Welcome to class of

Fair/Unfair Trade Practicesin Emerging Markets

byDr. Satyendra Singh

University of WinnipegCanada

www.uwinnipeg.ca/~ssingh5

• The debate (developed vs emerging markets)• Colonial Pact• GM Foods• Subsidy• SAP (Structural Adjustment Program)• WB/IMF/WTO/UN

Fair vs Unfair Int’l Business

Developed countries say• Unfair competition from Ems

– ↓ labor cost and poorer working condition

• Environmental– Due to EMs’ lax environmental standards

• Financial services– Due to EMs’ low requirements of capital/assets ratio

• Cultural– Due to cultural barriers, aiding local firms

• Tax – Due to EMs’ differences in corporate tax rates

Emerging markets say• Social

– Wal-Mart?, Outsourcing? Call centers?

• Environmental– Dump in the name of recycling in the EM. Why not

recycle in the West? Because it costs $15/monitor here. – 40-foot container costs $5000 to ship from US to EM– 500 containers/month with e-waste in Lagos, Nigeria– World Reuse, Repair and Recycling Association (WR3A)

• Financial services: ↓capital/assets ratio because no $

• Cultural: West need to adapt– Int’l marketing

• Tax: Being adjusted under SAP

The foreign Relations

The Region – The French Colonial Pact

How Long? Counter arguments-Corruption-Cannot handle economy-Not trained-We pay taxes-If we go, economy ↓-eg, Mozambique-Diseases

-Ivory Coast: water, portElectricity, security…

-Who made Africa poor?

-Import dependent

Same problem with GM Foods

• USA Yes• Europe NO• Africa Caught

in the politics

• How?

Subsidies• Financial contribution, provided directly or indirectly

by a government, which confers benefit. – $, grants, preferential tax treatment, government

assumption of normal business expenses

• Manufacturing Airbus– 75-100% development costs borne by the consortium– No profit in its first 30 years of operation

• Agriculture heavily subsidized in the West– $300b/yr in subsidy to agricultural producers in OECD– Government subsidies

• 20% Canada, 25% USA, 50% EU, 65% Japan…

– US Cotton, Sugar…, EU Dairy farmers

Effects of Subsidies on Africa• Subsidy over production and dumping• Subsidy artificially depresses price farmers cannot compete

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

Why SAP – to get debt relief• So must follow WTO rules free trade, lower tariff • Bolivia: WTO privatize essential services

– Health, education, water supply…– British co. entered the market ↑ the price of water– Water became more expensive than food– Poor people spent ½ their salary on water– Even illegal to collect rain water w/o permit– Mass protest industry renationalized

• Now– If no reform, no debt relief– Fair/Unfair trade practices

SAP Example – fair/unfair trade…• Mozambique: Cashew processing industry

– Processed Cashew export was central to the govt’s SAP – To ensure regular supply of cashews, local govt imposed ban on

export of raw cashew, but not on processed ones– World bank demanded the ban/export tax (60%) to be removed,

and let the free market reign– All raw cashew markets were exported at low price – Now no raw cashews left for processing locally – Industry collapsed, people lost jobs– No free trade, no debt relief– If get aid, it is just enough to pay interest and import essential

items– Debt continues fair/unfair trade

SAP Example – fair/unfair trade• India: Motor car industry

– EMs cannot protect their infant industries– Jt. venture and produce ½ parts locally, like Ford, GM– WTO Indian motor policy violates agreement on Trade

related Investment Measures (TRIM)• Local components, import of products, currency/export

restrictions

– It is unfair.

• Firms in developing/EM are in a difficult position to– Sell in the West, Diversify, or say no to expensive imports

• How do WB, IMF and WTO make decisions?

Decision-Making Process• World bank and IMF – decision process undemocratic!

– Votes are based on shares depends on income so rich nations have more votes

– It is reflected on the board of both institutions– US and UK have their own Executive Director (ED) – 2– Whereas African nations have to share their 2 EDs– Some countries are borrowers and some lenders

• WTO – decision process a bit subtle– Each country has a vote and decision is by consensus– In reality -- US, EU, Canada and Japan– Some countries are in a better position to impose sanctions

in case of trade dispute– Primary aim of WTO is to liberalize world trade!– Protest again globalization continues

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