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4.28.2007

DOHA Round Updates & Preferential Tariffs in Practice


The DOHA round of the World Trade Organization (WTO) negotiations intends to promote the opening of markets and promoting free trade. This April, the latest meeting failed to reach a conclusion.

Director-General Pascal Lamy of the World Trade Organization delivered a speech before the US Chamber of Commerce on April 23, 2007. Here are excerpts from his speech.

"Today we know that the Doha Development Round will not be concluded until and unless all these participants are ready to walk the extra mile and table additional contributions to the collective success of this multilateral enterprise. It is clear that the contributions will be linked to the degree of development and wealth of each participant, with the world poorest countries making the smallest contribution. It is also clear that no one will be asked to move first: countries will have to move in concert, like a big orchestra playing to the same tune.

For the moment, a group of major actors — the EU, US, Brazil, India — despite being politically committed to concluding this negotiation by around the end of this year, are somewhat paralysed by fear that any move in the negotiation by any one of them will be
pocketed by the others and will not lead to reciprocal moves. They are locked in a sort of “prisoner's dilemma”, as if the only concern of each individual player would be maximizing his/her own payoff, without any concern for the other player's payoff. It is as if the cooperation, essential to the multilateral trading system, was dominated by withdrawing, so that the only possible balance for the game would be for all players to withdraw." Read the complete speech here.

The speech reminded me of the Asean Free Trade Area (AFTA) initiatives, wherein members of the Association of South East Asian Nations (ASEAN) were supposed to give preferential tariffs to one another.

Working for an international trading company, an encounter with the AFTA wasn't my finest hour. By 1995, the Philippines was abiding with the terms of the agreement. Because of that, I was able to convince clients to buy ASEAN products despite its higher prices (compared to goods coming from elsewhere). My selling point was the lower landed costs that will be incurred by the clients due to the preferential tariff rates. Such a selling point sold a lot of AFTA goods but disaster struck when 1996 showed up in the calendar.

As soon as my first shipment for the year arrived at the port, a client who bought hundreds of tons of high valued special steel products called to complain that they were being charged tariffs higher than what I told them. Confidently, I quoted the book on special tariffs that stated the lower rates that are supposed to be enjoyed by products coming from members of the AFTA.

The shocker came when the customs officers informed us that they have decided to revert the tariff rates back to the original since other AFTA members were not abiding by the agreement. At that time, some of the goods were being levied as high as 40% compared to the supposedly 3% that were to be enjoyed by the AFTA members. Needless to say, there were all of a sudden, a lot of angry importers. They closed their deals when the rate was supposedly 3%. But when the goods came in, the tariffs that were actually charged to them was much higher. So much for AFTA.


A short research showed that the program (AFTA) still exists. In fact, the tariff rates are supposed to be zero by this year (click here). Vamos a Ver!

4.25.2007

The Need for Perfect and Complete Information

The passing of former President Boris Yeltsin reminded me of my Russian friends, the continuing saga about the people's struggle for better government and the need for a responsible press.

On 1993, I was a young student taking up a short course in Switzerland. My initial conversations with classmates, program facilitators and acquaintances never failed to include questions (some were delivered in a manner that struck me as rude) about what was happening to my country. They told me that they kept on hearing bad things about it.

The polite ones simply asked; “How is the Philippines?”

And there’s this gentleman who softly said; “Tell us more about your country. We seem to only hear about it, whenever there’s a catastrophe.”

Such a fine gentleman,
I thought. So full of good manners. Anyway, though seemingly impolite, I must admit that the apparently offensive statements were mostly valid observations.

On 1993, the Philippines had just gone through more than 10 years of great misfortunes. It went through many years of decay followed by the 1983 assassination of a very popular opposition leader. The were continuous massive street protests that resulted with the calling of early presidential elections. The campaign phase, voting and post election periods were blemished with heavy violence that led to the 1986 EDSA uprising. Things became a bit better until military coups plunged the country back into economic decline. To top it all, there was an energy crisis and blackouts were widespread. And just when we thought that we had hit rock bottom, the great Pinatubo eruption (details here) occurred. It was only during the last quarter of 1993 when I felt the economy starting to improve with the currency recovering some of its value against the US dollar. However, let me point out that despite all the incidents narrated above, the Filipinos never lost hope and was consistently ranking at the top of the happiness index.




By the way, let me point out that during my short stay in Europe, people were blaming the Pinatubo for their rainy summers.
Back to my story, I befriended a lot of Russians in the program. Some were from Moscow, there was this great buddy from St Petersburg and there were the exceptionally lovely ladies from Novosibirsk.

Come the early days of October, French and German speaking television broadcasts showed footages of tanks, large street assemblies and fully armed troops surrounding the Russian parliament building. We couldn’t understand anything from the live feeds, our Swiss classmates wouldn’t say much and their faces were ashen. One thing seemed obvious. There was turmoil in Russia. My young Russian friends were naturally panicking. The phone lines to Russia were all out of service and they had no way of knowing how their families back home were. It was then when I tried to assure them that things were fine back home.

They all looked at me and some mockingly asked; “How did you know? You haven’t even been there?”

I told them, “Ahh.. Don’t believe in the theatrics of the press. Look, they have created such a bad image of my country but I tell you, things are fine back home.”

“Relax, sit with me and let’s watch a movie.”
I added.

Of course, they didn’t believe me and continued running around, dialling franctically and spoke to each other in rapid and worried tones. But when Yeltsin emerged victorious and the lines got restored, they found out that their folks were fine all along. Things were not bad in all of Russia except for the immediate vicinity of the parliament building.

“Hmmn.. And what did I tell you?”,
as I gave that knowing smile.

The story did not end there. Years later, the Philippines went through an impeachment process involving the country’s top executive. It was followed by massive street protests and highlighted by military and police defections. The end came when the President stepped down. During the tense moments, I witnessed how overacting news reporters projected the impression that a shooting war was about erupt. None happened. The specific events that had exaggerated coverage were merely normal military movements.

Though press freedom is a prerequisite to all free nations, there is a strong but oftentimes unspoken need for balanced reporting. The dictum that “The pen is mightier than the sword” is very much a gospel truth now as it was yesterday. The press can easily flatten to the ground, what the heaviest artillery cannot reach. If the press will let itself work like a loose cannon, it can create more destruction than all the military’s arsenal combined.

As the preachers of perfect competition unfailingly assert; “There should always be perfect and complete information.”



4.20.2007

Flat Taxes

Bjorn Tarras - Walhberg, Secretary General of the World Taxpayers Associations, spend most of his time traveling around the world and preaching the doctrine of "Flat Taxes". He meets with Finance Ministers, Presidents and Prime Ministers and tries to convince them to lower their income taxes and replace it with a flat rate.

According to Walhberg, a flat system is:
  1. Simple - Easy to understand. Everybody can easily find out exactly how much they need to pay. At the moment, most people do not really know how much their obligations are due the complicated system in place in most countries.
  2. Ethical - Does not discriminate. Both the progressive and regressive systems are open to ethical debates. A lot of people argue that one or both systems favor or discriminate the rich or poor and vice versa.
  3. Fair - Everybody pays the same rate. There is no disincentive to produce/work less.
  4. Promotes competition and economic growth - A reduction in taxes through the imposition of a flat rate levels the playing field. Big, small, old-timers and start-ups are both subjected the same rules.

According to Walhberg, his home country (Sweden) experienced diminished growth that started in the 70's, when the government started increasing taxes. As soon as the reverse was implemented, growth started to become positive. He cites as an example, 13 states that include Russia. Under President Putin, Russia lowered its taxes and introduced a flat rate (13%). After that, growth was immediately felt. Russia immediately grew by 47% and experienced an average annual growth of 15%, thereafter.

Vamos a ver. At this point, I agree that most of us don't really know how much we owe the government. A friend in the US, spent eight hours last Saturday, just trying to figure out how much they really need to pay the IRS. Come every tax paying season, we all go through the process of sitting in a quiet place and furiously try to compute how much we really have to pay.

I believe in some taxes. Taxes that are enough to pay the cops and soldiers (who will protect my neighborhood) and build the roads that will be used by everybody in traveling from one place to another. Beyond that, there are only a few other taxes that I believe in.

As a favorite quote goes:

"That government governs best which governs least."

4.10.2007

Notes on the upcoming trade talks


Trade representatives from the US, Brazil, India and Europe will meet to hammer an agreement that will resolve the 2005 deadlock in the DOHA round. In the negotiations, US and EU will be pushing India and Brazil, acknowledged leaders of the world's developing countries, to open their economies. To quote an online editor at the http://www.americaneconomicalert.org/news_home.asp?NTID=67;
"Developing nations are being pressed to open their markets wider to industrial goods and services and the United States is seeking fewer farm products on their "protected" list. But India and other developing nations says they needs their farm tariffs to protect the livelihoods of their huge farming populations. Up to 80 percent of the workforces in developing nations depend on agriculture."


I believe that the editor failed to point out that the US heavily subsidises a lot of industries, therefore creating “False competitiveness” for their local industries. I am not that much familiar with the WTO definition of “Dumping” but to my simple economic mind, subsidising commodities in order for it become competitive for export, is tantamount to dumping. It means that exported products are actually being sold at a loss. That realization came when I chanced upon some statements from the other end of the trade talks.

As quoted by
Businessworld;

"All are hopeful that something will come out of this but the problem is the Americans. They are exacting a high [price] for cutting farm subsidies. The issue is how far will the Americans be willing to go," Jose Antonio S.Buencamino, Manila’s special trade representative to the WTO in Geneva, Switzerland.

The Doha talks stalled, among others, after developed countries such as the US and EU refused to cut domestic subsidies for agricultural products, a stance rejected by developing countries which could not afford to give similar support and thus were unable to compete globally.

Quoted further;

“In a recent forum, Mr. Serrano said the EU appears to be veering toward accepting a framework proposed by the G20 group of developing countries that will effectively cut farm tariffs by an average of 29%. But the US, he said, has "nothing to commit - not even indicatives" and is asking for an average 58% slash in agricultural tariffs.
Yahoo's online news also quotes India's representatives as saying;

"The EU and other WTO members have called for Washington to make a new, more radical proposal on cutting farm subsidies while the EU is being pushed for steeper reductions in farm product tariffs.

"We want real, effective reductions in huge farm subsidies by countries like the US which distort world agriculture prices," the Indian spokesman said.

"We must have a level playing field so the round's development mandate is fulfilled, the official said."
BusinessWorld also reports that the developing countries want the US to limit its farm subsidies to $12 Billion. However, the US is bent in lowering it only down to $22 Billion.

Wow, and I thought the US has a huge budget deficit!

My advice is for the US government to review the terms of Competitive Advantage and Free Trade. Adam Smith says;
"Let the market dictate!"
Lastly, let me quote one of my favorite economists, Milton Friedman, an American;
"That government governs best which governs least."

4.09.2007

Some Figures About Philippine Education


-In a Reuters article, the following figures came out in reference to the Philippine Educational system. Please click this page for the complete article.

-In a survey, the country rated 126 out of 163 in a 2006 global survey on corruption, behind Libya and Uganda.

-The average annual teachers' salary averages 1,700 UK pounds.

-The United Nations reports that approximately 46 percent of the population live on less than $2 a day, and 28 percent of children under the age of five are underweight.

-A class size of 65 students is a frequent occurrence.

-World Bank show education spending by the Philippines was equal to 3.2 percent of gross domestic product in 2004, far higher than Indonesia's 0.9 percent but well below Malaysia's 8 percent and Thailand's 4.2 percent.

-Just one in five 12-year-olds scored the mastery level of 75 percent in maths, science, social studies and languages in the 2004/05 school year.

-There are plans to increase its education budget by 13 percent to 133 billion pesos this year.

My comments will be added tomorrow... Gotta work! :)

4.05.2007

Tax friendly States

Where to locate the company's offices & facilities should always be a part of every start up businessman's checklist. There are cities that offer tax holidays and incentives for certain industries and being able to identify and take advantage of such a program can spell the difference between a firm's highway to profitability or road to bankruptcy. Of course, there are a lot of other items to be considered (such as salary rates and cost of living) but for now, this short essay will dwell on taxes.

As explained by a number of American exporting companies that I deal with, their products which used to bear the proudly "Made in the USA" logo now says "Made in Mexico" for tax purposes, among other reasons.

In the same vein, every citizen should also consider a similar checklist in order to make life a lot easier. For the ordinary employee or small entrepreneur, taxes may also spell the difference between poverty and sustainability. In today's issue, CNN.com posts a list of tax friendly states in the US.

Time to start looking for a similar list in your country.