Perch’s Perspective: 1 May 2020 Week in Review

Blog / Weekly Review

Perch’s Perspective: 1 May 2020 Week in Review

Who said globalization was dead? The European Union and Mexico took a critical step forward in upgrading their 2000 free trade agreement (FTA) this week. The EU’s Trade Commissioner and Mexico’s Minister of Economy overcame the last major stumbling block remaining in their negotiations: defining the “exact scope of public procurement markets.” Reportedly, Mexico is agreeing to let EU companies engage directly with at least 14 of Mexico’s 32 states rather than forcing procurement to take place strictly at the federal level. 

What it means: Just because the idea of globalization is dead does not mean that economic integration is going to pause or even reverse itself. When we talk about globalization receding, we mean smaller networks of like-minded countries or blocs engaging more deeply even as cooperation and integration at the truly global level stalls. That is exactly what is happening here between Mexico and the European Union. This by no means a done deal, but it is an important milestone in what has been a 4-year negotiation to broaden the current FTA between the two sides beyond simply industrial products to services, investment, and agricultural products. The deal could potentially align the EU and Mexico on regulatory frameworks, intellectual property rules, and environmental considerations. The EU needs new markets now that its access to China is increasingly tenuous, and Mexico needs to diversify its economy as much as possible from its dependence on the US. It makes a good deal of sense for Brussels and Mexico City to be paddling in the same direction.

India embraces Nokia and open RAN. Bharti Airtel, India’s third largest telecom operator in terms of market share, inked two significant deals this week. On Tuesday, Nokia announced it had signed a deal with Artel to deploy over 300,000 radio units across several spectrum bands throughout India to boost efficiency in 2G, 3G, and 4G networks, while also laying the groundwork for future potential 5G deployments. The deal is estimated to be worth about $1 billion. Yesterday, Altiostar announced that Airtel had deployed its open virtual radio access network (vRAN) solution, reportedly making Airtel India’s the first telecom operator in India to deploy a vRAN-based 4G network solution. 

What it means: For Nokia, the news softens the sting of its failure this week to win any 5G contracts with China Mobile, China Telecom, and China Unicom as part of China Mobile’s phase II 5G wireless network roll-out. While Nokia tried to put lipstick on that pig, and while Ericsson patted itself on the back for winning a contract to deploy its equipment in 5 Chinese provinces, the real news in that development was that 86 percent of the contracts went to Huawei and ZTE, no doubt a result of the pressure both Chinese companies have come under in the world due to suspicions around Chinese-made 5G technology. What is happening in China and in 5G developments globally is inextricably linked to India’s decision to explicitly embrace non-Chinese companies for telecom equipment and to push for open vRAN technology. It makes the world’s second largest telecom market a laboratory for open RAN going forward and is the clearest signal yet that China’s position as a global leader in 5G may be short-lived.

A U.S.-Saudi Spat. According to a bombshell Reuters report, U.S. President Donald Trump reportedly told Saudi Arabian Crown Prince Mohammed bin Salman (MbS) that if Saudi Arabia did not use its influence to get OPEC to cut oil production, the U.S.-Saudi alliance would be in jeopardy. The report, which cites four different unnamed sources, also said that MbS was so taken aback by the threat that he immediately ordered his own aides out of the room and continued the conversation with President Trump in private. Roughly 10 days later, Saudi Arabia led the way in getting OPEC, Russia, and other oil export nations in cutting production global production by almost 10 million bpd.

What it means: The fundamentals of this relationship have weakened considerably. The US is no longer dependent on importing Saudi oil. The US is also desperately trying to extricate itself from the Middle East so it can focus on great power competition with China and Russia. (President Trump threatened to withdraw troops from Afghanistan for the umpteenth time earlier this week as well.) The US has not been able to withdraw in part because its allies in this part of the world are not helping take care of business: Saudi Arabia has proven unable to contain Iranian influence in the region and it played a fairly paltry role in fighting the Islamic State. MbS also won’t forget a threat like this, especially coming from a US government that was and is supposed to be so friendly. 

China threatens Australia. China’s ambassador to Australia told the Australian Financial Review that he disapproved of Australia “pandering” to political forces in the US and that the Chinese public was so frustrated with Australia’s behavior that it might stop traveling to the country as tourists or stop importing Australian wine and beef. Australia’s Secretary of Australia’s Department of Foreign Affairs and Trade (DFAT) called the ambassador to protest what it read as Chinese government threat to boycott Australian exports. The Chinese Embassy in Australia proceeded to publish not just a “lightly edited” transcript of the controversial interview but also some of the contents of the call with the Australian Secretary. DFAT in return announced its disappointment that China would release “purported details” of an official diplomatic exchange between the two countries.

What it means: Canadian readers will no doubt know from experience that China is not afraid of following through on a threat like this: China stopped importing canola from some Canadian producers after the arrest of Huawei’s CFO on Canadian territory back in 2018. China is not happy with Australia because Canberra is calling for an independent, global review of how COVID-19 became a global pandemic. (China would not come out looking good in such a review and therefore would rather everyone focus on how many masks they are making.) The spat is a significant degradation of the Australia-China relationship, as the Morrison government has tried in the past to balance between its discomfort with Chinese behavior while also keeping up a “comprehensive strategic partnership.”

Honorable Mention

Argentina downplayed its announcement last week that it was not interested in negotiating any new trade deals as part of MERCOSUR; Argentina’s Foreign Minister said Argentina was “not abandoning” the bloc.

Chile and Argentina elected to defuse a potentially serious diplomatic spat after Argentina’s President Alberto Fernández met with and encouraged Chilean political opposition leaders to “return to power.”

Brazilian aircraft manufacturer Embraer accused Boeing of “wrongfully terminating” a $4.2 billion deal that would have given Boeing an 80 percent stake in Embraer’s commercial jet unit and that it would “pursue all remedies for the damages incurred.

The locust situation in East Africa is set to worsen considerably; Kenya faces particularly dire circumstances as it is at the beginning of the rainy season, meaning potentially huge swarms in June and July; the situation in Ethiopia, Saudi Arabia, Iran, and Pakistan bears close watching.

Egyptian President Abdel Fattah al-Sisi urged Egyptian farmers to harvest as much of their crop as possible despite COVID-19; al-Sisi is also reportedly looking at increasing Egyptian wheat imports to boost Egyptian reserves due to “uncertainty until this coming December.”

Norway announced it was unilaterally cutting oil production by 250,000 bpd in June and 134,000 bpd for the rest of 2020, while also delaying production at several new fields until 2021. 

Even though supply chains are in distress and there are global shortages of medical equipment and other important products, Europeans are still getting their cocaine.

The U.S. Navy conducted two separate freedom of navigation operations in the South China Sea this week; China accused the US of violating “China’s sovereignty and security interests.”

Japan plans to extend its current state of emergency for at least a month; it was previously set to expire on May 6.

India, the fastest growing oil consumer in the world, will fill up its reserve capacity by the third week of May.

Vietnam, the world’s third largest rice exporter in 2019, will remove quotas imposed on rice exports in March due to self-sufficiency concerns related to COVID-19 disruptions.