President Donald Trump had urged China to offer more at the bargaining table as the two countries prepared for their first major negotiation in more than two months– in an effort to avoid an all-out trade war.

“We’re talking to China, they very much want to talk,” Trump stated Thursday at a cabinet meeting at the White House. “They just are not able to give us an agreement that is acceptable, so we’re not going to do any deal until we get one that’s fair to our country.”

“It’s a good thing that they’re sending a delegation here — we haven’t had that in quite some time,” told Larry Kudlow, National Economic Council Director to the CNBC on Thursday.

“The Chinese government in its totality must not underestimate President Trump’s toughness and willingness to continue this battle to eliminate tariffs and non-tariff barriers and quotas to stop the theft of intellectual property and to stop the forced transfer of technology.” He added.

Kudlow further said the Chinese economy and currency “are slipping, as you all know, but let’s just see what happens.” He emphasised that discussions tend to produce better outcomes than expected—and that talking was always a better option.

This will be fourth round of formal talks since trade tensions flared this year, but the first session since early June.

“This will be ‘talks about trade talks,’” said Gai Xinzhe, an analyst at the Bank of China’s Institute of International Finance in Beijing. “Lower-level officials will meet and haggle and see if there is a possibility for higher-level talks.”

To restart trade negotiations with the U.S., China must offer a package of measures, according to Jacob Parker, the vice president for China operations for the U.S.-China Business Council in Beijing.

He stated that China needs to make a better offer that slashes the bilateral trade surplus, lowers import tariffs, provides better protection for intellectual property and stop forced technology transfers.

The two nations had seemingly appeared to have reached a deal in May after Chinese Vice Premier Liu He — President Xi Jinping’s top economic adviser — led a group of officials to Washington. But Trump backed away from the agreement soon afterward, and ever since the two sides have been locked in a standoff as they slapped tariffs on billions of dollars of each other’s goods.

The Trump administration already imposed duties on $34 bn of Chinese goods last month, a move that prompted immediate retaliation from Beijing. Levies on another $16 bn in goods take effect August 23.

The U.S. Trade Representative’s office stated on Thursday it had extended its public hearings on its proposal to impose tariffs on $200 bn of Chinese goods to six days starting August 20, from four days initially.

As many as 370 people are expected to testify. The tariffs that China has vowed to retaliate against by levying duties on $60 bn of U.S. goods, can take effect after a public comment period closes on September 6.

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Earlier in the week, Saudi Arabia’s Shura council discussed plans to impose a 2 to 6 percent tax on expat workers’ remittances, following a proposal submitted by former council member Husam Al Angari. He proposed an initial tax of 6 percent for the first five years of the expat’s residency, which would then drop to 2 percent.

The latest statistics from the World Bank show Saudi Arabia accounts for the second highest volume of remittances after the US, with $37 billion in 2015.

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November 4, 2016: Canadian Prime Minister Justin Trudeau flew to Brussels on the weekend to attend an EU-Canada Summit which had been delayed for three days because of opposition in Belgium to the Comprehensive Economic and Trade Agreement (CETA). Belgium came back to the negotiating table after getting added guarantees on GMO crops and protection for certain food products, clearing the way for joining all other EU members in signing the deal.

Trudeau and top EU officials signed the agreement paving the way for most import duties to be removed early next year. However, the treaty needs the approval of at least 38 national and regional parliaments, including the UK’s, to come into force.

Positive implications

Supporters of CETA say it will increase Canadian-EU trade by 20% and boost the EU economy by €12bn (£10.9bn) a year and Canada’s by C$12bn (£7.4bn).

Trudeau said consumers and businesses would immediately feel the benefits. “We will make sure that everybody gets that this is a good thing for our economies and that it is also a good thing for the world,” he said.

Speaking at the end of the 16^th EU-Canada Summit, European Commission President Jean-Claude Juncker said, “Today, the people of Canada and the European Union have opened a new chapter in their relationship. More than half a billion people on both sides of the Atlantic will enjoy new opportunities. For many people, it will mean new jobs and better jobs.”

By removing almost all import duties, CETA will allow European exporters of industrial and agricultural goods to save more than €500 million every year. The agreement protects workers’ rights, environmental standards and consumer safety. Governments will retain all of their powers to legislate, regulate and provide public services.

“CETA promotes all of the things that Canadians and Europeans care about,” said President Juncker, “decency in the workplace, our health and safety, our cultural diversity, the quality of the land, sea and air that surround us.”

With free trade under attack from populist movements and anti-globalisation campaigners, the deal reduces Canada’s reliance on the US and gives the EU a first trade pact with a G7 economy when its credibility has taken a knock from Britain’s decision to leave.

Criticism

Critics of the deal say it would favour big, multinational corporations at the expense of local, smaller businesses. One study by the EU and Canada projected the trade deal would boost total household income for both Europeans and Canadians, but a recent Tufts University study says Canadian and European workers’ income would take a hit, according to a Reuters report.

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IFM Correspondent

October 25, 2016: The Canadian economy has been facing a serious slump due to a number of reasons. To add to its woes, negotiations over a key trade deal – the Comprehensive Economic and Trade Agreement (CETA) –  are in crisis. The Agreement, which would do away with tariffs on most goods between the EU and Canada, has been in meltdown since October 21.

The Agreement, which has been in the making for seven years, is the EU’s most ambitious free trade deal to date. The breakdown in talks would mean the freezing up of trade worth about $70 billion a year and about $285 billion of direct investment.

Failure of negotiations with Wallonia

Standing between Canada and the trade deal with the EU is the relatively small population – 3.5 million – of Wallonia, a French-speaking region in Belgium, which has refused to favour the deal. The EU, having a population of 510 million people, is a single market and calls for unanimity on trade deals.

Chrystia Freeland, Minister of International Trade, Canada, announced on October 21 the ‘end and the failure’ of talks with the government of Wallonia.

Although Wallonia enjoys some support for its position elsewhere in the EU, of the 28 nations that make up the bloc, Belgium has been the only member state that has not endorsed the CETA.

Why talks derailed

CETA proposes to link the EU market with that of Canada – the world’s tenth largest economy. The trade deal is being opposed by groups that stand against globalisation who claim that that the CETA is a testing of the waters in order to push through an even more contentious EU-US trade agreement by name TTIP, the negotiations surrounding which have also stalled.

The ultimatum to Wallonia

The EU communicated to Belgium that it expected Prime Minister Charles Michel to make its position on CETA clear and had given the Belgian federal government time until October 24 for the same.

The leader of the socialist-run Wallonia region, Paul Magnette, reacted to this mandate by stating that the ‘ultimatum is not compatible with the exercise of democratic rights’. Despite efforts by the EU to reassure his government regarding investment protection, which remains a major obstacle in the negotiations between Brussels and Wallonia, Magnette struck out at the EU, saying, “We will never decide anything under an ultimatum or under pressure.”

Latest developments

If Prime Minister Michel cannot assure European Council president Donald Tusk that Belgium will allow the Agreement to go through, the planned EU-Canada summit to be held on October 27 in order to sign the pact will be indefinitely postponed.

For now, though, things remain hopeful, with Chrystia Freeland, the Canadian Minister of International Trade saying, despite setbacks on October 24, that ‘CETA isn’t dead yet’.

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Joel Kukemelk

February 11, 2015: As a Europe-based GCC equity fund manager, we are well-aware of the international investors’ views, questions, hopes and doubts when it comes to investing in the Arabian peninsula. So far, global investors have overlooked the fast growing Gulf region – partly also because over the last decade, energy rich Middle Eastern countries have built up a reputation as a source of funds for foreign companies, not as a place where foreign investors should invest themselves. But foreign investors are finally starting to notice the region. However, as the majority of the potential foreign investors don’t have any previous experience at all with the region, it’s a slow process and a lot of education has to be done.

MSCI upgrade to the UAE and Qatar in 2014 has definitely helped to garner more interest for the region (combined weight of 1.6% in MSCI EM index). Dubai winning the opportunity to host EXPO 2020 (first time ever in the Middle East), its airport eclipsing London’s Heathrow in international passenger traffic, Qatar hosting the football World Cup in 2022 (first time ever in the Middle East) are small but necessary milestones in demonstrating to the world that this part of the Middle East has reached an inflection point.

With traditional big emerging markets – BRIC countries – struggling to show growth, international investors are more willing to look at alternative places for long-term investments. GCC’s strong economic growth numbers coupled with sound fiscal management grabs the attention of the new foreign investors.

But nothing comes easy or quickly. Many European investors have developed strong perceptions when it comes to the Middle East and these are related to war, unrest, instability, constant geopolitical tensions, different culture, harsh desert climate, huge oil revenue dependency etc. To make matters worse, many foreign investors put all the Middle East countries in the same regional risk basket despite countries being completely different from each other. To break these dogmas, asset managers need to spend a lot of time introducing the region, but of course the GCC countries could help as well by distinguishing themselves more from the broader Middle East region.

GCC has a lot to offer to foreigners Let’s look at the numbers. GCC countries have 10% of MENA population but 50% of GDP. They hold 45% of world oil reserves and 20% of gas reserves. They have current account and budget surpluses though it is true that the 40+% fall in oil prices in 2014 might force them to tap their huge $2 trillion reserves (more than 100% of GCC GDP) in 2015 for the first time in many years, strong reserves built from energy wealth revenues, fixed currency rates, fast economic growth, multi-year long investment programs, young and growing demographics are exactly what long-term investors are looking for.

Even better, GCC stock markets have low correlation to other world stock markets making them an ideal component to a diversifiedinvestment portfolio. The biggest risks are sudden unexpected energy price falls (unlikely, but for example the 40% oil fall witnessed in 2014 continuing at the same pace in 2015) and escalations in geopolitical tensions. Potential benefits, however, strongly outweigh these risks.

GCC stock markets are already sizeable. The total market cap exceeds $1 trillion, i.e. 2% of global stock markets. Saudi Arabia makes up half of that and with the Kingdom expected to open up its stock market to foreign investors in the first half of 2015, investors can’t turn a blind eye to the region any more.

Foreign investors’ exposure to the region is light years away from what it should be going by the market capitalisation. Some emerging and frontier markets that are smaller have managed to attract much more foreign investor attention. For example, stock markets in Russia, Turkey, Indonesia, Singapore, South Africa are all smaller than GCC combined stock market cap, yet foreign investors are much more familiar with those countries. Due to long-standing active interest, there are a number of international ETFs and country-specific mutual funds being offered in the market.

If energy rich GCC countries want to attract more foreign investors, then proceeding with the integration process within the union and distinguishing themselves more from the wider MENA region can make foreign investors look at the Middle East differently and unbundle some countries from the others. This would mean lower risk premiums for countries with stronger macro numbers and long-term prospects.

Foreign vs regional-based GCC fund managers

Joel Kukemelk	Should foreign investors prefer regionally-based funds or international funds? Practice shows that when we are talking about country-specific funds, usually preference is given to locally based funds. But for a regional fund, it becomes trickier.First of all, a fund with a regional mandate can’t be locally-based since it can’t be simultaneously present in all of the countries. Secondly, if a regional fund is based in one member country, the investment manager is likely subject to home-market bias.

Thirdly, practice has shown that for a regional fund being based in one member country doesn’t guarantee better returns compared to the funds that are run outside of the region.

And lastly, when international investors are investing money in a far-away region whee they don’t have experience with a local manager, they might feel considerably more unease than investing in an internationally-based regional fund where a fund manager understands the needs of the local investment climate.

For example, European asset manager might be willing to invest in the Middle East more willingly when they can deal directly with fellow European asset management companies who can demonstrate long-standing experience in investing in the region. In short, an unknown region with a known asset manager is better than an unknown region with unknown asset manager.

The market for regional funds based outside the region itself has existed already for a long time and for a good reason. With growing foreign investor interest towards the GCC stock markets, it’s possible that additional foreign funds will be launched but today’s investment climate also offers a valuable opportunity for all the existing GCC fund managers to market themselves and the long-term potential of the whole GCC region among foreign investors.

Joel Kukemelk is Fund Manager of LHV Persian Gulf Fund

Also Read:

GCC can weather the fall in oil prices

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