Influence of political development on foreign economic development in Canada and Hong Kong
Table of Contents
Introduction. 3
Political Developments in Canada. 4
Regional Trade Agreements by Canada and their Impacts in the Region. 5
Political Developments in Hong Kong. 8
Regional Trade Agreements by Hong Kong and their Impacts in the Region. 9
Conclusion. 12
References. 14
Introduction
There are a myriad of political, economic, and social developments that have been on-going across different countries. For the purpose of this paper, the focus will be on the political developments that have taken place in Canada and Hong-Hong and how these are influencing the foreign economic developments on a national and regional basis. Canada, a country found in northern America, is parliamentary democratic and a monarchial constitutionally governed. Ranking as one of the highest nations with economic freedom and government democracy, it has the sixteenth highest nominal per capita income. It is also attributed to extensively develop international trade networks oversight by the Global Affairs Canada. Global Affairs Canada is led by the ministries of Foreign Affairs, International Trade, and International developments. This shows the thin line between political stability and economic stability within the country and international economic development. On the other hand, Hong Kong is located on the eastern side of the Pearl River estuary in Southern China. It has a separate economic and governing systems from mainland China under ‘one country, two systems’ rule. It is both the world’s ninth-largest importer and the tenth-largest exporter. The Hong Kong dollar is also the eighth most traded currency in the world. It has a reputation as the most “economically free” country. It enjoys low taxation with minimal government market intervention making it a significant trading hub for the region. Besides, it has a nominal GDP of about US$373 billion. Business freedom is well regulated and protected, and this has encouraged entrepreneurship, enabling it to enjoy good trading relations with her neighbors, it further enjoys an open global trade and investment through tourism, financial links, and business.
The current NDP leader, Jagmeet Singh, on 22/01/2020, called for an exhaustive review of Canada’s new North American trade deal before approving it with his political members (Wright, 2020). It came in response to the Prime minister’s announcement that his government will start the ratification parliament process for the bill on the NAFTA deal. It can have an impact on the new NAFTA deal as per Canada’s constitution, and the prime minister must be supported by at least one of the opposition parties for the bill to be implemented. The new deal will be referred to as The United States Mexico Canada Agreement (USMCA). It will cater to significant policy changes on regional trade provisions, labor provisions, environmental qualities, and intellectual property securities (Wright, 2020).
Another recent political development that can affect regional foreign trade is the 2019 elections, during the campaigning period, the Liberal party promised a more interventionist federal government concerning the infrastructure, pensions, balanced budget and the taxation rates. It can affect how the economy will progress, and there will also be changes in both internal and external trading activities as prices of various commodities being exported or imported, increasing, or decreasing. As a result, major effects on the trading done with neighboring countries. In Canada, the agricultural sector employs nearly 1.9 percent of the population and also consists of 1.6 percent of the country’s GDP; Canada is therefore among the largest exporters of agricultural products in the world (OECD/FAO, 2016). Any change resulting from John Trudeau considered changes due to the manifesto he promised during the election period. Another recent political emerging issue is the ‘Brexit,’ Companies involved in the exportation of goods into the E.U., and a no-deal will be a heavy blow. Accessing the Eurozone market will be severely limited, and the Canadian trade will be halted temporarily until the world trade organization considers new rules that govern the trade between Canada and the European nations. The lifting aluminum tariffs on Canada by the USA is another recent political issue, and this led to the USA implementing a 25% tariff on steel imports and an additional 10% on aluminum (OECD/FAO, 2016). The USA enforced the tariff as a result of security issues among the two countries. Doing away with the tariff came as a reprieve as it created an obstacle in easier trading between Canada and the USA. Agreements made included the monitoring of imports between the two countries. The escalating US-China trade conflict has seen negative economic progress within Canada and the other closely foreign trading nations. The conflict is considered as a major risk to global economic growth in a study conducted by leading economists. With the modest increase in trade barriers due to these tariffs, there would be situations of fall in the GPE and spike in prices of various products. The trade war between the USA and China has seen effects being felt by Canada as well. The USA has placed 25% tariffs on exports by China, amounting to US$250 billion, as seen in China, stop the importation of key agricultural products as a form of hit back, resulting in a weaker global trade slowing economic development (Tankersley & Bradsher, 2018). The following are some of the regional trade agreements that Canada currently belongs to and further respective political developments in the partnering countries that can influence economic development between them.
Regional Trade Agreements by Canada and their Impacts in the Region
There is the Canada-Chile Free Trade Agreement (CCFTA), it was formed in July 1976 and has helped in establishing a triple two-way products trade between the two founding countries. Forging a way to re-establishing economic recovery, following waves of political unrest in Chile is a sure way of forging good trading relations between Canada and Chile. The waves of unrest were due to protests against metro tariff increases in Chile and the generally high cost of living. The unrest led to the reduction of trading with Canada as importation and exportation of merchandised products were limited.
There is also the Comprehensive Economic and Trade Agreement (CETA). It enforced after it’s signing by both The Canadian Prime Minister and E.U. officials in 2016 then ratified in 2017 (Mbengue & Schacherer, 2019). It is Canada’s biggest bilateral trade initiative apart from NAFTA. EU represents the second-largest trading partner in various products, and this shows that any political change in E.U. member countries can have a great impact on trading affairs between the CETA members. Emerging issues such as trade wars and Brexit has seen a stall in global economic growth. To resolve challenges that can emerge to CETA after Brexit, the European Commission has decided for the sealing of the deal, and it can be altered before an official Brexit without any involvement of parliament voting (Mbengue & Schacherer, 2019).
Another RTA is the Canada-Peru Free Trade Agreement (CPFTA). It was born in August 2009, and it helps in facilitating the creation of economic development opportunities, eliminating trade barriers, creating free trade and initiating a fair competition (Chauffour, Maur, & World Bank, 2011). Peru being a fast-growing economic nation, CPFTA has created a competitive advantage for Canadian traders. Peru being Canada’s third-largest bilateral trading partner across both Central and South America, its political stability is thus paramount in the conduction of ease in trading between the two nations (Chauffour, Maur, & World Bank, 2011).
Additionally, there is the Canada-Panama Free Trade Agreement (CPAFTA). Both approved it of the country’s parliaments in December 2012. It has helped in the elimination of 90% of Canadian goods by Panama. Canada, on the other hand, has phased out about 99% tariffs on Panama products. In recent reforms, International Trade Canada and Foreign Affairs, Canada Commercial Corporation and The Export Development Canada, signed an MOU to improve on matters relating to utilization of bits of intelligence, based on new business chances for traders dealing with imports and exports. It has helped in maintaining close trading ties with Panama, which also has a stable political environment.
Nonetheless, there is the Canada-European Free Trade Association (EFTA). It came into being in July 2011 and consists of Canada, Norway, Switzerland, Liechtenstein, and Iceland (Bickerton, 2014). It aims to phase out tariffs on the member countries. This agreement can be affected by the current Brexit political situation. Norway would incur losses amounting to about EUR 120 per person. Iceland will experience reduce in economic development as the U.K. is one of the essential European economic trading partners.6.Canada-Colombia Free Trade Agreement (CCOFTA) was enforced in August 2011 after being signed by Canada in the year of 2008 (Chauffour, Maur, & World Bank, 2011). Before its establishment, there were various waves of protest in Canada against it being signed.it was controversial due to critics pointed that it was a mechanism of exploitation by serving interests of the capitalists (Bickerton, 2014). In Canada, human rights activists, Labor unions and the church further decried the 38 assassinations of trade unionists in Colombia who were against it. Since the peace agreement signed in 2016 by the Colombia government and the rebelling forces, the country has had a relatively stable functioning government. However, the trade unions rallied various protests on 21st November that destabilized trading affairs in the country and also the trading partners like Canada. There has been further division after the 2016 peace signing deal. Sergio Olarte, a chief Colombia economist for Scotiabank, recently described the situation that; economic growth is undermined due to people being afraid to invest in the country’s economy due to its past violence.
In addition to the above regional trade agreements, the following are some of other trade agreements that Canada belongs to; Canada-Honduras Free Trade Agreement (CHFTA), Canada-Israel Free Trade Agreement (CIFTA), Canada-Jordan Free Trade Agreement (CJFTA), Canada-Korea Free Trade Agreement (CKFTA), Comprehensive Economic and Trade Agreement (CETA) and Canada-Costa Rica Free Trade Agreement (CCRFTA) (Mbengue & Schacherer, 2019). In conclusion, it is seen that the various regional trade agreements can prevail due to the political stabilities of the respective member states (Mbengue & Schacherer, 2019).
From the outset, it is imperative to acknowledge the fact that the Political tensions within Hong Kong have brought a significant blow to this economic prosperity; this is mainly influenced by the protests against mainland China’s intervention in administration rule towards Hong Kong. Recent political development in Hong Kong, hindering productive trading activities, included the 2019 September elections (Micke, 2019). That saw the emergence of two localists, Yau Wai-Ching and Sixtus Baggio Leung, who advocated for the independence of Hong Kong from China after refusing to take the oath of office. Their rebellion led to extreme measures taken against them by the local central authority (Micke, 2019). A massive protest by Hong Kong’s residents came as a result of the implementation of national security legislation found in the Basic Law Article 23. The international trading community, which has always thrived on the backbone of Hong Kong’s politically stable environment, was extremely altered as a result of the political situations. Losses were seen, such as property damage, injuries to traders, and uneasy access to trading facilities. These protests led to the closure of Hong Kong’s airport, the airport contributes about 55 of the net GDP, following this disruption, and there was a continuous reduction in the region’s economic progress. Tourism, which is a significant backbone to the country’s economy, was also severely impacted as there were decreased arrivals of tourists coming to the country. There was a massive loss of jobs as most investors opted to move out of the country due to the political tensions. Iris pang, an economist, projected that by 2020, Hong Kong’s annual gross domestic product would fall to 5.8%. Hong Kong is significant as a center for global trade and finance, and this can be threatened by the rising political tensions as well as the China-US trade war effects.
Despite being a member of the World Trade Organization and promoting free trading policies within its borders, the effects of the persistent US-China trade war can be seen in Hong Kong. The tariffs can have a negative toll on the price of imported goods. Hong Kong’s China-based companies will experience a higher cost of production as a result of the increase in the price of raw materials. It can be a higher burden to the suppliers and consumers of the products, leading to fewer purchases. Tariffs can tend to low competition of products hence impacting re-export trade. In July 2019 Hong Kong’s exports fell to 5.7% due to the US-China trade war, the government projected for this to fall even further if the trade war does not come to an end (BBC News, 2019). The following are some of the Regional Trade Agreements, that Hong Kong is currently under, and the subsequent political development issues that affect the economic growth of member states (BBC News, 2019).
Regional Trade Agreements by Hong Kong and their Impacts in the Region
First, there is the World Trade Organization (WTO), the country is one of the founding members of The World Trade Organization (Thomson, 2018). It is strategically playing a role in the provision of offering various U.S. companies that need to increase their exports to China (Chow, 2012). The close trading between Hong Kong and the USA has been enhanced by the similarities in socio-cultural traditions and the type of language spoken in mainland China. This has promoted good economic relations between Hong Kong and the rest of the world states who are members of this organization, making it feel the effects of any political interference in economic growth.
Secondly, there is the Closer Economic Partnership Arrangement (CEPA) is another regional trade agreement found between Hong Kong and mainland China. It provides tariff-free exportation of products to China. However, the goods must be of Hong Kong and have preferred access for the specific service groups. It officially became effective on 1st January 2004, it allows for relatively earlier access to Hong Kong service providers to the mainland’s market before China’s World Trade Organization (Thomson, 2018). Through it, China and Hong Kong agreed to develop cooperation in the following areas; trade and investment promotion, transparency in regulations policies, electronic business, cooperation in Chinese medicine, the cooperation of small and medium-sized establishments, an inspection of goods, and quality assurance. It has been impacted by the development of tensions between mainland China and Hong Kong political need for independence. The trade war between the USA and China has also created an unfavorable environment for the economic growth of the two-member states. It is also the first bilateral trading agreement that Hong Kong signed.
Thirdly, the Hong Kong, China-New Zealand Closer Economic Partnership Agreement, was signed on 29th March 2010 and is considered to be the first free trade agreement existing between Hong Kong and a foreign country (Chow, 2012; and Hsieh & Mercurio, 2019). It has helped in opening up new business opportunities between the two countries as New Zealand in 2018 was Hong Kong’s 37th largest trading partner. Both New Zealand and Hong Kong have prohibited the use of exportation subsidies on all commodities in carrying out bilateral trade (Thomson, 2018). The partnership has a goal that, in the future, New Zealand exports into both China and Hong Kong will have duty free taxations. The recent political rift between China and Hong Kong has provided threats to the well existing economic relations between the member states. Trade wars between the U.S. and China are also another recent political development that has put strains unto the agreement as prices of goods rise, making it harder for traders and investors to access the present limited market. Previously described as “a model of how economies can address barriers both at and inside their borders to grow trade” by Tim Groser, New Zealand politician.
Fifthly, there is the Free Trade between Hong Kong, China, and the Member States of the European Free Trade Association. it is taken as a single entity and can be referred to as The European Free Trade Association (EFTA), The member states include Iceland, Switzerland, Liechtenstein, Norway, and Hong Kong. It was signed in Liechtenstein, 21st June 2011 (Chow, 2012).It complies with the World Trade Organization, serving as a catalyst that promotes trade trading activities and global economic growth between the member states. Besides, it is the first free trade existing between Hong Kong and the European economies, making it a huge milestone. Brexit’s current political situation among the European countries raises a potential threat that is endangering the economic trading relations between the member states. The tension between Hong Kong and mainland China furthers the realization of the organization.
Sixth, there is the Free Trade Agreement between China, Chile, and Hong Kong was signed on 7th September 2012, after the initial three rounds of negotiation between the member states (Thomson, 2018). Chile is the third-largest trading partner to Hong Kong in Latin America; found that a closer trading relationship with Hong Kong had the potential for positive economic growth. A memorandum of understanding on labor cooperation was also signed separately by Chile and Hong Kong (Thomson, 2018). It has enabled Hong Kong to get into the Chilean market, which provides unlimited marketing chances. The agreement can help Hong Kong to get into the Southern American trading region as it is also the first bilateral trading agreement existing between Hong Kong and a Latin American country. It has faced various recent political threats such as trade war between the USA and China, China’s political tension with Hong Kong, and recent waves of protests against the Chilean government by the locals.
Finally, there is the Hong Kong Special Administrative Region and Macao Special Administrative Region Closer Economic Partnership Arrangement (HK-Macao CEPA), Both Macao and Hong Kong enjoy extensive trade relations, with both having liberalized trading regimes. It was signed into being on 27th October 2017 and has aimed at the provision of legal amenities in accessing marketing opportunities existing between the two members. It aims at reducing to zero tariffs on imports and exports goods between the members (Hsieh & Mercurio, 2019, 2019). It also faces threats emerging from the recent political issues present in the member states, China USA trade wars effects, China -Hong Kong independence protests, and Mainland China -Macao tension. Some of the other regional trade agreements that Hong Kong belongs to include; Hong Kong-China-Georgia Free Trade Agreement, Hong Kong, China-ASEAN Free Trade Agreement, Hong Kong, China, and Australia agreement (Hsieh & Mercurio, 2019).
In summary, as seen from the above impacts, it signifies that the nature of political stability always influences the economic progress of a regional trading bloc or a nation. Hence supports various analytical, theoretical studies based on books such as ‘The Theory of Political Economy’ by William Stanley Jevons or ‘Principles of Economics’ by Carl Menger. The political stability can be a factor for the people who would like to invest in a region, the more the part is politically stable, the more potential it has for enormous economic growth. Political developments can also provide economic growth favoring policies that can attract various types of entrepreneurs. As cited above, the regions with these favorable economic policies, such as Hong Kong, are more likely to experience an increase in global economies. The government has a role in maintaining a continuous growth pattern for its locals. Generating good policies and maintaining a stable government are major leys for the realization of various economic growth goals.
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