duh? doh! Doha?
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Agricultural subsidies. Ai ai ai! Item 2 is also about 'subsidies', oil subsidies but what the hay?!
I love it when they say 'serious concern' eh? Billions and tens-of-billions on beaurocrat palaver & pundit jizz.
(Did you see the purple parasol in the first picture? :-) If not, you missed the point.)
"Profits did rise impressively and so did the costs of "externalities" like shattered communities and lives, foreclosed homes, toxic fear and resentment of "others" here and abroad, and vast disparities in wealth, health, life expectancy, etc." Rick Salutin, below.
Amen, Rick.
A few words in German to remember:
Klimawandel = Climate Change
Erderwärmung = Global Warming.
A decent on-line English<->German dictionary: LEO Dictionary GmbH.
1. After 7 Years, Talks on Trade Collapse, NYT, July 30.
2. Oil hike sparks 'serious concern', BBC, June 7.
3. After Doha - Seeking a trade deal, Globe, July 31.
4. Trade Talk Collapse - Why India and China Said No to US, Spiegel, July 31.
5. Ding, dong Doha is dead, Rick Salutin, August 1.
6. Shipping Costs Start to Crimp Globalization, Larry Rohter, August 3.
7. The Fragmented Future of World Trade, Alexander Neubacher, August 5.
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After 7 Years, Talks on Trade Collapse, Stephen Castle & Mark Landler, July 30.
GENEVA — World trade talks collapsed here on Tuesday after seven years of on-again, off-again negotiations, in the latest sign of India’s and China’s growing might on the world stage and the decreasing ability of the United States to impose its will globally.
Pascal Lamy, director general of the World Trade Organization, could not bridge differences between a group of newly confident developing nations and established Western economic powers. In the end, too few of the real power brokers proved committed enough to make compromises necessary to deliver a deal.
The failure appeared to end, for the near term at least, any hopes of a global deal to further open markets, cut farm subsidies and strengthen the international trading system.
“It is a massive blow to confidence in the global economy,” said Peter Power, spokesman for the European Commission. “The confidence shot in the arm that we needed badly will not now happen.”
After nine consecutive days of high-level talks, discussions reached an impasse when the United States, India and China refused to compromise over measures to protect farmers in developing countries from greater liberalization of trade.
Supporters of the so-called Doha round of talks, which began in 2001, say a deal would have been a bulwark against protectionist sentiments that are likely to spread as economic growth falters in much of the world.
The failure also delivers a blow to the credibility of the World Trade Organization, which sets and enforces the rules of international commerce. It could set back efforts to work out other multilateral agreements, including those intended to reduce the threat of global warming.
The collapse of the talks will not bring an end to world trade, of course, which will continue under current agreements, many of which are between two or more countries rather than under the W.T.O.
But it is a big setback, particularly to the hopes of smaller and poorer developing countries, which were counting on gaining greater access to consumers in the United States, Europe and Japan.
Economists and trade experts predicted that negotiators, having come this close, might not find the conditions for a broad deal among the 153 members of the trade organization for years, if ever again.
Deep skepticism about the advantages of free trade was on vivid display during the Democratic primaries and it is growing in Europe, particularly as France, Italy and other countries have fallen into an American-style economic malaise.
“It’s important to move forward when the world is in a slowdown and is tempted to think of protectionism rather than opening up,” said Norbert Walter, the chief economist at Deutsche Bank.
He said soaring food prices provided another rare opportunity for a deal, since European and American farmers are prospering. It may never be easier to reduce farm subsidies, one of the most delicate issues in trade talks.
“The feeling went from ‘Who cares?’ to a surge of excitement and sense of breakthrough to ‘Oh, no, not again,’ ” said Rory Macrae, a partner at GPlus Europe, a communications consulting firm in Brussels, who was on the sidelines of the negotiations in Geneva.
He said the sticking point this time was countries like China and India, which have become more aggressive in advancing their interests. “Maybe they’re now thinking, ‘We’re big enough that we don’t even need the process,’ ” Mr. Macrae said.
Like the United States and Europe, he said, China and India might find it more advantageous to negotiate bilateral agreements in which they can apply more pressure on a single trading partner.
On Tuesday night, ministers were still discussing whether any of the agreements reached in principle could be salvaged.
But there seemed little prospect for that any time soon, in part because the presidential campaign in the United States will make it all but impossible for Washington to take part until a new administration takes over.
Talks foundered on the right of India and other developing nations to protect sensitive agricultural products from competition in the event of a surge of imports that would make their own farmers less competitive. The United States argued that such protection, which is not permitted now, would mean moving backward on current world trade commitments.
Mari Elka Pangestu, the Indonesian trade minister, said the failure of the talks reflected the inability of the rich industrial powers to deal with the growing influence of China, India and Brazil in the global economy.
She complained that what she called “a reasonable request” had been blocked because the United States “is not going to show flexibility.”
Susan C. Schwab, the United States trade representative, challenged assertions by some developing countries that the United States had been the chief obstacle to sewing up the deal. She added, “The U.S. commitments remain on the table, awaiting reciprocal responses.”
She said, “It is unconscionable that we could have come out with an outcome that rolled the global trading system back not by one year or 5 years but by 30 years.”
Ms. Schwab said it would be possible to help developing nations address surges in imports in ways that could not “be used as a tool of blatant protectionism.”
One official said that the relatively technical nature of the cause of the breakdown underlined a lack of political will to reach an agreement that would be a tough sell to voters in many countries.
The Indian trade minister, Kamal Nath, in a briefing with reporters, said he was “very disappointed” but that developing countries were “deeply concerned about issues which affected poor and subsistence farmers.”
Washington’s negotiating team was also under pressure from the country’s powerful farm lobby, and the European Union was under pressure from its own.
Lourdes Catrain, a trade partner at the law firm Hogan & Hartson, said the real danger created by failure after getting so close was “that the seven years of hard negotiations will be lost and there will be no guarantees on the starting point of a future round.”
The proliferation of bilateral deals and the continuing expansion of exports from both developing and developed countries have raised doubts among some Doha skeptics about the necessity of a global agreement. But experts said it was important, particularly as a bulwark against rising protectionist sentiments.
“There are people who argue that no Doha outcome is better than a weak Doha outcome, but I don’t agree,” said Katinka Barysch, the deputy director of the Center for European Reform in London.
Stephen Castle reported from Geneva, and Mark Landler from Frankfurt.
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Oil hike sparks 'serious concern', BBC, June 7.
Oil hike sparks 'serious concern' - some suggest crude could reach $150 a barrel by July.
The US and the four largest economies in Asia are to voice "serious concerns" over "unprecedented" oil prices.
Energy ministers are meeting in Japan a day after a record one-day jump in the crude oil price, to $139 a barrel.
Under pressure from the US, Japan, China, India and South Korea have agreed on the need to end fuel subsidies, blamed for boosting demand.
But correspondents say there are major differences over the speed and extent to which the changes should be made.
The soaring cost of oil is causing growing strain to economies around the world, with some governments facing protests and other pressures from consumers and businesses.
Both the Indian and Malaysian governments have recently raised fuel prices in order to cut the subsidies they provide.
Officials and ministers from the Group of Eight (G8) key industrialised nations, as well as China, India and South Korea, are meeting for two days in the northern city of Aomori.
In a statement to be issued after the talks, the US and Asian countries are expected to say rising oil prices pose a great burden, especially on developing countries and are "against the interest of both consuming and producing countries", news agencies reported.
It will also say that "phased and gradual" withdrawal of price subsidies - blamed by some for fuelling demand in emerging economies - is "desirable", the French news agency AFP said.
But India insisted there was no agreement to remove the subsidies altogether, China made clear it had no time frame for moving towards lower subsidies, and Japan's trade minister confirmed they had agreed only on the need to remove the subsidies, according to the BBC's Chris Hogg, in Tokyo.
'Economic egotism'
Friday's spike in oil prices coincided with a dollar slump, plummeting share prices on Wall Street and US unemployment suffering its biggest rise in 20 years.
"Russia is a global player. We understand our responsibility for the fate of the world and want to participate in forming the rules of the game," Dmitry Medvedev, Russian president.
On Saturday, US energy secretary Samuel Bodman said the price surge was a "shock" but not a crisis, amid fears the oil price spike could help tip some of the world's economies into recession.
He also said he did not see a need for a tightening of regulation of oil markets.
Some say market speculation, and a lack of disclosure of information over the size and nature of reserves, may be stoking the price rises, as well as concerns that demand may be growing faster than supply.
Separately, Russian President Dmitry Medvedev blamed what he termed the US's "economic egotism" for the current problems in the global economy.
He accused the US of "aggressive financial policies" and said most people in the world had become poorer.
Speaking at the St Petersburg International Economic Forum, he said Russia was a "global player" and wished to "participate in forming new rules of the game", but not because of "imperial ambitions".
Iran threat
On Friday light crude set a record high of $139.12 in after-hours trading on the New York Mercantile Exchange after hitting $138.54 at the regular session.
Oil prices were given a boost on a report by Morgan Stanley analyst Ole Slorer, who suggested the price of oil could rocket to $150 as early as July.
Some analysts have suggested that prices would reach as high as $200 a barrel during the next 18 months.
The benchmark light, sweet crude oil is more than twice the price it was a year ago.
On Friday, the market was also responding to a statement by Israel's transport minister that an attack on Iran was "unavoidable" after sanctions to prevent Tehran from developing its nuclear capability had failed.
Investors hedging oil against the weak dollar has also pushed up the price of oil.
Correspondents say fears that workers at Chevron Corporation in Nigeria may go on strike and subsequently disrupt production and access to oil are also adding to market jitters, as well as Israeli threats to strike Iran over its nuclear programme.
Oil prices had recorded losses earlier this week after doubts about future demand took hold of the market.
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After Doha - Seeking a trade deal, Globe Editorial, July 31.
With an agreement so tantalizingly close, it was a major disappointment that the latest round of international trade talks collapsed this week. Delegates at the World Trade Organization meeting in Geneva failed to reach a deal after nine days of discussions, which followed seven years of on-and-off negotiations since the Doha round began in Qatar in 2001.
It is especially unfortunate that the collapse came at a time when the price of food is soaring around the world and many economies are in the doldrums. While the agreement would have taken years to put in place, a successful conclusion would have provided an emotional spark to international trade, even before the real impact was felt. While the full consequences of an agreement are not clear, estimates of the boost to international trade ranged as high as $100-billion.
The goal of the Doha round was fairly straightforward: Europe and the United States were to cut tariffs and subsidies on agricultural products, and in return, key developing countries such as China and India would trim tariffs on manufactured goods. Established countries would get new buyers for their products and, more importantly, the developing world would get better access to wealthy markets.
But in a complex deal with many players at the table, the devil was in the details. Despite the willingness of the Americans and Europeans to make compromises and cut subsidies, they dug in their heels on other concessions. The talks apparently foundered when the Americans refused to go along with the details of a clause that would have allowed poor countries to boost tariffs temporarily, if there was a surge in imports or a rapid change in commodity prices.
It could be years before there is any attempt to breathe new life into the Doha round. In a few months, there will be a new government in the United States, and it will clearly have new policies and priorities, along with a new cast of characters at the negotiating table. There will also be major personnel changes among trade bureaucrats in other countries. This is a significant issue, as negotiators carry around many of the convoluted technical details of the world of trade in their heads.
The Canadians who participated in the Doha process, including Trade Minister Michael Fortier, say they will now turn to negotiating bilateral agreements with individual countries. That is a smart decision, and a first priority should be to get an agreement in place with the European Union. Canada has been a laggard in negotiating trade and investment deals with other countries, and we need to catch up.
But we also must fully support any attempt to restart multilateral talks, as these broad agreements have the potential for the greatest positive impact on the economies of the world. The progress made in the Doha round is certainly worth preserving.
To gain credibility on the international trade scene, Canada must also rethink its position on supply management, our outdated system of marketing boards that provide protection for domestic producers of eggs, poultry and dairy products. It undermines our position when we call for tariff reductions elsewhere but maintain our own protectionist measures.
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Trade Talk Collapse - Why India and China Said No to US, Bruce Einhorn & Mehul Srivastava, July 31.
Trade talks broke down July 29 as India and China refused to bow to US demands on agricultural subsidies.
[Photo - An Indian farmer tills a field: The Indian government is very concerned about unhappy farmers.]
It's not often that China and India find themselves on the same side. They're the world's most populous countries and have two of the fastest-growing economies, but one is ruled by a communist regime, the other by an unruly coalition government. They don't see eye to eye about relations with the US. China has been a longtime supporter of Pakistan, India's bitter rival. And Indians look enviously at China's manufacturing strength, while Chinese want to replicate India's IT services success.
Following the collapse of the latest global trade talks, though, the two Asian giants find themselves in the same boat. The negotiations over the World Trade Organization's Doha Round of trade liberalization came to an inglorious halt July 29 amid disagreements about agricultural subsidies. The US blames what it sees as intransigence on the part of India and China. Other nations are scolding New Delhi and Beijing, too. For instance, rather than concentrating on helping to address global concerns, India and China "focused too much on their own interests," Japan's Chief Cabinet Secretary Nobutaka Machimura told a news conference on July 30.
Rural Unrest Threatens India and China
The criticism may sting, but the two Asian giants aren't likely to succumb to overseas pressure. Both countries enjoy high economic growth, thanks to overseas demand for their manufacturing and outsourcing services. At the same time, Indian and Chinese leaders also have to worry about economic hardship in the countryside, where hundreds of millions of farmers have struggled to compete against imports from the US and other countries.
China, for instance, has been trying to alleviate pain in the countryside for several years. The economy in the country's well-off coastal provinces has boomed, leaving behind rural areas home to some 500 million people. When it comes to competing against American agribusiness, "Chinese household farmers are very weak," says Wang Yong, associate professor and director of Peking University's Center for International Political Economy in Beijing.
Certainly, Chinese farmers are not able to supply all of the country's needs. Imports of soybeans, a staple of the Chinese diet, surged 53 percent last year, to $11.5 billion, according to statistics from China's Agriculture Ministry. Total agricultural imports for 2007 amounted to $41 billion, a 28 percent increase over the previous year. While Beijing has taken some measures to ease the burden on local farmers by reducing taxes, the imbalance still worries leaders such as President Hu Jintao and Premier Wen Jiabao, who have talked frequently about the need to boost development in rural areas. "The government faces very serious pressure from farmers," says Wang.
Indian Farm Subsidies: A Political Crutch
The pressure is even more acute for the Indian government. While Beijing's leaders have to worry about potential unrest in the countryside, officials in New Delhi have to confront a genuine rural revolt. The Naxalites, a violent Maoist insurgent movement based in rural parts of eastern and central India, have targeted poor farmers for recruiting.
The government has other reasons to be concerned about unhappy farmers. For India's Congress-led coalition, farm subsidies remain a crucial electoral crutch. Nearly 70 percent of the population lives in the countryside and the vast majority of Indians derive their income directly or indirectly from farming, even though agriculture makes up less than a fifth of India's almost trillion-dollar economy. "If the government were to agree to something which will kill our agricultural sector, then their political futures will be finished," says MS Swaminathan, the director of India's National Commision on Farmers, who led the country's green revolution in the 1970s. "Already, agriculture has been neglected in India, and that affects about 700 million people."
In the past decade, as India has embraced reforms that have opened up and revitalized most of the developed sectors, agricultural growth has lagged, even as the rest of the economy grew by 8 percent to 10 percent. On Indian cotton farms, for instance, the cost of reduced subsidies in the form of government price controls has already had disastrous effects. Unable to compete internationally on the cotton market, cotton farmers in central India, the second-biggest cotton producer after China, have spent a decade falling deeper into debt. According to government estimates, more than 160,000 farmers have killed themselves because of those debts. That's prompted the government to announce a $15 billion loan waiver for farmers in its current budget.
Inflation Is Also a Factor
Part of the reason for India's firm stand on protection for its farm sector is the crippling food-price inflation the country is facing. The cost of basic cereals, beans, and lentils has risen 25 percent in the past three years.
Maintaining some kind of stability in its agricultural sector is key to helping tame the nearly 11 percent annual inflation rate that threatens not only the current government, but also decades of meager income and nutritional gains among India's poor, says Karkade Nagraj, an agricultural expert at the Madras Institute for Development Studies. "You can't isolate what happens to Indian farmers because of WTO policies from what is happening in the world economy," he says. "With the crisis on the financial market, a huge amount of money moves to the commodity markets, leading to a commodity bubble. In a condition such as that, if you open up agriculture, then the farmers could gain, but that's not going to sustain anything for a long while."
Preoccupied with their own rural problems, Chinese and Indian policymakers have little sympathy for the US and other countries that subsidize farmers. The Americans, Europeans, and Japanese are "asking weaker countries to dismantle their own protection measures without doing the same in their own countries," says Shi Yinhong, a professor of international relations at People's University in Beijing. "It's a double standard."
India, China Seem Unlikely to Back Down
The misunderstanding can go both ways, though, as people in China and India have inflated ideas about what sacrifices foreign governments can ask of their farmers. "People in developing countries don't fully understand the difficulties of advanced countries," Shi says. "They think rich countries have much more leeway to make [concessions] themselves."
And with the global economy hit by the American downturn, the credit squeeze, and high prices for oil, steel, and food, says Shi, governments on both sides of the debate are worried about risking any bold moves. That means it's even less likely India and China will back down in the current trade dispute.
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Ding, dong Doha is dead, Rick Salutin, August 1.
We're all prisoners of our autobiographies. It determines what we have to offer to each other. I, for instance, felt a sweet little surge of schadenfreude this week when I read that the latest "Doha" round of free-trade talks in Geneva had failed. Free trade does that to me. This fall will be 20 years since the free-trade election of 1988 but it still feels like the most dire Canadian event of my lifetime.
The ongoing tetchiness will seem offensive to some and merely peculiar to other, perhaps younger, readers. Isn't ever freer trade just part of globalization, which is inevitable and mainly a Good Thing? But I'd be inclined to reply that this isn't globalization in any meaningful way. Real globalization is equivalent, more or less, to human history. It started when the species emerged in Africa and began to disperse across the globe. Globalization in the recent usage is narrow and argumentative; it means the primacy of corporate power and profit over all other forms of power: political, national, communal, democratic.
Free-trade skeptics always had to tussle with these language issues, starting with terms like "free" and "global," as deployed by the media. This latest round, for example, was meant to "strengthen the international trading system" (New York Times) and be a "a powerful vote of confidence in globalization" (Guardian). It's hard to object to phrases like that. But the breakdown actually came due to demands by China, India and Indonesia, to protect their farmers from being undercut by highly subsidized U.S. and European products. In a way, it was about selling rice to China. You can debate that but it's hardly a clear case of inevitable progress. I've always felt that a healthy national ag sector is nice to have for purposes of food security, dignity and the qualities farmers add to urbanized societies. Or sheer survival if you're facing mass starvation like, say, Haiti is.
The whole progression began in the 1970s, when corporate profits were drooping due, it was widely claimed, to rising wages built on union power; and to high business taxes that funded social programs, a.k.a. the welfare state. The solution was called globalization: Union and government strength would be sapped by shifting investment and production elsewhere or threatening to. It worked splendidly. Skilled union jobs in manufacturing were destroyed and replaced by crummy service jobs; the work force became flexible, as in scared. The outcome was encapsulated for me by an Ontario worker, a proud union member, when owners warned they'd simply move their factory away, as others had. "Let's just turn around," he said, "drop our pants, let them do what they want, and hope we're still around when it's over." That's my image when I hear "globalization" and it shows that you can't excise your past experiences from your present reactions.
Profits did rise impressively and so did the costs of "externalities" like shattered communities and lives, foreclosed homes, toxic fear and resentment of "others" here and abroad, and vast disparities in wealth, health, life expectancy, etc. Many people did brilliantly. A judge told me recently that law students now expect to make $150,000 to $200,000 shortly after graduating, some of which they need to pay off huge student loans. Whether their orientation is good for our society, or for the law grads themselves, I'll let you consider in line with your own autobiographical expectations. But ex-U.S. senator Ernest Hollings this week, when accused of being a protectionist, said, more or less: Darn right I am. We protect our borders, our streets, our kids and our health. Why wouldn't we protect our jobs and our economy? The senator is 86. He grew up during the Depression and the New Deal. Action ... reaction.
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Shipping Costs Start to Crimp Globalization, Larry Rohter, August 3.
When Tesla Motors, a pioneer in electric-powered cars, set out to make a luxury roadster for the American market, it had the global supply chain in mind. Tesla planned to manufacture 1,000-pound battery packs in Thailand, ship them to Britain for installation, then bring the mostly assembled cars back to the United States.
But when it began production this spring, the company decided to make the batteries and assemble the cars near its home base in California, cutting more than 5,000 miles from the shipping bill for each vehicle.
“It was kind of a no-brain decision for us,” said Darryl Siry, the company’s senior vice president of global sales, marketing and service. “A major reason was to avoid the transportation costs, which are terrible.”
The world economy has become so integrated that shoppers find relatively few T-shirts and sneakers in Wal-Mart and Target carrying a “Made in the U.S.A.” label. But globalization may be losing some of the inexorable economic power it had for much of the past quarter-century, even as it faces fresh challenges as a political ideology.
Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages. Rising concern about global warming, the reaction against lost jobs in rich countries, worries about food safety and security, and the collapse of world trade talks in Geneva last week also signal that political and environmental concerns may make the calculus of globalization far more complex.
“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of “The Shock Doctrine: The Rise of Disaster Capitalism.”
“That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great.”
Many economists argue that globalization will not shift into reverse even if oil prices continue their rising trend. But many see evidence that companies looking to keep prices low will have to move some production closer to consumers. Globe-spanning supply chains — Brazilian iron ore turned into Chinese steel used to make washing machines shipped to Long Beach, Calif., and then trucked to appliance stores in Chicago — make less sense today than they did a few years ago.
To avoid having to ship all its products from abroad, the Swedish furniture manufacturer Ikea opened its first factory in the United States in May. Some electronics companies that left Mexico in recent years for the lower wages in China are now returning to Mexico, because they can lower costs by trucking their output overland to American consumers.
Neighborhood Effect
Decisions like those suggest that what some economists call a neighborhood effect — putting factories closer to components suppliers and to consumers, to reduce transportation costs — could grow in importance if oil remains expensive. A barrel sold for $125 on Friday, compared with lows of $10 a decade ago.
“If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of “The United States and the World Economy” and director of the Peter G. Peterson Institute for International Economics, in Washington. “You could have a very significant shock to traditional consumption patterns and also some important growth effects.”
The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.
The study, published in May by the Canadian investment bank CIBC World Markets, calculates that the recent surge in shipping costs is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”
The spike in shipping costs comes at a moment when concern about the environmental impact of globalization is also growing. Many companies have in recent years shifted production from countries with greater energy efficiency and more rigorous standards on carbon emissions, especially in Europe, to those that are more lax, like China and India.
But if the international community fulfills its pledge to negotiate a successor to the Kyoto Protocol to combat climate change, even China and India would have to reduce the growth of their emissions, and the relative costs of production in countries that use energy inefficiently could grow.
The political landscape may also be changing. Dissatisfaction with globalization has led to the election of governments in Latin America hostile to the process. A somewhat similar reaction can be seen in the United States, where both Senators Barack Obama and Hillary Rodham Clinton promised during the Democratic primary season to “re-evaluate” the nation’s existing free trade agreements.
Last week, efforts to complete what is known as the Doha round of trade talks collapsed in acrimony, dealing a serious blow to tariff reduction. The negotiations, begun in 2001, failed after China and India battled the United States over agricultural tariffs, with the two developing countries insisting on broad rights to protect themselves against surges of food imports that could hurt their farmers.
Some critics of globalization are encouraged by those developments, which they see as a welcome check on the process. On environmentalist blogs, some are even gleefully promoting a “globalization death watch.”
Many leading economists say such predictions are probably overblown. “It would be a mistake, a misinterpretation, to think that a huge rollback or reversal of fundamental trends is under way,” said Jeffrey D. Sachs, director of the Earth Institute at Columbia University. “Distance and trade costs do matter, but we are still in a globalized era.”
As economists and business executives well know, shipping costs are only one factor in determining the flow of international trade. When companies decide where to invest in a new factory or from whom to buy a product, they also take into account exchange rates, consumer confidence, labor costs, government regulations and the availability of skilled managers.
‘People Were Profligate’
What may be coming to an end are price-driven oddities like chicken and fish crossing the ocean from the Western Hemisphere to be filleted and packaged in Asia not to be consumed there, but to be shipped back across the Pacific again. “Because of low costs, people were profligate,” said Nayan Chanda, author of “Bound Together,” a history of globalization.
The industries most likely to be affected by the sharp rise in transportation costs are those producing heavy or bulky goods that are particularly expensive to ship relative to their sale price. Steel is an example. China’s steel exports to the United States are now tumbling by more than 20 percent on a year-over-year basis, their worst performance in a decade, while American steel production has been rising after years of decline. Motors and machinery of all types, car parts, industrial presses, refrigerators, television sets and other home appliances could also be affected.
Plants in industries that require relatively less investment in infrastructure, like furniture, footwear and toys, are already showing signs of mobility as shipping costs rise.
Until recently, standard practice in the furniture industry was to ship American timber from ports like Norfolk, Baltimore and Charleston to China, where oak and cherry would be milled into sofas, beds, tables, cabinets and chairs, which were then shipped back to the United States.
But with transportation costs rising, more wood is now going to traditional domestic furniture-making centers in North Carolina and Virginia, where the industry had all but been wiped out. While the opening of the American Ikea plant, in Danville, Va., a traditional furniture-producing center hit hard by the outsourcing of production to Asia, is perhaps most emblematic of such changes, other manufacturers are also shifting some production back to the United States.
Among them is Craftmaster Furniture, a company founded in North Carolina but now Chinese-owned. And at an industry fair in April, La-Z-Boy announced a new line that will begin production in North Carolina this month.
“There’s just a handful of us left, but it has become easier for us domestic folks to compete,” said Steven Kincaid of Kincaid Furniture in Hudson, N.C., a division of La-Z-Boy.
Avocado Salad in January
Soaring transportation costs also have an impact on food, from bananas to salmon. Higher shipping rates could eventually transform some items now found in the typical middle-class pantry into luxuries and further promote the so-called local food movement popular in many American and European cities.
“This is not just about steel, but also maple syrup and avocados and blueberries at the grocery store,” shipped from places like Chile and South Africa, said Jeff Rubin, chief economist at CIBC World Markets and co-author of its recent study on transport costs and globalization. “Avocado salad in Minneapolis in January is just not going to work in this new world, because flying it in is going to make it cost as much as a rib eye.”
Global companies like General Electric, DuPont, Alcoa and Procter & Gamble are beginning to respond to the simultaneous increases in shipping and environmental costs with green policies meant to reduce both fuel consumption and carbon emissions. That pressure is likely to increase as both manufacturers and retailers seek ways to tighten the global supply chain.
“Being green is in their best interests not so much in making money as saving money,” said Gary Yohe, an environmental economist at Wesleyan University. “Green companies are likely to be a permanent trend, as these vulnerabilities continue, but it’s going to take a long time for all this to settle down.”
In addition, the sharp increase in transportation costs has implications for the “just-in-time” system pioneered in Japan and later adopted the world over. It is a highly profitable business strategy aimed at reducing warehousing and inventory costs by arranging for raw materials and other supplies to arrive only when needed, and not before.
Jeffrey E. Garten, the author of “World View: Global Strategies for the New Economy” and a former dean of the Yale School of Management, said that companies “cannot take a risk that the just-in-time system won’t function, because the whole global trading system is based on that notion.” As a result, he said, “they are going to have to have redundancies in the supply chain, like more warehousing and multiple sources of supply and even production.”
One likely outcome if transportation rates stay high, economists said, would be a strengthening of the neighborhood effect. Instead of seeking supplies wherever they can be bought most cheaply, regardless of location, and outsourcing the assembly of products all over the world, manufacturers would instead concentrate on performing those activities as close to home as possible.
In a more regionalized trading world, economists say, China would probably end up buying more of the iron ore it needs from Australia and less from Brazil, and farming out an even greater proportion of its manufacturing work to places like Vietnam and Thailand. Similarly, Mexico’s maquiladora sector, the assembly plants concentrated near its border with the United States, would become more attractive to manufacturers with an eye on the American market.
But a trend toward regionalization would not necessarily benefit the United States, economists caution. Not only has it lost some of its manufacturing base and skills over the past quarter-century, and experienced a decline in consumer confidence as part of the current slowdown, but it is also far from the economies that have become the most dynamic in the world, those of Asia.
“Despite everything, the American economy is still the biggest Rottweiler on the block,” said Jagdish N. Bhagwati, the author of “In Defense of Globalization” and a professor of economics at Columbia. “But if it’s expensive to get products from there to here, it’s also expensive to get them from here to there.”
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The Fragmented Future of World Trade, Alexander Neubacher, Aug 5.
The idea was to create a unified trade regime for the entire globe. But with WTO talks failing last week, the future of trade looks much more fragmented. Myriad bilateral agreements are on the horizon -- and bitter trade wars are likely.
The day after the World Trade Organization (WTO) talks collapsed amid squabbling last Tuesday, with the limousines already lined up along Geneva's lakeside promenade, the participants to the conference suddenly appeared to have found agreement after all -- at least when it came to their choice of words.
Indonesian Minister of Trade Mari Elka Pangestu said that she was "deeply disappointed." Kamal Nath, the Indian industry minister, also expressed his "deep disappointment." And when US Trade Representative Susan Schwab spoke of a "very disappointing turn of events," European Trade Commissioner and avowed cynic Peter Mandelson couldn't help but echo the general sense of official mourning over the conference. It was "heart-breaking," Mandelson said of the meeting's outcome.
This collective melancholy is certainly appropriate. For nine days, the senior representatives of 153 countries attempted in vain to agree on a new set of rules and regulations to govern international trade. The ultimate failure last week of this most recent effort, may mark the end of mankind's dream of a world without borders and customs barriers.
Confusing Meshwork of Bilateral Agreements
Now, it is unclear whether the talks, which began in the fall of 2001 in Doha, the capital of Qatar, will be continued at all. A senior member of the German delegation summed up the prevailing mood as "over and done with." Pascal Lamy, WTO Director General, was hardly more upbeat. "We will need to let the dust settle a bit," said Lamy, whose term ends next year. "WTO members will need to have a sober look at if and how they bring the pieces back together."
Experts fear that, instead of a uniform body of rules and regulations, what will now emerge is a confusing meshwork of bilateral trade agreements -- to the detriment of consumers and the poorest countries of the developing world.
Ironically, it was a relatively petty argument between Indian chief negotiator Nath and his US counterpart Schwab that led to the fracture. The two delegates were fundamentally in agreement that India should allow more US-produced beef and seed into the country. The only point of contention was how much more.
But the two negotiators were placed under too much pressure from the home front. The United States is in the middle of an election campaign. And India's trade minister had to fly home for a short time during the negotiations to fend off a motion of no confidence against the government.
Still, the real reason for the failed negotiations runs deeper. Concerns about globalization have become greater than the hopes it engenders, even in the industrialized nations and the successful emerging economies. Lamy is now referring to last Tuesday's debacle a "collective failure."
Forcing Others to Make Concessions
The roots of the problem lie in the prevailing ascendancy of national egotism and territorialism. Even the representatives of the European Union were incapable of agreeing on a common position. Theoretically, all countries are in favor of reducing trade barriers. But in practice countries are more interested in reducing the barriers of other countries, not their own. The game is that of forcing others to make concessions without having to make any sacrifices yourself.
The United States, for example, wants to sell its agricultural products to the rising economies of India and China, and to do so with as few barriers as possible. But at the same time the Americans refuse to drastically reduce subsidies to their own farmers and, for example, to permit increases in the importation of cotton from countries like Burkina Faso and other West African nations.
Brazil likes to pose as an advocate of the poor and especially of vulnerable developing countries, but in reality has long been one of the world's biggest exporters of agricultural products. Japan wants to supply the entire world with its cars, but closes its borders to rice imports. And the supposedly progressive European Union imposes a duty of €176 ($273) on every ton of bananas coming into the EU -- unless they come from countries colonized by Europe in the past. The result is a de-facto penalty for those countries that were never victims of colonization.
In fact, it was EU representatives who fuelled one of the most grotesque disputes at the recent round of WTO talks. The issue was cold cuts. Italian makers of the original Parma ham are upset by the fact that meat factories abroad use their regional designation for ordinary ham from the United States. Some Italian negotiators called for an immediate ban on such brand name piracy.
Some Europeans were strongly in favor of the Italian effort. French red wine lobbyists were quickly won over. The Hungarians also spontaneously joined the anti-WTO movement. Other delegates attempted, in vain, to point out to their counterparts that the Italian shoe industry would suffer the most if the negotiations failed.
Death of a Grand Idea
In the end, even the Germans failed to muster the necessary enthusiasm for further liberalization. Minister of Agriculture Horst Seehofer, a member of the conservative Christian Social Union (CSU), is in the middle of Bavarian state parliamentary elections and wants the support of Bavarian farmers, who tend to oppose the lowering of trade barriers.
The result is the death of a grand idea. After the terrorist attacks of Sept. 11, 2001, many gravitated to the idea of opening up the markets of industrialized nations to underdeveloped countries as a way of mollifying the anger of their dissatisfied citizenries. Now, the true price of the failure will only begin to become clear in the fall. China and the United States, in particular, as well as some representatives of the EU, have quietly expected the global trade talks to fail for some time -- and they are now dusting off plan B. In the coming months, experts expect to see a sharp increase in the number of bilateral negotiations aimed at setting up mini trade alliances.
Officially the EU looks askance at such a strategy. And last week the German government insisted, once again, that bilateral agreements are not an alternative. But the reality is that concrete preparations are already underway.
By this fall, the EU could very well have signed a free trade agreement with South Korea and another agreement with the Gulf states. Many of the details have already been agreed upon. For instance, the only unresolved issue with South Korea is whether the import duty for cars should be eliminated immediately or reduced gradually.
The Europeans would have preferred a negotiated solution under the auspices of the WTO conference. But now they see themselves forces to accept an abbreviated version.
Because the Americans and, in particular, the Chinese are developing regional alliances, some fear that the EU could be excluded from increasingly important markets in Indonesia, Thailand and Malaysia. Japan has already entered into a partnership agreement with the Association of Southeast Asian Nations (ASEAN).
No Cathedral, No Monastery
Of course, the bilateral agreements are of little use to the world economy. On the contrary, trade privileges for some are detrimental to others. And bureaucracy becomes even more difficult to negotiate. Managers of companies dependent on exports have long been irritated by the myriad regulations, standards and forms they are required to observe.
The countries most in need of economic recovery are also negatively affected. The weaker a country is economically, the less leverage it has in bilateral negotiations. But even the industrialized nations face hard times ahead. The collapse of the WTO talks means an end to the trade-war truce agreed to by countries around the world. Experts anticipate that the current conflicts between aviation giants Boeing and Airbus could now lead to a trade war between the United States and Europe.
"We wanted to build a cathedral," said one disappointed German delegate as he was leaving Geneva last week. "Instead, we didn't even manage to erect a monastery."
Translated from the German by Christopher Sultan
Grêmio Recreativo e Cultural Escola de Samba Vai-Vai, Musa Valquíria Ribeiro, Rainha de Bateria e Musa do Caldeirão e Princesa da Corte Renata Souza, Bailarina e Rainha da Bateria Ivi Mesquita:
Tati Lira, Diva Persi, Ivi Mesquita são dançarinas da Pacha, a maior balada de eletrônico do Brasil.
Down.
Agricultural subsidies. Ai ai ai! Item 2 is also about 'subsidies', oil subsidies but what the hay?!
I love it when they say 'serious concern' eh? Billions and tens-of-billions on beaurocrat palaver & pundit jizz.
(Did you see the purple parasol in the first picture? :-) If not, you missed the point.)
"Profits did rise impressively and so did the costs of "externalities" like shattered communities and lives, foreclosed homes, toxic fear and resentment of "others" here and abroad, and vast disparities in wealth, health, life expectancy, etc." Rick Salutin, below.
Amen, Rick.
A few words in German to remember:
Klimawandel = Climate Change
Erderwärmung = Global Warming.
A decent on-line English<->German dictionary: LEO Dictionary GmbH.
1. After 7 Years, Talks on Trade Collapse, NYT, July 30.
2. Oil hike sparks 'serious concern', BBC, June 7.
3. After Doha - Seeking a trade deal, Globe, July 31.
4. Trade Talk Collapse - Why India and China Said No to US, Spiegel, July 31.
5. Ding, dong Doha is dead, Rick Salutin, August 1.
6. Shipping Costs Start to Crimp Globalization, Larry Rohter, August 3.
7. The Fragmented Future of World Trade, Alexander Neubacher, August 5.
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After 7 Years, Talks on Trade Collapse, Stephen Castle & Mark Landler, July 30.
GENEVA — World trade talks collapsed here on Tuesday after seven years of on-again, off-again negotiations, in the latest sign of India’s and China’s growing might on the world stage and the decreasing ability of the United States to impose its will globally.
Pascal Lamy, director general of the World Trade Organization, could not bridge differences between a group of newly confident developing nations and established Western economic powers. In the end, too few of the real power brokers proved committed enough to make compromises necessary to deliver a deal.
The failure appeared to end, for the near term at least, any hopes of a global deal to further open markets, cut farm subsidies and strengthen the international trading system.
“It is a massive blow to confidence in the global economy,” said Peter Power, spokesman for the European Commission. “The confidence shot in the arm that we needed badly will not now happen.”
After nine consecutive days of high-level talks, discussions reached an impasse when the United States, India and China refused to compromise over measures to protect farmers in developing countries from greater liberalization of trade.
Supporters of the so-called Doha round of talks, which began in 2001, say a deal would have been a bulwark against protectionist sentiments that are likely to spread as economic growth falters in much of the world.
The failure also delivers a blow to the credibility of the World Trade Organization, which sets and enforces the rules of international commerce. It could set back efforts to work out other multilateral agreements, including those intended to reduce the threat of global warming.
The collapse of the talks will not bring an end to world trade, of course, which will continue under current agreements, many of which are between two or more countries rather than under the W.T.O.
But it is a big setback, particularly to the hopes of smaller and poorer developing countries, which were counting on gaining greater access to consumers in the United States, Europe and Japan.
Economists and trade experts predicted that negotiators, having come this close, might not find the conditions for a broad deal among the 153 members of the trade organization for years, if ever again.
Deep skepticism about the advantages of free trade was on vivid display during the Democratic primaries and it is growing in Europe, particularly as France, Italy and other countries have fallen into an American-style economic malaise.
“It’s important to move forward when the world is in a slowdown and is tempted to think of protectionism rather than opening up,” said Norbert Walter, the chief economist at Deutsche Bank.
He said soaring food prices provided another rare opportunity for a deal, since European and American farmers are prospering. It may never be easier to reduce farm subsidies, one of the most delicate issues in trade talks.
“The feeling went from ‘Who cares?’ to a surge of excitement and sense of breakthrough to ‘Oh, no, not again,’ ” said Rory Macrae, a partner at GPlus Europe, a communications consulting firm in Brussels, who was on the sidelines of the negotiations in Geneva.
He said the sticking point this time was countries like China and India, which have become more aggressive in advancing their interests. “Maybe they’re now thinking, ‘We’re big enough that we don’t even need the process,’ ” Mr. Macrae said.
Like the United States and Europe, he said, China and India might find it more advantageous to negotiate bilateral agreements in which they can apply more pressure on a single trading partner.
On Tuesday night, ministers were still discussing whether any of the agreements reached in principle could be salvaged.
But there seemed little prospect for that any time soon, in part because the presidential campaign in the United States will make it all but impossible for Washington to take part until a new administration takes over.
Talks foundered on the right of India and other developing nations to protect sensitive agricultural products from competition in the event of a surge of imports that would make their own farmers less competitive. The United States argued that such protection, which is not permitted now, would mean moving backward on current world trade commitments.
Mari Elka Pangestu, the Indonesian trade minister, said the failure of the talks reflected the inability of the rich industrial powers to deal with the growing influence of China, India and Brazil in the global economy.
She complained that what she called “a reasonable request” had been blocked because the United States “is not going to show flexibility.”
Susan C. Schwab, the United States trade representative, challenged assertions by some developing countries that the United States had been the chief obstacle to sewing up the deal. She added, “The U.S. commitments remain on the table, awaiting reciprocal responses.”
She said, “It is unconscionable that we could have come out with an outcome that rolled the global trading system back not by one year or 5 years but by 30 years.”
Ms. Schwab said it would be possible to help developing nations address surges in imports in ways that could not “be used as a tool of blatant protectionism.”
One official said that the relatively technical nature of the cause of the breakdown underlined a lack of political will to reach an agreement that would be a tough sell to voters in many countries.
The Indian trade minister, Kamal Nath, in a briefing with reporters, said he was “very disappointed” but that developing countries were “deeply concerned about issues which affected poor and subsistence farmers.”
Washington’s negotiating team was also under pressure from the country’s powerful farm lobby, and the European Union was under pressure from its own.
Lourdes Catrain, a trade partner at the law firm Hogan & Hartson, said the real danger created by failure after getting so close was “that the seven years of hard negotiations will be lost and there will be no guarantees on the starting point of a future round.”
The proliferation of bilateral deals and the continuing expansion of exports from both developing and developed countries have raised doubts among some Doha skeptics about the necessity of a global agreement. But experts said it was important, particularly as a bulwark against rising protectionist sentiments.
“There are people who argue that no Doha outcome is better than a weak Doha outcome, but I don’t agree,” said Katinka Barysch, the deputy director of the Center for European Reform in London.
Stephen Castle reported from Geneva, and Mark Landler from Frankfurt.
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Oil hike sparks 'serious concern', BBC, June 7.
Oil hike sparks 'serious concern' - some suggest crude could reach $150 a barrel by July.
The US and the four largest economies in Asia are to voice "serious concerns" over "unprecedented" oil prices.
Energy ministers are meeting in Japan a day after a record one-day jump in the crude oil price, to $139 a barrel.
Under pressure from the US, Japan, China, India and South Korea have agreed on the need to end fuel subsidies, blamed for boosting demand.
But correspondents say there are major differences over the speed and extent to which the changes should be made.
The soaring cost of oil is causing growing strain to economies around the world, with some governments facing protests and other pressures from consumers and businesses.
Both the Indian and Malaysian governments have recently raised fuel prices in order to cut the subsidies they provide.
Officials and ministers from the Group of Eight (G8) key industrialised nations, as well as China, India and South Korea, are meeting for two days in the northern city of Aomori.
In a statement to be issued after the talks, the US and Asian countries are expected to say rising oil prices pose a great burden, especially on developing countries and are "against the interest of both consuming and producing countries", news agencies reported.
It will also say that "phased and gradual" withdrawal of price subsidies - blamed by some for fuelling demand in emerging economies - is "desirable", the French news agency AFP said.
But India insisted there was no agreement to remove the subsidies altogether, China made clear it had no time frame for moving towards lower subsidies, and Japan's trade minister confirmed they had agreed only on the need to remove the subsidies, according to the BBC's Chris Hogg, in Tokyo.
'Economic egotism'
Friday's spike in oil prices coincided with a dollar slump, plummeting share prices on Wall Street and US unemployment suffering its biggest rise in 20 years.
"Russia is a global player. We understand our responsibility for the fate of the world and want to participate in forming the rules of the game," Dmitry Medvedev, Russian president.
On Saturday, US energy secretary Samuel Bodman said the price surge was a "shock" but not a crisis, amid fears the oil price spike could help tip some of the world's economies into recession.
He also said he did not see a need for a tightening of regulation of oil markets.
Some say market speculation, and a lack of disclosure of information over the size and nature of reserves, may be stoking the price rises, as well as concerns that demand may be growing faster than supply.
Separately, Russian President Dmitry Medvedev blamed what he termed the US's "economic egotism" for the current problems in the global economy.
He accused the US of "aggressive financial policies" and said most people in the world had become poorer.
Speaking at the St Petersburg International Economic Forum, he said Russia was a "global player" and wished to "participate in forming new rules of the game", but not because of "imperial ambitions".
Iran threat
On Friday light crude set a record high of $139.12 in after-hours trading on the New York Mercantile Exchange after hitting $138.54 at the regular session.
Oil prices were given a boost on a report by Morgan Stanley analyst Ole Slorer, who suggested the price of oil could rocket to $150 as early as July.
Some analysts have suggested that prices would reach as high as $200 a barrel during the next 18 months.
The benchmark light, sweet crude oil is more than twice the price it was a year ago.
On Friday, the market was also responding to a statement by Israel's transport minister that an attack on Iran was "unavoidable" after sanctions to prevent Tehran from developing its nuclear capability had failed.
Investors hedging oil against the weak dollar has also pushed up the price of oil.
Correspondents say fears that workers at Chevron Corporation in Nigeria may go on strike and subsequently disrupt production and access to oil are also adding to market jitters, as well as Israeli threats to strike Iran over its nuclear programme.
Oil prices had recorded losses earlier this week after doubts about future demand took hold of the market.
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After Doha - Seeking a trade deal, Globe Editorial, July 31.
With an agreement so tantalizingly close, it was a major disappointment that the latest round of international trade talks collapsed this week. Delegates at the World Trade Organization meeting in Geneva failed to reach a deal after nine days of discussions, which followed seven years of on-and-off negotiations since the Doha round began in Qatar in 2001.
It is especially unfortunate that the collapse came at a time when the price of food is soaring around the world and many economies are in the doldrums. While the agreement would have taken years to put in place, a successful conclusion would have provided an emotional spark to international trade, even before the real impact was felt. While the full consequences of an agreement are not clear, estimates of the boost to international trade ranged as high as $100-billion.
The goal of the Doha round was fairly straightforward: Europe and the United States were to cut tariffs and subsidies on agricultural products, and in return, key developing countries such as China and India would trim tariffs on manufactured goods. Established countries would get new buyers for their products and, more importantly, the developing world would get better access to wealthy markets.
But in a complex deal with many players at the table, the devil was in the details. Despite the willingness of the Americans and Europeans to make compromises and cut subsidies, they dug in their heels on other concessions. The talks apparently foundered when the Americans refused to go along with the details of a clause that would have allowed poor countries to boost tariffs temporarily, if there was a surge in imports or a rapid change in commodity prices.
It could be years before there is any attempt to breathe new life into the Doha round. In a few months, there will be a new government in the United States, and it will clearly have new policies and priorities, along with a new cast of characters at the negotiating table. There will also be major personnel changes among trade bureaucrats in other countries. This is a significant issue, as negotiators carry around many of the convoluted technical details of the world of trade in their heads.
The Canadians who participated in the Doha process, including Trade Minister Michael Fortier, say they will now turn to negotiating bilateral agreements with individual countries. That is a smart decision, and a first priority should be to get an agreement in place with the European Union. Canada has been a laggard in negotiating trade and investment deals with other countries, and we need to catch up.
But we also must fully support any attempt to restart multilateral talks, as these broad agreements have the potential for the greatest positive impact on the economies of the world. The progress made in the Doha round is certainly worth preserving.
To gain credibility on the international trade scene, Canada must also rethink its position on supply management, our outdated system of marketing boards that provide protection for domestic producers of eggs, poultry and dairy products. It undermines our position when we call for tariff reductions elsewhere but maintain our own protectionist measures.
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Trade Talk Collapse - Why India and China Said No to US, Bruce Einhorn & Mehul Srivastava, July 31.
Trade talks broke down July 29 as India and China refused to bow to US demands on agricultural subsidies.
[Photo - An Indian farmer tills a field: The Indian government is very concerned about unhappy farmers.]
It's not often that China and India find themselves on the same side. They're the world's most populous countries and have two of the fastest-growing economies, but one is ruled by a communist regime, the other by an unruly coalition government. They don't see eye to eye about relations with the US. China has been a longtime supporter of Pakistan, India's bitter rival. And Indians look enviously at China's manufacturing strength, while Chinese want to replicate India's IT services success.
Following the collapse of the latest global trade talks, though, the two Asian giants find themselves in the same boat. The negotiations over the World Trade Organization's Doha Round of trade liberalization came to an inglorious halt July 29 amid disagreements about agricultural subsidies. The US blames what it sees as intransigence on the part of India and China. Other nations are scolding New Delhi and Beijing, too. For instance, rather than concentrating on helping to address global concerns, India and China "focused too much on their own interests," Japan's Chief Cabinet Secretary Nobutaka Machimura told a news conference on July 30.
Rural Unrest Threatens India and China
The criticism may sting, but the two Asian giants aren't likely to succumb to overseas pressure. Both countries enjoy high economic growth, thanks to overseas demand for their manufacturing and outsourcing services. At the same time, Indian and Chinese leaders also have to worry about economic hardship in the countryside, where hundreds of millions of farmers have struggled to compete against imports from the US and other countries.
China, for instance, has been trying to alleviate pain in the countryside for several years. The economy in the country's well-off coastal provinces has boomed, leaving behind rural areas home to some 500 million people. When it comes to competing against American agribusiness, "Chinese household farmers are very weak," says Wang Yong, associate professor and director of Peking University's Center for International Political Economy in Beijing.
Certainly, Chinese farmers are not able to supply all of the country's needs. Imports of soybeans, a staple of the Chinese diet, surged 53 percent last year, to $11.5 billion, according to statistics from China's Agriculture Ministry. Total agricultural imports for 2007 amounted to $41 billion, a 28 percent increase over the previous year. While Beijing has taken some measures to ease the burden on local farmers by reducing taxes, the imbalance still worries leaders such as President Hu Jintao and Premier Wen Jiabao, who have talked frequently about the need to boost development in rural areas. "The government faces very serious pressure from farmers," says Wang.
Indian Farm Subsidies: A Political Crutch
The pressure is even more acute for the Indian government. While Beijing's leaders have to worry about potential unrest in the countryside, officials in New Delhi have to confront a genuine rural revolt. The Naxalites, a violent Maoist insurgent movement based in rural parts of eastern and central India, have targeted poor farmers for recruiting.
The government has other reasons to be concerned about unhappy farmers. For India's Congress-led coalition, farm subsidies remain a crucial electoral crutch. Nearly 70 percent of the population lives in the countryside and the vast majority of Indians derive their income directly or indirectly from farming, even though agriculture makes up less than a fifth of India's almost trillion-dollar economy. "If the government were to agree to something which will kill our agricultural sector, then their political futures will be finished," says MS Swaminathan, the director of India's National Commision on Farmers, who led the country's green revolution in the 1970s. "Already, agriculture has been neglected in India, and that affects about 700 million people."
In the past decade, as India has embraced reforms that have opened up and revitalized most of the developed sectors, agricultural growth has lagged, even as the rest of the economy grew by 8 percent to 10 percent. On Indian cotton farms, for instance, the cost of reduced subsidies in the form of government price controls has already had disastrous effects. Unable to compete internationally on the cotton market, cotton farmers in central India, the second-biggest cotton producer after China, have spent a decade falling deeper into debt. According to government estimates, more than 160,000 farmers have killed themselves because of those debts. That's prompted the government to announce a $15 billion loan waiver for farmers in its current budget.
Inflation Is Also a Factor
Part of the reason for India's firm stand on protection for its farm sector is the crippling food-price inflation the country is facing. The cost of basic cereals, beans, and lentils has risen 25 percent in the past three years.
Maintaining some kind of stability in its agricultural sector is key to helping tame the nearly 11 percent annual inflation rate that threatens not only the current government, but also decades of meager income and nutritional gains among India's poor, says Karkade Nagraj, an agricultural expert at the Madras Institute for Development Studies. "You can't isolate what happens to Indian farmers because of WTO policies from what is happening in the world economy," he says. "With the crisis on the financial market, a huge amount of money moves to the commodity markets, leading to a commodity bubble. In a condition such as that, if you open up agriculture, then the farmers could gain, but that's not going to sustain anything for a long while."
Preoccupied with their own rural problems, Chinese and Indian policymakers have little sympathy for the US and other countries that subsidize farmers. The Americans, Europeans, and Japanese are "asking weaker countries to dismantle their own protection measures without doing the same in their own countries," says Shi Yinhong, a professor of international relations at People's University in Beijing. "It's a double standard."
India, China Seem Unlikely to Back Down
The misunderstanding can go both ways, though, as people in China and India have inflated ideas about what sacrifices foreign governments can ask of their farmers. "People in developing countries don't fully understand the difficulties of advanced countries," Shi says. "They think rich countries have much more leeway to make [concessions] themselves."
And with the global economy hit by the American downturn, the credit squeeze, and high prices for oil, steel, and food, says Shi, governments on both sides of the debate are worried about risking any bold moves. That means it's even less likely India and China will back down in the current trade dispute.
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Ding, dong Doha is dead, Rick Salutin, August 1.
We're all prisoners of our autobiographies. It determines what we have to offer to each other. I, for instance, felt a sweet little surge of schadenfreude this week when I read that the latest "Doha" round of free-trade talks in Geneva had failed. Free trade does that to me. This fall will be 20 years since the free-trade election of 1988 but it still feels like the most dire Canadian event of my lifetime.
The ongoing tetchiness will seem offensive to some and merely peculiar to other, perhaps younger, readers. Isn't ever freer trade just part of globalization, which is inevitable and mainly a Good Thing? But I'd be inclined to reply that this isn't globalization in any meaningful way. Real globalization is equivalent, more or less, to human history. It started when the species emerged in Africa and began to disperse across the globe. Globalization in the recent usage is narrow and argumentative; it means the primacy of corporate power and profit over all other forms of power: political, national, communal, democratic.
Free-trade skeptics always had to tussle with these language issues, starting with terms like "free" and "global," as deployed by the media. This latest round, for example, was meant to "strengthen the international trading system" (New York Times) and be a "a powerful vote of confidence in globalization" (Guardian). It's hard to object to phrases like that. But the breakdown actually came due to demands by China, India and Indonesia, to protect their farmers from being undercut by highly subsidized U.S. and European products. In a way, it was about selling rice to China. You can debate that but it's hardly a clear case of inevitable progress. I've always felt that a healthy national ag sector is nice to have for purposes of food security, dignity and the qualities farmers add to urbanized societies. Or sheer survival if you're facing mass starvation like, say, Haiti is.
The whole progression began in the 1970s, when corporate profits were drooping due, it was widely claimed, to rising wages built on union power; and to high business taxes that funded social programs, a.k.a. the welfare state. The solution was called globalization: Union and government strength would be sapped by shifting investment and production elsewhere or threatening to. It worked splendidly. Skilled union jobs in manufacturing were destroyed and replaced by crummy service jobs; the work force became flexible, as in scared. The outcome was encapsulated for me by an Ontario worker, a proud union member, when owners warned they'd simply move their factory away, as others had. "Let's just turn around," he said, "drop our pants, let them do what they want, and hope we're still around when it's over." That's my image when I hear "globalization" and it shows that you can't excise your past experiences from your present reactions.
Profits did rise impressively and so did the costs of "externalities" like shattered communities and lives, foreclosed homes, toxic fear and resentment of "others" here and abroad, and vast disparities in wealth, health, life expectancy, etc. Many people did brilliantly. A judge told me recently that law students now expect to make $150,000 to $200,000 shortly after graduating, some of which they need to pay off huge student loans. Whether their orientation is good for our society, or for the law grads themselves, I'll let you consider in line with your own autobiographical expectations. But ex-U.S. senator Ernest Hollings this week, when accused of being a protectionist, said, more or less: Darn right I am. We protect our borders, our streets, our kids and our health. Why wouldn't we protect our jobs and our economy? The senator is 86. He grew up during the Depression and the New Deal. Action ... reaction.
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Shipping Costs Start to Crimp Globalization, Larry Rohter, August 3.
When Tesla Motors, a pioneer in electric-powered cars, set out to make a luxury roadster for the American market, it had the global supply chain in mind. Tesla planned to manufacture 1,000-pound battery packs in Thailand, ship them to Britain for installation, then bring the mostly assembled cars back to the United States.
But when it began production this spring, the company decided to make the batteries and assemble the cars near its home base in California, cutting more than 5,000 miles from the shipping bill for each vehicle.
“It was kind of a no-brain decision for us,” said Darryl Siry, the company’s senior vice president of global sales, marketing and service. “A major reason was to avoid the transportation costs, which are terrible.”
The world economy has become so integrated that shoppers find relatively few T-shirts and sneakers in Wal-Mart and Target carrying a “Made in the U.S.A.” label. But globalization may be losing some of the inexorable economic power it had for much of the past quarter-century, even as it faces fresh challenges as a political ideology.
Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages. Rising concern about global warming, the reaction against lost jobs in rich countries, worries about food safety and security, and the collapse of world trade talks in Geneva last week also signal that political and environmental concerns may make the calculus of globalization far more complex.
“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of “The Shock Doctrine: The Rise of Disaster Capitalism.”
“That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great.”
Many economists argue that globalization will not shift into reverse even if oil prices continue their rising trend. But many see evidence that companies looking to keep prices low will have to move some production closer to consumers. Globe-spanning supply chains — Brazilian iron ore turned into Chinese steel used to make washing machines shipped to Long Beach, Calif., and then trucked to appliance stores in Chicago — make less sense today than they did a few years ago.
To avoid having to ship all its products from abroad, the Swedish furniture manufacturer Ikea opened its first factory in the United States in May. Some electronics companies that left Mexico in recent years for the lower wages in China are now returning to Mexico, because they can lower costs by trucking their output overland to American consumers.
Neighborhood Effect
Decisions like those suggest that what some economists call a neighborhood effect — putting factories closer to components suppliers and to consumers, to reduce transportation costs — could grow in importance if oil remains expensive. A barrel sold for $125 on Friday, compared with lows of $10 a decade ago.
“If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of “The United States and the World Economy” and director of the Peter G. Peterson Institute for International Economics, in Washington. “You could have a very significant shock to traditional consumption patterns and also some important growth effects.”
The cost of shipping a 40-foot container from Shanghai to the United States has risen to $8,000, compared with $3,000 early in the decade, according to a recent study of transportation costs. Big container ships, the pack mules of the 21st-century economy, have shaved their top speed by nearly 20 percent to save on fuel costs, substantially slowing shipping times.
The study, published in May by the Canadian investment bank CIBC World Markets, calculates that the recent surge in shipping costs is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”
The spike in shipping costs comes at a moment when concern about the environmental impact of globalization is also growing. Many companies have in recent years shifted production from countries with greater energy efficiency and more rigorous standards on carbon emissions, especially in Europe, to those that are more lax, like China and India.
But if the international community fulfills its pledge to negotiate a successor to the Kyoto Protocol to combat climate change, even China and India would have to reduce the growth of their emissions, and the relative costs of production in countries that use energy inefficiently could grow.
The political landscape may also be changing. Dissatisfaction with globalization has led to the election of governments in Latin America hostile to the process. A somewhat similar reaction can be seen in the United States, where both Senators Barack Obama and Hillary Rodham Clinton promised during the Democratic primary season to “re-evaluate” the nation’s existing free trade agreements.
Last week, efforts to complete what is known as the Doha round of trade talks collapsed in acrimony, dealing a serious blow to tariff reduction. The negotiations, begun in 2001, failed after China and India battled the United States over agricultural tariffs, with the two developing countries insisting on broad rights to protect themselves against surges of food imports that could hurt their farmers.
Some critics of globalization are encouraged by those developments, which they see as a welcome check on the process. On environmentalist blogs, some are even gleefully promoting a “globalization death watch.”
Many leading economists say such predictions are probably overblown. “It would be a mistake, a misinterpretation, to think that a huge rollback or reversal of fundamental trends is under way,” said Jeffrey D. Sachs, director of the Earth Institute at Columbia University. “Distance and trade costs do matter, but we are still in a globalized era.”
As economists and business executives well know, shipping costs are only one factor in determining the flow of international trade. When companies decide where to invest in a new factory or from whom to buy a product, they also take into account exchange rates, consumer confidence, labor costs, government regulations and the availability of skilled managers.
‘People Were Profligate’
What may be coming to an end are price-driven oddities like chicken and fish crossing the ocean from the Western Hemisphere to be filleted and packaged in Asia not to be consumed there, but to be shipped back across the Pacific again. “Because of low costs, people were profligate,” said Nayan Chanda, author of “Bound Together,” a history of globalization.
The industries most likely to be affected by the sharp rise in transportation costs are those producing heavy or bulky goods that are particularly expensive to ship relative to their sale price. Steel is an example. China’s steel exports to the United States are now tumbling by more than 20 percent on a year-over-year basis, their worst performance in a decade, while American steel production has been rising after years of decline. Motors and machinery of all types, car parts, industrial presses, refrigerators, television sets and other home appliances could also be affected.
Plants in industries that require relatively less investment in infrastructure, like furniture, footwear and toys, are already showing signs of mobility as shipping costs rise.
Until recently, standard practice in the furniture industry was to ship American timber from ports like Norfolk, Baltimore and Charleston to China, where oak and cherry would be milled into sofas, beds, tables, cabinets and chairs, which were then shipped back to the United States.
But with transportation costs rising, more wood is now going to traditional domestic furniture-making centers in North Carolina and Virginia, where the industry had all but been wiped out. While the opening of the American Ikea plant, in Danville, Va., a traditional furniture-producing center hit hard by the outsourcing of production to Asia, is perhaps most emblematic of such changes, other manufacturers are also shifting some production back to the United States.
Among them is Craftmaster Furniture, a company founded in North Carolina but now Chinese-owned. And at an industry fair in April, La-Z-Boy announced a new line that will begin production in North Carolina this month.
“There’s just a handful of us left, but it has become easier for us domestic folks to compete,” said Steven Kincaid of Kincaid Furniture in Hudson, N.C., a division of La-Z-Boy.
Avocado Salad in January
Soaring transportation costs also have an impact on food, from bananas to salmon. Higher shipping rates could eventually transform some items now found in the typical middle-class pantry into luxuries and further promote the so-called local food movement popular in many American and European cities.
“This is not just about steel, but also maple syrup and avocados and blueberries at the grocery store,” shipped from places like Chile and South Africa, said Jeff Rubin, chief economist at CIBC World Markets and co-author of its recent study on transport costs and globalization. “Avocado salad in Minneapolis in January is just not going to work in this new world, because flying it in is going to make it cost as much as a rib eye.”
Global companies like General Electric, DuPont, Alcoa and Procter & Gamble are beginning to respond to the simultaneous increases in shipping and environmental costs with green policies meant to reduce both fuel consumption and carbon emissions. That pressure is likely to increase as both manufacturers and retailers seek ways to tighten the global supply chain.
“Being green is in their best interests not so much in making money as saving money,” said Gary Yohe, an environmental economist at Wesleyan University. “Green companies are likely to be a permanent trend, as these vulnerabilities continue, but it’s going to take a long time for all this to settle down.”
In addition, the sharp increase in transportation costs has implications for the “just-in-time” system pioneered in Japan and later adopted the world over. It is a highly profitable business strategy aimed at reducing warehousing and inventory costs by arranging for raw materials and other supplies to arrive only when needed, and not before.
Jeffrey E. Garten, the author of “World View: Global Strategies for the New Economy” and a former dean of the Yale School of Management, said that companies “cannot take a risk that the just-in-time system won’t function, because the whole global trading system is based on that notion.” As a result, he said, “they are going to have to have redundancies in the supply chain, like more warehousing and multiple sources of supply and even production.”
One likely outcome if transportation rates stay high, economists said, would be a strengthening of the neighborhood effect. Instead of seeking supplies wherever they can be bought most cheaply, regardless of location, and outsourcing the assembly of products all over the world, manufacturers would instead concentrate on performing those activities as close to home as possible.
In a more regionalized trading world, economists say, China would probably end up buying more of the iron ore it needs from Australia and less from Brazil, and farming out an even greater proportion of its manufacturing work to places like Vietnam and Thailand. Similarly, Mexico’s maquiladora sector, the assembly plants concentrated near its border with the United States, would become more attractive to manufacturers with an eye on the American market.
But a trend toward regionalization would not necessarily benefit the United States, economists caution. Not only has it lost some of its manufacturing base and skills over the past quarter-century, and experienced a decline in consumer confidence as part of the current slowdown, but it is also far from the economies that have become the most dynamic in the world, those of Asia.
“Despite everything, the American economy is still the biggest Rottweiler on the block,” said Jagdish N. Bhagwati, the author of “In Defense of Globalization” and a professor of economics at Columbia. “But if it’s expensive to get products from there to here, it’s also expensive to get them from here to there.”
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The Fragmented Future of World Trade, Alexander Neubacher, Aug 5.
The idea was to create a unified trade regime for the entire globe. But with WTO talks failing last week, the future of trade looks much more fragmented. Myriad bilateral agreements are on the horizon -- and bitter trade wars are likely.
The day after the World Trade Organization (WTO) talks collapsed amid squabbling last Tuesday, with the limousines already lined up along Geneva's lakeside promenade, the participants to the conference suddenly appeared to have found agreement after all -- at least when it came to their choice of words.
Indonesian Minister of Trade Mari Elka Pangestu said that she was "deeply disappointed." Kamal Nath, the Indian industry minister, also expressed his "deep disappointment." And when US Trade Representative Susan Schwab spoke of a "very disappointing turn of events," European Trade Commissioner and avowed cynic Peter Mandelson couldn't help but echo the general sense of official mourning over the conference. It was "heart-breaking," Mandelson said of the meeting's outcome.
This collective melancholy is certainly appropriate. For nine days, the senior representatives of 153 countries attempted in vain to agree on a new set of rules and regulations to govern international trade. The ultimate failure last week of this most recent effort, may mark the end of mankind's dream of a world without borders and customs barriers.
Confusing Meshwork of Bilateral Agreements
Now, it is unclear whether the talks, which began in the fall of 2001 in Doha, the capital of Qatar, will be continued at all. A senior member of the German delegation summed up the prevailing mood as "over and done with." Pascal Lamy, WTO Director General, was hardly more upbeat. "We will need to let the dust settle a bit," said Lamy, whose term ends next year. "WTO members will need to have a sober look at if and how they bring the pieces back together."
Experts fear that, instead of a uniform body of rules and regulations, what will now emerge is a confusing meshwork of bilateral trade agreements -- to the detriment of consumers and the poorest countries of the developing world.
Ironically, it was a relatively petty argument between Indian chief negotiator Nath and his US counterpart Schwab that led to the fracture. The two delegates were fundamentally in agreement that India should allow more US-produced beef and seed into the country. The only point of contention was how much more.
But the two negotiators were placed under too much pressure from the home front. The United States is in the middle of an election campaign. And India's trade minister had to fly home for a short time during the negotiations to fend off a motion of no confidence against the government.
Still, the real reason for the failed negotiations runs deeper. Concerns about globalization have become greater than the hopes it engenders, even in the industrialized nations and the successful emerging economies. Lamy is now referring to last Tuesday's debacle a "collective failure."
Forcing Others to Make Concessions
The roots of the problem lie in the prevailing ascendancy of national egotism and territorialism. Even the representatives of the European Union were incapable of agreeing on a common position. Theoretically, all countries are in favor of reducing trade barriers. But in practice countries are more interested in reducing the barriers of other countries, not their own. The game is that of forcing others to make concessions without having to make any sacrifices yourself.
The United States, for example, wants to sell its agricultural products to the rising economies of India and China, and to do so with as few barriers as possible. But at the same time the Americans refuse to drastically reduce subsidies to their own farmers and, for example, to permit increases in the importation of cotton from countries like Burkina Faso and other West African nations.
Brazil likes to pose as an advocate of the poor and especially of vulnerable developing countries, but in reality has long been one of the world's biggest exporters of agricultural products. Japan wants to supply the entire world with its cars, but closes its borders to rice imports. And the supposedly progressive European Union imposes a duty of €176 ($273) on every ton of bananas coming into the EU -- unless they come from countries colonized by Europe in the past. The result is a de-facto penalty for those countries that were never victims of colonization.
In fact, it was EU representatives who fuelled one of the most grotesque disputes at the recent round of WTO talks. The issue was cold cuts. Italian makers of the original Parma ham are upset by the fact that meat factories abroad use their regional designation for ordinary ham from the United States. Some Italian negotiators called for an immediate ban on such brand name piracy.
Some Europeans were strongly in favor of the Italian effort. French red wine lobbyists were quickly won over. The Hungarians also spontaneously joined the anti-WTO movement. Other delegates attempted, in vain, to point out to their counterparts that the Italian shoe industry would suffer the most if the negotiations failed.
Death of a Grand Idea
In the end, even the Germans failed to muster the necessary enthusiasm for further liberalization. Minister of Agriculture Horst Seehofer, a member of the conservative Christian Social Union (CSU), is in the middle of Bavarian state parliamentary elections and wants the support of Bavarian farmers, who tend to oppose the lowering of trade barriers.
The result is the death of a grand idea. After the terrorist attacks of Sept. 11, 2001, many gravitated to the idea of opening up the markets of industrialized nations to underdeveloped countries as a way of mollifying the anger of their dissatisfied citizenries. Now, the true price of the failure will only begin to become clear in the fall. China and the United States, in particular, as well as some representatives of the EU, have quietly expected the global trade talks to fail for some time -- and they are now dusting off plan B. In the coming months, experts expect to see a sharp increase in the number of bilateral negotiations aimed at setting up mini trade alliances.
Officially the EU looks askance at such a strategy. And last week the German government insisted, once again, that bilateral agreements are not an alternative. But the reality is that concrete preparations are already underway.
By this fall, the EU could very well have signed a free trade agreement with South Korea and another agreement with the Gulf states. Many of the details have already been agreed upon. For instance, the only unresolved issue with South Korea is whether the import duty for cars should be eliminated immediately or reduced gradually.
The Europeans would have preferred a negotiated solution under the auspices of the WTO conference. But now they see themselves forces to accept an abbreviated version.
Because the Americans and, in particular, the Chinese are developing regional alliances, some fear that the EU could be excluded from increasingly important markets in Indonesia, Thailand and Malaysia. Japan has already entered into a partnership agreement with the Association of Southeast Asian Nations (ASEAN).
No Cathedral, No Monastery
Of course, the bilateral agreements are of little use to the world economy. On the contrary, trade privileges for some are detrimental to others. And bureaucracy becomes even more difficult to negotiate. Managers of companies dependent on exports have long been irritated by the myriad regulations, standards and forms they are required to observe.
The countries most in need of economic recovery are also negatively affected. The weaker a country is economically, the less leverage it has in bilateral negotiations. But even the industrialized nations face hard times ahead. The collapse of the WTO talks means an end to the trade-war truce agreed to by countries around the world. Experts anticipate that the current conflicts between aviation giants Boeing and Airbus could now lead to a trade war between the United States and Europe.
"We wanted to build a cathedral," said one disappointed German delegate as he was leaving Geneva last week. "Instead, we didn't even manage to erect a monastery."
Translated from the German by Christopher Sultan
Grêmio Recreativo e Cultural Escola de Samba Vai-Vai, Musa Valquíria Ribeiro, Rainha de Bateria e Musa do Caldeirão e Princesa da Corte Renata Souza, Bailarina e Rainha da Bateria Ivi Mesquita:
Tati Lira, Diva Persi, Ivi Mesquita são dançarinas da Pacha, a maior balada de eletrônico do Brasil.
Down.
