Shocks for developing countries from President Trump’s first weeks
Mr. Donald Trump’s first weeks as US President have sent shockwaves around the world, and it is the developing countries that will be most affected. This article by the South Centre’s Executive Director reviews the implications of Trump’s initial policies, including the blocking of refugees, the impending actions to cut funding to the UN and other organisations, the turnaround on climate change and environment issues, and the turn towards trade and investment protectionism.
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Shocks for developing countries from President Trump’s first weeks
Mr. Donald Trump’s first weeks as US President have sent shockwaves around the world, and it is the developing countries that will be most affected. This article by the South Centre’s Executive Director reviews the implications of Trump’s initial policies, including the blocking of refugees, the impending actions to cut funding to the UN and other organisations, the turnaround on climate change and environment issues, and the turn towards trade and investment protectionism.
By Martin Khor
His first days in office indicate that President Donald Trump intends to implement what he promised, with serious consequences for the future of the United Nations, trade, the environment and international cooperation, and developing countries will be most affected.
Those who hoped Trump would be more statesman-like in style and middle-of-the-road in policy matters after his inauguration had their illusions dashed when the new United States President moved straight into action to fulfil his election pledges.
The world and the world order have to prepare for more major shocks. It will be far from business as usual. And while other powerful countries can prepare tit-for-tat counter-moves when President Trump strikes, most developing countries won’t have the means, and may suffer the most.
Even close friends are not spared. Trump signed an order fast-starting building a wall at the US border with Mexico. To add insult to injury, he asked Mexico to pay for the wall and threatened to impose a 20% tax on Mexican products to finance it. He has also discouraged US companies from moving to Mexico.
Mexicans are understandably outraged and the Mexican President cancelled his planned trip to Washington. Mexico has been one of America’s strongest allies. If it can be treated in this manner, is there hope for others to avoid being targeted?
The Trump order to ban the entry of citizens from seven Muslim-majority countries, even those holding a Green card or are working in the US, on the ground that they could pose a security threat, has caused not only anger in the affected countries but also uncertainty among people in other developing countries who fear they may also be targeted in the future.
The executive order also suspended the admission of all refugees into the US. If made permanent, this measure signals the end of a long tradition of the US (in line with many other Western countries) to welcome a limited number of people escaping from troubled countries. In some of these countries, the troubles that prompted them to leave resulted from interventions or interference by the US and its Western allies.
Very troubling are the signs that the US is revamping its approach to international cooperation. Two executive orders are being prepared to reduce the US’ role in in the United Nations and other international organisations, according to a New York Times report.
One of the draft orders calls for at least a 40% cut in US funding toward international organisations and terminating funds for any international body that fit certain criteria.
The other order calls for a review of all current and pending treaties, and recommendations on which negotiations or treaties the US should leave.
The New York Times says that if Trump signs the orders, the cuts could severely curtail the work of UN agencies which rely on billions of dollars in annual US contributions. “Taken together, the orders suggest that Mr Trump intends to pursue his campaign promises of withdrawing the US from international organisations. He has expressed heavy scepticism of multilateral agreements such as the Paris climate agreement and the UN.”
The US has been the major creator of the post-Second World War system of international relations, with the United Nations at its centre. The UN has served as a crucial universal forum for international discussion and cooperation, including on peace-keeping and economic and social issues.
It convenes leaders and representatives of almost all countries for meetings and conferences, with resolutions and declarations, on a wide range of current affairs. Its agencies have supported global and national policy making and actions on economic development, health, food, the environment, human rights, culture and education, natural disasters and refugees.
The UN has been playing a critical positive role in providing a venue for developing countries to voice their opinions and take part in decision-making on global affairs. The UN agencies have provided resources and support to developing countries to build their national capacities for economic and social development, and in preventing and managing political conflicts.
Of course the UN needs to be improved, including in democratisation of the Security Council and in giving more say to developing countries, especially on global economic and financial issues on which decisions are usually taken by a few powerful countries and outside the UN.
But denigrating the UN’s role and reducing funds for its operations would severely weaken the spirit and substance of international cooperation, to the detriment especially of developing countries.
Another looming problem is that President Trump looks intent on doing a complete turnaround on the present US environmental policies. This will have a grave effect on the world, both in terms of the physical environment itself and in turning back the clock on global efforts to tackle multiple environmental crises.
Within a day of Trump’s inauguration, pages and references to climate change were removed from the White House website. The Environmental Protection Agency was reportedly told to remove its web section on climate change, though that order was later countered. Staff at the EPA were forbidden to issue media statements or new scientific studies and research grants were suspended.
Two major projects cancelled during Obama’s presidency on environmental and social grounds, the Keystone XL pipeline and the Dakota access pipeline, are being revived. The Clean Power Act, a centrepiece of the Obama effort to address climate change, has been under attack.
And all these even before the assumption of office of Trump’s nominee for the new EPA chief, the Oklahoma attorney-general Scott Pruitt, who is well known for having sued the EPA 14 times. His selection by Trump was described by the New York Times as signalling Mr Trump’s determination to dismantle President Obama’s efforts to counter climate change – and much of the EPA itself.
This policy turnaround will negatively affect international efforts to combat the global environmental crisis. In particular, the many years of collective work to get agreed action on climate change will be seriously impeded since the US is looked up to show an example that developed countries take domestic climate actions seriously and are also committed to provide climate-related financial assistance to developing countries.
At this point it is not certain whether the US will remain in the Paris Agreement or even the UN Framework Convention on Climate Change; its withdrawal from either or both would be disastrous.
It can however be expected that under Trump, the US will stop its funding to the Green Climate Fund, to which the Obama administration had pledged $3 billion in its initial period and delivered $1 billion. If the US withdraws, will other countries increase their funding to make up for the loss of the US, or will they also reduce their share, thereby plunging the GCF into an uncertain future?
Another major action was Trump’s move to withdraw the US from the Trans Pacific Partnership (TPP) agreement. He had pledged to do so but when he acted, on his first working day, it still came as a shock.
Initially Australia and New Zealand tried to get the remaining 11 TPP countries to pledge they would continue to get the TPP to enter into force. But this has not gained traction, with Japan and Canada bluntly stating that the TPP is meaningless and cannot continue without the US.
Thus, the TPP has been killed. Even if in the future Trump or his successor has a change of heart, the public mood is such that the US Congress would be unlikely to approve.
More important than Trump’s action itself is what it represents in terms of the new US approach towards trade. The TPP was loaded to favour US interests in many ways. On the trade aspect, the US has lower tariffs than the developing country partners with which it did not yet have a trade agreement, and thus stood to gain in terms of trade balance.
On the non-trade aspects of the TPP, which the US under Obama had insisted upon, American companies would have gained in the areas of intellectual property, investment, government procurement and state-owned enterprises.
Yet the TPP was unpopular with the American public, because it perceived that whatever gains the US would have would flow to the corporations and the elites, leaving the working and middle classes to face problems such as possible job losses from cheaper imports and relocation of factories abroad.
With the demise of the TPP, developing countries which are its members regret the loss of their opportunity to gain greater access to the US market. But they are also spared from having to take on heavy obligations on investment, intellectual property and state-owned enterprises, and other issues.
The Trump move on the TPP is a prelude to other trade policies to be rolled out soon, in pursuance of his America First strategy, which includes the subsidiary slogans Buy American and Hire Americans.
Policies being considered include higher tariffs or else “border adjusting taxes” on products from countries with which the US has trade deficits, starting with China and Mexico; tax incentives for companies that export; taxes to punish US companies located abroad that export to the US; and requirements that companies that win government infrastructure and other contracts have to make use of American-made goods.
Many developing countries which depend on the US for their exports, and that presently host US companies or hope to attract new US investments, will be adversely affected by these policies, which together spell a new era of US protectionism. It will end the US-championed policies of liberalisation of trade and investment.
Trump also announced that he plans to initiate new one-to-one bilateral trade agreements, in place of regional or plurilateral trade agreements. If his aim is to promote the US companies’ interests even more strongly than in previous FTAs, this may mean a negotiating stance of maximising US exports to while minimising imports from the bilateral partners, and pressurising them to accept provisions on investment, services, intellectual property, procurement, state-owned enterprises and other issues that are even stronger than what the TPP had.
Other developed countries like Japan and the post-Brexit United Kingdom may be interested in starting negotiations with the US with its new template, in an attempt to get mutual benefits. It remains to be seen whether there would be developing countries willing to be new partners in what for them would likely be very one-sided bilateral agreements.
Another question is whether the rules of the multilateral trading system will act to constrain the new US administration. Many of the new policies announced by Trump or his team (such as higher taxes and tariffs on Chinese and Mexican goods, or taxes on American companies exporting to the US) are probably against one or another of the agreements under the World Trade Organization.
Even if the Trump administration fine-tunes its policy measures in an attempt to fit within the WTO’s rules, they will most likely be challenged by other WTO members. If the WTO panels rule against the US, will it comply with the decisions, or will Trump turn his fire against the WTO and its system instead?
Meanwhile, the WTO members are waiting to see what positions the new US trade team will take in the on-going WTO negotiations in Geneva.
Given that Trump ran on the promise to upend the establishment, and it looks as if he intends to keep to his word, leaders and people around the world, and especially in the developing countries since they are more vulnerable, should prepare themselves to respond to more and bigger shocks ahead.
Martin Khor is the Executive Director of the South Centre.
Contact: director(at)southcentre.int
Rethinking trade policy and protectionism in the Trump era
It is now almost certain that the United States under President Trump will significantly increase trade protectionism, while going for a different (and probably worse) approach to free trade agreements. Developing countries should reconsider their own policies towards trade and trade agreements.
By Martin Khor
What kind of trade policy will the United States have under President Donald Trump? This is a hot issue, as Trump has made unorthodox pronouncements on trade issues before and after his inauguration. If he acts on even some of the positions he took, it will create a sea change in trade policy in the US and possibly the world.
After a few weeks in office, Trump is now taking some trade action. True to his pledge, he withdrew the US from the Trans Pacific Partnership Agreement (TPP) and is preparing to renegotiate the North American Free Trade Agreement (NAFTA).
He called them a disaster for the US. He was probably referring to the claim that many of manufacturing jobs lost in the US in recent years were due to free trade agreements (FTAs) and the overseas relocation of US companies. He is also blaming trade agreements for the US’ huge trade deficits.
Most economists however have a different view. They attribute US job losses mainly to technological change, with trade having only a minor role overall. However, the visible closure of factories in some sectors and areas linked to import competition has fuelled the popular US campaign against FTAs.
There are legitimate fears that Trump’s “America First” slogan, when applied to trade, will lead to a big increase in trade protectionism.
Trump has threatened to raise tariffs or impose a “border adjustment tax” on products from China (by 45%) and Mexico (by 20%). Trump in his campaign accused China of being a “currency manipulator”. If a country is so labelled by the Treasury Department it could be grounds under US law to slap extra tariffs on its products.
President Obama came under pressure from many Congress members and economists to do just that, but he smartly resisted as he realised it would trigger a very nasty trade war with China.
It is possible Trump will also climb down from this particular populist stance. For a start, China’s currency is not under-valued and currently its government is trying to prevent (not encourage) its currency from further sliding.
Secondly, taking trade action against China on currency grounds would be against the rules of WTO, and China should be able to successfully take a WTO case against the US for any such action.
Finally, China has warned it will retaliate if the US were to take protectionist actions. An article in the Beijing-based Global Times spelled out how the country would cancel its orders of Boeing aircraft, restrict US auto and I-phone sales in China and halt US soybean and maize imports, while a number of US industries would be impaired.
Instead of tariffs, Trump may impose a “border adjustment tax” as part of reforms to the US corporate tax. This would have a similar effect as imposing a tax (the expectation is that it will be a tax of 20%) on goods that companies import, while providing a tax exemption equivalent to a subsidy on goods that companies export. This would have the same effect as putting a tariff or tax on imports, and giving a subsidy for exports, a measure that is sure to attract opposition and cases against the US by other countries.
The Trump administration is also likely to consider taking more trade-remedy action on a range of products from China and other countries by claiming they are being dumped or unfairly subsidised.
There are loopholes in the WTO rules on trade remedies which have made these a favourite protectionist tool. A country can slap on high tariffs against an imported good from another country by claiming its price is artificially low because it has been “dumped” (exported at a price lower than the domestic price) or unfairly subsidised by the state.
But if the exporting country complains and a WTO panel rules that the actions were wrongly taken, there is no penalty imposed against the offending country which is only asked to lift the tariff. Meanwhile the aggrieved country has lost many years of export earnings. Moreover, the same actions can again be taken against the same country, thus perpetuating the protection.
We may see a rise in such trade-remedy actions under President Trump, especially if he is counselled against taking the more blatant route of imposing an all-out tariff wall.
But we can also expect tit-for-tat counter-action of the same type by the affected countries, in a global spiral of protectionism. That will be in nobody’s interest.
The new Trump presidency is also expected to usher in a major change in how the US (and eventually many other countries) will perceive free trade agreements. Trump’s objection to the TTPA and NAFTA seems to be based on the issue of goods trade, that the template of these agreements seems to favour the exports of the partner countries at the expense of the US.
Trump said he would instead “negotiate fair bilateral deals that bring jobs and industry back.” This appears to be neo-mercantilist and against the free-trade principle, but it is this kind of “America-first” populism that helped propel him to power.
If the new US policy moves in this direction, what is to prevent other countries from doing likewise? “Free trade” or “fair trade” will be interpreted by each country in ways that favour it, and many of the present rules will have to be set aside.
However the FTAs are much more than trade, and they became unpopular with the public in the US and elsewhere not only because of the threat of cheap imports taking over the market of local producers, but also because of the non-trade issues that are embedded in most recent FTAs, including FTAs between developed countries, and those between developed and developing countries. Most of these issues favour the big corporations at the expense of states and consumers.
One of these issues include investment rules aimed at liberalising foreign investment and financial flows, with an especially controversial section that gives rights to foreign investors to take cases and make claims against the host government in an international tribunal (known as the investor-state dispute settlement system).
Another issue is the strengthening of intellectual property rules that boost multinational companies at consumers’ expense. A most unpopular effect is a tremendous rise in the prices of patented medicines through the additional curbing of competition from cheaper generic drugs.
Other issues include the opening up government procurement to foreign firms on a national-treatment basis, thus reducing the share of local businesses in this huge sector; the liberalisation of the services sectors, which for some countries may affect the cost of basic services that are normally performed by the public sector; and, in the most recent FTAs, the establishment of new rules imposing restrictions on the operations of state-owned enterprises.
The structure of this kind of North-South FTAs is mainly unfavourable to developing countries in general. In the trade component of the FTA, a developing country can get some benefits through better market access to the developed country, but can also suffer damage to its local companies and farms due to cheaper imports. The non-trade issues are usually much against their interests as the developed countries (and their companies) are far stronger and have the upper hand in the areas of investment, intellectual property, services and procurement.
However, civil society groups in the developed countries also find the non-trade issues against the public interest. For example, the investor-state dispute system undermines the ability of these countries to set their own environmental or health policies, and the tighter intellectual property rules impede access to medicines and knowledge for the consumers in these advanced countries as well. In the trade aspect, these CSOs also blame FTAs for the inflow of cheap imports causing the closure of factories and loss of jobs. Therefore these modern FTAs have become very unpopular in the US, Europe and other developed countries.
Through the recent FTAs, sensitive areas and issues that were previously under the purview of the national government are now subjected to new and intrusive rules that cramp the space that countries (whether in the South or North) normally have to set their own policies.
Both the trade and non-trade issues have made the “trade agreements” highly controversial. Civil society groups in developing countries have been expressing their concerns that the public interest and national sovereignty are being undermined.
At the same time, the public in developed countries, including in the US, Europe, Canada, Australia, New Zealand and Japan, have become disillusioned and even outraged by the effects of the FTAs their governments signed or proposed.
The anti-FTA movement became so strong in the US that it helped boost the unexpectedly good showing by Bernie Sanders in the Democratic primaries, pressurised Hillary Clinton to pledge her opposition to the TPP, and enabled Trump to ride on and add to the “anti-trade” emotions in his campaign.
The heightened focus on trade policy during and after the US elections is a good time to review what works and what does not work for the public interest in trade agreements.
It is becoming clear that trade agreements have become overloaded with many issues that do not belong to an agreement originally designed for trade in goods.
For example, there is a history and logic to the “non-discrimination” and “national treatment” principles established for trade in goods among countries, and even then there is a debate on the conditions under which the application of these principles bring about mutual benefits in trade.
The same principles and template are often inappropriate when applied to non-trade issues for which they were not designed. Creating rules based on these principles and including them in trade agreements can lead to imbalances and unequal outcomes among the partners, and even adverse consequences for all the partners.
However in recent years the scope of trade agreements has grown to include more and more issues, to which the original trade principles have been applied, leading to more and more contention and unpopularity.
The overloaded agenda in FTAs gives trade a bad name, with people being confused between trade, trade policy and trade agreements. Many people who are disgruntled with trade agreements also become unhappy with trade per se, and the benefits that trade can bring get mixed up with and overwhelmed by the contentious non-trade issues, and trade ends up being condemned as well.
It is important at this moment to clarify the difference between trade and trade agreements, and to review the whole issue of trade policy.
A good outcome would be to design new agreements that are mutually beneficial in the trade aspect to all partners, whilst removing the controversial non-trade issues from the agenda. And this could be part of a broader pro-development trade agenda.
But this is not likely to be the new agreements being envisaged by the Trump team. The danger is that these may be even worse than the existing ones.
We risk entering a new era where the US, and maybe some other developed countries as well, are tempted to promote extreme trade protectionism, whilst retaining or expanding the unpopular non-trade issues in the trade agenda because it is in the interest of their corporations.
We might end up with a new type of “America first” agreements, in which a Trump administration ensures that the US can curb imports whilst championing its exports, thus reducing the trade benefits to its partners; while at the same time strengthening the rules in non-trade issues like intellectual property, investment, liberalising financial services and curbing state-owned enterprises that favour US corporations but are against the partners’ interests.
That would be the worst of both worlds, at least for developing countries.
It is thus crucial for policy makers and thinkers in developing countries to rethink what kind of trade is good for their economies, what kind of trade policy would correspond to that positive trade performance, and what kind of trade agreements would be good to have and which types should be avoided.
It is also time to rethink the role of the World Trade Organization and reaffirm the priority of developing a balanced and pro-development multilateral trading system. If (and that is a big if) the WTO could evolve into such an ideal system, there would be no need for North-South bilateral trade agreements.
Free Trade: A change of paradigm
The United States, champion of the free trade paradigm, is itself now criticizing it, with President Trump taking the country on a protectionist road.
This article, by a prominent Peruvian economist, points out the flaws of the orthodox paradigm which has caused difficulties for developing countries; and the change in the US policy may bring more problems.
By Humberto Campodonico
One of the pillars of orthodox economic theory explains that trade liberalization and tariff reductions benefits all countries, rich or poor. This was the theoretical matrix of the Bretton Woods Agreements in 1944, which designed the “international economic and trade order” for the next 70 years.
This matrix has just suffered a traumatic blow by Donald Trump. The slogan “America first” means that this is achieved at the expense of others, and not in partnership with them. Therefore, he proposes a tariff of 45% for Chinese products and 35% for Mexicans.
The magnitude of this rise is enormous. The WTO says that the weighted US tariff average in 2015 was only 1.69%. So we’re talking about raising it 18 to 25 times. Incredible.
Why does he do this? Because he says that free trade has not brought benefits to the US. And that NAFTA (the US Free Trade Agreement with Mexico and Canada) has caused the loss of millions of jobs in the US. And that the same would happen with Obama´s TPP (that Trump has rejected).
Bernie Sanders said the same thing: free trade brings losers and winners (although his economic and trade policies alternatives are far away from those of Trump). It’s not like what David Ricardo told us in the 19th Century: that everyone wins with free trade and therefore each country must specialize in its comparative advantages, according to the endowment of factors that it possesses (natural resources, capital, labor force).
If each country does that, Ricardo says, it will have a specific place in the international division of labor. If you do it as a supplier of raw materials or a producer of capital goods, it does not matter. In the end, everyone will win because international prices of goods will match and the same will happen with the prices of capital and labor.
One moment. That’s what the orthodox theory says. But reality tells us something different. In Peru, for example, we also have winners and losers, as in every country. For example, non-traditional exporters of agricultural products, including grapes, potas and squids, maca, strawberries and, recently, blueberries, are clearly the winners in trade with China. And also winners are those who buy cheaper consumer goods (from cell phones to motorcycles) as well as capital goods for the industry.
Among the losers we have the footwear industries (medium and small enterprises), as well as the textile industries (that is the case of the Gamarra textile cluster in Lima) since cheaper imports from third countries (mainly China) have strongly affected local production.
But the orthodox theory is not the only one that exists. There are other economic theories that point to orthodox failures. Recently, economist Dani Rodrik has clearly demonstrated that Ricardian theory is oversold. He adds, against all orthodoxy, that there are cases where “less trade may be better than more trade” (1).
The Economic Commission for Latin America and the Caribbean of the United Nations (ECLAC) tells us that “in recent years, greater integration in trade and global financial and investment flows has been associated with the weakening of redistributive systems, especially in several advanced countries” (2).
ECLAC adds that when they analyzed the world distribution of income, a paradox arose: in the last three decades, global inequality declined, while the internal inequality of most countries increased, especially in the industrialized countries. Let’s look at this more closely.
Global inequality declined especially in the “emerging countries”, such as China, India and, also, in Latin America. But in the OECD countries, the ratio of income share of the richest 10% of the population to that of the poorest 10% has steadily increased over the last four decades, from 7 in the eighties to 9.6 in 2014 (ECLAC, p.75).
This aggravation is explained by the replacement of manufacturing workers from rich countries by workers in the same sector in developing countries. Between 2000 and 2010, in the US and Europe almost 10 million manufacturing jobs were lost, more than a quarter of the total. In the same period, China created more than 45 million jobs in this sector, while Latin America generated 4 million (ECLAC, p.76).
Interesting, right? Someone would say: at last, rich countries are receiving their own medicine. With free trade in a global economy rich countries lose and emerging countries win. It doesn´t matter if the orthodox theory is wrong, as long as the outcomes are in my favor.
That’s what Trump is going to try to change, in order, he says, to aid American workers to get back their jobs. We do not believe that he will succeed despite his rhetoric: the announcement of lowering the income tax from 30 to 15% will further concentrate wealth in the richest 1% of the population.
Not only that. According to Paul Krugman, the underlying central characteristics of his economic and trade policies are more “effectist” than anything else because the real problem of the US economy is that productivity growth is not creating more jobs in the manufacturing sector due to several factors, including the boom of the service sector and the increasing automation (the use of robots). Therefore, the root of the problem is not that jobs have gone to other countries. Trump is wrong (3).
Let’s go back to Latin America. ECLAC says that the increase in fiscal resources due to the super-cycle of commodity prices generated greater employment and a positive cycle of redistributive policies that “marked a break with the past and that probably improved the population’s perception of the globalization process”.
But now that we have the “thin cows” period, that boom is over and will lead to an increase in social and political tensions. In addition, the Region, including Peru, did not take advantage of this super cycle to transform its production matrix towards greater value added and, thus, continues to depend on raw materials exports.
And we are in diapers in the economy of the future, which is increasingly based on the revolution of the digital economy (Internet economy). That is what Asian countries did, starting with China, because they did not believe the Ricardian tale of specialization according to our static comparative advantages. But in Latin America we have stumbled again on the same stone.
Corollary: We are facing a huge paradigm shift that no longer supports the free trade theses of 200 years ago nor the Bretton Woods agreements of 1944. That is the crux of the matter.
(1) Dani Rodrik, The Globalization Paradox, 2011.
http://www.rci.rutgers.edu/~triner/UFFseminar/RodrikParadox.pdf
See Chapter 3: Why doesn´t everyone get the case for free trade?
(2) CEPAL, Panorama de la inserción internacional de América Latina y el Caribe, 2015.
http://repositorio.cepal.org/bitstream/handle/11362/39010/4/S1501143_es.pdf
(3)http://www.businessinsider.com.au/krugman-tweets-on-manufacturing-labor-market-jobs-donald-trump-2016-11
Humberto Campodonico is Senior Research Associate of the South Centre and Principal Professor at the Economics Faculty of Universidad de San Marcos, Lima.
This article was published in La Republica, Lima, Peru, 16 January 2017.
2017 — a thunderous clash of politics, economies and policies
What a tumultuous year this will be, with the effects of a Trump presidency and the possible turmoil in currencies and capital flows. This preview of the year ahead was written on 2 January 2017.
By Martin Khor
Yet another new year has dawned. But 2017 will be a year like no other.
There will be a thunderous clash of policies, economies and politics worldwide. We will therefore be on a roller-coaster ride, and we should prepare for it and not only be spectators on the side-lines in danger of being swept away by the waves.
With his extreme views and bulldozing style, Donald Trump is set to create an upheaval if not revolution in the United States and the world.
He is installing an oil company chief as the Secretary of State, investment bankers in key finance positions, climate sceptics and anti-environmentalists in environmental and energy agencies and an extreme rightwing internet media mogul as his chief strategist.
US-China relations, the most important for global stability, could change from big-power co-existence with a careful combination of competition and cooperation, to outright crisis.
Trump, through a phone call with Taiwan’s leader and subsequent remarks, signalled he could withdraw the longstanding US adherence to the One China policy and instead use Taiwan as a bargaining card when negotiating economic policies with China. The Chinese perceive this as an extreme provocation.
He has appointed as head of the new National Trade Council an economist known for his books demonising China, including “Death by China: Confronting the Dragon”.
Trump seems intent on doing an about-turn on US trade and investment policies, starting with ditching the Trans Pacific Partnership Agreement and re-negotiating the North American Free Trade Agreement.
Other measures being considered include a 45% duty on Chinese products, extra duties and taxes on American companies located abroad, and even a 10% tariff on all imports.
Thus 2017 will see a rise in protectionism in the US, the extent still unknown. That is bad news for those developing countries whose economies have grown on the back of exports and international investments.
Europe in 2017 will also be preoccupied with its own regional problems. The Brexit shock of 2016 will continue to reverberate and several European countries facing elections will see challenges to their traditional values and established order from xenophobic and narrow nationalist parties.
As Western societies become less open to the world and more inward looking, developing countries should revise their development strategies and rely more on domestic and regional demand and investments.
As North-South economic relations decline, this should also be the moment for expanding South-South cooperation, spurred as much by necessity as by principles.
2017 may be the year when resource-rich China, with its huge Road and Belt initiative and its immense financing capacity, fills in the economic void created by western trade and investment protectionism.
But this may not be sufficient to prevent a finance shock in many developing countries now beginning to suffer a reversal of capital flowing back to the US, attracted by the prospect of higher interest rates and economic growth.
Several emerging economies which together received many hundreds of billions of dollars of hot money in recent years are now vulnerable to the latest downturn phase of the boom-bust cycle of capital flows.
Some of these countries opened up their capital markets to foreign funds which now own large portions of government bonds denominated in the domestic currency, as well as shares in the equity market.
As the tide turns, foreign investors are expected to sell off and transfer back a significant part of the bonds and shares they bought, and this new vulnerability is in addition to the traditional external debt contracted by the developing countries in foreign currencies.
Some countries will be hit by a terrible combination of capital outflow, reduced export earnings, currency depreciation and an increased debt servicing burden caused by higher US interest rates.
As the local currency depreciates further, the affected countries’ companies will have to pay more for servicing loans contracted in foreign currencies and imported machinery and parts, while consumers suffer from a rapid rise in the prices of imports.
On the positive side, the currency depreciation will make exporters more competitive and make tourism more attractive, but for many countries this will not be enough to offset the negative effects.
Thus 2017 will not be kind to the economy, business and the pockets of the common man and woman. It might even spark a new global financial crisis.
The old year ended with mixed blessings for Palestinians. On one hand they won a significant victory when the outgoing President Obama allowed the adoption of a UN Security Council resolution condemning Israeli settlements in occupied Palestinian territories by not exercising a veto.
The resolution will spur international actions against the expansion of settlements which have become a big obstacle to peace talks.
On the other hand the Israeli leadership, which responded defiantly with plans for more settlements, will find in Trump a much more sympathetic President. He is appointing a pro-Israel hawk who has cheered the expansion of settlements as the new US ambassador to Israel.
With Trump also indicating he will tear up the nuclear power deal with Iran, the Middle East will have an even more tumultuous time in 2017.
In the area of health care, the battle for affordable access to medicines will continue, as public frustration grows over the high and often astronomical prices of patented medicines including for the treatment of HIV AIDS, hepatitis C, tuberculosis and cancers.
There will be more powerful calls for governments to curb the excesses of drug companies, as well as more extensive use of the flexibilities in the patent laws to counter the high cost of medicines.
Momentum will also increase to deal with antibiotic resistance which in 2016 was recognised by political leaders meeting at the United Nations to be perhaps the gravest threat to global health.
All countries pledged to come up with national action plans to counter antibiotic and anti-microbial resistance by May 2017 and the challenge will then be to review the adequacy of these plans and to finance and implement them.
The new year will also see its fair share of natural disasters and a continued decline in the state of the environment. Both will continue to be major issues in 2017, just as the worsening of air pollution and the many earthquakes, big storms and heat-waves which marked the previous few years.
Unfortunately low priority is given to the environment. Hundreds of billions of dollars are allocated for highways, railways and urban buildings but only a trickle for conservation and rehabilitation of hills, watersheds, forests, mangroves, coastal areas, biodiversity or for serious climate change actions.
2017 should be the year when priorities change, that when people talk about infrastructure or development, they put actions to protect and promote the environment as the first items for allocation of funds.
This new year will also be make or break for climate change. The momentum for action painfully built up in recent years will find a roadblock in the US as the new President dismantles Obama-initiated policies and measures.
The Paris agreement, which was adopted in December 2015 and which came into force in record time in October 2016 as a demonstration of international concern over climate change, may face a major test and even an existential challenge in 2017, if Trump fulfils his election promise to pull the US out.
But Trump and his team will face resistance domestically including from state governments and municipalities which have their own climate plans, and from other countries determined to carry on without the US on board.
Indeed if 2017 will bring big changes initiated by the new US administration, it will also generate many counter actions to fill in the void left in the world by a withdrawing US or to counter its new unsettling actions.
Many people around the world, from politicians and policy makers to citizen groups and community organisers are already bracing themselves to come up with responses and actions.
Indeed 2017 will be characterised by the Trump effect but also the consequent counter-effects.
There are opportunities to think through, alternatives to chart and reforms to carry out that are anyway needed on the global and national economies, on the environment, and on geo-politics.
Most of the main levers of power and decision-making are still in the hands of a few countries and a few people, but there has also been the emergence of many new centres of economic, environmental and intellectual capabilities and community-based organising.
2017 will be a year in which ideas, policies, economies and politics will all clash, thunderously, and we should be prepared to meet the challenges ahead and not only be spectators.
South Centre Statement at the G77 and China Geneva Handover Ceremony
The Group of 77 and China (Geneva Chapter) held a Changeover Ceremony on 10 January 2017 at the Palais Des Nations in Geneva to mark the passing of the baton of Chairmanship from Ambassador Wayne McCook of Jamaica to Ambassador Modesto Mero of Tanzania. The South Centre was invited to be present and to speak at the ceremony. Below is the statement presented by Mr. Vicente Paolo Yu, Deputy Executive Director, South Centre.
Your Excellency Ambassador Hector Marcelo Cima, Your Excellency Ambassador Wayne McCook, Your Excellency Ambassador Modesto Mero, Secretary General Kituyi, distinguished guests, it is my pleasure to be here on behalf of the South Centre to witness this annual rite of transition of leadership in the Group of 77 and China in Geneva.
Let me express, however, the apologies and best wishes of Mr. Martin Khor, Executive Director of the South Centre, who could not be here today.
The year 2016 was a year of great activity and accomplishment by the Group of 77 and China in Geneva, under the able and distinguished leadership of Ambassador McCook of Jamaica and Ambassador Cima of Argentina, particularly in the negotiations up to and during UNCTAD XIV and in the post-UNCTAD XIV discussions on the implementation of the Nairobi Outcome.
The South Centre is proud to note that it worked closely with the G77’s negotiators and its member States prior to and during UNCTAD XIV, contributing in that way to the success of UNCTAD XIV. Our work at the South Centre derives its credibility and importance from the value and use that developing countries, including the Group of 77 and China, make of our work.
We also worked closely with the other G77 chapters in New York, Paris, Vienna, and Nairobi in 2016 on issues that are relevant here in Geneva and UNCTAD – such as on climate change, sustainable development goals, financing for development, environmental governance, science and education, technology development and transfer, among other issues.
We look forward to continuing this relationship with the G77 in Geneva as the attention shifts to the implementation of the Nairobi Outcome, as part of the implementation of the other key outcomes from the various multilateral conferences that took place in 2015 and 2016 – such as on the SDGs, Agenda 2030, FFD3, climate change, the WTO Nairobi Ministerial Conference.
The year 2017 will likely be a very interesting year in global politics, economics, and environment, after major political events in key developed countries that took place in the latter half of 2016 look set to redraw longstanding political and economic relationships. We could see protectionism, xenophobia, and narrow nationalism increase in developed countries, with corresponding impacts on their global policy agenda. These may in turn increase the economic uncertainty and financial shocks that many developing countries that are reliant on developed country markets are already experiencing. As the adverse impacts of climate change increase, especially on developing countries, the momentum generated by the Paris Agreement for global climate action needs to be sustained regardless of potential policy reversals that might take place in some developed countries.
While there are new uncertainties that have come up in 2017, there are also new opportunities that developing countries can take advantage of in shaping alternatives and reforms that are anyway needed on the global and national economies, on the environment, and on geopolitics. While most of the main levers of power and decision-making globally continue to be controlled by developed countries, developing countries now have increasing opportunities to organize themselves better, through collective action guided by their own research and analysis, in order to become the shapers and drivers of global policy.
There will also be many issues and many opportunities for the Group of 77 and China, its individual members, and the South Centre to work together on issues other than those in UNCTAD. Just to highlight a few, the global economic situation is still very fragile with developing countries being adversely affected more and more; WTO discussions are likely to ramp up with the preparations for the 11th WTO Ministerial Conference; the climate change negotiations for the rules on the implementation of the Paris Agreement are now ongoing; there continues to be major policy discussions taking place at WIPO; issues relating to health – in particular in relation to antibiotic resistance. On these issues and more, the South Centre stands ready to work together with the Group of 77 and China to promote and protect developing countries’ rights and interests.
The South Centre is the South’s own research institution that is tasked with promoting the views of the South on various development issues. We take this mandate seriously and we also look forward to the Group and your countries’ support to the South Centre in carrying out this mandate. We will be interacting closely with the Group and your missions, either through meetings such as this one, or joint activities, or even individual visits and discussions, in order to strengthen the South Centre’s ability to carry out its mission and to respond to your needs and interests.
We would like to thank Mr. Miguel Bautista and his team, with whom the South Centre has worked closely, as the focal point for UNCTAD’s support to the Group of 77 and China, and we also look forward to working with Secretary General Kituyi and his team in furthering the interests of developing countries through UNCTAD.
Thank you very much.
South Centre Statement on the Amendment to WTO TRIPS to Ease Access to Affordable Medicine
Below is the statement of the South Centre made on 27 January 2017 on the amendment to the WTO’S TRIPS Agreement to address what is known as the “Paragraph 6 issue” which has the objective of improving access to medicines for countries lacking capacity to manufacture pharmaceutical products.
An amendment to the TRIPS Agreement that aims to facilitate the access to affordable medicines has entered into force upon approval by two thirds of the WTO Members. The amendment reflects the recognition by WTO Members of the need for the continued enhancement of global intellectual property rules to allow Members to systematically take measures to protect public health.
The amendment is the result of a negotiated solution among WTO Members, known as the Paragraph 6 system. It modifies elements of intellectual property rules under the WTO TRIPS Agreement that constrained the ability of Members to make available affordable medicines. The use of a compulsory license (allowing production or importation of a patented medicine without the agreement of the patent holder) was legally restricted to be predominantly for the domestic market. The amendment establishes new rules allowing Members to export/import limited quantities of patented medicines under certain circumstances.
During the negotiations of the Paragraph 6 system, in the context of the Doha Declaration on TRIPS and Public Health, the aspiration was to develop a system to enhance access to patented medicines at affordable prices. So far this aspiration has not materialized. To date there is only one recorded instance of the use of the system (export of an HIV/AIDS medicine from Canada to Rwanda). The reasons for the lack of use of the system have not been assessed yet in the WTO context.
The interest in the use of the Paragraph 6 system as a means to supply affordable medicines to developing countries is likely to rise. With the number of essential medicines, including biologics, under patent protection expected to increase countries without manufacturing capacity should explore all means available to increase affordable access to medicines for their people. With the amendment in place, eligible exporting and importing countries may growingly seek to use the system. This will require the adoption at the national or regional level, both by potential exporting and importing countries, of streamlined, easy to follow rules and procedures that ensure legal certainty and an effective operation of the system.
The United Nations Secretary General’s High Level Panel on Access to Medicines has highlighted the importance of designing legislation that allows for quick, fair, predictable and implementable compulsory licenses for legitimate public health needs, and recommended WTO Members to revise the paragraph 6 system in order to find a solution that enables a swift and expedient export of pharmaceutical products produced under compulsory license.
The South Centre stresses the continued importance for Least-Developed Countries (LDCs) to make full use of the special status they enjoy in not being required to adopt rules on patent protection and most other rules of the TRIPS Agreement, in order to build their technological capabilities and reduce obstacles to affordable access to medicines. The LDCs would not need, in this case, to make use of the system.
Increased action, readiness, collaboration and assistance among governments, international organizations and public and private sector entities, will be needed, both to test the effectiveness of the Paragraph 6 system and to support LDCs to build an adequate technological base.
Efforts should be made by governments and the WTO, in cooperation with other international organizations including WIPO and WHO, to encourage entities, private and/or public, to come on board with good will to help make the system operational. Close attention will need to be paid to the design of national implementing legislations and the feedback from potential user entities of the system on any hurdles they may face that diminish interest in its use. The evaluation of the system must continue in the TRIPS Council.
The South Centre shall willingly provide assistance to countries in examining national implementing legislations, and providing information to potential interested parties. Templates for facilitated implementation and meeting of conditions required under the system may be provided. Countries that are already suffering significant burdens from the lack of access to medicines should not have to face additional technical and financial burdens to make use of the system.
As a contribution to advancing the analysis of the Paragraph 6 system, the South Centre organized a side event to the TRIPS Council on 8 November 2016. (See https://www.southcentre.int/sc-side-event-paragraph-6-of-the-doha-declaration-on-trips-and-public-health-an-effective-solution-8-november-2016/.)
The South Centre is committed to continue to assist its Member States and other developing countries to participate in the evolution of the multilateral trade and intellectual property system that allows policy space to promote public health.
Climate change: Battle of interpreting Paris Agreement takes place at COP22 in Marrakech
A year after the historic Paris Agreement was adopted, the UN Climate Change Convention held its 22nd Conference of Parties in Marrakech in November 2016. The Paris Agreement has come into force, in record time, but as the COP22 showed, there are big differences on what Parties understand the Agreement to mean. The article below explains this battle of interpretation and other highlights of the Marrakech meeting.
By Meena Raman
A battle of interpretation over what was agreed to in the Paris Agreement took place at the annual UN Climate Conference in Marrakech in November 2016.
This battle, mainly between developing and developed countries, was the major theme at the 22nd session of the Conference of Parties (COP22) of the UN Framework Convention on Climate Change on 7-19 November.
Presided over by the Foreign Minister of Morrocco, Salaheddine Mezouar, the conference comprised the COP 22 as well as meetings of the Convention’s subsidiary bodies.
A historic event was the convening of the first session of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA 1) on 15 November. It is the supreme body of the Paris Agreement (PA), which entered into force in record time on 4 November.
Much of the important work was done under a body created when the Paris Agreement was adopted, known as the Ad Hoc Working Group on the Paris Agreement (APA). The APA was tasked to craft various rules related to the implementation of the PA, commonly known as “modalities, procedures and guidelines” (MPGs).
Other Subsidiary Bodies of the Convention and other thematic bodies are also assigned tasks to implement the PA.
In Marrakech, in various meetings under the APA, there were stark divergences of views between developed and developing countries on how Parties understand and interpret the PA, though everyone agreed the PA should not be renegotiated as it was “delicately balanced.”
Disagreements on interpreting Nationally Determined Contributions
The disagreement was most obvious in the APA informal consultations on what guidance to give on nationally determined contributions (NDCs), as to their features, their scope and information.
The NDCs are the heart of the PA, which all Parties have committed to undertake as their ‘contributions’ to the global response to climate change. The scope of the NDCs was a big fight in Paris, which led to Article 3 of the Agreement.
Article 3 states that, “As nationally determined contributions to the global response to climate change, all Parties are to undertake and communicate ambitious efforts as defined in Articles 4, 7, 9, 10, 11 and 13 with the view to achieving the purpose of this Agreement as set out in Article 2. The efforts of all Parties will represent a progression over time, while recognizing the need to support developing country Parties for the effective implementation of this Agreement.”
Article 3 symbolizes the ‘battle’ over the nature of the agreement to ensure that the NDCs are not viewed as being ‘mitigation-centric’ or only focused on mitigation actions. Thus Article 3 refers to ambitious efforts to be taken on mitigation (Article 4), adaptation (Article 7), finance (Article 9), technology development and transfer’ (Article 10), capacity building (Article 11) and a ‘transparency framework for action and support’ (Article 13).
In defining the features and information related to NDCs, the battle in Marrakech was once again on the scope of the NDCs. Developed countries and some developing countries were of the view that the focus of work on the ‘further guidance’ should be confined only to ‘mitigation’ and not include the full scope of the NDCs as referred to in Article 3.
Several developing countries led by the Like-minded developing countries (LMDC) (who were the main architects of Article 3), the African Group and the Arab Group strongly emphasised that NDCs do not only include mitigation and therefore discussions must include the whole range of issues in the NDCs. The LMDC was of the view that any technical work could not be advanced if this was not the understanding. They wanted a comprehensive understanding of what are NDCs so that all the components of NDCs are addressed in a balanced manner.
Developed countries could not agree to this, which led to the co-facilitators of the APA informal consultation on this matter to conclude that “there was agreement that Parties must respect the PA and the ‘national determination’ character of the contribution” but that “Parties had divergent views on the features of NDCs.”
Hence, in the negotiations in 2017, the features of the NDCs will continue to be a major contentious matter.
The issue of differentiation between developed and developing countries and how it should be operationalized in the PA also affected other issues, including the transparency framework on action and support, facilitating implementation and compliance, the global stocktake and adaptation communications.
In the various meetings, a common conflict was over the application and operationalization of the principle of common but differentiated responsibilities and respective capabilities (CBDRRC), in the light of national circumstances, in the various articles of the PA.
Many developing countries stressed the need to integrate the CBDRRC principle in the design of the various MPGs. Developed countries disagreed and wanted a common approach to be taken by all countries and not a “differentiated” approach insisted upon by the developing countries.
Another area of contention was around the issue of the Adaptation Fund (AF) and its future under the PA. Developing countries were of the view that the decision taken in Paris was for the AF to serve the PA and that the Marrakech meeting should work to give effect to the decision.
Developed countries on the other hand did not agree that such a decision was taken and insisted that work was needed to clarify that the AF serves the PA. In the final decision adopted, the CMA decided that “the AF should serve the PA, following and consistent with decisions to be taken…” in 2018 “that address the governance and institutional arrangements, safeguards and operating modalities of the AF.”
CMA1: Work programme on Paris Agreement implementation
COP 21 assigned various tasks to the subsidiary bodies of the Convention and other constituted bodies in relation to the implementation of the PA.
An issue in Marrakech was the convening of the CMA and how all Parties, including those who have yet to ratify the PA, can take part in decision-making on its implementation. Parties were in general agreement that the process has to be inclusive that enables all Parties of the Convention to craft the rules, and not only Parties that had so far ratified their membership to PA.
As expected the CMA 1 took a decision to invite the COP