Tag Archives: countries

What the ash cloud meant for Kenya

$US12 million in lost fruit, vegetables and flowers exports to Europe as of 20 Tuesday 20 April.

‘It is bad. We have lost Sh228 million ($3 million) a night, so that is a total of about Sh912 million ($12 million) as of last night,’ Stephen Mbithi, the head of the Fresh Producers Exporters Association of Kenya (FPEAK) told Reuters by phone. Mbithi said the country flies out 1,000 tones of fruit and vegetables every night at this time of the year, and only about 100 tonnes left on Monday morning, destined for Spain.” Extract from The [Kenyan] Standard

There were other losses, too, that cascade from the loss of export sales: especially job losses. There’s not much of a market in Kenya buys the flowers and fruit that are not shipped.

EU launches debate on farm subsidies

Expenditure on the CAP

“Following several weeks of consultations, the European Commission is expected to draw up a report on potential changes to the CAP in mid-summer. ” Extract from ICTSD • EU Farm Commissioner Launches Debate on Subsidies

I bet there are no surprises.

The overall strategy for the Common Agricultural Policy beyond the next budget horizon (2013) is already evident in the chart. It shows that nominal expenditure in €billions is being held nearly steady—or rising just slightly— despite the enlargement of the Union. But the value is falling in real terms (and as a proportion of GDP). This strategy plays to the cash illusion of farmers (assuming they still have such illusions) while keeping the lid on their incentive to expand production, which only adds to public stock woes and diverts the budget into disposal expenses (export subsidies).

But At 0.4% of GDP, the CAP still represents sixty percent of all expenditure by the Union. So sixty-years on from its launch, the madness of this giant re-distribution machine continues.

The more ‘varigated’ distribution of the funds diplayed in the chart—illustrating ‘CAP reform’—is a bit of furphy. The ‘coupled’ and ‘de-coupled’ payments direct to farms and the ‘rural development’ expenditure are nearly fungible sources of income for farmers. They all pay to keep farmers in a business where world market prices tell them they should not be (or would tell them were it not for the import barriers).

It’s ironic that the Commission has entitled this public consultation as “2013, Your Ideas Matter…”. Because ideas have long been junk where the CAP is concerned; only interests have any force.

The cost of Renminbi adjustment

Yang Yao, Editor of the China Economic Quarterly, points out that Obama’s health budget calculations may depend on Chinese savings

“Stopping the sale of Treasury bonds to China would benefit the US. First, it would prevent Chinese savings depressing demand for American goods. Second, it would discourage the US government from deficit spending and prevent skyrocketing government debts. Third, it would avoid a trade war, which would benefit no one. The inconvenient truth, however, is that the Treasury needs cheap Chinese savings to finance many more urgent spending needs, including the new healthcare plan.” Extract from FT.com

The limits of WTO litigation

Good sense from a former Chair of the WTO Appellate Body.

“It is in the best interest of both countries to continue negotiating on the currency issue rather than resorting to litigation at the WTO. On this issue especially, litigation should be the last resort.” Extract from James Bacchus in the WSJ

Alhougth I’m sure a lot of trade law geeks like me would like to see Article XV litigated, nevertheless … just to see what it means.

Rotten ideas about the renminbi

The prospect of a U.S.-China clash over currency controls next month when the U.S. Treasury Secretary is supposed to pronounce on China’s ‘currency manipulation’ has prompted hyperbolic fears (Martin Wolf, in the FT says he “wonders whether the open global economy is going to survive…”!) and at least two feeble plans.

One is from the IMF, which wants a new mandate—although it admits that’s not really necessary—to undertake explicit multilateral surveillance of Systemic Stability (i.e. imbalances in external accounts). But the Fund does a bad job of justifying its claim for a new role. The Conclusions (on page 12) of the current proposal from the Fund management offer no better reason that that it wants to feel important as the manager of a new ‘peer review’ process. Ho hum!

A much worse idea comes from Arvind Subramaniam in today’s Financial Times. He wants the WTO not only to engage in surveillance but also to enforce the ‘right’ value for currencies.

“The World Trade Organisation is a natural forum for developing new multilateral rules. First, undervalued exchange rates are de facto protectionist trade policies because they are a combination of export subsidies and import tariffs…:”

Even if we accept that there is an equivalence between currency management and trade measures, we have to ask so what? You’d imagine, wouldn’t you, that a trade economist would recall that, in WTO, neither of these trade instruments is necessarily “protectionist” and that neither is illegal (or even deprecated)! This is not much of an argument for WTO intervention.

Second, the WTO has a better record on enforcement of rules. Its dispute settlement system, although not perfect, has been reasonably effective in allowing members to initiate and settle disputes…What is needed is a new rule in the WTO proscribing undervalued exchange rates.

Uh-huh. But does Prof. Subramaniam recall what is needed to add a ‘rule’ to the WTO? If not ‘consensus’ (or ‘explicit consensus’ in the Doha negotiating mandate), then a very strong qualified majority (⅔ of Members according to Article X of the Marakesh Agreement). Furthermore, a new rule adopted by a majority vote applies only to Members that accept it; unless a further another strong majority (¾ of Members) decides to expel any Member that does not accept the new rule.

Now think for a second or two what sort of mess a proposal to penalize persistent trade surpluses would create in WTO. Remember, we’re talking about an Organization that—for the present at least—can’t decide which way is up (in the Doha round), let alone what constitutes an “undervalued exchange rate”

Imagine, too, that horrible wrangle ending up in a majority vote on the new rule, which will inevitably be aimed at China and possibly Germany. But will also potentially hit a lot of others; Thailand and Vietnam, for example. What we have here is a recipe for a hecatomb of the WTO.

The IMF would continue to be the sole forum for broad exchange rate surveillance. But in those rare instances of substantial and persistent undervaluation, we envisage a more effective delineation of responsibility, with the IMF continuing to play a technical role in assessing when a country’s exchange rate was undervalued, and the WTO assuming the enforcement role.” Extract from FT.com / Comment / Opinion – The weak renminbi is not just America’s problem

Fat chance! Even if the IMF could actually discover the ‘correct’ international price of a currency, the WTO would break if tasked with enforcing it.

Chinese savings rate & the gender balance

Fascinating. A strong, explanatory correlation appears between very high household savings rates and the male-gender imbalance.

“…[E]conomists and policymakers have looked with concern to the large Chinese current account surplus and large US current account deficit, or global imbalances, much of their discussion has focused on changing exchange rate policy. None of the discussion about global imbalances has brought family-planning policy or women’s rights to the table, because many do not see these issues as related to economic policy. Our research suggests that this is a serious omission.” Extract from The mystery of Chinese savings: Shang-Jin Wei
Shang-Jin’s hypothesis? Savings reflect competition in a marriage market with a significant deficit of females. I’m impatient to see the published paper.

Are the BRICS ready to lead?

BRICS graphic from the FT

Reflecting on the greater influence of the BRICS, recently, in global forums, the always-interesting Alan Beattie asks:

“Is this a pivot point such as the second world war, where the confident, innovative US muscled aside the weakened, debt-laden economies of Europe and remade the global financial architecture? ” Extract from FT.com

His guess? “No, not yet”. He points out the BRICS are dominated by one country, China, that is still dependent on foreign demand for its economic strength rather than on its domestic resources.

“A decade of rapid growth is not enough for the Brics to seize the baton of global economic leadership from the US and western Europe. The grouping, or some of them, may have astonished the world with their progress over the past 10 years. But it will require a qualitative improvement as well as more growth to consolidate that shift of power.”

In an accompanying article he argues:

“…Aside from the long-running debate about giving developing countries more votes in the IMF, it has proved hard to hammer out a substantive set of subjects on which the disparate Bric countries have the same interests.” Extract from FT.com

Beattie points out that for all their capacity jointly to wield influence in global forums, the BRICS do not have much in common in their domestic policy approaches and few common external interests. This has been evident in the Doha negotiations where India and Brazil, especially, have opposing interests in matters such as agricultural trade liberalization, and at Copenhagen where China’s interests were not apparently those of many developing countries; effectivelly sui generis. Beattie concludes that:

“In diplomacy, as in economics, the power wielded by the Bric countries may end up being distinctly weighted towards the wishes of Beijing.”

I think all this is pretty sound. But…in my view we are witnessing, nonetheless, a secular change in global governance, to be marked by confusion, delay and irrelevance for global institutions such as WTO that cling to a mode of “explicit consensus” (as the Doha Declaration puts it) in decision-making. Such presumptive unanimity or compliance is no longer likely except where the decisions concerned are inescapable—like those on the global ‘stimulus’ (or otherwise trivial in a policy sense, such as humanitarian aid). The future seems, for now, to belong rather to plurilateral decision-making and institutions in different forms.