Trade
Indonesia’s PPE export ban backfires
Authors: Arianto Patunru and Krisna Gupta, ANU
By 16 June 2020, Indonesia had recorded 39,294 cases of COVID-19, second only to Singapore in Southeast Asia. Indonesia’s death toll tops the region with 2198 lives lost. The government has drawn a lot of criticism for its slow response to the pandemic — from the lack of testing to ineffective physical distancing measures. The fear of the infection spreading has also shaped economic policies, including trade.
In early March 2020, the Indonesian Bureau of Statistics reported that Indonesian exports of surgical masks were 75 times higher year-on-year, mostly to China, Singapore and Hong Kong. The news sparked controversy in Indonesia as the prices of face masks and antiseptics soared following hoarding and a general lack of supply.
In response, on 17 March the government issued an export ban on 10 commodities, including antiseptics, personal protective equipment (PPE) and raw materials to make surgical masks. The ban was initially set to expire on 30 June. A week later, it was expanded to include ethyl alcohol, the raw material for antiseptics, totalling 14 tariff lines worth almost US$200 million in 2018.
These measures were introduced to combat potential scarcity in Indonesia’s domestic markets. But they are problematic because they interfere with global value chains. One of the reasons behind Indonesia’s comparatively good PPE industry is its ability to import raw materials. In 2018 Indonesia imported more than US$892 million of polypropylene, one of the materials needed to produce PPE. By engaging in this value chain Indonesia has been able to export vast numbers of PPE.
Export bans will not only block Indonesia’s potential for further growth but also negatively affect Indonesia’s trade partners’ capacity to produce raw materials.
On 1 April, the export ban regulation was relaxed into export licensing. This was likely a result of a G20 meeting in late March, where members agreed to support trade and global supply chains. It is also possible that the change was because the Indonesian producers had commitments with their buyers. Other measures to ensure the availability of essential commodities needed to deal with COVID-19 also followed. Between late March and late April, the Indonesian government issued a series of tariff eliminations, special permits and import relaxations.
Globalisation has always been marketed as a means to increase productivity. Comparative advantage leads countries to specialise in production, so international trade benefits all parties and boosts growth. Instead of preventing trade, Indonesia should promote it. Measures that make importing easier, such as import relaxation and tariff reduction, are appropriate. Pursuing further international collaboration, like the recent essential goods agreement between New Zealand and Singapore, could also help.
The Indonesian government does not rely on export bans to increase capacity — instead it facilitates the importation of materials to produce COVID-19 related goods. These measures support firms in expanding their production capacity, helping to combat scarcity. Other institutions such as the Investment Coordinating Board (BKPM) and the Ministry of Health have been pushing for regulatory relaxations to keep local production growing instead of solely relying on trade.
But challenges remain. Relaxing standards for COVID-19 related goods increases the number of suppliers but it could lead to firms distributing low quality goods to consumers, as found in the Netherlands, Spain and Turkey. Capital constraints and technical challenges prevent many smaller textile firms from repurposing their production. Central and local governments are still struggling with red tape and uncoordinated procurement to distribute PPE across the region. Such poor coordination also adds confusion to firms’ production decisions, especially given the existence of export licensing.
Information also needs to be transparent and accessible to everyone. The helicopter view of Indonesia’s central government needs to be supplemented by information from local government and volunteers in the field. Community initiatives are emerging in response to COVID-19, which the government can follow up. Understanding supply chains will help firms make decisions on technical requirements, production and potential capacity increases. The government can also help firms — especially smaller ones — to make the capital requirements for production more accessible.
With better information on supply chains, the central…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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