1. Welcome to class of Fair/Unfair Trade Practices in Emerging Markets by Dr. Satyendra Singh University of Winnipeg Canada www.uwinnipeg.ca/~ssingh5 www.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