APEC Indonesia 2013

APEC Family Photo of Leaders

APEC continues to go from strength to strength, with an ever-expanding agenda, and an impressive share of the world economy held by its 21 members: this year, APEC accounts for 55pc of global GDP, 44pc of trade and 40pc of the world's people which shows just how dynamic and prosperous the region is becoming.

APEC's aim was never to be a negotiating forum. Its guiding principle is “concerted unilateralism”, that is, it has no power to force its members to do anything; it merely seeks to inspire good policy by example and co-ordination. This is where APEC's real accomplishment lies within a region not accustomed to working and coordinating together in a similar way to the the EU regional supranationalism integration. Instead APEC has developed many technical committees doing useful work in areas such as trade facilitation. It helps foster habits of consultation and co-operation. And, furthermore, its Leaders’ meetings provide an opportunity for useful and sometimes informal bilateral talks.

Since the Doha round of world-trade talks more or less came to a stand still with almost no hope of moving forward in the foreseeable future, APEC’s ambitions have spread into other areas. This year its motto is “resilient Asia-Pacific: Engine of Global Growth”, and its three main themes are the Bogor goals; improving “connectivity” (infrastructure, harmonising procedures and making it easier for people to travel); and “sustainable growth with equity”.

APEC's core interest has always been trade liberalisation. Twelve of its members (including two of the three biggest economies, the US and Japan, but not China) are pursuing the Trans-Pacific Partnership (TPP), an ambitious “21st-century” free-trade pact, covering areas such as labour, government procurement, state-owned enterprises, intellectual property and e-commerce, as well as traditional merchandise trade.

Meanwhile, eight TPP members (but not the US), along with four other APEC members (including China) as well as India and three other non-APEC countries are talking about yet another regional trade group, the Regional Comprehensive Economic Partnership.

The Latin American member economies, Chile, Perú and México are also pursuing the "Alianza del Pacífico" in the hope that a stronger regional alliance will give them more bargaining power in their trade relations with China. 

All, this adds up to a very dynamic Asia Pacific region. Hence a possible further grand aim for APEC over the next decade may be to try to co-ordinate these parallel processes, in the hope of bringing them all together in a grand Free Trade Area of the Asia-Pacific eventually. This is a role that APEC is well prepared for given its twenty or more years of existence across the Asia Pacific region and its technical expertise on trade liberalisation.

Global Water Reserves in 21st Century

Map of Global Aquifiers in the 21st Century

Researchers at McGill and Utrecht University in the Netherlands have recently published a map showing the regions where the use of water from these aquifers vastly exceeds the rate at which they're being refilled by rain. 

The map compares the usage footprint with the actual rainfall a particular aquifer gets. Blue areas receive more rain than is being used up by humans. For example, Russia has plenty of freshwater. But orange or red areas indicate places where irrigation and drinking water use is drawing out more water from the aquifers than the rain can refill.

Water is limited
 
Nature has decreed that the supply of water is fixed. Meanwhile demand rises inexorably as the world's population increases and enriches itself. Homes, factories and offices are sucking up ever more. But it is the planet's growing need for food (and the water involved in producing crops and meat) that matters most. Farming accounts for 70% of withdrawals.

Few of the world's great rivers that run through grain-growing areas now reach the sea all the year round or, if they do, they do so as a trickle. Less obvious, though even more serious, are the withdrawals from underground aquifers, which are hidden from sight but big enough to produce changes in the Earth's gravitational field that can be monitored by NASA's satellites in space. Water tables are now falling in many parts of the world, including America, India and China.

But there are many potential solutions
 
Although the supply of water cannot be increased, we can use what there is better—in four ways. One is through the improvement of storage and delivery, by creating underground reservoirs, replacing leaking pipes, lining earth-bottomed canals, irrigating plants at their roots with just the right amount of water, and so on. A second route focuses on making farming less thirsty—for instance by growing newly bred, perhaps genetically modified, crops that are drought-resistant or higher-yielding. A third way is to invest in technologies to take the salt out of sea water and thus increase supply of the fresh stuff. The fourth is of a different kind: unleash the market on water-users and let the price mechanism bring supply and demand into balance. And once water is properly priced, trade will encourage well-watered countries to make water-intensive goods, and arid ones to make those that are water-light. It is too early to tell how we will decide to manage our global water reserves. 

The New Global Middle Class

The new global middle class in the 21st century

The New Global Middle Class

Since the beginning of the 21st century there has been a massive expansion of the new global middle class. This has not occurred in a vacuum. The BRICS and second tier countries such as Brazil and Turkey have made the headlines for their rise in income and high annual GDP growth but this is only part of the story, with increasing wealth has also come a massive rise in development. According to the OECD, Brazil's middle class has risen from 29pc of the population in the 1980s to 52pc in 2009 almost doubling. In Turkey's case, income per capita nearly tripled between 2002 and 2011 bringing more and more people into a growing middle class and increasinging the ranks of the global middle class.

According to the Brookings Institution, there are now 700 million more people with $US10-100 per day to spend than there were in 2003. Moreover, what they call the global middle class is expected to grow by another 1.3 billion over the next ten years. This new phase of creating a global middle class brings major benefits for the global economy. Instead of the somewhat one-sided trade pattern of the last two decades, it means greater well-being for households in “developing countries” and opportunities for more producers in the advanced economies.There has also been a massive re-alignment of world trade between what has been tradionally called South-South countries. Trade between South-South countries currently stands at around 30pc.

As a result there have been tectonic shifts in the rebalancing of the world in development terms. It is no longer clear which countries are “developed” and which are still “developing”. This re-alignment has in turn brought a massive expansion of human capabilities and provided choices to people entering the new global middle class that they clearly did not have in the 20th century. This point is well illustrated in the 2013 UN Human Development Report 2013. The Report highlights the fact that progress on human development has accelerated in the last decade and all of the 40 countries analysed in the Report are doing better than expected.

Why have some countries done better than others?

Interestingly several factors have influenced the overall outcomes of accerlating people's accession into the global middle class when comparing the different experiences of countries on a global level.

In countries where the State has taken a long term perspective on development, people have been accelerated in to the middle class. In some countries the state has actively promoted job creation, this has also helped to sustain the creation of the middle class. Where the state has enhanced investment in health and education – these policies have greatly helped to assist people to move into middle class. In Turkey, for example, the Government decided to provide healthcare for all and target the poor. In Brazil, the Government managed to expand education by matching the funds available across regions and municipalities. In México, the state provided cash transfers for social policy interventions.

Some countries have also taken an active role in nurturing the industrial capacities and by actively investing in people which has allowed them to make the most of trade opportunities in global markets.

What is the flipside?

Interestingly a new global middle class made up of educated, inter-connected youth will increasingly demand far greater accountability. This point has already been illustrated by large-scale demonstrations in Brazil and Turkey which are a direct result of the creation of an enhanced middle class and both countries' economic success over the last decade.

Growing middle classes are far less tolerant when it comes to governments performing inadequately. Delivery of services, such as education and health, is poor in both Brazil and Turkey. In its last scorecard on educational attainment referred to as the Program for International Student Assessment (PISA), the OECD found that Turkey and Brazil ranked especially poorly in maths and science. In maths, Turkey ranked 41st out of 62 countries, while Brazil was in 55th place. In science, Turkey was 40th and Brazil 50th. In the UNDP's 2013 Human Development Index, Brazil ranked 85th and Turkey 90th out of 186 countries. It is not clear what the implications of the current protests will be for these two countries.

Much will depend on how the democratically elected leaders of Turkey, Prime Minister Erdogan and the President of Brazil, Dilma Rousseff react to these challenges. The aspirations of the middle class are colliding with the current capacity of these countries to deliver.

Conclusion

In order for the new global middle class to be sustainable it has been shown that countries with less inequality do better and improve far more as more people are added to the middle class. Furthermore educating women to adulthood has been shown to be key to reducing fertility rates. Another key point is that in order to reap the benefits of youth bulge that exists in so many emerging economies, job creation for the young is also key.

Finally participation and inclusion is essential to stability and social cohesion – this in itself is what will ultimately sustain the new global middle class.

Europe’s Smart Pivot: The European Union in the Asian Century

The Geo-Trade Blog endorses and reproduces in full an article by Javier Solana, published on 25 Jun 2013 on World Politics Review and on: http://javiersolana.esadeblogs.com. Javier Solana was the EU high representative for foreign and security policy, NATO secretary-general and foreign minister of Spain. He is currently president of the ESADEgeo Center for Global Economy and Geopolitics and distinguished fellow at the Brookings Institution.

Eastern Hemisphere: Europe & Asia

One of the key differences between Western and Asian cultures is their view of time: Whereas history is linear and consequential as seen from the West, Chinese and other Asian cultures perceive time as being cyclical. In the latter view, the emerging Asian century is simply a natural phase within this recurring flow. As renowned economist Angus Maddison showed, China and India were the world’s largest economies for centuries. Only upon the dawn of the Industrial Revolution did Western Europe and the “Western offshoots”—Maddison’s term for the U.S., Australia, New Zealand and Canada—catch up and overtake the Asian giants. The weight of the continents effectively changed as the technological advances of the Industrial Revolution shrank the relative effect of population size with respect to productivity and output.

Today, we are witnessing another such tipping of the scales. Asia is returning to its place in history, “re-emerging,” as it were, with China currently holding second place in the ranking of world economies and poised to take the lead in the near future. The wealth of opportunities and challenges surrounding these changes can only be managed through strategic thinking and cooperation on the part of all parties involved.

After nearly two centuries at the apex of the world economy, Europe, the "old” continent, together with its American counterparts, must now adapt to new realities. Though the United States’ role in Asia has traditionally been higher profile, particularly in security matters, it is undeniable that Europe is already looking east. Trade and investment links between the European Union and Asia are strong and dynamic: Speaking in regional terms, Asia has surpassed NAFTA to become the EU's main trading partner, constituting a third of total trade. More than 26 percent of EU outward investment is currently destined for Asia, while inward investment is also on the rise. China on its own is the EU’s second-biggest trading partner, after the United States.

In a global context of strong interdependence and flux, Europe must work from its strengths. It must draw on its history in order to play a constructive and active role in the transition toward the Asian century. Just last year, the European Union, the key piece in Europe’s institutional architecture, was awarded the Nobel Peace Prize for its accumulated history of reconciliation and its contributions to peace. The EU and its predecessor organizations were indeed the fulcrum that turned a continent of war into a continent of peace and stability: What started as a commercial alliance developed into the most sophisticated regional institution on the planet. The EU and its member states are now facing the most acute difficulties in the union’s existence—but the construction’s historical role in achieving European stability is indubitable.

In contrast, Asia, in its current configuration, is still an unstable continent. Reconciliation was never achieved in a number of painful conflicts between its countries; borders remain contested, and disputes regularly flare up. These unhealed wounds are supremely delicate, particularly in the absence of a strong regional institutional network capable of containing sparks of conflict. Especially critical is the unbreakable nexus between security and trade, which looms large for Asia’s governments, dependent as they are on the endurance of steady, intelligent economic growth in their task of providing their young and dynamic populations with the means to shape their own lives.

A Vertiginous Ascent

The defining characteristic of Asia’s present rise has been its unprecedented, sustained growth rates. After the Industrial Revolution, it took Britain 150 years to double its economic output per capita. While the same doubling took the United States 50 years, China and India have recently achieved this feat in as little as 12 and 16 years, respectively. What is more, the Asian acceleration is affecting populations on an entirely different scale than in the past: The two Asian giants alone have taken no fewer than 2.5 billion people with them in their take-off, over a third of the earth’s population.

This growth explosion has granted a large portion of the global population positive freedoms that were formerly unattainable. China alone managed to lift 680 million people out of extreme poverty between 1981 and 2010, and the proportion of East Asians living on $1.25 per day plunged from 77.2 percent to 12.5 percent over the same three decades. However, there is still a long path ahead. According to the World Bank’s poverty indicators, for example, almost 70 percent of India’s 1.2 billion inhabitants still subsist on less than $2 per day.

Important challenges follow in the wake of these momentous changes. Countries will have to tackle domestic issues such as urbanization and the related issues of pollution and congestion. Resource stress is another cross-border problem that will not dissipate on its own. As hundreds of millions are catapulted into the global middle class, their demands grow—but the resources and energy required to meet these demands are in short supply.

The consumption shift is already taking on geo-economic and geopolitical expressions in the short term. They have recently hit front pages in the West: As America’s Smithfield Foods, the world’s largest pork producer, was targeted by a Chinese meat processing firm in an acquisition effort, the contours of the largest Chinese takeover of a U.S. corporation to date came into view. The long-term consequences, however—which require a type of policymaking that is perpetually subject to the effects of time discounting—are no less daunting. It is unquestionable that the negative externalities of the Asian demand hike and of the overall current brand of growth, such as rising greenhouse gas emissions and their contribution to climate change, will be felt globally.

Injecting Energy Into an Unstable Continent

As Asia heats up through the energy of its economy, its countries become more dynamic, multiplying both opportunities and risks. It is a well-known principle of physics that as energy is applied to moving gas molecules, collisions between them become both more frequent and more powerful. Since Asia lacks a strong network to soften, mitigate and contain potential friction, risk levels surge with the growing kinetic energy of its states.

The Asian paradox is thus as follows: Integration among Asian nations is deep in economic terms, but underlying security and political tensions are also deep and even growing, all without an undergirding set of norms, rules and institutions to manage the countervailing pressures. Asia is, in effect, an unfinished continent, where historical wounds did not fully heal and ragged scars remain where reconciliation was never achieved. Historical mistrust magnifies anxieties stemming from the asymmetric rise of certain countries within the continent.

Worrying signs of this phenomenon abound: Nationalism is on the rise and is repeatedly put on provocative display. Territorial disputes over unsettled borders, whether in barren stretches of no man’s land in the Himalayas or small islands in the South and East China Seas, flare up recurrently. Meanwhile, as military spending continues to decline in Europe and North America, it is on the rise in Asia, growing at 3.3 percent last year, according to SIPRI. Vietnam, in particular, increased its defense spending significantly in the face of the increasing naval assertiveness of its large neighbor. The second-largest military spender in the world, China, has increased its expenditure by 175 percent in real terms over the past decade, the largest increase for the period among the top 15 spenders in the world.

In our globalized and interdependent world, however, trade and security are inseparable. Take the ongoing spat between Tokyo and Beijing over the Senkaku/Diaoyu Islands, for example, in which a territorial dispute saw Japan's auto exports to China plummet 80 percent in just three months last year. The security-economy nexus is one Europe understands all too well: It is indeed the foundation on which the European Union was built. It also forms a solid bedrock for European engagement with Asia: By way of its own experience, Europe is capable of contributing to the gradual construction of rules-based, cooperative security in Asia. The benefits of such cooperation, as well as further regional integration, would extend far beyond continental borders.

A Smart Pivot

Since World War II, Asia’s security stability has largely been based on U.S. guarantees. The United States has acted as an outside underwriter and balancer in the continent just across the Pacific—but today’s shifts in economic weight and the assertiveness that come with them are changing not just the perspectives, but also the stakes. In this context, the United States has commenced a pivot, more delicately termed “rebalancing,” toward Asia. Although President Barack Obama’s plan to focus more on Asia is clearly being hampered by dramatic events in the Middle East that continually clamor for his attention, America remains committed to its strategic reorientation.

In one of her final speeches as secretary of state, Hillary Clinton insisted that the U.S. wanted “Europe to engage more in Asia along with us: to see the continent not only as a market, but as a focus of common strategic engagement.” Following the tides of history, trade is the scout that moves quickly into new territories, generally with further engagement in tow. The EU’s trade relations with Asia already flow strong, and the ongoing bilateral free trade agreement (FTA) negotiations will serve to accelerate this critical stream. Nevertheless, European engagement does not stop at trade.

Herein lies the key to the EU’s reorientation toward Asia, which may at first sight appear illogical: The European Union is not a Pacific power and has never been seen as a great power in Asia. This, precisely and paradoxically, is part of its strength. Europe is engaged in Asia but does not represent a threat. The relations between the two continents are therefore not restricted to the sticky, black-or-white choice between competition and cooperation, but can and have advanced beyond such calculations. In a continent hardwired to focus on hard security and national interests, some might yet question Europe’s relevance. But Europe’s niche lies in outside-the-box thinking, in the kind of smart security that only diplomacy and institutionalized cooperation can bring. Along with its extensive experience in institutional architecture, the old continent has a unique toolbox on offer.

Working From Experience: Regional Integration

Europe’s history has proved that regional integration is a powerful path to a more peaceful coexistence, creating fertile ground for trade to prosper. Clearly, it is also a fruitful area for development within Asia, whose regional network will require strengthening to absorb the shocks that can arise within the energetic continent. In Southeast Asia, one such institution is already firmly in place: the Association of Southeast Asian Nations (ASEAN), which is now almost 50 years old. ASEAN’s institutional architecture bears the closest resemblance to the EU’s structure of any regional organization in the world, making it a natural and like-minded partner for the union.

As ASEAN continues to evolve, striving toward its goal of three-pillared integration—political-military, economic and socio-cultural—by 2015, EU support to the project will be invaluable. Recent experiences have reminded us, however, that experiments in regional integration are anything but effortless. These structural building exercises are novel in world history, and as in any innovation process, each failure represents a lesson learned and a way forward. ASEAN, for one, operates in a particularly challenging environment, where many of its interlocutors prefer traditional bilateralism over multilateralism, to a degree that can be damaging to the regional integration process.

From its side, the EU is working through a range of difficult issues brought front and center by the storm winds of the global economic crisis. These struggles are likely to have a twofold effect on the region-to-region association. On one hand, some of the challenges to regional integration have been exposed. As is the way of European integration, however, these hurdles too will ultimately be overcome, doubtless providing fruitful lessons for future integration blueprints—in Europe and elsewhere.

On the other hand, Europe’s dire economic situation highlights and enhances the need to harness growth. One of the main channels of opportunity is the emerging markets of Asia. Here too, the ASEAN-EU link, which represents a combined market of more than a billion people, is paramount. The bloc of 10 ASEAN member states is the EU's third-largest trading partner outside Europe, with more than $270 billion in goods and services traded in 2011. For ASEAN, the EU is the second-largest trading partner after China and the largest provider of investment by far, averaging some $12 billion annually from 2000 to 2009.

Reinforced relations with ASEAN will also prove critical if the EU is to continue on its path to becoming an official participant in the East Asia Summit. An encouraging sign in the relationship upgrade came last year, when the European Union was finally legally able to sign ASEAN’s Treaty of Amity and Cooperation, and an additional stumbling block was removed from the equation when Myanmar recently shifted to political reforms and opening.

The Security Niche

Beyond the two-way institutional bonds, Europe brings further concrete experience to the table in Eurasian relations. Not too long ago, Europe was a war-torn continent crisscrossed with deep wounds and trenches. It has since then been uniquely successful in reconciling the once-warring parties, making it well-placed to share its conflict resolution experiences. This is one aspect of a second axis to Europe’s smart pivot, which builds on instrumental cooperation in such nontraditional security areas as maritime security, humanitarian assistance, disaster prevention and response, and peacekeeping.

The EU’s first-ever European Security and Defense Policy (ESDP) mission in Asia is a concrete demonstration of Europe’s contribution to strategic stability in Asia. It was Jakarta that formally invited the EU to lead a monitoring mission in Aceh after signing the Helsinki Memorandum of Understanding with the separatist Free Aceh Movement (GAM) in 2005. In cooperation with five ASEAN countries—Thailand, Malaysia, Brunei, the Philippines and Singapore—as well as with Norway and Switzerland, the EU’s Aceh Monitoring Mission monitored the implementation of various aspects of the peace agreement, including disarmament, demobilization and reintegration of GAM fighters and the implementation of the legislative changes in the MOU. While Asia’s circumstances are undeniably very different from Europe’s, the “old” continent’s expertise has already shown its value in the East.

There are many other concrete security areas that connect even more directly to trade. The South China Sea, for example, sees the passage of more than half of the world’s commercial shipping. Asia’s seas and straits are therefore extremely sensitive. One concrete danger, as recognized by Singapore, Malaysia, Indonesia and Thailand in their Malacca Strait Patrol initiative, is piracy. In the adjacent Indian Ocean, the EU has been implementing successful counterpiracy measures since 2008. The lessons from Operation Atalanta are already bearing fruit, leading to joint military operations between the EU and its strategic partner India in the Indian Ocean.

Increasing Flow Rates: Trade Liberalisation

Today’s global crisis has provided irrefutable proof that the link between economic growth and stability is bidirectional: Both for Europe’s advanced economies with their corresponding demographics and for Asia’s extremely young, burgeoning populations, growth is vital. Despite its present difficulties, Europe continues to hold great opportunity as the world’s largest economy, with half a billion consumers in a $16.7 trillion market. Asia is the European Union’s largest trading partner, accounting for 42.5 percent of total trade in 2011. South and East Asia’s exports to the EU may have fallen by 7.2 percent last year, but trade ties remain robust, and the incredible economic potential for both parties is obvious. It is critical to fully grasp that potential, by stepping up trade and investment initiatives and continuing ongoing trade liberalization.

It was Asia’s opening to international trade, first implemented by the Asian tigers and later advanced by China, that propelled Asia forward in its cycle of re-emergence. This opening has continued in the form of a three-dimensional proliferation of trade liberalization agreements: From intraregional agreements whose number—counting both established and developing agreements—has quintupled over the past 12 years, to bilateral agreements with non-Asian nations and larger-scale projects such as the Trans-Pacific Partnership.

Last year’s EU-South Korea FTA, which was the first bilateral EU-Asian FTA to enter into force, was the first of a new generation of free trade agreements. The deal is comprehensive in scope, rapid in implementation and high in ambition: 98.7 percent of EU-Korean commerce is set to be tariff-free after five years. With the EU-Singapore FTA scheduled to enter into force this year, negotiations with Malaysia, India and Vietnam ongoing, and formal negotiations recently commenced with Japan and Thailand, the EU is providing an unequivocal signal of its commitment to free trade and its openness to business with exterior markets. This momentum must continue and be fit securely into a strong, long-term EU strategy in order to harness the economic growth that is so critical to all sides.

The Global Dimension: Shared Interests

Throughout history, the world’s economic heavyweights have carried corresponding and sometimes oversized shares of global political and strategic power. Great powers’ influence works most efficiently when it is enshrined within globally accepted frameworks and channels. Unilateral actions, by actors large and small, can provoke dangerous effects that carry with them the risk of collateral damage. On the other hand, the legitimacy and effectiveness of the world’s global governance structures depend on constant evolution to suit the shape of their participants. Only continuous development can ensure that the world’s stabilizing systems do not fall into disuse and irrelevance; this is another challenge the international community urgently needs to face.

Given China’s growth rates and the size of the population it is bringing along with it on its rise, Europe clearly would like to see a more engaged and constructive role for China in global governance issues. Moreover, Europe is an excellent partner for Beijing, which feels more comfortable on the global front in a G-3 constellation with the Europeans than alone with the United States. In a possible G-2 relationship with the U.S., the hegemon that shaped the current international system, the forces of competition presently prevail over the possible benefits of cooperation. This international panorama sets an optimal scene for the fourth aspect of Euro-Asian engagement, the global dimension.

One of Europe’s unique advantages is its experience in bringing together diverse coalitions of parties to get things done. This instrumental diplomacy and the international legitimacy it brings could suit China well. By identifying key areas of alignment on the global front, China and Europe could intelligently combine their complementary forces to move affairs along swiftly, sending constructive international signals. The seven local emissions-trading schemes poised to launch in China, which drew lessons from the EU’s pioneering initiative, in addition to reports of possible moves toward a Chinese carbon cap in 2016, make climate change an excellent starting point for Sino-European strategic cooperation on the global stage. Such targeted alliances, with their high impact factors, would improve more than just the meteorological climate.

Asian and European interests may also converge in the Middle East. The region is as combustible as ever, but now there are strong signals of circumstantial change. While the U.S. is attempting to shift its focus to the East in light of both domestic energy developments and global economic shifts, Asia is growing ever more dependent on the Middle East for its growing energy needs. According to International Energy Agency forecasts, 90 percent of Middle Eastern oil exports will be destined for Asia by 2035. This kind of dependence can turn toxic without a degree of strategic engagement. With its international focus and presence, Europe, the Middle East’s direct neighbor, is a natural and instrumental partner to Asia.

The Way Ahead: Resolutely Pivoting Forward

As the world’s trade flows consolidate their new directions, political and strategic power must naturally follow. The final destination of these flows, however, is for now an unstable place. As energy pools in Asia, its networks are tested and its unhealed wounds strained. What Asia needs is strategic stability, the kind Europe has achieved through cutting-edge design projects of regional integration unique to this world. This is at the heart of the EU’s smart pivot East, a pivot that commenced with trade but must be sustained and redirected based on strong ingredients of the “old” continent’s history.

Present-day events show with increasing intensity that Europe cannot navel-gaze as the world transforms. It badly needs the growth that Asian markets can provide. It is critical, however, that European nations refrain from building familiar roadblocks on this route to growth. A renationalisation of foreign policy toward the world’s most vibrant actor is understandably tempting, but it will ultimately damage both national and EU interests.

With dynamics unmarred by the disturbances of great power struggles, the EU is well-placed to engage with Asia. The cooperative dynamics described here, which target concrete areas of synergy and instrumental collaborations, both intercontinental and global, stand to bring both continents great returns.

The Américas and China – Alianza del Pacífico

Map of Alianza del Pacífico

La Alianza del Pacífico (Pacific Alliance)

The four countries of the Alianza del Pacífico formally established in June 2011 - México, Colombia, Chile and Perú - together account for 35pc of GDP in América Latina, 50pc of exports from the continent and together their population exceeds 200 million people which gives them a similar magnitude of scale to Brazil (located on the Atlantic side). It also means a new model of regional integration focusing on strengthening institutions to create a regionally integrated trade area, oriented towards the free movement of goods, capital, services and people towards the key markets in ASEAN countries and China. México, by far the largest of the four countries sees an opportunity to diversify its exports from the US to Asia. Currently México sends around 77pc of its exports to the US. But there are considerable opportunities for México's Agricultural-food, footwear and textile sectors to export to Asia. Costa Rica attends the Alianza del Pacífico as an observer, and it is highly possible that it will seek to become a full member in the foreseeable future. Panamá too has expressed interest in joining. In the last 15 years or so in América Latina, several trading blocs have been established from MERCOSUR to ALBA, but the Alianza del Pacífico is different, it is the first to see itself as a truely regional integration project.

Xi Jin Ping's习近平 First Visit to the Américas

On his way back from a trip to the Américas, the new Chinese President Xi Jin ping 习近平 will meet US President Barack Obama, in California on 7-8 June 2013. But first President Xi Jin Ping 习近平will spend a week from 31 May to 6 June visiting México and Costa Rica. It is no coincidence that the Alianza del Pacífico decision to seek further regional integration was formally agreed ahead of Xi Jin Ping's 习近平visit. This visit will provide México's President with the possibility to begin to re-balance the trade relationship with China. Interestingly Xi Jin Ping 习近平will also visit Costa Rica (another potential member of the Alianza del Pacífico) as well as Trinidad and Tobago. The visit to Trinidad and Tobago is significant as it will be the first visit of a President of China to the English-speaking Caribbean. Costa Rica is China 's second largest trading partner in Central America while China is the second largest trading partner of Costa Rica. In recent years, bilateral trade between the two countries has grown rapidly. In June 2007, China and Costa Rica established diplomatic relations. In November 2008, Chinese President Hu Jintao visited Costa Rica and announced the launch of China-Costa Rica free trade negotiations. The China-Costa Rica free trade agreement (FTA) came into force on 1 August 2011. 

Finally, when Xi Jin Ping 习近平 meets the US President, the meeting will not take place in Washington or on the Atlantic coast, instead the symbolism of the meeting taking place in California could not be clearer, it highlights the increasing importance of the Pacific over the Atlantic.

Nicaragua's proposed new canal between the Atlantic and the Pacific

The Nicaraguan government has recently stated publicly that it would like to construct a new canal with links between the Atlantic (Caribbean coast) and the Pacific Ocean. It has already started working with a Chinese company on a canal construction project. 

Map of the Proposed Nicaragua Canal Route

The idea is that the Nicaraguan canal would not be in competition with the Panamá canal, which is currently undergoing full expansion, instead, the Nicaraguan project would be focussed on receiving vessels up to 250,000 metric tons, the locks would be 460 meters big with a capacity to take boats with a depth greater than 20 meters. 

Detailed Map of possible routes for the Nicaragua Canal

The exact route of the Nicaragua canal is still to be determined but some experts believe that the project could be developed using the recommended routes of a multidisciplinary study presented in 2006 by the then President Enrique Bolaños. This study recommended the canal be built on the Caribbean coast of Nicaragua, near Bluefields Bay City, and then go along rivers within Nicaraguan territory and then through the Great Lake of Nicaragua, over a distance of 280km.

This is a mammoth project that will require considerable investment not only to build the Canal, but also in construction of port infrastructure, railway infrastructure and potentially airport runways too. The Nicaraguan government sees the canal as a pipeline for oil crossing from the Caribbean Sea to the Pacific across to the markets in Asia but it will be used for all trade.The Geo-Trade Blog will continue to follow closely developments on the new canal. 

Most interestingly, this mega project adds more evidence that world focus is increasingly moving away from the Atlantic and the focus in the 21st Century is on building the infrastructure and diplomatic ties with the Pacific.

New Trade Routes through the Arctic between Asia and Europe

 

Map of new shipping routes between Asia and Europe Source: The Economist

New Shipping routes between Asia and Europe 

The ice in the Artic is melting away at a record-breaking rate opening up new possibilities for shipping routes. Measurements taken in August 2012 found the levels of Arctic sea ice were at their lowest levels since satellites began measuring the ice in 1979. In 30 to 40 years, it is quite possible that there will not be no summer ice at all. This has led to an increased interest in shipping in the Arctic. New shipping routes opening up due to the melting ice could cut shipping times between Asian and European ports by up to a third. It is possible that the first commercial trade voyage could take place as early as summer 2013 led by China, and the potential value of goods travelling the new Arctic routes could become highly significant.

Xue Long 雪龙 expedition throught the Northern Sea Route 

China has been taking a strong interest in the region over the last decade, building a physical presence and using diplomacy and trade ties to engage in the region. The Chinese ship Xue Long (Snow Dragon) 雪龙 became the first ship to sail the Bering Sea after crushing the ice across the Arctic Ocean in August 2012. The icebreaker sailed all along the Northern Sea Route into the Barents Sea and returned by sailing a straight line from Iceland to the Bering Strait via the North Pole.

China has also set up a multidisciplinary research base with 18 researchers called the Yellow River Station on Svalbard the Norwegian archipelago (See map above) since 2004. The Xue Long 雪龙 voyage in summer 2012 was a culmination of China's research so far and a test of the Northern sea route to check out the feasibility of it becoming a new shipping route through the Artic that could link Asian and European ports. China has also recently commissioned a new 120m icebreaker ship to be built by a company in Finland to further its Arctic research. 

New Asian permanent observers on the Arctic Council in 2013 

The rules of the Arctic Council state that only countries with territories in the Arctic can become full members of the Artic Council. Nevertherless at the biennial meeting of the Council on 15 May 2012 in Sweden, 5 Asian countries: China, Japan, South Korea, Singapore, India and Italy became permanent observers. China, sees itself as a “near-Arctic state”, and had been seeking to become a permanent observer since 2006 (it had previously has its application rejected three times). But this time with Iceland's support and with the possibility of China and Iceland setting up a new Arctic forum, the members of the Arctic Council decided to widen the Council to include their Asian counterparts.

Interestingly, most of the new joiners were already observers on an ad hoc basis. The six new members will not have speaking or voting rights. But they will be able to influence decisions in the council’s six working groups with their expertise, research and potential funding of initiatives in the Arctic. China, for example, has led five marine expeditions in the Arctic since 1999, including the Xue Long 雪龙 voyage in summer 2012. Japan and South Korea may decide to conduct their research with their own icebreakers ships too. The new Asian observers will bring fresh new ideas to the Arctic region and advance the use of new faster trade routes between Asia and Europe over coming years. The Geo-Trade Blog will continue to follow developments in the Arctic.

Trade in the 21st century

Global Trade patterns in the 21st Century are changing

The trade bargains to be had

In an ideal world a big trade deal would be global. This is because gains such as dismantling trade barriers for all is much better than lowering them on a regional basis. But since the Doha round of multilateral trade talks collapsed in 2008, in its place have sprung up three possible regional deals to be done. The first two are of great significance for the future of global trade. The third is of lesser significance.

The Tran-Pacific Partnership (TPP) was launched in June 2005 between 11 Pacific countries, it includes the US, México, Canada, Chile, Perú, Singapore, Malaysia, Brunei, New Zealand and Australia. It is currently into its 16th round of negotiations and the approximate value of trade is around $US1.492bn. Japan and South Korea are not involved in these negotiations as yet but if they were to join the TPP countries would account for around 30pc of global trade in goods and services. Interestingly, the TPP has aspirations to do much more than cut tariffs. Its goal is to develop a far bigger joint rule book, from regulation to competition policy. One study estimated that a deal could raise the region's GDP by more than 1pc.

To compete with the TPP is another regional trade agreement the Regional Comprehensive Economic Partnership (RCEC) that has just been launched in 2012, it includes the 10 ASEAN countries plus China, Japan, India, South Korea, New Zealand and Australia. This deal represents an approximate value of trade around $US1,412bn even without the US' involvement. Hence there are two competing Pacific regional deals to be done: One with China plus Pacific countries and one between Américas countries (US + Canada, México etc) and Asian countries. The risk here is that both these deals could split the world into competing regional blocks where each country would need to decide who the more important business partner is: China or the US. But this could be avoided by making sure that both deals are easily knitted together and easily opened to others by basing the deal on a similar template, avoiding unnecessarily restrictive prescriptions and by creating a set of rules that both China and the US can embrace.

Finally, there is a third smaller agreement on the horizon that is being pushed hard by Europe, called the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU. It was announced in February 2013 but it has not been formally launched. It's estimated value of trade would be less than half of the other two Pacific deals estimated at around $US618bn. It is not entirely clear what the purpose of this deal would be as the US is already engaged in the TPP negotiations. It would appear that Europe is slightly displaced in the 21st Century and is seeking to counter the Pacific regional deals with an Atlantic deal but this sounds rather like wanting to turn the clock back to the 20th century rather than looking forward to the realities of the 21st century.

Why free trade is good

Since the failure of the Doha Round in 2008 the WTO has struggled to rebuild interest in trade liberalisation. But, interestingly, global trade has grown faster than world output since 2010. One of the biggest problems is that decades of talks and treaties in the 20th century have exhausted many of the easy targets of trade liberalisation with the consequence that no new grand achievements are possible without resolution of some of the stickiest of trade issues. Furthermore, protectionism that has been largely held at bay, so far, throughout the economic crisis is beginning to become apparent in some places in the US and Europe. The video below offers a 1951 view of global trade and illustrates why we need free trade agreements: 

 

China and the other BRICS

But the fundamental strain on the multilateral system is the shifting economic balance of power. Emerging markets came into their own early in the Doha round that started in 2001, by rejecting the unappealing offers from the US and Europe. In fact the BRICS have become much more active over the last decade so much so that China's new President Xi Jin Ping习近平 announced that as part of his first foreign trips abroad he would be attending the fifth BRICS Summit on March 26-27 in Durban, South Africa after visiting Russia, Tanzania, and the Republic of Congo. This re-enforced the importance that China is attributing to its relationship with fellow BRIC countries, placing it on on a similar par to its strategic relationships with Russia and Africa.

The main outcome of the BRICS' Leader's Summit was to endorse plans to create a joint foreign exchange reserves pool. This proposal underscores frustrations among the emerging market economies at having to rely on the World Bank and the International Monetary Fund which are seen as reflecting the interests of the US and Europe. The UN Development Programme Report 2013 highlights this point and suggests that emerging economies need their own institutions to support their growth. The Report goes so far as to say that 20th century institutions do not meet the teutonic changes taking place in the so called "South" in the 21st century.

Conclusion

Freer trade and open markets is how the world has always grown and become richer and more developed from ancient times, therefore in the 21st century with the lions' share of growth of middle classes in the emerging world, it is a no brainer for the US and Europe to break down barriers to enhance trade with the emerging economies of the world. In fact the tables have turned and the US and Europe, for the first time in a while, now need the emerging economies as much as the emerging economies once depended on the US and Europe.

Grafene - the new wonder substance for the 21st Century

Grafene - winner of Nobel Prize in 2010

Graphene is one of the finest, most flexible, strongest materials with very high conductivity that exists. It won the Nobel Prize in 2010 and it looks set to revolutionize the future, from major changes in telecommunications, chip manufacturing  and pharmaceuticals. Watch the videos below to get some idea of what Graphene could mean for the 21st Century:

Chinese renminbi 中国人民币 – the new currency of the 21st Century

Chinese renminbi 中国人民币

The Internationalisaltion of the 中国人民币

Before the 2013 Spring Festival 春节, the People's Bank of China named the Singapore branch of the Industrial and Commercial Bank of China the clearing bank for yuan in Singapore. China sees Singapore as its regional partner for the extension of yuan internationalisation. The aim is that the emergence of new offshore centers will expand the existing regime instead of creating competing systems.

So far, Hong Kong has had a good eight-year head start and remains the dominant offshore center of the Chinese currency, handling around 80pc of offshore trading.

Once the clearing mechanism is set up in Singapore, there will be greater transparency in the movement of yuan funds. Singapore will be the gateway for China in the Southeast Asia, which provides a platform for Beijing to facilitate wider use of yuan in trading with Southeast Asian nations.

London and the Chinese renminbi 中国人民币

At present, a cross-border trade settlement scheme is driving liquidity into 人民币 offshore markets. The size of the offshore 人民币 liquidity pool a financial centre can generate, therefore, largely rests on bilateral trading volume. Compared with Hong Kong, which had $283.5bn of bilateral trade with mainland China in 2011, the UK’s trade with China was only worth $58.7bn. Further, the 人民币 is barely used as a trade settlement currency in UK-China trade. 

London is therefore limited by liquidity concerns, even though it hosts deposits of 人民币109bn. This issue will remain a challenge until the 人民币 becomes fully convertible as an international currency. The City could perhaps attract a significant volume of 人民币 resources through its advantage in global foreign exchange trading. But, for as long as the cross-border trade settlement scheme remains the major pillar in China’s 人民币 strategy, the City will not be a become a big player. 

A second stumbling block is the technical difficulty caused by the 人民币 clearing system. In the offshore 人民币 market, up until now only Hong Kong has been thoroughly equipped with both the 人民币 real-time gross settlement system, which allows swift, large fund transactions, and with a人民币 clearing bank, Bank of China (Hong Kong). 

London is lacking this critical 人民币 settlement system. It also doesn’t have a local人民币 clearing bank. Even if the City is in a good position to gear up global demand, the majority of those offshore 人民币 transactions still have to be conducted via Hong Kong. As a result, market practitioners see less benefit in concentrating their 人民币 businesses in London. Multinational corporations can simply shift 人民币 deals to Hong Kong branches (or perhaps to Singapore). In other words, until London has the requisite financial infrastructure, it will struggle to be more competitive. 

Thirdly, and perhaps of most concern, is the differing understanding of Beijing’s 人民币 internationalisation strategy in the Bank of England and the UK Treasury. China’s 人民币 strategy is a policy-driven process, with deep public sector involvement. The most evident example is the role of bilateral currency swap agreements. In Beijing’s view, a bilateral agreement between central banks has profound implications beyond the intrinsic value of the swap itself. It represents a will to jointly develop 人民币 offshore business at the level of officialdom.

However, the Bank of England sees limited value in establishing a line in currency swaps. The 人民币 is not yet fully convertible, and the size of its global offshore market is neither large or liquid. The Bank insists that the private sector should take the initiative. It therefore remains reluctant to get involved in the swap issue. The UK Treasury, on the other hand, is making great efforts to initiate policy dialogue with Beijing and Hong Kong. It wants to push the City towards the front tier of the 人民币 offshore business, and thereby boost the economy through a closer relationship between China and the UK.

While the development of the offshore 人民币 market remains contingent upon China’s financial reform process, whether the Bank of England and the UK Treasury can take collective action will ultimately determine the City’s future in the 人民币 internationalisation game. The Geo-Trade Blog will continue to follow closely new developments on the internationalisaltion of the Chinese renminbi  中国人民币.

China and US Shipping in the Inland Riverways in 21st Century

Yangtze River 长江, one of China's most important riverways

China has just expanded Yangtze River 长江 shipping capacity 

The shipping capacity of the Yangtze River 长江, China's longest river, has just been vastly expanded as a result of a decade-long effort to dredge and deepen the river. The river's main course whose shipping volume has just reached 1.78 billion tonnes in 2012,  four times the amount of 2003, has had an average annual growth rate of 10pc. 

Map of China's main riverways with Yangtze River 长江 below 
and Yellow River 黄河 above 

 

The revamped riverway now allows heavier ships to reach the upstream city of Chongqing 重庆, even during periods of dry weather. Furthermore, the depth of the river's 370-km Chongqing-Yibin stretch has been increased to 2.7 meters from the original 1.8 meters. Heavier ships will now be able to sail on the middle reaches of the river located between the cities of Yichang 宜昌 and Wuhan 武汉 in central China's Hubei Province. Heavy vessels will also be able to cruise on a downstream section of the river located in east China's Jiangsu Province.

But in the US...  

In New Orleans, the industrial Canal Lock connects two of America’s highest-tonnage waterways: the Mississippi River which handles more than 6,000 ocean vessels, 150,000 barges and 500m tonnes of cargo each year, as well as much of its grain, corn and soyabean production and the Gulf Intra-coastal Riverway, which runs from refinery-rich south-eastern Texas to Florida. Ships pass from one to the other via a lock that was built in 1921. Its replacement was authorised in 1956. Construction on the replacement was authorised in 1998, and then stalled by lawsuits. The most optimistic predictions of the Army Corps of Engineers, which maintains America’s inland riverways, see the new lock being completed in 2030.

Map of the inland Riverways in the Mississippi River Basin

As shipping to and from the US increases, so too will the use of these inland riverways, which are in most cases desperately in need of an upgrade.The American Society of Civil Engineers estimates that underinvestment in the US' inland waterways cost American businesses $33 billion in 2010, and that without significantly increased investment those costs could rise to $49 billion (in constant dollars) by 2020.