Transport barges navigate one of the branches of the Paraná River in Argentina's Santa Fe province. The Paraná, the second longest river in South America, has been turned into a major waterway through which a large part of Paraguay's and Argentina's agricultural exports are shipped out of the region. CREDIT: Fundación Humedales

By Daniel Gutman
BUENOS AIRES, Sep 29 2023 (IPS)

In addition to being a majestic river – the second longest in South America after the Amazon – the Paraná River is the waterway through which a large part of the area’s primary goods are exported. Today, its economic importance has sparked an unexpected diplomatic conflict between Argentina and the countries with which it shares the basin.

Argentina’s decision to charge tolls to vessels on its stretch of the river led to a formal complaint from Paraguay, Brazil, Uruguay and Bolivia, which argue that the river corridor agreement signed by the five countries in 1994 stipulated that no taxes or tariffs could be imposed without the approval of all parties.

The Paraguay-Paraná Waterway River Transport Agreement created an Intergovernmental Committee as the political body that would ensure its operation and maintain it as a motor for the development of the Southern Common Market (Mercosur), established by Argentina, Brazil, Paraguay and Uruguay in 1991 and later joined by Bolivia.

Tension reached unprecedented levels with Paraguay, a landlocked country that owns a gigantic fleet of ships that carry millions of tons of soybeans and beef, the engines of its economy, to the Atlantic Ocean and often return with fuels, essential to supply a nation that produces no oil or gas.

“What is happening is very serious. Paraguay has invested three billion dollars in the last 10 years and has 2,500 transport barges, one of the largest fleets in the world,” Andrea Guadalupe, vice-president in Argentina of the Mercosur-Southeast Asia Chamber of Commerce, which groups export companies from different countries, told IPS.

“It is not wrong for Argentina to charge a toll, because it carries out dredging and beaconing works that allow large ships to pass through the Paraná. But what is wrong is that it has not consulted the other countries and has taken a unilateral decision,” she argued.

Paraguayan Pesident Santiago Peña announced that he would resort to international arbitration, saying that his country’s sovereignty was at stake, and stating: “Paraguay has no future without the free navigability of the rivers.”

Although Peña denied that it was a reprisal, Paraguay announced this September that it would keep half of the electricity from the Yacyretá power plant located on the border between the two countries, on the Paraná River, which has an installed capacity of 3,200 megawatts.

Traditionally, although it is entitled to 40 percent, Paraguay has kept only 15 percent of Yacyretá’s energy and ceded the remaining 85 percent to Argentina, a country with a population of 46 million inhabitants, six times larger than Paraguay’s, which means it obviously consumes more energy.

The Rio de la Plata, seen from Buenos Aires, is at the mouth of the Paraná River and leads to the Atlantic Ocean, allowing the transportation to the export markets of a large part of the agricultural products of one of the most productive areas of South America. CREDIT: Daniel Gutman / IPS

Argentina says it invests between 20 million and 25 million dollars a year in dredging work on the Paraná, which in recent years has become more necessary due to a persistent drop in the water level, which has forced barges to carry less cargo and has increased the companies’ logistical costs.

“The situation is affecting the relationship between two countries that are brothers. Argentina’s attitude is not in line with the agreements, and Paraguay is a landlocked country that needs the river to connect with the world,” Héctor Cristaldo, president of the Union of Production Chambers (UGP), which groups Paraguayan agricultural business chambers, told IPS.

Cristaldo said the main impact for Paraguay is in the supply of fuels used for agriculture and livestock and also for land transportation. “Paraguay has no trains; everything moves on wheels,” he said.

The toll crisis escalated into open friction in early September, when a Paraguayan flagged barge heading north with 30 million liters of fuel was held up for several days by Argentine authorities who released it when it agreed to pay some 27,000 dollars in tolls.

The rate for vessels put into effect in January 2023 is 1.47 dollars per ton transported. It was set by the General Administration of Ports (AGP), the government agency that controls the Argentine section of the waterway.

The new toll drew a statement from the governments of Paraguay, Brazil, Bolivia and Uruguay, which expressed “special concern because it is a restriction on the freedom of transit” and asked Argentina to collaborate “to facilitate commercial transport, favoring the development and efficiency of navigation.”

Paraguayan President Santiago Peña (L) is greeted by his Argentine counterpart Alberto Fernández on Aug. 15, when he took office in Asunción. Relations between the two countries later deteriorated over navigation rights in the Paraná River basin. CREDIT: Presidency of Argentina

From Mato Grosso to the sea

The Paraná River, together with its tributary, the Paraguay River, form a waterway stretching almost 3,500 kilometers from Mato Grosso in west-central Brazil to its mouth in the Río de la Plata, which in turn flows into the Atlantic. The basin covers almost 20 percent of South America’s territory, and has an enormous biodiversity and a remarkable productive capacity.
The lower section, from the central Argentine city of Rosario to the mouth of the river, has been dredged to allow trans-oceanic vessels to pass through, carrying millions of tons of agricultural products for export each year. In total, some 100 million tons of goods are transported through the waterway every year.

The work began in 1995, when Argentina granted its section under concession to a consortium formed by the Belgian maritime infrastructure giant Jan de Nul and the Argentine Grupo Emepa, to be in charge of dredging and signaling. Thus, the river was deepened from its natural 22 feet to 34 feet from Rosario – the country’s main agro-industrial center – to the mouth.

Further north, the waterway is only 12 feet deep, which only allows the navigation of barges, with which Paraguay and Bolivia export a major part of their soybean production, which is transferred to larger ships in Rosario.

The following year, the Argentine Ministry of Agriculture authorized the cultivation of transgenic soybeans, which would lead to a major expansion of the agricultural frontier and great pressure from agribusiness to deepen the dredging of the Paraná, which crosses the most productive area of Argentina, so that larger ships could enter.

Map of the Paraguay-Parana waterway. CREDIT: Afip

Low cost transportation

“The Paraná was transformed into a waterway that began to fulfill a function analogous to the one played by the railroad until the first third of the 20th century: to facilitate the expansion of the productive frontier and to be a low-cost transit route,” wrote geographer Álvaro Álvarez, vice-director of the Geographic Research Center of the public Universidad Nacional del Centro.

Álvarez maintains that the Paraná today is “a key infrastructure in the insertion of the region as a supplier of commodities into the international economy, a process through which industrial agriculture, mega-mining and hydrocarbon exploitation have been degrading ecosystems for decades, expelling populations from territories and affecting the health of communities.”

One of the main questions about the waterway is that there are no studies of the environmental impact generated by the modification of the river and the constant traffic of large vessels.

Last year, the Argentine Association of Environmesntal Lawyers filed an injunction demanding environmental impact assessments, which is now being studied by the Supreme Court of Justice.

“The State presented a 30-year-old environmental impact study in the file. Since then there has been and there continues to be removal of thousands of tons of sediment from the riverbed, which in many areas is contaminated with agro-toxins from industrial agriculture, and it is not known how that impacts the contamination and the dynamics of the river,” Lucas Micheloud, a member of the Association, told IPS.

“It is not a matter of adapting the river to the size of the ships, but of the ships adapting to the river,” said Ariel Ocantos, a graduate in International Relations and member of the Ecologist Workshop of Rosario, one of the environmental organizations demanding greater citizen participation in the interventions carried out in the Paraná River.

“We made several requests for information to the government because we want to know if they are conducting environmental impact studies. There is very little information and we are demanding citizen participation, which is absolutely necessary,” he said.

By Manuel F. Montes
GENEVA, Nov 12 2014 (IPS)

As the international community wades into the political discussions regarding the alternatives to the Millennium Development Goals (MDGs) after 2015 and the design of the Sustainable Development Goals (SDGs) as mandated by the Rio+20 conference, it is timely to consider the question of whether development is a matter mostly of individual effort on the part of nation-states or whether there are elements in the international economic system that could serve as significant obstacles to national development efforts.

If there are obstacles in the international economic system, it is important that the post-2015 development agenda and the SDGs address the question of the elimination or the reduction of these obstacles.

Manuel F. Montes

The limited number of successfully developing countries since the 1950s has provoked a debate over whether the success of these countries required their success in eluding international obstacles to development.

The question is to evaluate features of the international system on the basis of how these features are conducive to enabling long-term investment toward economic diversification.

Terminologies of previous development orthodoxies litter the development literature – import substitution, industrialisation, basic needs, structural adjustment, Washington Consensus and Millennium Development Goals (MDGs).

Each of these orthodoxies tended to be a reaction to perceived weaknesses or missing elements from the immediately previous one. The most recent orthodoxy, as exemplified by the MDGs, is that development is about poverty eradication.

But poverty eradication is an overly narrow, possibly misleading, perspective on development.“Poverty eradication is a desired outcome of development but its achievement is permanent only with the movement of a significant proportion of the population from traditional, subsistence jobs to productive, modern employment”

Poverty eradication is a desired outcome of development but its achievement is permanent only with the movement of a significant proportion of the population from traditional, subsistence jobs to productive, modern employment.

The association of development with poverty reduction created for the donor community the pride of place in economic policy in developing countries.

But this place can be at the cost of reducing the responsibility of donor countries in helping to maintain an enabling international environment for development in trade, finance, human resource development and technology.

In the MDGs, these issues are crammed into “MDG-8”, the so-called global partnership for development, with a very selective and poorly defined set of targets.

Development requires not just higher levels of income, nutrition, education, and health outcomes but in the first place involves higher levels of productivity and capabilities.

Higher levels of productivity and capabilities are possible only with structural transformation of the economy.

In turn, in most societies, according to a report by the Secretary-General of the U.N. Conference on Trade and Development (UNCTAD), such a structural transformation has been “associated with a shift of the population from rural to urban areas and a constant reallocation of labour within the urban economy to higher-productivity activities.”

Structural transformation is only possible with substantial and sustained investment over decades in new activities and products, not just in anti-poverty programmes.

Where the international economic system is hostile to investment in new, productivity enhancing economic activities is where its elements create obstacles to development.

One example of an externally based obstacle is aid volatility which has been shown to have highly negative impacts on macroeconomic performance and domestic investment.

Capital and technological investments are required to overcome the enormous productivity gap between developing and developed countries which characterises the world economy.

In 2008, a ratio of the average Gross National Income (GNI) per worker in the countries of the Organisation for Economic Cooperation and Development (OECD) versus those in the least developed countries (LDCs) was 22:1 in favour of the OECD countries.

This imbalance has worsened by a factor of five in comparison to the earliest days of capitalist development. In the nineteenth century, taking the Netherlands and the United Kingdom as the richest countries and Finland and Japan as the poorest, the productivity gap was only between 2 to 1 and 4 to 1.

The international economic system is lacking crucial mechanisms for delivering long-term, stable resources required by developing countries to upgrade their capabilities.

Dependence on commodity exports sustains the productivity gap between developed and developing countries.

Abundant global liquidity and growing trade imbalances fuelled a commodity boom in the 2000s which benefited many developing countries, including many LDCs.

All previous global liquidity booms had ended with serious economic crises in developing countries. The more recent commodity price boom did not introduce an enduring improvement in macroeconomic balances, especially for low-income countries (LICs).

While in the 2000s LDCs experienced the strongest growth rates since 1970s, according to UNCTAD, more than one-quarter of LDCs actually saw GDP per capita decline or grow slowly in the 2002-2007 global boom.

Even the middle income region of Latin America presents evidence of insignificant structural improvement in fiscal and current account balances.

Previous commodity boom periods had similarly not been an occasion for structural change in LDCs. UNCTAD suggests that between the 1970s and 1997, manufacturing as a proportion of GDP increased by less than two percentage points in LDCs as a group, a period which saw various episodes of commodity and global liquidity booms.

When considering LDCs from Africa alone and including Haiti, manufacturing fell from 11 to 8 percent during the same period.

Developing countries had extensively liberalised their trade regimes in the 1980s. In the aftermath, UNCTAD finds that some LDCs have more open trade regimes than other developing countries, and others are more open than even developed countries.

These policies had been intended to facilitate economic diversification. Instead of the expected outcome, greater trade liberalisation has been accompanied by greater concentration in the structure of exports.

The international economic system labours under the constraint that the highest decision-making bodies in key institutions, such as the International Monetary Fund (IMF), do not provide sufficient voting weight and policy influence to countries most affected by their operations.

One effort under way but under enormous political obstruction is to update voting weights in line with the changed economic structure. Even the G20, where important developing countries sit, has been unable to advance progress. (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

*  Click here for the Research Paper on which this column is based.

Excerpt:

According to the World Wide Fund for Nature (WWF)-Pakistan, nearly 400 million gallons per day of untreated waste from Karachi goes into the sea, making a fisherman’s job an extremely dirty one. Credit: Zofeen Ebrahim/IPS

By Zofeen Ebrahim
KARACHI, Nov 4 2014 (IPS)

If you want to know what ‘sea traffic’ looks like, just go down to the Karachi Harbour. Built in 1959, the dockyard houses close to 2,000 big and small boats anchored in the grey sludge at the edge of Pakistan’s southern port city, which opens into the Arabian Sea.

Life on the jetty, an all-male domain, is anything but dull. The air is thick with the smell of fish. With anywhere from 100,000 to 150,000 men working here on a given day, mornings are crowded and noisy with vendors auctioning and buyers inspecting the catch.

Loading and unloading of goods continues uninterrupted well into the afternoon; boats are being geared up for the voyage – rations are inspected, fuel, water and ice are stocked, last minute checks of the nets, the ropes and the engines are underway.

Fishermen operating off the Karachi Harbour in southern Pakistan can earn up to 15,000 rupees (about 145 dollars) per month, but their income is dependent on their catch. As a result, many fisher families live in poverty. Credit: Zofeen Ebrahim/IPS

At one end of the harbour, mammoth-sized wooden arks lie in various stages of completion. Close by, fishing nets are being newly woven or repaired. A medium-sized boat (45 to 55 feet in length) carries anywhere from 20 to 25 fisherman; they go deep into the sea for a maximum of a month.

The income fluctuates – if the catch is good each fisherman can earn as much as 15,000 rupees (about 145 dollars) that month, but there is no fixed salary. These men only get a percentage based on their haul. There is a ban imposed by the government during the months of June and July because it is the best season for prawns, the mainstay of the fishery industry here in Pakistan.

Every day some 2,000 boats jostle for space in the murky waters of one of Pakistan’s oldest harbours. Credit: Zofeen Ebrahim/IPS

The Exclusive Economic Zone (EEZ) covers an area of about 240,000 sq km and the maritime zone of Pakistan, including the continental shelf, extends up to 350 nautical miles from the coastline.

Thus the country has the potential to become a major producer of seafood, not only for local consumption but for the global market as well. Currently, nearly 400,000 people are directly engaged in fishing in Pakistan and another 600,000 in the ancillary industries.

A fisherman walks in front of one of the many half-constructed wooden arks that lie strewn about the Karachi harbour. Credit: Zofeen Ebrahim/IPS

However, an industry that can earn valuable foreign exchange and create a huge job market contributes a dismal one percent to Pakistan’s GDP, with annual exports touching just 367 million dollars in 2013-2014, primarily to countries like China, the United Arab Emirates (UAE), Thailand, Saudi Arabia, Malaysia, Indonesia and Korea.

The average annual catch is almost 600,000 metric tons of more than 200 commercially important fish and shellfish species, found in and around the Karachi Harbour.

Illegal nets made of fine mesh end up trapping small, commercially unviable fish in massive quantities. Between 70 and 100 trucks, each loaded with 10,000 kg of trash fish, leave Karachi’s harbour each day. Credit: Zofeen Ebrahim/IPS

“This includes the catch from other harbours, even from Balochistan [located on the south-western coast], all of which comes here to be sold inland or exported,” says Sagheer Ahmed, spokesperson for the Karachi Fisheries Harbour Authority (KFHA).

One way to increase the role of fisheries in national GDP, says Muhammad Moazzam Khan, ex-director general of the Marine Fisheries Department, is to put a stop to over-exploitation of fish stocks.

The harbour is an all-male domain. Anywhere from 100,000 to 150,000 men work here on any given day. Credit: Zofeen Ebrahim/IPS

What was once an indigenous occupation, small fishermen say, has turned into a greedy enterprise, resulting in overharvesting of marine resources.

Kamal Shah, spokesperson for the Pakistan Fisherfolk Forum, a non-governmental organisation working for the rights of the local fishing community, says, “The indigenous people know how to recharge the marine life; they respect nature and follow the principles of sustainable livelihood, which seems lost on those who want to get rich quick.”

Before heading out to sea, fishermen gather in groups to see to the final details of their voyage: stocking up on food, checking the engines and repairing their nets. Credit: Zofeen Ebrahim/IPS

Khan, currently a technical advisor to the World Wide Fund for Nature (WWF)-Pakistan, worries about extinction of several marine species. He lamented the depletion of shrimp, lobster, croaker, shark and stingrays due to over-exploitation.

“Recovery of these resources is very slow and even if these fisheries are closed down, it would still take decades to restore their stock,” he says.

Nearly 400,000 people are directly engaged in fishing in Pakistan and another 600,000 are involved in the ancillary industries according to the Karachi Fisheries Harbour Authority (KFHA). Credit: Zofeen Ebrahim/IPS

Activists, like Shah, say a major problem is the use of illegal (fine mesh) nets that end up catching juvenile fish as opposed to the government-approved nets for deep sea and creek fishing.

These illegal nets literally sieve undersized fish that are economically not viable, but nevertheless important for keeping the marine ecosystem balanced.

Ahmed of the KFHA says Pakistan exported 50 million dollars worth of “trash fish” in the last financial year. “As many as 70 to 100 trucks each loaded with 10,000 kg of trash fish leave the KFHA every day,” he explains.

The WWF-Pakistan is worried about the extinction of several marine species. Experts are particularly concerned about the depletion of shrimp, lobster, croaker, shark and stingrays due to over-exploitation. Credit: Zofeen Ebrahim/IPS

Shah also blames the “industrial waste from factories and organic waste from the cattle colony” that goes untreated into the sea. According to the WWF-Pakistan, nearly 400 million gallons per day of untreated waste from Karachi goes into the sea.

But there is some good news for Pakistan’s fishing industry.

After blocking fish exports for six years, last year the European Union (EU) de-listed two of the more than 50 Pakistani companies and this year it is hoped another five will get the green signal. “More than 20 percent of the fish export went to the EU,” according to KFHA’s Ahmed.

Male children are roped into their father’s occupation very early in life, when they are taken onboard the ships as helpers. Few fisher families send their kids to school. Credit: Zofeen Ebrahim/IPS

An ineffective cold chain and low standards in traceability (tracking the supplier, date and time of transactions) were identified as major issues.

“Boats did not meet the specifications. Often the wooden floor and the wooden containers where catch was stored did not meet the hygiene standards, machines used to haul the net often leaked oil on the floor and the fish hold was found to be rusty,” Ahmed says.

Today nearly 1,000 boats have been modified. Fiberglass cladding in the fish-holds and the increased use of plastic crates have replaced wooden containers. This has also helped maintain the temperature required to keep the catch fresh.

The fishermen perform multiple tasks on the boat. This man makes fresh rotis (flat bread) from whole-meal flour, which the men eat with the fish they catch. Credit: Zofeen Ebrahim/IPS

In addition, processing and packaging factories have started tracking the catch to adhere to the EU’s condition of traceability of the catch.

While Pakistan is slowly reclaiming the EU market and has found its foothold in newer ones, it has a long way to go before establishing itself as a world-class fisheries hub.

Perhaps most importantly it will have to tackle increasing pollution that has decimated some of the most important fishing grounds along the Karachi coast. Similarly, it will have to combat the kind of environmental degradation caused by land reclamation and mangrove denudation, both of which reduce natural levels of productivity along the coast, especially in the Sindh province.

Edited by Kanya D’Almeida

By Roberto Azevêdo
GENEVA, Jul 29 2014 (IPS)

In the 1960s, there were high hopes for the development of the newly-independent sub-Saharan African countries but these hopes were quickly dashed following a series of shocks which began in the mid-70s, with the first oil price spikes, followed by a severe decline in growth and increase in poverty in the 80s and early 90s. However, by the mid-1990s, economic growth had resumed in certain African countries. Economic reform, better macroeconomic management, donor resources and a sharp rise in commodity prices were having a positive effect.

WTO Director General Roberto Azevêdo. Credit: WTO/CC BY SA-2.0

In the 2000s, many African countries witnessed high economic growth performance and during that period some of the world’s fastest growing economies were in sub-Saharan Africa. Angola, Nigeria, Chad, Mozambique and Rwanda all recorded annual growth of over 7 percent.

In 2012 Africa’s exports and imports totalled 630 billion dollars and 610 billion dollars respectively, ­ a fourfold increase since the turn of the millennium. And the long term prospects for growth are good. The Economist Intelligence Unit has forecast average growth for the regional economy of around 5 percent yearly from 2013-16.

Despite all this, the continent still plays a marginal role in the global market, accounting for barely 3 percent of world trade. One significant reason – although, of course there are others – is that African economies are still narrowly based on the production and export of unprocessed agricultural products, minerals and crude oil.“There is little doubt that the regional [African] market offers good scope for African firms to diversify their production and achieve greater value addition”

Now, due to relatively low productivity and technology, these economies have low competitiveness in global markets – apart from crude extractive products. The low productivity of traditional agriculture and the informal activities continue to absorb more than 80 percent of the labour force. And growth remains highly vulnerable to external shocks.

This story of half a century of struggle, set-backs and progress shows two things:

One, the road to meaningful and inclusive development still seems long.

Two, we are in a better position than ever to make real, sustainable progress.

Many countries are striving to do more in turning their strength in commodities into strengths in other areas,­ using commodities as a means of spurring growth across various sectors. The United Nations Economic Commission for Africa’s 2013 Economic Report echoes this ­ calling for the continent’s commodities to be used to support industrialisation, jobs, growth and economic transformation.

In line with this, I think there are a number of essential steps to take:

– diversification of economic structure, namely of production and exports;

– enhancement of export competitiveness;

– technological upgrading;

– improvement of the productivity of all resources, including labour; and

– reduction of infrastructure gaps.

Only by delivering in these and other areas can policymakers ensure that growth enhances human well-being and contributes to inclusive development. But how can we take these steps?

Of course I should say that although African countries share some common features, no unique set of policies, including those on trade and industrial policy, could ever fit for all in a uniform way. Even among the least-developed countries (LDCs), some are already exporters of manufactured products, although often they rely on a single product  while others are more dependent on commodities. Nevertheless, I think it is clear that some preconditions of success are universal.

African regional integration is of course very high on the policy agenda. There is little doubt that the regional market offers good scope for African firms to diversify their production and achieve greater value addition. Already now, manufactures constitute as much as 40 percent of intra-African exports, compared with 13 percent of Africa’s exports to the rest of the world.

The Bali Package, which World Trade Organisation members agreed in December last year, will help to resolve some problems. Inclusive, sustainable development was at the heart of the whole Bali project ­ and our African members played a crucial role in making it a success. It brought some progress on agriculture. It delivered a package to support LDCs. It provided for a Monitoring Mechanism on special and differential treatment.

And, in addition, Bali delivered the Trade Facilitation Agreement and this is a direct answer to some of the problems of fragmentation. Costly and cumbersome border procedures, inadequate infrastructure and administrative burdens often raise trade-related transaction costs within Africa to unsustainable levels, creating a further barrier to intra-African trade.

This Agreement will help to address some of these bottlenecks. It will support regional integration, and therefore complement the African Union’s efforts to create a continental free trade area. And it will begin to remove some of the barriers which prevent full integration into global value chains. As such it will create an added impetus for industrialisation and inclusive sustainable development.

And it is worth noting here that the Trade Facilitation Agreement broke new ground for developing and least-developed countries in the way it will be implemented.

Another vital issue here is the importance of agricultural development in industrialisation, and the role of industrial collaboration through regional cooperation. The contribution of the agriculture sector is of utmost importance for the establishment of a sound industrial base. It can provide a surplus to invest in industrial capacity building, and supply agricultural raw materials as inputs to the production process, especially for today’s highly specialised food processing industry.

Moreover, it can also significantly contribute to industrialisation by providing an ample supply of food products. This is because food constitutes a large share of what wage earners in African countries spend their money on. Its availability at low prices contributes to increase the purchasing power of wages, and therefore raise the competitiveness of a country in international markets. (END/IPS COLUMNIST SERVICE)

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Rose growers in Bangalore, India, rely on sustainable rainwater harvesting techniques. Credit: Keya Acharya/IPS

By Keya Acharya
Jul 18 2014 (IPS)

Excerpt:

Unloading containers in the port of Pecém, Brazil. Credit: Mario Osava/IPS

By Jill Richardson
BOSTON, Jun 3 2014 (IPS)

In the past 15 years, China has gone from being a relatively insignificant economic partner in Latin America to the number-one trading partner of some of the largest economies in the region.

In many cases, China has unseated the United States in its own backyard. As a whole, Latin American exports to China have risen massively since 2000, averaging a 23-percent annual export growth rate.

However, this relatively rosy picture obscures the fact that in recent years this rate has dropped precipitously, slowing to a growth rate of just 7.2 percent in 2012. Much of this slowdown can be attributed to falling commodity prices. Despite Latin American exports to China growing in volume, price volatility has allowed for stagnant, or even declining, export values.

[A] recent study concluded that the more a nation trades with China, the more inclined that nation will be to vote in China’s favour at the United Nations.
The Latin American reliance on commodity-based exporting to China has allowed for regional vulnerability to price fluctuations. Over 50 percent of Latin American exports are in just three sectors: copper, iron, and soy. This lack of diversification is problematic, as copper and iron prices have both experienced a double-digit percentage global decline in recent years while global soy prices have also begun stagnating.

Additionally, these three main commodity exports are concentrated in Argentina, Brazil, and Chile, further demonstrating a lack of regional diversification in exporting to China. This lack of diversity in exports as well as exporting nations leaves Latin America as a whole vulnerable to unforeseen future disruptions or trends.

Conversely, Chinese exports to Latin America are growing in both volume and valuation, owing mostly to the diversity and relatively high-skilled nature of the exported goods. The majority of Chinese exports to Latin America are in the manufacturing sector, with a heavy emphasis on electronics and vehicles. Such industries, compared to raw materials, are much less prone to price volatility, thus preserving much of the overall value of Chinese exports.

The impact of these trends is that since 2011, a growing Latin American trade deficit in goods has opened up with China. Despite the fact that the volume of exports to China is increasing, the fundamental nature of Latin American exports is undermining growth and creating an impending balance-of-payments problem. As long as commodity price values remain on a downswing, this trend will continue through 2014.

As China continues to overtake the United States as the key trading partner of the region as a whole, U.S. influence may decline in Latin America.

A heavier reliance on Chinese demand for commodity exports will likely drive many Latin American foreign policy moves in the near future. Already China has used its economic leverage in the region to diminish the political influence of Taiwan in Latin America.

Chinese nationalists view the tiny island nation as a rebellious extension of the mainland, and consequently many Chinese leaders seek to circumscribe any international support for an independent Taiwan. Should the issue ever reach the United Nations or World Court, China has already locked down support from nearly every country in the Latin American region.

Some of Latin America’s traditionally leftist countries are cozying up to China for political reasons (viewing China as an alternative to the hegemony of the United States), and perhaps more significantly, for economic reasons.

Oil-producing nations such as Venezuela, Brazil, and Ecuador are hugely dependent on and influenced by their economic ties to China and, as a result, tend to follow China’s lead on the international diplomatic stage.

Indeed, one recent study concluded that the more a nation trades with China, the more inclined that nation will be to vote in China’s favour at the United Nations. That will place limits on international scrutiny of the Chinese human rights record, and it could mean a boon for proxy powers in world conflicts supported by China as opposed to the United States.

Ultimately, as China continues its expansion of political and economic influence in Latin America, the United States may find itself less and less at home in what Washington once considered “America’s Backyard.”

(END)

Jill Richardson is the Communications Fellow for Boston University’s Global Economic Governance Initiative and a contributor to Foreign Policy In Focus. She is currently working on her Master’s Degree in International Relations and Communications. This article originally appeared on Foreign Policy in Focus.

“Tanks to Saudi-Arabia?” Angry protesters outside the Swiss parliament after it took the decision to ease arms exports regulation. Credit: Ray Smith/IPS.

By Ray Smith
BERN, Switzerland, Mar 13 2014 (IPS)

Switzerland has eased its restrictions on arms exports – in order to save a few thousand workplaces. Critics fear that Switzerland’s credibility as an international peace broker will now suffer.

Switzerland’s army doesn’t go to war – but its military equipment does. In 2011, Saudi Arabia used Swiss Piranha tanks to crack down on protests in Bahrain. Libyan rebels used Swiss ammunition against Muammar Gaddafi’s troops, and Syrian rebels have been throwing Swiss hand grenades against President Bashar Assad’s soldiers.

Only a few weeks ago, videos circulating on the internet offered proof that Swiss sniper rifles where used against civilians on Kiev’s Maidan square. Many died in brutal police action."Swiss assault rifles were exported to Ukraine and have now been used against civilians.”

Switzerland, a neutral country at the heart of Europe known for an active promotion of a peace policy in diplomatic forums, is in fact the world’s fifth-largest producer of small arms. It ranks eighth in arms exports per capita, according to the Stockholm International Peace Research Institute (Sipri).

Last year, 34 percent of exported military equipment consisted of ammunition. Other major exports were fire control systems, weapons and armoured military vehicles. In all 73 percent of military exports went to European countries.

But in 2013, Swiss arms exports dropped from 700 to 461 million Swiss Francs (524 million dollars). The country’s three-biggest arms producers, General Dynamics European Land Systems – Mowag, RUAG, and Rheinmetall Air Defence sacked 415 employees.

The lobby of the 70 Swiss arms producers called for the government to act. It demanded the lifting of export restrictions.

Judging whether or not the Swiss arms industry is on decline depends on how one reads the statistics. Ten years ago, these companies exported less than in 2013 and long-term statistics show that the high export values 2008-2012 were exceptional.

Further, arms exports statistics do not include “special military goods”, a category designed for dual use goods. Under this category, Swiss companies last year additionally exported military material worth 405 million Swiss Francs (461 million dollars).

Dismissing the alarming rhetoric of cuts and a crisis by the arms lobby, the Swiss Peace Foundation (SPF) says the sector is  “ridiculously insignificant”, as it accounts only for 0.33 percent of Swiss exports, and employs less than 10,000 people.

SPF director Heinz Krummenacher told IPS the Swiss arms industry should be dissolved totally or at least produced only for the domestic market.

The Swiss government had tightened export restrictions in 2008. A year later Swiss voters turned down an initiative by the pacifist Group for Switzerland without an Army (GSoA) for a ban of Swiss arms exports. On Mar. 6, the Swiss parliament narrowly gave in to the demands of the arms lobby, and eased arms exports regulation drastically.

Under the former regulation, arms exports to countries known for systematic and grave human rights violations were forbidden. Also, arms exports to countries engaged in an internal or international, armed conflict were not permitted. The new clause will be more elastic.

Now, permits will be denied if there is “a high risk” in the receiving state that the military equipment will be used for serious human rights abuses, if the country is “illegally” engaged in an international, armed conflict or if an internal, armed conflict prevails. The “high risk” provision especially leaves room for manoeuvre.

The State Secretariat for Economic Affairs (SECO) assesses risks of human rights abuses in potential receiving states and issues export permits. Alain Bovard, arms expert at Amnesty International Switzerland is sceptical about these investigations.

“Over the past few years, we’ve seen how little they help. Despite thorough investigations, Swiss assault rifles were exported to Ukraine and have now been used against civilians.”

In the end, it’s all about how specific criteria are checked and assessed. “The human rights criteria hasn’t always been carefully evaluated,” Bovard says.

Switzerland has been using post-shipment verification clauses to make sure that delivered military equipment isn’t re-exported by the receiving states. In practice, these clauses have often been ineffective.

Boxes full of Swiss hand grenades, which were found last year in the Syrian civil war, were originally purchased by the United Arab Emirates. In 2011, Swiss ammunition was detected in the hands of Libyan rebels that was originally delivered to Qatar. Both countries signed a non-re-export clause.

“It’s illusive to believe that Swiss authorities are able to control whether exported Swiss weapons and ammunition are used for human rights abuses,” Stefan Dietiker, secretary general of GSoA, tells IPS. “Once they’ve left our country, they’re gone, no matter how many clauses the purchasers sign and how many promises they make.”

Besides the material consequences of the Swiss parliament’s decision to ease its arms exports regulation, critics stress its symbolic effect. “The decision contradicts Switzerland’s foreign policy goals which prioritise protection of human rights,” says Amnesty International’s Bovard.

He points to Switzerland’s important role in negotiating and pushing the international Arms Trade Treaty (ATT). ATT is a landmark effort to regulate the global arms trade, which more than 100 states signed in 2013. The treaty currently awaits ratification. Switzerland has offered to host the ATT secretariat.

“Switzerland loses credibility,” says Alain Bovard. Switzerland, he says, must have stricter arms exports regulation than ATT’s minimum standards demand.

He also worries about the country’s reputation. “Having close arms trade ties with countries like Saudi Arabia, which systematically violates human rights, damages Switzerland’s image.”

Economic Minister Johann Schneider-Ammann insisted through the parliamentary debate that Switzerland would continue to keep up its humanitarian tradition – while not neglecting its security interests. “It’s not about surrendering the protection of human rights for the sake of preserving work places,” he stressed.

Critics like Stefan Dietiker say Switzerland has to make up its mind. “Ultimately, we have to decide whether we want to deliver weapons or protect human rights.”

Import restrictions to strengthen national industry have brought the Argentine government problems in international relations. Credit: Marcela Valente/IPS

By Marcela Valente
BUENOS AIRES, Sep 16 2013 (IPS)

To maintain its trade surplus, Argentina continues to control imports – a strategy that has bolstered its national industry but is questioned by importers, partners in the Mercosur trade bloc, and rich countries.

“What we have in Argentina today is a war to protect employment, which is why trade has to be managed,” textile businessman Marco Meloni told IPS by phone from Italy, where he was selling his shirts under the “Premium” trademark.

“It’s not that we aren’t importing; quite the opposite. We’re much better clients for the world than we were 10 years ago. But we have to be careful with Asia’s global super-production,” he said.

He said that in his travels abroad to sell his products, he constantly runs into shirts manufactured at very low cost in Asia.

“My shirts are competitive in the United States, Canada, Mexico, Brazil, Portugal and Spain,” Meloni said.

But in many of those countries he does not compete with local industry but with the flood of low-cost merchandise from China or Bangladesh.

“Shirts made with slave labour cost less than half,” he complained.

Meloni, who is president of the textile association Fundación Pro Tejer, added that a worker in a textile factory in Argentina earns around 1,400 dollars a month and costs the company 1,800 with the payments to social security, etc. In other countries the cost can be 40 times lower, he said.

A lack of access to international financing since the late 2001 massive debt default and the loss of monetary reserves led the centre-left government of Cristina Fernández to adopt measures designed to maintain a favourable balance of trade.

Argentina’s foreign reserves shrank from 52.6 billion dollars in January 2011 – a historical peak – to just over 36 billion today, according to the Central Bank.

When Néstor Kirchner – President Fernández’s husband and predecessor, who died in 2010 – first took office in May 2003, foreign reserves stood at less than 12 billion dollars.

So far Fernández has managed to maintain a positive trade balance by restricting imports and the sale of dollars.

Argentina’s trade surplus reached five billion dollars in the first half of the year, according to Argentina’s Chamber of Commerce. But this was 26 percent below the level reached in the first half of 2012.

For some importers, the alternative accepted by the authorities is to compensate imports with exports. That is how growing agreements between producers were reached to, for example, export wine in exchange for importing motorcycle parts.

Argentina’s efforts to maintain the balance between exports and imports have drawn complaints from the EU. On Sep. 2, the European Commission – the EU executive – issued a report putting Argentina in first place among emerging economies in terms of protectionist policies.

Protests have also come from the United States and from Argentina’s partners in the Mercosur (Southern Common Market) trade bloc, especially Uruguay and Brazil.

In its latest edition of Latin America and the Caribbean in the World Economy, the Economic Commission for Latin America and the Caribbean (ECLAC) also said Argentina was experiencing its most active period in terms of trade disputes with the United States, the EU and Japan.

Argentina has responded to such complaints with similar protests against barriers to its sales of beef and lemons to the United States and hurdles to its biodiesel exports to the EU.

Argentina’s exports have risen sharply over the last decade, as have imports, despite the regulations. Imports increased from 13.8 billion dollars in 2003 to 68.5 billion dollars in 2012.

But the Fernández administration’s trade policies have drawn complaints both within and outside Argentina.

Importers complain about the red tape involved in filling out a mandatory “anticipated sworn declaration of imports”, which must be approved by the government.

“Without access to external finance, and without a significant influx of foreign investment, Argentina needs a strong trade surplus, which translates into strict import controls,” economist Mauricio Claveri, coordinator of foreign trade in the Abeceb consultancy, told IPS.

In the past, trade restrictions focused on sensitive sectors, in order to boost reindustrialisation. But this policy now has “a double role to play,” he said.

On one hand, it protects certain industries. But it regulates imports, above all, he said. This country has to meet debt service payments in dollars and is not allowed to issue new bonds, due to the late 2001 default.

The regulations are good for companies that produce for the domestic market, said Claveri. But they do not help attract investment from multinational corporations, which worry about being unable to import inputs, he added.

This policy, which the Foreign Trade Secretariat itself describes as temporary because of Argentina’s obligations under the World Trade Organisation, generates uncertainty. “A lot of thought goes into any decision to increase scale of production,” Claveri said.

But it also benefits sectors that are protected from cheap imports, such as the toy, footwear, textile, machinery and tool industries, he acknowledged.

Meloni admitted that there were difficulties in purchasing machinery abroad, and said exporters were forced to compensate for the purchases with exports. But he stressed that the number of workers in his textile company has grown from 30 in 2002 to 120 today.

Economist Ariel Schale, an adviser to the Fundación Pro Tejer, explained to IPS that, thanks to Argentina’s trade policies, the local textile industry saw its exports grow fourfold over the past decade.

Schale noted that production doubled in the last 10 years, and that the total number of people employed by the industry rose from 240,000 in 2002 to the current 400,000. “And we have done that by importing fabric and machinery, because the entry of merchandise is not blocked,” he said.

Another sector that has grown in these conditions is the motorcycle industry. In 2002, some 30,000 motorcycles were sold in Argentina, many of them imported, compared to 800,000 sold this year, all manufactured here.

“They are assembled in this country, but they contain only 30 percent nationally-made parts,” the executive director of the Argentine chamber of motorcycles, Daniel Tigani, told IPS.

Tigani, who defends the protective measures, said business representatives meet every three months with authorities from the Foreign Trade Secretariat to establish what can be imported. He added that other government agencies also take part in these decisions, to keep domestic prices from skyrocketing.

“Imports don’t generate jobs; local production does,” he underlined. “And that doesn’t mean we don’t import, because most of the motorcycle parts are purchased abroad. In 2012, more than 650,000 were sold, and this year the number will grow 20 percent.”

Tigani also pointed out that in 2003 there was virtually no local manufacturing of bicycles. But safety standards similar to those of developed countries were adopted, so this aspect can no longer be cited as a hurdle to trade.

“That revived the industry,” he said. “Today one million bicycles are sold in this country, and only two percent of them are imports.”

Some 3,000 direct jobs were created in the bicycle industry, he said. And if the parts market is included, the benefits reach around 15,000 families engaged in small businesses, he added.

Quantitative Easing (QE) has been favourable to developed countries, stimulating local investment and exports. Credit: Bigstock.

By Fernando J. Cardim de Carvalho
RIO DE JANEIRO , Jun 25 2013 (IPS)

It took world leaders some time to realise that the financial crisis initiated by the collapse of the subprime mortgage segment of U.S. financial markets in 2007 would not exhaust its effects in an ordinary recession.

For most of 2007 and 2008, government authorities, especially in the U.S., argued, rightly, that subprime mortgages were a relatively small segment of the U.S. financial system, concluding – wrongly, as it turned out – that the crisis could be easily contained through the use of conventional policy instruments at the disposal of the Treasury and the Federal Reserve.

In fact, the crisis spread out to other segments of U.S. financial markets and, in September 2008, with the bankruptcy of Lehman Brothers, it spread out to most of the rest of the world.

As domestic financial sectors in the countries hit by the shock waves were engulfed by their own crises, credit supply contracted and the financial crisis was transformed into an economic crisis, with falling output and rising unemployment.

The realisation that the crisis was deeper than most analysts expected initially led governments to react through implementation of anti-cyclical macroeconomic policies. Expansive fiscal and monetary policies were implemented, in one form or another, not only in the U.S. and Western European countries, but also in many developing economies in 2008 and early 2009.

The collapse of output and employment in the developed economies was contained and the ghost of a disaster like that of the early 1930s was, at least temporarily and at least for some countries, exorcised.

At this point, economic policy debates in the richest economies suffered a reversal.

Output was still lower and unemployment much higher than before the crisis both in the U.S. and in Europe. Nevertheless, the debate switched from real problems to fiscal balances. Conservative groups, ranging from the lunatic extreme right of the Tea Party in the U.S. to the moralising posture of northern European governments led by right wing parties or coalitions, prevented the further use of fiscal policy to raise output and to create jobs.

It is a fascinating discussion as to why this happened, but there is no room in this commentary to explore the question. The fact is that aggressive expansionary fiscal policies have become politically unacceptable even while output is low (or even falling, as is the case with many European countries, and not only the “peripheral” ones) and unemployment is growing. Under these conditions, the only instrument left to try to increase market demand and to stimulate production was monetary policy.

Monetary policy, traditionally, impacts the economy through variations of interest rates. The interest rates under the control of monetary authorities like the U.S. Federal Reserve or the Bank of England, for instance, were, however, already very low, near zero.

There was not much conventional monetary policy could do to compensate for the lack of a rational expansionary fiscal policy. It was in this context that quantitative easing (QE) policies were formulated in the U.S., U.K. and more recently in Japan, while the European Central Bank struggles with itself to determine what should be its policy. QE policies are simply initiatives to funnel money into the economy in amounts great enough to facilitate the expansion of the supply of credit for private borrowers, both firms and consumers.

It may be too soon to assess whether they worked as expected or not. Of course, the developed economies where these policies were implemented are still struggling with the crisis and its developments. A generous reading of these policies is often based on a counter-factual: things are not that good yet, but they would be much worse if those policies had not been applied.

For developing economies, the impact is certainly ambiguous. On the one hand, accepting the assumption that without QE policies developed countries would be in a much worse situation than they are now, it is better than nothing.

If output had contracted further in those economies, trade would be even lower nowadays, creating balance of payments problems for many developing countries.

On the other hand, from the point of view of developing countries, monetary easing is certainly not the ideal way to support output and employment.

QE increases money supply at the same time that it reduces domestic interest rates in the developed economies. In a world of free capital flows, as is mostly the case now, this means that a large part of this liquidity will flow out of the country that created it.

In part, although governments deny it, this is precisely what they expect: capital outflows devaluate the currency of the country practicing QE, so it will have two stimuli for the price of one: lower interest rates stimulate domestic production and investment, and devalued currencies stimulate exports.

Of course, for developing countries the impact is exactly the opposite: they receive too much foreign liquidity, their exchange rates tend to become overvalued, reducing exports and stimulating imports.

Deficits in the balance-of-payments current account tend to emerge, but it is easy to finance them since there is so much liquidity in the world.

Until, of course, QEs are discontinued and borrowing countries will find out, as they did many times in the past, that foreign debt accumulated to the point of leading them to a crisis.

Would it be better not to have developed countries practicing QE? Well, governments in these countries had to do something and monetary policy was the only instrument left after right wing parties prevented them from using fiscal policy.

Expansionary fiscal policies in those countries, however, would be much better for developing economies because they expand their domestic economies without undervaluing their currencies. Fiscal expansion, in contrast to monetary expansion, is not a beggar-thy-neighbour type of policy.

There is evidence now that the Federal Reserve expects to stop QE3 relatively soon. QE had some deleterious impacts on developing countries, as just argued, but its reversal is also full of risks.

It is possible that interest rates will rise too much and too quickly, creating serious problems for those countries and firms that borrowed more in this period.

Increased volatility itself, because of the uncertainties such a change in direction engender, is a problem, scaring investors and depressing production and investment. To expand the economy to get out of a depression is the correct attitude, but QE was an instrument that definitely contributed to increased short and medium term risks of the macroeconomic situation.

(END/COPYRIGHT IPS)

Excerpt:

Trucks bogged down by road repairs in the state of Mato Grosso. Credit: Mario Osava/IPS

By Mario Osava
RIO DE JANEIRO, Apr 9 2013 (IPS)

Edson Godinho, a truck driver with 35 years’ experience, was lucky this time. When he reached the southeastern port of Santos in early April, the line of waiting trucks was much shorter than it had been earlier, so he only had to wait 12 hours to unload his soybeans.

In previous weeks, many other truck drivers had had to wait more than 24 hours for access to unloading facilities in this port, where the majority of Brazilian agricultural exports are shipped. For several days the line of trucks was over 20 kilometres long.

Ports are the bottleneck that contributes most to the “logistics blackout” – an inability to cope with increased traffic – predicted for this year of record agricultural production and exports, according to Marcos Jank, a professor at the University of São Paulo who is an expert in this sector.

Grain production has more than doubled in Brazil since 1990, without improvement in agricultural logistics. Forecasts indicate that soybean and maize exports will grow 30 percent this year compared to 2012, reaching 41 and 25 million tonnes, respectively, and out-producing the United States.

Soybean output will amount to 84 million tonnes this year, according to Agroconsult, a consultancy.

Brazil’s overtaking the U.S. is partly due to drought in the United States, but also reflects a marked expansion of soybean cultivation, including in the semiarid Northeast.

The rise in exports and heavy rains in January slowed shipments of maize, which accumulated in a backlog that affected soybean exports, blocking the ports of Santos and nearby Paranaguá, the main ports in the country, in March. The bottleneck will be felt again with sugarcane exports beginning this month, and with the new maize crop in July, Jank said.

The chaos is not new, but it is getting worse. A bill to reform port activity regulations has been introduced by the government of President Dilma Rousseff, but congressional approval is uncertain, as more than 600 proposed amendments have been tabled.

Large investments are also needed. “A definitive solution will take 10 years,” Jank said. “We have 21st century agriculture and 19th century logistics,” he told IPS.

Speedy relief from the obstacles, he said, will require the opening of waterways, expansion of railroads, paving of highways to the north, enlarging of river and sea ports in the north and expansion of storage facilities at sea terminals in the south.

Santos, in the state of São Paulo, is 2,000 kilometres away from the main soybean producing area in the centre-west state of Mato Grosso, yet it handles nearly 60 percent of exports of the crop, most of which is hauled in by truck.

Transporting each tonne of soybeans costs nearly 70 dollars more in Brazil than in the United States, analysts say, adding that this profit drain would cease if production were shipped from northern ports, which are closer to the crops and to the export markets.

The predominance of trucks, which handle 60 percent of freight in Brazil, also makes the logistics more expensive.

Godinho is one of almost 600,000 independent truckers on Brazil’s roads, many of which are potholed or unpaved. He usually hauls soybean and maize from an area near his home, in the city of Ituverava in São Paulo, to Santos, 480 kilometres further south, and carries fertilisers on the trip home.

Without a return cargo, it wouldn’t be worth his while, because the road tolls cost 580 reals (290 dollars), almost as much as the fuel used by his truck, which carries up to 32 tonnes, he told IPS after unloading the soy at the port. On the positive side, the São Paulo highways he drives on are in good condition.

“The tolls and the bandits” are a trucker’s worst enemies, he said, although he himself has not been robbed on the highway. “But many of my friends have,” said the 57-year-old, who reckons he has had “a good life,” but is glad his three children have chosen other trades.

Congested ports are the tip of the iceberg, but the long logistical chain has many other bottlenecks.

Volmar Michelon, the co-founder of Pedromar Transportes, a firm with 85 vehicles and a hundred employees, told IPS that his drivers “wait up to 48 hours to unload soybean” in Alto Araguaia, on the southeast border of Mato Grosso, on to freight cars that transport it 1,240 kilometres by rail to Santos.

The time lost because of “lack of infrastructure for unloading, and lack of freight cars,” means the company wastes the opportunity of three more standard trips by the same truck, he complained. When this happens, there are thousands of vehicles parked by the side of the road, acting as enforced “storage,” he said.

There is no shortage of trucks, as many analysts and the press claim, “but rather an excess,” as two or three vehicles are required to do the job of one because of the delays in loading and unloading and other obstacles, he said. Adding to their number without correcting the hurdles would definitely obstruct the highways, Michelon said.

Pedromar Transportes was founded in 1981 in the south of Brazil, and moved with agricultural development towards the centre-west. In 2001 the firm settled in Rondonópolis, a commercial and industrial city in the southeast of Mato Grosso.

The company’s trucks operate only within the state, which is the largest grain producer in the country.

Between 1950 and 1980, Brazilian governments built thousands of kilometres of roads, to serve agricultural development in the west and north of the country. This led to waves of migration, deforestation, malaria and land tenure conflicts.

But agribusiness, and especially the boom in soybean production, did not precisely follow the highways, and now requires a logistics infrastructure that would provide less costly access to its markets, especially export markets.

By Irfan Ahmed
LAHORE, Pakistan, Jan 4 2013 (IPS)

The European Union (EU) is Pakistan’s largest trading partner, with overall trade between the two countries topping eight million euros in 2011.

Pakistan enjoyed a one billion-euro surplus that year and stands to gain even more from the EU’s generous trade concessions, announced in the aftermath of the devastating floods that ravaged this South Asian country in 2010 and 2011.

Still, in order to fully benefit from these concessions, Pakistan will have to enforce stricter labour standards and comply with the terms and conditions of several international conventions on human rights, governance and environmental safety to which it is a signatory.

Currently, most workers in Pakistan’s export sector do not receive social security benefits, work in hazardous conditions and are paid on a piece-by-piece basis in lieu of a regular salary.

These hands that enable trade to the EU often go home empty, feeding into a cycle of poverty that continues to consume this country of 176 million people.

Having met 97 percent of domestic demand for generic drugs, Bangladesh is poised to become a major exporter. Credit: Naimul Haq/IPS

By Naimul Haq
DHAKA, Nov 18 2012 (IPS)

Bangladesh has begun to shed its image as one of the world’s poorest nations and make a reputation for itself as a major exporter of cheap generic drugs to over 85 countries.

Listed by the United Nations as one of the least developed countries (LDCs), Bangladesh has exported drugs worth roughly 50 million dollars since 2011.

While this is admittedly just a fraction of the 170-billion-dollar global generic drug market, recent trends indicate that this South Asian country, home to over 150 million people, is poised to capture a larger slice of the market if it plays its cards right.

Competition for production of quality generics began in 1982, when the Drug Control Ordinance encouraged expansion in domestic production.

Following the exit of major multinational producers, local companies rushed to establish internationally recognised good manufacturing practices (GMP) and local investors were encouraged to join the flourishing market.

Local manufacturing giants like Square, Incepta Pharmaceuticals, Beximco and a host of others emerged within a very short period of time.

Abdul Muktadir, secretary general of the Bangladesh Association of Pharmaceutical Industries (BAPI), and managing director of Incepta Pharmaceuticals, the second largest drug manufacturer in the country, told IPS, “The drug industry grew at a steady pace and now Bangladeshi drugs are exported to many Asian, African and South American nations. The reason for this global expansion is quality, which has also (enabled) us to enter the European market. Soon we may get approval to export into the United States.”

“Our (share) of exports is still far too small, but growth patterns suggest we will soon overtake other major export sectors” such as garments, jute and tea, according to BAPI Vice President  Momenul Haq.

Cheaper prices also make drugs produced here an attractive product, he told IPS.

Out of a total of about 200 active local drug manufacturers, the top twenty companies have been exporting the lion’s share of drugs – about 85 percent – since the middle of the 1990s.

The boom in exports did not, however, accelerate until 2005 when the country’s original 1982 drug policy was revised.

The new programme, recognising that the industry already answered 97 percent of local demand, gave top priority to exports, which resulted in a decade of sharp growth.

In 2001 only a handful of generic drugs, with sales amounting to 3.7 million dollars, were exported to just 17 neighbouring countries; today more than 300 generics are exported to 87 countries, with sales topping 50.4 million dollars in 2011.

According to the Exports Promotion Bureau, some of the major beneficiaries in 2011 were manufacturers like Novartis Bangladesh, which exported drugs worth 10.8 million dollars; Beximco, whose sales receipts amounted to 9.6 million dollars and Square, which sold 7.8 million dollars worth of medicines abroad.

Haq, who is also the owner of General Pharmaceuticals, said, “Slow registration processes in destination countries, especially in moderately regulated markets (such as South Korea, Italy, Germany, Belgium, Spain and Singapore) make exporting difficult. But amid all these strict regulations Bangladesh has emerged as a successful drug exporter and it is still expanding.”

Out of about 1,800 generics or molecules manufactured in the country some 300 varieties are now exported, mostly antibiotics, analgesics, contraceptives, stimulants, vitamins, dietary supplements and non-conventional herbal and Ayurvedic medicines. Destination countries for these drugs include Saudi Arabia, Yemen, Kenya, Malaysia, Bhutan, Azerbaijan, Honduras and Mexico, among many others.

Strict tax codes ensure that a significant portion of these profits circle back into the local economy, which could boost Bangladesh’s efforts to graduate from LDC to middle-income economy status.

Already foreign loan dependency has fallen from 85 percent in the early 1980s to about two percent in 2012.

Per capital income has increased from less than 400 dollars in 2001 to 650 dollars in 2010.

A thriving export market could boost growth even further, experts say.

The domestic drug consumption market was worth 958.8 million dollars in 2010 and is expected to rise by at least ten percent every year, due largely to the expansion of quality healthcare services and increasing purchasing capacity.

Patents loom as threat to production

But the road ahead is not without its share of obstacles.

Zafrullah Chowdhury, widely acknowledged as the leading expert on pharmaceutical policy in Bangladesh and a key player in formulating the 1982 Drug Ordinance, told IPS, “It is time we started making raw or active ingredients, because after World Trade Organisation (WTO) patent exemptions expire in 2016” Bangladesh may not be able to produce generic medicines as easily as it does now.

According to the WTO’s agreement on the trade-related aspects of intellectual property rights (TRIPS), Bangladesh, along with other LDCs, is excused from patent regulations until 2016. However, when they kick in four years from now, patent requirements could deal a fatal blow to the industry.

“In January 2016, Bangladesh’s pharmaceutical market will face difficulties, particularly with under-patent drugs (new drugs invented after 1996),” Sayedur Rahman, professor of pharmacology at the country’s renowned Sheikh Mujib Medical University (BSMMU) in Dhaka, told IPS.

“At this moment, we have about 150 drugs of this category, the prices of which might increase as a consequence of royalties (demanded by) patent holders.”

“Initially, those patent holders may not claim royalty, but after some time they will definitely enter our market to sell their products, employ distributors or claim royalty from the local manufacturers.

“Failure to negotiate with patent holders may lead to removal of the drug from the market as well as delayed entry of new drugs,” he added.

“(TRIPS regulations) will not affect ‘out of patent’ or older drugs (drugs innovated 20 years ago), which can be sold at the same price even after 2016. Ninety percent of our patients can be treated optimally with these old drugs, though this will require some rationalisation of the present prescribing trend,” Rahman added.

However, the expiration of patent exemptions in 2016 could also be a moment for Bangladesh enter a gap in the international market that was hitherto filled by cheap drugs produced in India.

According to BAPI’s Muktadhir, “The global generic market is finding new growth pathways as more and more products face patent expiry. (A vast majority of countries) are now dependent on the supply of Indian generic drugs and they are seriously looking for an alternative source with a similar industry standard.

“BAPI is trying to develop the (local) industry to meet this gap in the international market,” he said.

Nasser Shahrear Zahedee, owner of Radiant Pharmaceuticals, described Bangladesh’s current export scenario as a “warm-up phase”.

“Unless we can embrace competition (that produces) quality drugs,” he said, “we will not be able to enter highly regulated markets, which should be our ultimate target.”

(END)