Transition from WTO to TTC

After long championing the World Trade Organization (WTO) and its predecessor GATT as the key venue for pursuing its commercial economic interests, the United States shifted more than a decade ago toward building alternative trade architecture.

President Barack Obama’s Trans-Pacific Partnership was aimed at crafting an Asia-Pacific trade bloc that left out China, a plan that was upended by his successor. Now, there’s a new body that warrants close attention, United States-European Union Trade and Technology Council (TTC).

Opened for business in 2021, the TTC this week held its third minister-level gathering. Originally designed by the Biden administration to resolve and manage disputes, it’s been evolving into a forum for coordinating economic approaches to systemic rivals of the US and Europe, specifically Russia and China, reports Bloomberg.

With TTC links between Washington and Brussels bureaucrats set up last year, the council found fresh purpose with Russia’s February invasion of Ukraine, enabling more effective coordination on sanctions and export controls.

The TTC reaction to Vladimir Putin’s aggression is also serving as something of a template for China, should Xi Jinping choose to make war on Taiwan. Indeed, there’s already evidence the TTC is emerging as a forum for the US and Europe to link up on issues concerning Beijing.

On December 05, 2022 the TTC served as a venue for discussing President Joe Biden’s push to hobble China’s semiconductor industry. Coincidentally, Dutch officials are already planning new controls on exports of chip-making equipment to China, potentially aligning with the US efforts to restrict Beijing’s access to high-end technology.

Germany, France and other EU members remain much more hesitant to embrace aggressive moves toward reducing China’s place in global supply chains. German Chancellor Olaf Scholz’s visit to Beijing last month with an entourage of business leaders from his country showcased that dynamic.

But the TTC now provides a permanent venue in which moves against China can be debated. With the WTO’s ability to rule on controversial trade measures effectively crippled by its inability to hear appeals (thanks to Donald Trump), the TTC is fast becoming the West’s preferred platform for hashing out global trade strategy. 

The TTC, along with the less formal US-Japan initiative and Biden’s even-looser Indo-Pacific Economic Framework, aren’t technically focused on tariffs and quotas in the way traditional trade-talk forums or free-trade agreements were. 

Instead, these are aimed at the “soft infrastructure” of global commerce—standards, export controls, transparency requirements, investment reviews and labor and environmental rules, explains Stephen Olson, a former US trade negotiator now at the Hinrich Foundation. 

“The parties are essentially creating ecosystems,” Olson wrote in a note earlier this year. “Integration deepens not as a result of trade-barrier reductions, but rather in response to the need or desirability of doing business with partners that maintain similar labor protections or adhere to compatible technical standards.”

Underscoring the strengthening of US-European digital diplomacy—and an apparent determination to manage differences (like EU tax and regulatory policy toward US tech giants), the EU even opened an office in Silicon Valley.

There of course remain plenty of trans-Atlantic disputes, highlighted by European fury over Biden’s clean-energy and electric-vehicle subsidies in this year’s massive Inflation Reduction Act. This week’s TTC gathering, it turned, out provided another chance to address those.

But the council could become increasingly important in other ways, especially as digital trade and associated regulations develop. The TTC gathering in September of last year called out authoritarian regimes for aiming to use technology to implement social control at scale.

Benjamin Larsen wrote in a Brookings Institution paper this week that the TTC can be viewed as the beginning steps towards forming an alliance around a human rights-oriented approach to the development of artificial intelligence in democratic countries.

In May, the two sides of the TTC took strides in another direction, agreeing to set up a Strategic Standardization Information mechanism to share information on international standards development—an area of increasing Chinese interest, as this newsletter highlighted.

The next TTC session is slated for mid-2023 in Europe. It will likely be a forum well worth watching

 

 

 

Pakistan Stock Exchange benchmark index closes almost flat

Economic uncertainty regarding Pakistan’s ability to make good on its debt payments kept the market under pressure during the week ended December 09, 2022. The benchmark index closed at 41,698 points, posting a decline of 1.07%WoW.

State Bank of Pakistan (SBP) confirmed the payment of US$1.08 billion of International Sukuk. This brought down foreign exchange reserves held by the SBP to US$6.7 billion on December 02, 2022.

Saudi Arabia provided a much-needed breathing space to Pakistan by announcing the rollover of US$3 billion which would help meet external sector challenges and achieve economic growth.

Participation in the market improved, though negligibly, with average traded volumes increasing to 179.7 million shares from 161.8 million shares in the earlier week.

Other major news flows during the week included: 1)  ECNEC okayed RKR333.6 billion for flood-hit projects, 2) GoP announced to borrow RKR5.52 trillion domestic debt over the next three months, 3) GoP debt rose to RKR50.152 trillion, 4) revised flood damages estimates estimated at US$46 billion, 5) tractor sales anticipated to decline 67 percent, 6) auto financing dropped for the fourth consecutive month, 7) Cement dispatches Declined by 17%YoY in November 20222 and 8) Cotton arrivals plunged 40%.

Top performing sectors were: Miscellaneous, Closed end mutual funds, and Vanaspati and Allied Industries, while the least favorite sectors were: Pharmaceuticals, Jute and Leasing.

Stock-wise, top performers were: PSEL, PGLC, MUREB, ILP, and BAHL, while laggards included: GLAXO, PIOC, CHCC, PSMC, and SEARL.

Individuals were major buyers with net buy of US$8.82 million, followed by Insurance companies with net buy of US$1.26 million. As against this, foreign investors were major sellers, with a net sell of US$6.26 million. Mutual funds continued to be a seller, with a net sell of US$3.71 million.

The market is expected to remain range-bound in the near future, clouded by liquidity concerns of the country, with foreign exchange reserves held by SBP plunging to US$6.7 billion— a less than one month import cover.

Some respite may come in the form of Saudi Arabia’s expected US$4.2 billion (US$3 billion in deposits and US$1.2 billion in deferred oil facilities), alleviating the pressures off the country’s FX reserves to some extent.

Political uncertainty and any developments regarding the 9th review by the IMF would remain in the limelight.

Indonesia plans using B35 biodiesel beginning 2023

Indonesia may start implementing a program to use biodiesel with 35% blend of palm oil-based fuel, known as B35, from January, 2023, a senior energy ministry official said on Friday.

Currently the world's top palm oil producer, Indonesia uses B30, containing 30% palm oil-based fuel. The overall palm oil-based fuel allocation for 2023 is estimated at around 13 million kilolitres in 2023, he said. Indonesia's 2022 allocation was 11.03 kilolitres.

Indonesian President Joko Widodo told his cabinet earlier this week to prepare the mechanism to implement B35 amid expectations that the crude oil price would remain high next year.

"The B35 policy is taken in anticipation of rising world oil prices and to reduce imports, while on the other hand this policy also aims to increase the use of renewable energy," ministry official Dadan Kusdiana said.

Southeast Asia's largest and most populous country is among the region's top importers of fuel, but authorities said import bills have been slashed significantly since Indonesia started expanding the portion of palm oil in biodiesel.

The expectation of B35 implementation helped palm oil prices in Malaysia higher, although some market participants were disappointed the blend would be lower than the anticipated 40%.

The energy ministry has been running trials for biodiesel containing 40% of fuel made using palm oil.

"Ten out of 12 of the vehicles tested had completed the road test with no significant issue and next we will determine the specification for B35 biodiesel," Dadan added, referring to the B40 trials.

“Hopefully, the B35 program can be implemented starting January 2023."

Indonesia is testing two formulation of B40, the first is a mix of diesel with 40% fatty acid methyl esters (FAME) and the second a mix of diesel with 30% FAME mixed with 10% green diesel made of refined, bleached and deodorized palm oil (RBDPO).

 

Keystone pipeline history of oil spills

According to a Reuters report, Canadian TC Energy Corp has shut its Keystone pipeline in the United States after more than 14,000 barrels of crude oil spilled into a creek in Kansas, making it one of the largest crude spills in the United States in nearly a decade. It is unclear how long the closure will last.

The 622,000 barrel-per-day pipeline is a critical artery shipping heavy Canadian crude from Alberta to refiners in the US Midwest and the Gulf Coast.

There have been several spills on the line since it began operating in 2010. The following is a timeline of some of Keystone's biggest oil spills, based on data from the US Pipeline and Hazardous Materials Safety Administration.

2011

May: TC shut the pipeline for six days after a spill of about 500 barrels of oil due to a failed fitting at a North Dakota pumping station. (https://reut.rs/3iKr5JC)

2016

April: TC shut down the pipeline after about 400 barrels of oil leaked in Hutchinson County, South Dakota. (https://reut.rs/3W2FjUx)

2017

November: TC shut part of the Keystone pipeline system after a leak in South Dakota, caused by mechanical damage from original construction. Originally pegged at 5,000 barrels, a TC spokesperson later put the estimate at about 9,700 barrels. (https://reut.rs/3P9J6Nu)

2019

February: Portions of the Keystone pipeline were shut down after 42 barrels of oil leaked on land in rural St. Charles County, Missouri. (https://reut.rs/3HkTBLZ)

October: An estimated 9,120 barrels of oil spilled in North Dakota. The spill was one of the biggest onshore crude spills in the last decade and the largest for Keystone, according to PHMSA. (https://reut.rs/3Hq4zjH)

 

 

US approves record military spending

The US House of Representatives backed legislation on Thursday paving the way for the defense budget to hit a record US$858 billion next year, US$45 billion more than proposed by President Joe Biden.

The House passed the compromise version of the National Defense Authorization Act, or NDAA, an annual must-pass bill setting policy for the Pentagon, by 350-80, far exceeding the two-thirds majority required to pass the legislation and send it for a vote in the Senate.

The fiscal 2023 NDAA authorizes US$858 billion in military spending and includes a 4.6% pay increase for the troops, funding for purchases of weapons, ships and aircraft; and support for Taiwan as it faces aggression from China and Ukraine as it fights an invasion by Russia.

"This bill is Congress exercising its authority to authorize and do oversight," said Representative Adam Smith, the Democratic chairman of the House Armed Services Committee, in a speech urging support for the measure.

Because it is one of the few major bills passed every year, members of Congress use the NDAA as a vehicle for a range of initiatives, some unrelated to defense.

This year's bill - the result of months of negotiations between Democrats and Republicans in the House and Senate - needed a two-thirds majority in the House after disagreement from some House members over whether it should include an amendment on voting rights.

The fiscal 2023 NDAA includes a provision demanded by many Republicans requiring the Secretary of Defense to rescind a mandate requiring that members of the armed forces get COVID-19 vaccinations.

It provides Ukraine at least US$800 million in additional security assistance next year and includes a range of provisions to strengthen Taiwan amid tensions with China.

The bill authorizes more funds to develop new weapons and purchase systems including Lockheed Martin Corp's F-35 fighter jets and ships made by General Dynamics.

The Senate is expected to pass the NDAA next week, sending it to the White House for President Joe Biden to sign into law.

NDAA is not the final word on spending. Authorization bills create programs but Congress must pass appropriations bills to give the government legal authority to spend federal money.

Congressional leaders have not yet agreed on an appropriations bill for next year.

 

Saudi Arabia and China sign strategic deals

Saudi Arabia and China showcased deepening ties with a series of strategic deals on Thursday during a visit by President Xi Jinping, including one with tech giant Huawei, whose growing foray into the Gulf region has raised US security concerns.

King Salman signed a comprehensive strategic partnership agreement with Xi, who received a lavish welcome in a country forging new global partnerships beyond the West.

Xi's car was escorted to the king's palace by members of the Saudi Royal Guard riding Arabian horses and carrying Chinese and Saudi flags.

The Chinese leader held talks with Crown Prince Mohammed bin Salman, de facto ruler of the oil giant, who greeted him with a warm smile. The two stepped into a pavilion as a military band played the countries' national anthems. Xi heralded a new era in Arab ties.

The display stood in stark contrast to the low-key welcome extended in July to US President Joe Biden, with whom ties have been strained by Saudi energy policy and the 2018 murder of Jamal Khashoggi that had overshadowed the awkward visit.

The United States, warily watching China's growing sway and with its ties to Riyadh at a nadir, said on Wednesday Xi's trip was an example of Chinese attempts to exert influence around the world and would not change US policy towards the Middle East.

A memorandum with China's Huawei Technologies, on cloud computing and building high-tech complexes in Saudi cities, was agreed despite US concerns with Gulf allies over a possible security risk in using the Chinese firm's technology. Huawei has participated in building 5G networks in most Gulf states despite US concerns.

Prince Mohammed, with whom Biden bumped fists instead of shaking hands in July, has made a comeback on the world stage following the Khashoggi killing, which cast a pall over Saudi-US ties, and has been defiant in the face of US ire over oil supplies and pressure from Washington to help isolate Russia.

 

In further burnishing of his international credentials, Saudi Arabia and the United Arab Emirates said on Thursday that the prince and the UAE president jointly led mediation efforts that secured the release of US basketball star Brittney Griner in a prisoner swap with Russia.

In an op-ed published in Saudi media, Xi said he was on a pioneering trip to open a new era of China's relations with the Arab world, the Arab countries of the Gulf, and Saudi Arabia.

China and Arab countries would continue to hold high the banner of non-interference in internal affairs, and firmly support each other in safeguarding sovereignty and territorial integrity", he wrote.

Xi, due to meet with other Gulf oil producers and attend a wider gathering of Arab leaders on Friday, said these states were a "treasure trove of energy for the world economy ... and are fertile ground for the development of high-tech industries".

Several regional rulers including Egypt's president, Kuwait's crown prince and Sudan's leader, arrived in Riyadh on Thursday.

Saudi Arabia and other Gulf states like the United Arab Emirates have said that they would not choose sides between global powers and were diversifying partners to serve national economic and security interests.

China, the world's biggest energy consumer, is a major trade partner of Gulf states and bilateral ties have expanded as the region pushes economic diversification, raising US hackles about Chinese involvement in sensitive Gulf infrastructure.

The Saudi energy minister on Wednesday said Riyadh would stay a "trusted and reliable" energy partner for Beijing and the two would boost cooperation in energy supply chains by setting up a regional centre in the kingdom for Chinese factories.

Chinese and Saudi firms also signed 34 deals for investment in green energy, information technology, cloud services, transport, construction and other sectors, state news agency SPA reported. It gave no figures, but had earlier said the two countries would seal initial agreements worth US$30 billion.

Tang Tianbo, Middle East specialist at the China Institutes of Contemporary International Relations (CICIR) - a Chinese government-affiliated think tank - said the visit would result in further expansion of energy cooperation.

 

Tata to produce chip in India

India's Tata Group will begin producing semiconductors in the country within a few years, a move that the chairman of the group's main company said will make the South Asian country a key part of global chip supply chains.

In an interview with Nikkei Asia in Tokyo on Thursday, Tata Sons Chairman Natarajan Chandrasekaran revealed that the conglomerate plans to launch new businesses in emerging fields such as electric vehicles.

"We have created Tata Electronics, under which we are going to set up semiconductor assembly testing business," Chandrasekaran said, referring to an electronic components manufacturer that the group founded in 2020.

"We will have discussions with multiple players," the chairman added, raising the possibility of partnerships with existing chip manufacturers. It is believed to be highly difficult for an inexperienced company to launch a chip making business on its own.

It is thought that semiconductor manufacturers and foundries in the US, Japan, Taiwan and South Korea are potential partners in the project.

Chandrasekaran also said, “Tata will look into the possibility of eventually launching an upstream chip fabrication platform." The upstream semiconductor manufacturing process plant called wafer fabrication plant, or fab, is more challenging both technologically and financially compared with downstream process of assembly and testing. His comments reflect the group's aspiration to enter the market if it is technologically and financially feasible.

Tata's move into chip making will break new ground for India, which has virtually no semiconductor industry, other than software-based design, although demand for semiconductor-intensive products such as smartphones and EVs is growing rapidly.

There is also growing momentum to diversify chip supply chains, which are at present concentrated in East and Southeast Asia, following the global chip shortage and US-China tensions. The ongoing US-China decoupling in chip-related technology is also leading major chipmakers to seek more diversified supply-chain locations, which may well open an opportunity for India to emerge as a frontier location. Tata seems to have decided that this is an opportune time to enter the market.

Chandrasekaran explained that his group has been promoting its future ready strategy, in which existing group companies, from steel to arms, adapt to new challenges, such as digitization and climate change, while also launching new businesses.

As part of that effort, the chairman revealed that the group as a whole plans to invest US$90 billion over the next five years. In addition to semiconductors, the chairman said the company is in the process of starting up new businesses such as the manufacture of EVs and EV batteries, production of renewable energy and development of super apps that allow users to buy goods and services from groceries to financial products.

He also said the group wants to unify the management of Air India, the national flagship airline that it has bought back from the government, and Vistara and AirAsia India, which are also in the group. However, he did not say whether this meant combining their brands, simply stating that it was an issue "up for discussion going forward."