By Madhusha Thavapalakumar
In the first week of November, the hashtag #USelection2020 was trending on local Twitter as Sri Lankans were waiting anxiously, along with a gigantic international audience all over the world, while the US’ presidential election results were dribbling in slower than molasses with no clear indication of the winner. The wait finally ended on Saturday (7) night, when Joe Biden was declared by all mainstream US media as the President-elect of the US.
Captivated local audiences could be explained by the fact that the US and its foreign policies play a pivotal role in Sri Lanka’s economy, both directly and indirectly. However, while its foreign policies vary from one president to another, for several decades, there were certain fundamental aspects of US foreign policy that remained unchanged despite changes in leadership.
Then came Donald Trump, who brought in a slew of major changes to how America is run and its foreign policy, for better or worse. Therefore, the implications of this election were bound to be seismic, intensifying the global attention on the result.
Now that Democrat Joe Biden has been elected as the 46th President, there could be a new phase of foreign policies as well as domestic economic policies that could differ significantly from the Trump administration.
What does Joe Biden’s victory mean for Sri Lanka? How would it impact our economy? The Sunday Morning Business this week decided to take a look at possible answers to these questions.
GSP+ hanging by a ‘war crimes’ thread
The Generalised Scheme of Preferences (GSP) of the European Union (EU) is a trade arrangement that allows developing countries to pay less or no duties on their exports to the EU, while the GSP Plus is a special component of the GSP scheme that provides additional trade incentives to developing countries already benefiting from GSP. In return for these incentives, the recipient countries must ratify and effectively implement core international conventions in the fields of human rights, labour rights, environment, and good governance.
Sri Lanka has been a beneficiary of the EU’s standard GSP since the scheme’s inception, and it began to benefit from GSP+ on 15 July 2005. However, on 15 August 2010, the EU suspended Sri Lanka’s GSP+ status. According to BBC, the US Government under Barack Obama’s leadership had a public hearing in August 2010 as part of the GSP review process on a petition by US labour organisations calling to remove Sri Lanka from the list of beneficiaries. This is because the Obama administration has been focusing on the humanitarian crisis in the North and pressing the Sri Lankan Government to take meaningful steps toward political reconciliation and press freedom.
[caption id="attachment_105103" align="alignleft" width="300"]
US President-elect Joe Biden is likely to revert to many of the Obama-era policies, both internationally and domestically[/caption]
The EU’s decision to withdraw GSP+ benefits from Sri Lanka was based on the findings of a Commission investigation that identified shortcomings in the implementation of three United Nations (UN) human rights conventions: International Covenant on Civil and Political Rights (ICCPR), Convention Against Torture (UNCAT), and Convention on the Rights of the Child (UNCRC), according to Democracy Reporting International, a non-partisan, independent, not-for-profit organisation registered in Berlin.
The removal of GSP+ had a significant impact on Sri Lanka’s exports. The country’s average annual growth of exports to the EU before GSP (2001-2004) was 11.5%. It rose to 16.4% in the GSP+ period (2005-2009). Since the loss of GSP+, this figure declined, hovering around 7.4% during the period from 2010 to 2014. The EU restored GSP+ on 19 May 2017 after Sri Lanka pledged to adhere with the UN’s human rights conventions.
There is a likely chance that under Biden administration, who was the Vice President of the US during Obama’s administration, the GSP+ scheme to Sri Lanka might be re-evaluated based on the country’s adherence with the UN’s human rights conventions, after Trump’s administration had been paying little or no attention towards Sri Lanka’s alleged human right violations.
It should be noted that repealing the Prevention of Terrorism Act (PTA) is one of the key commitments made by Sri Lanka during the restoration of the scheme. While the Act is yet to be replaced by international human rights obligations, President Gotabaya Rajapaksa announced on 4 January 2020 that Sri Lanka would withdraw a proposed replacement law, reneging on pledges to the United Nations Human Rights Council (UNHRC) and the EU. Against this backdrop, revisiting Sri Lanka’s key commitments would risk GSP+ scheme to Sri Lanka, once again.
European Delegation to Sri Lanka Trade Concession Head Denis Chaibi, in September this year, said that if there is a positive situation in human rights, GSP+ could be enjoyed by Sri Lanka till at least 2025. But as said, this is only if there will be no re-evaluation of Sri Lanka’s human rights commitments.
Greater focus on climate change
Trump withdrew from the Paris Agreement, which committed the US and 195 other countries to keep rising global temperatures below 2 degrees Celsius. He replaced Obama's Clean Power Plan with the Affordable Clean Energy rule, which had weaker regulations and attempted to freeze the fuel efficiency standards imposed on new vehicles, and prevent California from setting its own emissions rules.
Trump’s climate change or environmental records have been a blessing for oil companies, but environmentalists argue it was never beneficial for the planet. They were of the view that a second term of Trump would be devastating for the climate. Trump had criticised “prophets of doom” and had called climate change “mythical”, “non-existent”, or “an expensive hoax”.
[caption id="attachment_105104" align="alignright" width="300"]
Leaders from 10 of 12 prospective member states at a Trans Pacific Partnership (TPP) Summit in 2010[/caption]
Biden’s policies on climate change are in stark contrast from that of Trump’s. According to The Guardian, Biden’s policy of targeting to reach net zero carbon emissions by 2050 and plans for a $ 1.7 trillion investment in a green recovery from the Covid crisis would reduce US emissions in the next 30 years by about 75 gigatonnes of carbon dioxide or its equivalents. Furthermore, Biden is much likely to join the Paris Agreement on climate change, making it a serious agreement once again. When the world’s super power itself implements the recommendations, there would be pressure on other countries including Sri Lanka that adopted the Agreement to implement the recommendations.
While implementing the international recommendations would help the environment, an immediate impact on businesses and investors would be felt as international climate plans have to be translated into domestic regulations, increasing the expenditure for businesses.
Furthermore, Sri Lanka will have to recognise climate finance as a separate need and source of funding to address its development challenges and improve energy efficiency, decarbonise electricity, and scale up markets for zero emission heating, which, of course, comes at a cost for Sri Lanka. Sri Lanka has to set aside funds separately to adhere to the climate change recommendations.
Sri Lanka’s gain from India’s boom
We could leverage from our neighbouring country India’s gain if they are benefitting from Biden’s administration. According to Indian Express, much before he became Vice President in the Barack Obama administration, Biden had advocated a stronger relationship with India. In fact in 2006, three years before he became the US Vice President, Biden announced his vision for the future of US-India relations: “My dream is that in 2020, the two closest nations in the world will be India and the United States.”
Although then Senator Obama was initially hesitant to support the Indo-US nuclear deal, Biden led the charge and worked with both Democrats and Republicans to approve the nuclear deal in the US Congress in 2008. Obama and Biden also strengthened co-operation with India to fight terrorism in each of their countries and across the region. There has been a tradition of bipartisan support for better ties with India, and every US President has made it better than what he inherited from his predecessor over the last two decades.
The Trump administration enjoyed a great diplomatic relationship with India as it provided a counterbalance to China’s dominance in Asia, best symbolised by the friendship between Indian Prime Minister Narendra Modi and Trump. However, there were certain tariffs imposed by the US on Indian imports, resulting in reducing India’s longstanding trade surplus with the US. This intensified to such a level that it was referred to as the mini trade war, a reference to the main trade war between US and China, when India began imposing retaliatory tariffs on US imports to India.
Indian Express added that there is no reason to believe that Biden will not continue the tradition, but of course, he will have his own style and nuances and will put his stamp on the relationship. For the moment, it appears that the trade relationship between the two countries would prosper in the new Government, creating a desired boom as the tariffs on Indian imports may be reduced by the US administration, which would immensely benefit India’s economy.
When Indian economy is booming, it provides significant direct and indirect benefits to our country. Sri Lanka is likely to see an increase in Indian tourists and India has long been the largest tourism generating market of the island nation. The Port of Colombo will see increased transhipment cargo from India when there is a surge in economic growth of India. The increased cargo would create more jobs in the local industry. Indian companies will establish joint ventures with local companies while Indian market will be a great place for local companies to expand their operations. The benefits are numerous.
Inherited trade wars and tariffs
Trade wars and tariffs were numerous during the Trump administration and were part of Trump’s “America First” economic policy. Multilateral free trade agreements (FTA) were a big “no no” during his period as the focus was merely on bilateral agreements. Trump launched a trade war with China to reduce its trade deficit with the second largest economy and re-negotiated the North American Free Trade Agreement (NAFTA) that created a trilateral trade bloc within Canada, Mexico, and the US.
During his time in office, Trump imposed tariffs on $ 370 billion worth of Chinese imports, beginning in mid-2018. Beijing retaliated in kind, putting tariffs on close to $ 200 billion of US imports. The trade dispute between China and the US spread from mere tariffs to encompass business restrictions on individual companies and accusations of currency manipulation. China was viewed as a major threat to American economic and security interests.
Trade wars and excessive tariffs hurt global GDP growth as it restricts the movement of goods and services. It also disrupts financial markets across the world, increases the World Trade Uncertainty Index, weakens the global economy through reduced confidence, and deteriorates global investment outlook. It did more bad than good.
Biden has pledged to avoid any new trade agreements until they make major investments at home. Biden is anyway inheriting a cold trade war with China and if he makes any moves to ease US tariffs, they are going to face significant congressional opposition. As the Foreign Policy magazine puts out, Biden is predisposed toward closer trans-Atlantic co-operation, but Republicans are likely to criticise any efforts to remove Trump’s tariffs on the EU’s exports or strengthen the World Trade Organisation (WTO).
Nevertheless, analysts at the Swiss bank Lombard Odier assume that Biden’s win will reduce some trading uncertainty and would lead to a more rational approach to bilateral trade, even if his team could prove as “hawkish” on China as Trump’s on other matters. The Biden presidency certainly would not put an end to the US-China trade war, but is expected to be a little “softer” on China, according to global economists, which means the impact on the global economy is unlikely to be significant as it was during the Trump administration.
Trans Pacific Agreement: US better in or out?
According to the Council on Foreign Relations, a New York-based non-profit think tank, Trans-Pacific Partnership (TPP), was the centrepiece of Obama’s strategic pivot to Asia. After 19 official rounds of negotiations and many more separate meetings, the participating countries came to an agreement in October 2015 and signed the pact in early 2016.
The TPP was set to become the world’s largest free trade deal, covering 40% of the global economy. The TPP text consisted of 30 chapters, covering tariffs on goods and services, intellectual property (IP) rights, e-commerce rules, labour and environmental standards, dispute resolution mechanisms, and many other aspects of global trade. Nevertheless, President Trump withdrew the US in 2017, leaving other countries to renegotiate and proceed with the agreement.
Harvard University Douglas Dillon professor of government Graham Allison has told CNBC that Biden would want to sign the TPP as it would put around 40% of the world economy on the side of the US compared with China’s share of 18% or 20% of global GDP. Biden has reportedly said he would renegotiate the trade deal if he’s elected. He had also told the Council on Foreign Relations that while the TPP wasn’t a perfect deal, it was a good way for countries to come together “to curb China’s excesses”.
According to Talking Economics of the Institute of Policy Studies Sri Lanka (IPS), the trade effects on excluded countries like Sri Lanka will depend on three factors. First, the geographical distribution of the country’s exports to TPP countries. Second, the similarity of export structures between the excluded and those included in the agreement. Third, the tariff and non-tariff barriers currently applied amongst the TPP countries.
“In 2014, TPP countries accounted for almost one-third of Sri Lanka’s exports. Sri Lanka will be significantly affected by the participation of its largest export market in the TPP. This problem is compounded by Sri Lanka competing with some TPP countries in the US market for similar products. Sri Lanka competes with TPP partners like Vietnam, Mexico, (and) Peru for the same products in the US market,” the report added.
With the phasing-out of tariffs under TPP, Sri Lankan apparel exports to the US might be forced out of the market or to reduce the prices to remain competitive vis-à-vis Vietnam, which will enjoy a duty advantage.
It’s all upto Biden
While Biden’s foreign policies might bring positive results to the Sri Lankan economy, many other things are likely to be negative to our country, such as revisiting Sri Lanka’s human rights commitments and the signing of the TPP. Nevertheless, it will not be incorrect to assume that Biden is most likely to follow the foreign policy stance of Obama and he might resume Obama’s initiatives which were abandoned by the Trump administration. In terms of economic impacts from Biden’s victory, Sri Lanka has to adopt a wait-and-see approach as the first step of Biden’s transition plan is to tackle the pandemic in the US, where it has infected close to 10 million people.
US President-elect Joe Biden is likely to revert to many of the Obama-era policies, both internationally and domestically[/caption]
The EU’s decision to withdraw GSP+ benefits from Sri Lanka was based on the findings of a Commission investigation that identified shortcomings in the implementation of three United Nations (UN) human rights conventions: International Covenant on Civil and Political Rights (ICCPR), Convention Against Torture (UNCAT), and Convention on the Rights of the Child (UNCRC), according to Democracy Reporting International, a non-partisan, independent, not-for-profit organisation registered in Berlin.
The removal of GSP+ had a significant impact on Sri Lanka’s exports. The country’s average annual growth of exports to the EU before GSP (2001-2004) was 11.5%. It rose to 16.4% in the GSP+ period (2005-2009). Since the loss of GSP+, this figure declined, hovering around 7.4% during the period from 2010 to 2014. The EU restored GSP+ on 19 May 2017 after Sri Lanka pledged to adhere with the UN’s human rights conventions.
There is a likely chance that under Biden administration, who was the Vice President of the US during Obama’s administration, the GSP+ scheme to Sri Lanka might be re-evaluated based on the country’s adherence with the UN’s human rights conventions, after Trump’s administration had been paying little or no attention towards Sri Lanka’s alleged human right violations.
It should be noted that repealing the Prevention of Terrorism Act (PTA) is one of the key commitments made by Sri Lanka during the restoration of the scheme. While the Act is yet to be replaced by international human rights obligations, President Gotabaya Rajapaksa announced on 4 January 2020 that Sri Lanka would withdraw a proposed replacement law, reneging on pledges to the United Nations Human Rights Council (UNHRC) and the EU. Against this backdrop, revisiting Sri Lanka’s key commitments would risk GSP+ scheme to Sri Lanka, once again.
European Delegation to Sri Lanka Trade Concession Head Denis Chaibi, in September this year, said that if there is a positive situation in human rights, GSP+ could be enjoyed by Sri Lanka till at least 2025. But as said, this is only if there will be no re-evaluation of Sri Lanka’s human rights commitments.
Greater focus on climate change
Trump withdrew from the Paris Agreement, which committed the US and 195 other countries to keep rising global temperatures below 2 degrees Celsius. He replaced Obama's Clean Power Plan with the Affordable Clean Energy rule, which had weaker regulations and attempted to freeze the fuel efficiency standards imposed on new vehicles, and prevent California from setting its own emissions rules.
Trump’s climate change or environmental records have been a blessing for oil companies, but environmentalists argue it was never beneficial for the planet. They were of the view that a second term of Trump would be devastating for the climate. Trump had criticised “prophets of doom” and had called climate change “mythical”, “non-existent”, or “an expensive hoax”.
[caption id="attachment_105104" align="alignright" width="300"] Leaders from 10 of 12 prospective member states at a Trans Pacific Partnership (TPP) Summit in 2010[/caption]
Biden’s policies on climate change are in stark contrast from that of Trump’s. According to The Guardian, Biden’s policy of targeting to reach net zero carbon emissions by 2050 and plans for a $ 1.7 trillion investment in a green recovery from the Covid crisis would reduce US emissions in the next 30 years by about 75 gigatonnes of carbon dioxide or its equivalents. Furthermore, Biden is much likely to join the Paris Agreement on climate change, making it a serious agreement once again. When the world’s super power itself implements the recommendations, there would be pressure on other countries including Sri Lanka that adopted the Agreement to implement the recommendations.
While implementing the international recommendations would help the environment, an immediate impact on businesses and investors would be felt as international climate plans have to be translated into domestic regulations, increasing the expenditure for businesses.
Furthermore, Sri Lanka will have to recognise climate finance as a separate need and source of funding to address its development challenges and improve energy efficiency, decarbonise electricity, and scale up markets for zero emission heating, which, of course, comes at a cost for Sri Lanka. Sri Lanka has to set aside funds separately to adhere to the climate change recommendations.
Sri Lanka’s gain from India’s boom
We could leverage from our neighbouring country India’s gain if they are benefitting from Biden’s administration. According to Indian Express, much before he became Vice President in the Barack Obama administration, Biden had advocated a stronger relationship with India. In fact in 2006, three years before he became the US Vice President, Biden announced his vision for the future of US-India relations: “My dream is that in 2020, the two closest nations in the world will be India and the United States.”
Although then Senator Obama was initially hesitant to support the Indo-US nuclear deal, Biden led the charge and worked with both Democrats and Republicans to approve the nuclear deal in the US Congress in 2008. Obama and Biden also strengthened co-operation with India to fight terrorism in each of their countries and across the region. There has been a tradition of bipartisan support for better ties with India, and every US President has made it better than what he inherited from his predecessor over the last two decades.
The Trump administration enjoyed a great diplomatic relationship with India as it provided a counterbalance to China’s dominance in Asia, best symbolised by the friendship between Indian Prime Minister Narendra Modi and Trump. However, there were certain tariffs imposed by the US on Indian imports, resulting in reducing India’s longstanding trade surplus with the US. This intensified to such a level that it was referred to as the mini trade war, a reference to the main trade war between US and China, when India began imposing retaliatory tariffs on US imports to India.
Indian Express added that there is no reason to believe that Biden will not continue the tradition, but of course, he will have his own style and nuances and will put his stamp on the relationship. For the moment, it appears that the trade relationship between the two countries would prosper in the new Government, creating a desired boom as the tariffs on Indian imports may be reduced by the US administration, which would immensely benefit India’s economy.
When Indian economy is booming, it provides significant direct and indirect benefits to our country. Sri Lanka is likely to see an increase in Indian tourists and India has long been the largest tourism generating market of the island nation. The Port of Colombo will see increased transhipment cargo from India when there is a surge in economic growth of India. The increased cargo would create more jobs in the local industry. Indian companies will establish joint ventures with local companies while Indian market will be a great place for local companies to expand their operations. The benefits are numerous.
Inherited trade wars and tariffs
Trade wars and tariffs were numerous during the Trump administration and were part of Trump’s “America First” economic policy. Multilateral free trade agreements (FTA) were a big “no no” during his period as the focus was merely on bilateral agreements. Trump launched a trade war with China to reduce its trade deficit with the second largest economy and re-negotiated the North American Free Trade Agreement (NAFTA) that created a trilateral trade bloc within Canada, Mexico, and the US.
During his time in office, Trump imposed tariffs on $ 370 billion worth of Chinese imports, beginning in mid-2018. Beijing retaliated in kind, putting tariffs on close to $ 200 billion of US imports. The trade dispute between China and the US spread from mere tariffs to encompass business restrictions on individual companies and accusations of currency manipulation. China was viewed as a major threat to American economic and security interests.
Trade wars and excessive tariffs hurt global GDP growth as it restricts the movement of goods and services. It also disrupts financial markets across the world, increases the World Trade Uncertainty Index, weakens the global economy through reduced confidence, and deteriorates global investment outlook. It did more bad than good.
Biden has pledged to avoid any new trade agreements until they make major investments at home. Biden is anyway inheriting a cold trade war with China and if he makes any moves to ease US tariffs, they are going to face significant congressional opposition. As the Foreign Policy magazine puts out, Biden is predisposed toward closer trans-Atlantic co-operation, but Republicans are likely to criticise any efforts to remove Trump’s tariffs on the EU’s exports or strengthen the World Trade Organisation (WTO).
Nevertheless, analysts at the Swiss bank Lombard Odier assume that Biden’s win will reduce some trading uncertainty and would lead to a more rational approach to bilateral trade, even if his team could prove as “hawkish” on China as Trump’s on other matters. The Biden presidency certainly would not put an end to the US-China trade war, but is expected to be a little “softer” on China, according to global economists, which means the impact on the global economy is unlikely to be significant as it was during the Trump administration.
Trans Pacific Agreement: US better in or out?
According to the Council on Foreign Relations, a New York-based non-profit think tank, Trans-Pacific Partnership (TPP), was the centrepiece of Obama’s strategic pivot to Asia. After 19 official rounds of negotiations and many more separate meetings, the participating countries came to an agreement in October 2015 and signed the pact in early 2016.
The TPP was set to become the world’s largest free trade deal, covering 40% of the global economy. The TPP text consisted of 30 chapters, covering tariffs on goods and services, intellectual property (IP) rights, e-commerce rules, labour and environmental standards, dispute resolution mechanisms, and many other aspects of global trade. Nevertheless, President Trump withdrew the US in 2017, leaving other countries to renegotiate and proceed with the agreement.
Harvard University Douglas Dillon professor of government Graham Allison has told CNBC that Biden would want to sign the TPP as it would put around 40% of the world economy on the side of the US compared with China’s share of 18% or 20% of global GDP. Biden has reportedly said he would renegotiate the trade deal if he’s elected. He had also told the Council on Foreign Relations that while the TPP wasn’t a perfect deal, it was a good way for countries to come together “to curb China’s excesses”.
According to Talking Economics of the Institute of Policy Studies Sri Lanka (IPS), the trade effects on excluded countries like Sri Lanka will depend on three factors. First, the geographical distribution of the country’s exports to TPP countries. Second, the similarity of export structures between the excluded and those included in the agreement. Third, the tariff and non-tariff barriers currently applied amongst the TPP countries.
“In 2014, TPP countries accounted for almost one-third of Sri Lanka’s exports. Sri Lanka will be significantly affected by the participation of its largest export market in the TPP. This problem is compounded by Sri Lanka competing with some TPP countries in the US market for similar products. Sri Lanka competes with TPP partners like Vietnam, Mexico, (and) Peru for the same products in the US market,” the report added.
With the phasing-out of tariffs under TPP, Sri Lankan apparel exports to the US might be forced out of the market or to reduce the prices to remain competitive vis-à-vis Vietnam, which will enjoy a duty advantage.
It’s all upto Biden
While Biden’s foreign policies might bring positive results to the Sri Lankan economy, many other things are likely to be negative to our country, such as revisiting Sri Lanka’s human rights commitments and the signing of the TPP. Nevertheless, it will not be incorrect to assume that Biden is most likely to follow the foreign policy stance of Obama and he might resume Obama’s initiatives which were abandoned by the Trump administration. In terms of economic impacts from Biden’s victory, Sri Lanka has to adopt a wait-and-see approach as the first step of Biden’s transition plan is to tackle the pandemic in the US, where it has infected close to 10 million people.