WITA’s Friday Focus on Trade – May 26, 2023




Understanding Kim Jong Un’s Economic Policymaking: Foreign Trade Narrative

Excerpts from Robert Carlin and Rachel Minyoung Lee’s article on understanding Kim Jong Un’s economic policymaking.
In this article, we review these journals’ invocation of the socialist enterprise responsibility management system (SERMS)—Kim Jong Un’s key reform initiative meant to give greater latitude to individual economic units across planning, production, and management of resources and profits—to justify new ideas on foreign trade. We then examine the journals’ handling of diversification, one of Kim’s key instructions related to foreign trade and the sensitivities involved in trading with capitalist countries. Although the views supporting economic reform prevailed for a time in the economic journals, the North’s shift to conservatism in recent years has taken a toll on its trade policy.

Decentralizing Trade

The arguments for and against new ideas about trade that are presented in these journals follow familiar lines. They usually start with providing some orthodox views before pushing against the boundaries of what has been considered acceptable thus far.
Notably, several articles are built on Kim Jong Un’s economic reform initiatives to justify new ideas on trade. For example, two articles in 2015—one published in the July edition of Kyo’ngje Yo’ngu and the other in Hakpo later that year—cited SERMS as supporting the decentralization of the external trade sector and giving greater trade autonomy to individual enterprises. As we noted in an earlier piece, SERMS was mentioned for the first time in a Hakpo article at the end of 2014, but it was not until the spring of 2018 that the two journals started discussing SERMS and its specific aspects in earnest. As such, these two aforementioned articles on foreign trade are among the earliest to use SERMS as a way to advocate for additional new policies…

Diversifying Trade

In a recent article discussing Europe’s inflation and energy issues, the North Korean Foreign Ministry website admonished: “One of the ways out of the current economic crisis is to diversify external trade. This is common economic knowledge.”
The diversification of trade is a principle that Pyongyang preaches, not just for other countries to follow. It is an oft-repeated policy the North itself has attempted to implement for years. Kim Jong Un, for example, called for “making foreign trade multilateral and diversifying it so as to smash the hostile forces’ sanctions and blockade maneuvers” at a party plenary meeting in March 2013. At the Seventh Party Congress in 2016, he said, “one-sidedness should be removed in foreign trade,” and even noted: “[We] should… advance multifaceted exchange and cooperation with even capitalist countries…”
02/06/2023 | Robert Carlin and Rachel Minyoung Lee | 38 North, a Publication of the Stimson Center

Could the Russian Economy Thrive Despite Western Sanctions?

The visit of Chinese President Xi Jinping to Moscow in late March was presented by many Russian media as “the end of US hegemony”.
Vladimir Putin did not even rule out that Russia would increasingly switch to the yuan in foreign trade payments, abandoning the dollar and the euro. And according to the Bank of Russia, the share of the yuan in Russian foreign trade in 2022 increased from 0.5 per cent to 16 per cent. However, it is stated that this is the currency in which the actual payments were made, not the one in which the contracts were concluded.
Russia expects that China will be able to largely replace both export and import trade relations with the West.
The West, however, believed that Xi’s visit spoke of political unity – but not of a large-scale expansion of economic cooperation. The presidents signed statements on the development of partnerships until the end of the decade, but no specific large-scale projects were reported.
For Russia, in terms of individual countries, China was and remains its largest trade partner. But for China, Russia is not even in the top five.
In fact, the volume of trade with China even declined last year. A report on the strategic partnership between Russia and China was presented last September to the pro-Putin Valdai Discussion Club. According to its authors, although Beijing does not officially support anti-Russian sanctions and urges companies to resist Western pressure, businessmen in some cases prefer to err on the side of caution.
Russia counts on China, not least of all, as a supplier of industrial technologies to replace those prohibited by sanctions. But China itself is largely dependent on the US in terms of technology. And experts are highly doubtful that, for the sake of Moscow, Beijing will aggravate relations with Washington, even if today they are far from ideal.
04/23/2023 | Valeriy Nozhin | EuroNews

Hong Kong’s Technology Lifeline to Russia

While China’s support for Russia is widely reported, Hong Kong’s substantial contributions to Russia’s war efforts are less known. Recent reports have identified Hong Kong as a prominent node in Russia’s illicit procurement network, acting as a transshipment hub for diverting Western-made microelectronic components to companies affiliated with the Russian military. Since Russia’s invasion of Ukraine, Hong Kong has doubled its integrated circuits exports to around $400 million worth of semiconductors in 2022, second only to China and far exceeding any third country in the volume of semiconductor trade with Russia. Many of these transactions violate U.S. export control regulations against Russia, and multiple individuals and entities operating from Hong Kong have been sanctioned for their involvement in the Russian military’s procurement network.
Hong Kong’s complicity in sanctions busting is not merely a byproduct of being one of the busiest shipping hubs in the world; it is a direct consequence of Hong Kong’s increased subservience to China, now that Beijing has wiped out the last vestiges of autonomy in the special administrative region. In today’s Hong Kong, the government follows Beijing’s orders in virtually all matters of governance, particularly for issues with geopolitical salience. High levels of semiconductor trade between Hong Kong and Russia, as well as the Hong Kong government’s public scorn for Western sanctions, have made Hong Kong’s allegiance clear: it sits firmly in the camp of an emerging China-Russia axis.
…In July 2020, recognizing Hong Kong’s loss of autonomy, former U.S. president Donald Trump announced that Hong Kong “is no longer sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China.” The United States would “suspend or eliminate different and preferential treatment for Hong Kong.” Shortly after, the Commerce Department began rescinding Hong Kong’s export licensing privileges, such as by equalizing the availability of license exceptions for Hong Kong and China. In December, the department declared that it would treat exports to Hong Kong as destined for China, effectively ending Hong Kong’s preferential status in the U.S. export control system. Some of the United States’ closest partners have implemented similar changes.
Stripping away Hong Kong’s preferential trading status is a good first step in stopping the leakage of sensitive goods to China and its autocratic allies. But unilateral action from the United States is not enough. While these restrictions have slowed the movement of export-controlled goods in and out of Hong Kong—for example, the Commerce Department detected a 17.4 percent decline in shipments under a Bureau of Industry and Security license exception between 2020 and 2021—Hong Kong on the whole remains relatively interconnected with the global economy.
05/17/2023 | Brian (Chun Hey) Kot | Carnegie Endowment For International Peace

Applying Climate Commitments to Trade Between Caricom and Canada

At the Caricom Heads of Government Conference held in February 2023, regional leaders received Canadian Prime Minister Justin Trudeau. The engagement between the Canadian and Caricom leadership focused on “charting new strategic partnerships, built on modern realities, including the diversification of the economic relationships and addressing climate change and doing both in ways that would create good jobs in all the countries”. Caricom leaders welcomed the efforts by Prime Minister Trudeau to strengthen and deepen the special relationship between Caricom and Canada…
Negotiations between Canada and Caricom towards a reciprocal FTA were launched on July 1, 2007. This was intended to replace the existing CARIBCAN preferential trade agreement which has been in existence since 1986, and provides duty free access to the Canadian market for certain goods of Caricom origin. As of May 2015, Canada’s position on the reciprocal FTA negotiations was that “(g)iven the lengthy negotiations and that Canada and Caricom continue to have different objectives for a Canada-Caricom trade agreement, no additional negotiations are planned at this date”. In the context of Canada’s renewed commitment to climate-related strategic ventures in the Caricom region, including its vocal support for the Bridgetown Initiative and pledged funding to tackle the climate crisis in the Caribbean, there are favourable diplomatic conditions for revisiting the idea of a Canada-Caricom FTA….
Generally, trade agreements can promote green industries by removing tariffs and non-tariff barriers on green goods and services and improving access to climate related technologies. FTAs can also be used to incorporate environmental standards into trade agreements, and to embed environmental commitments such as those found in the Paris Agreement. Recent agreements also focus on sustainable production methods, sustainability criteria, and conditions of labour. FTA rules can also be used to incentivise environmentally friendly practices. For instance, trade agreements can provide preferential treatment for countries that adopt sustainable practices, or are in the process of transitioning to climate resilient economies.
An increasing number of FTAs include provisions addressing the environmental goods which are necessary for building climate resilient and climate responsive economies. Canada is a member of the Asia-Pacific Economic Cooperation (APEC) and as such has established a list of environmental goods for targeted tariff reduction so that APEC businesses and citizens access important environmental technologies at lower cost, which in turn will facilitate their use and benefit the environment. Some of the environmental goods identified in APEC’s list which are relevant to Caricom’s own green transition include solar water heaters, solar photovoltaic cells, smart grid equipment and recycling machinery. Similar collaboration between Canada and Caricom to phase out or reduce tariffs on a list of environmental goods of mutual interest over an agreed timeframe, would lower the cost of importing these technologies into the region and potentially aid the region’s green economy transition, and would be an attractive market access proposition for Canadian manufacturers of environmental goods.
05/09/2023 | Russell Campbell | Daily Express

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