 billion of Chinese imports was increased to 25 per cent and the Trump administration has threatened tariffs on the remaining US$300 billion of Chinese imports. China has threated to further retaliate.

Aides set up platforms before a group photo with members of US and Chinese trade negotiation delegations at the Diaoyutai State Guesthouse in Beijing, China, 15 February 2019 (Photo: Mark Schiefelbein).

Until recently, the United States supported China’s global integration based on a set of core expectations. Among these is the assumption that as China benefitted from the international economic system, including WTO membership, it would be a responsible stakeholder. China was expected to work with the United States ‘to sustain the international system that has enabled its success’. But this view of China evolved into seeing the country less as a partner and more as a competitor, culminating in the current bilateral economic tensions.

The US concerns that underpin these tensions stem from specific practices endemic to China’s economic model that systematically tilt the playing field in favour of Chinese companies. China’s economic system relies on state-determined economic goals, and the allocation of resources and finance to state-owned enterprises (SOEs) to achieve these goals.

In addition, China’s industrial policy is increasingly aimed at self-sufficiency in emerging technologies, which stands at odds with a trading system based on comparative advantage. China’s use of industrial policy to pick winners is expected to continue leading to excess production and dumping overseas, including in the area of advanced manufactured goods as the economy gears up to produce robots, new energy vehicles and batteries.

US unease over China’s economic model also arises at a time of increasing concern over China as a threat to US national security, particularly with respect to technology access.

Amid all of this, clarity about the economic costs and benefits to the United States from trade and investment with China is important. The economic relationship delivers more benefits to the United States than is commonly understood.

It is estimated that US exports to China support around 1.8 million jobs in sectors such as services, agriculture and capital goods. When the activities of affiliates of US and Chinese companies in each respective market are factored in, the United States is shown to sell more to China than vice versa.

But China–US trade has also led to job destruction in some US industries — particularly low-wage manufacturing. And China’s economic practices regarding intellectual property (IP) and technology transfer risk harming the US services sector and knowledge economy.

China’s economic system also places several acute stresses on the WTO. China made significant commitments as part of its WTO accession in 2001 but developments in the Chinese economic system mean these commitments are increasingly difficult to enforce. China’s unique economic model presents new challenges that were not anticipated at the time of its WTO accession and are therefore not covered by WTO rules. Meanwhile, scepticism over the WTO’s capacity to deal with the magnitude of the China challenge — both in terms of the rules and the dispute settlement system — is on the rise.

Despite its drawbacks, the WTO remains central — though this is contingent on strong US leadership. The WTO offers the only global set of trade rules that both reflects core US values and forms a baseline on which to build global support for a push back against Chinese economic practices.

Where China is in breach of its WTO commitments, WTO cases should be brought against it. Where WTO rules are unable to discipline Chinese trade practice, bilateral or unilateral action may be necessary. For its part, China must comply with its WTO commitments and make certain reforms that will likely touch on areas of state control over the economy. The United States and China should seek a WTO waiver for any bilateral deal that might be inconsistent with WTO rules in order to minimise harm to the institution.

The US administration also needs a forward-looking trade policy to establish free trade agreements (FTAs) with allies that raise the standards for trade. In this context, re-joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) should be a priority. The administration should also control access to US technologies through foreign investment and export controls, effectively using WTO-consistent tariff policies to minimise the harm from Chinese economic practices on US businesses.

In taking this multifaceted approach, the United States needs to uphold its core values such as non-discrimination, transparency and rule of law. Working toward a managed trade framework more akin to the Chinese model would undermine the WTO and be inconsistent with these values. China purchasing more US goods would also likely violate China’s most favoured nation (MFN) WTO commitment and disadvantage US allies.

Instead, the US administration should aim for long-term, market-orientated solutions while also strengthening the global trading system and rule of law.

Dr Joshua P. Meltzer is a Senior Fellow in the Global Economy and Development program at the Brookings Institution. He is also a Member of the Australian National Data Advisory Council and a Senior Fellow at the Melbourne Law School, the University of Melbourne.

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Trade LNG more, end the US–China trade war


Authors: Tomoo Kikuchi, RSIS and Yohei Tanaka, INPEX

In 2015, 24 per cent of total global energy was consumed in the form of natural gas, closely behind oil at 33 per cent and coal at 29 per cent. Its use is rapidly on the rise — in the United States, natural gas is expected to replace coal as the main source of energy together with oil by 2050.

An employee works on the production line of tanks for liquefied natural gas (LNG) at an energy equipment company in Nantong, Jiangsu province, China, 14 March 2019 (Photo: Reuters/Stringer).

International trade in liquefied natural gas (LNG) has risen in response to these changing demands. In 2017 Qatar held 27.6 per cent of the total LNG export market share followed by Australia at 19.2 per cent. The United States had a market share of only 4.5 per cent. This is expected to increase significantly.

On the other hand, smaller countries such as Japan occupy 28.8 per cent of the total LNG import share. China’s share of imports currently sits at 13.5 per cent. On a global scale, greater trade in LNG could encourage stronger international business ties and trade links.

The United States cannot run trade deficits indefinitely through the ongoing US–China trade war. Under such conditions, it seems there are five ways that LNG trade can contribute to a more stable world economy.

First, China’s LNG imports from the United States may be able to help rebalance deficits and counter the damaging effects of the current trade war. Currently, 50 per cent of the total US trade deficit is with China. The United States also happens to have a national surplus of natural gas. The United States is expected to become the world’s third largest producer of LNG by 2020.

If China chooses to import greater volumes of US LNG, trade tensions would ease. If such measures are not taken by China, the United States’ trade demands may become more severe. Greater export restrictions, including higher tariffs, would have long-term repercussions for China’s export-oriented economy and cause political instability.

Second, increased LNG imports from the United States could also help China internationalise its Renminbi. The world’s dependency on the US dollar is destabilising for the global economy, as well as a constraint on US monetary policy. The inclusion of the Renminbi into the SDR currency basket in 2015 reflects an effort to stabilise the global financial system. China may accept larger LNG imports from the United States if the Renminbi can be used as a clearing currency.

This may not be practical for businesses that trade mostly in US dollars. Oil and gas companies have little incentive to settle in Renminbi, as their equity and debts are in US dollars. But should the Federal Reserve increase its Renminbi holdings in the future, this will facilitate the redemption of US treasury bonds held by China.

Third, Australia and Japan can both play an important role in spurring the global growth of LNG trade. Japan has been the largest LNG importer for over a decade. Since 2013, Australia has been its biggest source of LNG imports.

The Japanese government plans to make Tokyo a global LNG hub by the mid-2020s. To this end, there is potential for Japan to import more LNG from Australia. The two countries should cooperate to relax the destination clauses in LNG contracts, which limit the destinations of transportation and unloading of LNG.

For further expansion and liquidation of LNG trade, Japan can also import more LNG from the United States and sell it to China. This will prevent China from becoming too dependent on US LNG imports.

Fourth, LNG could also help China mitigate the effects of climate change. Over the coming years, China will become more exposed to climate hazards. Yet China continues to rely on coal for 72 per cent of its primary energy consumption, while natural gas makes up only 6 per cent.

Various life cycle assessments indicate that LNG produces 30–40 per cent less CO2 than coal from extraction to combustion. In fact, over 95 per cent of coal’s CO2 emissions come from combustion. Burning low-quality coal also emits sulphur oxides and nitrogen oxides, which severely pollute the environment.

China is currently behind on its target to reduce coal reliance to 55 per cent by 2020. Even if Beijing cannot abolish fossil fuels entirely, China has an incentive to shift to a less carbon-intensive fuel such as LNG to reduce emissions.

Fifth, LNG will also enable China to diversify its sources of energy. Currently, China imports natural gas mainly via pipelines from Turkmenistan and, more recently, Russia. For geopolitical reasons, China is reluctant to become dependent on these pipelines for its LNG imports. Diversifying its sources of gas will allow China to gain political leverage and ensure greater energy security.

Increasing LNG trade could benefit many in the light of current US–China trade tensions. In an increasingly multipolar world, international cooperation through global trade must be strengthened and the LNG market offers unique opportunities to stabilise the system.

Tomoo Kikuchi is Visiting Senior Fellow at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Yohei Tanaka is Lead Economist and Deputy Manager at the America and Africa Project Division of INPEX, a Japan-based oil and gas exploration and production company.



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Getting the Australia–China relationship right


Author: Peter Drysdale, ANU

There’s no more important issue for Australia at this time in the history of its international economic and foreign affairs than to get the relationship with China right. It’s an issue that went through to the keeper during the election. But for the new Morrison government, forging a viable, credible strategy in its dealings with China will be a priority that plays into all its foreign relations strategies, prominently also with the United States.

Despite negative commentary about the health of the Australia–China relationship, the trade and economic partnership has thrived over the past few years.

Australia–China goods trade topped A$192 billion in 2018 having grown more than five times as fast as the world average. This remarkable growth was largely due to strong Australian commodity exports and impressive trade diversification.

Australia’s share of Chinese iron ore imports was 60 per cent in 2018. Chinese external procurement of iron ore rose to 90 per cent of its consumption, up from 83 per cent in 2014. Australia’s share of Chinese coal imports rose to a record 54 per cent in 2018, from 48 per cent in 2014. China’s coal imports from Australia grew by 9.8 per cent year-on-year, despite China’s reportedly tightening import restrictions on coal in the last few months of 2018.

On the back of early-stage China–Australia Free Trade Agreement (ChAFTA) tariff reductions, Australian wine and dairy exports to China have seen strong growth, despite reports in June 2018 of wine shipments being held up in Chinese customs. Australian wine exports to China grew 18 per cent in 2018 to A$1.1 billion compared with 10 per cent globally. Growth of 34 per cent in dairy exports last financial year made Australia China’s fourth-largest supplier.

In services, Australian exports to China grew 17.2 per cent to A$16.9 billion in 2017–18, more than double the growth in Australia’s total services exports over the same period. This included 16.7 per cent growth in the travel sector. A record 1.43 million tourists in 2018 makes China Australia’s largest source of short-term visitor arrivals. The export of education also continues to grow. The total number of Chinese students in Australia stands at a record 205,000.

It’s properly functioning markets that have delivered these strong Australia–China trade results. Australia’s largest trade relationship is one that is interdependent with, not dependent on, China, as it already draws a quarter of its imports of strategic raw materials from us, a proportion that continues to grow.

The bilateral investment relationship is a different story, as the data released from our Chinese investment database today indicates. That’s in part because the political relationship has sputtered.

The biggest risk is that Australia gets trapped in an uncertain US strategy towards China that will invite hostility from our most important trading partner and change the global rules of engagement in a way that opens us to real damage.

That’s why establishing a constructive trajectory in political dealings with China is crucial: because of its importance to the economic ambitions of the Australian community; because it is central to preserving prosperity and political stability in the Asia Pacific region; and because it is critical to securing the rules-based global economic and political system that underpins Australia’s prosperity and political security.

Worrying about poor diplomatic messaging or the lack of a good ‘narrative’ to describe the Australia–China relationship is misplaced. The narratives about political influence and false ‘choices’ between economic and security interests and partners are not core problems, but Australian national housekeeping problems.

What needs to be done now is to bring into play all the machinery we have in the bilateral relationship to persuade China and the Australian public that we’ve strong joint interests that can escape the shadow of US–China trade and other tensions.

This does not mean any dramatic change in Australia’s security relationship with the United States unless that country was to demand lockstep Australian support for an aggressive posture towards China and abandonment of rules-based multilateralism.

The resilience of the Australia–China trade relationship depends fundamentally on both partners’ commitment to the international market system and the rules under which it has flourished. That system is the core of the economic and political security in Asia and it’s under threat from America First trade and decoupling strategies. Australia and China have common cause with their partners in the region in dealing with this global threat. At the same time the political anxieties caused by China’s rise, partly but not wholly because of its different political system, have to be confronted frankly in our dialogue with China.

The core task is to enunciate these substantial strategic interests that both countries share in a time of great change. This task will be on-going. It cannot sensibly be dealt with at a single point in time. The Comprehensive Strategic Partnership between Australia and China, the Strategic Economic Dialogue and ChAFTA are key vehicles for addressing them over time. Both countries can commit to strengthening this machinery by building-in a broad-based infrastructure of dialogue to engage on the evolving agenda of a partnership focused on change.

What’s clear is that the new Australian government has an opportunity now to propose to Chinese leaders a high level dialogue on shared interests. The Chinese will want to talk about difficult things like Huawei and the Belt and Road Initiative (BRI) and we will want to talk about difficult things like militarising the South China Sea, the Uighurs and ways of dealing with BRI problems. But that need not frustrate sympathetic engagement on the very big agenda that we share.

Peter Drysdale is Head of the Asian Bureau of Economic Research and Editor-in-Chief of East Asia Forum in the Crawford School of Public Policy at The Australian National University. He was co-author of the Australia-China Joint Economic Report in 2016 and of a new report released today, ‘Getting the Relationship with China Right‘.

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China is paving a Belt and Road 2.0


Authors: Pradumna B Rana and Xianbai Ji, RSIS

At the second Belt and Road Forum (BRF) in Beijing held from 25–27 April 2019, China acknowledged the criticisms levelled against the Belt and Road Initiative (BRI) and pledged reform. We could see a ‘BRI 2.0’ emerge if these reforms are implemented and cooperation with development partners and stakeholder countries increases.

Malaysian Prime Minister Mahathir Mohamad and his wife arrive to attend a welcoming banquet for the Belt andRoad Forum hosted by Chinese President Xi Jinping and his wife at the Great Hall of the People in Beijing, China, 26 April 2019 (Photo: Reuters/Jason Lee/Pool).

Thirty-seven heads of state, government representatives and representatives of international organisations gathered in Beijing for April’s BRF. Deals collectively worth US$64 billion were signed during the three-day summit. Leaders also issued a joint communique expressing their shared commitment to advancing high-quality, sustainable and inclusive Belt and Road cooperation.

Five years since its inception in 2013, the BRI has established itself as a defining feature of the global economy and politics. BRI-induced Chinese outbound direct investment totals US$80 billion. More than 80 special economic zones and high-tech industrial parks have either been built or are under construction, creating jobs and billions in extra tax revenue for host governments. Trade between China and BRI partners is flourishing at a time when global trade faces uncertainties. Between 2013 and 2016, the value of China’s merchandise trade with BRI countries increased at a faster rate than China’s overall foreign trade.

An important contributor to the rapid growth in trade is enhanced transport connectivity. In the past, direct rail services between China and Europe were inconceivable. But thanks to the BRI, Duisburg, a lesser-known city in Germany, has become the largest inland port in the world. Shipping goods from Chongqing to Duisburg takes 45 days by sea but only about 12 days by rail. In 2018, 6300 containerised freight trains from China used this route. That figure could rise to 10,000 within five years.

China and BRI countries have launched more than 1200 new international air routes and signed 18 transport facilitation agreements to improve the efficiency of commercial border-crossing. New trade routes are also being created.

Simultaneously though, a number of non-BRI countries have criticised the BRI. The United States sees the BRI as a cover for ‘debt-trap diplomacy’ through which China lures borrowing countries into unrepayable debts to gain political leverage over them.

The BRI is at risk of losing its lustre among several once enthusiastic participants due to a host of practical implementation problems. In the wake of the Hambantota Port handover, Sri Lanka appears disillusioned, having chosen to stay away from this year’s BRF. Several countries like Pakistan, Malaysia, Myanmar, the Maldives and Bangladesh have sought to review, re-negotiate, cancel or scale-down BRI commitments, citing concerns over cost overrun, erosion of sovereignty and reports of corruption. Malaysia’s East Coast Rail Link is back on track, but only after China reduced the price tag by about a third.

At the BRF, Chinese President Xi Jinping acknowledged the criticisms levelled against his signature policy and pledged to reform it in a number of ways. First, China will ‘multilateralise’ the BRI. Xi declared strong support for multilateralism and vowed to work more closely with multilateral development banks in third markets. He also attached importance to the BRI adopting multilateral rules and international best practices pertaining to project development, operation, procurement, and tendering and bidding.

With the help of Singapore, China is establishing a panel of international mediators from BRI countries to resolve disputes, including cross-border disputes, arising from projects under the BRI. China has also listed ‘Strengthening Development Policy Synergy’ with similar initiatives, such as ASEAN Connectivity 2025 and the EU Strategy on Connecting Europe and Asia, as the top priority for jointly developing the BRI.

Second, China will make the BRI more sustainable. A BRI Debt Sustainability Framework, similar to those of the International Monetary Fund and World Bank, was released to help partner countries in decision-making. Responding to environmental concerns, Xi made a pledge to ‘launch green infrastructure projects, make green investment and provide green financing’. On the socio-political front, the BRF endorsed the ‘Beijing Initiative for the Clean Silk Road’, pushing BRI countries into fighting corruption together. This step is path-breaking as previous BRI policy statements rarely referenced anti-corruption.

Third, China will continue structural reforms including beefing up the enforcement of intellectual property rights, stopping involuntary technology transfer, and abolishing unreasonable regulations, subsidies and practices. A successful BRI cannot be a one-way street where BRI partner countries open up to Chinese trade and investment while China shuts its doors on them. Stakeholder countries have also been requested to create an investment-friendly environment and to treat Chinese enterprises in a fair and friendly manner.

In light of pushbacks and criticisms during the BRI’s first five years, China has pledged reform. This could lead to the emergence of a BRI 2.0. If China implements these reforms effectively and cooperation with development partners and stakeholder countries increases, this new BRI 2.0 will be better positioned to lead to shared prosperity for all participants.

Dr Pradumna B. Rana is Associate Professor and Coordinator of the International Political Economy Programme at the Centre for Multilateralism Studies in the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Dr Xianbai Ji is a Research Fellow at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

A version of this article was originally published here on RSIS.

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Thailand’s competition law dead since arrival


Author: Deunden Nikomborirak, Thailand Development Research Institute

Thailand was the first nation in Southeast Asia to implement an effective competition law back in 1999 when such laws were unfamiliar to most developing countries. But exactly two decades have passed and Thailand does not have a single competition case on record to show for its troubles.

Cars stop at a PTT Public Company Limited's gas station in Bangkok, Thailand, 27 January 2016 (Photo: Reuters/Athit Perawongmetha).

This lack of enforcement can be attributed mainly to the composition of the Competition Commission in recent years. For a time, the chairperson was a politician (then-minister of commerce) and the majority of commissioners were bureaucrats and big business representatives (from the Federation of Thai Industry and the Thai Chamber of Commerce). Independent parties — academics and small business — made up only a small minority.

The absence of a functioning competition law renders the Thai market highly concentrated.  According to the Global Competitiveness Report 2018, Thailand ranked 38 out of 140 countries, but received a very low ranking of 96 for the indicator ‘extent of market dominance’. The figure is disappointing when compared to Malaysia’s rank of 24 and Indonesia’s of 51.

According to the Credit Suisse Global Wealth Data Book 2018, Thailand also ranks highest for inequality globally. The top 1 per cent of people control nearly 67 per cent of the country’s wealth — stark when compared to Singapore at 33 per cent, Indonesia at 47 per cent and Taiwan at 28 per cent.

Previous Thai governments have recognised the need to revise the composition of the Commission and make the Office of the Trade Competition Commission (OTCC) an independent body. But political and big business interests made it nearly impossible to pass amendments to the competition law.

The right time finally came after the military coup in 2014. The military government appointed a new Minister of Commerce — a former secretary with no strong political motivations. With support from the Director of the OTCC, the new minister pushed the long overdue amendment through the National Legislative Assembly in 2017 after extensive deliberations with the Council of State.

So, what changed with the new law? The competition office is now an independent body, similar to other sectoral regulatory bodies such as the Energy Regulatory Commission and the Office of Insurance Commission. Its budget is allocated directly from the Budget Office, rather than through the Ministry of Commerce as it was in the past.

The number of commissioners was reduced to seven and all now work full-time. Politicians, bureaucrats and private sector representatives are no longer allowed to be commissioners, unless they resign from their respective positions before taking office.

The new Commission is made up of three former officials from the Ministry of Commerce, two academic economists and two businessmen with legal backgrounds. The chairperson, selected by the seven commissioners themselves, is also an economist. Despite the imperfect selection process, the new Competition Commission is a marked improvement.

In addition to changes in the institutional design of the OTCC, the new law removes criminal sanctions for unfair trade practices, mergers and ‘non-hardcore’ cartels — cartels that do not involve price or quantity fixing, market allocation or bid rigging. But criminal penalties remain for violations of dominance provisions.

Will Thailand’s ‘competition zombie’ finally come alive after this legal amendment? It is too early to tell as the Commission has yet to pass over 80 implementing regulations. Even if the new OTCC proves effective, Thailand’s monopolies and oligopolies are likely to remain simply because it is often government policies rather than business trade practices that stifle or restrict competition in the market.

For example, Airports of Thailand just granted a monopoly concession for the operation of duty-free shops at the main international airport in Bangkok, despite heavy opposition from all sectors of the community. Megaproject procurement — projects such as those involving high-speed trains and submarines — is not open to competitive bidding, but rather catered to a designated supplier.

Several business licenses carry unreasonable conditions that serve to entrench the incumbent market power. For example, to obtain a license to produce beer, the applicant must commit to investing roughly US$3.3 million and have the capacity to produce 100,000 litres of beer per year. This proscribes the production of craft beer.

Unfortunately, the new competition act is silent on the advocacy role of the OTCC. This leaves the state of Thailand’s competition policy going forward uncertain at best. If Thai politicians and bureaucrats continue to disregard the significance of market competition, the law will have a limited impact on the economy.

Thailand still has a long way to go in building faith in the value of competition. It seems the OTCC and competition advocates face an uphill battle.

Dr Deunden Nikomborirak is a Research Director at the Thailand Development Research Institute (TDRI), Bangkok.

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How Japan manages US trade pressure


Author: Aurelia George Mulgan, UNSW

Japanese Prime Minister Shinzo Abe’s administration is strikingly successful in deflecting pressure for a bilateral trade deal from US President Donald Trump. Some of the secrets to Abe’s success are obvious, others less so.

US President Donald Trump shakes hands with Japan's Prime Minister Shinzo Abe as he welcomes him at the White House in Washington, 26 April 2019 (Photo: Reuters/Jonathan Ernst).

Among the former is Abe’s continuing charm offensive towards Trump and the direct communications pipeline that has developed between the two leaders. These underpin perhaps the most cordial relationship the President has with any world leader. The connection is invaluable to Abe given the power of personal relations to ‘trump’ other factors when dealing with the President.

Abe used a recent trip to Washington to his advantage, informing Trump of pending political events in Japan that constrain Abe’s policy options — namely impending upper and (possibly) lower house elections. But this is far from the whole story.

The Abe administration has also blunted the Trump trade offensive through massive weapons purchases from the United States and a large rise in Japanese investment in the US economy — including in key industries in states important to Trump. Substituting in other areas for concessions on market access is a long-standing tactic in Japan–US relations.

The Abe administration has also been able to take advantage of the Trump administration’s preoccupation with the escalating trade war with China. But it is well aware that Trump’s current frustrations with China might feed renewed pressure on Japan with the need for a quick victory on trade. Still, a proactive Abe administration policy of warming economic ties with China is designed to provide some insurance against protectionist retaliation from the United States.

Japan is also handling US trade pressure with less-obvious defensive manoeuvres that, so far, seem to be working.

First is Japan’s insistence on describing any negotiations for a bilateral trade agreement as leading only to ‘a trade agreement on goods’ in order to exclude currency matters.

Second, Japan is drawing on the success of its trade leadership in concluding the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Japan–EU Economic Partnership Agreement (JEEPA), enabling it to enter negotiations with the United States with a firm limit set on any concessions. This principle seems to have been accepted by the United States — at least for now.

Third, these success stories are a powerful illustration of the benefits of ‘win–win’ agreements that are much touted by Abe — including to Trump — in contrast to the latter’s ‘win–lose’ model. Under the ‘win–win’ principle, each party trades some of its special interests for the benefits generated by the special interests sacrificed by the other side.

It is the principle behind Japan’s current resistance to agriculture being targeted ahead of a wider bilateral trade deal with the United States. Opening Japan’s market for US agricultural products in exchange for the Trump administration’s abandoning its threat to raise tariffs on Japanese cars and car parts is not ‘win–win’ — it represents negotiations under threat of retaliation. So does the possibility of Trump’s signing an executive order to impose a 25 per cent tariff on car imports from Japan in the event that it fails to ‘voluntarily’ limit car exports to the United States.

‘Win–win’ is flexible enough to be applied in bilateral, regional and multilateral agreements and it characterises preferential trade agreements such as the CPTPP and JEEPA. In the CPTPP, for example, the costs and benefits to participants can be spread across not only markets for goods, but also a broad range of other areas covered by the agreement — such as rules of origin, government procurement and competition policy. Although falling short of free trade, the CPTPP enables Japan’s farming sector to retain key protections while facilitating the expansion of Japan’s regional production networks.

Japan is not ’the flag-bearer of free trade’. Free trade certainly is vital to Japan in maximising access to global markets given its shrinking domestic market. But Japan implements deals that retain varying levels of import restrictions, including tariffs, particularly in sensitive areas.

Finally, some broader shifts in Japan’s trade and national security strategies are generating greater confidence in its handling of US–Japan trade issues. Under Abe, Japan is assuming a more independent role in regional economic and trade affairs in response to the US retreat from regional economic integration — and as a hedge against the political, economic and security uncertainties that the Trump administration is creating.

Japan’s rapprochement with China, for example, is not restricted to economic and trade ties. The realignment not only capitalises on plummeting economic relations between China and the United States but is also driven by common anxieties about Trump. The official restoration of normal relations includes closer diplomatic and even defence ties.

Similarly, Japan is building an autonomous political and economic relationship with Russia in the context of bilateral negotiations on the Northern Territories issue, while Abe is seeking to implement a direct engagement policy with North Korea. Abe wants summit talks with North Korean leader Kim Jong-un without preconditions, rather than continuing to rely solely on US mediation on the abductees issue.

Abe is a security realist, but also an ideological nationalist — a factor in the fine line he walks between solidifying US–Japan security ties and diversifying and deepening security links with other powers. The result is that Japan’s more independent standing as a regional and global actor is helping it to resist US pressure, which it no longer needs to stimulate domestic reform — a process it regards as virtually completed thanks to the CPTPP and JEEPA.

The balance of power is shifting in the US–Japan relationship and their positions in the region. Japan is becoming more influential as an independent actor while the United States is facing a loss of influence.

Aurelia George Mulgan is a Professor at the School of Humanities and Social Sciences, the University of New South Wales, Canberra.

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Dangers of a G2 US-China trade deal for the rest of us


Author: Editorial Board, ANU

China and the United States have failed to reach a temporary truce in their trade war.

A truck hauls a container at the port of Los Angeles, California, US (Photo: Reuters/Mike Blake).

The 10 per cent tariffs from last September levied on US$200 billion worth of Chinese imports entering the United States have been increased to 25 per cent this month. Beijing has announced retaliation of 25 per cent tariffs on US$60 billion worth of US imports into China starting in June. More is being considered by the Trump administration. Also on the America First agenda is tariffs on automobiles and their parts from all countries. And just last week Trump made official what most already knew: Huawei will be kept out of the United States’ telecommunications sector.

The multilateral trading system — and hence global economic and political security — is at risk from Trump’s America First agenda and the US–China trade tensions.

The best case scenario for Beijing and Washington is a deal outside of the established multilateral rules that carries major direct costs to other countries and risk to the rest of the global economy. Chinese purchases of US agriculture and energy will divert trade from other suppliers and buyers. The two largest economies and trading nations will move closer to managed trade, away from freer markets, and sideline the WTO, replacing and weakening some of its core functions that hold global trade together.

Both Mr Trump and Mr Xi are looking to do a deal before or at the G20 summit in Osaka at the end of June. If they don’t, the trade war could escalate beyond trade, spread to other countries and put the global economy at further risk.

A G2 deal between the United States and China is unlikely to take into account the interests of other countries. Mr Trump prefers a divide and conquer bilateral approach with maximum US leverage in negotiations. Beijing’s priority is to do a deal to get out of the corner it’s been backed into.

As Stephen Roach explains in our feature essay this week, while it’s likely that a deal will be struck on or before the G20 summit, ‘any such agreement is likely to be superficial and offer little or no fundamental resolution to the deep-rooted conflict between the world’s two great powers’.

It will be ‘superficial because it will probably focus on the least consequential aspect of the dispute — the bilateral US–China trade imbalance‘, as Roach says, the lightning rod in the US debate. And given the bipartisan and elite hardening of views in Washington that sees China as a threat and strategic competitor, any deal is likely to be temporary.

Roach sees big changes domestically in both China and the United States as the solution to avoid an ‘economic cold war’ which will be ‘a protracted period of charges and counter-charges, including tariffs and other sanctions, that will sap the vitality of both combatants’.

Can the rest of the world do better than be bystanders as the two major powers carve up the world and Trump’s America First agenda threatens to tear down the rules-based multilateral trading system that the United States has led for the past 70 years?

Instead of waiting to see what’s left to clean up in the aftermath of a deal, leaders will need to stand up for their own core interests in the global system. But to do so against the global hegemon that, though it is a power diminished by what it now does day by day, is still the largest and most powerful country in the world is no easy job. And they’ve been used to relying on US presidents to do so until now.

The first big test will be next month at the G20 summit in Japan. The world needs a ‘Merkel moment’ similar to when German Chancellor Merkel firmly made the G20 a 19 vs 1 affair in Hamburg and defended multilateralism as host of the economic grouping. And then again with powerful symbolism in the G7 in Toronto.

Is this year’s G20 host — Japan — up to the task?

Sure, Japanese Prime Minister Shinzo Abe stepped up to fill the vacuum in global leadership and saved the Trans-Pacific Partnership after Mr Trump withdrew the United States from the regional agreement. But Japan is hemmed in by its own negotiations with the United States and trying to get through the G20 without upsetting the Americans is Mr Abe’s instinctive priority. But Mr Abe and Japan may not be able to fudge the choice between protecting the multilateral order and appeasing its security guarantor.

More than ever a coalition of countries will need to coalesce if the rules-based system is to be protected from a United States trying to withdraw from it. The rest of the world — small and medium sized countries alike — need the large countries enmeshed in rules and collective action to hold them to account. No other region has more at stake in this game than Asia and so Australia, Indonesia and South Korea will need to help Japan stand firm. Canada will also be important, as will Europe where leaders will have to rise above the backlash they face against globalisation at home and the distraction of Brexit to play a leading role.

There may be hope for collective action and it might come from Mr Trump’s threat of more tariffs on the rest of the world, as it simultaneously holds the crown jewel of the WTO hostage by threatening its dispute settlement system.

There is an opportunity for China to step into a leadership role. If it takes the interests of the multilateral system into account as it says it does, it could extend market opening to others beyond American goods, and implement the reforms at home that many want to see. China can strengthen, instead of weaken the multilateral trading system and win friends in the process.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

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What comes next in the US–China trade war?


Author: Stephen Roach, Yale University

The escalation of tit-for-tat tariffs between the United States and China is now in the danger zone.  Surely, reason will ultimately prevail. At least that is the common refrain in the echo chamber, especially in light of the dark history of earlier trade wars.

An electronic board showing the CBOT soybean futures on a pedestrian overpass at Lujiazui financial district in Shanghai, China, 16 May 2019 (Photo: Reuters/Aly Song).

While it is likely that a deal will be struck on or before the upcoming G20 Osaka summit in late June, I fear any such agreement is likely to be superficial and offer little or no fundamental resolution to the deep-rooted conflict between the world’s two great powers.

The deal is likely to be superficial because it will probably focus on the least consequential aspect of the dispute — the bilateral US–China trade imbalance. This is the lightning rod in the debate, the culprit behind what US President Donald Trump calls the ‘carnage’ of job losses and wage pressures.

Yes, in 2018, the United States had a US$419 billion merchandise trade deficit with China, accounting for fully 48 per cent of its massive overall merchandise trade gap of US$879 billion. But what Trump — and most other US politicians won’t admit, Republicans and Democrats alike — is that the United States ran trade deficits with 102 countries in 2018. This reflects a profound shortfall of domestic saving that is likely to get worse in the years ahead, owing in large part to the reckless tax cuts of late 2017 approved by none other than Congress and the President.

Consequently, to the extent that the coming deal features the absurdity of a bilateral fix for America’s multilateral trade problem, it will achieve very little in addressing the so-called structural issues that lie at the heart of this conflict — namely allegations of intellectual property theft, forced technology transfer, cyber hacking, and unfair industrial policies orchestrated by China’s state-owned enterprises. It is important to stress the word ‘allegations’ in describing the structural conflict. Most of the charges are, in fact, based on flimsy evidence that would not be admissible in a US court of law.

But the false narrative begs the far deeper question: What happened to the strategic engagement that has long been the glue binding the US and Chinese economies together?

A deep-rooted relationship problem traceable to paranoia in both nations is at work. The bipartisan US view is that it is all China’s fault. China, in the words of a Trump Administration white paper issued last June, is thought to pose an existential threat to the very future of US prosperity.

The Chinese view is equally defensive — underpinned by perceived threats of a US containment strategy. From the Asian ‘pivot’, to the Trans-Pacific Partnership, to Trump’s tariffs, China’s leaders are consumed by their own existential fears that the United States is taking dead aim on China’s aspirational 2049 centenary goals for economic development and rejuvenation.

The charges and counter-charges are an outgrowth of a long-simmering mutual distrust that borrows a page from the classic script of codependency. Both nations depend on the other to support economic growth — something that China as an export-led economy has long recognised. But this point is dismissed by Washington politicians,  despite America’s reliance on low-cost consumer products from China, massive Chinese purchases of US Treasuries, and China’s significance as America’s third largest and most rapidly growing export market.

The problem with codependency, whether it is with humans or economies, is that it is a very reactive and ultimately dysfunctional relationship. When one partner changes the rules of engagement, the other feels threatened, and conflict arises. While both dynamic economies are always changing, the shifts under way in China are by far the most profound — from manufacturing to services, from exports to consumption, and from imported to indigenous innovation. The United States, by contrast, clings to the hubris of its superior growth model.

Ironically, the United States was more comfortable with the ‘Old China’ and now feels threatened by the ‘Next China’. America’s aggressive reaction to these threats is a manifestation of the conflict phase of codependency.

So what comes next? The risk is a quagmire with no easy way out. Despite a superficial deal focusing on the bilateral trade imbalance, the structural conflict over technology is likely to endure. This points to what can be called an economic cold war — a protracted period of charges and counter-charges, including tariffs and other sanctions, that will sap the vitality of both combatants.

Resolution ultimately comes only by strength from within. For China that means successfully implementing reforms that promote the economic rebalancing it has long sought. For the United States that entails rebuilding the domestic saving it needs to restore competitiveness by investing in infrastructure, productive capacity, and human capital. With that shared strength comes a renewed opportunity for constructive engagement.

Is that really asking too much of the world’s great powers?

Dr Stephen Roach is a Senior Fellow at Yale University’s Jackson Institute of Global Affairs and a Senior Lecturer at Yale’s School of Management.

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In Cambodia, the BRI must benefit locals too


Author: Sok Kha, Phnom Penh

Cambodian Prime Minister Hun Sen’s delegation has returned from the second Belt and Road Forum in Beijing, bringing back 10 newly signed agreements. The trip was closely followed by Cambodians, who have an increasing interest in the course of the relationship between Cambodia and China.

Garment workers gather at the Tonle Sap bank during a celebration for Labour Day in Phnom Penh, Cambodia 1 May 2019. (Photo: Reuters/Samrang Pring).

This bilateral relationship was first elevated after Cambodia’s late Prince Norodom Sihanouk and former Chinese premier Zhou Enlai met on the sidelines of the Bandung Conference in 1955. Although domestic political changes in Cambodia disrupted engagement for some time, the relationship has been restored and is advancing substantially. By many accounts, Cambodia is one of China’s closest allies in the region.

Economically, China has undeniably become Cambodia’s largest economic influencer. China is Cambodia’s largest foreign investor, bilateral donor, trading partner, rice buyer and source of foreign tourists. Cambodia has embraced (BRI) since its inception in 2013. From infrastructure and connectivity development to cross-border trade and tourism, Cambodia has benefitted significantly from cooperation with China under the BRI framework.

As a matter of illustration, over 20,000 Cambodian workers — mostly low-skilled and female — are employed by over 100 factories operating within the BRI-associated Sihanoukville Special Economic Zone to produce textiles, machinery and other light manufacturing products for export. With the zone’s second phase of development underway, at full capacity it will host up to 300 factories employing over 100,000 Cambodian workers.

The benefits are substantial considering the extent of indirect employment and income generation (for example, through businesses supported by the spending of workers and the prevention of risky migration). The ongoing construction of the Phnom Penh–Sihanoukville Expressway and planned airport projects in Phnom Penh and Siem Reap have great potential to enhance connectivity within Cambodia and beyond by improving logistic efficiency, reducing trade costs and deepening regional integration.

That said, local concerns and discontent at Chinese investment are also growing. Cambodia’s increasing dependency on China will inevitably pose certain constraints on the former’s foreign policy options, with ASEAN’s failure to issue a statement on the South China Sea in 2012 a telling example. This dependency has increased over 2018 as the Hun Sen government’s relationships with the United States and Europe have come under increasing strain due to undemocratic developments in the country. Some view China as an opportunist, exploiting this situation to cultivate stronger relationships with Cambodia’s government elites.

Many perceive elite Cambodian political backing to have facilitated the approval of China-funded and China-initiated projects, potentially enabling non-transparent and inconsistent information flows as well as limiting engagement from relevant stakeholders. NGOs and civil society have frequently raised concerns on issues ranging from environmental damage to land disputes. Public discontent has over the last few years as people have increasingly perceived the cooperation as non-inclusive and, worst of all, adversely affecting local livelihoods and the environment.

A case in point is the ‘Chinese issue’ in Sihanoukville. Development has picked up at lightning speed thanks to the influx of Chinese money. But basic public services are often failing to keep up with the increasing economic activity. Problems over trash collection and the already-limited water and electricity supply are worsening. Some locals even point their fingers at the increasing numbers of Chinese to explain weaker phone signals.

While some Cambodians have been left better off by Chinese investment, minimal trickle-down benefits and adverse effects have left many locals frustrated. They view projects as staffing too many Chinese, offering limited job opportunities to local people. They also complain about Chinese businesses crowding out local businesses, with Chinese money inflating prices.

Cambodia’s increasing dependency on China needs to be taken into consideration and the benefits of BRI-linked projects need to be shared among the Cambodian population. The primary responsibility to ensure that the use of China-backed resources aligns with Cambodia’s development needs. China, for its part, can assist by setting transparency and project standards as prerequisites for awards and tenders.

Most importantly, both countries need a stronger level of bilateral cooperation to which ensures all levels of society are working together to ensure viability and sustainability. The Cambodian government needs to deepen its engagement with civil society groups in a consistent, transparent and fair manner. China needs to sincerely deploy, strengthen and promote people-centred public diplomacy tools in Cambodia to win the hearts of locals and secure broader support that goes beyond Cambodia’s chief executives.

Only then can China ensure a more durable foothold in the country and the successful implementation of the BRI.

Sok Kha is a development consultant based in Phnom Penh, Cambodia. He is currently engaged as a Regional Cooperation Specialist for the Asian Development Bank.

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