Fair Trade Harmed by Cheating States Like China and Ukraine

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Posted: Apr 10, 2021 12:01 AM

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Now that we can see the finish line for the coronavirus pandemic, it is time to go back to business as usual. One problem with going back to the way things were in the sphere of trade is that some states cheat. The classic example is China because they heavily subsidize Chinese companies and use stolen technology.

The Biden Administration has to take a strong stand against corruption and unfair trade practices or the U.S. economy will suffer. We need to come out of this pandemic with a view towards rebuilding our economy first and focusing on establishing fair trade agreements that look hard at the corrupt and protectionist practices of other nations.

China is not unique among nations that cheat. The European Union (EU) is also very protectionist. They have sought to create a free trade zone with member states and unfair trade practices with non-member states. It is interesting to watch from the sidelines a trade war break out between China and the EU over accusations that China uses slave labor. Reuters reported on March 23, 2021, “fewer than three months after it was agreed, progress to pass an EU-China deal giving European companies better access to Chinese markets has sharply reversed after tit-for-tat sanctions.” China blacklisted a number of EU officials in response to the EU claims of forced labor in China. The result was the breakdown of a comprehensive agreement on investment that would have benefitted both parties with more investment flowing between China and the EU.

The result of a breakdown in trust and fairness between trade partners is that both nations suffer. A lack of investment in one nation will hurt both parties. Shutting down borders to trade will end up limiting consumer choice and the investment opportunities for entrepreneurs. These problems get worse when there are accusations of corruption and protectionism that ends up walling off a nation to any foreign investment.

A case study in how the action of a government can end up hurting both the investor and consumer is currently rolling out before our eyes in Ukraine. It is a country that has been in a war with Russian forces for years and is heating up again. The AP reports that “the Kremlin said Friday it fears the resumption of full-scale fighting in eastern Ukraine and could take steps to protect civilians there, a stark warning that comes amid a Russian troop buildup along the border.” Back in 2014, Russia sent in troops to occupy Ukraine’s Crimea Peninsula and the increased tensions have been off and on ever since. Many perceive the President of Ukraine, Volodymyr Zelenskyy to be a weak leader of a corrupt government.

The corruption is evidenced by a controversy over a Canadian solar panel company that has been shut off from providing energy to Ukraine. The company, TIU Canada, is a stalking horse for other Canadian and American energy companies seeking to enter the market in Ukraine and other surrounding nations currently reliant on Russia for energy. The allegation in this controversy is that Igor Kolomoisky of the Nikopol Ferroalloy Plant, a Ukrainian entity, has shut off the Canadian companies access to the Ukrainian market so the Ukrainian company can make more money and control the energy production.

There now is a pending lawsuit under the Canadian Ukrainian Free Trade Agreement (CUFTA) initiated by the Canadian company that broke ground in Ukraine in 2017 and invested tens of millions to build a plant. The solar power plant started to produce energy in April of 2019 and in March of 2020, the plant was disconnected from the electrical grid contrary to domestic energy laws. If this is allowed to stand, no Canadian or American energy company will invest in Ukraine because they fear that they will be corruptly disconnected from the Ukraine electric grid just like TIU Canada. These policies hurt Ukrainian consumers and investors who take a chance to invest money in an unstable country with allegations of corruption.

The U.S. needs to go back to business as usual with a caveat. Let’s sideline protectionism and unfair trade practices so that we can remake an American economy that has access to foreign markets.  The Biden Administration is talking tough on China, but they need to recognize that China is not the only bad actor when it comes to fair trade policies. Cheating by other nations should not be tolerated going forward.

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