Will the lessons be learnt from the financial crisis in Cyprus?

This time, it is Cyprus’ turn to face a bitter financial crisis as bank depositors get hit and capital controls are imposed. 

euroDemonstrators in Athens. The roots of the eurozone crisis lie in its unwillingness to uphold fiscal discipline. Photograph: Louisa Gouliamaki/AFP/Getty Images

THE financial crisis in Cyprus has again shown that over-dependence on the financial sector and an unregulated and liberalised financial system can cause havoc to an economy.

The particular manner in which a financial crisis manifests itself may be different from country to country, depending on the ways the country became financially over-reliant or over-liberalised, and also on how ever-changing external conditions affect the country.

For the past two weeks, Cyprus hit the headlines because of the rapid twists and turns of its crisis, the terms of the bailout it negotiated with its European and IMF creditors, the hit that bank depositors are forced to take, and finally the “capital controls” that the government has imposed to prevent bank runs and capital flight out of the country.

Depositors with more than 100,000 (RM396,000) could lose more than half their savings.

Bank customers can only withdraw 300 (RM1,189) daily; cashing of cheques is prohibited; transfers of funds to accounts held abroad or in other credit institutions are prohibited; transfers due to trade transactions above 5,000 (RM19,832) a day require central bank permission; the use of credit cards overseas is restricted to 5,000 (RM19,832) per account a month; and travellers can only take out 1,000 (RM3,960) or equivalent in foreign currency per trip.

These capital controls, announced on March 28, were highlighted in the media as the first to be imposed by a country belonging to the European Union.

It was like the slaying of a “sacred cow”, because the freedom to move funds out of and into the European countries had been treated almost like a human right.

But it is this total freedom for the flow of funds that has contributed or even been ultimately responsible for so many financial crises in so many countries in the past few decades.

This liberalised system of capital flows enables residents to place their funds abroad or to purchase foreign assets like bonds and shares.

It also enables foreigners to bring in funds either for short-term speculation and investment or longer-term investment and savings.

After the Second World War, capital controls were the rule: flows of funds to and from abroad were mainly restricted to activities linked to the real economy of trade, direct investments and travel.

From the mid-1970s, the liberalisation of capital flows took place in the rich economies and gradually spread to many developing countries.

The finance ministers of Brazil and of other developing countries have been protesting against the easy-money policies in rich countries that have had adverse effects on emerging economies.

When the internal or external situation changes and investor perception changes with it, the inflow of funds turns into its opposite.

The sudden outflow of funds, and depreciation of the currency, can then cause an even more devastating effect on the economy.

In the 1997-99 crisis, East Asian countries that had over-liberalised their financial system found that local banks and companies had borrowed heavily in US dollars.

When their currencies depreciated, many of the borrowers could not service their loans.

The countries’ foreign reserves dropped to danger levels, forcing them to go to the IMF for bailout loans.

Malaysia fortunately had some control over the amount local companies could borrow from abroad, which prevented it from falling into an external debt crisis.

The imposition of capital controls over outflows in September 1998 enabled Malaysia to avoid a financial crisis requiring an IMF bailout.

The immediate response from the IMF and the Western establishment was that the capital controls would destroy the Malaysian economy.

Today, the economic orthodoxy has changed, and most analysts including at the IMF give credit to Malaysia for the capital controls.

The Malaysian controls included a temporary ban on foreigners transferring their ringgit denominated funds (for example in the stock market) abroad, a limit to the funds local travellers could take out of the country, and limits to overseas investments by local companies and individuals.

Today, the IMF itself has changed its position, saying that capital controls in certain situations are not only legitimate but may also be necessary.

It has partially recognised that unregulated capital flows can cause financial instability and economic damage.

In the case of Cyprus, analysts now conclude that its growth model was flawed because it was too reliant on a bloated financial sector, having become a haven for foreign savers, especially from Russia.

But a major factor in its recent crisis was that the country’s biggest banks invested in Greek government bonds.

In October 2011, a bailout package was arranged for Greece by the European Union and the IMF.

Part of the bailout terms was that holders of Greek government bonds would take a “haircut” or loss of about 50%.

This Greek debt restructuring meant a loss of 4bil (RM15.9bil) for banks in Cyprus, a huge amount in a country whose GNP is only 18bil (RM71.4bil).

Now, it is Cyprus’ turn to be reconfigured and re-created as part of a 10bil (RM39.7bil) bailout scheme. The two biggest banks, Bank of Cyprus and Laiki Bank are to be drastically restructured, with the latter to be closed.

The biggest innovation designed by the European Union and IMF creditors is that the bank depositors will have to take losses. Deposits less than 100,000 (RM396,000) are to be spared, after an original plan to also “tax” them by 6.75% was cancelled after a huge outcry and the fear of contagion, with bank runs in many European countries.

The final plan is for deposits over 100,000 (RM396,000) in the two banks to take losses not by the originally planned 9.9% but by much more.

The new European policy of getting bank depositors to take a big hit in bailouts of banks will have big ramifications for public confidence in banks.

The new perception is that money put as savings in banks is no longer safe.

The question remains: will the policymakers learn the real lessons from these crises?


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34,000 more out of work in Eurozone

BRUSSELS: Unemployment in the eurozone remained at record highs in August and the number of people out of work climbed again, highlighting the human cost of the bloc’s three-year debt crisis.

Joblessness in the 17 countries sharing the euro was 11.4% of the working population in August, which was stable compared with July on a statistical basis, but another 34,000 people were out of work in the month, the EU’s statistics office Eurostat said yesterday.

That left 18.2 million people unemployed in the eurozone, the highest level since the euro’s inception in 1999, while 25.5 million people were out of a job in the wider 27-nation European Union, Eurostat said.

The debt crisis that began in Greece in 2010 and has spread across the eurozone to engulf Ireland, Portugal, Cyprus and the much bigger economy of Spain has devastated business confidence and sapped companies’ abilities to create jobs.

A European-wide drive to cut debts and deficits to try to win back that lost confidence has led governments to cut back spending and lay off staff, while stubbornly high inflation and limited bank credit are adding to household’s problems.

Joblessness could go beyond 19 million by early 2014, or about 12% of the eurozone’s workforce, according to a new study by consultancy Ernst & Young, predicting that rate to rise to 27% in indebted Greece. That compares with 24.4% in the country in June, the latest data available.

“In this difficult environment, companies are likely to reduce employment further in order to preserve productivity and profitability,” the report said.

Eurozone manufacturing put in its worst performance in the three months to September since the depths of the 2008/2009 financial crisis, with factories hit by falling demand despite cutting prices, a survey showed yesterday.

The International Monetary Fund expects the eurozone’s economy to shrink 0.3% this year and only a weak recovery to emerge next year that will generate 0.7% growth.

But the joblessness picture also obscures wide regional variations. In Austria, unemployment is the eurozone’s lowest at 4.5% in August, a slight fall from July, while Spain has the highest rate at 25.1% in the month.

While a bursting of a real estate bubble in Spain and the end of a decade of credit-fuelled expansion in Greece account for difficulties in the Mediterranean, policymakers still face the challenge of trying to revive growth across the bloc.

The recession in the eurozone is due to the tough consolidation course in the peripheral countries, weaker global demand and the high uncertainty coming from the sovereign debt crisis,” Commerzbank economist Christoph Weil wrote in a recent research note.

Eurozone and UK central bankers will likely leave policy unchanged at their meetings this week, but both will announce additional measures to help their moribund economies before the year’s end, according to a poll. – Reuters

U.S. designs on South China Sea exposed!

BEIJING, May 25 (Xinhua) — U.S. Senator John Kerry‘s recent statement on the UN Convention on the Law of the Sea has exposed the country’s selfish intentions for the South China Sea, an area where the United States has no claims to sovereignty and is not a party in disputes there.

Kerry, chairman of the Senate Committee on Foreign Relations, said during a hearing on the convention held Wednesday that China and other countries are “staking out illegal claims in the South China Sea and elsewhere.”

He added that becoming a party to the treaty would provide an immediate boost to U.S. credibility “as we push back against excessive maritime claims and illegal restrictions on our warships or commercial vessels.”

As the United States turns its national security focus toward the Asia-Pacific region, its willingness to join the convention is a means to find a legal framework for the country to interfere with issues in the South China Sea and elsewhere, as well as maximize its strategic interests in political, economic and military fields around the world.

The U.S. is the only major nation that has refused to sign the treaty, which has been endorsed by 160 countries and the European Union.

The hearing was the first one on the treaty in four years, and the Obama administration and the U.S. Armed Forces are now pushing Congress to sign it.

The reason why the U.S. once refused to sign the treaty is that the treaty’s provisions will limit the free navigational rights of U.S. warships in other countries’ exclusive economic zones.

However, the U.S. attitude toward the convention is now changing.

Dr. Zhang Haiwen, deputy director of the China Institute for Marine Affairs under the State Oceanic Administration, said the U.S. has realized the disadvantages of not signing the convention, which have impaired its role as a leader in global maritime issues.

Kerry said at the hearing that ratifying the treaty will lock down the favorable navigational rights that the U.S. military and shipping interests depend on every single day. It will also strengthen the country’s hand against China and others who “stake out claims” in the Pacific, the Arctic or elsewhere.

The treaty will also help U.S. companies’ oil and gas investments secure the country’s energy future as well as help secure access to rare earth minerals, which the country needs for weapons systems, computers and cell phones, among other products, Kerry added.

Kerry also said that China and other countries are “staking out illegal claims in the South China Sea and elsewhere.” However, the truth is that he thought disputes in the South China Sea have affected U.S. companies’ rights to gain oil and gas resources in the region and the free navigational rights of its vessels.

Zhang said the convention is the fruit of over a decade of international negotiations and the product of the balance of different interests. It provides fundamental and principled provisions for maritime activities for the whole of mankind.

“But the convention itself cannot solve territorial disputes,” said Zhang.

She said China’s territorial claims over some islands and shoals in the South China Sea have sufficient historical evidence and legal bases, and have been recognized by the international community over a long period of time.

It is dangerous that some U.S. politicians are expanding U.S. claims and raising its degree of interference. This will aggravate regional tensions and is not conducive to resolving issues.

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“China has long been committed to safeguarding peace and stability by consulting with ASEAN nations and signing agreements, such as the Declaration on the Conduct of Parties in the South China Sea,” Foreign Ministry spokesman Hong Lei said. Full story

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Eurozone unemployment hits record 10.9% as manufacturing slumps to recession!

Eurozone unemployment hit a record in March, with Spain’s 24.1% rate setting the pace.

NEW YORK (CNNMoney) — Unemployment in the eurozone rose to 10.9% in March, another sign of the broad economic weakness and possible recession across the continent.

The unemployment rate across the broader 27-nation European Union remained at 10.2% in March, according to a organization report Wednesday.

But the 17-nation eurozone unemployment edged up from 10.8% in February. The EU and eurozone rates are the highest since the creation of the common euro currency in 1999.

There are now 13 nations in Europe struggling with double-digit percentage unemployment, led by a 24.1% rate in Spain, which was a record high, and 21.7% in Greece.

The rising jobless rates are primarily blamed on the ongoing European sovereign debt crisis, which has forced governments to take tough austerity measures to cut spending.

There are 12 countries in Europe that have had two or more consecutive quarters in which their gross domestic product has dropped — a condition many economists say define a recession. Nine of the countries are in the eurozone, and three use their own currency.

The United Kingdom, which had an 8.2% unemployment rate in its most recent reading, is the largest economy now in recession.

The entire EU and and eurozone are widely believed to be in recession as well, a fact likely to be confirmed when their combined GDPs are reported on May 15.

Even some of the healthier countries in Europe are likely to meet that criteria, including Germany, the EU’s largest economy and one in which unemployment is 5.6%, the fourth-lowest rate on the continent.

German GDP declined 0.2% in the fourth quarter and many economists are forecasting another drop in the first quarter, suggesting Germany could be in recession soon.


By contrast to Europe, the U.S. unemployment rate has been steadily falling, reaching 8.2% in March. The jobless rate here reached a 26-year high of 10.0% in October 2009, but it has declined in six of the last seven months, shaving almost a full percentage point off the 9.1% rate of last August.

Economists surveyed by CNNMoney forecast that the rate will stay unchanged in the April jobs report this Friday, while hiring is expected to pick up to a gain of 160,000 jobs

By Chris Isidore @CNNMoney ,  Newscribe : get free news in real time

Eurozone manufacturing heads towards recession


(BRUSSELS) – Gloom over eurozone manufacturing deepened in April, highlighting the impact of policies to control budgets and signalling recessionary pressures, a Markit survey showed on Wednesday.

A key index of activity based on a survey by Markit fell to almost the lowest level for three years.

Markit publishes closely watched leading indicators of economic activity and in its latest survey for its purchasing managers’ index the firm said: “The eurozone manufacturing downturn took a further turn for the worse in April.”

The adjusted manufacturing PMI figure, closely watched as an indicator of economic trends, fell to 45.9 from 47.7 in March.

A figure of below 50 points to contraction and Markit noted that “the headline PMI has signalled contraction in each of the past nine months.”

The chief economist at Markit, Chris Williamson, said: “Manufacturing in the eurozone took a further lurch into a new recession in April, with the PMI suggesting that output fell at (a) worryingly steep quarterly rate of over 2.0 percent.”

He said that “austerity in deficit-fighting countries is having an increasing impact on demand across the region” and that “even German manufacturing output showed a renewed decline.”

Williamson commented that the latest forecast from the European Central Bank “of merely a slight contraction of GDP (gross domestic product) this year is therefore already looking optimistic.”

He added: “However, with the survey also showing inflationary pressures to have waned, the door may be opening for further stimulus.”

His remarks highlight controversy over policies in many countries to correct budget deficits and heavy debt to install confidence on debt markets where governments borrow.

There are increasing warnings that the eurozone must raise economic growth, but opinions differ on the best route, with some saying that budget austerity opens the way to structural reform and competitiveness and others saying that extra stimulus is essential.

Markit said that “the April PMIs also indicated that manufacturing weakness was no longer confined to the region’s geographic periphery.”

In Germany, which has the biggest economy in the eurozone and has shown broad resilience to downturn elsewhere, Markit also noted a setback.

“The German PMI fell to a 33-month low, conditions deteriorated sharply again in France and the Netherlands also contracted at a faster rate,” it said.

Markit said: “There was no respite for the non-core nations either, with steep and accelerating downturns seen in Italy, Spain and Greece. Only the PMIs for Austria and Ireland held above the 50.0 no-change mark.”

Markit said that manufacturers reported weak demand from clients inside and outside the zone and this had hit even German companies.

The worsening outlook for eurozone manufacturing was also affecting the job market, Markit said, just as eurozone data put the unemployment rate at a record high level.

In manufacturing “job losses were reported for the third straight month in April, with the rate of decline the sharpest in over two years,” Markit said on the basis of its survey. – AFP.

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Unemployment Fuels Debt Crisis

Job-seekers wait outside a job center before opening in Madrid, Spain. Spain’s jobless rate has more than doubled since 2008 after the collapse of a real estate market that fueled a decade of economic growth. Photographer: Angel Navarrete/Bloomberg

Surging unemployment rates from Spain to Italy and Greece are threatening efforts to quell the region’s debt crisis and keeping bond yields close to record premiums relative to benchmark German bunds.

Joblessness is soaring as European nations reduce spending, igniting strikes and protests from Athens to Madrid. Unemployment in Spain surged to almost 24 percent, pushing the euro-region level to 10.8 percent in February, the highest in more than 14 years. Italy’s rate is at 9.3 percent, the most since 2001, hampering efforts to spur economic growth.

Deepening recessions in Italy and Spain contributed to a five-week slide in Italian and Spanish bonds as the shrinking tax base helped lead to both countries raising their deficit targets. The yield premium investors demand to hold Spanish 10- year debt over German bunds reached a four-and-a-half-month high this week.

“The higher the jobless rate, the more that has to be spent on benefits, creating the potential for a negative spiral,” said Christian Schulz, an economist at Berenberg Bank in London and a former ECB official.

Berenberg Bank predicts euro-region unemployment will peak at 11.5 percent in September, he said.

The extra yield investors demand to hold Spanish 10-year bonds rather than similar-maturity German securities was 411 basis points yesterday, compared with an average 130 during the past five years. The rate has risen more than 80 basis points this year. The spread was 376 basis points for Italy and 1,072 basis points for Portugal.

Youth Joblessness

Spain’s jobless rate has more than doubled since 2008 after the collapse of a real estate market that fueled a decade of economic growth. The country is now home to more than one third of the euro-region’s jobless and more than half of young people are out of work.

Hundreds of thousands of Spaniards protested on March 29 in a general strike against Prime Minister Mariano Rajoy’s overhaul of labor market rules and the deepest budget cuts in at least three decades that are pushing the economy deeper into its second recession since 2009.

“Spain faces formidable challenges, especially concerning youth unemployment,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told lawmakers at the European Parliament in Strasbourg Wednesday.

Italy’s jobless rate rose to the highest in more than a decade in February and the International Monetary Fund forecast on April 17 that unemployment will reach 9.9 percent this year. Italian bonds reversed morning gains yesterday after the government cut its growth forecasts and abandoned a goal to balance the budget next year.

Estimate Revisions

Italy’s gross domestic product will contract 1.2 percent this year, more than twice the previous forecast, and the deficit will end next year at 0.5 percent, more than the 0.1 percent previously forecast. The Italian announcement came six weeks after Rajoy abandoned Spain’s deficit goal for next year.

Joblessness in both countries may worsen as the recession deepens and rigid labor market laws are overhauled. Rajoy passed in February a plan to make it cheaper for employers to let workers go, while Italy gave companies more leeway to fire workers without fear of court-ordered reinstatements.

“High unemployment means a very dissatisfied electorate and makes it difficult to get stuff done,” said Padhraic Garvey, head of developed market debt at ING Groep NV in Amsterdam. “It makes it significantly more difficult to pass austerity measures and exacerbates a difficult situation.”

Rajoy’s Challenges

Rajoy probably will face further unrest if he’s forced to implement more budget cuts to meet ambitious deficit goals. His government has now pledged to reduce the shortfall to 5.3 percent of GDP in 2012 from 8.5 percent in 2011 and by more than 2 percentage points next year to get within the EU’s 3 percent limit. Despite a raft of austerity last year, the country achieved a deficit reduction of less than 1 percentage point.

Falling joblessness in Germany underscores the widening gap between the resilience of the euro-region’s largest economy and the so-called periphery. The nation’s adjusted jobless rate slipped in March to a two-decade low of 6.7 percent, according to the statistics office. While the 17-member euro-region economy will shrink 0.4 percent in 2012, Germany’s economy probably will grow 0.7 percent, according to economists’ forecasts compiled by Bloomberg.

“The divergence between Germany and the other economies is here to stay,” said Christoph Rieger, head of interest-rate strategy at Commerzbank AG in Frankfurt. “It provides a structural reason for spreads to stay wider, regardless of what other progress is made on containing the crisis.”

Greek Elections

In Greece, where official data showed unemployment climbed to 21 percent in January, elections scheduled for May 6 may produce a hung parliament, raising questions about the nation’s ability to implement its austerity measures. The nation’s 2 percent bond due in February 2023 trades at about 25 cents on the euro.

In Portugal, where the government forecasts the unemployment rate will average 13.4 percent this year, up from 12.7 percent in 2011, Soares da Costa SGPS SA, Portugal’s third- biggest publicly traded construction company, said it’s expanding abroad and eliminating jobs at home, where it faces a slump in government infrastructure spending.

“High and rising unemployment is likely to impact at a political level and may make the reforms more difficult to undertake,” said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. “If the political desire to reform comes in to doubt, then the market wouldn’t like that. There’s good scope for the crisis to get worse in the near term, the economies are still on pretty shaky ground and there’s a lot of political risk.”Daniel Tilles at dtilles@bloomberg.net.

WTO rules U.S. unfair subsidies for Boeing illegal

The U.S. is hailing a World Trade Organization ruling on illegal Boeing subsidies as a victory. (Roslan Rahman/AFP Reuters

The World Trade Organization has ruled that U.S. aircraft manufacturer Boeing received $3 billion to $4 billion in illegal subsidies in the form of federal research grants and local tax breaks, the top U.S. trade official said Monday.

But U.S. Trade Representative Ron Kirk called the decision “a tremendous victory” for the United States because he said a separate WTO panel ruled last year that European governments provided $18 billion in subsidized funding for Airbus.

“It is now clear that European subsidies to Airbus are far larger — by multiples — and far more distortive than anything that the United States does for Boeing,” Kirk said in a statement.

“The United States is ready to address all of the WTO findings, and we expect Europe to do the same. Airbus is a mature, highly capable company with ready access to commercial financing. It doesn’t need the launch aid that European governments are continuing to provide,” he added.

The WTO appellate body ruling on Monday faulted the United States for research funded by NASA and the Department of Defense that benefited Boeing and for tax breaks granted by the state of Washington and city of Wichita, Kansas.

The United States will have six months to comply with the ruling, once it is formally adopted this month, Kirk said.
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Trade war looms over EU tax

Global Trends By MARTIN KHOR

This week, 26 countries will meet to organise retaliation against the EU over its move to tax airlines for their emissions. This may be the first salvo in dangerous trade wars fought over climate change.

A TRADE war is looming over the European Union’s move to impose charges on airlines on the basis of the greenhouse gases they emit during the planes’ entire flights into and out of European airports.

Many countries whose airlines are affected – including China, India, Malaysia, Nigeria, South Africa, Egypt, Brazil and the United States – consider this to be unfair or illegal or both.

Since their protests have not yielded results, officials of 26 countries are meeting in Moscow this week to discuss retaliatory action against the EU.

The EU’s move, which took effect on Jan 1, and the tit-for-tat actions by the offended countries, is the first full-blown international battle over whether countries can or should take unilateral trade measures on the ground of addressing climate change.

Developing countries in particular have been concerned over increasing signs that the developed countries are preparing to take protectionist measures to tax or block the entry of their goods and services on the ground that greenhouse gases above an acceptable level are emitted in producing the goods or undertaking the service.

Besides the airlines case, several other measures are being planned by the EU or by the United States that will affect the cost of developing countries’ exports.

In fact, trade measures linked to climate change may become the main new sources of protectionism.

The EU’s aviation emissions tax is thus an important test case, and this could explain the furious and coordinated response by the developing countries, which form the majority of the protesting 26 nations meeting in Moscow.

The countries are particularly angry that the EU is imposing a charge or tax on emissions from the entire flight of an airline, and not just on the portion of the flights that are in European airspace.

The EU action takes effect by including the aviation sector (and airlines of all countries) in the European Emissions Trading Scheme.

Beyond a certain level of free allowances, the airlines have to buy emission permits depending on the quantity emitted during the flights.

As the free allowances are reduced in future years, the cost to be paid will also jump, thus increasingly raising the price of passenger tickets and the cost of transporting goods, and affecting the profitability or viability of the airlines.

The China Air Transport Association has estimated that Chinese airlines would have to pay 800 million yuan (RM387mil) for 2012, the first year of the EU scheme, and that the cost will treble by 2020.

The total cost to all airlines in 2012 is estimated at 505mil (RM2bil), at the carbon price of 5.84 (RM23.30) per tonne last week, according to Reuter Thomsom Carbon Point.

Last September, when the carbon price was 12 (RM48) per tonne, Carbon Point had estimated the cost to be 1.1bil (RM4.4bil) in 2012, rising to 10.4bil (RM41.6bil) in 2020.

While this may generate a lot of resources for Europe, airlines in developing countries will in turn have to pay a lot.

There are many reasons why the concerns of the affected countries are justified, as shown by Indian trade law expert R.V. Anuradha, in her paper on Unilateral Measures and Climate Change.

Since each country has sovereignty over the airspace above its territory (reaffirmed by the Chicago Convention), the EU tax based on flight portions that are not on European airspace infringes the principle of sovereignty.

The UN Climate Convention’s Kyoto Protocol states that Annex I parties (developed countries) shall pursue actions on emissions arising from aviation through the International Civil Aviation Organisation (ICAO).

Consistent with the principle of common but differentiated responsibilities, only Annex I countries are mandated to have legally binding targets. This UNFCCC principle is violated by the EU requirement affecting airlines from both developed and developing countries.

ICAO members have been discussing, but have yet to reach agreement on, actions to curb aviation emissions. Last October, 25 countries issued a paper in ICAO protesting against the EU measure.

While the United States has challenged the EU action in a European court, China has ordered its airlines not to comply with the EU scheme unless the government gives them permission.

In addition, retaliation measures such as imposing levies on European airlines and reviewing the access and landing rights agreements with European countries are being considered by the 26 countries.

What happens in this aviation case is significant because there are many other unilateral measures linked to climate change being lined up by developed countries.

These include the EU plan to impose charges on emissions from maritime bunker fuel, a US Congress bill that requires charges on energy-intensive imports from developing countries that do not have similar levels of emissions controls as the US, and several schemes involving labels and standards linked to emissions.

If these unilateral measures are implemented, then developing countries will really feel they are being victimised for a problem – climate change – that historically has been largely caused by the developed countries.

Moreover, this will lead to a growing crisis of both the climate change regime and the multilateral trade regime.

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