International perspective: March

The Omicron variant of COVID-19 has been spreading rapidly across China with some 50 million in some form of lockdown across 27 provinces.

The China team has been unable to leave Beijing since early December. And further lockdowns have been announced in Shenzhen (the main technology hub and factory of China) and in Shanghai.

This is important because both are significant ports, which will have a direct effect on container pricing and wider shipping. We will also likely see further inflationary pressures if factories are shut for long periods, due to supply chain constraints.

Whilst many had hoped that the completion of the Paralympics in mid-March and the annual Two Sessions meeting a few days later would mark a relaxing of travel restrictions, unfortunately the opposite seems to be the case.

That said, there was some rare good international travel news on Saturday 19 March with Virgin Airlines making the first direct flight between London and Shanghai since Christmas Eve 2020.

The CBI has been consistently lobbying for the resumption of direct flights for more than a year now and if the trial period is completed successfully then there could be the return of direct air travel within the next month or so.

We are also detecting a clear shift in China’s Zero-Covid strategy. The new ‘dynamic Covid response’ policy involves more selected lockdowns, less quarantining and more power given to regional authorities to not only contain potential outbreaks but also reduce the social and economic impact to local communities.

Might this lead to an easing of the current three-week quarantine protocols for international arrivals into China? We certainly hope that China might soon adjust to ultimately living with the virus.

The tragic war in Ukraine barely gets a mention in China with the main state TV and media channels following the Russian line that NATO and Western pressure forced President Putin to mount ‘special military operations’ in Europe’s second largest country.

Given the complete bifurcation of China’s internet (since around 2005 onwards) only those citizens with VPNs or other special software can access the international internet and more open and unbiased news and information platforms.

However, the impact of the invasion of Ukraine is already being felt in China with fuel and energy prices soaring and CATL, the country’s largest battery manufacturer, having to deny claims that it has already hiked the price of its batteries (essential for the Electric Vehicle (EV) market) twice since the end of 2021.

With both Russia and Ukraine accounting for close to 30% of the world’s wheat and grain production China has also started to stockpile food stocks and diversify its agribusiness supply chains.

All eyes have been on Brussels with NATO, G7 and European Council summits having taken place on 24 and 25 March. Discussions have focussed on continuing to demonstrate unity against Russia and solidarity with Ukraine. Leaders did not agree on any new sanctions against Moscow but committed to working together to close loopholes.

The other big question on the agenda for EU leaders was how to deal with rising electricity and gas prices. Whilst the EU has demonstrated unity over the past weeks, tensions are rising when it comes to energy. Spain is pushing for the EU to intervene in energy markets, whereas Germany and Netherlands are opposed to more interventionist measures. This comes after the European Commission published its strategy to reduce dependence on Russian energy, and shield businesses and consumers from the brunt of price volatility. The strategy aims to reduce EU demand for Russian gas by two thirds before the end of the year, and by 2030 be fully dependent from Russian gas.

Finally, U.S. President Joe Biden was invited to attend the EU Summit, delivering a joint statement with European Commission President von der Leyen in which they demonstrated commitment to continued coordinated transatlantic efforts to support the Ukrainian people, and impose severe costs on Russia. The EU and US also agreed a deal on liquified natural gas, in order to reduce Europe's reliance on Russian energy.

The CBI joined forces with economiesuisse to host the first the new Bilateral Trade and Investment Council on 16 March. The new council is welcomed by both the UK and Swiss governments: Ranil Jayawardena, International Trade Minister, said that the creation of the council would help to boost trade links between the UK and Switzerland by “helping drive jobs, growth and economic prosperity across Britain”

Jointly chaired by Lord Bilimoria, CBI President and Christoph Mäder, Chair of economiesuisse, businesses from both organisations met with Swiss and UK government figures to kickstart discussions and shape the ambitions of both countries going into the negotiations. The council discussed the current trade barriers and opportunities for improving trade between the UK and Switzerland. If you have any queries about the UK-Swiss Bilateral Trade and Investment Council, get in touch with Nicola.

The B7 brings together the business federations of the G7 countries to shape the G7 process. As a member of the B7, the CBI will continue to play a leading role in shaping the business contribution to the G7, as business demonstrates leadership on the global stage. However, we need your help! 

The BDI, representing German business, will be holding this year’s B7 summit ahead of the G7 Summit in June. In the run up to the summit, the CBI will be working with our sister federations to shape business recommendations to G7 leaders across five policy areas: climate, digital, health, infrastructure partnerships and trade. If you are interested in getting involved with one of the policy areas, get in touch.

India witnessed political activity with phased assembly elections in five key states: Uttar Pradesh (UP), Manipur, Uttarakhand, Goa and Punjab.

India's ruling Bharatiya Janata Party (BJP) claimed victory in four key state elections including the country's most populous state, Uttar Pradesh. The BJP also won elections in the states of Manipur, Uttarakhand, and Goa.

The results of the five assembly elections are a further consolidation of momentous changes in Indian politics over the last decade. The results in UP are a big win for the BJP, further consolidating its power and ideological hegemony over Indian politics. In the tough economic times globally, political stability in India is a balancing factor for businesses to continue to push for growth.

On Thursday 17 March, the Republic of India and the United Kingdom concluded the second round of talks for an India-UK Free Trade Agreement (FTA).

For this round of negotiations, draft treaty text was shared and discussed across most chapters that will make up the agreement. Technical experts from both sides came together for discussions in 64 separate sessions covering 26 policy areas. The third round of negotiations is due to be hosted by India, starting on 11 April 2022.

The CBI team hosted a UK-India FTA roundtable member discussion with Harjinder Kang, the UK FTA Chief Negotiator, on 3 March for insights into DIT’s approach for the upcoming negotiations with India.

India abstained from voting against Russia when the UN general assembly debated the invasion, saying merely that it was “deeply disturbed”, and that dialogue is the only answer. India has indicated it intends to maintain a neutral stance driven by a two-fold agenda of leaving the chance of resolution through the diplomatic corridor open and focusing on the safe evacuation of Indian students and nationals in Ukraine.

India and Russia have a long history of strong diplomatic, military, cultural and economic ties. Russia continues to be India's largest arms supplier even though its share has dropped to 49% from 70% due to India's decision to diversify its portfolio and boost domestic defence manufacturing. Also, Russia is supplying equipment like the S-400 missile defence system which gives India crucial strategic deterrence against China and Pakistan, and that is the reason why it went ahead with the order despite threats of looming US sanctions.

Economically speaking, consumers in metro cities will feel the pain from rising prices for food and petrol. Hundreds of Indian students were stranded in the Ukrainian city of Sumi as it came under attack. Despite India’s limited exposure, the ongoing supply chain disruptions and trade shock could impact the Indian economy.

India’s trade comprises only 1% oil imports from Russia, but there could be a spill over impact in the form of high inflation and sluggish growth.

Tania Kumar, Head of Decarbonisation at the CBI, visited India from 21-25 March. Together with the CBI India team, she met businesses and government to understand key priorities, opportunities, and challenges in the green transition. CBI India, in association with British Business Group Delhi, also hosted a panel discussion on the race to zero emissions.

The panel discussion found that members in the mobility, aerospace and defence sectors highlighted work on carbon offsets, hydrogen, infrastructure, and mobility but also the market access issues related to manufacturing and predictability of contracts.

Opportunities such as knowledge sharing and technology transfer will be key going forward and UK businesses have a clear opportunity to lead by example.

Finally, there is a push from the Indian government to start reporting on business sustainability measures and a regulatory compliance framework is a work in progress to create a enabling environment for businesses.

The CBI Washington office spent three days in Minneapolis, Minnesota as part of its agenda to increase engagement with state and local governments on trade and investment issues. The team met with the governor's office, held a roundtable with the Minnesota state legislature, and also had discussions with relevant business and chamber representatives.

The CBI continues to engage with members and with UK government officials on the best possible negotiating strategy for the UK's trade relationships with Canada and Mexico. If your business has concerns about either relationship or the contents of a new trade deal, please contact John Bleed.

CBI Washington is pleased to see a resolution of the Section 232 steel and aluminium tariff issue between the US and the UK at the recent trade dialogue held in Baltimore. This represents a positive step in the direction for the relationship and enables both sides to focus on areas of mutual benefit, such as the digital economy, setting standards for global services trade, and boosting supply chain security post pandemic.