Bulletin No.1 | Monday, February 22, 2021

Simon Cox, Emerging Markets editor, The Economist, with Edward Yau Tang-wah, Secretary for Commerce and Economic Development, Hong Kong Special Administrative Region, discussed the impact of the COVID-19 pandemic on Hong Kong economy and international trade. Their talk highlighted that Hong Kong sees the uneven distribution of impact. The commodity side of the trade was not as worse as expected in 2020; on the other hand, train services faced a much more significant impact. Moreover, a hike is seen in the financial services, insurance, and IT sector, which has a silver lining behind it. 

While highlighting the government’s support to help enterprises with various support and relieve packages, they underlined that the pandemic has imposed an additional cost on transportation, containers, and flights that have put trade in jeopardy.  The discussion reflected on trade to be a solution to this crisis and not a problem while indicated that it is time for the global economies to avoid protectionist measures.  

It was mentioned that Hong Kong would be ready to enter the Regional Comprehensive Economic Partnership (RCEP) negotiations; soon after its implementation. RCEP is to enhance regional trade and remove both tariff and non-tariff barriers of trade. However, RCEP alone is not enough and there is a need for collective efforts by all WTO members to enhance the multilateral trading system further.  

There have been positive initiatives taken worldwide, beginning with the progress of RCEP, confirmation of Ngozi Okonjo-Iweala as the new director-general of the World Trade Organisation (WTO), and the United Kingdom willing to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. On the trade front, the panel highlighted that discussions are going on globally to avoid unnecessary tariff restrictions on essential goods and the movement of people. A lot is also being done considering that women are not left behind. 

Governments across the globe have come together along with the private sector to turn the pandemic into a new opportunity for domestic manufacturers with close communication, collaboration, and mid-set. That has resulted in increased capacity for the production of products such as PPE kits and medicines.
 
The panel recognised RCEP as an important agreement, because it has been able to bring a wide range of economies together. It is an inclusive agreement with Association of Southeast Asian Nations (ASEAN) and other economies, which took so long to come on board due to different development concerns and parameters. 

Further, the discussion was set on multilateralism and its progressiveness given the crisis caused by COVID-19. The challenge that emerged from the panel discussion was that some of these agreements involve market access, whereas some of the discussions now involve rules. The members should agree on an agenda that strengthens the organisation. However, the problem is that the members have never agreed on sharing the benefits of trade, whether it's between countries or sometimes within countries, therefore, distorting the overall benefits of trade. The pandemic has shown a unique collaboration suggesting that one cannot work alone when it comes to trade as it is a global concept. 

The panel highlighted that the recovery of Asia's trade has proven to be better than Latin America and the U.S. for various reasons. Asia has produced electronics and medical products in demand which have been the key factor in their speedy recovery. Services in trade, on the other hand, are complicated to be measured as tourism, travel, and logistics are fairly measurable while services such as consultancy, IT services, professional services, among others, are used as tax engineering that mugs up the data. 

Speakers included Rebecca Sta Maria, Executive Director, APEC Secretariat; Nabil Habayeb, Senior Vice President, GE and President and Chief Executive, GE International Markets; Ceferino Rodolfo, Undersecretary, Department of Trade and Industry, Republic of the Philippines; Yonov Frederick Agah, Deputy Director General, WTO; Soumaya Keynes, Trade and Globalisation Editor, The Economist. The session was moderated by Simon Cox, Emerging Markets Editor, The Economist. 

As 90 per cent of Asia’s trade is through Hong Kong, the panel discussed ways and means to build resilience of its maritime logistics eco-system. Panel reflected on tariff, supply chains, financial, technology and people dynamics in order to indicate adaptive solutions to Covid-19 disruptions and post pandemic growth for Hong Kong in particular and Asia in general. Hong Kong is a major financial, maritime, aviation with significant stakes in shipping, legal, education and legal space.

On supply chain diversification in light of geo-political developments particularly between the U.S. and China, the panel stressed that supply chain migration is not simple as there are multiple hidden costs in supply chain calculations such as cost of shifting assembly lines, meeting financial obligations and forgo geographical advantages. Cost aside, changing and migrating supply chains is very sophisticated involving various dimensions as mentioned above. 

Furthermore, the discussion reflected on to financial solutions such as ship leasing as the ship financing worldwide has contracted. Besides tax incentives, infrastructure and technology financial solutions are equally important for ship owners and operators keep their ships moving including with innovative solutions such as financing the ship leasing.  Measures such as ship leasing tax incentives by the government of Hong Kong are proving tremendously useful at the time when ship financing around the world is dropping.

The panel noted technology to be the future of shipping industry including for digitisation of letters of credit and bill of lading which are in hard form for more 200 years, among others. Welfare of people such as sea-fearers who are the backbone for continuous food, energy and medical supplies during the onset and midst of the Covid-19 pandemic and now vaccines should be central to any policy and structural changes, the panel emphasised.

Speakers of the session were: Nick Marro, Lead, Global Trade & Analyst, Asia and Access China; The Economist Intelligence Unit;  Benjamin Wong, Head, Transport and Industrial Sectors, Invest Hong Kong, Hong Kong Special Administrative Region; Kelvin Leung, Chief Executive, APAC, DHL Global Forwarding; Angad Banga, Chief Operative Officer, The Caravel Group;  Hing Chao, Executive Chairman,  Wah Kwong Martime Transport Holdings Limited.

This session began with the discussion on supply chains having failed during this pandemic and the WTO issues. Supply chains have been already experiencing shocks during the past decade due to the great financial crisis of 2008-2009, the Tsunami in Japan that hit major supply chains, and big uncertainty in national trade policies in a number of big economies.

The pandemic came on top of these shocks. Although it took global suppliers some time to produce health products in bulk, a few countries like China and Korea started producing enough to export globally within two months. Another point emphasised by the panellists was how to move towards the economic recovery, not in the short term but also taking into account where major transformation being made by Europe and other major developed economies. 

A stable and updated framework of rules concentrated on reforming the WTO is going to be a critical central priority for European trade policy to work simultaneously with Asian trade policy. It is important for the policy makers to rebuilt trust in multilateral trading system. There are two key elements one is trust in the governments and  ability to react in case of emergency and in the resilience of supply chains, and the second is the trust among companies that globalism is fair.

While discussing the challenges, the panel pointed out that there is a need to tackle government interventions in a way that does not distort the competitiveness and level playing field. The current framework at the WTO is not sufficient, and the rules are week when it comes to tackling the issues of subsidies. Settling disputes based on outdated rules is not a solution. It is important to revive the rule-making mechanism at the WTO in order to match the modern times of trade.

The session was moderated by Henry Curr, Economics editor, The Economist. The panel was constituted by Marion Jansen, Director - Trade and Agriculture Directorate, Organisation for Economic Co-operation and Development; and Ignacio Garcia Bercero, Director, Directorate General for Trade, European Commission.

Asia as the world's largest economy is well positioned to revive trade and globalisation, which is exemplified by initiatives such as the signing of the Regional Comprehensive Economic Partnership (RCEP).  The panelists however noted that this will depend on how long the current trend continues. The pandemic has made changes in the way investments flow from one region to another.  Investment flows now consider factors other than the cheap labour, such as safety, closeness to the end consumer market, and market friendliness in the post-pandemic context. Manufacturing will move more closer to the end consumers in the coming years.

The panelists of the webinar said that even though India has its own reasons and genuine concerns for not joining the RCEP, it should join the initiative for making larger economic returns. The panelists were of the view that the hype around RCEP will benefit the mechanism, in a way that countries who are currently not members of the association will feel to join it. 

The panelists unanimously agreed to the point that Asia is very pro to trade multilateralism, as most of its member countries are benefiting from the current multilateral trade. The discussion concluded that all the regional trade platforms should be inclusive, progressive and open to expansion. Countries have to be flexible and agile in the future world. Digitisation of supply chain along with automation and integration of Artificial Intelligence (AI) will be a prospective way forward for countries to establish a resilient supply chain. 

Speakers: Carola Richter (President, South and East Asia, ASEAN, and Australia and New Zealand, BASF), Nicholas Kwan (Director of research Hong Kong Trade Development Council), Heiwai Tang (Professor HongKong University), David Rosa (Chief executive and co-founder, Neat), Simon Cox (Emerging markets editor, The Economist)