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In Kashmir, Pakistan and India race to tap the Himalayas for fresh water

MUZAFFARABAD — Several hundred meters underground, thousands of laborers grind away day and night on a mammoth hydroelectric project in contested Kashmir, where India and Pakistan are racing to tap the subcontinent’s diminishing freshwater supplies.

The arch rivals have been building dueling power plants along the banks of the turquoise Neelum River for years.

The two projects, located on opposite sides of the Line of Control — the de facto border in Kashmir — are now close to completion, fueling tensions between the neighbors with Pakistan particularly worried their downstream project will be deprived of much-needed water by India.

The Himalayan region of Kashmir is at the heart of a 70-year conflict between the nuclear-armed foes, with both sides laying claim to the conflict-riven territory.

The rivalry on the Neelum is underlined by both countries’ unquenchable need for freshwater, as their surging populations and developing economies continue to stress already diminished waters’ tables.

This situation represents a serious challenge to Pakistan’s food security and long-term growth, its central bank recently warned in a report.

The geography of the wider region only exacerbates the problem.

The Indus River — into which the waters of the Neelum ultimately flow — is one of the longest on the continent, cutting through ultra-sensitive borders in the region.

It rises in Tibet, crosses Kashmir and waters 65% of Pakistan’s territory, including the vast, fertile plains of Punjab province — the country’s bread basket — before flowing into the Indian Ocean.

The Indus Water Treaty, painfully ratified in 1960 under the auspices of the World Bank, theoretically regulates water allocation between the countries and is considered a rare diplomatic success story amid a bitter history.

It provides India with access to three eastern rivers (the Beas, Ravi and Sutlej) and Pakistan with three in the west (the Indus, Chenab and Jhelum), while setting the conditions for water usage.

UNDERGROUND CATHEDRAL
As a tributary of the Jhelum River, the Neelum theoretically falls into Pakistan’s sphere, which launched the Neelum-Jhelum power plant project a quarter of a century ago to counter the legal, but competing Kishanganga project in Indian Kashmir.

At the confluence of the Neelum and Jhelum, the gigantic underground cathedral of concrete and steel is near completion — the four generators are in place, waiting for the transformers and the network to be connected.

More than 6,000 Pakistani and Chinese workers busy themselves in the 28 kilometers (17 miles) of underground tunnels or in the power station itself, buried under 400 meters of rock in the heart of the Himalayas.

After completion, the dam is expected to churn out 969 megawatts of electricity by mid-2018.

“It is a fantastic feeling to see the outcome of such a historic project,” enthused Arif Shah, an engineer working on the site for eight years.

“We hope to finish our hydroelectric plant before the Indians,” he smiles, while acknowledging that the real pressure comes from Islamabad, which has promised to end the debilitating power cuts nationwide ahead of the 2018 elections.

On the Indian side, the Kishanganga power station is also in its final phase, but has delayed its late 2017 completion date, according to an official, in part because of ongoing unrest in the Kashmir valley.

Pakistan has filed cases at the World Bank against India and the Neelum dam, which it says will unfairly restrict the amount of water headed downstream.

According to the plant’s director Nayyar Aluddin, the production of electricity could shrink by 10-13% because of the Indian project.

But the hydroelectric projects on the Neelum River are only one of several points of friction between the two countries as the Indus Treaty faces increasingly pressing disputes.

Beyond the technical bickering, Islamabad is especially afraid of India cutting into its precious water supplies during strategic agricultural seasons that are key to feeding the country’s 207 million residents.

The possibility of hitting Pakistan’s food supply is regularly amped up by both Indian and Pakistani media, stretching perennially taut relations.

India’s Prime Minister Narendra Modi hinted at such reprisals following an attack in Indian Kashmir blamed on Pakistani insurgents in September 2016.

“Blood and water can’t flow together,” he said.

However, a blockade of any significant magnitude is not really technically feasible, while neither party has seriously sought to challenge the Treaty of the Indus.

“The disputes over the barrages are mostly symptoms of poor bilateral relationships,” said Gareth Price, a researcher at Chatham House.

The problem is that the rival countries conceive water as a zero-sum game — if one taps the resource, it means they are lost to the other.

But Islamabad must do its part, wrote Neil Buhne, UN coordinator in Pakistan, in an op-ed calling for the country to diversify “its water resources” while reigning in inefficiencies that waste water. — AFP

Short films for the shortest day of the year

INSTITUTO CERVANTES de Manila, the cultural center of the Embassy of Spain, and Ayala Museum will show four multi-awarded Spanish short films — Consulta 16, Elena Asins-Génesis, Luchadoras and Pulse — for free on Dec. 21, the winter solstice and shortest day of the year.

The free screening is part of El Día Más Corto/The Shortest Day, a short film festival celebrated simultaneously in more than 300 places worldwide.

The Shortest Day is an idea that was first set in motion by the French Short Film Agency in 2011, in which more than two million people from all over the world participated. In 2012 the initiative was emulated by other countries and in 2013 it grew into a truly international event, with the affiliation of a total of 12 European countries, as well as Canada.

El Día Más Corto took place in Spain for the first time in 2013. It was organized by the Spanish Association for short films, coordinadoradelcorto.org, with 100 selected short films distributed in 20 recommended programs.

The main goal was that everyone can organize a film festival for friends and neighbors in order to celebrate short films everywhere: schools, hospitals, streets, bars — every place is welcome to screen.

Several television channels (TVE and Canal+) aired special short film programs, and Instituto Cervantes created a playlist of short films for its centers worldwide. The National Film Board and all regional film boards and cinematheques also joined the event.

Instituto Cervantes joined this Festival in 2015, with the aim of showcasing the creativity of Spanish and Filipino short film productions.

As an indicator of the vitality of the medium in Spain, the short film Timecode, directed by Juanjo Giménez Peña, was chosen Best European Short Film at the European Film Awards 2017, celebrated last Dec. 8 at Dublin. It previously bagged the Palme d’Or in the short film category of the Cannes Film Festival.

By joining the worldwide screenings, Instituto Cervantes and Ayala Museum will help put the Philippines in the map of the said film festival. In 2017, the Philippines will be one of almost 50 countries worldwide that will celebrate together the love for short films.

The screenings will take place at Ayala Museum on Dec. 21, 5 p.m. Admission is free on a first-come, first-served basis. For those who register at http://bit.ly/AMlectureRegistration, there will be free popcorn courtesy of Instituto Cervantes. For more information, please check out their Facebook page (www.facebook.com/InstitutoCervantesManila) or the El Día Más Corto Web site (http://eldiamascorto.com/internacional).

PHL stocks rebound as investors pick up bargains

By Arra B. Francia, Reporter

SHARES jumped on Monday as investors went on bargain-hunting mode as the year comes to a close.

The 30-member Philippine Stock Exchange index (PSEi) gained 1.02% or 85.78 points to close at 8,422.82 on Monday, bouncing back from negative territory.

The all-shares index likewise rose 0.80% or 39.36 points to 4,909.79.

“Most of the blue chips led the rally for today. And may nalalapit na (there could be) window dressing as analysts see the index reaching the 9,000 level for 2018,” A&A Securities, Inc. analyst Jeng T. Calma said in a phone interview on Monday.

“It was back to bargain hunting after the last minute sell-off across-the-board… This was in tandem with US indices closing at records Friday, as investor expectations grew for the passage of the Republican-backed tax-cut legislations,” Regina Capital Development Corp. Managing Director Luis A. Limlingan said in a mobile phone message.

US firms are expected to bring home larger earnings with the tax bill under US President Donald J. Trump due to proposals to reduce federal corporate taxes to 21% from the current 35%.

With investors cheering this development, the Dow Jones Industrial Average picked up 0.58% or 143.08 points to close at 24,651.74 last Friday, while the Nasdaq Composite Index also added 1.17% or 80.06 points to 6,936.58. The S&P 500 index meanwhile jumped 0.90% or 23.80 points to 2,675.81.

All local sectoral indices closed in positive territory, with the mining and oil sector leading the surge at 1.55% or 173.35 points to 11,355.21, along with the property counter that likewise added 1.55% or 59.45 points to end at 3,892.73.

The services sub-index was up 1.25% or 20.07 points to 1,624.10; holding firms saw a 0.91% uptick or 77.47 points to 8,508.79; industrials rose 0.70% or 77.89 points to 11,205.31; while financials added 0.08% or 1.82 points to 2,169.21.

A total of 853.22 million issues changed hands valued at P5.66 billion. This is significantly lower than the P10.73-billion value turnover logged last Friday.

Advancers narrowly beat decliners, 103 to 100, while 46 issues were unchanged.

Net foreign selling continued on Monday at P196.2 million, albeit lower than the P1.1-billion outflow recorded last Friday.

Asked if this trend is expected to continue until the end of the year, A&A’s Ms. Calma said this would depend on how investors view the implementation of the Tax Reform for Acceleration and Inclusion program in 2018.

“We will see kung ganyan pa rin kalakas (if it will remain this strong), given that there are additional taxes next year, they will be increasing documentary stamp. So the implementation of the tax reform program could [potentially make investors shy away] from investing in the market,” Ms. Calma said.

Central bank net profit down at end-October

By Melissa Luz T. Lopez, Senior Reporter

THE CENTRAL BANK remained in the black as of end-October as a drop in gross revenues from a year ago due to lower fee-based incomes was offset by bigger trading gains.

The Bangko Sentral ng Pilipinas (BSP) posted a P12.38-billion net profit for the first 10 months, registering an 18.9% drop from the P15.26 billion it made during the same period in 2016.

Still, the amount improved from the P9.97 billion net income reported at end-September, according to data posted on the BSP’s web site.

Gains from currency trading propped up the central bank’s balance sheet during the period, as revenues declined by 14.4% from the prior year.

Interest income grew to P47.7 billion, up 22.8% from the P38.83 billion booked as of October 2016.

Meanwhile, collections from miscellaneous sources plummeted to P5.65 billion, barely a fourth of the P23.5 billion raised during the prior year.

Miscellaneous income is drawn from fees and penalties imposed on banks and other supervised financial firms who fail to meet certain standards and reporting deadlines imposed by the regulator.

On the other hand, the central bank kept its operating expenses lower at P55.82 billion, down 4.6% from the P58.49 billion it spent a year ago. However, this surpassed the amount the BSP raised from its core income sources.

Currency trading gains offset these losses as the central bank generated P14.92 billion from foreign exchange fluctuations, higher than the P11.43 billion it booked the previous year.

The peso traded above P51 versus the dollar during the first two weeks of November before returning to the P50 level to average at P51.0384 that month.

The BSP, as the country’s monetary authority, conducts “tactical intervention” during daily foreign exchange trading sessions in order to temper any sharp swings that may cause a sudden appreciation or depreciation of the peso.

Central bank officials have said that a weaker peso spells gains for the BSP as it has a lot of investments expressed in dollars.

The BSP is poised to maintain a second straight year in profit, following a P17.81 billion net income posted by the end of 2016. Last year’s recovery has been fuelled by trading gains worth P19.12 billion, which offset P1.2 billion in operational losses.

The 2016 performance also ended six straight years of losses for the central bank.

A proposal to infuse P150 billion as additional capital for the BSP remains pending before Congress, but has not been taken up by lawmakers since.

How PSEi member stocks performed — December 18, 2017

Here’s a quick glance at how PSEi stocks fared on Monday, December 18, 2017.

The TRAIN passes the bicam — what’s in and what’s out?

In the Philippines, the last major overhaul of the tax system came 20 years ago. But Filipinos may need not wait any longer. A few days ago, the Senate and the House of Representatives ratified the bicameral conference committee report harmonizing the two chambers’ versions of the Tax Reform for Acceleration and Inclusion (TRAIN) bill. The final bill is now up for signing into law by the President and, once signed, is set to be implemented by next year. True enough, the TRAIN bill is now heading towards the finish line and appears to be the government’s signature legislative achievement so far.

What’s in and what’s out in the bicameral committee-approved TRAIN bill? Below are some of them.

Personal income tax. The most popular component of the bill is the part that changes the personal income tax system. Under the bicameral committee-approved bill, individual earnings of P250,000 or below per year are to be exempt from taxes. The excess over P250,000 will be subject to graduated tax rates of 20% to 35% percent until 2022, and 15% to 35% from 2023 onwards. The personal and additional exemptions are taken out, though. On the other hand, the non-taxable portion of 13th-month pay and other bonuses has been increased from P82,000 to P90,000.

On the part of employees, the above change will result in an increase in take-home pay, as the taxes that will be withheld by the employers will consequently reduce.

Passive income and other taxes. On cash and property dividend income, the good news on the part of affected individual stockholders is that the bicameral committee-approved bill retains the 10% tax rate. The previous proposal to double this tax rate was scrapped, lifting the anxiety among concerned individual stockholders and individual prospective investors.

For interest income on bank deposits, however, the taxes to be withheld on interest on foreign currency deposits doubled from 7.5% to 15%. Meanwhile, as regards the capital gains tax rate on capital gains from the sale of shares of stock not traded on the stock exchange, the rate will be a flat 15% on the net capital gain. The tax rate on capital gains from the sale of shares of stock not traded on the exchange is currently 5% (for the amount of gain not over P100,000) plus 10% (on the amount of gain in excess of P100,000). Interestingly, this could be a significant factor in considering future share sales, particularly for those involving millions or billions worth of capital gains.

Value-added tax (VAT). The VAT threshold was increased from P1,919,500 to P3,000,000 to provide relief to small and medium enterprises. There were also additions and subtractions from the list of VAT-exempt transactions.

A provision in the bill of which many are skeptical whether it will be implemented is the portion enhancing the VAT refund system. Under the bicam-approved measure, input VAT refunds shall be granted within 90 days from the submission of official receipts, invoices, and other documents. This appears to be promising. The bill further provides that a failure on the part of any official, agent, or employee of the Bureau of Internal Revenue to act on the application within the 90-day period shall be punishable under the law. Taxpayers are hopeful that the implementation side would really give life to the VAT refund provisions of the bill.

Compliance requirements. There will also be reforms in tax administration and compliance. One of the most welcome changes is the proposed simplification of income tax returns (ITRs). The bicam version provides that the income tax return shall consist a maximum of four pages in paper or electronic form. This can be a huge relief on the part of the taxpayers. Taxpayers currently fill out 12- or eight-page returns when filing and paying for income tax.  What a welcome development, indeed!

The above are just some of the many provisions in the bicam measure, and the bill is still subject to the approval of the President. While there are still some contentious provisions in the bill that many may not approve of, it is hoped the above measures on tax reform will generally improve the taxpayers’ trust in the Philippine tax system. Tax reform involves many trade-offs, as two interests should always be considered — the taxpayers’ and the government’s. As such, only the taxpayers and the government, in a give and take relationship, can make this tax reform work. This could be something that we can look forward to next year and in years to come.

Welcome aboard the TRAIN!

John Paulo D. Garcia is a senior of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.

Growth, inflation outlook of select Asia-Pacific economies

Nation at a Glance — (12/19/17)

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

Fintech startup Qwikwire aims to raise $9 M from ‘initial coin offering’ in 2018

Two‑year‑old fintech company Qwikwire, which boasts of being the leading cross‑boarder real estate payment processor in South East Asia, announced last Friday its own digital currency that will be sold through an initial coin offering (ICO).

Pre‑selling of the coin will start on February 26, and regular selling will run from March 26 until the end of April.

Qwikwire aims to raise $9 million for its new project called AQwire, a “decentralized app” and website powered by blockchain technology that will serve as a market place for real‑estate developers to attract and sell properties to foreign buyers. The app will be launched in September 2018.

Tech startups that utilize blockchain technology are taking advantage of the popularity of cryptocurrencies like the much talked about Bitcoin (whose value, as of writing, is now over $20,000 per coin). In this process, they develop new ways to raise capital—some of which going beyond the norm of courting investors or borrowing from the bank.

This ICO process is pretty much the same as the initial public offering or IPO done by established companies to expand their capital by selling a stock to the public or potential investors. In an ICO, however, no share in the company is offered, except for a “crypto‑token” sold in exchange of other digital currencies like Bitcoin and Ethereum to generate funds for an upcoming product or application.

While tech startups in other countries like the U.S. have been resorting to this fund raising process since 2013, launching an ICO is relatively new to the Philippine startup community.

 

Joining the blockchain space

In Qwikwire’s case, the company will sell its own cryptocurrency called “QEY” in exchange of Ethereum, with the equivalent value depending on the latter’s rate during the selling period.

Users of the app can only use QEY in purchasing properties through the platform.

The initiative marks Qwikwire’s entry to the blockchain space.

Qwikwire CEO and founder Ray Refundo believes that “blockchain is the future” and that it is “the new internet.”

“So many companies have been built on top of the internet; Google, Facebook, Uber. [It’s an entirely] new economy built on top of the internet. But the internet is a simple thing, it’s just actually a network of interconnected computers. In the same way, blockchain is a system of interconnected ledgers or data bases. Basically it’s a new way of processing information,” he explained during the launch held at QBO Innovation Hub in Makati, City.

While not so much applications have been built yet on top of the technology after Bitcoin, which is the first blockchain‑powered app, Refundo said that in the next 20 years, blockchain will be “as big as or even bigger than the internet today.”

By using blockchain to run the new app, Refundo said they can validate all listings, buyers, and transactions in the platform at large. And since it is a decentralized system, users no longer need to pay for a middleman that is among the requirements in purchasing properties from abroad.

“[There are] so many problems that can be solved by blockchain, especially when you talk about global commerce or from traveling to banking and finance,” he said.

Hot money turns around in November

MORE FOREIGN FUNDS entered the Philippines in November as investors drew optimism from tax reform progress in Congress as well as increased interest following the Association of Southeast Asian Nations (ASEAN) summit here, the central bank said.

Foreign portfolio investments logged a $107.71-million net inflow last month, a turnaround from $563.42 million in net outbound funds recorded in October as well as outflows worth $607.31 million a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed.

These flighty investments are often called “hot money” as these enter and leave the country with ease.

Investors from abroad grew confident about placing their bets on the Philippines last month, owing to the country’s trouble-free hosting of the 31st ASEAN Summit and related meetings on Nov. 13-15 as well as the Senate’s approval that month of the first of up to five planned tax reform packages, the BSP said in a statement sent over the weekend.

The first tax reform package was ratified by both chambers of Congress on Dec. 13 and now awaits signing into law by President Rodrigo R. Duterte, in time for implementation next month.

The central bank also credited generally positive third-quarter corporate earnings reported by locally listed companies for the “positive investor reaction.”

International players placed a total of $1.129 billion in investments in the Philippines, which was slightly offset by $1.021 billion in funds withdrawn the same month.

This compares to $1.19 billion in gross inbound flows a year ago that were cancelled out by $1.797-billion funds that fled the economy.

Around 80.8% of hot money went to shares of publicly listed companies. These transactions resulted in a $105-million net outflow. Favored were stocks of holding firms; banks; food, beverage and tobacco companies; property firms; and utilities, the central bank said.

On the other hand, a fifth of investments went to government-issued peso-denominated debt papers, which yielded a $213-million net inflow. Placements in other peso-denominated debt securities, however, resulted in a net outflow of under $1 million.

The United States, the United Kingdom, Singapore, Norway and Luxembourg were the biggest sources of foreign investments that month.

About 90.3% of outbound flows in November headed for the US.

Despite November’s turnaround, the year-to-date hot money tally remained at a net outflow of $634.53 million.

That, in turn, was a reversal from the $672.73-million net inflow seen in 2016’s comparable 11 months.

The BSP now expects foreign portfolio investments to reach a $2.5-billion net outflow for the entire year following its latest review. This would be a significant turnaround from the $404.43-million in 2016 net inflows.

Concerns over interest rate hikes from the US Federal Reserve, global terrorist attacks and North Korea’s nuclear missile testing continued to hound investor sentiment, adding to uncertainty in the Philippine mining industry after several sites were ordered closed by the government earlier this year.

The Fed introduced 2017’s third rate hike at the end of its Dec. 12-13 policy review, and kept plans for three additional rate increases in 2018 and 2019.

BSP officials said this latest US interest rate adjustment could lead to some volatility in the financial markets, but maintained that local policy need not match the Fed’s tightening just yet. — Melissa Luz T. Lopez

Hot money turns around in November

DoF hopeful on excluded tax reform provisions

THE GOVERNMENT hopes to persuade lawmakers to approve next quarter provisions scratched out upon ratification of the first of up to five planned tax reform packages, the head of the Department of Finance (DoF) said.

“Package one has become package 1A and 1B, the second part of the package,” Finance Secretary Carlos G. Dominguez III told reporters on Friday at the DoF headquarters in Manila.

“The legislature has committed that they will pass the second part of the tax package — part B of tax package one — by the first quarter of next year.”

Mr. Dominguez was referring to the planned estate tax amnesty and easing of the bank secrecy law. He also included a planned increase in the Motor Vehicle Users Charge.

Senator Juan Edgardo “Sonny” M. Angara and Quirino Rep. Dakila Carlo E. Cua, chairmen of the ways and means committees of the Senate and of the House of Representatives, respectively, did not respond when asked to confirm Mr. Dominguez’s remarks.

While the ratified version of the first tax reform package contained some significant departures from earlier versions, Mr. Dominguez said it should still generate about two-thirds of the P130 billion in additional revenues initially targeted in the first year of implementation — starting Jan. 1, 2018 — as projected.

Mr. Dominguez said he was confident that President Rodrigo R. Duterte would sign the ratified measure into law despite differences between the final and earlier tax reform versions.

“We had extensive discussions on that with them (lawmakers). Well what is already passed by both houses is already passed. In the version that was ratified by both houses, the VAT (value-added tax) on domestic coal production is exempt,” said Mr. Dominguez, referring to the measure’s controversial last-minute provision.

Asked whether the DoF is comfortable with the reform’s current configuration, Mr. Dominguez replied: “Well you know this is legislation, and we understand that the administration does not always get 100% of what it wants.”

“This is something, though, that is a step forward,” he added.

“In other words, when they ratified it on Wednesday we have a brighter future than what we were looking at last Tuesday.”

The first tax package which Congress ratified last Dec. 13 consists of reduced personal income, estate and donors tax rates; removal of some VAT exemptions; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not in the stock exchange, and stock transactions; new taxes for sugar-sweetened drinks and cosmetic enhancements; as well as tax administration measures.

The provisions on tobacco, coal, mining and documentary stamp taxes were supposed to form part of the next tax reform packages which the DoF planned to submit to Congress next year.

The entire tax reform program is designed to shift the burden to those who can afford to pay more, while raising additional revenues that will help finance the government’s ambitious P8.44-trillion infrastructure development effort until 2022. — Elijah Joseph C. Tubayan

Global trade order in a wobble as Washington snubs status quo at World Trade Organization

BERLIN — The frustration of Roberto Azevedo was evident when, as director general of the World Trade Organization (WTO), he summed up the results of a three-day ministerial conference in Buenos Aires in the past week.

There were simply none.

The delegates of more than 160 countries from around the globe failed to reach any new agreements in the face of stinging US criticism of the WTO and vetoes from other countries. At the end, they were not even able to agree on a joint communique.

And a further blow could strike in the coming week when Republican US lawmakers aim to pass sweeping changes to the tax code which may introduce protectionist measures critics say are at odds with WTO rules.

“In retrospect, 2017 could mark the beginning of the end of the rules-based free trade order and the system unravelling,” said Andre Sapir, senior fellow at the Brussels-based think tank Bruegel.

He called it a “big worry.”

US President Donald Trump, propelled to power by his election promise to put “America First” and protect US workers against what he views as unfair trade practices from China and others, has weakened the WTO as a forum to settle disputes.

In the past months, Washington has blocked the appointment of several WTO appeals judges, a move which could paralyze the body’s dispute settlement system for years to come.

“The new US administration does not want to work within multilateral frameworks,” Mr. Sapir said.

“It wants bilateral deals.”

As a critic, he says, “This would lead to a system in which the stronger ones outplay the smaller ones.”

“It would be the law of the jungle.”

This apparent change of course in Washington is puzzling for free trade advocates who argue that the United States for decades supported and benefitted from multilateral decision-making and rules-based arbitration enshrined in the WTO statutes.

THREAT TO GROWTH
For them, Mr. Trump’s protectionist rhetoric is a threat to global growth and prosperity since tariffs and other trade barriers such as import restrictions, registration formalities or state aid for domestic suppliers push up costs for everyone.

The slow dismantling of the international trade order could also hurt midterm export prospects for European countries and Germany in particular at a time when the euro zone economy is benefitting from a surge in demand for its manufactured goods. A rebound in exports is one of the key drivers of Germany’s economic upswing as they still account for more than 40% of its gross domestic product. The United States is Germany’s most important single export destination after the bloc of European Union countries.

But the combat lines have also become blurry.

In a sign that other countries share Mr. Trump’s concerns about Chinese trade practices, the European Union and Japan joined Washington in the past week in vowing to combat market-distorting policies that fuel excess industrial capacity, including subsidies for state-owned enterprises and technology transfer requirements.

Following the fruitless WTO meeting, the US tax overhaul could now be another nail in the coffin of free trade. The European Union and the finance ministers of Europe’s five biggest economies have sounded an alarm over elements of the plan.

‘CLEARLY PROTECTIONIST’
In a letter sent to US Treasury Secretary Steven Mnuchin, Britain, France, Germany, Italy and Spain said that the inclusion of “certain less conventional” tax provisions would contravene WTO rules and violate double taxation treaties.

In a separate letter, the European Commission warned Mr. Mnuchin that the planned overhaul contained elements that risk seriously hampering trade and investment flows between the world’s two biggest economic blocs.

Some of the provisions would discriminate against foreign business in the United States, the Commission said, while the Federation of German Industries (BDI) — the biggest lobby group for manufacturers in Europe’s largest economy — was more blunt.

“Clearly protectionist,” it said of some proposed excise taxes.

What actually emerges from Washington remains unclear, but even if US lawmakers decide to delete some of the disputed measures in their final bill, Mr. Trump is still wedded to a unilateral approach to trade that does not require consultations with Congress.

So far, he has not fulfilled campaign threats such as withdrawing from the North American Free Trade Agreement (NAFTA) or imposing steep import tariffs on imported goods such as German and Japanese cars manufactured abroad.

But Mr. Trump has ordered the US Commerce department to conduct an investigation into whether steel imports threaten US national security and whether broad import restrictions should be imposed.

European allies have warned Mr. Trump that such a move could trigger a global trade war since trading partners could retaliate and impose trade barriers on certain US goods that they label as a threat to their national security.

Chad P. Bown, senior fellow at the Washington-based Peterson Institute for International Economics, said Mr. Trump’s approach may not end up targeting China, but will hit partners such as Canada, Germany, Japan, Mexico and South Korea — most of which have little to do with the concerns the US has with China.

In a research note entitled “Trump Is A New Kind of Protectionist — He Operates in Stealth Mode,” Mr. Bown warned that Mr. Trump’s version of protectionism could result in higher costs for US industries that use steel and aluminum.

But for Mr. Trump the drive is a matter of “America First” whether the international trade order established after World War Two gets in the way or not. — Reuters