News, events and analyses related to global trade and snippets of changing trade matrix during the month of December 2014

Saudi Arabia-Israel

Oil Trade

Separating business from politics

Saudi Petroleum Minister Ali Al-Naimi speaking to the media in Vienna, Austria, at the annual summit of the Organisation of Petroleum Exporting Countries (OPEC)

While Saudi Arabia has long been believed to have had unofficial trade ties with Israel, in a welcome move, Saudi Petroleum Minister Ali Al-Naimi has said that his country is not averse to selling crude oil to the Jewish state. Speaking at an OPEC summit in Vienna, Al-Naimi said, “We do not hold a grudge against any nation and our leaders promote peace, religious tolerance and co-existence. His Majesty King Abdullah has always been a model for good relations between Saudi Arabia and other states, and the Jewish state is no exception.” Following a crash in crude oil prices in the last few months, it is expected that Saudi Arabia – the world’s largest crude oil exporter – is looking at new markets and Israel, with $9 billion worth of crude oil imports in CY2013, is a likely target, despite age-old enmity between it and the Islamic world.

China-Spain

Longest Rail Route

To distance away from distance

China has successfully conducted the test-run of a freight train on a new rail link that connects China directly to Spain, thereby making it the world’s longest rail link, overtaking the famous Trans-Siberian link. The train, with 40 shipping containers, left Yiwu in eastern China and reached Madrid after 21 days, covering over 13,000 km and running through Kazakhstan, Russia, Belarus, Poland, Germany and France, before entering Spain. According to traders, the shipment, if carried via ship, would have taken at least 10 additional days to reach its destination. Speaking to the media in Madrid, Zhejiang Governor Li Qiang said, “The route is important to implement the strategy of developing a new silk road.”

Africa-WTO

Market Access

Helping those who need it the most

Following the ninth African Union Conference of Trade Ministers held at Addis Ababa in Ethiopia, African trade ministers have, collectively, urged the WTO to allow duty-free and quota-free market access to Least Developed Countries (LDCs), on a priority basis. In an eight-page communique, they claimed, “Duty-Free and Quota-Free Market Access, Preferential Rules of Origin and Cotton, were of critical importance in the integration of the LDCs into the Multilateral Trading System.” Recognising the importance of the Trade Facilitation Agreement (TFA), the communique added, “We look forward to a high-level meeting to be held in mid-January 2015 in line with the waiver decision, where non-LDC members, in a position to do so, shall indicate sectors and modes of supply where they intend to provide preferential treatment to LDC services and service suppliers.” The trade ministers also urged developed countries to provide all requisite assistance for capacity building in Africa’s LDCs.

South Korea-ASEAN

Trade Ties

Why look beyond the neighbourhood

While ASEAN is already South Korea’s second-largest trading partner, Singapore’s Prime Minister Lee Hsien Loong has claimed there are ‘strong reasons’ to promote this further. Speaking at the first ASEAN-Republic of Korea Commemorative Summit, Lee emphasised on the need for a liberal ASEAN-South Korea air services agreement, which includes the exchange of mutually beneficial traffic rights. “ASEAN’s goal to raise trade volume with South Korea to $200 billion by 2020 is achievable,” Lee said and added, “This can be done by enhancing the utilisation of the ASEAN-South Korea Free Trade Agreement (FTA). Moving beyond trade and commerce, Lee said Singapore is all for the de-nuclearisation of the Korean Peninsula and it should be achieved through peaceful and diplomatic means. “A Korean Peninsula that is stable and nuclear-free is crucial for regional stability and prosperity,” Lee said.

China

Free Trade Zone

To keep the juggernaut rolling

Just about a year after the opening of Shanghai Free Trade Zone (FTZ), and despite it not being as successful as expected, China is mulling three more FTZs. Making the announcement China’s State Council said, “Following the success of the pilot free trade zone in Shanghai, new parks will be opened in Tianjin, Guangdong and Fujian.” The FTZs are part of a strategy to start a second revolution of manufacturing in the world’s second largest economy and scaling up to high-technology goods and equipment. But not everyone is enthused about the announcements. For, not only is the Shanghai FTZ embroiled in several corruption scandals, but it hasn’t also brought anything new to the table. However, such criticisms have not dissuaded China from not only planning the new proposed FTZs within the country, but also starting discussions with countries in South-East Asia and Central Asia to set up FTZs in those countries.

Japan-Australia

JAEPA

For a real Australasia

With Japan’s first free trade agreement with an exporting nation – Australia – set to commence from January 15, 2015, Australian Federal Trade Minister Andrew Robb has expressed hopes that it will deliver immediate benefits to Australian exporters. “Japan Australia Economic Partnership Agreement (JAEPA) will expand opportunities with our second largest trading partner across a wide range of industries, including agriculture and processed foods, resources, manufacturing and services,” Robb said and added,“The FTA will also support growth in investment from Japan, already our third largest investor, by raising the foreign investment screening threshold for private Japanese investment into Australia.” JAEPA, the second of three FTAs signed by the Tony Abbott government, will follow the commencement of Korea Australia Free Trade Agreement (KAFTA) and will precede Australia’s FTA with China.

Crude Oil

At Five-Year Low

Liquid Gold? Not anymore

With the unprecedented 50% fall (till the time this issue went to print) in crude oil prices in the last six months of 2014, which has pushed prices to a five-year low thereby catching most by surprise, speculation is rife about the real reason(s) behind the crash. While some point at the OPEC decision not to cut supplies as an attempt by US and its allies to punish Russia, some blame it on the lack of demand given that despite years of easy money policy, global GDP growth is struggling to take off in any meaningful way. Reasons aside, the impact of the crash has been enormous – an over 50% devaluation of the Russian ruble, despite frantic attempts by Central Bank of Russia, including an overnight 650 bps rate hike; massive devaluations and bond-market selloffs in several oil exporting nations; over 50% crashes in several Middle Eastern stock indices; big drop in US oil rig counts; and the US shale oil industry becoming unviable. In fact, there are fears that a big drop in the value of crude and refined petroleum oil trade – valued at over $2.5 trillion in 2013 – almost a given, there could be massive long term repercussions on global trade and commerce in years to come.

Seychelles

WTO Membership

Ever closer to one world

Almost 20 years after first applying for membership, the tiny African island nation of Seychelles has finally become a member of the World Trade Organisation. After signing the country’s WTO accession in December, Seychelles’ Minister of Finance, Trade and Investment, Pierre F. Laporte said, “It brings for us several important advantages in terms of modernising our frameworks, our laws, our systems. It allows us to have a platform, if we have issues to raise, and it also helps to liberalise the economy.” Although Seychelles’ WTO membership – now at 161 – will only be activated 30 days after the country’s parliament ratifies the accession, Laporte is confident of it getting done in the first quarter of 2015. It’s worth noting that according to the CIA World Factbook, with an area of just 455 square kilometer, Seychelles is the world’s 199th smallest country in size, while when it comes to population, it is the world’s 198th smallest country, with just 91,650 people.