Inter Press Service » Trade & Investment http://www.ipsnews.net News and Views from the Global South Mon, 27 Feb 2017 17:07:34 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.15 Avoid Patent Clauses in Trade Treaties that can Kill Millionshttp://www.ipsnews.net/2017/02/avoid-patent-clauses-in-trade-treaties-that-can-kill-millions/?utm_source=rss&utm_medium=rss&utm_campaign=avoid-patent-clauses-in-trade-treaties-that-can-kill-millions http://www.ipsnews.net/2017/02/avoid-patent-clauses-in-trade-treaties-that-can-kill-millions/#comments Mon, 27 Feb 2017 14:12:29 +0000 Martin Khor http://www.ipsnews.net/?p=149133 Credit: Bigstock

Credit: Bigstock

By Martin Khor
PENANG, Feb 27 2017 (IPS)

Recently a very interesting article on why there are inequalities in access to health care and how  medicine prices are beyond the reach of many people was published in The Lancet, one of the most prestigious medical journals in the world.

The authors, who are eminent experts in development and public health, pinpointed trade and investment agreements for being one of the greatest health threats.

Reading their powerful commentary leads one to think:  What’s the point of having wonderful medicines if most people on Earth cannot get to use them?   And isn’t it immoral that medicines that can save your life can’t be given to you because the cost is so high?

The article picks on the Trans-Pacific Partnership (TPP), together with the Transatlantic Trade and Investment Partnership (TTIP) as the worst culprits.  It says the TPP’s chapter on intellectual property is “particularly intrusive to health and restricts access to the latest advances in medicines, diagnostic tools and other life-saving medical technologies.”

Martin Khor

Martin Khor

This agreement, say the authors, contains many provisions that “strengthen patent protection that provides monopolies and inevitably leads to high prices.”   They mention provisions that extend the patent terms beyond 20 years required by the WTO; lower the criteria of what can be granted  patents; and “data exclusivity” provisions that put up barriers to generic manufacturers entering markets after the expiry of patents.

This viewpoint article was co-authored by Prof Desmond McNeill (University of Oslo), Dr Carolyn Deere (Oxford University); Prof Sakiko Fukuda-Parr (The New School, New York, and formerly the main author of the UNDP’s Human Development Report for many years), Anand Grover (Lawyers Collective India and formerly the Human Rights Council’s Special Rapporteur for the Right to Health); Prof Ted Schrecker (Durham University, UK) and Prof David Stuckler (Oxford University).

They said that growing evidence suggests that the agreements “will have major and largely negative consequences for health that go far beyond earlier trade agreements.  This situation is particularly disturbing since the agreements have created blueprints for future trade agreements.”

The Nobel Peace Prize winning medical group, Medecins Sands Frontieres (MSF), is even more scathing in its criticism.  “The TPP represents the most far-reaching attempt to date to impose aggressive intellectual property standards that further tip the balance towards commercial interests and away from public health….  In developing countries, high prices keep lifesaving medicines out of reach and are often a matter of life and death.”

This condemnation is just as relevant despite President Donald Trump withdrawing the United States from the TPP. There are efforts underway for the remaining 11 countries to put the TPP into effect without the US.

Moreover, these countries have prepared changes to their laws and policies to comply with the TPP’s provisions, and may implement these even if the TPP actually never comes into effect.

This would be an immense tragedy for public health, because most of these countries did understand that the chapter on intellectual property would have negative effects, but they accepted it as part of a bargain for getting better market access, especially to the US.

Since the TPP is now in suspension, it does not make any sense for the countries to change their patent laws when the benefit of market access is no longer available.

During the TPP negotiations, the other countries managed to dilute some of the very extreme demands of the US, but only to a small extent.  The final intellectual rights chapter still reflects the extreme proposals of the US.

With the TPP in limbo and perhaps in perpetual suspension, there is really no reason why the provisions that have adverse effects should be implemented in the countries that had negotiated the TPP, when there are no benefits to be obtained to offset them.
Moreover, the major developed countries can be expected to make use of the TPP’s intellectual property chapter to inject into negotiations for new trade agreements, for example the RCEP, the Asian regional agreement.

Negotiators, especially from developing countries, and civil society groups should thus be vigilant that the TPP’s provisions that have adverse effects on health are not reproduced in other trade agreements.

Members of the World Trade Organisation are required to implement its intellectual property agreement, known as TRIPS, but they are not obliged to take on any additional obligations.

There are many provisions in TRIPS that allow a country to choose policies that are pro-health.  The TPP has clauses that prevent a country from making use of many of these options because they are “TRIPS-plus”, going beyond what the TRIPS obligations.

First, there is a TPP provision that lowers the standards a country can adopt to grant a patent.  Some patent applications are not for genuine inventions but are only made to “evergreen” a patent, to enable its term to continue after it expires.  Under TRIPS, a country can choose not to grant secondary patents for modifications of existing medicines.

The TPP (Article 18.3) requires countries to grant patents for at least one of the following modifications:  new uses of a known product, new methods for using a known product or new processes for using a known product.  Examples include a drug used for treating AIDS is now granted a new patent for treating hepatitis, or a drug in injection form is given a new patent in capsule form.

Second, a provision that enables extending the patent term beyond the 20 years required by TRIPS.   Most countries now count this 20 years from the date of filing the patent application.

The TPP requires the patent term to be extended beyond that if there are “unreasonable” delays in issuing the patents (Article 18.46) or if a delay is caused by the marketing approval process.”  (Article 18.48).     Extending the patent term means delaying affordable treatment for patients for so many more years.

Third, a provision (Article 18.50)  to create “data exclusivity” or “market exclusivity”, that prevents drug safety regulators from using existing clinical trial data to give market approval to generic drugs or biosimilar drugs and vaccines.   Under TRIPS, the clinical test data of a company can be used by a country’s drug regulatory authority as a basis to give safety or efficacy approval for generic drugs with similar characteristics, thus facilitating the growth and use of generic drugs.

Under the TPP, the data of the original company is “protected” and approval of similar drugs on the basis of such data is not allowed.  The period of “exclusivity” is at least 5 years for products containing a new chemical entity, or 3 years for modifications (a new indication, new formulation or new method of administration) of existing medicines.

Fourth, a provision on Biologics (Article 18.51).  For the first time in a trade agreement, the TPP  obliges its members to undertake data protection obligations for “biologics”, a category of products for treating and preventing cancer, diabetes and other conditions.  They are very expensive, some priced above $100,000 for a treatment course, and the clause will enable the prices to remain high for longer periods.   The exclusivity for biologics is for at least 8 years, or 5 years if other measures are also taken.

These provisions on exclusivity give drug companies extra protection, even if the product is not patented or if the patent has expired.  The drugs will be out of reach except for the very wealthy for longer periods.

Fifth, a provision (Article 18.76) that requires TRIPS-plus extra enforcement of intellectual property.  Countries are obliged to provide that the right holder can apply to detain any imported product that is suspected to be  counterfeit or having “confusingly similar trademark”.

This can block legitimate generic medicines from entering the country.   There have already been many cases of drugs being detained and later released when no infringement was found, thus needlessly delaying treatment to patients. The provision will increase the incidence.

All in all, these TRIPS-Plus TPP obligations would make it more difficult for patients to obtain cheaper generics. If these clauses are widely adopted in other trade agreements and made into national laws, this would shorten the lives of millions of people who would be denied treatment.

For example, many millions of people worldwide are afflicted with Hepatitis C, which can lead to liver failure and death. They need the new medicines that have nearly 100% cure rates close but the prices are over $80,000  for a 12-week treatment course.  Even with discounts, very few can afford this.

Some developing countries, making use of TRIPS flexibilities, are able to provide treatment with generic drugs at around $500 per patient, a very small fraction of the original drug’s price. But if the TPP clauses are translated into domestic law, this access could be blocked.

People in the developing countries are the most affected by patent over-protection, but patients in developed countries are not spared. The mainstream Time magazine in October 2016 listed the need to “Reform the Patent Process” as one of the issues the US Presidential election should address.

The Time article commented that many people believe drug companies are “gaming” the system.  “Instead of focusing on developing new cures, they are spending millions tweaking the way existing drugs are administered or changing their inactive ingredients.  Those moves have the effect of extending a drug’s patent and upping the amount of time it can be sold at monopoly prices, but they don’t necessarily help consumers.”

It is high time for a re-think to the system of drug patents.  At the least the situation should not be allowed to worsen further, which would happen if TRIPS-Plus measures are adopted.

The lives and health of millions are at stake.  Sometimes this is forgotten or put as a low priority when pitted against the promise of getting more exports in a free trade agreement.

But with the TPP in limbo and perhaps in perpetual suspension, there is really no reason why the provisions that have adverse effects should be implemented in the countries that had negotiated the TPP, when there are no benefits to be obtained to offset them.

More generally, in all countries, policy makers and people should be on guard not to agree to TRIPS-plus clauses in the trade agreements that they negotiate or sign.

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Tax Evasion Lessons From Panamahttp://www.ipsnews.net/2017/02/tax-evasion-lessons-from-panama/?utm_source=rss&utm_medium=rss&utm_campaign=tax-evasion-lessons-from-panama http://www.ipsnews.net/2017/02/tax-evasion-lessons-from-panama/#comments Tue, 21 Feb 2017 14:44:28 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=149048 Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]>

Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

By Jomo Kwame Sundaram
KUALA LAMPUR, Feb 21 2017 (IPS)

Unlike Wikileaks and other exposes, the Panama revelations were carefully managed, if not edited, quite selective, and hence targeted, at least initially. Most observers attribute this to the political agendas of its main sponsors. Nevertheless, the revelations have highlighted some problems associated with illicit financial flows, as well as tax evasion and avoidance, including the role of enabling governments, legislation, legal and accounting firms as well as shell companies.

US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

The political tremors generated by the edited release of 1.1 million documents were swift. No one expected Iceland’s prime minister to resign in less than 48 hours, or that the then British prime minister would soon publicly admit that he had benefited from the hidden wealth earned from an opaque offshore company of his late father.

Panama Papers
The Panama Papers help us understand how shell companies and trusts operate. The documents, from the law firm Mossack Fonseca, involved 210,000 legal entities. The Panama-based law firm has worked with some of the world’s biggest banks — including HSBC, Société Générale, Credit Suisse, UBS and Commerzbank — to set up thousands of offshore companies to circumvent tax and law enforcement authorities worldwide.

The accounts enabled by just one law firm in Panama is the tip of a massive iceberg still hidden from public view as many other such firms in different locations provide similar services. High net-worth individuals and corporations have a far greater ability to evade taxes by paying tax advisers, lawyers and accountants, and by opening undeclared companies and financial accounts in low-tax jurisdictions. The expose shows that the firm aided public officials, their cronies and large corporations to avoid taxes.

Not surprisingly, Mossack Fonseca claims it has never been accused or charged in connection with criminal wrongdoing. This only underscores the fact that Panama’s financial regulators, police, judiciary and political system are very much part of the system. Similarly, many clients believe that they have not violated national and international regulations.

‘Offshore’ tax havens

Total global wealth was estimated, by a 2012 Tax Justice Network (TJN) USA report, entitled The Price of Offshore Revisited, at US$231 trillion in mid-2011; this was roughly 3.5 times the global GDP of US$65 trillion in 2011. It conservatively estimated that, of this, US$21 to US$32 trillion of hidden and stolen wealth has been stashed secretly, ‘virtually tax-free’, in and ‘through’ more than 80 secret jurisdictions.

According to Oxfam, at least US$18.5 trillion is hidden in undeclared and untaxed tax havens worldwide, with two thirds in the European Union, and a third in UK-linked sites. After the Panama Papers leak, Oxfam revealed that the top 50 US companies have stashed US$1.38 trillion offshore to minimize US tax exposure. The 50 companies are estimated to have earned some US$4 trillion in profits across the world between 2008 and 2014, but have only paid 26.5 per cent of it in US tax.

In a 5 April 2016 speech, following the US Treasury’s crackdown on corporate tax ‘inversions’, US President Obama criticized ‘poorly designed’ laws for allowing illicit money transfers worldwide. He noted that “Tax avoidance is a big, global problem…a lot of it is legal, but that’s exactly the problem”.

It was also estimated that this costs poor countries over US$100 billion in lost tax revenues every year. Oxfam also found that tax dodging by transnational corporations alone costs the developing world between US$100 to US$160 billion yearly. If ‘profit shifting’ is taken into account, about US$250 to US$300 billion is lost. After all, many countries and institutions actively enable—and profit handsomely from—the theft of massive funds from developing countries.

More so now than ever before, the term ‘offshore’ for tax havens refers less to physical locations than to virtual ones, often involving “networks of legal and quasi-legal entities and arrangements”. Private banking ‘money managers’ provide all needed services — including financial, economic, legal, accounting and insurance services — to facilitate such practices, making fortunes for themselves by doing so. Thousands of shell banks and insurers, 3.5 million paper companies, more than half the world’s registered commercial ships over 100 tons, and tens of thousands of ‘shell’ subsidiaries of giant global banks, accounting firms and various other companies operate from such locations.

Reforming tax havens?
In recent years, amid increased public scrutiny, the global tax haven landscape has changed. The Organization of Economic Cooperation and Development (OECD), the Paris-based club of rich nations, has been developing a global transparency initiative to crack down on tax haven secrecy. But Panama is refusing to participate seriously, with the OECD tax chief calling it a jurisdiction “that welcomes crooks and money launderers”.

To qualify for the OECD’s ‘white list’ of approved jurisdictions, almost 100 countries and other jurisdictions have agreed, since 2014, to impose new modest disclosure requirements for international customers. Hence, the Swiss government has now relaxed confidentiality-cum-secrecy provisions, allowing information sharing about illegal or unauthorized deposits with other countries, subject to certain conditions. Consequently, the world of illegal and unaccounted cash has moved in response.

Facilitating tax evasion
Only a handful of nations have declined to sign on. The most prominent is the US. Another is Panama. As Panama has dodged, delayed and diluted compliance with OECD regulations, many accounts moved to Panama from other signatory tax havens. As Bloomberg noted earlier in 2016, “Panama and the U.S. have at least one thing in common: Neither has agreed to new international standards to make it harder for tax evaders and money launderers to hide their money.”

Rothschild, the centuries-old European financial institution, is now moving the fortunes of wealthy foreign clients out of offshore havens subject to the new international disclosure requirements, to Rothschild-run trusts in Nevada, which are exempt.

It has acknowledged that the US itself is the world’s single greatest tax haven, while the UK plays a disproportionately greater role as a tax haven, considering the smaller size of its population and economy. A TJN study found that the US continues to facilitate financial secrecy and tax evasion. “Due to lax requirements…, it is far easier to set up an anonymous shell company in the US than it is in well-known tax havens”, according to the Financial Transparency Coalition.

The US does not accept a lot of international standards, and can get away with it because of its economic and political clout, but is probably the only country that can continue to do that. It has taken steps to keep track of American assets abroad, but not of foreign assets in the US.

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The Planned US Border Tax Would Most Likely Violate WTO Rules – Part 2http://www.ipsnews.net/2017/02/the-planned-us-border-tax-would-most-likely-violate-wto-rules-part-2/?utm_source=rss&utm_medium=rss&utm_campaign=the-planned-us-border-tax-would-most-likely-violate-wto-rules-part-2 http://www.ipsnews.net/2017/02/the-planned-us-border-tax-would-most-likely-violate-wto-rules-part-2/#comments Fri, 17 Feb 2017 15:52:20 +0000 Martin Khor http://www.ipsnews.net/?p=148999 The tax on US imports, without the same being applied to US-made products, discriminates against foreign products, and US exports being exempted from taxes is tantamount to being an export subsidy. How will this be taken at the WTO, the guardian of the multilateral trading system? Credit: Amantha Perera/IPS

The tax on US imports, without the same being applied to US-made products, discriminates against foreign products, and US exports being exempted from taxes is tantamount to being an export subsidy. How will this be taken at the WTO, the guardian of the multilateral trading system? Credit: Amantha Perera/IPS

By Martin Khor
PENANG, Feb 17 2017 (IPS)

As American lawmakers and the Trump administration prepare the ground for introducing a border adjustment tax, many controversial issues have emerged, including whether they go against the rules of the World Trade Organisation (WTO).

The border tax is part of the overhaul of the US corporate tax system proposed by Republican Congress leaders and appears to have the support of President Donald Trump.

If adopted, the tax measure is sure to attract the opposition of the United States’ trading partners, as their exports to the US will have the equivalent of a 20% tax imposed on them, whereas the exports from the US will be exempted from a 20% corporate tax.

The tax on US imports, without the same being applied to US-made products, discriminates against foreign products, and US exports being exempted from taxes is tantamount to being an export subsidy.

How will this be taken at the WTO, the guardian of the multilateral trading system?

US Congressman Kevin Brady, chairman of the House Ways and Means Committee, and the plan’s main advocate, is convinced the plan is WTO-consistent, but has yet to explain why.

On the other hand, many trade and legal experts think the plan violates the principles and rules of the WTO, although they caution that a final opinion is possible only when the language of the law is known.

Their general view is as follows: Firstly, the inability to deduct import expenses from a company’s tax (while allowing deductions for locally sourced products and services and wages) discriminates against imports vis-à-vis domestic products, and violates the national treatment principle of the WTO and the rules of the General Agreement on Tariffs and Trade (GATT) which specify that imports must be treated no less favourably than similar locally produced goods.

Secondly, the exemption of export revenues from the taxable income would be most likely assessed as a prohibited export subsidy under the WTO’s subsidies agreement.

The renowned international trade expert, Bhagirath Lal Das, says that there are two separate issues to be considered:  the differential treatment of domestic and imported materials, and the differential tax treatment of income based on whether the product is domestically consumed or exported.

Martin Khor

Martin Khor

Says Das:   “It appears that the proposal is to deduct the cost of domestic input (product) from a company’s income while computing the tax, whereas there is no such deduction if a like imported input is used in the production.

“If this be the case, such a provision will clearly violate the principle of national treatment contained in Article III of the GATT 1994.”     Under that article, imported products must be accorded treatment no less favourable than that given to similar domestic products in respect of laws and regulations.

Added Das:  “If the use of the domestic product results in tax reduction whereas the use of the like imported product does not get similar treatment, clearly the imported product will get “less favourable” treatment. And that will violate the principle of national treatment, and it can be successfully challenged in the WTO on this ground.”

On the second issue, the proposal is to differentiate between the earning from domestic sale and that from export in the matter of taxation in respect of a product.

Commented Das:  “Here it would appear that the exemption of the tax is conditional on export. This practice will clearly qualify for being categorised as export subsidy which is prohibited under Article 3 of the WTO’s Subsidy Agreement.”

Das cites a case of an American company, the Domestic International Sales Corporation (DISC).  A portion of its profit which was engaged in export was tax free.  The EEC, the predecessor of EC, raised a dispute in the GATT in 1973. The matter was delayed for a long time until in 1999 a panel at the WTO ruled that the US practice was in fact an export subsidy and was prohibited.

“This case may not be exactly the same as the currently anticipated proposal, but it does point to the fallibility of providing government benefit contingent on export,” says Das.

Das was formerly Chairman of the General Council of GATT,  Indian Ambassador to GATT, and subsequently Director of Trade in the UN Conference on Trade and Development, and has written many books on the WTO and its agreements.

According to another eminent expert on the WTO, Chakravarthi Raghavan, whether the US law is considered “legal” depends on the language of the law and its actual effects.

“There is little doubt that the “pith and substance” of the Republican border tax proposal or ideas will be in violation of Articles II and III of GATT and Article 3.1 of the Subsidies Agreement.”

Raghavan, Chief Editor Emeritus of the South-North Development Monitor, followed and analysed the negotiations of the Uruguay Round and of the WTO on a daily basis ever since.

There are many shortcomings with the WTO dispute system. Few countries have the courage or financial resources to take up cases against the US.
Countries can challenge the US at the WTO and if they succeed the US has to change its law or face retaliatory action.  The winning party can block US exports to it equivalent in value to the loss of its exports to the US.

However, there are many shortcomings with the WTO dispute system.  Few countries have the courage or financial resources to take up cases against the US.

If some countries do take up cases, it takes as long as three to four years for a case in the WTO to wind its way through panel hearings and to a final verdict at the Appellate Body, and for the winning Party to get the go-ahead to take retaliatory action.  During that period, the US can continue with its laws and practices.

If the US loses, it need not pay any compensation to the successful Party for having suffered losses.   Moreover, in the past, when it loses cases at the WTO, the US has typically not complied with the orders made on it.  Even if it does comply, it needs to do so only in respect of the Parties that brought the action against it; it need not do so for other Parties.

If it does not comply, the complainant countries are allowed to take retaliatory action by blocking US goods and services from entering their markets up to an amount equivalent to the losses they have suffered.  This retaliatory action can only be taken by those countries that successfully took up the cases.

Thus, the US may decide to implement the border adjustment taxes and wait two to four years before a final judgment is made at the WTO, and for retaliatory action to be allowed by the WTO.   It can meanwhile reap the benefits of its border tax measures.

Another possibility is that Trump may make good his threat to leave the WTO, if important cases go against it.  That would cause a major crisis for the WTO and for international trade.

With regard to the WTO process, Raghavan said:   “Apart from the difficulties of taking up cases in the WTO, including costs, the lengthy process and no retrospective damages when any WTO member, raises a dispute, the onus of proving the violation is on them.

“To the best of my knowledge, in none of the rulings against US, requiring changes in law or regulations, has the US implemented them, and even major trading partners have been chary of taking retaliation action.

“Countries that are affected, could act to unilaterally deny the US some rights; but they cannot justify that this is retaliation, until there is a ruling in their favour.”

American advocates of the border adjustment tax plan have claimed that it is similar to a value added tax (VAT) which is considered by the WTO to be a legitimate measure;  and thus that the border adjustment tax would also be compatible with the WTO.

Almost all major developed countries have instituted the VAT system, with the notable exception of the US.  The Republican Congress leaders and Trump have argued  that this places the US at a disadvantage in its trade relations because the VAT system imposes a tax on imports, whilst allowing companies to obtain a refund for taxes paid on their exports.

They claim the border tax would correct this disadvantage that the WTO should similarly recognise the border tax as legitimate.

However, several well-known economists and lawyers are of the opinion that there are important differences between the VAT and the border tax.

There are two parts of their arguments.  Firstly, the VAT imposes taxes on both imports and locally produced goods and services and therefore does not discriminate against imports;  whereas the border tax system imposes a tax on imports whilst excluding domestic inputs and wages from tax, which therefore discriminates against imports.  Secondly, the VAT system does not subsidise exports, whereas the border tax system does.

In a 1990 paper, Martin Feldstein and Paul Krugman found that the VAT does not improved the trade competitiveness of countries using it.  They said:  “The point that VATs do not inherently affect international trade flows has been well recognised in the international tax literature…A VAT Is not a protectionist measure.”

Krugman, in a recent blog, reiterated that “a VAT does not give a nation any kind of competitive advantage, period.”  But a destination-based cash flow tax like the border adjustment tax has a subsidy element that “would lead to expanded domestic production.”

In another paper, Reeven Avi-Yonah and Kimberly Clausing  from Michigan Law School and Reed College respectively analyse the difference between the VAT and the proposed border adjustment tax and why the former is WTO-consistent whereas the latter would violate WTO rules.

They said:   “U.S. trading partners are likely to be hurt in several ways. The effects of the wage deduction render the corporate cashflow tax different from a VAT, and these differences have the net effect of increasing the incentive to operate in the United States

“In addition, such a tax system would exacerbate the profit shifting problems of our trading partners, since the United States will appear like a tax haven from their perspective.”

Economists also agree that the border tax will raise the value of the US dollar but there is a debate as to how long this will take and by how much it will rise. If the dollar appreciation is significant, this may have an adverse effect on countries that hold debt in US dollars, as they would have to pay out more in their domestic currency to service their loans. This would include many developing countries with substantial dollar-denominated debts of the public or private sectors, and some of them may tip into new debt and financial crises.    According to former US Treasury Secretary Lawrence Summers:  “Proponents of the plan anticipate a rise in the dollar by an amount equal to the 15 to 20 per cent tax rate.  This would do huge damage to dollar debtors all over the world and provoke financial crises in some emerging markets.”           

This article is the second in a two-part series on the border adjustment tax, which would have the effect of taxing imports of goods and services that enter the United States, while also providing a subsidy for US exports which would be exempted from the tax. You can find Part 1 here

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Beware of the New US Protectionist Plan, the Border Adjustment Tax – Part 1http://www.ipsnews.net/2017/02/beware-of-the-new-us-protectionist-plan-the-border-adjustment-tax/?utm_source=rss&utm_medium=rss&utm_campaign=beware-of-the-new-us-protectionist-plan-the-border-adjustment-tax http://www.ipsnews.net/2017/02/beware-of-the-new-us-protectionist-plan-the-border-adjustment-tax/#comments Fri, 17 Feb 2017 12:37:51 +0000 Martin Khor http://www.ipsnews.net/?p=148990 If the tax plan is implemented it will have serious adverse effects on many contries, like China or Mexico, which sell hundreds of billions of dollars of manufactured products to the US. Credit: Bigstock

If the tax plan is implemented it will have serious adverse effects on many contries, like China or Mexico, which sell hundreds of billions of dollars of manufactured products to the US. Credit: Bigstock

By Martin Khor
PENANG, Feb 17 2017 (IPS)

A new and deadly form of protectionism is being considered by Congress leaders and the President of the United States that could have devastating effect on the exports and investments of American trading partners, especially the developing countries.

The plan, known as a border adjustment tax, would have the effect of taxing imports of goods and services that enter the United States, while also providing a subsidy for US exports which would be exempted from the tax.

The aim is to improve the competitiveness of US products, drastically reduce the country’s imports while promoting its exports, and thus reduce the huge US trade deficit.

On the other hand, if adopted, it would significantly reduce the competitiveness or viability of goods and services of countries presently exporting to the US.  The prices of these exports will have to rise due to the tax effect, depressing their demand and in some cases make them unsalable.

And companies from the US or other countries that have invested in developing countries because of cheaper costs and then export their products to the US will be adversely affected because of the new US import tax.

Some firms will relocate to the US.   Potential investors will be discouraged from opening new factories in the developing countries.  In fact this is one of the main aims of the plan – to get companies return to the US.

The plan is a key part of the America First strategy of US President Donald Trump, with his subsidiary policies of “Buy American” and “Hire Americans.”

The border adjustment tax is part of a tax reform blueprint “A Better Way” whose chief advocates are Republican leaders Paul Ryan, speaker of the House of Representatives and Kevin Brady, Chairman of the House Ways and Means Committee.

President Trump originally called the plan “too complicated” but is now considering it seriously.  In a recent address to congressional Republicans, Trump said:  “We’re working on a tax reform bill that will reduce our trade deficits, increase American exports and will generate revenue from Mexico that will pay for the (border) wall.”

Martin Khor

Martin Khor

The proposal has however generated a tremendous controversy in the US, with opposition coming from some Congress members (including Republicans), many economists and American companies whose business is import-intensive.

It however has the strong support of Republican Congress leaders and some version of it could be tabled as a bill.

Trump had earlier threatened to impose high tariffs on imports from countries having a trade surplus with the US, especially China and Mexico.

This might be a more simple measure, but is so blatantly protectionist that it would be sure to trigger swift retaliation, and would also almost certainly be found to violate the rules of the World Trade Organisation (WTO).

The tax adjustment plan may have a similar effect in discouraging imports and moreover would promote exports, but it is more complex and thus difficult to understand.

The advocates hope that because of the complexity and confusion, the measure may not attract such a strong response from US trading partners.  Moreover they claim it is permitted by the WTO are presumably willing to put it to the test.

In the tax reform plan, the corporate tax rate would be reduced from the present 35% to 20%.   The border adjustment aspect of the plan has two main components. Firstly, the expenses of a company on imported goods and services can no longer be deducted from a company’s taxable income.  Wages and domestically produced inputs purchased by the company can be deducted.

The effect is that a 20% tax would be applied to the companies’ imports.

This would especially hit companies that rely on imports such as automobiles, electronic products, clothing, toys and the retail and oil refining sectors.

The Wall Street Journal gives the example of a firm with a revenue of $10,000 and with $5,000 imports, $2 000 wage costs and $3,000 profit.  Under the present system, where the $5,000 imports plus the $2,000 wages can be deducted, and with a 35% tax rate, the company’s taxable total would be $3,000, tax would be $1,050 and after-tax profit would be $1,950.

Under the new plan, the $5,000 imports cannot be deducted and would form part of the new taxable total of $8,000.  With a 20% tax rate, the tax would be $1,600 and the after-tax profit $1,400.

Given this scenario, if the company wants to retain his profit margin, it would have to raise its price and revenue significantly, but this in turn would reduce the volume of demand for the imported goods.

For firms that are more import-dependent, or with lower profit margin, the situation may be even more dire, as some may not be financially viable anymore.

Take the example of a company with $10,000 revenue, $7,000 imports, $2,000 wages and $1,000 profit.   With the new plan, the taxable total is $8,000 and the tax is $1,600, so after tax it has a loss of $600 instead of a profit of $1,000.

The company, to stay alive, would have to raise its prices very significantly, but that might make its imported product much less competitive.  In the worst case, it would close, and the imports would cease.

The economist Larry Summers, a former Treasury Secretary, gives a similar example of a retailer who imports goods for 60 cents, incurs 30 cents in labour and interest costs and then earns a 5 cent margin.  With 20% tax, and no ability to deduct import or interest costs, the taxes will substantially exceed 100% of profits even if there is some offset from a stronger dollar.

On the other hand, the new plan allows a firm to deduct revenue from its exports from its taxable income.  This would allow the firm to increase its after-tax profit.

The Wall Street Journal article gives the example of a firm which presently has export sales of $10,000, cost of inputs $5,000, wages $2,000 and profit $3,000.  With the 35% corporate tax rate, the tax is $1,050 and after-tax profit is $1,950.

Perhaps the most vulnerable country is Mexico, where many factories were established to take advantage of tariff-free entry to the US market under the North American Free Trade Agreement. President Trump has warned American as well as German and Japanese auto companies that if they make new investments in Mexico, their products would face high taxes or tariffs on entry, and called on them to invest in the US instead.
Under the new plan, the export sales of $10,000 is exempt from tax, so the company has zero tax.  Its profit after tax is thus $3,000.   The company can cut its export prices, demand for its product increases and the company can expand its sales and export revenues.

At the macro level, with imports reduced and exports increased, the US can cut its trade deficit, which is a major aim of the plan.

On the other hand, the US is a major export market for many developing countries, so the tax plan if implemented will have serious adverse effects on them.

The countries range from China and Mexico, which sell hundreds of billions of dollars of manufactured products to the US; to Brazil and Argentina which are major agricultural exporters; to Malaysia, Indonesia and Vietnam which sell commodities like palm oil and timber and also manufactured goods such as electronic products and components and textiles, Arab countries that export oil, and African countries that export oil, minerals and other commodities, and countries like India which provide services such as call services and accountancy services to US companies.

American industrial companies are also investors in many developing countries. The tax plan if implemented would reduce the incentives for some of these companies to be located abroad as the low-cost advantage of the foreign countries would be offset by the inability of the parent company to claim tax deductions for the goods imported from their subsidiary companies abroad.

Perhaps the most vulnerable country is Mexico, where many factories were established to take advantage of tariff-free entry to the US market under the North American Free Trade Agreement.  President Trump has warned American as well as German and Japanese auto companies that if they make new investments in Mexico, their products would face high taxes or tariffs on entry, and called on them to invest in the US instead.

After the implications of the border adjustment plan are understood, it is bound to generate concern and outrage from the United States’ trading partners, in both South and North, if implemented.  They can be expected to consider immediate retaliatory measures.

A former undersecretary for international business negotiations of Mexico (2000-2006), Luis de la Calle, said  in a media interview:  “If the US wants to move to this new border tax approach, Mexico and Canada would have to do the same….We have to prepare for that scenario.”

In any case, it can be expected that countries will take up complaints against the US at the WTO.   The proponents claim the tax plan will be designed in a way that is compatible with the WTO rules.

But many international trade law experts believe the tax plan’s measures will violate several of the WTO’s principles and agreements, and that the US will lose if other countries take up cases against it in the WTO dispute settlement system.

This prospect may however not decisively deter Trump from championing the Republicans’ tax blueprint and signing it into law, should Congress decide to adopt it.

The President and some of his trade advisors have criticised the WTO’s rules and have mentioned the option of leaving the organisation if it prevents or impedes the new America First strategy from being implemented.  If the US leaves the WTO, it would of course cause a major crisis for international trade and trade relations.

There are many critics of the plan.  Lawrence Summers, a former US Treasury Secretary, warns that the tax change will worsen inequality, place punitive burdens on import-intensive sectors and companies, and harm the global economy.

The tax plan is expected to cause a 15-20% rise in the US dollar.  “This would do huge damage to dollar debtors all over the world and provoke financial crises in some emerging markets,” according to Summers.

While export-oriented US companies are supporters, other US companies including giants Walmart and Apple are strongly against the border tax plan, and an influential Republican, Steven Forbes, owner of Forbes magazine, has called the plan “insane.”

It is not yet clear what Trump’s final position will be. If he finds it too difficult to use the proposed border tax, because of the effect on some American companies and sectors, he might opt for the simpler use of tariffs.

In any case, whether tariffs or border taxes, policy makers and companies and employees especially in developing countries should pay attention to the trade policies being cooked up in Washington, and to voice their opinions.

Otherwise they may wake up to a world where their products are blocked from the US, the world’s largest market, and where the companies that were once so happy to make money in their countries suddenly pack up and return home.

This article is the first in a two-part series on the border adjustment tax, which would have the effect of taxing imports of goods and services that enter the United States, while also providing a subsidy for US exports which would be exempted from the tax. You can find Part 2 here

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Washington Rules Change, Againhttp://www.ipsnews.net/2017/02/washington-rules-change-again/?utm_source=rss&utm_medium=rss&utm_campaign=washington-rules-change-again http://www.ipsnews.net/2017/02/washington-rules-change-again/#comments Thu, 16 Feb 2017 13:33:45 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148980 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> South-south cooperation represents a progressive alternative to the Washington Consensus. Credit: IPS

South-south cooperation represents a progressive alternative to the Washington Consensus. Credit: IPS

By Jomo Kwame Sundaram
KUALA LAMPUR, Feb 16 2017 (IPS)

Over the last four decades, the Washington Consensus, promoting economic liberalization, globalization and privatization, reversed four decades of an earlier period of active state intervention to accelerate and stabilize more inclusive economic growth, associated with Franklin Delano Roosevelt and John Maynard Keynes.

The Golden Age
The US Wall Street Crash of 1929 led to the Great Depression, which in turn engendered two important policy responses in 1933 with lasting consequences for generations to come: US President Roosevelt’s New Deal and the 1933 Glass-Steagal Act.

While massive spending following American entry into the Second World War was clearly decisive in ending the Depression and for the wartime boom, the New Deal clearly showed the way forward and suggested what could be achieved if more public money had been deployed consistently to revive economic growth.

Michal Kalecki and Keynes provided robust analytical justification for counter-cyclical fiscal and other policies to maintain aggregate demand, very much contravening earlier received wisdom. Post-war decolonization gave birth to the academic field of development economics from the 1950s, initially pioneered by Central Europeans striving not to be left behind by the earlier ascendance of Western Europe and then the United States of America after its Civil War.

For about a quarter of a century after the end of the Second World War, the post-war ‘Golden Age’ saw rapid post-war reconstruction in Western Europe. This was crucially supported by the generous Marshall Plan, arguably the first, largest and most successful development cooperation program, triggered by the beginning of the Cold War. Similar economic development policies and assistance were introduced in Japan, Taiwan and South Korea, following the Korean War and the establishment of the People’s Republic of China.

US Secretary of State General George Marshall understood that inclusive economic development would help ensure a cordon sanitaire against the Soviet-led camp. Thus, thanks to the Cold War, Western Europe and Northeast Asia recovered quickly, industrialized rapidly and achieved sustained, rapid growth with interventionist policies which would be widely condemned by today’s conventional wisdom. While national economic capacities and capabilities had to be nurtured to ensure sustainable development, Marshall also recognized that aid should be truly developmental, not piecemeal or palliative.

Washington Consensus

The ‘Washington Consensus’ – uniting the American government and the Bretton Woods institutions located in the US capital city – emerged from the early 1980s to prescribe neo-liberal economic policies for developing countries for the ‘counter-revolutions’ against development economics, Keynesian economics and progressive state interventions.

Macroeconomic policies became narrowly focused on balancing annual budgets and attaining predictably low inflation – instead of the earlier post-colonial emphasis on achieving and sustaining rapid growth and full employment without runaway inflation. A ‘neo-liberal’ wave of deregulation, privatization and economic globalization followed, supposedly to boost economic growth. Economic growth was expected to trickle down to reduce poverty, with broader sustainable development and inequality concerns consigned to the garbage bin.

But the Washington Consensus policies not only failed to sustain economic growth, largely due to the greater instability and volatility associated with financial liberalization, especially across borders. But premature trade liberalization also undermined existing production and export capacities and capabilities without enabling the development of new ones. For the poorest countries, the loss of tariff revenue also undermined government revenues, expenditure and hence, the capacity to provide badly needed infrastructure, social protection and support for developmental initiatives.

Globalization’s Contradictory Discontents
Instead, those developing countries which achieved rapid growth and structural transformation were typically those which defied conventional wisdom by adopting pragmatic ‘heterodox’ developmental economic policies appropriate to their respective circumstances. Meanwhile, financial and other economic crises of various types became more frequent and disruptive, undermining sustained growth.

In the meantime, the more liberal developed economies experienced spurts of rapid growth as well as greater volatility and instability while most developed economies became more vulnerable to institutional stasis as they abandoned Keynesian policies for neo-liberal policies demanded by markets and their champions.

With European social democrats turning their backs on Keynes in favour of neoliberal economics, and often barely distinguishable from the centre-right in this regard, dissent against economic liberalization and its discontents moved to the ‘extremes’. With the left often on the backfoot in most developed economies for more than a quarter century, it has been the right which has successfully mobilized against cultural ‘others’ often divided among themselves.

While the rhetoric of the national chauvinist ‘new right’ rejects globalization and multiculturalism, it also rejects international solidarity, cooperation and multilateralism. Its rejection of the neoliberal Washington Consensus does not imply opposition to contemporary imperialism, but rather threatens a return to old — and new — forms of domination, economic and otherwise.

More than ever, it will be crucial for developing countries to work together, not only to ensure that South-South and ‘triangular’ (with the North) cooperation represents a progressive alternative to the Washington Consensus and its national chauvinist successors. Such solidarity will determine how well the South — and the world as a whole — will fare during the coming eclipse.

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Mistrust Hindering Global Solutions, says Secretary Generalhttp://www.ipsnews.net/2017/02/mistrust-hindering-global-solutions-says-secretary-general/?utm_source=rss&utm_medium=rss&utm_campaign=mistrust-hindering-global-solutions-says-secretary-general http://www.ipsnews.net/2017/02/mistrust-hindering-global-solutions-says-secretary-general/#comments Mon, 13 Feb 2017 23:55:31 +0000 Tharanga Yakupitiyage http://www.ipsnews.net/?p=148935 By Tharanga Yakupitiyage
UNITED NATIONS, Feb 13 2017 (IPS)

The global lack of confidence and trust is undermining the ability to solve the world’s complex problems, said UN Secretary-General during an international conference.

UN Secretary-General António Guterres. Credit: UN Photo

UN Secretary-General António Guterres. Credit: UN Photo

The 5th Annual World Government Summit (WGS), hosted by Dubai from February 12-14, has brought together over 4000 participants from more than 130 countries.

Speaking at the second day of the conference, Secretary-General Antonio Guterres noted the growing lack of confidence in institutions, as many people feel left behind from progress.

“It is clear that globalisation has been an enormous progress…but globalisation had its losers,” Guterres said, pointing to the example of frustrated youth in countries unable to find jobs or “hope.”

“Lots of people [feel] they were left behind and that the political establishments of their countries have not taken care of them,” he continued.

The former High Commissioner for Refugees cited the migration crisis in Europe, stating that countries’ inability to implement a fair and coordinated response spurred a sense of abandonment, fear and frustration among the public.

“This is the best ground for populists, for xenophobes, for those that develop forms of anti-Muslim hatred, or anti-Semitism…to play a role in our societies. And I think that it is not enough to condemn xenophobia, it is not enough to condemn populism, I think we need to be able to engage in addressing the root causes that lead to the fact that to be populist is so simple in today’s world,” Guterres told delegates, urging for reform to reconcile people with political institutions and to empower citizens and young people.

He also noted that the deep mistrust between countries is contributing to the multiplication of conflicts and the difficulties in solving them.

Most recently, the U.S. blocked the Secretary General’s appointment of former Palestinian Prime Minister Salam Fayyad as the new UN peace envoy in Libya after U.S. Ambassador to the UN Nikki Haley said the UN has been “unfairly biased” for too long in favor of the Palestinian Authority.

Though he highlighted the need for impartiality, Guterres said that there was no valid reason to have rejected the nomination.

“[Fayyad] is the right person for the right job at the right moment…he has a competence that nobody denies and Libya requires the kind of capacity that he has and I think it’s a loss for the Libyan peace process and for the Libyan people that I am not able to appoint him,” he stated, adding that bringing an end to the conflict in Libya is in everybody’s interest.

When moderator and CNN anchor Becky Anderson asked about the new U.S. administration’s “America First” principle, Guterres noted the need for the UN to respect its values but also stressed the importance of multilateral solutions to global problems.

“In a world in which everything is global, in which the problems are global – from climate change to the movement of people – there is no way countries can do it by themselves. We need global responses, and global responses need multilateral institutions able to play their role,” Guterres stated.

“That is where the other gap of confidence becomes extremely important,” he continued, proposing reforms in the UN system to help build trust in such institutions.

Despite 2016 being a “chaotic” year, Guterres followed after French diplomat Jean Monnet in expressing his hope for the future.

“I’m not optimistic, I’m not pessimistic, I am just determined,” he concluded.

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Major Crisis, Minor Reformshttp://www.ipsnews.net/2017/02/major-crisis-minor-reforms/?utm_source=rss&utm_medium=rss&utm_campaign=major-crisis-minor-reforms http://www.ipsnews.net/2017/02/major-crisis-minor-reforms/#comments Fri, 10 Feb 2017 16:24:29 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148889 Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> A growing realization in the West that economic conditions for working people have been slowly, but steadily deteriorating in recent decades. Credit: IPS

A growing realization in the West that economic conditions for working people have been slowly, but steadily deteriorating in recent decades. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Feb 10 2017 (IPS)

The 2008-2009 financial breakdown, precipitated by the US housing mortgage crisis, has triggered an extended stagnation in the developed economies, initially postponed in much of the developing world by high primary commodity prices until 2014. Yet, the financial crisis and protracted economic slowdown since has not led to profound changes in the conventional wisdom or policy prescriptions, especially at the international level, despite global economic integration since the 1980s.

To be sure, the spread of the crisis caused the G20 group of US-selected important economies to convene for the first time at a heads of government level in a mid-November 2008 White House summit instigated by then French President Sarkozy. Various national initiatives to save their financial sectors were followed by a Gordon Brown UK initiative to significantly augment IMF resources. Soon, however, the appearance of supposed ‘green shoots of recovery’ led to premature abandonment of fiscal recovery efforts, reinforced by Eurozone fiscal rules, the powerful influence of financial rentier interests and bogus academic claims of impending doom due to public debt growth.

Weak response, weak recovery
The uneven and lacklustre economic recovery and worsening conditions for many in the world since then have been accompanied by a tremendous new concentration of wealth. Meanwhile, there has been a growing realization in the West that economic conditions for working people, which had been rising rapidly in the post-war decades, have been slowly, but steadily deteriorating in recent decades.

This has been associated in the popular imagination with globalization and some of its major manifestations, including increased inflows of cheaper goods and migrants. Widespread political, social and cultural reactions were summarily dismissed by political and media establishments as unfounded populisms of one kind or another.

To be sure, the dominant tendencies have often been xenophobic, culturally chauvinist and intolerant, and sometimes, downright racist. Ostensibly to secure electoral majorities and to move with the times, most European social democrat leaders have joined the consensus of the financial rentiers, discrediting the ‘centre-left’ and strengthening the ‘popularity’ of the ‘far right’ and exceptionally, the left.

Despite this vortex of globalization, financial crisis, stagnation, rising inequality and populism, somewhat reminiscent of the 1930s, there has been no comparable policy or analytical response, and most certainly, no leadership comparable to, say, Roosevelt’s New Deal or the Marshall Plan.

Some rethinking, but to no end
Besides the brief rediscovery of Hyman Minsky’s work, Joseph Stiglitz, Robert Shiller, Thomas Piketty and other dissenters have received far more attention than if not for the crisis. Meanwhile, some distinguished mainstream economists have been forced by recent realities to reconsider elements of the conventional wisdom, without requiring abandonment of the creed.

Since the leadership of IMF Managing Director Dominic Strauss-Kahn, the Fund’s Research Department has contributed to such rethinking, especially on financial regulation, fiscal policy and income inequality. The Fund has been re-legitimized in the eyes of some of its critics elated by its research findings and their policy implications. In some instances, the nature and significance of the research findings have been exaggerated by erstwhile critics pleasantly surprised by the researchers’ apparently critical turn.

Such research results have broadened the scope of what is deemed acceptable economic policy discourse. But in fact, these research findings have had rather limited and mixed consequences for its operations, including its policy advice and conditionalities.

Meanwhile, the Fund has already begun to back-pedal on some of its bolder critical publications, e.g., on neo-liberalism’s responsibility for slower growth and greater inequality in its Finance and Development periodical in June 2016. Thus, while there has undoubtedly been a welcome shift in the Fund’s research findings, it is important not to exaggerate their actual significance for its role, impact and operations.

Before his passing a decade ago, neoclassical economics guru Paul Samuelson had raised concerns about the biased, one-dimensional and exaggerated claims of the benefits from international trade liberalization. But even now, the Washington Consensus presumption that trade liberalization raises all boats without any need for compensatory mechanisms, continues to be the conventional wisdom.

One step forward, two steps back
Worse still, so-called free trade agreements have less and less to do with reducing barriers to trade, but instead have become major instruments for advancing powerful corporate interests abroad, and certainly not for enhancing prospects for sustainable development and food security. Meanwhile, as Jagdish Bhagwati has long emphasized, the prospects for multilateral trade liberalization are being undermined by non-trade conditionalities as well as bilateral and plurilateral agreements driven by other considerations.

Much more remains to be done if economic research and policy advice are to rise to meet the challenges of our times. Unfortunately, for the time being, it is not clear that political conditions and leadership are conducive to such shifts in the near future.

To be sure, some of the recent rethinking is significant, with important policy implications, and could lead to state and collective international intervention mechanisms to rein in the neo-liberal paradigm in extremis. But most actual policy and regulatory reform initiatives have been limited in scope so far, and continue to be deeply compromised by powerful rentier interests and their proponents in the ‘deep state’, academia and the media.

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US, EU Food Standards Major Hurdle for Caribbean Exportershttp://www.ipsnews.net/2017/02/us-eu-food-standards-major-hurdle-for-caribbean-exporters/?utm_source=rss&utm_medium=rss&utm_campaign=us-eu-food-standards-major-hurdle-for-caribbean-exporters http://www.ipsnews.net/2017/02/us-eu-food-standards-major-hurdle-for-caribbean-exporters/#comments Tue, 07 Feb 2017 13:14:27 +0000 Jewel Fraser http://www.ipsnews.net/?p=148847 Oraine Halstead (left) and Rhys Actie tend tomatoes in a greenhouse at Colesome Farm at Jonas Road, Antigua. Credit: Desmond Brown/IPS

Oraine Halstead (left) and Rhys Actie tend tomatoes in a greenhouse at Colesome Farm at Jonas Road, Antigua. Credit: Desmond Brown/IPS

By Jewel Fraser
PORT OF SPAIN, Trinidad, Feb 7 2017 (IPS)

As Caricom countries struggle to move away from their traditional reliance on a single industry or major crop in the face of growing economic uncertainty worldwide, they are finding it increasingly difficult to enter markets in the EU and North America with new types of food products.

But tariffs are no longer the main barriers to accessing important markets, according to a document produced by the ACP-EU Overcoming Technical Barriers to Trade (TBT) programme.Latin America and the Caribbean provide over 90 per cent of the fruits and nearly 80 per cent of all vegetables imported by the US. Nonetheless, some countries in the region have “very high rejection rates” at US ports of entry.

The ACP-EU is of the view that “Non-tariffs barriers will become the main challenge of the future multilateral trade system.” Specifically, technical barriers related to compliance with sanitary and phytosanitary standards (SPS) in export markets and other standards including those relating to labelling and packaging.

The EU considers these technical, non-tariff, barriers to trade so challenging for its African, Caribbean and Pacific (ACP) partners that it provided 15 million euros starting in 2013 to help those developing countries upgrade their processes and become compliant, thus giving them a better chance of success on the EU and North America markets.

The Caribbean Agribusiness Association (CABA) is one Caribbean organisation that was able to access funding to help its members move toward HACCP (Hazard Analysis and Critical Control Point) certification, which the ACP-EU TBT programme identified as a crucial requirement. Since the early 2000s, the US and EU have stipulated that foods entering their markets must have HACCP certification.

Ten of CABA’s members were present at a regional conference, held at the Radisson Hotel in Port-of-Spain Jan. 29-30, to report on the benefits they received from the HACCP training. They heard some sobering statistics with regard to the EU and US food industry that provided context for the TBT programme.

Dr. Andre Gordon, chief executive officer of TSL Technical Services Limited, told delegates that each year, the UK records approximately one million cases of food-borne illnesses, of which about 20,000 require hospitalisation, and 500 deaths are recorded. The cost to the UK of dealing with food-borne illnesses is 1.4 billion pounds annually.

In the US, approximately 48 million cases of food-borne illnesses are recorded annually, resulting in 128,000 hospitalisations and 3,000 deaths. The cost to the US of dealing with food-borne illnesses is approximately 77.7 billion dollars annually, the delegates heard.

The 2016 report, “Addressing Food Losses due to Non-Compliance with Quality and Safety Requirements in Export Markets: the case of Fruits and Vegetables from the Latin America and the Caribbean Region,” by two Food and Agriculture Organization (FAO) experts, underlined how much is at stake for Caribbean agribusiness exporters.

The report reveals that Latin America and the Caribbean (LAC) provide over 90 per cent of the fruits and nearly 80 per cent of all vegetables imported by the US. Nonetheless, some countries in the region have “very high rejection rates” at US ports of entry, including Jamaica, Bolivia and the Dominican Republic, the document states.

The report said, “While many LAC countries have a good rate of acceptance in comparison with other countries exporting to the USA and EU, a few countries within LAC perform very poorly, revealing great disparity in preparedness for export trading within the region.” The report noted that “Multiple handling failures along the chain are likely the cause of the most frustrating complaints by international buyers.”

Dr. Gordon, who oversaw the Jamaica ackee industry’s transformation that made it compliant with US Food and Drug Administration regulations in the early 2000s so that it could gain access to the US market, explained to IPS the obstacles facing Caribbean exporters.

“The problem in general with all agribusiness companies in the Caribbean is typically lack of technical capacity and knowledge of the requirements and lack of the resources to implement the systems as required,” he said.

However, Dr. Gordon said, “The cultural change that is required is probably the biggest single limitation to implementing and sustaining certification systems…If the management and ownership [of agribusinesses] do not have a vision of becoming global players then the effort and resources required are going to seem unattainable and not good value for money. A lot of firms have issues with understanding the value for money proposition of embarking on a certification programme.”

The briefing paper “SPS measures lead to high costs and losses for developing countries”, published not long after the EU mandated HACCP certification for all exporters to the EU, noted that “As the income level of developing countries is far smaller, …the opportunity cost of compliance is relatively far higher than that for developed country exporters.

“The rapid change in SPS measures, regulations and notifications of new regulations is another problem facing developing countries in preparing for compliance. It also imposes extra costs on investors and exporters and creates uncertainty for them.”

However, the paper’s author concluded, “while the cost of compliance is high, the cost of lack of compliance is even higher” because of loss of market share or reduced access to markets.

Dr. Gordon revealed that in 2010, the Caribbean had the second highest level of food rejections of any region at US ports of entry.

A March 2016 FAO report highlighted other issues hindering Caribbean agribusinesses in their efforts to export. The report states: “A number of deep-seated challenges inhibit Caribbean agriculture diversification and competitiveness: the small and fragmented nature of most farm units; the absence of strong farmer grass-roots organizations; the cost of agricultural labor; the ageing demographics of Caribbean farmers; an education system that does not prepare youth to seek employment opportunities in the agricultural sector; and extension systems that have historically focused on managing the traditional export crops.”

The problem of small farm units is being addressed head on, said CABA’s president Vassel Stewart, with the formation of CABEXCO, a new umbrella organisation for SMEs in the Caricom agribusiness sector, which will jointly procure raw materials and services as well as market its members’ products and reach out to new buyers.

The resulting economies of scale will also hopefully make it easier to bear the cost of becoming compliant with US and EU food export regulations.

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US Trade Hawks and the China Bogeyhttp://www.ipsnews.net/2017/02/us-trade-hawks-and-the-china-bogey/?utm_source=rss&utm_medium=rss&utm_campaign=us-trade-hawks-and-the-china-bogey http://www.ipsnews.net/2017/02/us-trade-hawks-and-the-china-bogey/#comments Fri, 03 Feb 2017 06:49:54 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148793 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.]]> "Trump's Defensive tariffs propose to effectively deal with China's ‘trade cheats’ "

"Trump's Defensive tariffs propose to effectively deal with China's ‘trade cheats’ "

By Jomo Kwame Sundaram
KUALA LUMPUR, Feb 3 2017 (IPS)

New US President Donald Trump has long insisted that its major trading partners having been taking advantage of it. Changing these trade terms and conditions will thus be top priority for his administration, and central to overall Trump economic strategy to ‘Make America Great Again’.

Quit WTO solution
Candidate Trump’s trade policy paper was written by Peter Navarro and Wilbur Ross. Ross will now be Commerce Secretary while Navarro will head the National Trade Council. They view economic policy as integrated, including tax cuts, reduced regulations as well as policies to lower energy costs and cut the chronic US trade deficit. In just 21 pages, they suggest how US growth will increase during a Trump administration, with millions of new jobs and trillions in additional income and tax revenues.

One view is that President Trump can implement most of the policies advocated without obstruction by either the US Congress or court system. Internationally, no country will take on the US for a “very simple reason: America’s major trading partners are far more dependent on American markets than America is on their markets”.

Navarro and Ross argue that the US has already lost out, mainly due to badly negotiated trade deals and poor enforcement resulting in trade deficits. They claim that because the US does not use a value-added tax (VAT) system, everyone else has an unfair trade advantage, that, they believe, the World Trade Organization (WTO) should have rectified. As the world’s largest economy, consumer and importer, the US has the leverage to correct this by pulling out of the WTO. As the WTO would become irrelevant without the US, the damage would be minor.

According to the plan, reducing the US trade deficit will put more money in the hands of American workers who will then be able to afford higher prices for US made products. As American products become more competitive over time, prices will fall, raising consumer welfare.

China myths

Defensive tariffs are proposed to deal effectively with ‘trade cheats’. With China identified as the “biggest trade cheater” in the world, it gets special attention. In the US public mind, China remains ‘the world’s workshop’, where hundreds of millions of lowly paid workers mass produce consumer goods while its artificially low exchange rate and production subsidies ensure their goods remain competitive internationally. While perhaps true over a decade ago, the situation has changed radically since.

At the height of global trade imbalances over a decade ago, China’s trade surplus was more than ten percent of GDP. However, with the sudden slowing of world trade growth during the 2008-2009 Great Recession, growth of the US trade deficit with China slowed significantly. While the US still has a large trade deficit with China, China is also among its largest export markets.

In 2014, services overtook manufacturing as the biggest component of China’s economy. Net exports were equivalent to 1.7% of growth, tiny compared to domestic consumption and investment. China will want to continue exporting to the US, but the structural transformation of its economy and greater demand for various services now generates more new jobs, not only in China, but also elsewhere, including the US.

Undervalued renminbi?
On the campaign trail, Trump threatened to declare China a currency manipulator and to impose tariffs of up to 45 percent on Chinese imports during his first 100 days in office. Under US law, Trump can easily cite currency manipulation to impose defensive and countervailing tariffs against others as well. Navarro and Ross not only point at China, but also Japan and the euro, with the Germans getting special mention.

Washington has long claimed that China artificially depresses the value of its currency to benefit exporters. While a plausible case could have been made to this effect a dozen years ago, the renminbi has greatly appreciated since then, following tremendous US pressure, much amplified by the International Monetary Fund (IMF).

Most serious economists today doubt the renminbi remains undervalued. While stable for about a decade before 2005, and arguably undervalued for some of that period, the renminbi has risen by 30-40 percent since, prompting the IMF to repeatedly declare that it is no longer undervalued.

Indeed, weakening export demand and strong capital outflows have put tremendous downward pressure on the Chinese currency, forcing its central bank to use its US dollar reserves to artificially support its currency. Thus, recent Chinese currency manipulation has kept the renminbi over-valued rather than undervalued.

All this suggests that the Trump team is proposing remedies that, at best, rely on a long outdated diagnosis. The current situation is very different. Failure to make progress with wrongly prescribed measures may lead to even more aggressive efforts, which risk leading to economic war in which most, even spectators, will become victims.

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Demonstrating the Power of Partnerships: The Potential for Universal Health Care in Kenyahttp://www.ipsnews.net/2017/01/demonstrating-the-power-of-partnerships-the-potential-for-universal-health-care-in-kenya/?utm_source=rss&utm_medium=rss&utm_campaign=demonstrating-the-power-of-partnerships-the-potential-for-universal-health-care-in-kenya http://www.ipsnews.net/2017/01/demonstrating-the-power-of-partnerships-the-potential-for-universal-health-care-in-kenya/#comments Mon, 30 Jan 2017 07:05:28 +0000 Dr Stephen Karau http://www.ipsnews.net/?p=148710 Dr Stephen Karau, Kenya’s Ambassador/Permanent Representative to The United Nations, WTO & Other International Organizations in Geneva, Switzerland. @DrKarau ]]>

Dr Stephen Karau, Kenya’s Ambassador/Permanent Representative to The United Nations, WTO & Other International Organizations in Geneva, Switzerland. @DrKarau

By Dr Stephen Karau
GENEVA, Jan 30 2017 (IPS)

Even as the global community set out the 17 Sustainable Development Goals last year, a realization that stood out is that no single unit has the wherewithal to achieve such lofty goals – they will only be achieved through partnerships.

Ambassador Stephen Karau

Ambassador Stephen Karau

There has been a lot of discussions and good intentions regarding public-private partnerships, but not enough practical, on-the-ground support to make such partnerships effective and truly transformational.

One of the areas where the need for partnerships has been most obvious is the pursuit of universal health coverage, which falls under SDG 3 of Good Health and Wellbeing.

On 20 January 2017, I was delighted to represent my government at a World Economic Forum side-event in Davos. Our underlying aim is to pave the way forward of an initiative that is being spearheaded with the Government of Kenya and the United Nations in Kenya that aims to accelerate progress towards Universal Health Coverage (UHC) in support of the broader attainment of the SDGs. We are pleased with the enthusiasm and support of the Government of Netherlands, Philips and Unilever.

I was inspired by the engaging discussions with various executives from the private sector on how we could establish a platform and shape a process in Kenya for realizing partners’ common goal of significantly increasing private sector investments and large-scale, financially sustainable Public Private Partnerships in Primary Health Care (PHC).
While the Kenya Government has put in place commendable efforts to increase allocation to the health sector and provide health protection, more still can be done to engage the private sector, where innovation, technical know-how, and efficiency are abundant.

President Uhuru Kenyatta has demonstrated personal interest in the health sector, with a flagship programme being the provision of free maternity services in public hospital, and the very successful advocacy programme by the Kenya First Lady known as the Beyond Zero Campaign.

However, the majority of the country’s population still relies on out-of-pocket spending and other means such as informal borrowing to finance health care. Often this leads to financial hardship, and nearly one million Kenyans are pushed below the poverty line every year as a result of prohibitive health care expenses. This indicates the need to accelerate the policies and galvanize support around the realization of UHC.

Through championing multi-stakeholder and cross-sector partnerships this can be realized.

As a diplomat but also trained doctor with experience in the public and private sectors and having served for 24 years in the Kenyan military, I personally understand the complexities of partnering and how different interests can pose a challenge. But I also know how rewarding successful collaboration can be when partners demonstrate trust in each other, openly share ideas and join forces behind a shared purpose.

My friend and colleague, Siddharth Chatterjee, the United Nations Resident Coordinator in Kenya has said that Kenya can lead the way in achieving universal health coverage in Africa, I say enthusiastically, “yes we can”.

The recently released report of the Better Business, Better World by the Business & Sustainable Development Commission states that sustainable business models could open economic opportunities worth up to US$12 trillion and increase employment by up to 380 million jobs by 2030. Putting the Sustainable Development Goals at the heart of the world’s economic strategy could unleash a step-change in growth and productivity.

However, this will not happen without radical change in the business and investment community. Real leadership is needed for the private sector to become a trusted partner in working with government and civil society to fix the economy.

In Kenya we are already witnessing the fruits of such leadership and private sector engagement from which we can learn and build on. One such example is the Private Sector Health Partnership Kenya. Through this platform companies as Philips, Unilever, Safaricom, Merck (MSD), Huawei and GSK, in partnership with the national and county governments, are helping to build models with the potential for scaling-up the delivery of healthcare for vulnerable and poor populations in low-resource settings.

Initial support has focused on innovative solutions that enable leapfrogging obstacles occurring in local health systems in Mandera, Migori, Marsabit, Wajir, Isiolo and Lamu. These six counties have a combined population of approximately 10% of the national population but contribute close to 50% of the country’s maternal deaths.

For the private sector partners, it is not a partnership driven by corporate social responsibility ideals, but an opportunity to create the basis for future growth, for example by setting off a positive cycle of health and employment, which can create new markets.

It clearly shows the willingness of both public but also private partners to embrace the sustainability agenda and find shared-value partnership models in order to leave-no-one-behind.

Let me finish by reiterating what Hon Dr Mailu, Cabinet Secretary for Health in Kenya, also shared in his video message to the participants of the WEF Davos side-meeting: “In Kenya, we are committed to partnerships that are dynamic and mutually beneficial. I believe that as we start talking more, we will find additional ways to share our expertise and resources to achieve our common goals. We want to explore new ideas and platforms, offering an open invitation to work together”.

World Trade Organization (WTO)

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Ecuador Revives Campaign for UN Tax Bodyhttp://www.ipsnews.net/2017/01/ecuador-revives-campaign-for-un-tax-body/?utm_source=rss&utm_medium=rss&utm_campaign=ecuador-revives-campaign-for-un-tax-body http://www.ipsnews.net/2017/01/ecuador-revives-campaign-for-un-tax-body/#comments Fri, 27 Jan 2017 07:33:40 +0000 Thalif Deen http://www.ipsnews.net/?p=148694 By Thalif Deen
UNITED NATIONS, Jan 27 2017 (IPS)

The Republic of Ecuador, currently chair of the largest single coalition of developing countries at the United Nations, is reviving a longstanding campaign for the creation of an inter-governmental UN tax body and the elimination of tax havens and illicit financial flows.

Practicing what it preaches, Ecuador says it is the world’s first country to hold a nation-wide referendum on tax havens, scheduled to take place on February 19.

Addressing a meeting of the 134-member Group of 77 (G77) on January 13, Ecuadorean President Rafael Correa, who was anointed the new G77 chair for 2017, said “illegitimate wealth mostly affected the world’s poorer nations”.

“There should be more knowledge havens and less tax havens,” he said, at a formal handover ceremony of the chairmanship, from Thailand to Ecuador.

Meanwhile, speaking at a civil society panel discussion in Washington DC on January 12, Guillaume Long, Ecuador’s Minister of Foreign Affairs, said Ecuador, in an unprecedented move, will let the people decide, pointing out that “the struggle against tax havens is a global struggle.

“We need a UN tax body to ensure tax justice. Ecuador will unite with all those fighting this battle – states and civil society.”

The referendum, known as the “ethical pact,” will ask “Do you agree that, for those holding a popularly elected office or for public servants, there should be a prohibition on holding assets or capital, of any nature, in tax havens?”

Public servants and elected officials will be given a year to repatriate their capital or be removed from office or their post.

At the panel discussion, several US-based non-governmental organizations (NGOs) commended the new G77 chair, for leading a campaign both for the elimination of tax havens and the creation of a new UN tax body.

The proposal for a UN tax body has already been shot down twice by Western nations, first, at the Financing for Development (FfD) conference in Addis Ababa in July 2015, and also at the 14th session of the UN Conference on Trade and Development (UNCTAD 14) in Nairobi in August last year.

Asked about the feasibility of the proposal against Western opposition, Eric LeCompte, Executive Director of the Jubilee USA Network, one of NGOs backing the proposal, told IPS: “In just a few years we’ve seen almost universal acknowledgment of the problems of tax avoidance, tax evasion and corruption.”

“At the same time we do see clear opposition from many wealthy countries on the idea of a global tax body as part of a solution”.

For this to be successful, he pointed out, there needs to be some re-envisioning of the proposal from the Addis Ababa conference. He said the G77 could also engage in bilateral agreements to move this forward.

“While the United Nations tries to operate by consensus, we could also see countries force a vote at the United Nations. While a vote would likely be successful under this method, without some re-envisioning of the concept, we’d likely see many wealthy countries refuse to participate in the process,” he warned.

Asked if Ecuador will be able to pull it off?, LeCompte told IPS: “Ecuador seems to be operating out of a G77 consensus on these issues. Since the Financing for Development meetings in Addis Ababa, we’ve seen G77 countries like Ecuador strengthen their support for these efforts.”

The original proposal by the G77 called for the establishment of a standing intergovernmental group of experts to address tax issues, including international tax issues, and to assist countries better mobilize and employ fiscal revenues.

This includes international initiatives to counter tax avoidance and tax evasion, as well as strengthening the capabilities of developing countries to address tax avoidance and tax evasion practices.

In Africa alone, the estimated resources leaving the continent, in the form of illicit financial transfers, was nearly 530 billion dollars between 2002 and 2012, according to UNCTAD.

The three key causes of illicit financial outflows are largely commercial tax evasion, government corruption and criminal activity, including money laundering.

Addressing the NGOs, the Ecuadorean Foreign Minister said: “Our government has introduced very redistributive policies in the most unequal continent on earth. Our priority is to fight inequality which is the cause of most of problems we face.”

He pointed out that Ecuador has seen big improvements in living standards over the last decade due to major economic reforms, including a tripling of tax takes achieved overwhelmingly by collecting taxes, not by raising them.

“This has become an important source of investment in public services. The next stage in this battle for a fair economy is against tax havens”

“Tax havens are a real ethical problem. For example, while Ecuadorian migrants loyally work long hours to send remittances to Ecuador, an elite section of the population siphons billions of dollars back out of the country to tax havens,” he noted.

The Washington DC panel discussion was co-sponsored by several NGOs, including Jubilee USA, Center for Economic and Policy Research, Center of Concern, FACT Coalition, Financial Transparency Coalition, Latindadd, Global Alliance for Tax Justice Network, Public Citizen, the Latin American and Caribbean Tax Justice Network.

The topic under discussion was titled: “Tax Avoidance, Illicit Financial Flows and Global Development: A Call for a United Nations Tax Body”.

According to a press release, several experts, including Eric LeCompte, Jubilee USA; Mark Weisbrot, Center for Economic and Policy Research; Elise Bean, Former Staff Director and Chief Counsel of the U.S. Senate Permanent subCommittee on investigations; Aldo Caliari, Center of Concern; and Clark Gascoigne, FACT Coalition gave their support to the Ecuadorean initiatives on tax havens.

The event moderator Eric LeCompte, Director of Jubilee USA, told the panel discussion: “This conversation today comes at a critical moment. Due to tax evasion and corruption the developing world loses more than a trillion dollars a year because of tax evasion and corruption.”

“These tax issues are a global problem and require a global solution. Addressing tax havens is like a carnival game of whack-a-mole. You deal with problem in one place and it pops up in another.”

Economist Mark Weisbrot, Co-Director of the Centre for Economic and Policy Research (CEPR) said: “Latin America did go through a decade where poverty was reduced from 44 to 28 % in the region as a whole. The standard narrative is that this was just a commodities boom.”

“Ecuador is probably the best example of why that is really not true. They had to do a whole set of institutional, policy and financial reforms in order to achieve the success that they did, and they did achieve success. They have reduced poverty by 30% by 2014. They reduced inequality. They increased access to healthcare. They tripled the amount of GDP that went to public investment.”

He also said that Ecuador was able to build the institutions and do enormous financial and regulatory reforms that we could use here in the United States. They took control of the financial system and regulated it really for the first time in the way it should be regulated. I think the referendum on tax havens is very creative and innovative.”

Aldo Caliari, Director of the REthinking Bretton Woods Project, Center of Concern said: “The battle for an intergovernmental body was not won in Addis Ababa. We need to keep struggling. A UN intergovernmental body is about who defines the rules of the game”.

“I salute the efforts” of Ecuador to raise awareness and pressure against tax havens. “I like the significance of the fact that Ecuador, with this mindset of achieving progress, is taking over the G77 presidency, because it is critical.”

Elise Bean, former Staff Director and Chief Counsel of the U.S. Senate Permanent Sub-Committee on investigations welcomed Ecuador’s work against tax havens saying: “One of the really interesting things is about how Ecuador is giving us an example about how if you strengthen the capacity to collect taxes it really contributes to stability, to the ability to fight poverty. This culture of paying taxes is a remarkable achievement and is something that should be studied and I think we should try to replicate it elsewhere.”

“I have tremendous admiration for Ecuador, to show that it is possible to build a culture of paying taxes. I congratulate you on your country’s progress.”

Clark Gascoigne, Deputy Director of the FACT Coalition said: “Illicit financial flows have a devastating impact on developing countries, wringing tens of billions of dollars out of the developing world. But also have a major effect on developed countries. $150 billion dollars is the most recent estimate of the cost to the US from tax haven abuse annually. This of course exacerbates inequality, leads to austerity and undermines our ability to act collectively and solve problems.”

Porter McConnell, Director of the Financial Transparency Initiative said after the meeting: “I have been very impressed by the leadership that Ecuador has demonstrated on this issue of tax havens and on the issue of illicit financial flows more widely”.

“We have been working with the government of Ecuador for some months to draw attention to the issue and to support the leadership role of Ecuador in the G77. We are very excited to see what comes next and are very supportive of the efforts of Ecuador,” McConnell said.

The writer can be contacted at thalifdeen@aol.com

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Trade War Threat Growshttp://www.ipsnews.net/2017/01/trade-war-threat-grows/?utm_source=rss&utm_medium=rss&utm_campaign=trade-war-threat-grows http://www.ipsnews.net/2017/01/trade-war-threat-grows/#comments Thu, 26 Jan 2017 08:08:09 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=148673 Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 20]]> Waiting for work at the Day Workers Center in Seattle, Washington. The new Trump administration promises ‘tough and fair agreements’ on trade, to revive the US economy and create millions of jobs. Credit: IPS

Waiting for work at the Day Workers Center in Seattle, Washington. The new Trump administration promises ‘tough and fair agreements’ on trade, to revive the US economy and create millions of jobs. Credit: IPS

By Jomo Kwame Sundaram
KUALA LUMPUR, Jan 26 2017 (IPS)

New American President Donald Trump has long insisted that the United States has been suffering from poor trade deals made by his predecessors. Renegotiating or withdrawing from these deals will be top priority for his administration which views trade policy as key to US economic revival under Trump. What will that mean?

The new administration promises ‘tough and fair agreements’ on trade, ostensibly to revive the US economy and to create millions of mainly manufacturing jobs. The POTUS is committed to renegotiating the North American Free Trade Agreement (NAFTA), signed in 1994 by the United States, Canada and Mexico. And if NAFTA partners refuse what the White House deems to be a ‘fair’ renegotiated agreement, “the President will give notice of the United States’ intent to withdraw from NAFTA”.

Constraints?
Presidential fiat may well be extended in radically new ways by the incoming president with, or perhaps even without the support of a Republican-controlled Senate and Congress. However, in terms of trade, Trump may be constrained by his own party’s ‘free trade’ preferences, while the minority Democratic Party is likely to remain generally hostile to him.

Many informed observers doubt the ability of the US President to unilaterally impose trade policies, as the POTUS is subject to many checks and balances, conditions and constraints. But a widely held contrary view is that existing legislation allows the president considerable leeway. But as such ambiguity can be interpreted to grant the president broad authority over trade policy, Trump is likely to use this to the fullest.

Worryingly, Trump and his appointees often appear to see trade as a zero -sum game, implying that the only way for the US to secure its interests would be at the expense of its trading partners. Their rhetoric also implies that the most powerful country in the world has previously negotiated trade deals to its own disadvantage – a view almost no one else agrees with.

Thus, Trump’s belligerent rhetoric threatens trade wars or acquiescence to the US as the only means to change the status quo. But future deals even more favourable to the US can only be achieved with weaker partners, e.g., through bilateral treaties, or those with ulterior motives for accepting even less favourable terms and conditions.

Unequal effects
Of course, the real world is more complicated than one of competing national interests. For example, while US corporations and consumers may benefit from relocating production abroad, American workers who lose their jobs or experience poorer working conditions will be unhappy. Clearly, there is no singular national interest.

Trump’s rhetoric so far implies an opposition of American workers to the ‘globalist’ US elite with scant mention of consumer interests, the main source of support for the globalists. The unequal effects of freer trade have long been recognized by international trade economists except globalization cheerleaders who insist that freer trade lifts all boats – a myth belied by the experiences of increasing numbers of American workers and others in recent decades.

Meanwhile, US protectionists have been in denial about labour-displacing automation throughout the economy. They also fail to recognize how ‘laissez faire’ American capitalism has let the devil take the growing ranks of the hindmost. In contrast, ‘managed’ capitalism has often ensured less disruptive and painful transitions due to trade liberalization and automation, e.g., through government retraining schemes.

Trade rules biased
Nevertheless, it remains unclear how the Trump administration’s trade strategy will unfold. While trading system rules are skewed to favour the powerful, US relations with trading partners have sometimes become dysfunctional and perhaps less advantageous. Hence, a more aggressive Trump administration may well secure better deals for US interests. Some options favouring US companies would only involve minor disruptions, while others could disrupt the US as well as the world economy, possibly precipitating another global recession.

Besides renegotiating or rejecting bilateral and plurilateral deals, the US could also bring more cases before the World Trade Organization (WTO). After all, the US and Europe wrote most WTO rules after the Second World War, and the US has almost never revised its trade rules and practices, even after losing cases. The US has long used the WTO dispute settlement mechanism to great effect until it began disrupting its functioning recently after losing a case.

Trump has long threatened targeted duties to ensure compliance and more favourable deals. While trade lawyers debate the scope for and legality of such actions, most trade economists have argued that US consumers will pay much higher prices to save relatively few jobs.

Triggering trade war
However, instead of imposing duties on specific products, as allowed for by WTO rules, emergency authority may be invoked to impose broad-based tariffs on exports from specific countries, as Trump has threatened to do.

Such an escalation risks causing significant economic damage all round, especially if it provokes retaliatory actions, with no guarantee of securing a more favourable deal. A relatively minor trade dispute can thus easily spin out of control to become a very disruptive global trade war.

After Trump’s inauguration, the White House announced US withdrawal from the Trans-Pacific Partnership (TPP) trade deal, effectively killing the agreement. Ironically, the Obama administration had claimed the TPP would enable the US to write economic rules for the region instead of China, Trump’s favourite bogey. Thus, even presidential one-upmanship can trigger the new world trade war.

Bullying as global trade strategy?
In yet another irony, in Davos last week, a Goldman Sachs veteran announced the sale of a majority stake in his multibillion dollar business to a Chinese group before joining the Trump administration as senior trade adviser. Perhaps as a foretaste of what to expect, in response to Chinese President Xi’s reminder that “No one will emerge as a winner in a trade war”, he warned that China stands to lose ‘way more’ than the US if it retaliates when the new administration imposes selective tariffs on its exports.

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Learning Alliances Help Climate-Smart Agricultural Practices Take Roothttp://www.ipsnews.net/2017/01/learning-alliances-help-climate-smart-agricultural-practices-take-root/?utm_source=rss&utm_medium=rss&utm_campaign=learning-alliances-help-climate-smart-agricultural-practices-take-root http://www.ipsnews.net/2017/01/learning-alliances-help-climate-smart-agricultural-practices-take-root/#comments Tue, 24 Jan 2017 09:43:22 +0000 Nteranya Sanginga and Edidah Ampaire http://www.ipsnews.net/?p=148636 Nteranya Sanginga is Director General of IITA, and Edidah Ampaire is an IITA Project Coordinator based in Kampala, Uganda.]]> Smallholders in developing countries all too often do not have the resources or incentives to commit to the transformation to sustainable agriculture that scientists know is needed. Credit: IITA

Smallholders in developing countries all too often do not have the resources or incentives to commit to the transformation to sustainable agriculture that scientists know is needed. Credit: IITA

By Nteranya Sanginga and Edidah Ampaire
IBADAN, Nigeria, Jan 24 2017 (IPS)

Development advocates and professionals are very keen on harnessing the power of agriculture to promote the cause of climate change these days. And rightly so, because agriculture is both a major emitter of greenhouse gases and so a potential force for mitigation, and because billions of people will need to eat, and so adaptation is an absolute necessity.

That said, it’s actually quite hard to achieve lasting consensus on the ground. For a plethora of reasons, smallholders in developing countries all too often do not have the resources or incentives to commit to the transformation to sustainable agriculture that scientists know is needed.

However, these challenges can be faced and overcome. Doing so requires that experts listen closely to what people are saying.

The International Institute of Tropical Agriculture is highly engaged in promoting climate-sensitive farming practices and full-fledged Climate-Smart Agriculture (CSA). Our experience in the field has given us the opportunity to learn why some useful adaptive techniques struggle to take hold.
Some examples from our work in Northern Uganda are noteworthy.

For example, some agroforestry initiatives and other projects geared to using perennial crops fail to achieve traction among women farmers because they do not own land. The absence of equitable tenure rights leads many women naturally to prefer annual crops that can be harvested in the short term.

Nteranya Sanginga, Director General of the International Institute of Tropical Agriculture (IITA). Courtesy of IITA

Nteranya Sanginga, Director General of the International Institute of Tropical Agriculture (IITA). Courtesy of IITA


Another issue is that while perhaps new and improved seeds have been developed to bolster adaptation to a changing climate in a given locale, it is often not the case that an adequate distribution system is in place. Farmers lament that inputs arrive too late, or that they cost too much and no credit or seed loaning system is available.

It is important to realize that what often appears as farmers’ resistance to change is a fairly well-grounded assessment of the risks and uncertainties that smallholders face. Indeed, when they see a successful technique work over time, they are usually quite interested in adopting it. But, in the absence of a steady and reliable safety net, short-term results are a requirement, which can lead to slower take-up of practices such as no-till that boost long-term soil fertility but may dent present yields.

It’s also true that culinary preferences matter. In Uganda, farmers prefer the aroma of local Sindani rice to the Nerica variety that offers improved performance in upland areas. But here, too, it turns out that Sindani is less damaged by birds, so their rationale is on solid ground. It is only through dialogue that such factors emerge.

IITA has sought to foster and tap such dialogues through its leading role in Policy Action for Climate Change Adaptation (PACCA) projects in Uganda and Tanzania, which seek to prioritize CSA practices with local stakeholders.

One of the core features of our efforts, much of which is done in partnership with the International Center for Tropical Agriculture (CIAT), the World Agroforestry Centre (ICRAF), the International Livestock Research Institute (ILRI), Bioversity International and local partners, is what we call the learning alliance model. After several years of engagement, we are harvesting useful knowledge.

First, and unsurprisingly, it is essential to be reminded by farmers of what their priorities are when asked to consider a change. Yield, income, labor, cost, inputs, equipment, and appropriate farm size are all top priorities.

A set of on-farm demonstrations done in Nwoya district in 2015 allowed for more specific feedback, which we culled from a farmers’ “reflection workshop” organized earlier this year.

While farmers noted that the learning process itself represented a significant cost, due to the risk of crop theft or stray animals entering fields while they travelled long distances to reach training sessions, many CSA practices won plaudits from smallholders. These included: improved varieties, which tend to yield more, mature earlier and resist disease; row planting, which requires fewer seeds and facilitates weeding and harvesting as well as pest control; and minimum tillage, which was seen as a labor saver requiring little specialized skills.

Greater awareness of the risk of climate change would help give more balance to farmers’ concerns. Farmers are increasingly aware of depleted water sources, fewer bird species, lower water tables and other impacts of climate change, but such factors can’t be tackled by a smallholder acting alone and require collective action.

One intriguing idea, which emerged at our recent Learning Alliance reflection meeting in Tanzania, is for the government to set up an agency to address issues of climate change in the same way that special committees were set up in the past to deal with HIV/AIDS.

National platforms with that level of focus are warranted given the magnitude and full spectrum of risks posed by climate change. But the key issue is to make sure they are capillary and local.

The Learning Alliance model is promising in that regard.

Bringing together different partners drawn from policy makers, academic, research organizations, civil society, the private sector and farming communities themselves, the platform has facilitated the sharing of information, knowledge and experiences. They have retained smallholder interest, which is the gold standard for such initiatives.

And increasingly we see local participants in Learning Alliances advocate effectively for deeper plans, the kind that can win funding from international sources, allowing them to last longer and clinch the loyalty of farmers who buy in to the campaign. In short, they are embryonic institutions based on participation and, as such, a replicable approach to tackling the great challenge for climate-smart agriculture practices – sustainable implementation.

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Harvesting Peace: How Rural Development Works for Conflict Preventionhttp://www.ipsnews.net/2017/01/harvesting-peace-how-rural-development-works-for-conflict-prevention/?utm_source=rss&utm_medium=rss&utm_campaign=harvesting-peace-how-rural-development-works-for-conflict-prevention http://www.ipsnews.net/2017/01/harvesting-peace-how-rural-development-works-for-conflict-prevention/#comments Mon, 23 Jan 2017 13:18:59 +0000 Josefina Stubbs http://www.ipsnews.net/?p=148622 Josefina Stubbs is candidate for President of the International Fund for Agricultural Development (IFAD). She has served in IFAD as Associate Vice-President of Strategy and Knowledge from 2014 to 2016 and as Director of Latin America and the Caribbean from 2008 and 2014.]]> Fair and regulated access to the Mount Kenya’s national Park helps diffuse tensions among the members of Mount Kenya’s neighboring communities competing for the forest’s natural resources. Credit: Anna Manikowska Di Giovanni

Fair and regulated access to the Mount Kenya’s national Park helps diffuse tensions among the members of Mount Kenya’s neighboring communities competing for the forest’s natural resources. Credit: Anna Manikowska Di Giovanni

By Josefina Stubbs
SANTO DOMINGO, Dominican Republic and ROME, Jan 23 2017 (IPS)

The year 2016 has seen a massive population flow, unprecedented in its range and reach. Millions of people have fled war-torn communities, natural disasters and violence, some overflowing neighboring countries’ refugee camps, some crossing perilous seas and walking hundreds of miles to reach safer grounds, others seeking refuge in countries half a world away. Thousands have died on their way to safety, countless more were victims of violence and abuse, among them many women and children.

Conflict and violence force people out of their communities, leaving them without resources or means to start afresh. They stall the lives of millions of people, depriving adults of their dignity and children of their childhood. According to the most recent UNHCR data available, 65.3 million people were forcibly displaced in 2015 and that figure has been growing at a rate of 34,000 people per day. Of these, 21.3 million are refugees and half of them under the age of 18. Refugees put enormous pressure on receiving countries, where this sudden population increases puts their host countries at risk of food shortages and competition for limited employment opportunities.

In rural areas, conflict has devastating consequences. Being more sparsely populated and more difficult to police, rural spaces offer relatively safe havens for violent groups to gain ground and base their operations, terrorizing rural communities in the process.

This is one way that conflict and rural development are related. In fact, the relationship between the two is complex and tightly intertwined. In addition to brutally affecting rural communities, conflict often stems from competition for land and natural resources, such as water. Poverty, lack of employment and opportunities of a better future fuels resentment and offers extremists fertile recruiting grounds. When conflict erupts, rural development becomes difficult, if not impossible. Conversely, prosperous rural areas are more resilient to conflict. Investing in rural areas with the aim to strengthen rural communities in food production, business creation, productive as well as basic infrastructure and conflict mitigation helps prevent conflict escalation, promotes stability and reduces food insecurity that results from massive displacement of famers.

In Burundi, a community-owned livestock project contributed to build solidarity and reduce conflict between village members despite a raging civil war. Credit: Anna Manikowska Di Giovanni

In Burundi, a community-owned livestock project contributed to build solidarity and reduce conflict between village members despite a raging civil war. Credit: Anna Manikowska Di Giovanni

The International Fund for Agricultural Development (IFAD) has considerable experience in preventing conflict and buffering its impact through investments in inclusive, sustainable rural transformation in Africa, the Middle East and in Latin America. By investing in rural development, we can provide rural people the option to stay and the strength to resist the onset of violence. By focusing on agriculture production and rural business development, countries become more resilient to food shortages and natural resource degradation. This is particularly important in countries that heavily depend on food imports and who have little or no autonomy in food production. On the other hand, rural business development offers alternatives to farmers and producers to diversify their activities and income sources, and invest in their territories, making them more likely to survive bad harvest as well as natural or man-made disasters. Building rural centers of diverse economic activities is key to reducing the pressure from highly populated urban areas and to creating opportunities for youth to plan their future in the countryside.

Development is a complex process – a social, cultural, religious, political, economic and technological puzzle in which the pieces constantly change shapes. Investment in inclusive rural transformation strengthens the fabric of the society that will build the puzzle and hold the pieces together for years to come. In conflict zones, the coordinated work and investment of the international community is crucial and should be geared toward providing the tools and knowledge to rural organizations and local institutions to take ownership of their communities’ development. It should support local and national authorities how represent the people to create policies that favor sustainable and peaceful growth, and to gain the skills and tools to negotiate, enforce and maintain peace and security. While contributing to achieving Agenda 2030 for sustainable development, it is also a moral obligation.

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Regional Solutions Key for Asia-pacific’s Transition to Sustainable Energyhttp://www.ipsnews.net/2017/01/regional-solutions-key-for-asia-pacifics-transition-to-sustainable-energy/?utm_source=rss&utm_medium=rss&utm_campaign=regional-solutions-key-for-asia-pacifics-transition-to-sustainable-energy http://www.ipsnews.net/2017/01/regional-solutions-key-for-asia-pacifics-transition-to-sustainable-energy/#comments Fri, 20 Jan 2017 15:36:24 +0000 Dr Shamshad Akhtar http://www.ipsnews.net/?p=148602 Dr. Shamshad Akhtar is a Under-Secretary-General of the United Nations (UN) and the Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP). ]]>

Dr. Shamshad Akhtar is a Under-Secretary-General of the United Nations (UN) and the Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP).

By Dr. Shamshad Akhtar
BANGKOK, Jan 20 2017 (IPS)

The Asia-Pacific region is at a turning point in its energy trajectory. The energy solutions that have fuelled growth in the region over the past few decades are no longer compatible with the sustainable development aspirations of our nations and their people. In transitioning to a new era of sustainable energy, policymakers across the region face complex decisions. Supplies must be secure and affordable, and they must fill the energy access gap which leaves half a billion people across the region without access to electricity. At the same time mitigating the local impacts of energy generation and use will be vital in resolving problems such as the air pollution choking our cities and the global consequences of greenhouse gas emissions causing climate change. Solutions exist, but only through regional cooperation and integration can Asia and the Pacific transition to sustainable energy in time to meet the ambitious 2030 Agenda for Sustainable Development and its Goals.

Dr. Shamshad Akhtar

Dr. Shamshad Akhtar

Countries have committed to moving towards a more diverse and low carbon energy mix through the 2030 Agenda and the Paris Agreement on Climate Change. However, fossil fuels stubbornly remain a major part of the regional energy mix, making up three-quarters of electricity generation. Unless the region’s countries work together to accelerate the incorporation of sustainable energy into their strategies, business-as-usual approaches will result in a continuation of fossil fuel use and associated impacts.

While some countries suffer from energy shortages which limit their economic and social development, others enjoy energy surpluses, such as hydropower and natural gas. Trading these resources through new cross-border power grids, drawing on renewable energy when possible, as well as gas pipeline infrastructures, can open up enormous opportunities for both economic growth and decarbonisation.

The energy technology renaissance already underway in some countries is playing a vital role in the transition. New technologies are reducing the cost of clean energy and renewable power. Smart grids and electric vehicles are rapidly gaining market share. Since 2010, the cost of solar power generation has declined by 58 percent, with the cost of wind power down by one-third. The International Renewable Energy Agency projects cost reductions of 59 percent in solar power and 12 percent in wind power within 10 years, edging below fossil fuel electricity costs in most Asia-Pacific countries. Advances in long-distance power transmission technologies enable the linking of renewable energy resource-rich areas such as the Gobi Desert, Central Asia and far eastern Russia, with distant population centers. Asia-Pacific has emerged as an engine for clean energy, both as a manufacturing center for renewable energy technologies and as the leading region for deployment, with $160 billion invested in renewables in 2015.

On the demand side, energy efficiency technologies have an important role to play in the energy transition. Better energy efficiency is a key driver in decoupling energy use and GDP growth in many economies. With 15 percent of the world’s electricity consumed by lighting, efficient LED lighting technology, which consumes up to 85 percent less energy, will make substantial savings. Energy storage technologies for vehicles and power applications have also leapt ahead, offering flexibility in power usage and balancing variable electricity generation from renewables. Here again, regional cooperation, technology transfer and south-south collaboration will play a vital role in the transition.

Despite these encouraging developments, the success of the energy transition will require sustained commitment at national and regional levels through better policies, incentives and allocation of investments. The inertia of the existing energy sector is considerable, with its long-lived assets and entrenched institutional arrangements. Regional cooperation, through sharing of policy experiences, building capacity and mobilizing finance can play a significant role in assisting countries to implement their own energy sector reforms and capture the many co-benefits. The importance of regional energy cooperation is evident in the transboundary nature of many prominent energy challenges – improving regional energy security, managing air pollution and establishing cross-border energy infrastructure. ASEAN, South Asian and Central Asian countries as well as China, Russia and Mongolia are already embracing cross-border energy connectivity. Initiatives such as the CASA 1000 and the ASEAN Power Grid will allow low carbon energy from gas, hydropower, solar or wind to be traded across borders. Long-term regional dialogue is required to further develop these complex and infrastructure-intensive initiatives.

Connecting countries, finding regional solutions and promoting regional standards and guidelines has been at the core of the work of the United Nations Economic and Social Commission for Asia and the Pacific for the past 70 years. We recognize the need for regional energy cooperation, and with the support of our member States established an intergovernmental Committee on Energy that will meet for the first time in Bangkok, 17-19 January. Through the Committee, countries will help to map out key regional energy solutions for the region such as accelerating uptake of renewables and energy efficiency, establishing cross-border energy connectivity, promoting regional approaches to energy security, and providing modern energy access throughout the region to ensure a sustainable energy future for all. Through regional cooperation and integration I am confident that the countries of Asia-Pacific region can transform their energy trajectories to better serve their people, the region and the planet.

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Trump Trade Strategy Unclearhttp://www.ipsnews.net/2017/01/trump-trade-strategy-unclear/?utm_source=rss&utm_medium=rss&utm_campaign=trump-trade-strategy-unclear http://www.ipsnews.net/2017/01/trump-trade-strategy-unclear/#comments Thu, 19 Jan 2017 15:55:46 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=148572 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. ]]> Now that Donald Trump has announced that he will take the US out of the Trans-Pacific Partnership (TPP) Agreement, an increase in  US trade protectionism is expected, possibly triggering serious trade conflicts with unpredictable consequences. Credit: IPS

Now that Donald Trump has announced that he will take the US out of the Trans-Pacific Partnership (TPP) Agreement, an increase in US trade protectionism is expected, possibly triggering serious trade conflicts with unpredictable consequences. Credit: IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR, Malaysia, Jan 19 2017 (IPS)

US President-elect Donald Trump has announced that he will take the US out of the Trans-Pacific Partnership (TPP) Agreement on the first day of his presidency in January 2017. Now, it is widely expected that Trump’s presidency will increase US trade protectionism, and consequently by others in retaliation, possibly triggering serious trade conflicts with difficult to predict consequences.

After decades of denial by ‘free trade’ advocates, it is now widely agreed that many manufacturing jobs in the US have been lost to both automation and offshore relocation by US corporations. Free trade agreements (FTAs) are also being blamed for the US’s large trade deficits.

Trump trade strategy?

With the global economic slowdown of the last eight years associated by many with the slowdown of trade expansion, the surprise election of President-elect Trump has become the subject of much speculation and some dire predictions. Many are concerned that Trump has made various contrarian pronouncements on FTAs, while his appointments to trade related portfolios seem to contradict his trade rhetoric.

In early December 2016, the Wall Street Journal noted the unexpectedly high number of TPP advocates joining the Trump administration to serve in trade-related capacities. Although the hopes of some TPP advocates of a last-minute reprieve are probably misplaced, there is no indication that some amended version, perhaps with a different name, will not eventually emerge in its place.

If President-elect Trump lives up to his campaign rhetoric, other plurilateral free trade agreements will also be affected. Trump has referred to the TPP and the North American Free Trade Agreement (NAFTA) as disasters for the US, and has vowed to renegotiate NAFTA. His announced preference for negotiating “fair” bilateral trade deals favourable to the US has not given much comfort to prospective negotiation partners.

And while Trump’s main preoccupations have been with US manufacturing jobs and the related international trade in goods, he is also expected to promote US corporate interests more generally, e.g., on intellectual property, financial liberalization, investor rights and dispute settlement.

Already, most US FTAs include ‘non-trade issues’, many of which have raised costs to consumers, e.g., by further strengthening intellectual property monopolies typically held by powerful transnational corporations, whose chief executives seem likely to be very influential in the new administration.

Currency manipulation
During the presidential campaign, both Hillary Clinton and Trump accused China of being a “currency manipulator”, despite market consensus that the Chinese renminbi has been reasonably aligned for some time. Under US law, evidence of currency manipulation could be grounds to impose additional tariffs on imports from a country so deemed by the Treasury Department. Aware that this could exacerbate trade conflicts, President Obama avoided pressure to do so from many Congress members, lobbyists and economists.

However, Trump can easily revise this position on some pretext or other, by taking trade or other retaliatory actions against China on the ostensible grounds of alleged currency manipulation which would contravene World Trade Organization (WTO) rules, allowing China to successfully take a case against the US to the WTO for such an illegal action.

WTO trade rules abused
Trump has also threatened to impose tariffs of as much as 45% on imports from China and Mexico! But while an across-the-board tariff hike is unlikely, as it is prohibited by the WTO, the new administration is likely to consider invoking WTO trade-remedy actions on products from China, Mexico and other countries by claiming they are being dumped or subsidized. This has already happened, e.g., with solar panels and wind turbines from China, raising the costs of renewable energy, and thus undermining the global warming mitigation effort.

To be sure, WTO trade remedy rules have long been widely abused for protectionist purposes. A country can impose high tariffs on an imported item from another country by claiming its price has been artificially depressed or subsidized by the government in order to export – or ‘dump’ – them at a price lower than the domestic price. No deterrent is imposed against the offending country even if a WTO dispute settlement panel rules that the ostensibly anti-dumping tariff-raising action was wrongly taken, even though the exporting country has lost considerable export earnings in the interim.

Furthermore, similar actions can be repeated without impunity with no threat of penalty. Such ostensible trade-remedy actions are more likely than blatant tariff walls. These may, in turn, trigger retaliatory counter-actions by aggrieved governments, potentially leading to a spiral of trade protectionism, i.e., trade warfare.

Fair trade?
It is unclear how the new administration views FTAs more generally. The President-elect’s objection to the TPP and NAFTA focuses on the goods trade, and the loss of manufacturing jobs due to cheaper imports, often brought in by the same companies which have chosen to relocate production capacities abroad, and are already mobilizing to resist actions which may jeopardize their profits.
This view does not seem to recognize that technological change, particularly with automation, has been the major source of job losses. Many jobs remaining in the US have higher skill requirements, with fewer employees producing more goods with less labour-intensive techniques.

“Fair trade” will be subject to self-serving interpretations by the governments concerned, arguably further undermining trade multilateralism. While freer trade has undoubtedly improved consumer welfare with cheaper imports, it has seen some deindustrialization in the North and industrialization in the South in recent decades with important employment consequences which have been a major source of the current discontent over globalization.

Trade growth slower
To be sure, the trade growth slowdown following the 2008 financial crisis suggests that the U-turn has already taken place after an extraordinary period of trade expansion due to much greater international specialization with the popularization of international value chains.

In December 2015, Obama’s United States Trade Representative (USTR) Michael Froman threatened the already difficult Doha Round of WTO trade negotiations by trying to introduce TPP issues which had been kept off the agenda from the outset of the ostensibly Development Round after the Seattle WTO ministerial walkout of 1999.

Perhaps most worryingly, there has been no indication so far that the next US administration will not undermine multilateral trade negotiations under the auspices of the WTO. Trump’s much-trumpeted preference for bilateral deals favourable to the US is likely to test trade multilateralism as never before.

But President-elect Trump also has a penchant for the unpredictable, and may yet surprise the world with a new commitment to trade multilateralism to advance consumer, producer, and development interests for all.

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Free Trade Agreements Promote Corporate Interestshttp://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/?utm_source=rss&utm_medium=rss&utm_campaign=free-trade-agreements-promote-corporate-interests http://www.ipsnews.net/2017/01/free-trade-agreements-promote-corporate-interests/#comments Thu, 12 Jan 2017 10:02:26 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=148488 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. ]]> Trump's ‘Put America First’ alternative of negotiating bilateral trade deals will be problematic for its negotiating partners, especially smaller and developing countries with modest negotiating capacity. Credit: IPS

Trump's ‘Put America First’ alternative of negotiating bilateral trade deals will be problematic for its negotiating partners, especially smaller and developing countries with modest negotiating capacity. Credit: IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR, Jan 12 2017 (IPS)

So-called free-trade agreements (FTAs) are generally presumed to promote trade liberalization, but in fact, they do much more to strengthen the power of the most influential transnational corporations of the dominant partner involved. While FTAs typically reduce some barriers to the international trade in goods and services, some provisions strengthen private monopolies and corporate power.

Not surprisingly, FTA processes are increasingly widely seen as essentially corrupt. They are typically opaque, especially to the producer and consumer interests affected. The eventual outcomes are often poorly understood by the public and often misrepresented by those pretending to be experts.

For example, many economists from the Peterson Institute of International Economics and the World Bank have continued to claim very significant growth gains from trade liberalization due to the TPPA which have been refuted by US government economists from the Department of Agriculture and International Trade Commission.

And while many in the transnational elite who benefit remain committed to yet more FTAs as means to extend and expand their power and interests, public trust and hope have declined as people become aware of some of their most onerous provisions and likely consequences.

Thus, people are voting against the politicians held responsible for supporting FTAs regardless of their party affiliations. Brexit and the election of Mr. Trump are examples of such global trends.

Do FTAs promote freer trade?
While FTAs may increase trade and trade flows, but are they worth the effort, considering the paltry growth gains generated? There are considerable doubts that some FTA provisions — e.g., those strengthening intellectual rights (IPRs) or investor-state dispute settlement (ISDS) rules unaccountable to national judiciaries — enhance international trade, economic growth or the public interest.

Greater trade and trade liberalization may potentially improve the welfare of all as well as accelerate growth and structural transformation in developing countries. But such outcomes do not necessarily follow, but need to be ensured through complementary policies, institutions and reforms.

Furthermore, trade liberalization on false premises has also undermined existing productive and export capacities and capabilities without generating new ones in their place, i.e., causing retrogression rather than ensuring progress. Such effects have not only set back economic development, but often, also food security, especially in Sub-Saharan Africa.

Freer and fairer trade without FTAs
More people now realize that trade expansion compatible with welfare and development aspirations can happen without FTAs, e.g., through unilateral measures. This was evident when the US trade embargo on Cuba was dropped, and will happen if US trade relations with Iran improve. Similarly, US-Vietnam trade should expand rapidly in the absence of decades-long discriminatory and onerous US legislation imposed on Vietnam following the end of the War in 1975.

During the recent US presidential campaign, both presidential aspirants attributed the US trade deficit with China to the latter’s alleged currency manipulation. While many developing countries, especially in East Asia, manage their currencies for various reasons, the recent market consensus is that the renminbi has been reasonably aligned for some time, while the currencies of some other countries, mainly US allies in East Asia, are more significantly undervalued. US trade negotiators have long complained that they cannot get enforceable currency rules into any FTA as it is so easily prone to abuse.

More fundamentally, such a solution does not address the underlying problems of the international monetary system which confers an ‘exorbitant privilege’ on the US. With greatly liberalized capital accounts in recent decades, many ‘emerging market economies’ have experienced large and sudden outflows of capital. Hence, they have resorted to the expensive and contractionary practice of so-called ‘self-insurance’, by accumulating huge foreign exchange reserves in case of need for emergency deployment.

This has had substantial opportunity costs for emerging economies as these reserves could have been used more productively instead of keeping them in low-yield US Treasury bonds. Besides transferring seigniorage gains (to the currency issuing government due to the difference between the face value of currency and their production costs) to the US, emerging countries are, in effect, helping to finance US deficits and expenditure.

Multilateralism still best option
If President-elect Trump lives up to his campaign rhetoric, all plurilateral and multilateral free trade agreements will be affected. But his ‘Put America First’ alternative of negotiating bilateral trade deals favourable to the US is also hugely problematic because of the heavy demands it will place on the US as well as its negotiating partners, especially smaller and developing countries with modest negotiating capacity.

And while Trump’s main preoccupations have been with the goods trade and US jobs, there has been no indication so far that he will not continue to promote US corporate interests more generally, e.g., on intellectual property, investor rights, financial liberalization and dispute settlement, as part of ostensible comprehensive trade negotiations. Such concerns have been reinforced by the choice of recent appointees to senior trade-related positions in the new administration.

Determinants of trade flows and patterns are many and varied, including incomes (or, purchasing power), growth rates, tariffs, non-tariff barriers, exchange rates as well as import and export rules. The World Trade Organization (WTO) and other existing multilateral institutions can do much to facilitate greater trade in the interest of all if given a chance to succeed.

Worryingly, there has been no indication so far that the next US administration will not undermine multilateral trade negotiations under WTO auspices. Unfortunately, the current Doha Round of trade negotiations has been prevented by powerful corporate interests and the governments. Concluding a truly progressive trade agreement would not only meet developmental aspirations as well as advance national, public, consumer and producer interests, but would also help ensure a more balanced and robust global economic recovery.

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Lessons from the Demise of the TPPhttp://www.ipsnews.net/2017/01/lessons-from-the-demise-of-the-tpp/?utm_source=rss&utm_medium=rss&utm_campaign=lessons-from-the-demise-of-the-tpp http://www.ipsnews.net/2017/01/lessons-from-the-demise-of-the-tpp/#comments Thu, 05 Jan 2017 14:23:32 +0000 Jomo Kwame Sundaram and Anis Chowdhury http://www.ipsnews.net/?p=148416 Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. ]]> Rrealistic macroeconomic modelling  has suggested that almost 800,000 jobs could be lost over a decade. Already, many US manufacturing jobs have been lost to US corporations’ automation and relocation abroad. Credit: IPS

Rrealistic macroeconomic modelling has suggested that almost 800,000 jobs could be lost over a decade. Already, many US manufacturing jobs have been lost to US corporations’ automation and relocation abroad. Credit: IPS

By Jomo Kwame Sundaram and Anis Chowdhury
KUALA LUMPUR, Malaysia, Jan 5 2017 (IPS)

President-elect Donald Trump has promised that he will take the US out of the Trans-Pacific Partnership Agreement (TPPA) on the first day of his presidency. The TPP may now be dead, thanks to Trump and opposition by all major US presidential candidates. With its imminent demise almost certain, it is important to draw on some lessons before it is buried.

Fraudulent free trade agreement
The TPP is fraudulent as a free trade agreement, offering very little in terms of additional growth due to trade liberalization, contrary to media hype. To be sure, the TPP had little to do with trade. The US already has free trade agreements, of the bilateral or regional variety, with six of the 11 other countries in the pact. All twelve members also belong to the World Trade Organization (WTO) which concluded the single largest trade agreement ever, more than two decades ago in Marrakech – contrary to the TPPA’s claim to that status. Trade barriers with the remaining five countries were already very low in most cases, so there is little room left for further trade liberalization in the TPPA, except in the case of Vietnam, owing to the war until 1975 and its legacy of punitive legislation.

The most convenient computable general equilibrium (CGE) trade model used for trade projections makes unrealistic assumptions, including those about the consequences of trade liberalization. For instance, such trade modelling exercises typically presume full employment as well as unchanging trade and fiscal balances. Our colleagues’ more realistic macroeconomic modelling suggested that almost 800,000 jobs would be lost over a decade after implementation, with almost half a million from the US alone. There would also be downward pressure on wages, in turn exacerbating inequalities at the national level.

Already, many US manufacturing jobs have been lost to US corporations’ automation and relocation abroad. Thus, while most politically influential US corporations would do well from the TPP due to strengthened intellectual property rights (IPRs) and investor-state dispute settlement (ISDS) mechanisms, US workers would generally not. It is now generally believed these outcomes contributed to the backlash against such globalization in the votes for Brexit and Trump.

Non-trade measures

According to the Peterson Institute of International Economics (PIIE), the US think-tank known for cheerleading economic liberalization and globalization, the purported TPPA gains would mainly come from additional investments, especially foreign direct investments, due to enhanced investor rights. However, these claims have been disputed by most other analysts, including two US government agencies, i.e., the US Department of Agriculture’s Economic Research Service (ERS) and the US International Trade Commission (ITC).

Much of the additional value of trade would come from ‘non-trade issues’. Strengthening intellectual property (IP) monopolies, typically held by powerful transnational corporations, would raise the value of trade through higher trading prices, not more goods and services. Thus, strengthened IPRs leading to higher prices for medicines are of particular concern.

The TPP would reinforce and extend patents, copyrights and related intellectual property protections. Such protectionism raises the price of protected items, such as pharmaceutical drugs. In a 2015 case, Martin Skrelly raised the price of a drug he had bought the rights to by 6000% from USD12.50 to USD750! As there is no US law against such ‘price-gouging’, the US Attorney General could only prosecute him for allegedly running a Ponzi scheme.

“Medecins Sans Frontieres” warned that the agreement would go down in history as the worst “cause of needless suffering and death” in developing countries. In fact, contrary to the claim that stronger IPRs would enhance research and development, there has been no evidence of increased research or new medicines in recent decades for this reason.

Corporate-friendly
Foreign direct investment (FDI) is also supposed to go up thanks to the TPPA’s ISDS provisions. For instance, foreign companies would be able to sue TPP governments for ostensible loss of profits, including potential future profits, due to changes in national regulation or policies even if in the national or public interest.

ISDS would be enforced through ostensibly independent tribunals. This extrajudicial system would supercede national laws and judiciaries, with secret rulings not bound by precedent or subject to appeal.

Thus, rather than trade promotion, the main purpose of the TPPA has been to internationally promote more corporate-friendly rules under US leadership. The 6350 page deal was negotiated by various working groups where representatives of major, mainly US corporations were able to drive the agenda and advance their interests. The final push to seek congressional support for the TPPA despite strong opposition from the major presidential candidates made clear that the main US rationale and motive were geo-political, to minimize China’s growing influence.

The decision by the Obama administration to push ahead with the TPP may well have cost Hillary Clinton the presidency as she came across as insincere in belatedly opposing the agreement which she had previously praised and advocated. Trade was a major issue in swing states like Ohio, Michigan and Pennsylvania, where concerned voters overwhelmingly opted for Trump.

The problem now is that while the Obama administration undermined trade multilateralism by its unwillingness to honour the compromise which initiated the Doha Development Round, Trump’s preference for bilateral agreements benefiting the US is unlikely to provide the boost to multilateralism so badly needed now. Unless the US and the EU embrace the spirit of compromise which started this round of trade negotiations, the WTO and multilateralism more generally may never recover from the setbacks of the last decade and a half.

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Poor Darwin – Robots, Not Nature, Now Make the Selectionhttp://www.ipsnews.net/2017/01/poor-darwin-robots-not-nature-now-make-the-selection/?utm_source=rss&utm_medium=rss&utm_campaign=poor-darwin-robots-not-nature-now-make-the-selection http://www.ipsnews.net/2017/01/poor-darwin-robots-not-nature-now-make-the-selection/#comments Thu, 05 Jan 2017 13:56:01 +0000 Baher Kamal http://www.ipsnews.net/?p=148413 TOPIO ("TOSY Ping Pong Playing Robot") is a bipedal humanoid robot designed to play table tennis against a human being. TOPIO version 3.0 at Tokyo International Robot Exhibition, Nov 2009. Photo: Humanrobo. Creative Commons Attribution-Share Alike 3.0 Unported license.

TOPIO ("TOSY Ping Pong Playing Robot") is a bipedal humanoid robot designed to play table tennis against a human being. TOPIO version 3.0 at Tokyo International Robot Exhibition, Nov 2009. Photo: Humanrobo. Creative Commons Attribution-Share Alike 3.0 Unported license.

By Baher Kamal
ROME, Jan 5 2017 (IPS)

When British naturalist Charles Darwin published in 1859 his theory of evolution in his work On the Origin of Species, he most likely did not expect that robots, not nature, would someday be in charge of the selection process.

In his On the Origin of Species, (more completely: On the Origin of Species by Means of Natural Selection or the Preservation of Favoured Races in the Struggle for Life), Darwin introduced the scientific theory that populations evolve over the course of generations through a process of natural selection.

Now the so-called ”fourth industrial revolution” comes to turn Darwin’s theory upside down, as the manufacturing process has been witnessing such a fast process of automation that machines will more and more replace human workers.

So fast that it is estimated that by the year 2040, up to 40 per cent of the production process will be handled by robots.

Moreover, the robotising trend is now being perfected in a way that machines are gradually able to solve problems posed by other machines.

Oxford University predicts that machines and robots will perform nearly half of US jobs within the next 20 years.

And the Organisation for Economic Co-operation and Development (OECD) says in its report “Future of Work in figures” that some studies argue that 47 per cent of US employment is subject to substitution (39 per cent in Germany, 35 per cent in the UK). "By the year 2040, up to 40 per cent of the production process will be handled by robots"

“The assumptions of what tasks are replaceable are key, but the undisputed fact is that the occupational structure will change and the tasks required to carry out jobs will also change,” says the OECD while trying to inject some optimism: “Substitution may mean the destruction of certain jobs, but not the destruction of employment.”

This process of “substitution” could not come at a tougher time, as the so-called job market is already much too precarious.

Just an example: this organisation grouping nearly one fifth of all countries –those considered most developed—in a report titled “Employment and unemployment in figures,” says that there are now over 40 million unemployed in the OECD area — that’s around 8 million more than before the crisis, i.e., one million jobs lost yearly over the last 8 years.

Add to this, the fact that 1 in 3 jobs are considered precarious in the industrialised countries, and that workers now earn between 15 and 20 per cent less than in the year 2009.

These figures, however, are viewed in a positive light by the business sector as they imply a growing reduction of the costs of production.

What to Do With Humans Then?

Politicians, likely propelled by big business pundits, have just started to think now of how to face this challenge.

One of the trendiest formulae is now to give a basic income to citizens.

Such a basic income (also called unconditional basic income, citizen’s income, basic income guarantee, universal basic income or universal demo-grant) implies that all citizens or residents of a country regularly receive an unconditional sum of money, in addition to any income received from elsewhere.

According to its defenders, this would be financed by the profits of publicly owned enterprises. But it will be a difficult exercise given that the private sector has been taking over the roles of the state, which has been gradually dismantled.

Many citizens’ first reaction to this formula would be –is– “… sounds great… getting money without even working is a dream!”

The realisation of such a dream poses, however, a number of questions and concerns.

For instance: where will governments find the resources needed for such basic incomes? From which national budget items will these amounts be deducted?

Will governments continue anyway to provide social services, such as public health care, education, unemployment subsidies, pension funds? Are such services sentenced to privatisation?

Will this mean the elimination of the 20 billion dollars that the OECD countries dedicate every year to the employment funds, which are aimed at promoting the creation of job opportunities?

And how can unemployed people contribute with their basic income to replenishing the retirement funds of the elderly, whose lives are already long and expected to get longer and longer?

Let alone infrastructure like public transport, roads and highways, subsidies to alternative sources of energy, and a long et cetera.

In other words, will such basic income without even working lead to the definite dismantlement of the already rapidly shrinking social welfare?

Most likely it will be so. After all, it would be about a step further in the very process of robotising the very lives of human beings.

This way, the citizens will be kept alive, will complain less about the evident failure of governments to create job opportunities, while doing what they are expected to do: that’s to consume what industries produce and, by the way, continue playing their role as voters (not electors, mind the difference).

The Rule of the Multimillionaires

This trend, which seems to be unavoidable, will likely receive a giant push pretty soon—as soon as the new United States administration, lead by Donald Trump, takes office in January 2017.

An administration, by the way, made of multi-millionaires who are highly unlikely to have the sensibility of average citizens and workers.

The effects on Europe will be immediate in view of the irresistible rise of the extreme right in countries like Germany, France and Italy — which will go through elections in 2017 – as well as the Netherlands, Austria, Hungry and even Greece, to mention a few.

Inequality, That Dangerous Gap

Add to all of the above the fact that growing unemployment will deepen the already considerable inequality.

Roberto Savio, Founder of IPS and of Other News, in a recent master lecture at the Diplomatic Academy of Chile, compiled the following shocking data: six years ago, 388 persons possessed the same wealth as 3.2 billion people; in 2014, their number was of just 80, and in 2015 only 62.

These figures, added to the fact that, according to the International Labour Organization, 600 million new jobs need to be created by 2030 just to keep pace with the growth of the working age population, will leave more millions behind, forcing massive displacements, especially from developing countries, as survival migrants.

“The factory of the future will have only two employees: a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”

This is how Carl Bass, CEO of Autodesk, a private company that “makes software for people who make things,” described the current, unstoppable process of automation.

Bass’ comment was quoted by Xavier Mesnard in an article titled “What happens when robots take our jobs?” which was published in the World Economic Forum.

Most probably Darwin would have never expected that the current artificial selection process –propelled by an irrepressible greed and subjected to the financial interests of big private corporations exercising full control without any regulation mechanism, amid short-sighted politics — would replace his great theory of evolution and natural selection.

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Stop worrying about ‘Doing Business’ rankinghttp://www.ipsnews.net/2016/12/stop-worrying-about-doing-business-ranking/?utm_source=rss&utm_medium=rss&utm_campaign=stop-worrying-about-doing-business-ranking http://www.ipsnews.net/2016/12/stop-worrying-about-doing-business-ranking/#comments Thu, 22 Dec 2016 12:28:49 +0000 Anis Chowdhury and Jomo Kwame Sundaram http://www.ipsnews.net/?p=148273 Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]> Garment workers in Bangladesh. Should Bangladeshis, Malaysians and others worry about their countries’ downward slide in the ‘Doing Business’ ranking?  Credit: IPS

Garment workers in Bangladesh. Should Bangladeshis, Malaysians and others worry about their countries’ downward slide in the ‘Doing Business’ ranking? Credit: IPS

By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Dec 22 2016 (IPS)

Without any hint of irony, the World Bank’s most recent Doing Business Report 2017 promises ‘Equal Opportunity for All’. Bangladesh ranked 176th among 190 economies, below civil war-ravaged Iraq and Syria! Bangladesh even slipped two places from 174 in the 2016 ranking and is three places below its 2015 ranking.

Malaysia, too, slipped five places. The Doing Business Report (DBR) 2017 ranked Malaysia at 23, down from 18 in the previous two reports for 2015 and 2016. Incredibly, this had nothing to do with news of the biggest scandal ever in the country’s history.

Malaysia seems to have slipped because, it had “made starting a business more difficult by requiring that companies with an annual revenue of more than MYR 500,000 register as a GST payer,” and made tax payments more complex “by replacing sales tax with GST”.

Previously, Malaysia was recognized in DBR 2016 for reducing the property tax rate from 12% to 10% of the annual rental value for commercial properties in 2014, even though this contributed negatively to overall government revenue or public finance.

Thus, ‘be damned if you do, and be damned if you don’t’. Countries are asked to raise domestic revenue, but stand to slip in their rankings if they act to raise tax revenues. Taxation may reduce the incentive to invest, but low tax revenue would also hurt the business environment if it reduces government revenue needed to finance public infrastructure, education, healthcare and business services.

Rankings

Should Bangladeshis, Malaysians and others worry about their countries’ downward slide in the ‘Doing Business’ ranking? Should those doing better be elated about their elevation in the rankings? The simple answer is ‘no’, but it really depends.

What do the rankings imply? How does the World Bank compare countries with very different economic structures at different stages of development and with varied capabilities address very diverse problems? By ranking countries, the DBR ignores their heterogeneity and essentially treats them as comparable on a single scale.

This serious methodological problem was pointed out by an independent panel in 2013, headed by South Africa’s Vice President and former finance minister Trevor Manuel. It concluded that “The Doing Business report has the potential to be misinterpreted…. It should not be viewed as providing a one-size-fits-all template for development…. The evidence in favour of specific country reforms is contingent on many auxiliary factors not captured by Doing Business report topics.”

By ranking countries, the DBR ignores their heterogeneity and essentially treats them as comparable on a single scale. This serious methodological problem was pointed out by an independent panel in 2013, headed by South Africa’s Vice President and former finance minister Trevor Manuel.
The panel also noted that “the act of ranking countries may appear devoid of value judgement, but it is, in reality, an arbitrary method of summarising vast amounts of complex information as a single number.” It recommended dropping the overall aggregate ranking from the report.

The independent panel had been set up by the Bank in response to heavy criticism of the DBR. Yet, the Bank has chosen to ignore most of the independent panel’s recommendations, especially to drop overall country rankings.

In response to criticisms of overall country ranking, the Bank added a ‘distance to frontier’ measure. Thus, instead of the ordinal measures used for ranking, the ostensible (cardinal) ‘distance’ from the best performance measure for each indicator became the new basis for ranking.

Yet, it does not address the main concern – heterogeneous countries cannot be ranked mechanically. Thus, not surprisingly, the best performers are rich, developed countries.

Ignoring criticisms

Besides the external panel, the World Bank also ignored much of its own internal review. For example, its legal unit has been uneasy about the DBR process and findings.

The unit’s September 2012 internal review of the 2013 DBR questioned the ranking’s ‘manipulation’ and noted the ‘embedded policy preferences’ underlying some indicators. It went so far as to accuse the DBR of bias as it ‘tends to ignore the positive effects of regulation’.

For example, the ‘starting a business’ indicator uses the limited liability corporate form as the only ‘proxy’ for business creation. The legal unit considered this approach ‘deceptive’ as there is no evidence that easing “company formation rules leads to increases in business creation”.

The Bank’s legal unit also argued that the DBR methodology is seriously flawed, highlighting ‘black box’ data gaps, ‘cherry picking’ background papers, and ‘double counting’. The legal team even asked, “are high income the Organisation for Economic Co-operation and Development (OECD) countries placed higher in the Doing Business rankings because they have implemented the (types of) reforms advocated by the report?” In its 26 September 2015 issue, The Economist, usually a cheerleader for pro-business reforms, argued that the DBR ranking did not provide a reliable guide to investors.

Countries have perversely amended regulations to try to improve their ranking in order to impress donors or prospective foreign investors, rather than to actually increase investments and growth. Countries are also likely to do more to favour foreign investments, rather than domestic investments, which are generally more likely to contribute to sustainable development.

Biases

The DBR survey is generally biased against regulations and taxes. Following earlier criticisms, ease of hiring and firing workers and flexibility of working hours are no longer used in the overall ranking, but nonetheless remain in the report, highlighting the authors’ appreciation of such regulations. Conversely, the DBR continues to look unfavourably on a country which seeks to enhance workplace regulations by improving wages, working conditions or occupational safety, or by allowing workers in export processing zones to unionize.

Surprisingly, the DBR does not cover security, corruption, market size, financial stability, infrastructure, skills and other important elements often deemed important for attracting business investments. Moreover, many DBR indicators are considered to be quite superficial. For example, the survey’s credit market indicator does not reflect how well credit is allocated. Similarly, the DBR survey focuses on how difficult it is to get electricity connected without taking into account the state of electricity generation or distribution, which often depends on a country’s level of development.

The DBR approach is very ‘legalistic’ as it mainly looks at formal regulations without considering how such regulations affect SMEs or other investors besides the stereotypical foreign investor. It also ignores, norms and other institutions including extra-legal processes. For example, Mary Hallward-Driemeier of the World Bank and Lant Pritchett of Harvard compared the DBR with the Bank’s firm surveys. They found large gaps between the DBR report and reality.

They also found ‘almost zero correlation’ between DB findings and other Bank surveys of business enterprises. For instance, the average amount of time that companies report spending on three tasks — obtaining construction permits, getting operating licenses and importing goods — is ‘much, much less’ than those cited in the DBR. [http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.3.121]

Pritchett, who once worked for the Bank, has argued that developing country policy makers focusing on improving their DBR rankings could divert scarce resources away from more important and urgent reforms, e.g., to help the government better administer, implement and enforce business regulations.

“The pretense that Doing Business measures the real rules, and that if we just modestly improve these Doing Business indicators, they would somehow become the reality of what the rules are and how business is really done — I think that’s a very dangerous fiction.” [http://blogs.wsj.com/economics/2015/08/04/is-the-world-banks-doing-business-report-at-odds-with-how-business-is-done-in-the-developing-world/].

In sum, the DBR assumes that there are universally ‘good’ and ‘bad’ policies regardless of context. This approach clearly misses the need for concrete analysis in specific contexts. Not surprisingly, the DBR continues to promote deregulation as the best strategy for promoting economic growth. To be fair, the Bank acknowledges that the DBR should not be seen as advocating a one-size-fits-all model, but the Bank’s own promotion and coverage of the report suggests otherwise.

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