Avoiding a unilateral approach will be key to moving forward both in business and the environment, explains Professor Julien Chaisse, Director of the Centre for Financial Regulation and Economic Development of the Faculty of Law of the Chinese University of Hong Kong. Initiatives such as the Greater Bay Area and One Belt, One Road, coupled with a wider shift in power dynamics, are hallmarks of China’s expansion, albeit through investment rather than negotiation of trade agreements. Meanwhile the U.S. has given up its leadership role in clean energies, but the effects may only be seen in a decade’s time
With the G20 happening this past weekend, what are some of the direct parallels you can see between what took place and what we need to inform people about the Paris Agreement?
I think there are two important things. The first is: the U.S. at the federal level decided to leave the Paris Agreement. That’s a big decision because the U.S. at the time of Obama was leading the negotiations on climate change. And so last year, just a year ago, you had three leaders – the U.S., the EU, China – now we are left with only two leaders. The U.S. is stepping down, at a federal level, at a central level if I may say. That doesn’t mean the Paris Agreement becomes irrelevant to the U.S. as a whole because some states, most states in fact, most cities – will stick to the many promises in the Paris Agreement. However, I think it has an impact on the U.S. leadership both when you look at climate change issues – no one is going to rely anymore on them, that U.S. leadership, people will be looking more at the EU and China. And this is what’s going to impact the G20, because in addition to the Paris Agreement, Trump mentioned that he wanted to renegotiate NAFTA (North American Free Trade Agreement). He also expressed many doubts about the WTO (World Trade Organization). So overall the feeling at the G20 in Hamburg this [past] week is that the U.S. is in retreat, wants to get less involved in international affairs. Some people may think it’s good, because it had a cost; some people may say it’s bad, but the immediate effect is that it’s going to reinforce the leadership of both China and the EU.
By being located in this part of the world, and with China pushing the Greater Bay Area, what will be the impact of letting China step in to take on that role?
I think what is now changing is that we don’t have enough leaders at a global level to encourage others to agree on trade agreements, investment agreements, climate change agreements, whatsoever. We are losing this traction to do things at the multilateral level. So, in that connection, China is developing a different approach, which is I think more unilateral.
So China is not against multilateralism, but it’s not really a country that is transparent enough to engage the others. By this I mean the Chinese government is doing things which can be very interesting, very important, but it’s very hard to predict what they are going to do and how far they are going to go. For instance, on the special economic zones, they have the old ones and there’s a new generation now including Zhuhai. But what are going to be the concrete incentives given to national and foreign companies when they set up in Zhuhai? No one knows. So is Zhuhai going to be a success? No one knows.
People may say that, ‘well, it is China led, so it’s going to be a success, whatever it takes, whatever it costs’. But there are doubts, because it’s a totally different approach, and this idea that China decides where to set up zones, which by the way may compete or create competition for countries like Vietnam, Kazakhstan, etc., these countries may in turn take the same kind of approach. So I think we are going towards something which is more difficult to control.
Unilateralism can work well for a country like China, as long as the others do not replicate some of the solutions if they are good. That’s one thing.
And also the Belt and Road, which is important. Is it something which is a true project, or is it just marketing? It’s very hard to say. Because it’s very unique, in terms of design and ambition. The ambition is huge and the design…well it’s not a trade agreement. It’s not something that’s the result of negotiations, where you have China and 60 countries saying ‘okay we agree on that’. There’s nothing of this kind. It’s just China approaching one-by-one a number of partners to say ‘this is what I want to give, and in exchange, we’ll see later’. You can say it’s soft power, or it’s a form of perhaps soft-hard power. But in any case, it is very hard to say how things are going to unfold because there are no institutions that are going to review what’s happening, it’s very hard to get data, to get information about certain investments that are reported now in Kazakhstan, Tajikistan. It’s happening, but how much is it viable, profitable, no one knows.
So that too is interesting and difficult. I think that’s the big difference with the world of the 90s where you got the WTO, the Rio Declaration, NAFTA. These agreements could have been bad to some extent, but they were public, they could be read, they could be criticized. They were the basis to both predict the future and suggest reforms.
I think we are moving towards something which is more unilateral and more difficult to control, more difficult to predict.
On your side of the Delta, do you find that it is easier to obtain information about the Greater Bay Area from the government?
I would need to compare, to know exactly what’s been asked from the Macau government. On the Hong Kong side I think there are some efforts to disclose a number of information. It’s not perfect, but for the time being, I think there are a number of institutions, even NGOs (non-governmental organizations) or people that are around and that can encourage the government to share a number of information. But all this is very relative, and I would say that also, yeah, the Hong Kong government could do better.
How do you see the power-shift from the U.S. to China?
I think the power shift is something that’s more like a process and in fact it started in the mid-2000s. Meaning that in the mid-2000s we had a power shift from the trans-Atlantic relationship – U.S.-EU – to the Asia-Pacific.
That’s very obvious when you look at trade, the type of investment, the number of transactions. That’s something I began to observe really in 2000, mid 2000, 2006/2007. It’s not very precise, but it’s in these years that you have first a decline of European economies, and then you have Greece, Spain, many other issues. I mean you can choose difficulties. To also digest the 2014 enlargement [of the EU], we’ll see in the coming years how things evolve. But in that process, the connection, the ties between the EU and the U.S. have somehow lost their strength.
And at the same time you have the rise of China, plus India, and a few other countries.
So the U.S. is not out, because the U.S. tried to maintain a presence, and a strong relationship with Asia. I think that was Obama’s idea, which was good – this vision that Europe was a good partner, but should not be the only partner and for a number of reasons, economic, but also military, just strategic. It was very important to anchor the U.S. in the Pacific and Asia Region. He [Obama] tried, he tried hard – the TPP, many other things. And it’s very unfortunate that in just a few weeks, a few months, you get Trump and not the Democrats. You had the TPP and the U.S. withdrew and a few other things, including the Paris Agreement. So the consequence I think is to leave the region to China, in fact, as simple as this.
I think we don’t have to be afraid of saying so, this is simply what’s happening. I’m not judging, nothing is good or bad, it’s just a matter of geo-strategy.
The U.S. is in retreat from that region, so the field is empty, someone should take the lead. Can it be Japan? Very difficult, historical reasons that you understand. Japan has been in recession for many years so they don’t really have the capacity. They can maintain their role and the importance, but they cannot increase it.
The power that’s on the ascent is China, that’s very clear.
If we look beyond trade, the South China Sea, the other issues about economic zones in the East Sea, and many other issues. The recent visit of Xi Jinping in Hong Kong saying CY Leung has done a good job and further declaration saying that the Sino-British declaration is materially irrelevant. You feel that the pressure is increasing, and I think that’s going to increase in fact.
And you know, if you go to – I do a lot of work in countries like Vietnam, Pakistan – people would say the same. I mean, who is willing to do business in most of these countries? Not the Americans, not the Europeans.
Alliances are being established. Germany is partnering with China. What are the implications for Europe?
Germany is a major EU exporter. It’s the country that’s really leading the EU exports, heavy industry that didn’t suffer from the strong Euro. I understand the German interest and in particular I understand the German lobbies. So the industrial lobbies that in Germany really need to get access to a market like China – you’ve got to think Siemens, BMW, all the heavy industries. For them it’s very, very important.
Now, politically I would be quite careful, because the EU is navigating in very troubled waters. You’ve got Brexit, there were a few elections in the recent months that have been somehow reassuring – Austria, Netherlands, France – I understand the need for Merkel to preserve the interest of the German industry, but at the same time there is a real risk of EU implosion, of delusion at least. So the very idea of a specific German alliance with China, I don’t really believe in that and I think that would be a mistake. There are other ways for Germany to lead some EU negotiations, for the benefit of the EU as a whole and Germany in particular.
I would be very careful with all these unilateral initiatives within the EU.
Do you see another Paris Agreement coming about, without the U.S.?
The UN has carried on negotiations, there’ll be COP this year, later in November, again next year. They already decided it’ll be in Bonn [Germany] this year and again next year. So they still work on a number of issues.
Frankly I would be cautious on this and say, what they got in 2015 was already largely unexpected. If you had asked many experts in say September, October of 2015 ‘will they get anything in Paris in December?’ Most people would have said ‘oh, no. It’s impossible’. And I remember talking to many people at that time, they were very sceptical.
So the Paris Agreement is a little miracle, there was momentum to get that done, with John Kerry and a few other key people.
The Paris Agreement in itself is a bit disappointing. There’s not much binding in it, it’s up to each country. In the meantime we’ve lost the U.S., so I don’t really imagine China, the EU going faster in the coming two or three years. I think it’s going to take another five years, or perhaps a decade, before we get another deeper Paris Agreement.
In the meantime what’s going to be important, is to improve the linkages between the Paris Agreement and the WTO, the trade organization, and some of the investment treaties which are in force or which are being negotiated.
This is, in the short-term, what countries should be doing: ensuring that free trade does not constitute an obstacle to environmental protection and that investment protection, liberalisation, does not also create an obstacle to climate-change related investment – clean energies and the like. And we get some signals that it’s becoming a problem.
What about in regards to the U.S.-China relationship itself? What is the first industry that the U.S. will then fall behind China in?
I think it’s very likely that for the U.S. there’ll be a kind of redirecting of investments, modernization of the old industries – oil, gas, fracking – because it’s highly profitable and that provides the energy needed to the country’s economy. So that’s highly probable, and at the same time a number of companies that could have invested more in clean energies will not do it. They will invest less in research, because the market is not ready, or will not be that attractive in the U.S. for the coming four or five or eight years. So that’s going to in fact infiltrate all the clean energies [with the effect] that the U.S. risks being a bit behind the other major economies.
At the end of the day, the worst effect falls on the citizens. Within the next ten years, will that mean citizens will be unable to afford their energy in the U.S. if we continue like this?
I don’t think it’s going to be such a catastrophe. But it’s certain that, for the most important part, if we look beyond economics, the U.S. is not contributing to the global effort to reduce gas emissions, for instance. And to develop clean energies. So that’s something that is going to harm the U.S. I think politically for quite some time, really.
Then there will always be some U.S. based companies that could work for the foreign markets. So – increase of pollution in the U.S., perhaps a problem in terms of also mindset. You know, after all, even at the time of the Obama administration there were a number of scientists within the U.S. who denied the climate change effects, so what I perceive is a risk for the U.S. to be lagging behind, to miss that train that would have contributed to a better understanding of climate change issues and that could have brought the country to the forefront on that fight.
For what’s purely economic, I don’t think the losses will be severe and immediate, and that’s why Trump can carry on for quite a while with that policy.
That’s the problem of climate change, if you think of the climate itself or the technologies that support green energies, you’re going to feel that in 10 years and beyond, because at the same time it’s also very likely that the others are going to accelerate.