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Bi-Weekly to 13 April 2005
A selection of brief analysis of the most significant geo-political developments worldwide over the past two weeks, and their implications.
China: Textile exports surge ahead
Total first-quarter textile exports rose 29% year-on-year, with those to the United States surging 258%, according to the Ministry of Commerce on 11 April. The figures will heighten fears that Chinese textiles are flooding the world’s major markets following the elimination of global quotas at the start of the year. The rapid expansion is partly due to delayed shipments from last year, in anticipation of the new open trade regime. On 4 April, US Commerce Secretary Carlos Gutierrez announced that the United States will investigate whether Chinese textile imports are disrupting its market. This paves the way for the implementation of special safeguards, such as quotas. Similarly, EU Trade Commissioner Peter Mandelson proposed guidelines on 6 April designed to establish a 'panic point' at which time safeguards would be implemented. Imports of Chinese textiles have soared since the expiry of the global textiles quota regime on January 1, in some sub-sectors by more than 1000%. In its WTO accession negotiations, China had to accept special safeguard rules, applicable up to December 2008, that allow restrictions to be re-imposed easily if another WTO member believes Chinese textiles are disrupting its market.
IMPLICATIONS: China appears to be taking market share from other producing countries, which could hurt its relations with developing nations whose economies rely heavily on their own textiles industries. The threat to other countries would undermine Beijing's attempts to portray itself as the champion of developing countries and a responsible regional player. The EU and United States are considering when to implement safeguards, but such measures would raise serious questions about the levels both of commitment to free trade, and of preparation for a development known about a decade in advance.
See INTERNATIONAL: EU/US react to soaring textile imports
The Transitional National Assembly (TNA) today elected Patriotic Union of Kurdistan leader Jalal Talabani as president on 6 April. It also elected two vice-presidents, a Shia, Adel Abdel Mahdi (the outgoing finance minister) and a Sunni Arab, Ghazi al-Yawar, the outgoing interim president. Yawar's appointment had divided the Sunni community, delaying the process. The triumvirate also appointed Shia Dawa Party leader Ibrahim al-Jafari prime minister. The appointments result from lengthy negotiations since the January 30 elections between the Shia and Kurdish blocs in the TNA.
IMPLICATIONS: It appears, however, that disagreement persists over several key cabinet posts, with the Shia and Kurds both vying for the Oil Ministry and opinions divided over whether a Sunni Arab should have one of the security portfolios. It is also not clear how far the blocs have progressed on key issues which will confront them when a constitution is drafted, such as the role of Islam, the scope of federalism and the status of Kirkuk.
See IRAQ: Threat of deadlock as new government takes shape
Syria has promised to pull out all its military and intelligence personnel and assets from Lebanon by April 30, according to UN envoy Terje Roed-Larsen after talks with President Bashar al-Assad in Damascus on 3 April. While the regime's final naming of a date fulfils a key international and Lebanese opposition demand, the recent bombings in Christian districts and the fact that Lebanese Prime Minister Omar Karami seems to have changed his mind about resigning are causing concern. The signs are increasing that Damascus and its Lebanese allies are temporising in the hope of delaying May's elections and thereby improving their chances of avoiding defeat, an issue over which the UN Security Council may find it harder to exert pressure on the regime. Moves to form a new Lebanese government to take the country to elections next month were again delayed on 11 April. The delays in part reflect Syria's early efforts to salvage some of its influence in Lebanon.
IMPLICATIONS: Syria’s enforced military withdrawal represents a considerable strategic, political and economic loss. It will undoubtedly strive to find ways to sustain its influence. However, it is unlikely to decide on an overall strategy soon, instead preferring to wait on events.
See SYRIA: Bashar buys time for embattled regime
Surging demand (particularly from emerging markets), falling supply and reduced surplus capacity suggest persistent high oil prices for the medium to long term, the IMF said on 7 April. IMF forecasts put the price of crude at 34 dollars a barrel in 2010 (in today's dollars) and 39 to 56 dollars a barrel in 2030 -- below current price levels, but well above market and oil industry expectations. Surplus capacity has eroded from an excess of some 6 million barrels per day (b/d) at the start of 2002 to between 1-1.5 million b/d today, depending on the source of the estimate.
IMPLICATIONS: This decline, while partly the result of demand strength and poor non-OPEC performance, is also the result of political uncertainties, which will continue putting upward pressure on oil prices.
See INTERNATIONAL: Geopolitics behind high price for oil
A TNK-BP spokesman said on 11 April that the tax authorities last week raised their claim for unpaid taxes for 2001 to 26 billion roubles (936 million dollars) from 4 billion. Unlike the Yukos case, the bill, though high, will not close the company, which expects to pay 10 billion dollars in taxes this year. The Anglo-Russian joint venture's CEO, Robert Dudley, today dismissed it as simply an "audit finding", saying the company expected to work through the problem constructively with the authorities over the coming weeks. Speaking at the Russian Economic Forum in London, Dudley nevertheless warned that there was too much room for selective interpretation and enforcement by the authorities over private business.
IMPLICATIONS: President Vladimir Putin may be signalling a shift back to a more business-friendly approach, but no single authority is imposing consistent economic policies in Russia, and the lack of consistency is a major source of uncertainty, even for companies as close to the Kremlin as BP.
See RUSSIA: Putin provides no consistent economic policy
United Kingdom: Dramatic drop in Labour lead
Prime Minister Tony Blair on 5 April formally asked the Queen to dissolve parliament and call a general election for May 5. The launch of the official election campaign coincides with the release of new poll data that show a significant drop in the Labour Party's popularity. An ICM poll published on 5 April gives Labour only a three-point lead over the opposition Conservative Party -- a five point drop since January. A Populus poll published on 5 April gives Labour an even slimmer two-point lead, while a MORI poll, also published on 5 April, gives Labour a five-point lead, but shows it to be five points behind the Conservatives among respondents who declare their certainty of voting on election day.
IMPLICATIONS: This is worrying news for Labour, which obtained a 9-point lead in the 2001 general election, and is expected to see its majority in parliament eroded in the forthcoming election.
See UNITED KINGDOM: Labour majority of 75-100 credible
The EU and Canada plan to impose a 15% duty on targeted US exports starting May 1 in accordance with the WTO's ruling regarding the Byrd Amendment (Continued Dumping and Subsidy Offset Act of 2000), both Canada and the EU announced on 31 March. The Byrd Amendment, which allows the US government to direct proceeds from anti-dumping duties on foreign corporations to US companies, was ruled illegal by the WTO in September 2002, giving Washington until the end of 2003 to repeal the law. In November 2004, due to a lack of US action, the WTO ruled in favour of the EU, Canada, Brazil, India, Mexico, South Korea and Japan, authorising sanctions of up to 72% of the sums gathered through the Byrd Amendment, which could amount to roughly 150 million dollars this year.
IMPLICATIONS: This comes at an extremely difficult time, as trade relations between the EU and the United States have soured in recent weeks due to the ongoing dispute over airline subsidies to Airbus and Boeing. Nevertheless, the Byrd Amendment, originally denounced by the Clinton Administration, was clearly illegal even before the 2002 ruling. Thus, the EU/Canadian action was to be expected, with the other countries likely to follow suit.
See INTERNATIONAL: WTO dispute settlement system delivers
Emerging markets face a grave risk from a rapid dollar decline, the World Bank warned on 6 April as part of its 2005 Global Development Finance Report. Further pronounced dollar depreciation would affect the value of foreign exchange reserve holdings across the globe, particularly in emerging markets, where central banks are heavily exposed to dollar-denominated assets -- developing countries held 1.6 trillion dollars of foreign exchange reserves at the end of 2004 with 70% estimated to be in dollar-denominated assets. Furthermore, the Bank indicated that large foreign exchange reserves pose problems for the management of domestic economies due to inflationary effects and fiscal costs.
IMPLICATIONS: For the World Bank to highlight the dangers of holding such large reserves is slightly awkward, given widespread previous calls, most notably by the IMF, for emerging markets to hold greater (typically dollar-denominated) reserves as a bulwark against a repeat of the 1997 financial crises.
See INTERNATIONAL: Euro-dollar exchange has global impact
Sunni Arabs fear what King Abdallah of Jordan described in December as "an emerging Shia crescent" -- the possibility of a powerful Shia government taking control in Iraq and developing a special relationship with Iran, Syria, Lebanon and Hizbollah to create a "crescent" which would be destabilising for the Gulf states and the whole region.
IMPLICATIONS: Such fears, though dampened by recent events in Iraq and Lebanon, could quite easily be revived as a result either of political chaos in those countries or provocative acts by Israel or the United States.
See MIDDLE EAST: Sunni Arabs fear 'Shia crescent'
German and Russian firms signed two major business agreements at the Hanover Trade Fair on 11 April in the presence of Chancellor Gerhard Schroeder and President Vladimir Putin. German energy conglomerate BASF and Russian gas giant Gazprom signed a memorandum of understanding to step up collaboration in developing Russian natural gas, which will involve BASF in the 1.3 billion dollar project to develop the Yuzhno-Russkoye field. Engineering firm Siemens and Russian Railways signed a 1.5 billion dollar contract for building high-speed trains in Russia.
IMPLICATIONS: German economic involvement in Russia has increased in recent years, notably in energy and hi-tech production. Schroeder and Putin, who have developed a strong strategic partnership around economic issues, are keen to see this continue, although concerns among German firms over heightened political risk and increased state interference in Russia may have some dampening effect on growth of German investment.
See RUSSIA/GERMANY: Trade underpins enduring relations
