International perspective: November 2022

Back on the world stage

At the recent G20 Summit in Bali, Indonesia, many new and established global leaders had the chance to meet with China’s Xi Jinping. Unfortunately, the UK PM, Rishi Sunak, was not one of them, due to ‘scheduling issues’ caused by an urgent incident relating to the war in Ukraine.

Geopolitical issues and disagreements have dominated the year, whether at regional summits in Asia Pacific or at the COP27 in Egypt. Nowhere have these come to a head more so than in the world’s increasingly tetchy relationship with China.

The 20^th Party Congress is finally over and after a year of domestically driven policy the Xi leadership has cautiously begun to re-engage with the rest of the world.

Business Matters

German Chancellor Scholtz’s business delegation spent less than a day in Beijing in early November yet exemplified the role that business can play in deepening bilateral relations.

Regardless of the rights and wrongs of the trip having business leaders in face-to-face discussion (albeit for only a few hours) with one another after three years of isolation has brought real energy and optimism to the broader Sino-German business relationship.

Looking ahead to 2023 the CBI Beijing office can play a pivotal role, along with its in-country partners, in recalibrating the UK-China commercial partnership. As Secretariat of the UK-China Business Council, a high-level bilateral commercial dialogue set up in 2018 under former PM Theresa May, we are well positioned to convene and coax both sides back into practical discussions.

And if vital diplomatic and commercial platforms such as the Economic and Financial Dialogue (EFD) and the Joint Economic Trade Committees (JETCOs) are reinstated next year there will be plenty of opportunities both in London and Beijing to get back into the practical business of what Churchill is said to have described as ‘jaw jaw’ not ‘war war’. (*)

Zero-Covid – more pain to come

However, to start this process the zero-covid policies that have been in place for three years need to be lifted.

There have been small, positive signs (reduced quarantine, more international flights, less testing, less draconian implementation of rules) that the Chinese Communist Party (CCP) leadership is moving towards an overall easing of regulations and opening.

Yet it has been slow to vaccinate the elderly and focused its attention on covid containment and eradication rather than health management leading to a catastrophic hit to the economy and consumer confidence.

Opening up?

An aggressive and undiplomatic ‘wolf warrior’ diplomacy and tightening of Marxist ideology have characterized China’s trajectory in 2022.

This will hopefully give way to a return to economic opening up and increased international engagement as covid restrictions ease.

After three years of semi-lockdown thanks to the country’s ruinous zero-covid policies and now more than a year of confinement in Beijing I remain cautiously optimistic that the country will slowly open in the first quarter of 2023.

This shift cannot come a moment too soon, not only for China but also the world.

(*) Winston Churchill’s actual words were: ‘Meeting jaw to jaw is better than war’

European and UK Parliaments come together to discuss the EU-UK relationship

The second meeting of the EU-UK Parliamentary Partnership Assembly (PPA) took place in London in early November, bringing together Members of both the UK and European Parliaments to discuss the latest developments in the EU-UK relationship. Discussions covered everything from energy cooperation and research to the implementation of the Trade and Cooperation Agreement (TCA), and the Northern Ireland Protocol. Despite ongoing tensions, there was broad agreement on the need for greater cooperation, dialogue, and, above all else, trust. Established under the TCA, the PPA is broadly a forum for discussion, however members may make recommendations to the Partnership Council, and we are seeing clear interest from MPs and MEPs to be more involved in TCA discussions. 

On energy matters, both sides recognised that even after Brexit energy cooperation is stronger than ever and that, given current geopolitical and economic concerns, it was agreed that stronger cooperation is not only extremely necessary but also mutually beneficial. On the Northern Ireland Protocol, both sides made clear their wish to reach an agreement as fast as possible and move on to more pressing issues, with hopes that this can be done ahead of the 25th anniversary of the Good Friday Agreement. Nevertheless, the EU side reaffirmed their position that until negotiations on the Protocol are concluded, certain commitments agreed under the TCA will not see the light of day, e.g. Horizon Europe.

CBI is continuing to work with stakeholders on both sides of the channel, calling for a negotiated solution in Northern Ireland. Playing a key role in the UK TCA Domestic Advisory Group (DAG), we will continue to push forward key priorities for the EU-UK relationship.

No hope for a reform of the Energy Charter Treaty?

Another energy challenge seems to be on the horizon this winter. EU Countries failed to agree on the European Commission’s negotiating mandate to reform the Energy Charter Treaty (ECT). Moreover, in the past months, an increasing number of participating countries declared their intention to leave the Treaty as they viewed it as no longer in line with their climate ambition. Some of the major European economies, like Germany and France were among them.

The Treaty allows fossil fuel companies to act against governments when their investments or profits are endangered by legislation. Earlier this summer, both the European Commission and the UK backed a reform of the Treaty, allowing them to phase out the protection to existing fossil fuels investments in 10 years. However, if a country quits the agreement, Treaty rules will still apply for 20 years. Without the EU on its side, the UK will soon need to decide how to proceed. UK businesses may be subjected to further instability when it comes to their investments and decarbonisation goals, which are already constrained by the energy price crisis. CBI is ready to engage with members to understand potential concerns and to take further action in the domestic debate on the matter. 

G20 leaders meet in Bali amidst ongoing geopolitical tensions

G20 leaders met in Bali on 15^th – 16^th November for a highly anticipated summit to discuss a number of global challenges, including climate change and energy security, soaring food prices, supply chain issues, and digital transformation. However front and centre of everyone’s mind was the ongoing Russian war in Ukraine, and Russia’s participation in the G20.

G20 leaders held a discussion on the war in Ukraine, where their national positions on the conflict were reiterated. In general, the majority of members condemned the war in Ukraine and the Russian violence but concluded that the G20 is not the right forum to solve security issues. Nonetheless the widespread impact the war in Ukraine is having on the global economy was of consensus, particularly on food and energy security. On energy security, the group underlined the urgency to transform and diversify energy systems, and strengthen energy security and market stability, doing so at affordable prices. Furthermore, leaders recalled and urged their countries to fulfil the agreed commitment to jointly mobilise $100 billion per year by 2020 and through to 2025 to climate finance. G20 leaders agreed to remain in line with the Paris Agreement and therefore within the 1.5 degrees Celsius of global warming of the Paris Agreement.

CBI attended the B20 summit, which brought together the most important business organisation in each of the B20 nations alongside a range of industry and government stakeholders, which provided an opportunity to build on existing partnerships and trading relationships with our sister organisations. We look forward to working with our sister federation in India, CII, as they take over the Presidency of the B20.

UK and India Prime Ministers meet during the G20 Summit

Prime Minister Rishi Sunak met his Indian counterpart Narendra Modi on the side-lines of the G20 summit in Bali, where the two leaders discussed ways to boost bilateral trade.

This meeting comes at a time of strategic importance, when both UK and India missed the Diwali timeline to agree the FTA and are still negotiating best deals for their domestic front. While majority of the substantive negotiation over the FTA were completed in October, it is unlikely that we will see a deal this side of the Christmas.

PM Sunak recently made remarks that the UK government is committed to working as quickly as possible towards a successful conclusion of the ongoing FTA talks with India. The structured form of negotiations will be back for the follow-up rounds and to close the remaining chapters.

PM Sunak also said that he would not sacrifice quality for speed because it’s important to take the time to get trade deals right. The CBI had actively lobbied with government and businesses through the summer and raised business concerns to the DIT Secretary of State regarding a deal that delivers for businesses and growth rather than on pace.

Further, the UK and India launched Youth Mobility Partnership Scheme to scale up 3000 new reciprocal visa offers annually for under-30’s young professionals. India holds the G-20 Presidency for 2023 and CBI looks ahead to put the businesses at the centre of the upcoming B20 discussions in India.

India at COP27

Environment Minister Bhupendra Yadav highlighted India’s position at the COP27 in Egypt – that a ‘just transition’ could not mean decarbonisation for all countries, but a gradual low-carbon development strategy without risking food and energy security, growth and employment. 

India hailed the setting-up of the loss and damage financial facility (to assist developing countries in responding to loss and damage from climate-linked disasters) and the inclusion of issues regarding sustainable lifestyle (and patterns of production).

At Sharm El-Sheikh, a proposal by India and other developing countries to inject more ambition into the fossil-fuel reduction strategy did not make it to the final agreement. This was expected given the turn to coal in many countries in the aftermath of the Ukraine war. Further, India amongst Russia and China were notably absent from signing of the Global Methane Pledge, aimed at reducing 30% methane emissions by 2030.

India has demonstrated that its leading by its actions on the ground with its national energy shift towards renewables. India will require $223 billion investment to meet its goal of wind and solar capacity installations by 2030 in its updated NDC, India has committed to 50 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.

US Midterm Election Update

With the dust finally settling from the 2022 midterms in the US, the Biden administration now faces a challenging environment in Congress that will impact its policy agenda – albeit not as challenging as experts anticipated.

The election was, by all accounts, a major underperformance for Republicans across the board. Given that the President’s party usually loses ground in midterm elections, Republicans had hoped to retake control of both the House of Representatives by a significant margin and flip enough seats in the Senate to break the current 50-50 tie. But while the GOP is projected to take back control of the House, it will be with a much smaller majority than expected (between 5-8 seats). They have also lost their chance at retaking the Senate. Out of the four Senate races that looked to be prime for Republican pick-ups – Arizona, Pennsylvania, Nevada, and Georgia – Republicans lost the first three and are facing a steep challenge in Georgia, which will be decided over a run-off in early December. Democrats also performed extremely well at the state level, running the table in key gubernatorial elections like Arizona, Pennsylvania, Michigan, and New York and flipping the state house in Pennsylvania.

Democrats owe this result to the fact that they held strong in locations and with demographic groups where they were expected to lose support, such as the the suburbs of northern Virginia and the exurban areas of Michigan and Pennsylvania. Republicans struggled due to the issue of candidate quality, as many nominees for key races at the top of the ticket for Senate seats and Governor spots were hand-picked by former President Trump during the primary and struggled to recruit moderates or independents to their side. Almost all of them endorsed his conspiracies over the 2020 election results. Additionally, wedge issues like abortion likely motivated Democrats to turn out in higher numbers than usual.

The one bright spot for Republicans was the performance of Florida Governor Ron DeSantis, who won re-election by almost 20 points and an astounding 1.5 million votes. He managed to increased his margin of victory from 2018 and has built a relatively diverse coalition of support - namely with Hispanic voters in Miami-Dade County (which he won by 14%). The fact that Governor DeSantis did so well while Mr. Trump's handpicked candidates did so poorly will no doubt spark major internal GOP division over who the Republican nominee should be for President in 2024.

Brazilian Election Update

Elsewhere in the Western Hemisphere, Brazil also held a major federal election run-off on October 30, in which the leftist former President Luiz Inácio Lula da Silva narrowly defeated right-wing incumbent president Jair Bolsonaro by a margin of 50.9%-49.1%. Lula had been imprisoned in 2018 for taking bribes in exchange for access to Brazilian state oil company Petrobras, but his jail sentence was annulled after just 18 months. He returned to the public square campaigning as a “unity candidate” to counter Bolsonaro’s divisive leadership style while being bolstered by public nostalgia from his successful time as president from 2003-2010, which oversaw major improvements to living standards and economic conditions.

Despite the narrow victory at the presidential level, Lula’s Workers Party is still largely outnumbered in the Brazilian Congress by Bolsonaro’s Liberal Party, who will mount oppositions to any of Lula’s public spending initiatives. Lula’s non-traditional approach to foreign policy may also result in a challenging relationship with the United States in the event he pursues closer relationships with states like Venezuela, China, and Russia. The international business community, however, should be encouraged over Lula’s rhetoric on bringing Brazil into the fold of the global decarbonisation agenda and his interest in reducing deforestation in the Amazon – something Bolsonaro often refused to engage on. This will no doubt impact the future of UK-Brazil trade relations, which are likely to be centred around services, digital trade / access to finance, and the decarbonisation of bilateral supply chains.