Trade wars and EU’s ruling backpedals globalisation

Sathish Govind

Trade wars are ringing alarm bells across the globe and the Southeast Asian region is not spared. Besides the prolonged trade war between the US and China, which will impact the Asean region, there are other trade woes on the horizon.

Trade wars are ringing alarm bells across the globe and the Southeast Asian region is not spared. Besides the prolonged trade war between the US and China, which will impact the Asean region, there are other trade woes on the horizon.

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The trade war between the two countries have seen steady flows of foreign domestic investment (FDI) as supply chains relocate their operations from China and the US into some Asean countries, it is less so for some other countries in the region.

Vietnam, for example, has turned to be the darling for investors as many feel that its close proximity to China and favourable foreign trade and investment policies have resulted in a huge inflow of FDI into the country.

Malaysia too has received FDI from supply chains relocating from China, especially in the tech sector and its biggest gains could come from liquefied natural gas, communication technology, and electronic integrated circuits according to an international research report.

Another country that has benefitted immensely from the shift is Thailand due to the close proximity to China which would see it benefit immensely, particularly in electronic goods, integrated circuits and auto parts.

The auto sector in Thailand is expected to do well on the back of many manufacturers moving their supply chain operations in that country.

However, countries such as Singapore, South Korea and Japan are expected to affect as a higher wage labour force makes them an unlikely destination for firms looking to relocate production out of China.

In spite of this, trade war between these two countries is invariably going to affect all countries. The rising consensus is that if China and US continue to cut each other’s throats, the world economy would slip into a recession.

The world appears to be backpedalling on globalisation, evidenced not just by what the US had done through the withdrawal of the TPP but also the European Union which launched an 18-month process to determine whether to maintain Cambodia’s preferential access to the EU market under Everything But Arms (EBA) trade as the EU perceives as “a deterioration of democracy, respect for human rights and the rule of law in Cambodia”.

The EBA scheme allows Cambodia to export anything to the EU market with the exception of weapons, duty-free and quota return. In return, Cambodia must fulfill its obligations to the UN international Labour Organisation conventions.

In 2018, exports to the EU accounted for more than a third of Cambodia’s total exports and were valued at 4.9 billion euros of which 99 percent were eligible for EBA preferential duties.

Textile and footwear, prepared foodstuffs, vegetable products, rice, and bicycle represented 97 percent of exports to the European Union in the same year. The textile and footwear industry alone employs more than 700,00 Cambodians, indirectly benefiting a million of others.

The withdrawal of EBA is likely to cause repercussions as it has the potential to cause unrest and instability in Cambodia.

Another backpedalling on globalisation was seen in the European Parliament to phase out the use of palm oil starting 2023, ramping up to a ban in 2030, over concerns of palm oil production which allegedly causes deforestation and aggravates climate change.

Malaysia and Indonesia which is the largest producers of palm oil have threatened to take retaliatory measures against the EU aside from taking the issue with the World Trade Organisation.

The Roundtable on Sustainable Palm Oil (RSPO), the industry watchdog that provides certification for sustainably produced palm oil, expressed puzzlement on the EU’s move.

All palm oil that is exported from Malaysia and Indonesia has been certified by RSPO and other industry standards that the commodity is sustainably produced. The EU appears to be singling out palm oil, whereas they are prepared to accept soybean biodiesel when there is wanton destruction of forests in Brazil and other parts of South America.

The trade war between the US and China, and the subsequent backpedalling of globalisation evidenced by the EU’s action against palm oil producing countries and the proposed withdrawal of EBA in Cambodia does not bode well for the world economy.

Sathish Govind is a Contributing Writer, Capital Cambodia

An ex-analyst in a think tank in Malaysia

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