International Business Brief

1

International Business Brief Julian Grebe INTST 150 – International Business Bellevue College Fall 2009

2

Julian Grebe International Business 150 12/10/09

from the April 02, 2009 edition - http://www.csmonitor.com/2009/0402/p06s01-woam.html

As G-20 battles protectionism, a cautionary tale in Ecuador The country has put steep tariffs on an array of goods. Seventeen of the world's 20 largest economies have broken recent promises not to take protectionist measures. By Sara Miller Llana | Staff writer of The Christian Science Monitor Quito, Ecuador Lucia Espinoza walks through an aisle of her local supermarket in Quito with her one-year-old daughter slung on her hip, perusing the shelf of shampoo bottles. She eyes Johnson & Johnson, but then chooses a brand with a label that reads "Ecuador First": It is half the price. "They shouldn't force us to buy products just because they are national," says Ms. Espinoza, shaking her head. "It's not always the best quality." Her complaint centers on her country's reply to the global financial crisis – steep new tariffs on some 630 imports, from cellphones to soap, which have effectively put anything but Ecuadorianmade goods out of reach for the nation's consumers. The policy, which President Rafael Correa says is necessary to safeguard the Ecuadorian economy, is believed to be the world's most protectionist response since the financial crisis unfolded. "Ecuador is really the outlier here, it's been the most enthusiastic," says Gary Hufbauer, a trade policy expert at the Peterson Institute for International Economics in Washington. "From what I've heard, it's been the most dramatic example of protectionism." Guidelines to prevent such barriers from going up are a centerpiece of the Group of 20 summit today in London. But it will be no easy task. While Ecuador's policy stands as a dramatic example, governments around the globe have put in place nearly 100 such measures since August, says Mr. Hufbauer. The World Trade Organization estimates that the volume of global trade will shrink by 9 percent this year – the largest contraction since World War II. And if the recession continues to deepen,

3

Julian Grebe International Business 150 12/10/09 the political pressures on governments to prop up their domestic markets will only grow. "Up to now, there have not been major [protectionist] policy decisions by governments.… [T]here is a powerful lesson from the 1930s, and we don't want to go there," says Edward Gresser, trade director at the Progressive Policy Institute in Washington. "But I think there is a pretty widely held feeling that if a major country decided to begin closing its markets, others might quickly follow. You'd get a quick chain reaction." That is why analysts say the G-20 members will have to take a firm stance that goes beyond simple pledges to promote free trade. According to the World Bank, of the world's 20 largest economies, 17 have applied some type of protectionist rule, such as dairy subsidies in Europe, since explicitly promising not to do so during their last meeting in November. No action has been overly dramatic, says Hufbauer, but can quickly add up, particularly if things worsen. Hufbauer says he feels hopeful that stronger commitment will be taken Thursday because of draft language that was published in the British media. He says ideas include condemning policies that are protectionist even if they are permissible under WTO guidelines, as well as putting in place a surveillance mechanism to ensure that countries fulfill their obligations. "You can have all these declarations but then don't have any follow-up," he says. "This would be stronger than anything that has been done befote." Countries from the US to India to Argentina have been faulted for new policies in recent months, from stimulus packages to blocking access to markets. In Latin America, many economies are vulnerable because of their dependence on natural-resource exports, diminishing demand for commodities, and a drop in foreign remittances. Ecuador is particularly at risk because its official currency is the US dollar: The country cannot print new money in the face of declining exports. Its policy, which was implemented in January, makes products anywhere from 5 to 20 percent more expensive than they were last year. In supermarkets across the country, labels on items from laundry detergent to toilet paper urge shoppers to "buy the national product." President Correa has said that the restrictions, which also include quota restrictions, will keep $1.46 billion circulating in the economy. Manuel Chiriboga, Ecuador's former free-trade negotiator, says that the policy has received a mix response. Some in the industrial sector say it is a critical safeguard, especially as neighboring countries have devalued their currencies, which Ecuador cannot do. But he sees it as an ominous sign for the health of the economy. "I think it was an emergency decision.... What it really reveals is the lack of trade policy by the country. Ecuador has increasingly isolated itself," he says, adding that the government has done little to increase foreign exchange. "I don't really criticize the measure, I criticize the reason we got there in the first place." As a lower-middle-class woman, Espinoza says she sees the value in protecting domestic producers, but shudders at anything that makes her cost of living higher, which she says continues to increase and today is her top concern as a citizen.

4

Julian Grebe International Business 150 12/10/09 "We don't make ends meet each month anymore," says the mother, who works as a cook and whose husband is a taxi driver. "We can't buy what we used to in the grocery store." Ecuador's experience is not representative of the region. According to a research report by the Council on Hemispheric Affairs in Washington, Latin America has responded in a hodge-podge manner to the crisis. Peru and Chile, for example, have continued forward with free-trade policies and diversified their trading partners across the globe. Not unlike the policies the US is pursuing, Colombia has increased spending for infrastructure while Brazil has offered a stimulus package, particularly in energy and transportation sectors. Argentina has slapped on licensing restrictions on its imports, and Paraguay responded with tariffs on certain imports in retaliation, the report says, but no country has gone as far as Ecuador. So far, says Mr. Gresser, the reactions around the globe have been insular, each country dealing with the response in its own way without retaliation being a driving force. "Governments are not working together, but they are not working at odds against each other either," he says. The meeting Thursday could be an opportunity for unity. "Trade can be a potent tool in lifting the world from these economic doldrums. In London G-20 leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure which will render global recovery efforts less effective," said WTO director general Pascal Lamy in a press release. Earlier this week, British Prime Minister Gordon Brown and Mexican President Felipe Calderón said in a joint statement that they wish to work together to prevent new trade barriers from coming up even as both economies slow: "We recognize that such interventions should promote job creation, protect the interests of taxpayers and savers, and avoid undermining the principles of free trade and open markets." But accord can unravel quickly. After the US suspended a pilot program last month for Mexican truckers to use US highways, Mexico responded by slapping $2.4 billion of tariffs on some 90 US products in retaliation – in a growing trade dispute that shows how tenuous promises can be. Full HTML version of this story which may include photos, graphics, and related links

5

Julian Grebe International Business 150 12/10/09

Top of Form

THE INFLUENCE GAME: Catfish plan risks trade war AP foreign, Tuesday June 30 2009

BEN EVANS Associated Press Writer= WASHINGTON (AP) — It looks like catfish, it tastes like catfish, and it acts like catfish. But to U.S. catfish farmers, the whiskered, bottom-feeding fish from Vietnam is something else: a cheap variety that's usurping the humble catfish's place on Americans' tables and threatening their livelihoods. So after years of arguing that the Vietnamese fish isn't catfish — and winning a federal law saying as much — the U.S. farmers are now trying to have it both ways. Under their latest lobbying strategy, they want the Vietnamese imports considered catfish so that they will be covered by a new inspections regime that they pushed through Congress last year. The move — an example of how influential industries work their will in Congress — could block Vietnamese imports for years and risks a broader trade war. If the Obama administration signs off on the plan, the fish that's long been a staple of Southern cooking could unravel years of improving relations between the U.S. and its former enemy. The inspections feud is the latest in a long-running battle between a $400 million domestic farm sector that raises catfish in ponds across the Mississippi Delta and a burgeoning industry in Vietnam, where fish are raised in ponds and cages along the Mekong River. The U.S. industry — mostly located in Mississippi, Alabama and Arkansas — has had a string of successes on Capitol Hill and in Southern legislatures. Along with winning frequent federal aid, it pushed a labeling law through Congress in 2002 that forced the Vietnamese fish to be sold in the United States under unfamiliar names such as pangasius, basa or tra. A year later, it won an antidumping case authorizing tariffs of up to 64 percent on the Vietnamese fish. The southern states where most catfish farming is done now require restaurants to disclose where their fish was raised. Despite that, the value of Vietnamese imports jumped from $13 million in 1999 to $77 million last year, according to the Commerce Department. Over the same period, U.S. production fell from $488 million to $410 million. The inspections requirement could be the U.S. producers' silver bullet, stopping imports in their tracks. Applying to all catfish sold in the U.S., it would require Vietnam to establish a

6

Julian Grebe International Business 150 12/10/09 complicated inspection system and demonstrate that it is equivalent to U.S. inspections, a process that could take years. Last year, the industry convinced catfish-state lawmakers led by Sen. Thad Cochran, R-Miss., to slip the inspection requirement into the massive farm bill. Seafood typically is regulated by the Food and Drug Administration, which administers spot inspections that are relatively easy for foreign countries to participate in. Cochran's provision singles out catfish as the only seafood to be regulated by the Agriculture Department, which traditionally oversees only beef, pork and poultry products. The law leaves it up to Agriculture Secretary Tom Vilsack to define what species would fall under the "catfish" definition, and that has triggered a furious lobbying campaign. Vilsack's decision is expected soon, but a draft recommendation obtained by The Associated Press calls for the Vietnamese pangasius to be covered. Vietnamese officials say such a move would add insult to injury. Their "catfish" industry employs some 1 million people and accounts for more than 2 percent of the country's economy. Calling the inspections a backdoor tariff, the government is hinting at consequences for U.S exports to Vietnam. "For the U.S. to now reverse itself to prevent Vietnamese product from entering the market appears to developing nations hypocritical," Vietnam's ambassador to the U.S., Le Cong Phung, wrote in a letter to U.S. lawmakers. Such a decision, he wrote, could "significantly impact the bilateral relations between Vietnam and the United States." Others such as Senate Finance Committee Chairman Max Baucus, D-Mont., are getting involved, worried that their states' interests might get caught in the crossfire. Vietnam is now the third-largest export market for U.S. beef. The Catfish Farmers of America, the industry's leading trade group, declined to discuss the inspections, saying they didn't want to speak publicly as Vilsack weighs his ruling. But in various forums, the industry has argued that the new inspections would prevent scares like those involving lead-tainted toys or poisonous dog food that could damage the image of their product. The industry has pointed out that the FDA inspects only around 2 percent of seafood imports and that a better system is needed to keep banned chemicals out of the U.S. They also point to cases in which importers have been caught selling pangasius under false names and avoiding tariffs. Cochran, the top Republican on the Senate Appropriations Committee, also declined to be interviewed. His office instead issued a statement saying that catfish farmers approached Congress about improving safety after recent food scares and that the new inspections will benefit consumers. Critics, including U.S. distributors who buy the Vietnamese fish, say the safety argument is a red herring.

7

Julian Grebe International Business 150 12/10/09 "If there's really a belief that farm-raised fish needs more inspections, then why not all farmed fish? Why not tilapia? Why not salmon?" said Matt Fass, president of Maritime Products International, a Virginia-based distributor. The real reason, he said, is money. "It will benefit a small number of what I would call domestic catfish kingpins," he said. "The less farm-raised fish that can be imported into this country, the more they can sell theirs for." guardian.co.uk © Guardian News and Media Limited 2009

8

Julian Grebe International Business 150 12/10/09

9

Julian Grebe International Business 150 12/10/09

10

Julian Grebe International Business 150 12/10/09

11

Julian Grebe International Business 150 12/10/09

12

Julian Grebe International Business 150 12/10/09

13

Julian Grebe International Business 150 12/10/09

14

Julian Grebe International Business 150 12/10/09

Top of Form

Canada Seeks Redress On Food-Labeling Law Summary The United States has implemented a food-labeling law that is threatening to destroy much of the Canadian hog farming industry. The U.S is denying that this is a form of protectionism even though it is leading to a decrease in the purchase of Canadian hog. However this has helped relieve the American hog farmers suffering from high feed prices, low domestic and export sales. The regulations come at a time when American pig farming is suffering

As G-20 battles protectionism, a cautionary tale in Ecuador Summary Ecuador has put the label “Ecuador First” on its countries products, to help safeguard the nation’s economy. Ecuador is not the only nation to enforce such measures. (Sara Miller Llana, 2009) However “Ecuador is particularly at risk because its official currency is the US dollar: The country cannot print new money in the face of declining exports”, and President Correa has said that the restrictions, which also include quota restrictions, will keep $1.46 billion circulating in the economy. (Retrieved from http://www.csmonitor.com/2009/0402/p06s01-woam.html)

THE INFLUENCE GAME: Catfish plan risks trade war

15

Julian Grebe International Business 150 12/10/09 Summary The U.S plan’s on inspecting all catfish. This would help American catfish farmers because (BEN EVANS, 2009) It would require Vietnam to establish a complicated inspection system and demonstrate that it is equivalent to U.S. inspections, a process that could take years. The industry has argued that the new inspections would prevent scares like those involving lead-tainted toys or poisonous dog food that could damage the image of their product. (Retrieved from guardian.co.uk ©)

16

Julian Grebe International Business 150 12/10/09

Analysis Regulations are probably more harmful than tariff’s because they can have lots of meanings and they could also last longer because they are sometimes legal because they have health concerns. The three articles in this analysis are all about protectionism in the form of regulation. The article “Canada Seeks Redress On Food-Labeling Law” by C.Krauss in which discusses the effects of the US Food Labeling-Law on Canada’s hog industry. Another article “As G-20 battles protectionism, a cautionary tale in Ecuador” by S. M. Llana is about the Ecuador national products with the label “Ecuador First” label is similar to the US labeling-law because it involves branding products with a particular label that tells the customer if it’s a national product or not. This form of regulation is more psychological because it makes the buyer feel more patriotic by buying the countries/national product it’s also kind of forcing the buyer to by Ecuadorian products (Sara Miller Llana,2009. The Christian Science Monitor) "They shouldn't force us to buy products just because they are national," says Ms. Espinoza, shaking her head. "It's not always the best quality." The final article “Catfish plan risks trade war” by B. Evans catfish inspection’s which is harming the Vietnamese catfish industry because (B. EVANS, 2009) it would require Vietnam to establish a complicated inspection system and demonstrate that it is equivalent to U.S. inspections, a process that could take years. The positive effects are somewhat unique to each situation; however there are some similarities between all three of them too. In the case of the U.S food labeling-Law positive outcome’s is that the law comes “at a time when American pig farming is suffering. Wholesale prices for pork have fallen by more than 20 percent this year, forcing down hog prices more than 17 percent” and “according to the Department of Agriculture another argument that could be made is that the food Labeling-Law is beneficial for customers as David Preisler said “Without doubt the imports are down”. Ecuadorian products with the label “Ecuador First” according President Correa has said that the restrictions, which also include quota restrictions, will keep $1.46 billion circulating in

17

Julian Grebe International Business 150 12/10/09 the economy. The catfish inspection regulation is helping the US catfish farmers because it would (BEN EVANS, 2009. guardian.co.uk ©) Applying to all catfish sold in the U.S., it would require Vietnam to establish a complicated inspection system and demonstrate that it is equivalent to U.S. inspections, a process that could take years, giving U.S. catfish farmers most if not all of the market share lost by Vietnam. It would also mean that the consumer would benefit (BEN EVANS, 2009. guardian.co.uk ©) “the industry has argued that the new inspections would prevent scares like those involving lead-tainted toys or poisonous dog food that could damage the image of their product.” Common or similar positive effect may be the it’s obviousness helping the relevant industry/sector or countries economy. However there are also negative effects and again they are also unique and similar in each situation. The US labeling-Law which is affecting the Canadian hog farming industry is already resulting in Canada filling a complaint with W.T.O and According to the Agricultural secretary Tom Vilsack it has already resulted in months of talks between the two nations this could last years or till the economies get better which ever comes first, this could end up damaging US – Canada relations, (C.Krauss, 2009. New York Times, B3) which have deteriorated over the “Buy American” provisions in the stimulus package. It could also result in Canada counter measuring the regulation with tariff’s or any other form of protectionism against the US, (C. Krauss, 2009. The New York Times, B3) for example Mexico Retaliation with Tariffs on U.S. Products after the U.S. stopped the "pilot program" (Retrieved from http://www.csmonitor.com/2009/0402/p06s01-woam.html) this is especially bad because Canada is the United States’ No.1 trading partner, with more than $1 billion in trade crossing the boarder each day therefore even the slightest tariff on a good or service from the US to Canada may have disastrous effects that industry. It may also cause high unemployment in the Canadian hog farming industry, this may occur because (C.Krauss, 2009. The New York Times, B3) Canada is also by far the largest source of American hog imports, which means Canadian farmers heavily rely on the American

18

Julian Grebe International Business 150 12/10/09 hog market and as David Preisler said “on the flip side the U.S. may you may just end up competing with the Canadians in the export market” (C.Krauss, 2009. The New York Times, B3). The Ecuadorian “Ecuador First” label may also have other countries retaliate with tariffs and other forms of protectionism for example Mexico Retaliation with Tariffs on U.S. Products after the U.S. stopped the "pilot program" (Retrieved from http://www.csmonitor.com/2009/0402/p06s01-woam.html). The W.T.O could force Ecuador to withdraw its membership unless it lifts its regulations, as well as retaliation from other countries. It also reduces the consumer choice over the quality and variety of the products they purchase. The requirement in inspection of catfish by the U.S would possibly destroy the Vietnamese catfish market share in the US, because it would (BEN EVANS, 2009. guardian.co.uk ©) Applying to all catfish sold in the U.S., it would require Vietnam to establish a complicated inspection system and demonstrate that it is equivalent to U.S. inspections, a process that could take years. It would also reduce the buyers’ options. It’s not the first time the U.S. has implemented a type of protectionism on the Vietnamese catfish an example may be (BEN EVANS, 2009.) Despite that, the value of Vietnamese imports jumped from $13 million in 1999 to $77 million last year, according to the Commerce Department. Over the same period, U.S. production fell from $488 million to $410 million. (guardian.co.uk ©) this could mean that once the inspection system in Vietnam is up to standard the U.S. catfish farmers would return to the same before the regulations were put in place, meaning that this is really just a short-term solution.