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Welcome to class ofFair/Unfair Trade Practicesin Emerging MarketsbyDr. Satyendra SinghUniversity of WinnipegCanadawww.uwinnipeg.ca/~ssingh5
Fair vs Unfair Int’l Business • The debate (developed vs emerging markets) • Colonial Pact • GM Foods • Subsidy • SAP (Structural Adjustment Program) • WB/IMF/WTO/UN
Developed countries say • Unfair competition from Ems • ↓ labor cost and poorer working condition • Environmental • Due to EMs’ lax environmental standards • Financial services • Due to EMs’ low requirements of capital/assets ratio • Cultural • Due to cultural barriers, aiding local firms • Tax • Due to EMs’ differences in corporate tax rates
Emerging markets say • Social • Wal-Mart?, Outsourcing? Call centers? • Environmental • Dump in the name of recycling in the EM. Why not recycle in the West? Because it costs $15/monitor here. • 40-foot container costs $5000 to ship from US to EM • 500 containers/month with e-waste in Lagos, Nigeria • World Reuse, Repair and Recycling Association (WR3A) • Financial services: ↓capital/assets ratio because no $ • Cultural: West need to adapt– Int’l marketing • Tax: Being adjusted under SAP
How Long? • Counter arguments • Corruption • Cannot handle economy • Not trained • We pay taxes • If we go, economy ↓ • eg, Mozambique • Diseases • Ivory Coast: water, port • Electricity, security… • Who made Africa poor? • Import dependent
Same problem with GM Foods • USA Yes • Europe NO • Africa Caught in the politics • How?
Subsidies • Financial contribution, provided directly or indirectly by a government, which confers benefit. • $, grants, preferential tax treatment, government assumption of normal business expenses • Manufacturing Airbus • 75-100% development costs borne by the consortium • No profit in its first 30 years of operation • Agriculture heavily subsidized in the West • $300b/yr in subsidy to agricultural producers in OECD • Government subsidies • 20% Canada, 25% USA, 50% EU, 65% Japan… • US Cotton, Sugar…, EU Dairy farmers
Effects of Subsidies on Africa • Subsidy over production and dumping • Subsidy artificially depresses price farmers cannot compete keep Africa out of reach of EU • Local governments do not have $ to subsidize • Farmers out of business; labeled as urban refugees • So they become import dependent (cannot export) • The nation accrues debt (import > export) • US cotton subsidy suppressed West/Central Africa • Ethiopia, Malawi, Mozambique: ↓access to EU for sugar • Africa loses $2b/yr fair/unfair trade practices • WTO: participate Structural Adjustment Program (SAP)
Why SAP – to get debt relief • So must follow WTO rules free trade, lower tariff • Bolivia: WTO privatize essential services • Health, education, water supply… • British co. entered the market ↑ the price of water • Water became more expensive than food • Poor people spent ½ their salary on water • Even illegal to collect rain water w/o permit • Mass protest industry renationalized • Now • If no reform, no debt relief • Fair/Unfair trade practices
SAP Example – fair/unfair trade… • Mozambique: Cashew processing industry • Processed Cashew export was central to the govt’s SAP • To ensure regular supply of cashews, local govt imposed ban on export of raw cashew, but not on processed ones • World bank demanded the ban/export tax (60%) to be removed, and let the free market reign • All raw cashew markets were exported at low price • Now no raw cashews left for processing locally • Industry collapsed, people lost jobs • No free trade, no debt relief • If get aid, it is just enough to pay interest and import essential items • Debt continues fair/unfair trade
SAP Example – fair/unfair trade • India: Motor car industry • EMs cannot protect their infant industries • Jt. venture and produce ½ parts locally, like Ford, GM • WTO Indian motor policy violates agreement on Trade related Investment Measures (TRIM) • Local components, import of products, currency/export restrictions • It is unfair. • Firms in developing/EM are in a difficult position to • Sell in the West, Diversify, or say no to expensive imports • How do WB, IMF and WTO make decisions?
Decision-Making Process • World bank and IMF – decision process undemocratic! • Votes are based on shares depends on income so rich nations have more votes • It is reflected on the board of both institutions • US and UK have their own Executive Director (ED) – 2 • Whereas African nations have to share their 2 EDs • Some countries are borrowers and some lenders • WTO – decision process a bit subtle • Each country has a vote and decision is by consensus • In reality -- US, EU, Canada and Japan • Some countries are in a better position to impose sanctions in case of trade dispute • Primary aim of WTO is to liberalize world trade! • Protest again globalization continues