US Senate considers trade promotion authority for President Obama. G7 energy ministers meet to discuss Iran framework deal. Obama meets with the GCC to work on regional cooperation. EU finance ministers engage Greek debt issue. Singapore hosts iron ore conference. All this in GRI’s Weekly Risk Outlook.
Trade Promotion Authority legislation taken up by the U.S. Senate
On Tuesday, the U.S. Senate will likely begin floor consideration of a bill to grant trade promotion authority to President Obama, allowing the United States and the 11 other members of the Trans-Pacific Partnership (TPP) to conclude negotiations of one of the largest trade agreements in history. If concluded, the trade agreement will cover 40% of global GDP.
There are several unfinished arguments among TPP countries that need to be resolved. Japan has insisted it will continue to protect its rice farming industry, and Canada and Japan have insisted on protections for local dairy industries.
On the U.S. side, intellectual property provisions and car part tariffs remain contentious, and human rights policies in Mexico and Malaysia have drawn opposition from labor groups.
The trade promotion authority (TPA) legislation, which will require 60 votes in the Senate and 218 in the House, has two major hurdles – aside from rounding up votes – before becoming law.
The first is whether the TPA bill will be introduced with other trade bills that can garner Democratic support, or will whether or it will be presented as a stand-alone bill. Majority Leader McConnell would like to move TPA separately, but this may be politically unfeasible.
The other issue of perhaps greater importance is a provision in the TPA bill that could derail the TPP agreement. An amendment by Senator Bob Menendez (D-NJ) during the Senate Finance markup would preclude from consideration for a US free trade deal any Tier 3 country ranked by the State Department Human Trafficking Report. Malaysia, as a Tier 3 country, would thus be barred from concluding an agreement with the United States.
This amendment, if not removed on the Senate floor or in conference with the House of Representatives, will likely derail the ongoing TPP negotiations.
G7 Energy Ministers to Meet in Hamburg
Also on Tuesday, energy ministers of the G7 countries – Germany, France, the United States, the UK, Italy, Japan, and Canada – will meet to discuss energy collaboration and developments in Hamburg, Germany.
Although the schedule has not yet specified the full agenda of discussions, it is likely that the inclusion of U.S. Energy Secretary Ernest Moniz will lead to discussions regarding the energy and uranium components of the emerging framework in the P5+1 agreement with Iran.
Moniz has become President Obama’s go-to guide with Congress and the international community regarding the dimensions of the deal.
U.S. shale oil production and potential export boom will likely also feature on the agenda. Several members of Congress have suggested they may lift the U.S. ban on crude oil exports, which has gained strong support from European allies and would likely receive significant support from Canada, Italy, and Japan.
President Obama Will Meet with Gulf Cooperation Council to Shore Up Alliances
On Wednesday, President Obama will meet with leaders of the Gulf Cooperation Council (GCC), beginning a set of meetings lasting two days.
Deliberations will be focused on the ongoing Yemen conflict, which has served as a proxy conflict between Sunni and Shi’a forces in the Middle East, as well as the Iran nuclear framework agreement, which has drawn unease from the GCC.
In addition, it seems that President Obama will push for a shared Gulf missile defense system, which could assuage concerns of a potentially ascendant Iran should the nuclear deal proceed. Any such agreement will certainly provoke strong reactions from Israel, so Obama will have to be vague in his commitments not to offend a key US ally in the region.
Containing the now proliferating conflict in the Middle East hinges in part on the close coordination between the United States and the major oil-producing countries of the Gulf states.
Several Gulf states have expressed significant concerns that US interests have shifted. In particular the muted response from the United States to Syrian actions – due largely to a hostile US audience for military activity in the Middle East – have raised alarm in Riyadh, Saudi Arabia.
The conference will be of significant importance in strengthening relations between the United States and Saudi Arabia, and could alter the path of Middle East engagement.
EU Finance Ministers Meet to Hash Out Greek Debt Deal
On Monday, Eurozone finance ministers will meet to discuss the parameters of providing further EU aid to service Greek debt obligations. On Tuesday, Greece will need to repay 750 million euro to the IMF, and any delay in repayment could lead to demands of further financial tightening from IMF officials.
Although Greek Prime Minister Alexis Tsipras has indicated that a deal is within reach and that all “technical issues” had been resolved, EU officials stressed that significant work remains to secure a deal.
The last major meeting between the Greek government and EU finance officials in Riga ended in disaster: several EU finance ministers questioned the credibility and seriousness of the Greek government in initiating real reforms, particularly criticizing the behavior of Greek Finance Minister Yanis Varoufakis.
Responding to intense pressure from EU and Greek officials, Tsipras effectively replaced Varoufakis for the purpose of negotiations with a less divisive figure, Oxford-educated economist and international financial relations minister Euclid Tsakalotos.
Although the team reshuffle suggests that the Greek government may be increasingly serious regarding a firm conclusion to the debt negotiations, significant self-imposed political limitations (such as refusing to cut pensions or lay off workers) provide little policy space for Greece’s elected officials to operate.
As a result, the best case scenario following Monday and Tuesday’s meetings will likely be a stopgap measure.
Lasting reforms in response to EU aid appear unlikely at this point, though Mr. Tsakalotos may surprise with a more conciliatory approach that is negotiating predecessor.
Singapore Iron Ore Expo Meets During Commodity Slump
From Tuesday to Friday, Singapore will host the Singapore Iron Ore Week (SIOW). Hosts include the metallurgical website Custeel, the Singapore Exchange (SGX), and the event is supported by Bloomberg, Thompson Reuters, and CNBC.
Iron ore prices have fallen precipitously over the past year, from a high in January 2014 of $135/ton to hovering around $60/ton today. The slump has affected several major iron ore producers, particularly Australia.
In addition to significant job cutbacks, iron ore producers like Rio Tinto and BHP Billiton have indicated their intent to reduce production to boost prices, though many analysts suggest that this will be insufficient in changing the dynamic of fallen prices as demand from China remains sluggish. Some expect prices to fall to $45/ton.
The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
The Weekly Risk Outlook is written by GRI analyst Brian Daigle.