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The container ship Ever Far (left) sails downriver, past the Georgia Ports Authority’s Port of Savannah, on September 29, 2021. Although the rhetoric of US-China decoupling has intensified, trade flows hit an all-time record of US$690.6 billion in 2022. Photo: AP
Opinion
Macroscope
by Claudia Salomon
Macroscope
by Claudia Salomon

Amid US-China decoupling rhetoric and diversifying supply chains, reducing risk is a top priority for business

  • Businesses are diversifying into previously overlooked parts of the world, but those unchartered waters require heightened risk management
  • Firms of all sizes, as well as states, want an effective avenue of recourse and thus turn to international arbitration to resolve conflicts
Claudia Salomon
Claudia Salomon
Why you can trust SCMP
US President Joe Biden’s meeting with Indian Prime Minister Narendra Modi last week came amid global headlines about the “turbocharging” of US-India relations. Is this a strong signal of US-China decoupling? Many think so. Or is it just a sign of the US diversifying interests?

Although the rhetoric of decoupling between the United States and China has intensified, trade flows hit an all-time record of US$690.6 billion in 2022. The two nations are connected by larger trade flows than any other pair of countries without a common border.

But, both have significantly reduced the share of imports coming from each other, according to DHL’s Global Connectedness Index. In 2022, the share of imported Chinese goods as a percentage of total US imports fell to 16.6 per cent, down from 21.6 per cent in 2017. The value of US goods exported to China in 2022 as a percentage of total US exports fell to 7.3 per cent, down from 8.4 per cent in 2017.

Although the risks to globalisation are real, the more likely scenario is one involving changing relationships as some of the biggest economies look for additional partners or investments. This means some companies will pull out of China altogether or will diversify and set up production in other countries, such as India, Mexico, Turkey and Vietnam. China will look to strengthen its trading position, particularly in Southeast Asia, with greater regional integration.
The impact of changing tariffs can be unpredictable, affecting industries beyond those specifically targeted. Chad Bown, a trade expert at the Peterson Institute for International Economics in Washington, recently showed how some US imports such as semiconductors, IT hardware and some consumer electronics are being decoupled from China while others without any Trump-era tariffs have reached new highs.
In this shifting landscape, companies need to mitigate risk. They need mechanisms in place to look after their supply chains, protect their investments and ensure they can continue to operate even in challenging circumstances.

China’s loss is Southeast Asia’s gain as supply chains shift

Key to risk mitigation is ensuring that cross-border agreements have an effective dispute resolution mechanism. Businesses trading across borders do not want to find themselves in the courts of their counterparties. The process is often too slow, hard to navigate or untrustworthy.

Instead, businesses of all sizes, as well as states and state-owned enterprises, want an effective avenue of recourse and thus turn to international arbitration to resolve such conflicts. International arbitration offers an independent and neutral process free from political influence to resolve disputes in an efficient, cost-effective manner. Emergency arbitrator proceedings can provide rapid interim relief to prevent operational disruption in urgent cases.
A sign at the World Trade Organization headquarters in Geneva. The global trade body has announced the launch of “intensive” negotiations to salvage the appellate branch of its Appellate Body, which has been bogged down for years by US opposition. Photo: AFP

Firms value the confidentiality and procedural flexibility of arbitration proceedings, including the opportunity to have a say in the composition of the arbitral tribunal. Another significant benefit is the ease of enforcing arbitration awards under the New York Convention, signed by more than 170 countries, including China and the US.

Unlike litigation, arbitration is a consensual process. It is therefore critical that a company engaged in cross-border business carefully considers the arbitration clause to ensure the process meets its needs if a dispute arises.

A poorly drafted dispute resolution clause risks significant costs and delay. An obstructive counterparty is likely to exploit gaps or ambiguities, giving rise to “satellite” litigation that can derail and delay any claim.

For 100 years, the International Chamber of Commerce (ICC) International Court of Arbitration has been at the forefront of making arbitration the preferred method for resolving disputes between parties from different countries. It has also played a seminal role in the creation of the legal framework for recognising and enforcing arbitral awards.

Parties from almost 150 countries trust ICC arbitration to resolve their disputes, with 25 per cent of the parties coming from the Asia-Pacific region.

The International Chamber of Commerce building is reflected on a wall of West Kowloon Cultural District M+ Pavilion. Photo: Sam Tsang

Asian parties are also increasingly turning to mediation and other procedures to reach an amicable resolution of their dispute when the fast-paced business landscape leaves no room for litigation or arbitration.

Embedding mediation into a general company policy and pledging as a first option to try to resolve commercial disputes before they escalate is good practice. A neutral third party can often bridge the gap, especially when parties come from different cultural backgrounds.

Expert determination is an efficient method for resolving technical disputes that could disrupt business operations. Likewise, dispute boards can help parties catch and address disputes in the early stages to avoid escalation.

With rising geopolitical tensions, businesses will diversify into previously overlooked parts of the world to build more resilient supply chains and expand into new markets, but those unchartered waters require heightened risk management and mitigation.

Arbitration, mediation, expert determination and dispute boards are essential tools every business needs to consider – before the dispute arises – to assure they have the dispute resolution process that meets their needs and helps them get back to business.

Claudia Salomon is president of the ICC International Court of Arbitration, which is holding its Asia-Pacific Conference on International Arbitration in Hong Kong on June 26-27, celebrating the centenary of the ICC Court and the 15th anniversary of the ICC case management team in Hong Kong

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