What We're Reading:
AUGUST 23, 2021
Afghanistan: Taliban to reap $1 trillion mineral wealth. The Taliban have been handed a huge financial and geopolitical edge in relations with the world's biggest powers as the militant group seizes control of Afghanistan for a second time. (DW)
GM workers in Mexico defeat union in first test of U.S. trade deal. Workers at a General Motors Co (GM.N) pickup-truck plant in central Mexico have voted to scrap their collective contract, opening the door for them to oust one of Mexico's largest labor organizations as their union under a new trade deal. (Reuters)
Pacific port problems pile more strain on bustling trade lane. When will this end? That was a WhatsApp message your Supply Lines correspondent received this week from a Hong Kong-based manufacturer who is grappling with the ongoing choke points hampering global supply chains. (Bloomberg)
Innovative development of trade boosts China’s economic growth. The deadly coronavirus Delta variant is sweeping across the world, triggering panic throughout global markets – with several cluster of new infections emerging in China last month, the country swiftly heightened prevention levels which immediately drew attention from Western media outlets. (HSN)
Digital banking growth hits snag with BSP move. The pace of growth of digital banking hits a snag after monetary authorities decided to close the window for the application of new digital banks in the country starting September 1. (Business Mirror)
European Commission Proposes a Carbon Border Adjustment Mechanism (CBAM) for Iron, Steel, Cement, Fertilizers, Aluminum and Electricity. Another much-anticipated and likely controversial proposed regulation would establish a CBAM for certain imports. (Nat Law)
Cambodia partners with Malaysia for cross-border digital money transfers. Cambodia’s central bank is partnering with Malaysia’s Maybank for digital cross-border money transfers – the transfers will initially start with Malaysia to Cambodia, with Cambodia to Malaysia to be added in the future. (PYMNTS)
UK aims to start trade talks with India this year. The United Kingdom said on Tuesday it aims to start negotiations for a trade agreement with India by the end of the year. (Reuters)
WTO says record global trade in goods might be nearing a peak. Global trade in goods might be close to plateauing — albeit at a record level — amid an outlook clouded by regional imbalances and coronavirus outbreaks that slow economic activity, the World Trade Organization said. (Transport Topics)
India’s oil, coal addiction hurdle for speeding up emission goals. The sharp growth in energy demand anticipated over the next decade will make it imperative for India to ensure that oil and coal supplies grow accordingly, as renewable energy on its own may not be able to cater to the entire incremental demand, creating challenges in lowering emissions at the desired pace. (HSN)
Collapse of Afghanistan – operational and compliance considerations. The unprecedented speed of the collapse of the former Afghan central government is a humanitarian tragedy. (Nat Law)
Yet Another Collapse, Kabul Looks a Lot Like Saigon
Chris Kuehl, Ph.D., NACM economist
The withdrawal of U.S. troops from Afghanistan resulted in an unmitigated disaster and has unraveled any progress made in the last 20 years. The fact the U.S. did not anticipate the collapse of the ostensible Afghan government is an example of how badly this region is misunderstood. Widespread shock at the speed of the Taliban offensive shows significant ignorance regarding the ancient structure of Afghan society.
Warlords that dominate the country saw the end of the Afghan government was imminent and understood the U.S. would not intervene. The Taliban threw their support behind the warlords as quickly as possible as those that are first in line to show loyalty get the best deals.
The warlords want control over trade and the personal lives of everyone in that region. Outside countries have mostly failed in trying to change that situation.The Soviets tried to make them into good communists; the British tried to make them good members of the Empire; the U.S. tried to make them change the status of women and to practice democracy—all unsuccessful. Afghan warlords also want money and the majority of that cash comes from the drug trade and a variety of other illicit activities. The Soviets, British and U.S. tried unsuccessfully to destroy the Afghanistan heroin trade. 90% of the world’s heroin comes from the southern provinces of this country. The Taliban made no attempt to disrupt this business in the past and actually profited from it. They will make no effort to disrupt it now.
The Taliban will allow the warlords to continue with their illegal activities as long as they support the bigger aims of the Taliban leadership when it comes to issues such as adherence to Islamic principles from 500 years ago. In the past, these warlords did as they pleased and the powerful ones will do that again. As the Taliban swiftly overthrew the government, there were many familiar faces in the crowd of new leaders. The very same men who once worked with the U.S. are now at the front of the Taliban wave. The power shifted and they did what they always do—changed sides. The analogy has been used to describe Afghanistan many times in the past and still rings true: outsiders are like a hand dipped in the water, as soon as it is removed it is as if it was never there.
Originally, the U.S. sought only to discourage the Taliban from harboring terrorists. That was accomplished fairly early and the threat essentially ended with the death of Osama bin-Laden and the shift in the terrorist agenda. The Islamic State replaced al-Qaeda as the dominant force and turned its attention to the Middle East and North Africa. The U.S. tried to change Afghanistan and that was a fool’s errand from the very start.
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Moderator: Chris Ring, Panelists: D'Ann Johnson, CCE, A-Core Concrete Cutting, Inc. and Eve Sahnow, CCE, OrePac Building Products
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Speaker: Hailey Zureich, zHailey Coaching
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Global Expert Briefings: Trade Credit Risks
Speaker: Jay Tenney, Trade Risk Group
Duration: 30 minutes
Mexico: AMLO’s Congressional Support Eroded
The PRS Group
Voters went to the polls on June 6 for mid-term congressional elections that were widely viewed as a referendum on the presidency of Andrés Manuel López Obrador (popularly known as AMLO), who won a landslide victory at the general election three years ago but has come under heavy criticism for his handling of the COVID-19 pandemic and the related economic difficulties. Although the president’s MORENA and its allies retain an outright majority of seats in the 500-member Chamber of Deputies, the total fell well short of the two-thirds majority required to approve changes to the constitution without some support from the opposition.
Back in February, the lower house approved changes to rules for the power system that would give state-owned generating facilities priority in dispatch order, in place of existing rules that determined the dispatch order on the basis of operating costs. More recently, the administration has been pushing for passage of a separate bill that would authorize the confiscation of permits based on “imminent danger” to energy security or the national economy, in which case the rights and responsibilities attached to the permit would transfer to the state.
Although both pieces of legislation were blocked by federal judges, they eliminated any question about the strength of the president’s statist biases or his willingness to act on them. They also provided a clear indication of the direction that policies affecting key economic sectors would take if opponents had no recourse through the courts, as would be the case if AMLO managed to enshrine his preferences in the constitution.
In the wake of the elections, AMLO suggested that he will reach out to opposition parties to obtain the supermajority needed to make changes to the constitution. Alejandro Morena Cárdenas, the leader of the centrist PRI, caused a stir when he expressed a willingness to discuss cooperation with AMLO. However, there is no indication of a consensus within his party to pursue such a course, and it seems unlikely that a large majority of PRI lawmakers would back an effort to undo liberal reforms implemented less than a decade ago under a PRI-led administration.
The government’s COVID-19 vaccination program is proceeding slowly, but the economy has been showing signs of a strong recovery, with the second quarter performance boosted by strong US demand. The election result may help to soothe the anxieties of investors, but recent volatility in the markets underscores the potential for evidence that the battle against COVID-19 is far from won to undermine confidence. Taking into account the lingering health risks, and the lack of a significant stimulus component in the 2021 budget, which increases last year’s actual spending by just 4.3%, real GDP growth will be held to less than 5% this year.
Demand pressures associated with the economic recovery, higher commodity prices, and the increased cost of manufactured goods stemming from supply-chain issues will sustain inflation above 5% in the near term. On that basis, any monetary policy moves in the coming months are likely to be in the direction of additional tightening that would have negative implications for growth.
The analysis above is taken from the July 2021 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.
Brexit Blow: Setback for UK in Its Efforts to Join Lugano Convention
Simon Pullicino, partner, Mamo TCV Advocates
The European Commission (Commission) representing the European Union (EU) has presented the Swiss Federal Council in its capacity as the Depository of the 2007 Lugano Convention (Convention) with a Note Verbale regarding the United Kingdom's application to accede to the Convention, submitted on 8 April, 2020.
Accession to the Convention would only be possible if the United Kingdom (U.K.) were to secure the approval of all existing Convention members, being the EU, Iceland, Denmark, Norway and Switzerland. Iceland and Switzerland have already given their formal approval, with Norway also indicating it is in favor of U.K. membership.
In a setback for the U.K.'s accession hopes, the Commission's Note Verbale concludes as follows: "The European Commission, representing the European Union, would like to notify to you that the European Union is not in a position to give its consent to invite the United Kingdom to accede to the Lugano Convention."
The Commission's position, as laid out in this communication, will largely come as no surprise. On 4 May, 2021, the Commission had already communicated to the European Parliament and the Council its view that the EU should not give consent to the U.K.'s application. The decision whether or not to approve the U.K.'s application to accede to the Convention rests with the Council, although it is unclear when such a decision is expected to be taken.
Significant setback for the U.K.?
Given that Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of Judgements in Civil and Commercial matters (Brussels Recast) no longer applies to the U.K., accession to the Convention would be the U.K.'s preferred option in alleviating some of the doubts surrounding dispute resolution clauses post-Brexit.
If the U.K. remains unable to accede to the Convention, contracting parties may be required to re-assess their preference for an English choice of court clause, and consider any potential roadblocks in enforcing a U.K. judgement in a Convention jurisdiction.
Relying on an exclusive English choice of court clause remains a reliable option under the 2005 Hague Convention on Choice of Court Agreements (the "Hague Convention") which the U.K. is a member of in its own right as from 1 January, 2021. Admittedly, the Hague Convention has its limitations, principally owing to the fact that it applies solely in the case of exclusive jurisdiction clauses (non-exclusive or asymmetric clauses falling outside the Convention's scope). Furthermore, there is some tension between the EU and the U.K. regarding the precise timing of application, with the EU signaling that only exclusive choice of court agreements entered into after the U.K. acceded as a member in its own right (i.e., from 1st January 2021) rather than from the date of the EU's accession, that is 1st October, 2015, are covered. A position which the U.K. strongly contests.
Looking ahead, the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgements in Civil or Commercial Matters (2019 Hague Convention), which has been billed by some as a "gamechanger" for cross-border dispute resolutions, should operate as a sister convention to the Hague Convention. However, the ratification process for the 2019 Hague Convention is likely to take several years and therefore does not afford any immediate assistance.
International arbitration as an alternative avenue for dispute resolution will continue to prosper, since the framework for the international recognition and enforcement of arbitral awards under the 1958 New York Convention remains entirely unaffected by Brexit.
The recognition and enforcement of U.K. Judgements remains possible outside of the Brussels Recast framework, in accordance with domestic private international rules. However, recognition in this manner is not automatic and is highly dependent on satisfying the particular domestic PIL requirements of any given jurisdiction.
Life outside the Convention should not necessarily require a wholesale revisiting of existing contractual arrangements. Whether parties should reconsider their English choice of court clause is a decision which needs to be looked at holistically (and not merely through the prism of an enforcement scenario), weighing up all the pros and cons, not least bearing in mind the costs and expenses which such an exercise will incur. There may well be a shift towards exclusive English choice of court clauses in lieu of non-exclusive or asymmetric clauses, however, the primacy of English choice of court clauses is not likely to threatened. Parties who have traditionally opted to litigate before the English courts have, in most cases, done so for reasons entirely independent of the U.K.'s previous status as a EU's Member State.
Whether the Commission's decision to block the U.K.'s accession to the Convention rests on sound legal reasoning or is more of a political payback directed at a former Member State, the EU-U.K. cross-border dispute resolution landscape is more uncertain these days. Consequently, obtaining the right advice with respect to the planning, drafting and negotiation of dispute resolution clauses cannot be overemphasized.
Week in Review Editorial Team:
Diana Mota, Editor in Chief and David Anderson, Member Relations