International perspective: August 2022

It has been yet another non-stop, torrid month of geopolitical tension and domestic uncertainty for businesses operating in the China and Asia Pacific region.

Companies are still trying to ascertain their best approach to the Taiwan crisis, a crisis that could potentially affect not only their global supply chains but access to critical parts used in their manufacturing processes.

One CBI member, for example, utilises more than 1,000 individual parts that are sourced from both China and Taiwan. Any escalation in geopolitical tensions or blockade would cause huge disruptions to their business.

And looking beyond the Taiwan Strait, the economic data coming out of the mainland this week shows that consumer and housing demand remains weak, with only 2.7% growth reported where analysts had been hoping for at least 4-5%.

Add to that an unprecedented drought across much of the country and temperatures in excess of 40°c in Sichuan province for more than 10 consecutive days. As a direct consequence we are seeing companies such as Foxconn (a major manufacturer of Apple products) in Chengdu halting production for several days due to the extreme heat.

There has, at least, been some more positive news regarding direct flights between the UK and China and, indeed, China and Europe.

Air China, for example is operating 1-2 flights per week from Beijing and Shanghai direct to London and it is anticipated that there will be future flights from other UK cities (such as Manchester and Edinburgh (tbc)) direct to China announced in the coming weeks.

There has been much speculation regarding the 20^th Party Congress, which is expected to take place in October. It is now almost guaranteed that President Xi Jinping will retain his position as the country’s paramount leader.

Businesses (both domestic and international) will be looking very carefully at the composition of his new team. How many, for example, in either the Standing Committee (7) or the Politburo (25) will be pro-economic reform or likely to attempt to push for an easing of zero-covid restrictions?

The CBI China team has been in active contact with many UK-based companies who are either keen to export directly to China or are simply waiting for an easing of zero-covid restrictions so that they can travel back into market and reinvigorate key personal relationships with agents, suppliers and partners.

At a CBI member breakfast earlier this week it was clear that whilst there will continue to be many challenges and impediments to the broader UK-China political relationship businesses remain resilient and focused on deepening ties and developing opportunities between both countries.

And despite many headline tensions the fact remains that behind the scenes there has been plenty of UK-China business activity, particularly across the country’s vast interior.

The British Ambassador, Caroline Wilson DCMG, has been busy criss-crossing the country over the past month deepening bilateral ties and highlighting the many areas where UK expertise and knowhow can benefit both countries.

There are also planned commercial events and activities in Chongqing, Tianjin and Haikou respectively where John Edwards, the China Trade Commissioner, and his teams will be actively promoting the best of British.

Finally, the CBI is proud to be a founding member of the biannual British Business Awards which will take place on 15 September in Beijing. There is a great diversity of entries this year and many CBI companies will be vying to be the winner in their category.

Given the unprecedented challenges facing us all it is encouraging to see so much bilateral business activity taking place quietly to deepen UK-China relations.

As wildfires and drought hit Europe this summer, Brussels prepares for a difficult winter. With the summer holidays soon coming to an end, a busy autumn awaits. Following the publication of the EU winter preparedness package in July, which focussed on preparing for a disruption of Russian supply of gas, a key priority this autumn will be on continuing to tackle energy supply and security, alongside maintaining support for Ukraine.

In addition, we can expect a busy legislative agenda with proposals on European cyber resilience and artificial intelligence liability, as well as a forced labour products ban, to be published. Along with agreements still to be reached on a revision of the EU ETS and CBAM, we’re getting ready for a busy autumn.

While the debate over the implementation of the Northern Ireland protocol is still ongoing, UK Foreign Secretary Liz Truss recently launched formal dispute proceedings against the EU for delaying the UK’s access to Horizon Europe. Under the Trade and Cooperation Agreement (TCA), the UK’s association to Horizon Europe was agreed in principle for £15 billion, however this has yet to be formally ratified.

Horizon Europe and its predecessor programmes enable unique collaborative opportunities, raise the quality of UK research and innovation, and enable UK businesses and universities to have a voice shaping the international research agenda. The European Commission is expected to respond to the UK by mid-September.

The business community, in both the UK and the EU, continues to see association with Horizon Europe as a key priority. The networks, international partnerships, and opportunities to shape research direction offered by Horizon Europe association are unique and will be extremely difficult to replicate within the UK. Delays have already reduced the attractiveness of UK businesses as partners in collaborative bids and has questioned the value of time and resource businesses spend on the application of funding.

India will take over over the G20 presidency from 1 December 2022 until November 2023. After missing out on two early presidencies, India would be at the steering wheel and host the leader’s summit in Delhi next year.

In the run-up to the presidency, India has set up a secretariat headed by an ex-foreign secretary and changed its key interlocutor from Commerce Minister Piyush Goyal to ex-Niti Ayog CEO, Amitabh Kant. The G20 is an important multilateral forum for economic cooperation between developed and developing nations, which together constitute 85% of global GDP and 75% of international trade. India would also host the G20 secretariat during its year-long presidency, and the workstream is divided into the Sherpa track and the Finance track.

India is likely to host 100 meetings under the Sherpa track on employment, health, digital economy, trade, investment, industry, environment, climate, energy, anti-corruption, agriculture, tourism, culture, socio-economic development, education, and women empowerment. The finance track of discussions is likely to see around 40 meetings related to international financial architecture, financial inclusion and sustainable finance, financing for infrastructure, climate finance and tax matters.

There will be further room of nearly 100 other meetings for academia, cultural showcases, workshops and seminars promoting socio-cultural diversity of India. This means a packed year ahead for the hospitality sector, civil aviation and professionals engaged in the MICE (meetings, incentives, conferences and exhibitions).

It will be crucial for India to steer the global economic dialogue platform in a manner which is most beneficial for the region, and the country in decades to come. The global leaders from the G20 countries already recognise India’s growing importance in Southeast Asia and in overall world order. India is already in some form of bilateral, plurilateral or multilateral dialogue with most of G20, except for China.

The UK and India completed a latest round of FTA negotiations on 29 July 2022. This involved detailed draft treaty text discussion over 85 separate sessions and 15 policy areas including SME, gender, innovation, customs, anti-corruption etc.

The only FTA that India has with a G7 country is with Japan. The UK-India FTA is expected to significantly boost bilateral relations. Indian and UK officials continue to work intensively throughout the summer towards the target to conclude the FTA by the Diwali deadline.

According to the data from the UK government, the total trade in goods and services between the UK and India was nearly £24 billion in the four quarters to the end of Q4 2021, an increase of about 29% from the four quarters to the end of Q4 2020.

India is one of the primary sources of the FDI in the UK and was the UK’s 12th largest trading partner accounting for 1.9% of total UK trade. The UK has a total trade deficit of £7.5 billion with India. Non-ferrous metal is the main export item to India whereas clothing is the main import item from India. In this year, India concluded FTAs with Australia and the UAE in a record time and has started FTA talks with the EU, Canada and the UK.

The CBI continues to push for members’ concerns and is lobbying for an ambitious trade deal.

The Indian government has withdrawn the Personal Data Protection Bill from Parliament as it considers a 'comprehensive legal framework' to regulate the online space, including bringing separate laws on data privacy, the overall Internet ecosystem, cybersecurity, telecom regulations, and harnessing non-personal data to boost innovation in the country.

Why is this development significant?

The government has taken this step after nearly four years of the Bill being in the works. It had gone through multiple iterations, including a review by a Joint Committee of Parliament (JCP), and faced major push back from a range of stakeholders including big tech companies such as Facebook and Google, and privacy and civil society activists.

The tech companies had questioned a proposed provision in the Bill called data localisation, under which it would have been mandatory for companies to store a copy of certain sensitive personal data within India, and the export of undefined “critical” personal data from the country would be prohibited. This has also been a long standing ask of our members in India.

The delays in the Bill had been criticised by several stakeholders, who had pointed out that it was a matter of concern that India, one of the world’s largest Internet markets, did not have a basic framework to protect people’s privacy.

Why has the Bill been withdrawn?

A data protection law for India has been in the works since 2018, when a panel led by Justice Srikrishna, a retired judge of the Supreme Court, drew up a draft version of a Bill. The draft was reviewed by the JCP, which submitted its recommendations along with a draft Bill in November 2021.

In a note circulated to Members of Parliament, Union IT Minister Ashwini Vaishnav explained the reason behind the withdrawal of the Bill: “The Personal Data Protection Bill, 2019 was deliberated in detail by the Joint Committee of Parliament. 81 amendments were proposed, and 12 recommendations were made towards a comprehensive legal framework on the digital ecosystem. Considering the report of the JCP, a comprehensive legal framework is being worked upon. Hence, in the circumstances, it is proposed to withdraw ‘The Personal Data Protection Bill, 2019’ and present a new Bill that fits into the comprehensive legal framework.”

The Bill was also seen as being too “compliance intensive” by start-ups of the country, The Indian Express had reported earlier. According to government sources, the revamped Bill will be much easier to comply with, especially for startups. This is expected to be tabled in the upcoming winter session of the Indian Parliament.