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CWA # 186, 9 November 2019

The World this Week
US-China Tariffs, Beijing's support for Carrie Lam, India's RCEP exit, Iran's nuclear enrichment, and Russia's new Arctic endeavours

  GP Team

This edition of The World This Week looks at the following five issues: new statements and counter statements on US-China trade negotiations, India's exit from the RCEP, Iran's new enrichment, Chinese President's support for Hong Kong's executive and Russia's new Arctic plans

Harini Madhusudan, Sourina Bej, Parikshith Pradeep, Sukanya Bali and Rashmi Ramesh

International Strategic and Security Studies Programme (ISSSP), NIAS


US-China Tariff Rollback: Yes, sorry no…
 
What happened?
Early this week, news reports indicated an interim deal between the US and China on a tariff rollback. The Chinese commerce ministry said the two are reaching an agreement to cancel tariffs in phases. However, by the end of the week, Trump denied these efforts and said: "They'd like to have a rollback... not a complete rollback because they know I won't do it." 
 
Negotiations have dragged on for months now. Last month, Trump announced that the two sides had reached a consensus for a limited "phase one" agreement that could be signed within weeks.
 
What is the background?
The trade dispute between the US and China enters the 16th month. Negotiations have failed to reach an understanding. The US imposed the latest set of trade restrictions in October 2019, placing 28 Chinese companies on its “entity list”; this bans US firms from selling to China. The US claimed that the new restrictions were over China’s human rights abuses against the Uighur Muslims in Xinjiang. China denounced this move as interference on its sovereignty. 
 
What does it mean?
Failure of these talks by 15 December, could result in imposing tariffs on over $500 billion worth of Chinese imports to the US.  Counter-tariffs would likely be applied to nearly all US goods imported into China as well.

Differences remain under two layers. First is the difference within the US, between Donald Trump and his policy negotiators. Second, are in the statements made by the US and the Chinese sides. Every time China makes a public statement, Trump negates it or offer a different perspective. 
  
 
Hong Kong: Xi Jinping’s display of faith in Carrie Lam
 
What happened? 
On 4 November, Xi Jinping, the Chinese President sent a categorical message: the Hong Kong leader Carrie Lam is here to stay. 
 
The Shanghai meeting between the two leaders was the first formal one after the protests started since July. Xi “fully affirmed” the chief executive’s response to the Hong Kong unrest. The affirmation towards Lam coincided with another fateful event on the same say when a Hong Kong student died after falling while trying to get away from tear gas during protests. It has sparked impromptu protests and vigils after another week of political violence in Hong Kong.
 
What is the background? 
In the past weeks, official media has reported a developing political situation for the removal of the Hong Kong leader. Overturning such reports, her government and Xi Jinping denied rumours off drawing plans to replace Lam. In the past four months of continuing protests, Lam has repeatedly admitted responsibility for the political crisis and have even expressed a desire to resign. She has not only been asked to continue in the office, rather the present display of public faith by Xi has strengthened her position. After the announcement by Xi, the Hong Kong leader has gone on to give a speech in the first Parliamentary sessions since July. However, she has been forced to suspend her annual address after being heckled by the opposition. 

What does it mean? 
Firstly, Beijing’s decision to support Lam seems to be a logical stance. Replacing her in a city where many see the hand of China in most government policies and pronouncements would have shown just how much Lam is Beijing’s instrument at hand. Lam may not be the best choice for Xi Jinping, but she is the right choice for now. She is the leader elected by Hong Kong and not planted by China giving her the required democratic representation, and if China is looking to stall the crisis till it draws up a final plan, Carrie Lam would indeed serve as the right façade.
 
Secondly, the Chinese support to Lam, on the one hand, gave the space to Lam but also boosted the morale of the pro-Beijing front in Hong Kong. It is important to note that since July, no Hong Kong officials have lost their jobs which are a sharp contrast with protests elsewhere in the world. In the same time period (past three months), protests in Puerto Rico brought down Governor Ricardo Rosselló in a matter of days; Lebanese Prime Minister Saad Hariri stood down after less than two weeks of unrest, and Chilean President Sebastian Piñera dismissed his whole cabinet in response to widespread violent demonstrations. Instead, Carrie Lam was seen dolling out development schemes for her Greater Bay plans in Hong Kong. Lam stressed her commitment to “one country, two systems” and announced several housing and infrastructure policies for the people.
 
Thirdly this support to Lam would have an impact on the protest, either making it rigorous or slowing down the momentum. However, the most substantial impact has been on the fate of the extradition bill that triggered the months of protests. The Parliamentary session after three months could have been an opportunity to withdraw the bill formally. However, since the opposition stir, the bill has lost its momentum altogether and might never be brought up for a withdrawal later. 
 
 
India refuses to sign the RCEP 

What happened?
On 4 November 2019, India refused to go ahead with the Regional Comprehensive Economic Partnership (RCEP) deal. PM Modi announced India’s decision to exit the deal in the ASEAN+3 gathering, in contrast to the Malappuram Summit in September, where he seemed positive. According to the joint statement, 15 countries are set to sign the deal in 2020. The document states active cooperation by all the RCEP participating countries to accommodate India by resolving its concerns. 
 
What is the background?
Since 2012, India, in its RCEP negotiations, has dwelt on issues including import restrictions and meeting service sector demands. Also, India has flagged concerns regarding data localisation norms and pushed for shifting the base year from 2014 to 2019 to avoid import surges. The deal if signed would have attracted a sizeable share of imports in Indian markets and restricted market regulation norms and import protection schemes.
 
Stakeholders, including grassroots economic contributors, have pointed at possible trade imbalances and inequalities if India signs the deal. It’s trade deficit with 11 RCEP nations and China’s voluminous share in the regional free trade structure hints at future economic setbacks for New Delhi. 
 
What does it mean?
India’s decision might have avoided more harm than good. Cheap diary and steel imports from partner countries such as New Zealand, Australia and China could hamper Indian industries adding to the already existing economic slowdown. Similar agricultural and manufacturing traits across the South East Asian region could lead to additional dumping of products in the Indian Markets. 
 
On the positive note, India's exit provides better chances at import protection, advocated mainly by farmers, industrial class and manufacturing groups. While global competition is considered healthy, India's production capability has not been promising for the free movement of global markets in the country. It provides more considerable ground for import restrictions to suit Indian markets. This safeguards India's anti-dumping policies limiting cheap imports and protecting producer interests. 
 
This calls for a makeover in addressing India’s regional economic architecture and paves the way for tailored bilateral FTA’s with selective goods and services. It could be a better alternative for India in availing global and regional economic presence, curbing significant Chinese influence through the grouping.
 
China has been at the forefront in including India due to its immense market potential. New Delhi must thrive on establishing its economic foothold to protect domestic interests and create a sustainable model for itself.  
 
Iran’s Uranium enrichment: A new phase in the Middle East
 
What happened?
During this week, Iran resumed Uranium gas centrifuge at Fordow plant, undermining the JCPOA Joint Comprehensive Plan of Action 2015. This is the fourth move by Iran, after the failure of JCPOA negotiations, following the unilateral US withdrawal.
 
Tehran announced the doubling of advanced centrifuges. Iran began operation of 60 IR-6 advanced centrifuges, which enrich Uranium 10-time fasters than IR-1, and in contrast to 2015 accord, has switched Fordow from research plant to an active nuclear site. 
 
What is the background?
On the 40th anniversary of the US embassy hostage crisis, Ayatollah Ali Khamenei said: “Those who see negotiation with the US as a solution to every problem are certainly mistaken.” Tensions have increased between the US and Iran since Trump withdrew from the nuclear deal and imposed sanctions unilaterally. 

The US “maximum pressure” campaign directly impacted Iran’s slow-growing-economy and reduced its oil sale drastically. During recent months, there has been a steady increase in tensions between the US and Iran in the Gulf. The US also imposed sanctions on Khamenei’s inner circle including Chief of Staff, head of the judiciary, armed forces general staff and his son. 
 
What does it mean?
The latest move by Iran seems to aim at reaching the other JCPOA signatories (UK, China, France, Germany, EU and Russia) to deliver on the deal. 
This nuclear move may increase Iran’s influence in the Middle East, or destabilize the region by starting a nuclear arms race. Countries like Saudi Arabia has shown interest in investing in nuclear technology. 
 
Russia’s new Arctic pursuits: Beyond the discovery of five Islands
 
What happened?
Recently, Russia discovered five new islands in the Arctic, near the archipelago Novaya Zemlya, off the coast of the mainland. With an average size of 27,700 square meters, these islands were initially glaciers. Undoubtedly, this is a direct outcome of climate change.  The discovery was confirmed by scientists from the Russian Arctic National Park, the Russian Geographical Society and the Ministry of Defense. 
 
What is the background?
In 2016, these islands were first discovered by a young student, who is now an oceanographic measurement service engineer in the Russian Navy. However, the government confirmed the discovery only now, after deploying a team of scientists and geographers to visit the islands and conduct topographical surveys. 
 
Russia’s discovery of islands and other geographical features comes in the wake of rigorous satellite-based studies that are being conducted to understand the changes in the Russian coastline. Between 2015 and 2018, Moscow discovered around thirty capes, islands and bays around Novaya Zemlya. Incidentally, climate change also uncovered a land that was under glaciers for 40000 years in the Canadian Arctic. 
 
What does it mean?
Russia has the longest coastline along the Arctic Ocean. Changes in the Arctic have enabled it to prospect for the navigation in the Northern Sea Route (NSR) and excavate energy resources to improve the economic situation. Simultaneously, Russia is militarizing its portion of the Arctic. It has shown great interest in reviving old Soviet military bases, constructing ports and airstrips, and installing radar and air defense systems.

The NSR passes through the Russian Exclusive Economic Zone, due to which it claims the ownership of the route. It announced in April this year that the transit fee for foreign ships would become costlier. This is opposed by the United States, as it does not adhere to the principle of “freedom of navigation”. 

The discovery of five new islands in the Arctic Ocean has expanded the territory of Russia, and will further support its actions in the region. Due to their proximity to the resource-rich Novaya Zemlya, Russia might scout for resources there, or use them for scientific purposes. While official statement regarding this has not yet been pronounced, the discovery of the islands itself has raised enough speculations. 
 

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