China-Israel aim to sign a free trade deal

China and Israel aim to sign a free-trade agreement by the end of 2022 in a breakthrough that would give Beijing its first deal in the Middle East plus a boost after years of trade friction with Australia and the United States.

Chinese Commerce Minister Wang Wentao and Orna Barbivay, the Israeli Minister of Economy and Industry, raised hopes in a chat earlier this year of signing their agreement within 2022, Amir Lati, Consul General of Israel in Hong Kong, told The Jerusalem Post.

The two sides have held trade talks online since the start of the pandemic to follow up on discussions that began in 2016, the consulate representative said.

Meanwhile, Esti Ayalon-Kovo, head of the Israeli economic mission to China in Beijing, said, “Both sides are conducting regular online meetings and are striving to reach an agreement as soon as possible. This agreement is expected to enhance and simplify trade between the two countries.”

Chinese state media had reported in April that negotiations toward a China-Israel trade pact were accelerated following a call between Foreign Minister Wang Yi and his then-counterpart from Israel, Yair Lapid, but no timetable was given.

China has been smarting from tariffs on US$550 billion worth of its exports to the United States since Washington launched a trade dispute in 2018. Sino-Australian relations also have soured over the past five years, especially after Canberra called for a probe into the origins of Covid-19 and Beijing imposed punitive sanctions on Australian imports.

Over the past two decades, Beijing has pursued stronger economic ties in the Middle East, landing comprehensive strategic partnerships with Iran and Saudi Arabia while trying for a trade pact with six oil-rich countries known as the Gulf Cooperation Council. China is interested in the region for its oil, gas and hi-tech investment opportunities.

The deal with Israel would show that the two sides can work together economically despite differences over Palestine, said Victor Gao, Vice-President of the Centre for China and Globalisation in Beijing. China recognized the state of Palestine in 1988. Israel occupies Palestinian land.

 “China hasn’t signed any FTAs in the Middle East, so I hope after this one it can get more in west Asia, the Middle East and Eastern Europe and hold this one up as a model” when seeking trade deals with other countries, Gao said.

A trade pact would make it easier for China to work with Middle Eastern nations on broader issues by showing it does not align only with Arab nations as in the past, said James Chin, a professor of Asian studies at the University of Tasmania in Australia.

“China has always tried to be a player in the Middle East, but the reason they haven’t gotten any traction is that they’re usually perceived as leaning toward Arab nations,” Chin said. “The signal is ‘We can talk to both sides’.”

In November 2019, the two countries discussed trade in goods, rules of origin, customs procedures and intellectual property rights, among other topics, the Ministry of Commerce in Beijing said at the time.

The ministry noted “positive progress” after that round, which was the seventh between the two countries.

Annual trade between Israel and China stood at US$250 million 30 years ago and had reached US$22.8 billion by 2021, according to China customs data, China accounts for about 11% of Israel’s international trade.

China is Israel’s biggest trade partner in Asia, accounting for 39% of its total export of goods to Asia, Lati added. Israel’s chief China-bound exports are medical devices, agricultural technology and other machinery and chemicals, including fertilizer. The trade deal would mark Israel’s second in Asia after South Korea, and would become China’s 16th bilateral trade agreement.

China might leverage the trade pact to access Israel’s hi-tech scene, which is led by innovation and venture capital, Gao said. Israeli tech firms raised US$25.6 billion in capital last year, The Times of Israel reported.

A “foothold” in Israel’s advanced hi-tech would dovetail with China’s giant tech hardware manufacturing sector, Chin said.

We see this agreement will allow new Israeli exporters to export to China, said Esti Ayalon-Kovo, Head of Israeli Economic Mission to China

Israel already has a framework to promote connections among 15 government ministries and agencies from both countries, with the intent of deepening economic cooperation.

This week, Israeli ambassador to China Irit Ben-Abba Vitale said in a speech that China values its start-up accelerators and incubators but cautioned that “academic research” should be converted to “industry research”, domestic media outlets reported.

The Chinese side could tap the trade deal as well, to adopt some of Israel’s agricultural technology, including ways of using water in an arid climate like that of the Middle East, Gao said. Parts of China have been devastated by drought this year.

If it manifests as expected, the agreement will focus largely on trade in goods rather than services, according to Ayalon-Kovo, and Israel’s tariffs are already low overall. She described the agreement as being in its last stages, with the chief hurdle being how to sign it online, rather than in person.

“We see this agreement will allow new Israeli exporters to export to China,” Ayalon-Kovo said.

United States imposes new sanctions on Iran

The United States on Friday has imposed sanctions on Iran's Ministry of Intelligence and Security and its Minister, accusing them of being tied to a disruptive July cyberattack on Albania and engaging in other cyber activities against the United States and its allies.

The move came after Albania severed diplomatic relations with Iran on Wednesday for the same incident, ordering Iranian diplomats and embassy staff to leave within 24 hours. 

The US Treasury Department in a statement said the Ministry of Intelligence and Security directs several networks of cyber threat actors, including those involved in cyber espionage and ransomware attacks in support of the Iranian government.

The Ministry was already designated under US sanctions. Iran's mission to the United Nations in New York did not immediately respond to a request for comment.

Microsoft, whose cybersecurity research team investigated the incident, said in a blog post on Thursday that the Iranian cyber operation involved a combination of digital espionage techniques, data wiping malware and online information operations. The goal of the hackers, according to researchers, appeared to be to embarrass Albanian government officials.

The July attacks temporarily disrupted government websites and other public services. Analysts say the operation was intended to punish Albania for supporting an Iranian dissident group based in the country, known as the Mujahedin-e Khalq (MEK). 

How will Russian gas shutoff affect the EU?

In early September, Russia announced that it would keep the Nord Stream 1 gas pipeline to the EU closed until sanctions are lifted.

As the lifting of sanctions appears off the table, this implies that the EU will be without a large chunk of Russian gas supply this winter.

The impact on the EU economy will be twofold. First, Russia’s decision will keep gas prices high in the coming months—prices are currently around four times higher than a year ago—and likely weigh on the euro, dampening households’ purchasing power and consumption.

Second, the move raises the risk of energy rationing this winter, which could have a significant impact on industrial output.

Even before this latest development, analysts had expressed their apprehensions that the bloc may witness sharp slowdown of the economy. These projections are now set to be revised down in their next forecast.

That said, the effect on the European economy is still highly uncertain. For one, it will vary from country to country.

Those with large industrial sectors and with heavier reliance on Russian gas, such as Germany and Italy, are the most exposed.

Moreover, while Nord Stream 1 is the main route supplying Russian gas to Europe, it is not the only one, as gas is still flowing westward from Russia via Ukraine and Turkey.

The fate of these routes, together with the EU’s efforts to source alternative supply from the North Sea, the United States and Algeria, will be crucial in determining the extent of the upcoming supply crunch.

The weather will also play an important role; a mild winter would reduce gas demand for heating.

Finally, the EU has not sat on its hands in response to the Nord Stream shutdown. Member states are mulling a range of EU-wide options, from gas price caps to a windfall tax on energy companies, and measures to reduce energy demand.

Moreover, further fiscal support is to be expected at the national level. If approved, these measures will offset the fallout from constrained gas supplies to some degree.

As such, while Russian move is certainly a blow to the EU economy, it is not yet a death knell.

“The countries most likely to face gas shortages are Germany, Austria, Italy, the Czech Republic and Slovakia. Those countries' governments are already working to reduce demand and diversify their sources of gas, on the assumption that Russia is no longer a reliable supplier.

The spillover effects will be substantial for the rest of Europe too, with external demand and confidence suffering, and inflation remaining elevated.

On the potential economic fallout, analysts at Goldman Sachs said, a full shutdown could drive European household energy costs up by about 65% to around €500 (US$512) per month.

Industries like chemicals and cement in Germany and Italy might have to cut their gas usage by as much as 80%.

The euro-area economy would likely shrink by more than 2% through March 2023, with GDP in Italy and Germany declining as much as 4% and 3% respectively.

 

Iranian export to India increases 35%YoY

The value of Iranian export to India increased by 35% in the first seven months of 2022, as compared to the same period in 2021, Tasnim news agency reported citing the data released by the Indian Ministry of Commerce and Industry.

Iran exported commodities worth US$361 million to India in the seven-month period of this year, while the figure was US$267 million in the same time span of the past year.

Fruits were the major products Iran exported to India, accounting for 26% of the total exported items. Iran exported US$96 million of fruits to India in the mentioned time span.

During January-July of 2022, Indian export to Iran increased by 54% to US$1.243 billion, while the figure was $807 million in the first seven month of 2021.

Rice was India’s major product exported to Iran in the said time, as the product accounted for 66% of the country’s total export to the Islamic Republic.

India exported US$825 million of rice to Iran in the first seven months of this year, while the figure was US$641 million in the first seven months of 2021.

According to the Indian Ministry of Commerce and Industry, the value of trade between Iran and India was reported at US$1.604 billion during January-July 2022, rising 49% from US$1.074 billion in the same period of time in 2021.

In late May, Iranian ambassador to India said that Iran and India are trying to diversify the channels of payments to expand the bilateral trade.

In an exclusive interview with Financial Express Online, Ali Chegeni said, “We are trying to diversify the channels of payments and accordingly wish to extend and expand an already existing mechanism in order to cover all of the goods and services including all of non-oil goods and to achieve this”.

During the past two years, because of Covid restrictions, we pursue the issue via virtual dialogues and currently our officials are following the matter through the exchange of delegations, the envoy stated.

“We want to develop our economic and trade relations beyond energy and petrochemical products. Since due to the complementarily of Iran and India economies, an extensive range of non-oil trade exists between two sides including trade on goods and services, investment, tourism, education, which may pave the way for multiplying our economic relations ten times more than current relations in mid and long terms”, Chegeni said.

 

 

United States: Likely Freight Rail Strike

A potential nationwide freight rail strike is looming, threatening to cripple economy of the United States ahead of the holiday shopping season and November’s midterm elections.  

Roughly 115,000 rail workers could walk off the job as early as September 16, 2022 if they cannot agree to a new contract with railroads.  

That’s the first day workers could legally strike after a White House-appointed panel released collective bargaining recommendations aimed at ending years of contentious negotiations.  

Five of the 13 unions representing rail workers have reached tentative agreements with railroads to enact the Presidential Emergency Board (PEB) recommendations, which call for 24% pay raises, back pay and cash bonuses.

But most of the railroad workers belong to unions that haven’t yet agreed to a deal. It’s also unclear whether workers would vote to ratify PEB recommendations that don’t address their concerns about punishing hours and rigid schedules that make it difficult to take time off for any reason.  

“I would suspect that most railroad workers would love to strike, would love to get back at their employers after years of abuse while they watched the industry make record profits,” said Ron Kaminkow, an organizer at Railroad Workers United, which represents rank-and-file railroaders. 

More than 9 in 10 railroad workers would vote to reject the PEB recommendations and go on strike, according to a recent survey from the organization.  

Still, Kaminkow noted that workers could change their minds when faced with the prospect of years of back pay and the reality that Congress can take away their main source of leverage at any time. 

Federal law gives Congress the power to block or delay a railroad strike. If workers were to walk out, lawmakers could vote to enact the PEB deal or appoint arbitrators to fast-track a new contract, among a range of other options. 

The Association of American Railroads, which estimates that a national rail shutdown would cost the US at least US$2 billion a day, said that lawmakers should vote to implement the PEB recommendations in the event of a strike to instantly reward employees and reduce economic uncertainty. 

Experts say that an extended walkout would devastate industries that rely on freight to transport grain, coal, diesel, steel and motor vehicle parts. Shipping containers would pile up at ports, severely congesting supply chains and sending prices soaring ahead of the holidays.  

“The railroads are actually very critical to the nation’s economy, and also to security. There’s a lot of hazardous stuff that simply can’t go by road,” said Nicholas Little, Director of Dailway education at Michigan State University’s Center for Railway Research and Education.  

While Democrats are closely aligned with labor unions, organizers acknowledge that they likely wouldn’t allow for an extended strike just before the midterm elections. President Joe Biden, who created the PEB in July to help resolve the contract dispute, is laser focused on unclogging supply chains. 

“After the pandemic and supply chain disruptions of the past two years, now is not the time for more uncertainty and disruption,” a White House official told The Hill. “Now is the time for the parties to resolve their differences, before the nation’s economy begins responding to even the prospect of a nationwide rail stoppage.” 

While both unions and railroads say they want to avoid a strike, some see a work stoppage as the only way to win better working conditions.  Over the last six years, the top freight carriers laid off 45,000 employees, or nearly 30% of their combined workforce, according to the Surface Transportation Board. That left trains understaffed when demand picked up, leading to service disruptions and overworked crew members.   

Workers complain that they often cannot secure time off, even for scheduled doctor’s appointments or family events, and are disciplined whenever they miss a day for any reason. They say they don’t receive sufficient notice or rest before starting a days-long shift that could take them hundreds of miles from home.  

“Emotionally, you’re just drained,” Robert Hollifield, an electronics technician, said at a railroad worker town hall hosted by the AFL-CIO’s Transportation Trades Department last month. “Every time the phone rings, you go into a minor panic wondering where you’re going to have to go and how long you’re going to be gone away from your family.” 

Many workers saw this round of negotiations as a key opportunity to revamp those policies and were disappointed when the PEB recommendations largely ignored them. There’s a growing sense of resignation that even if they want to strike, Congress won’t let them.

Congress last acted to end a rail strike 30 years ago. Most of today’s lawmakers and their top aides have never dealt with the issue before and have little knowledge of the process, likely giving industry insiders more influence. 

The Brotherhood of Locomotive Engineers and Trainmen and the International Association of Sheet Metal, Air, Rail and Transportation Workers said in a Labor Day statement that railroads all but hide behind Congress in their efforts to reject workers’ demands. 

“While there are no guarantees for either side as to what Congress might do if they are involved, there is no doubt that the rail carriers expect Congress to intervene to save them from dealing fairly with their employees if there is a job action,” they said.

 

US and EU making the world a big fool

The United States and European Union have ramped up buying key industrial metals from Russia, despite logistical problems spurred by the war in Ukraine and tough talk about foreign exchange starved Moscow.

The metal shipments highlight the West's difficulty in pressuring Russia's economy, which has performed better than expected and seen its currency (rouble) surge as buoyant oil revenue has helped offset the impact of sanctions. 

The US and EU import of Russia's main base metal products, aluminium and nickel, during March-June period increased by as much as 70% shows official trade data.

The total value of US and EU imports of the two metals from March to June were reported at US$1.98 billion.

The West has imposed repeated waves of sanctions on a wide range of Russian products, people and institutions, but has largely spared the industrial metals sector.

A US State Department spokesperson said in response to a query from Reuters, "Although we don't preview our sanctions actions, nothing is off the table to increase the price on Putin's unjustified war against Ukraine."

Analysts said the United States and Europe have learned lessons after huge disruption on construction, auto and power sectors caused by sanctions imposed by former US President Donald Trump on Russian aluminium 2018. Those sanctions were lifted the following year.

Prices of both metals surged to record peaks shortly after Russia launched its invasion of Ukraine on February 24 on fears that sanctions or difficult logistics would block shipments.

But those fears were unfounded, since the data show Russian exports during March to June were relatively strong.

"Market mechanisms are working," said Julius Baer analyst Carsten Menke, referring to Russian metals shipments.

"We know from commodity traders it's mainly a question of the price. It's not so much about some politician not wanting you to buy, but is there a deal here."

Russia's Rusal is the world's largest aluminium producer outside China and accounts for about 6% of estimated world production.

During the four months following Russia's invasion of Ukraine, the EU was the biggest importer of unwrought aluminium from Russia, pulling in an average of 78,207 tons a month in March-June, 13% more than the same period last year.

Rotterdam, Europe's largest port, said in a report total volumes rose 0.8% in the first half of 2022, but "break bulk" - cargo that does not fit in containers -- rose sharply by 17.7%, driven by higher imports of metals.

A port spokesperson told Reuters that shipments of aluminium and nickel were still arriving in the port since they are not sanctioned, but declined to give any figures.

US monthly imports of Russian aluminium averaged 23,049 tons in March-June, up 21% from the same period last year.

"For the Americans, it's very important that they get as many different aluminium sources as possible," said Tom Price, Head of Commodities Strategy at Liberum.

"They're very reluctant to get any metal from China, where exports are shrinking, so Russian Rusal aluminium is very important, that is the reason they haven't shut that trade down."

Russian aluminium imports to last year's top seven destinations in March to June averaged 221,693 tons a month, 9% less than the same period last year, but 4% higher than the monthly average for all of 2021.

In nickel, Russia accounts for about 10% of global output and the country's Nornickel makes about 15%-20% of the world's battery-grade nickel. Nickel imports from Russia by the top three destinations in March-June rose 17% year-on-year. The United States saw the biggest gains, surging 70% compared to last year, while EU shipments gained 22%.

Benchmark nickel on the London Metal Exchange doubled to a record above US$100,000/ton on March 08, prompting the LME to suspend trading and cancel deals.

 

Ukrainian President rings NYSE bell, remotely

Ukrainian President, Volodymyr Zelenskiy remotely rang the opening bell at the New York Stock Exchange on Tuesday. He appealed for billions of dollars in private investment to rebuild factories and industries destroyed by Russia.

Zelenskiy's government launched a platform of over 500 projects worth US$400 billion for foreign companies and private investors to help rebuild Ukraine's economy, even as the war with Russia drags on.

Zelenskiy appeared on a video screen behind the platform overlooking the NYSE floor where the opening bell is traditionally rung. Traders applauded and whooped while a banner read: "We are free. We are strong. We are open for business."

Fresh from a roundtable with top executives from JP Morgan, Pfizer and other US companies, Zelenskiy said in English that Ukraine was already rebuilding its economy, more than six months since the Russian invasion began.

"Ukraine is the story of a future victory and a chance for you to invest now in projects worth hundreds of billions of dollars to share the victory with us," he said.

Ukraine is also appealing for some US$5 billion in international aid each month to keep its economy running, in addition to military aid from NATO alliance members.

The United States and allies in Europe and Asia have already sent billions in humanitarian aid, weapons and other security spending, and officials are watching closely for any signs domestic political support could be flagging.

"Advantage Ukraine," the investment push, focuses on 10 key sectors, including the military-industrial complex, energy, pharmaceuticals, metallurgy, woodworking, and logistics.

"It is necessary to invest in Ukraine now, and not wait for the end of the war," Economy Minister Yulia Svyrydenko said in a statement.

Advertising group WPP is leading the marketing campaign for the initiative.

Svyrydenko told Reuters last month that Ukraine's economy should stabilize over the coming year and expand by as much as 15.5% in 2023, after a likely contraction of 30-35% this year.

On Tuesday, she said Ukraine was keen to bring back foreign direct investment, which she said had reached US$6.7 billion before the war. "The Russian invasion adjusted our short-term plans, but did not force us to abandon our strategic goals," she said.

Concerns about corruption had tempered foreign investor interest in Ukraine before the invasion.

The economy ministry is also providing grants to existing businesses, and has relocated 700 businesses from the frontlines of the conflict.