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COVID-19 makes waves for international shipping

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Author: Sam Bateman, University of Wollongong

The impact of the COVID-19 crisis on the cruise ship industry has attracted much attention in recent weeks. But the associated global economic slowdown means that the impact of the crisis on other parts of international shipping will be even more severe.

A cargo ship carrying containers near the Yantian port in Shenzhen, following the COVID-19 outbreak, Guangdong province, China, 17 May 2020 (Photo: Reuters/Martin Pollard).

According to data from UNCTAD, passenger ships — including cruise liners and ferries — constitute only about 0.4 per cent of international shipping by deadweight tonnage (DWT). Bulk carriers are the largest component at 42.6 per cent, followed by oil tankers at 28.7 per cent, container ships at 13.4 per cent and other types (including chemical tankers and gas carriers) at 11.1 per cent. These cargo-carrying vessels are employed very differently. Container ships generally work to fixed schedules, tankers to long-term contracts, and bulk carriers often on single-voyage contracts.

Passenger vessels are usually quite small while oil tankers and bulk carriers can be very large vessels — over 300,000 DWT or more. But the largest cruise liners now being built are comparable in size. Some have a gross tonnage over 200,000 and can carry over 5000 passengers with about 2000 crew. Whether these mega-ships will still have worthwhile employment at the end of the COVID-19 crisis is yet to be seen.

Seaborne trade and international shipping continue to be the engine of economic growth. According to UNCTAD, the world economy grew at 2.3 per cent between 2018 and 2019 while merchandise trade grew at 3.1 per cent and international seaborne trade at 2.7 per cent. Four-fifths of world merchandise trade is carried by sea. The fall in the growth of seaborne trade in 2018–2019 compared with the previous year’s growth of 4.1 per cent was largely due to only a small increase in tanker trade over the year.

The COVID-19 pandemic, the slump in global trade and the current collapse in oil prices are having a profound impact on international shipping — and not always in the ways we might expect. For example, demand for tankers is soaring as countries and oil companies seek to contract large vessels to use as floating storage facilities.

Container and bulk carrier shipping are experiencing major downturns in demand. Container ship operators are cancelling sailings in order to minimise losses, thereby eroding service reliability. More than 10 per cent of the global container fleet is now anchored as markets fall.

Demand for dry bulk shipping is also down due to disrupted commodity supply and economic problems in major destinations. In the first quarter of 2020, the Baltic Dry Index — a key indicator of bulk shipping demand — slipped 43 per cent with the rapid spread of COVID-19 around the world. Unemployed ships are either laid up with skeleton crews or, in the case of bulk carriers, drifting at sea fully crewed and waiting for another contract. This can expose them to the risk of armed robbery.

The downturn in international shipping, along with the current restrictions on international travel, is also having a serious effect on seafarers. Every month around 100,000 seafarers are rotated on and off vessels worldwide. These crew changes are not possible in the current circumstances. Thousands of seafarers are now stranded onboard for periods well beyond their contracts, which can last up to nine months or even a year.

Seafarers with expired contracts are looking forward to getting home, but they may be unable to get a new contract when they do so. This will have knock-on effects for many developing economies. For the Philippines in particular, the wages of around 400,000 people serving at sea, some in senior positions, are an important input to the country’s earnings — in 2018 these workers sent home US$6 billion in remittances. Cruise liners are now being used to return seafarers, largely Indonesians and Filipinos, to their home countries. More than 20 cruise liners are currently anchored in Manila Bay awaiting approval to land over 5600 Filipino seafarers to their homes.

The depressed market for shipping may also lead to increased piracy and armed robbery against ships. The global financial crisis in 2008–2010 was a significant factor in explaining increased piracy and armed robbery both off Somalia and in Southeast Asia. Many unemployed ships were left sitting idly at sea in high risk areas — in Southeast Asia in particular, ships laid up at anchor with reduced crews, were highly vulnerable to sneak attacks.

This situation may be developing again now. The report of the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia for the first quarter of 2020 recorded a three-fold increase in total incidents compared to the same period in 2019. Sixteen of these incidents — 55 per cent of the total — occurred while ships were at anchor or alongside. This suggests that more vessels are either unemployed or spending more time in port.

Unlike the global financial crisis after which international shipping recovered fairly quickly, COVID-19 is likely to have more ongoing impacts on shipping. The cruise industry may not return to the boom it was experiencing in recent years. Controls over contracting seafarers and obligations over their repatriation will probably be tighter, leading to increased costs for shipowners.

Shipowners will also be tempted to cut costs by employing cheaper crews, reducing crew numbers and lowering maintenance standards. This could increase the risk of accidents at sea, including collisions and ship losses, as well as increase the risk of marine pollution and vulnerability to piracy. Underpaid and overworked seafarers are not conducive to maritime safety and security.

Sam Bateman is a Professorial Research Fellow at the Australian National Centre for Ocean Resources and Security (ANCORS) at The University of Wollongong.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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ASIAN (H)

Building Indonesia’s new capital

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Authors: Lex Rieffel, Stimson Center and Michael Castle-Miller, Politas Consulting

Indonesian President Joko ‘Jokowi’ Widodo’s announcement last August that a new capital would be built in East Kalimantan has been widely met with scepticism. While this scepticism is warranted, some of the project’s potential upsides are being overlooked by both outsiders and the government.Indonesian President Joko Widodo gestures as Governor of East Kalimantan Isran Noor stands during their visit to an area, planned to be the location of Indonesia's new capital, at Sepaku district in North Penajam Paser regency, East Kalimantan province, Indonesia, 17 December 2019 (Photo: Reuters/ Antara Foto/Akbar Nugroho Gumay).

Given the threat climate change poses to keeping Jakarta’s head above water, the case for building a new Indonesian capital is pretty strong. According to the United Nations’ population estimates, the Indonesian government faces the challenge of building a healthy, sustainable urban environment for another 92 million people over the next 30 years.

One advantage of building new cities, rather than expanding old ones, is that they can be located at elevations above the projected sea-level rise. A new city also provides opportunities to create better policies and administrative institutions, which may be more difficult with existing government arrangements.

Early descriptions of Jokowi’s project have raised concerns, particularly regarding people, land-value capture, and governance. In each of these areas, measures can be taken to reduce costs and create an attractive urban environment for residents. But implementation may exceed the Indonesian government’s ability to challenge deeply entrenched vested interests.

Official government statements about the new capital city project have emphasised the infrastructure and the buildings. Not much has been said about people — neither those who will be displaced in the process of building the new capital, nor those who will become its residents. A fair compensation policy for people displaced by development should include cash compensation for moving to new housing, guaranteed employment, and some form of equity in the project so that they can benefit financially if it succeeds.

A people-centred approach to building the new capital could be the key to its success. Civil servants, who are expected to experience the bulk of disruption, will develop positive attitudes toward the project if they are consulted and see steps taken to address their concerns. Construction workers and other government service providers will also do their jobs more effectively if they are treated as partners.

Jokowi’s announcement put the cost of building the new capital at US$33 billion. This figure was quickly criticised as an underestimate. But if the project is designed well, it will be a money-maker, not a black hole. The government can use ‘land value capture tools’ to ensure that rich and powerful ‘speculators’ don’t pocket the profits as land value goes up.

Historically, this rise in value has been linked to infrastructure construction, urbanisation and gentrification. Typically, elites buy land at a low price before construction and then sell again at a high price when construction is complete. To prevent this, the government can retain land ownership in the new capital. This would allow the government to lease parcels of land to occupants and gradually increase rents as infrastructure improves and the land becomes more valuable. The growing rent income can then be used to finance further improvements.

Alternatively, Indonesia could implement a Land Value Tax (LVT). Unlike a property tax, an LVT is imposed on the underlying value of land on a parcel. It does not tax the value of improvements made upon the land, such as buildings. The LVT rate can up to 100 per cent without any harm to the economy, it is relatively easy to administer and it aligns the government’s financial incentives with good governance.

Whether by retaining ownership of land or establishing an LVT, land value capture is how Indonesia’s new capital can be built without being a budget buster — especially if the capital is designed to encourage and facilitate private investment.

But perhaps the biggest threat to the new capital is obstruction from political parties. Allowing the new capital to become a political football will kill the project by creating uncertainty that discourages private investment and encourages inefficient, partisan distribution of budget resources.

One way to take party politics out of the process is to vest governance in a board of non-political technocrats administering a legally-constituted ‘sustainable development zone’. This management entity is granted temporary, limited authority for those aspects of governance necessary to sustain a dynamic and healthy city. It contracts for basic infrastructure construction, licenses and regulates businesses, adopts a building code, administers tax collection and carries out other public service functions.

Revenue is derived from land value capture and a portion of the income tax collected from residents, giving the management entity an incentive to support sustainable economic growth. The national government receives far more revenue than it otherwise would from businesses and residents in the zone through the greatly increased incomes being taxed and the higher land value being taxed. The zone’s management is accountable to residents through laws, inspectors general, ‘watchdog’ organisations, residents’ councils, impartial dispute-resolution and claims procedures that protect the rights of vulnerable groups.

Critics of Indonesia’s new capital raise legitimate concerns. It is normally unwise to adopt a ‘build it and they will come strategy’ because businesses need to be located where market forces naturally draw them. But in Indonesia’s case, there is great demand for new, well-governed, resilient urban space. If the new city in East Kalimantan has institutions that incubate good governance, it could exceed expectations.

Putting people at the heart of the process, capturing the increase in land value, and creating a trustworthy governance structure can make Indonesia’s new capital city a model for urban development elsewhere in Indonesia.

The COVID-19 pandemic seems likely to delay, if not kill, Jokowi’s plan for a new capital.  When the time comes to re-examine the plan, one option could be to recast it as simply building a new model city and only making it Indonesia’s capital after it has demonstrated the ability to grow sustainably.

Lex Rieffel is a non-resident Fellow at The Stimson Center, Washington DC. 

Michael Castle-Miller is CEO of Politas Consulting, Los Angeles.

A longer version of this article appears in the most recent edition of East Asia Forum Quarterly, ‘Middle Power Game’, Vol. 12 No. 1.



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ASIAN (H)

Is ASEAN’s COVID-19 response leaving migrant workers behind?

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Author: M Niaz Asadullah, University of Malaya

Many ASEAN nations saw a sharp decline in the number of coronavirus fatalities after more than a month in lockdown. New infections in Thailand dropped to single-digit figures and Vietnam has already reopened its economy. The Philippines and Malaysia have conditionally permitted most sectors to resume business.

Firefighters spray disinfectant on a street during the movement control order due to the outbreak of the coronavirus disease (COVID-19), in Kuala Lumpur, Malaysia 31 March, 2020 (Photo: Reuters/Teng).

The earlier nationwide movement control order (MCO) throughout the ASEAN region was necessary. Most of the ASEAN-5 nations saw high infection rates and are considered high-risk countries. Geographic proximity also increases the risk of imported transmission. The recent infections among Malaysians returning from Indonesia is a case in point.

In his speech at the special ASEAN Summit on COVID-19, Malaysia’s Prime Minister Muhyiddin Yassin correctly called for ‘a coherent, multi-sectoral, multi-stakeholder, whole-of-ASEAN approach’ to ensure an effective response to the pandemic. Yet missing from the statement was any reference to the millions of migrant workers in the ASEAN region.

Financially, MCOs have been costly for all ASEAN countries. While Malaysia’s US$365 billion economy remains closed, RM 2.4 billion (US$550 million) is lost each day. But existing regional imbalances in policy provisions could increase the risk of imported transmission as ASEAN members look to officially lift MCOs.

There is growing concern over a new wave of infection when businesses fully resume because 30 per cent of the workforce in Singapore and Malaysia comprise foreigners. A rising proportion of the new COVID-19 cases in Kuala Lumpur and Singapore are migrant workers. A more inclusive policy targeting migrant workforces are needed as these countries prepare to economically re-open.

There are three reasons for protecting the migrant workforce.

First, the economic stakes are high. For decades, these workers have supported local businesses by filling domestic labour shortages. Foreign workers will remain critical to Malaysia’s efforts to restart the economy once MCOs are removed. Without these workers, many small- and medium-sized enterprises may face closures. Every 10 new migrant workers helps create five new jobs for Malaysians and adds a 1.1 per cent net increase to GDP.

Second, Malaysia will look to regain its competitive edge in the unsettled international market once the economy fully reopens. Disruption to global supply chains may present opportunities for Malaysia to venture into new industries post-COVID-19. Continued access to the existing pool of skilled migrant workers is critical in this regard.

Third, border controls are essential to most countries’ COVID-19 response. While migrant workers are important to Malaysia’s economy, they are very capable of entering and crossing borders illegally for jobs when the economy re-opens. Full and fair access to health care and COVID-19 testing facilities in the country of origin within the ASEAN bloc is critical to combat this potential spread.

Malaysia’s RM250 billion (US$83.6 billion) economic stimulus package includes a wide range of support for different categories of businesses and one-off cash payments to low and middle-income households. But there is little in this package for the country’s migrant workers from other ASEAN nations.

The stimulus package exempts employers from bearing the cost of mandatory COVID-19 tests. The cost can be up to RM650 (US$150), almost two-thirds of the monthly minimum wage most migrant workers receive. But in a recent directive, Defence and Security Minister Ismail Sabri Yaakob announced employers would be bearing the costs of COVID-19 tests for foreign workers in Selangor and Kuala Lumpur. Provisions for workers in other parts of the country are still unclear. If all registered foreign workers are tested, the total cost to employers would be RM1.15 billion (US$264 million). The Malaysian Employer Federation insists that the government should bear the full cost of testing, should it become mandatory.

In a positive move, the government recently introduced the COVID-19 test free of charge even for migrant workers registered with the Social Security Organisation (SOCSO) scheme. But provisions for those outside the SOCSO scheme remain unspecified.

Migrants are also disproportionately represented in sectors like construction and tourism that remain closed. Many were forced to take unpaid leave and foreign workers are not eligible for financial assistance.

There is also no state provision to cover the country’s undocumented migrant workers, a population that ranges between 2 and 4 million people. They are most vulnerable to infections and yet reluctant to visit government health facilities as they fear deportation. Despite government assurances, hundreds were taken into custody in early May following immigration raids in Kuala Lumpur.

Without foreign workers, ASEAN countries like Singapore and Malaysia will struggle to bounce back. Migrants face risks that are unique to their living and working conditions, with most residing in crowded shared quarters that lack basic sanitation facilities. Self-isolation and social distancing are not options. Inadequate policy provisions mean that most workers remain untested and uncared for — Malaysia has tested less than 20,000 migrant workers so far, a negligible total.

COVID-19 has exposed a lacking unified social protection system in the ASEAN bloc to protect and nurture its 350.5 million person workforce. The International Labour Organization classifies workers in the informal sector including migrants as a vulnerable employment population. For host nations, the potential social cost of excluding vulnerable workers from safety net provisions is much larger than the immediate fiscal burden of protecting them. Regional policy coordination is vital given poor border control and interconnected labour markets.

Unequal policy provisions across the region may cause an exodus of migrants — the promise of universal care in one country may attract workers from other ASEAN-5 countries. This is why national efforts to suppress the spread of the virus must include regional dialogue and consultation. A well-coordinated response ensuring basic social safety net provisions can go a long way in preparing all member states for post-pandemic recovery.

M Niaz Asadullah is Professor of Development Economics in the Faculty of Economics and Administration at The University of Malaya.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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ASIAN (H)

Leveraging ASEAN to respond to COVID-19

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Author: Frederick Kliem, RSIS

COVID-19 is testing international resolve to cooperate. Both China and the United States have so far failed to provide the necessary global leadership. The World Health Organization (WHO) and the United Nations (UN) play — at best — the role of supporting actors. Even the European Union and ASEAN are struggling with outbreaks of nationalism and unilateral knee-jerk reactions.

Vietnam's Prime Minister Nguyen Xuan Phuc addresses a special video conference on COVID-19 with leaders of ASEAN countries, 14 April 2020 (Photo: Reuters/Manan Vatsyayana).

Southeast Asia’s interconnectedness makes it highly vulnerable to pandemics. Tourism, trade and supply chains deeply intertwine Southeast with China, which contributed to the spread of COVID-19 within the ASEAN region, as well as South Korea and Japan.

Southeast Asia has been badly affected by COVID-19. While case numbers are hardly comparable due to asymmetric testing, all 10 ASEAN member states seem to have woken up to the crisis and are engaging in some form of pandemic management. The challenge now is to coordinate responses at the regional level.

In a virtual summit on 14 April 2020, ASEAN leaders agreed on a ‘whole-of-ASEAN community approach’ to combat the virus. Leaders agreed to the inauguration of a common COVID-19 response fund prepared by the foreign ministers in an earlier conference, the details of which are being worked out. Consensus was also reached on the need to address the situation on the frontline with joint procurement of medical supplies and stockpiling.

ASEAN leaders agreed to extensive sharing of information and best practices. On their recommendation, a virtual ASEAN Defence Senior Officials’ Meeting (ADSOM) took place on 15 May to discuss, among other things, the ASEAN Center of Military Medicine (ACMM) as a suitable platform for table-top exercises on COVID-19 responses and pandemic preparedness in general. More immediate is the initiation of joint cross-border responses to retain the smooth functioning and openness of essential supply chains and trade routes to protect food security and the exchange of medical equipment.

Intra-ASEAN bilateral cooperation has been strengthened. Malaysia initially reacted to the pandemic with restrictions on the movement of people and goods across borders, including the causeway with Singapore, a critical supply route. This caused substantial problems in Singapore and led to panic buying and stranded Malaysian workers. Since then, both countries have established a special working committee to manage any complications caused by respective lockdown measures.

Though the COVID-19 Special ASEAN Summit provided much needed political momentum, the effectiveness of this regional response now depends on timely implementation. Vietnam, as the current chair of ASEAN, must initiate frequent leaders, ministers and officials conferences to ensure ASEAN can implement agreements made at the summit.

The postponement of the ASEAN–US Special Summit demonstrated the stress COVID-19 puts on ASEAN centrality.

ASEAN initiated a special ASEAN+3 (ASEAN, China, Japan and South Korea) video conference where leaders agreed to strengthen early pandemic warning and real-time information exchange and to set-up a regional ASEAN+3 medical supply stockpile. They committed to ensuring the continuous flow of commodities, food and medical supplies across Southeast Asia. ASEAN+3 leaders also specifically emphasised food security and the utilisation of the ASEAN+3 Emergency Rice Reserve, a common stockpile to ensure emergency food supply in times of adversity.

ASEAN managed to get a commitment from its partners to contribute to its COVID-19 Response Fund by re-prioritising and reallocating the substantial existing cooperation funds.

Pandemic management begins with independent and verifiable oversight of case numbers, death rates and the effectiveness of individual measures. But historically, independent monitoring in ASEAN member states has been a challenge.

With the implementation of the ASEAN Charter and the ASEAN Community, transparency improved to some extent as stocktaking of Community implementation became more common. But ASEAN monitoring of domestic public policy and crisis management in individual member states remains a sensitive matter and COVID-19 is not likely to change that as governments may be incentivised to under-report.

There are steps ASEAN can take to limit the impacts of COVID-19 and future pandemics.

First, comprehensive implementation of the leaders’ summit agreements needs to be ensured. ASEAN must strengthen regional crisis support networks to ensure it can meet its members’ needs. The reactivation and utilisation of the ASEAN Technical Working Group on Pandemic Preparedness and Response can help to suppress COVID-19 by sharing experiences from countries such as Singapore and Vietnam, and provide a set of minimum standards for pandemic management across the region.

A regional response also requires strengthening the capacity of the ASEAN Centre for Humanitarian Assistance on Disaster Management (AHA Centre). This is where joint procurement and stockpiling of essential medical supplies and equipment can be coordinated — the AHA centre manages common warehouse and reserve facilities for regional HADR.

Second, possibly also via the AHA Centre, ASEAN should become the first responder and strive for expertise across its membership. Laos and Cambodia appear to be relying on third parties, particularly China, to address much of their COVID-19 needs due to highly inadequate healthcare systems.

Singapore is Southeast Asia’s medical centre of excellence and is home to a thriving health tourism industry. The city-state has 2.5 physicians per 1000 people (whereas Laos has only 0.5). The temporary secondment of doctors and health experts can alleviate pressure on stressed health care systems.

Third, ASEAN possesses the resources to build a sufficient stockpile and has systems in place to distribute medical equipment. ASEAN should call on its ASEAN+3 partners to support the stockpiling of medical equipment, financially and materially — any such contribution is in the interest of all members.

Fourth, ASEAN can facilitate best practice sharing for pandemic management, such as Singapore’s contact tracing and Vietnam’s holistic mobilisation. The bilateral Singapore–Malaysia Committee can also translate into broader ASEAN-wide institutionalisation of crisis border management. Under the auspices of ADSOM this can, for example, take place within the ACMM, and should be extended to ASEAN+3.

National emergency measures must be transparent, reciprocal and cooperative. To this end ASEAN leaders agreed to create guidelines for the implementation of travel and trade restrictions. The free flow of goods, services and — most importantly — people, is imperative for successful regional integration. Mutual trust and support must be reflected in equal treatment of each other’s citizens who stay, work or study across the ASEAN region or in third countries.

ASEAN has done reasonably well compared to the European Union, despite the latter’s substantially larger resources. ASEAN should build on it response to COVID-19 so that history will note the disaster as a driver of stronger cooperation in Southeast Asia.

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

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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ASIAN (H)

Understanding the EU–Vietnam Free Trade Agreement

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Author: Ha Hai Hoang, Hanoi National University of Education

In February, the European Parliament adopted the EU–Vietnam Free Trade Agreement (EVFTA). This is the most comprehensive and ambitious EU trade agreement with a developing country. Since failing to negotiate an EU–ASEAN trade agreement, the European Union and Vietnam turned to extensive bilateral negotiations to reach a trade deal of their own. Once it is ratified by Vietnam’s National Assembly in May, the EVFTA will open up huge opportunities for businesses and consumers.

European Union and Vietnamese flags are seen at the signing ceremony of EU-Vietnam Free Trade Agreement at the government office in Hanoi, Vietnam, 30 June 2019 (Photo: Reuters/Kham).

The EVFTA will be Vietnam’s next big step in international economic integration since joining the World Trade Organization. It will serve as a catalyst for institutional reforms, economic growth and social development. The deal will drive Vietnamese exports and help the country to diversify its international markets. The European Union will remove 86 per cent of tariffs currently levied on Vietnamese goods. This is equivalent to 70 per cent of Vietnam’s revenue from its exports to the European Union. It is the biggest commitment made by a trading partner with Vietnam to reduce trade restrictions. Lower tariffs on EU-bound Vietnamese goods will give Vietnam an advantage over ASEAN competitors and China.

Vietnam’s Ministry of Planning and Investment (MPI) estimates that by 2030 the EVFTA will increase Vietnamese exports to the European Union by 44 per cent. It also forecasts an increase in the country’s economic growth by 7–8 per cent in the period 2029–2033. The EVFTA is expected to give Vietnam access to important trade benefits, particularly full market-economy status. This recognition will allow for transparent dispute resolution and non-discriminatory treatment under the deal. Through the EVFTA, Vietnam will advance high quality and sustainable production in its economy to meet both domestic consumption and export demands.

European companies develop 11.8 per cent of foreign direct investment (FDI)-linked projects and contribute a share of 15.6 per cent of total FDI into Vietnam. The EVFTA will allow further EU market penetration, where it has lagged behind other major trading powers such as the United States, Japan and China. Vietnam will remove virtually all customs duties on major EU export products to Vietnam and EU investors will now be able to bid for public contracts relating to large investment projects in strategic sectors.

The deal also safeguards 169 emblematic European products and is expected to help expand EU exports to Vietnam by €8.3 billion (US$9.14 billion), annually creating 14,000 new European jobs. Business confidence in the new trade deal is also strong. Vietnam’s European Chamber of Commerce reported that 85 per cent of its members expect the EVFTA will have either a ‘significant’ or ‘moderate’ impact on their long-term business and investment plans.

The requirements, commitments and challenges that the EVFTA imposes on Vietnam are clear. Negotiations were prolonged due to contentions over social issues and pressure on Vietnam to liberalise non-tariff barriers. This included concerns over rules of origin, as well as technical and sanitary regulations. But unlike EU trade deals with African, Caribbean and Pacific countries, the EVFTA does not contain infant industry protections and requires ‘standard reciprocal bilateral safeguard measures to protect domestic producers’. Vietnam’s quarrel with the European Union over anti-dumping measures raised the sensitivity of this issue.

The EVFTA also provides for broad liberalisation of government procurement. It binds Vietnam to the most ambitious government protocols yet concerning state-owned enterprises (SOEs). These regulations go further than any previous trade agreements of which Vietnam is a signatory. It requires open public procurement for SOEs and sets up the necessary conditions to increase SOE competitiveness. The agreement also includes rules on transparency and consultations in relation to domestic subsidies. These commitments are especially remarkable given the Vietnamese government’s perception of high ‘sovereignty costs’ associated with limiting its regulatory autonomy in these sectors.

Sustainable development is also emphasised in the deal. This includes focusing on labour standards, gender equality and environmental agreements. These rules were included despite the political, socio-economic and cultural differences that caused negotiations for the EU–ASEAN free trade agreement to stall. In the EVFTA, Hanoi agreed to ratify the remaining International Labour Organization conventions on the rights to association and collective bargaining by 2023.

Article 14 of the deal on trade and sustainable development includes detailed procedures, strict conditions and schedules regarding civil society consultations. The EVFTA’s institutional set up and oversight mechanisms also require that a specialised committee on trade and sustainable development meet regularly to supervise the agreement’s implementation. This will strengthen civil society organisations (CSOs) and their role in improving the social impacts of EU–Vietnam bilateral trade. It will also raise working conditions for Vietnamese industrial workers and increase the socio-economic position of CSOs in Vietnam.

Not only will the EVFTA strengthen EU leadership in shaping global rules, it will serve as a template for EU trade negotiations with other ASEAN member states. In return, Vietnam will gain access to the EU’s large market, enabling it to further long-term economic reform and growth. For Vietnam, the deal also serves as a counterweight to China’s growing economic power and brings Vietnam closer to international economic integration. The EVFTA offers Vietnam an opportunity for economic diversification and deeper engagement with another key foreign partner while decreasing its dependence on Chinese markets and FDI.

Ha Hai Hoang is Associate Professor at the Hanoi National University of Education.

All views expressed are the author’s own and do not represent the views of any institution or affiliation.



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Technology, e-health and telehealth key to combatting COVID-19

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Authors: Pradeep Kumar Ray and Soong-Chul Ro, University of Michigan –Shanghai Jiao Tong University Joint Institute, and Junhua Li, Sydney

A pandemic overwhelms health and medical capabilities, potentially causing hundreds of thousands of deaths and triggering severe social and economic disruptions. Technology plays a significant role in the management of pandemics. E-health and telehealth technologies in particular are receiving attention because of their potential to alleviate the pressure on healthcare services around the world.

Illustration of a mobile app to fight the spread of the coronavirus pandemic, 13 May 2020 (Photo: Reuters/Idriss Bigou-Gilles).

E-health and telehealth apply information and communications technologies (ICT) to healthcare in providing a larger volume of services with reduced human contact. These applications are critical for responding to pandemics in three specific areas: surveillance, investigation and response, and medical capacity management.

Public health surveillance facilitates effective control or elimination of a pandemic. Rapid reporting, even when cases are not confirmed, can help health authorities collect data and control the disease before it becomes too difficult to contain.

Mobile technologies have been widely adopted during the COVID-19 outbreak for testing and contact tracing. In China, for example, local governments implemented a control strategy based on coloured QR codes — green for no infection, yellow for under testing and red for confirmed infection — for all individuals. This provided public health authorities with accurate information related to the spread of the virus while minimising panic.

E-health can assist investigations and responses to disease outbreaks in four key areas.

First, it facilitates the confirmation of an outbreak. Most countries now have electronic surveillance systems integrated with electronic health records (EHRs) that can efficiently identify an outbreak.

Second, e-health facilitates definition and revision of the case that serves as a guide to the clinician for reporting cases. A standard set of criteria is used for deciding whether a person should be classified as suffering from the disease under investigation. A case definition can be clinical (entirely symptom and signs-based), laboratory-based (involving some type of diagnostic confirmation), or a combination. EHRs that carry patients’ data of COVID-19 have been used for the case definition and revision.

Third, e-health enables more rapid and accurate testing. A lack of reliable testing has been a major bottleneck in response to the COVID-19, resulting in a rapid proliferation of infections and unexpected hospitalisations. Since COVID-19 is a new virus, test techniques are still evolving with varying levels of cost, duration and dependability. Some initial screening measures, such as temperature checks, were prone to human error while exposing people to a risk of infection. Robots and machines have since been deployed to do the job remotely.

Fourth, e-health supports the implementation of control measures that identify potentially infected individuals. Contact tracing for example has extensively been used to manage COVID-19 across countries. In some places like China, other surveillance tools (for example, monitoring cameras) have also been used to identify people with abnormal conditions in a crowd but not without criticisms due to privacy invasion.

Pandemics significantly challenge the capacity of healthcare services. The workload for physicians rises due to an increased need for diagnoses, treatments and frontline advice to members of the community. E-health can alleviate this strain on healthcare services. For example, medical professionals can instantaneously and easily access shared EHR systems to retrieve, update and securely store patient data from multiple locations.

Telehealth is another tool to alleviate strain on healthcare services. For example, telehealth applications are now being used in Australia to consult potential COVID-19 patients without their physical visits.

Many other technologies are being adopted extensively across the globe to combat pandemics, such as 3D printing to produce personal protective equipment. Governments may need to encourage this further by providing incentives to local manufacturers through appropriate policies.

Importantly, in order to successfully manage a pandemic, control measures must be adopted by all citizens of a city, state or country within a limited time frame. Governments have to design, implement and enforce control policies quickly for all citizens.

This poses political and ideological challenges. Reaching consensus on the nature of a problem and the best course of action is not easy, particularly for democracies based on plurality. Multiple conflicting interests may interfere with the decision-making process, resulting in inconsistent policy. ICT in the hands of a centralised government raises the fear of a ‘big brother’ surveillance state encroaching upon individual freedoms and privacy, as witnessed over the concerns around EHRs.

Proper precautions must be taken to ensure that data is managed responsibly and without infringing on individual rights while also ensuring the effective management of a pandemic. Maximising the use of technology will continue to be critical for the fight against COVID-19.

Pradeep Kumar Ray is Director of the Centre for Entrepreneurship at The University of Michigan – Shanghai Jiao Tong University Joint Institute and Honorary Professor and co-Founder of the WHO Collaborating Centre on eHealth at The University of New South Wales.

Soong-Chul Ro is Associate Teaching Professor at The University of Michigan – Shanghai Jiao Tong University Joint Institute.

Junhua Li is a business information systems professional based in Sydney. He has a PhD, focussed on e-health for pandemic response, strategic planning and change management, from The University of New South Wales.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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Australia’s return to prosperity depends on mending China ties

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Author: Peter Drysdale, ANU

The global economy has taken a huge hit as the world’s major economies shut down activity in turn to fight the spread of COVID-19. The GDP of China, Australia’s largest trading partner, dropped 6.8 per cent in the first quarter this year. Its total trade fell 6.4 per cent (exports 11.4 and imports 0.7 per cent). In that period, Japan’s gross domestic product dropped 3.4 per cent and the United States’ fell 4.8 per cent. The crisis hit China first and hard.

Beef cattle imported from Australia are being transported onto a truck at Zhoushan Port in Ningbo city, east China's Zhejiang province, 28 January 2018.

In the same period, Australia’s exports to China grew by 4.3 per cent on a year ago, twice as fast as our total exports. China’s share in Australia’s trade rose to 35.8 per cent, despite a 12.8 per cent drop in Australian imports from China. Exports of beef were up 30.3 per cent. China has cushioned the initial economic shock of the COVID-19 crisis on our economy. Earnings from Chinese tourism and international students dived, of course, a consequence of the Australian government’s policies to protect against spread of COVID-19.

These outcomes are the product of the huge market reform over the past 40 years that made China the largest trader in the world. They are a product too of its commitment to the rules-based trading order through accession to the WTO 20 years ago that integrated its markets with those across the world. They’re a product of both the Australian and Chinese governments’ allowing businesses to lift their own and national incomes by finding the best deals in international markets.

These facts, one might have thought, put the Australia–China trade relationship in a sweet spot, buffeted though both nations are by the COVID-19 crisis. Yet the largely un-broadcast good news about the relationship is totally lost in a fracture of trust that now surrounds it.

Despite the vigour of the bilateral economic relationship, foreign investment perhaps excepted, it has soured badly over the past half-decade. In dealing with each other, both Australia and China are tripping over their increasingly complicated relationships with Washington and the reality that China is now a great power too — perhaps more sensitive than most because of the way foreign criticism plays into domestic politics.

The latest brouhaha was sparked by Australian Foreign Minister Marise Payne’s call for an independent, global inquiry into the origins of the COVID-19 pandemic and Prime Minister Scott Morrison’s pile-on.

The Australia–China relationship desperately needs adult supervision and getting back on track.

There was furious agreement on the need for review of the pandemic experience from Beijing to Brussels before Australia claimed ownership of the idea. The question was never about the justifiable desire for greater knowledge about the pandemic now taken forward in the World Health Assembly so that we’d be better prepared for contingencies of this kind in future. The question has been about the nature and the timing as well as the febrile international political context into which Australia lobbed the idea. There was no developed Australian proposal. There was no consultation with neighbours or partners in the region, and not only China, they all were stunned at the guilelessness with which Australia peddled its idea over the one to which it’s now signed on with the WHO.

Tensions have ratcheted up over China’s use of economic sticks to punish Australia over this political dispute. Chinese Ambassador to Canberra Cheng Jingye floated the possibility of economic retaliation by a Chinese public that was ‘frustrated, dismayed and disappointed’ with Australia’s ‘politically driven’ call for a global inquiry. He criticised the Australian government for ‘pandering’ to the United States and argued that any future inquiry should be undertaken ‘without any hidden political agenda or any political purpose’.

Activating the long-brewing Chinese anti-dumping action against Australian barley exporters and the suspension of licences to four Australian abattoirs — however much both governments tried to present these as separate technical matters — have fuelled tensions.

China’s use of economic punishment is infrequent, despite the oft-cited cases of rare earths, bananas, salmon, canola and the Lotte department store boycott; it almost never works; and it is subject to international legal disciplines which China has accepted. Australia can take the barley issue to the WTO; just like China could contest Australia’s multiple anti-dumping actions on steel and aluminium products, but hasn’t.

Other big powers such as the United States are also active users of economic muscle. China’s heavy breathing over Australian agricultural exports is more threatening in the context of its extra-WTO legal phase-one trade agreement with the Trump administration. This deal requires China to purchase an additional US$32 billion worth of agricultural imports from the United States over the coming two years. Welcome to a future of managed trade.

The Australia–China relationship desperately needs adult supervision and getting back on track. Beyond COVID-19 it’s a relationship central to the ambitions of the Australian community for economic recovery and reconstruction; it’s crucial to forging co-operative strategies that preserve prosperity and political stability in the Asian region; and it’s critical to help secure the rules-based global order. On these three issues Australia’s and China’s strategic interests converge.

Australia and China have much work to do to make up lost diplomatic ground. But they have an opportunity to join with partners in the region in getting international co-operation on COVID-19 on the fast track. A strategic foreign policy priority for both is to work together with neighbours to engineer a more rapid economic recovery from the crisis. China will be a central part of the co-operation and recovery effort. Australian action to arrest the pandemic now must be combined with proactive regional and global co-ordination on public health, financial and trade policies if there is to be anything like a V-shaped recovery from its economic effects.

Peter Drysdale is Emeritus Professor and Head of the East Asian Bureau of Economic Research at the Crawford School of Public Policy, The Australian National University.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

A version of this article originally appeared here in The Australian Financial Review.



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Will South Korea’s progressive victory bring change to the Peninsula?

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Author: Stephen Costello, George Washington University

In late April, speculation erupted over the absence of North Korean leader Kim Jong-un from public view for a prolonged period. Among the commentary about the durability of North Korea’s leadership, the central question of US and South Korean policy toward the country was barely addressed. The value of the past three years of South Korea and China’s investment in the country’s stability, development and denuclearisation is also unacknowledged.

National Election Commission officials count ballots for the parliamentary elections, amid the coronavirus disease (COVID-19) outbreak, in Seoul, South Korea, April 15, 2020 (Photo: Reuters/Hong-Ji).

Before Kim Jong-un’s absence and reappearance, a development with long-term implications for inter-Korean relations and Northeast Asia occurred. On 15 April, elections for all 300 seats in the single-body South Korean National Assembly resulted in a large win for the Democratic Party. Its 180-seat majority ensures that the administration of President Moon Jae-in can now fast-track legislation and overrule a filibuster.

This will directly impact the next two years of Seoul’s approach to North Korea, and possibly the next seven years, if another Democratic Party candidate succeeds President Moon in 2022. With only six months before the US presidential election, enhanced domestic political support for Moon’s engagement with Kim could also impact US policy after the post-election dust settles in Washington in January 2021.

For South Korean policy, the National Assembly election has three main consequences.

First, Seoul’s efforts to engage more closely with North Korea without addressing UN and US sanctions, have already picked up. Renewed construction on the southern side of the east and west coast rail lines has begun. Moon has also pushed forcefully for expanded cooperation with Pyongyang on containing the COVID-19 pandemic. For the remaining two years of Moon’s term, such efforts are expected to continue.

Second, the Moon administration’s increased political mandate may portend a longer period of South Korean policy activism and rule-setting on the Peninsula and in the region. The lopsided vote in favour of the Democratic Party is inseparable from the COVID-19 crisis. Moon’s party is likely to have performed worse before the government earned plaudits for its pandemic response.

But the vote is also inseparable from the collapse of the so-called conservative opposition. That group’s empty policy proposals and reverence for authoritarian leadership and anti-communist simplicity helped defeat several party leaders in the National Assembly elections and left it floundering. A combination of strengthened progressives and weakened opposition increases the likelihood that the broad group of moderately-minded Democratic Party Assembly members could remain in power until 2027.

Third, the vote implies a degree of middle power authority that is unique in today’s international landscape. It also occurs just as the capacity of China and the United States to lead toward positive global outcomes — or to lead at all — has spectacularly collapsed. This is not to say such power is gone but that it is likely to be profoundly weakened for the next few years at least.

South Korea’s democracy is maturing. Moderate and modern social policies that are regarded as mainstream in western and northern Europe are now becoming the norm. The government’s early successes in dealing with COVID-19 is the latest in several remarkable national feats that support a more confident and independent identity for the country.

The struggle for democracy in the 1980s and 1990s was the defining experience for a generation. This May marks the fortieth anniversary of the searing, bloody suppression of democracy protests in Kwangju. Both the recovery from the Asian financial crisis and the civic and systemic ejection and jailing of corrupt former president Park Geun-hye, along with the jailing of former president Lee Myung-bak, further helped define the modern Korean outlook. Now the society has collectively managed to fight COVID-19.

These were expressions of civic organisational ability and leadership as well as broadly-supported, non-violent action. They aimed for and produced political power. Legislators, governors and presidents must now pay attention to expectations in the civic space.

But the Moon government may be unwilling to embrace its potential middle power role. Debate among policymakers in Seoul over if and how South Korea could advance the peace process with North Korea as well as its alliance relationship with the United States will continue. These debates will be important for the region because an energised and confident South Korean administration moving carefully and smartly among actors and international institutions could be decisive in shaping Northeast Asian security and development.

The future of UN sanctions on North Korea, and the role of sanctions on the Peninsula and broader region, remains the most important variable for all parties engaged in inter-Korea diplomacy. All other significant progress in regional development and security depends on it. If Korea can’t tackle sanctions head-on, it could remain on the sidelines.

The best role for the United States is another question that is still quietly debated in both Seoul and Washington. This parallel debate is occurring just as the United States faces its most consequential presidential election in a generation. No matter which party wins the White House, the pressure on Seoul to take more of a leading role on Peninsula affairs will increase. Seoul gears up for its own presidential election in May 2022.

The next two years will be consumed with economic and social responses to the COVID-19 crisis. North Korea does not seem to be currently trying to change the balance of power through nuclear or intercontinental ballistic missile tests, and South Korea is leaning in to engage it on a wider range of activities. But the United States is continuing its 20-year history of misjudging both Koreas and preventing further engagement and denuclearisation.

This combination can exist indefinitely, but the contribution of the newly empowered government in Seoul and the collapse of US legitimacy lend new urgency to the question: when would Korea finally embrace its expanded powers in order to advance everyone’s interests, beginning with its own?

Stephen Costello is a Visiting Scholar at the Institute for Korean Studies, George Washington University, Washington DC. He is formerly director of the Korea program at the Atlantic Council and director of the Kim Dae-Jung Peace Foundation.



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Vietnam’s textile and garment industry hit hard by COVID-19

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Authors: Jason Q Nguyen and Quan V Le, Vin University

With a supply chain that over relies on only a few key partners, Vietnam’s textile and garment industry is among the country’s hardest hit by the COVID-19 pandemic.

A woman works at a garment assembly line of Thanh Cong textile, garment, investment and trading company in Ho Chi Minh city, Vietnam 9 July, 2019 (Photo: Reuters/Yen Duong).

Vietnam has traditionally focussed on garment production with little capacity for fabrics manufacturing. It is estimated that Vietnam imports up to 89 per cent of fabrics — 55 per cent from China, 16 per cent from South Korea, 12 per cent from Taiwan and 6 per cent from Japan. US and EU markets account for more than 60 per cent of Vietnam’s garment exports.

Vietnamese garment manufacturers predominantly focus on the simplest cut-make-trim (CMT) model where buyers control and own all the pre- and post-production processes. CMT production contributes 65 per cent of Vietnam’s total exports, while the more advanced business models, like Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM), that allow for higher profit margins account for only 35 per cent.

When the coronavirus pandemic struck in January, Chinese fabric manufacturers suspended production, disrupting fabrics supply to Vietnam. As the pandemic centre shifted west from China in March, many orders from the European Union and the United States were cancelled, causing significant damage to Vietnam’s garment manufacturers.

Vietnam’s Textile Association reported that 70 per cent of garment manufacturers started reducing shifts and rotating workers in March, with an additional 10 per cent following in April or May. By June 2020, the estimated loss to the industry could reach US$508 million. Data from Vietnam’s Customs Agency suggests that imports and exports of all textile and garment products fell massively in the first quarter of 2020. Exports of garments totalled US$7.03 billion, a 1.4 per cent year-on-year reduction compared to 2019 and 34 per cent lower than the expected growth of 50 per cent prior to the pandemic.

Despite the devastating impact of COVID-19, the pandemic provides some valuable lessons for the industry on recovery and ways to move forward.

First, it is essential to establish a resilient supply chain of fabrics and other raw materials, which relies on the development of domestic fabric production. Having a reliable domestic supply of fabrics will mitigate disruptions and help capitalise on free trade agreements (FTAs) that impose rules of origin. For example, in order to enjoy preferential tariffs under the recently signed European Union–Vietnam FTA (EVFTA), Vietnamese garment manufacturers must satisfy the fabric-forward rule that requires the use of domestically produced fabrics (with the exception of fabrics imported from South Korea).

Second, it is important to diversify the demand base to reduce over reliance on a few key customers. Vietnam should leverage FTAs, especially the newly signed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), to explore new export markets. This could also help drive industry growth.

Manufacturers should also pay more attention to Vietnam’s promising domestic market and explore new product offerings. Domestic and international demand for antibacterial masks and protective gear has proven an effective and important relief measure during the crisis.

Third, Vietnamese garment manufacturers should consider making the necessary investments to advance from the labour-intensive CMT model towards more capital-intensive models that allow for higher profit margins and more control and resilience to external shocks. OEM and ODM capable firms have proven to be more resilient and better equipped to quickly respond to the pandemic.

TNG, an OEM company based in Thai Nguyen, has stockpiled enough fabric for production until the second quarter of 2020. TNG has also arranged alternate sourcing from Pakistan and other domestic suppliers. This, together with agile management, enabled TNG to start producing antibacterial masks in just three days, helping the company record a 65 per cent increase in revenue compared to 2019, despite cancelled overseas orders.

Despite this severe yet temporary setback, Vietnam’s textile and garment industry should be optimistic about the future. In 2019, more than 80 per cent of Foreign Direct Investment (FDI) in the textile and garment industry shifted towards manufacturing fabrics and other raw materials.

TAL, a Hong Kong-based company, was approved to build a US$350 million fabric plant in Thai Nguyen province in early 2019. In February 2020, Texhong, another Hong Kong-based company, committed another US$500 million (in addition to an existing US$500 million investment) to expand yarn and fabric production capacity in Quang Ninh province. These FDI firms are expected to provide competition pressure and spill-over benefits that could stimulate innovation and growth of domestic and state-owned fabric producers.

The government is also supporting Vietnam’s textile sector with the construction of dedicated textile industrial parks. Rang Dong Textile Industrial Park in Nam Dinh province, the largest of its kind, is expected to be operational from 2022.

Despite the economic shock of COVID-19, all signs are pointing in the right direction for Vietnam to take its place as the world’s third-largest textile and garment exporter after China and India.

Jason Q Nguyen is Assistant Professor of Operations and Supply Chain Management at the College of Business and Management, Vin University, Hanoi.

Quan V Le is Associate Professor of Economics at the College of Business and Management, Vin University, and Visiting Scholar at the SC Johnson College of Business, Cornell University.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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