Outline

1. Welcome to class ofFair/Unfair Trade Practicesin Emerging MarketsbyDr. Satyendra SinghUniversity of WinnipegCanadawww.uwinnipeg.ca/~ssingh5

2. Outline • What is fair • Win-win situation • What is unfair • Win-lose situation • Dumping • Subsidy • Countervailing duties • Foreign exchange manipulation

3. Dumping • Selling a product abroad for less than • Average cost of production in exporting nation • Market price in the exporting nation • The price in third countries • Excess production • Cyclic, seasonal factors, change in consumer preference • ↓ the export price to drive out the producer in importing nation  then ↑ increase the price  Predatory dumping  Fair/Unfair! • West has efficient manufacturing system, EMs do not  Who is responsible?

4. Types of Dumping -- OECD • Social • Unfair competition from EMs due to ↓ labor cost and poorer working condition • Environmental • Due to EMs’ lax environmental standards • Financial services • Due to EMs’ low requirements of capital/assets ratio • Cultural • Due to cultural barriers, aiding local firms • Tax • Due to EMs’ differences in corporate tax rates

5. Types of Dumping -- EMs • Social • Wal-Mart?, Outsourcing? Call centers? • Environmental • Dump in the name of recycling in the EM. Why not recycle in the West? Because it costs $15/monitor here. • 40-foot container costs $5000 to ship from US to EM • 500 containers/month with e-waste in Lagos, Nigeria • World Reuse, Repair and Recycling Association (WR3A) • Financial services: ↓capital/assets ratio because no $ • Cultural: West need to adapt– Int’l marketing • Tax: Being adjusted under SAP

6. Subsidies • Financial contribution, provided directly or indirectly by a government, which confers benefit. • $, grants, preferential tax treatment, government assumption of normal business expenses • Manufacturing  Airbus • 75-100% development costs borne by the consortium • No profit in its first 30 years of operation • Agriculture  heavily subsidized in the West • $300b/yr in subsidy to agricultural producers in OECD • Government subsidies • 20% Canada, 25% USA, 50% EU, 65% Japan… • US Cotton, Sugar…, EU Dairy farmers

7. Effects of Subsidies on Africa • Subsidy  over production and dumping • Subsidy artificially depresses price  farmers cannot compete  keep Africa out of reach of EU • Local governments do not have $ to subsidize • Farmers out of business; labeled as urban refugees • So they become import dependent (cannot export) • The nation accrues debt (import > export) • US cotton subsidy suppressed West/Central Africa • Ethiopia, Malawi, Mozambique: ↓access to EU for sugar • Africa loses $2b/yr  fair/unfair trade practices • WTO: participate Structural Adjustment Program (SAP)

8. Why SAP – to get debt relief • So must follow WTO rules  free trade, lower tariff • Bolivia: WTO privatize essential services • Health, education, water supply… • British co. entered the market  ↑ the price of water • Water became more expensive than food • Poor people spent ½ their salary on water • Even illegal to collect rain water w/o permit • Mass protest  industry renationalized • Now  reforms may be irreversible! • If no reform, no debt relief • Fair/Unfair trade practices

9. SAP Example – fair/unfair trade… • Mozambique: Cashew processing industry • Processed Cashew export was central to the govt’s SAP • To ensure regular supply of cashews, local govt imposed tax on raw cashew, but not on processed ones • World bank demanded the tax to be removed, and let the free market reign • All raw cashew markets were exported at low price • Now no raw cashews left for processing locally • Industry collapsed, people lost jobs • No free trade, no debt relief • If get aid, it is just enough to pay interest and import essential items • Debt continues  fair/unfair trade

10. SAP Example – fair/unfair trade • India: Motor car industry • EMs cannot protect their infant industries • Jt. venture and produce ½ parts locally, like Ford, GM • WTO Indian motor policy violates agreement on Trade related Investment Measures (TRIM) • It is not fair • So, firms in developing/EM are in a difficult position to • Sell in the West • Diversify • Say no to expensive imports • How do WB, IMF and WTO make decisions?

11. Decision-Making Process • World bank and IMF – decision process undemocratic! • Votes are based on shares  depends on income  so rich nations have more votes • It is reflected on the board of both institutions • US and UK have their own Executive Director (ED) – 2 • Whereas African nations have to share their 2 EDs • Some countries are borrowers and some lenders • WTO – decision process a bit subtle • Each country has a vote and decision is by consensus • In reality -- US, EU, Canada and Japan • Some countries are in a better position to impose sanctions in case of trade dispute • Primary aim of WTO is to liberalize world trade! • Protest again globalization continues