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WTO ministers gather in UAE for talks amid geopolitical tensions

WTO ministers gather in UAE for talks amid geopolitical tensions

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WTO ministers gather in UAE for talks amid geopolitical tensions

 The world’s trade ministers gathered in the UAE on Monday for a high-level WTO meeting with no clear prospects for breakthroughs, amid geopolitical tensions and disagreements.

The World Trade Organisation’s 13th ministerial conference (MC13), scheduled to run until Thursday in Abu Dhabi, the capital of the United Arab Emirates, is the first in two years.

The WTO is hoping for progress, particularly on fishing, agriculture and electronic commerce.

But big deals are unlikely as the body’s rules require full consensus among all 164 member states — a tall order in the current climate.

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“I don’t have hopes that a very substantive agreement will be announced,” said Marcelo Olarreaga, Professor of Economics at the University of Geneva.

“My impression is that the negotiators are dealing with tactical positions – how to make it look like it is the other (side) who is blocking negotiations,” he told AFP.

Even WTO Director-General Ngozi Okonjo-Iweala has said she expects the meeting to be challenging due to the “economic and political headwinds” – from the war in Ukraine, attacks in the Red Sea, inflation, rising food prices and economic difficulties in Europe and China.

Her team is working around the clock to draft agreements for the talks, she told journalists this month, noting that “negotiating positions are still quite tough”, notably on agriculture.

‘Miracle’

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During the WTO’s last ministerial meeting, held at its Geneva headquarters in June 2022, trade ministers nailed down a historic deal banning fisheries subsidies harmful to marine life and agreed to a temporary patent waiver for Covid-19 vaccines.

They also committed themselves to re-establishing a dispute settlement system which Washington had brought to a grinding halt in 2019 after years of blocking the appointment of new judges to the WTO’s appeals court.

“Replicating the success, the miracle, of MC12 in 2022 will be extremely challenging,” European Trade Commissioner Valdis Dombrovskis said this month.

“Negotiations on the big-ticket items” – such as fisheries, agriculture and the e-commerce moratorium – will “remain open until the final phase of the conference”, he added.

“Negotiations on dispute settlement reform and potentially some parts of the outcome document will also be challenging.”

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However, the WTO faces pressure to eke out progress on reform in Abu Dhabi ahead of the possible re-election of Donald Trump as US president.

During his four years in office from 2017 to 2021, Trump threatened to pull the United States out of the trade body and disrupted its ability to settle disputes.

“There will be the US elections in November…so this is the last chance,” a diplomatic source in Geneva told AFP on condition of anonymity.

“Postponing anything until after MC13 is not a good strategy.”

Earlier this month, US Trade Representative Katherine Tai underlined Washington’s “commitment to reforming the WTO and creating a more durable multilateral trading system”.

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But Olarreaga of the University of Geneva said the other members of the WTO “cannot expect huge concessions” from the administration of US President Joe Biden in an election year.

‘Fragmentation’

While there is doubt over progress at the WTO on major issues such as agriculture, there is hope for small advances on other fronts, particularly aid for developing countries.

On Monday, two new countries, the Comoros and East Timor, are expected to be accepted as WTO members.

More than 120 countries and regions, including China and the European Union, but not the United States, issued a ministerial declaration early Monday, marking the finalisation of an agreement aimed at facilitating international investments in development.

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They also issued a submission requesting the official integration of the deal into the WTO, but some diplomats fear opposition from India, which rejects any agreement that does not include all member states.

But amid the difficulty of obtaining full consensus, more and more plurilateral agreements — deals with a narrower number of signatories — are being reached, applying only to the participating countries.

Adding to the challenges for those gathering in the UAE, is the ongoing war in Gaza and related attacks by Yemeni rebels on ships in the Red Sea, a campaign that has disrupted global maritime trade.

“The current situation is characterised by geopolitical tensions,” said a European diplomat who spoke to AFP on the condition of anonymity.

“High expectations from developing nations following the financial crisis and the Covid-19 pandemic, as well as economic tensions due to inflation… (add to the) risk of fragmentation of the global economy,” the diplomat said. 

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Powell dashes US rate cut hopes, says current policy needs more time to work

Powell dashes US rate cut hopes, says current policy needs more time to work

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Powell dashes US rate cut hopes, says current policy needs more time to work

Top US central bank officials including Federal Reserve Chair Jerome Powell backed away on Tuesday from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer and further dashing investors’ hopes for meaningful reductions in borrowing costs this year.

Fed policymakers have said since the start of the year that rate cuts are contingent on gaining “greater confidence” that US inflation is moving towards the central bank’s 2 per cent goal, but readings over the past few months show price pressures may even be moving in the opposite direction.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell told a forum in Washington, in what is likely to be his last public appearance before the April 30-May 1 policy meeting.

Read more: Strong US retail sales create fears that there won’t any Fed rate cuts until September

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“Right now, given the strength of the labour market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” he said.

US central bankers are universally expected to leave rates unchanged at their upcoming meeting, but until early this month analysts and investors thought rate cuts would likely start with an initial quarter-percentage-point reduction at the Fed’s June 11-12 meeting, with two more cuts happening by the end of 2024.

Now the first cut is expected in September and the odds of a second cut are dwindling.

“If higher inflation does persist, we can maintain the current level of restriction for as long as needed,” Powell said. “At the same time, we have significant space to ease should the labor market unexpectedly weaken.”

In separate remarks earlier on Tuesday, Fed Vice Chair Philip Jefferson omitted any mention of rate cuts, and said the US central bank was ready to keep its tight monetary policy in place “for longer” if inflation fails to slow as expected.

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Jefferson noted the central bank was facing a strong economy and had seen little recent progress in bringing down inflation, excluding what had been a staple reference in Fed speeches to gaining “confidence” in lower inflation and then cutting rates.

“My baseline outlook continues to be that inflation will decline further, with the policy rate held steady at its current level, and that the labor market will remain strong, with labour demand and supply continuing to rebalance,” Jefferson said.

In his last public remarks, on Feb 22, Jefferson included what had been a staple of recent Fed communications – that “if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back our policy restraint later this year,” a nod to the possibility of reducing the Fed’s benchmark overnight interest rate from the current 5.25pc-5.50pc range to account for a slowing pace of price increases.

‘MEASURED HAWKISH RESET’

Analysts and investors have been steadily marking down the likelihood and timing of Fed rate cuts as policymakers struggle to reconcile a gravity-defying economy with their assessment that monetary policy is “restrictive” and inflation likely on its way down.

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Both of those ideas have been called into question by job growth, retail spending, inflation and other data that continue to challenge the Fed’s sense that the economy was gliding towards lower demand, slower growth, and price increases nearing the 2pc target.

Read more: Dollar rally supercharged by US rate outlook, could complicate inflation fight for other economies

Just over five weeks ago, Powell told a US Senate panel that the Fed was “not far” from gaining the confidence in falling inflation needed to cut interest rates.

Powell not only omitted that characterization on Tuesday, but he also did not repeat his prior view, laid out after the Fed’s March 19-20 meeting, that data in January and February had not changed the “overall story” of gradually slowing inflation.

Instead, he said the Fed’s preferred measure of underlying inflation – the year-over-year change in the core personal consumption expenditures price index – likely rose 2.8pc in March, unchanged from February, with three-month and six-month average measures “actually above that level.”

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“We view this as a measured hawkish reset of policy communication to a more neutral posture with less of an immediate bias to cut rates, though the basic idea of wanting to get more confidence inflation is moving lower before cutting rates remains intact,” said Krishna Guha, vice chairman at Evercore ISI.

“But what has not changed is Powell’s read of the underlying economics, and this prevents us from reading him too hawkish overall.”

When US inflation was in fast decline last year, Powell was reluctant to declare the fight against it won even as policymakers laid the groundwork for rate reductions beginning this year.

Officials at the Fed’s March 19-20 meeting said they still expected to cut the policy rate by three-quarters of a percentage point by the end of 2024. Powell at the time said disappointing inflation data in January and February “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2pc.”

Yet the bumps continued through March, enough so that some officials at the last Fed meeting worried monetary policy was not having the sort of impact that would be typically expected from the highest US interest rates in a quarter of a century.

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Data since then have shown a massive 303,000 jobs were added in March, the pace of consumer price increases accelerated, and even low-income households continued to spend.

The strength of the economy, policymakers suggest, is one reason they could wait to cut rates and be sure inflation will resume its decline.

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At Chinese trade fair, exporters despair their goods are ‘as cheap as cabbage’

At Chinese trade fair, exporters despair their goods are ‘as cheap as cabbage’

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At Chinese trade fair, exporters despair their goods are 'as cheap as cabbage'

Wu Huazhan’s Chinese television factory used to impose minimum orders to manage production efficiently. Times are now so bleak, it will take any order.

Foshan Top Winning Import & Export’s profit margin has dropped to a wafer-thin 0.5 per cent from 2pc some three to four years ago, according to Wu, a co-owner of the Guangdong-based factory and one of the many exporters fretting about business prospects at China’s biggest trade fair in the southern city of Guangzhou.

“We’re selling electrical appliances as cheap as cabbage,” he added. “If it continues for another year or two, we’ll have to change careers.”

The sombre mood at the twice-a-year Canton Fair scarcely got a lift from data on Tuesday showing that the world’s second-largest economy grew at a faster-than-expected 5.3pc in the first quarter.

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A sharp contraction in Chinese exports for March in dollar terms despite growth in volumes and data showing producer prices extending a year-and-a-half-long decline have tempered hopes that China is on its way to finding sustained post-pandemic growth.

Chinese exporters are having to contend with heightened economic and political tensions between Beijing and Washington as well as a slowdown in global trade due to the war in Ukraine and a worsening Middle East crisis. The manufacturing sector is also plagued by excess capacity.

In one encouraging sign, the number of foreign buyers attending the fair on Monday and Tuesday has jumped by about a fifth from the first two days of the last one in October, according to organisers.

But some attendees said business felt slower.

“On the first day last year, I received more than a dozen inquiries, but today I only received three business cards,” said Lois Zhang, sales manager at Enping City Shuangyi Electronics Industrial, which produces speakers and microphones.

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A manager at an outdoor heater manufacturer based in Jiangsu province said he didn’t have a lot of hope for his European and North American markets, where most of his clients are based.

“One of our large customer’s orders this year was 25pc lower than last year and other customers have yet to decide whether they want to keep placing orders,” said Fan, who asked that only his surname be used so he could speak openly about business prospects.

Fan said his customers were still running down their inventories and he hoped their orders would pick up later this year.

The potential for further trade tensions with the United States and Europe is also a key worry. Former US President Donald Trump has threatened 60pc US tariffs on Chinese imports if he beats incumbent Joe Biden in upcoming elections.

“Whether it’s Biden or Trump there’s a real feeling of instability,” said Pan Feng, sales manager at tumble dryer maker Jiangmen Jinhuan Electrical.

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In particular, the US and European officials have stepped up complaints that China’s strategic push to strengthen and upgrade its manufacturing complex exacerbates industrial overcapacity and drives down prices to levels other economies can’t compete with.

However, some of the Chinese higher-tech manufacturers at the fair were more upbeat.

Xiao Yanmei, general manager of Guangdong Doni Intelligent Robot Engineering, which makes self-navigating machines that disinfect factory floors or distribute parts to assembly lines, said her business grew 10-20pc in the first quarter.

Xiao said government support for the advanced manufacturing sector was strong, including tax rebates and funds for equipment upgrades.

“When our country channels its national strength to develop an industry, the forces can be very powerful,” she said. 

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South Korea, Japan vow ‘appropriate action’ on weak won and yen

South Korea, Japan vow ‘appropriate action’ on weak won and yen

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South Korea, Japan vow 'appropriate action' on weak won and yen

South Korea and Japan shared “serious concerns” on the recent weakness of their currencies against the dollar and agreed to take “appropriate actions” to counter extreme volatility, the finance ministry in Seoul said Wednesday.

The foreign exchange market has witnessed a surge in volatility following Iran’s weekend drone and missile assault on Israel, in retaliation for what Tehran said was an Israeli strike on its embassy in Syria.

Seoul issued a rare warning on Tuesday, saying authorities were carefully monitoring currency movements as the won briefly touched a critical level of 1,400 per dollar for the first time in 17 months.

The yen has fallen to a 34-year low against the dollar as a string of above-forecast US inflation and jobs data sees investors re-evaluate their outlook for when the Federal Reserve will cut interest rates, while the Bank of Japan keeps monetary policy loose.

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Read more: Dollar rally supercharged by US rate outlook, could complicate inflation fight for other economies

South Korean Finance Minister Choi Sang-mok and his Japanese counterpart Shunichi Suzuki discussed the matter in Washington this week on the sidelines of a G20 meeting, according to the finance ministry.

The two “shared serious concerns about the recent significant depreciation of the Japanese yen and the Korean won”, it said in a statement.

They also “expressed their intention to take appropriate actions against excessive movements”, it added.

Speculation was swirling that the dollar will strengthen further after Fed boss Jerome Powell suggested US interest rates could be held at two-decade highs for longer than expected as the bank struggles to get inflation down to its 2 per cent target.

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The greenback has also risen against a range of other currencies this year, including the Indian rupee, Australian dollar and Thai baht.

The Japanese finance ministry’s top currency diplomat recently hinted that intervention in markets to support the yen could be an option.

Tokyo last intervened in forex markets in October 2022, when it spent 6.3 trillion yen ($40 billion today) to support its currency.

A weaker currency is often regarded as beneficial for a country’s export competitiveness and enhancing exporter profits. But a swift decline in value triggers worries over capital outflows and instability in financial markets.

The won has weakened more than 7 per cent against the dollar this year and the yen nearly 9 per cent, according to Bloomberg News.

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“Foreign exchange authorities are closely watching exchange rate movements, foreign exchange supply and demand with special vigilance,” officials from the finance ministry and the Bank of Korea, said in a statement Tuesday.

“Excessive herd behaviour is not desirable for our economy.” 

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