Free Trade

To Tackle China, the U.S. Should Invest More in Africa

The Biden administration has requested that Congress approve an $80 million package to finance the newly launched Prosper Africa Build Together initiative. The project will focus on fostering trade and investment between the world’s poorest continent and the United States. Given Africa’s ambitious free trade aspirations and China’s ever-growing obsession with the continent, such a move couldn’t come at a better time.

The past few years can hardly be seen as the golden age of free trade in the West. Trade wars combined with persistent attempts to make trade woke—through the integration of environmental or gender causes—have undermined economic exchange globally. However, while European Union governments and the U.S. have imposed sanctions, blocked exports as part of COVID measures, and failed to negotiate new agreements, Africa has been silently making strides toward its own free trading future—with China’s help.

Founded in 2018, the African Continental Free Trade Area (AfCFTA) is the largest free trade area in the world in terms of participating countries. By removing 90% of tariffs on goods traded among 54 African countries-signees within five to 10 years, the AfCFTA looks likely to become the biggest free trade entity since the 1995 launch of the World Trade Organization. According to the United Nations Economic Commission for Africa, the agreement will boost intra-African trade by 52% within five years.

As of 2019, intra-African exports accounted for 16.6% of total exports. For comparison, in Europe, the share was 68.1%. If fully implemented, the AfCFTA has the potential to put the continent, long crippled by poverty and corruption, on the path of lasting prosperity.

For international trade, the AfCFTA will mean clearer customs checks and unified market access rules, which could hugely benefit the United States. Africa could become the largest market for the automotive industry. In 2018, Volkswagen and Peugeot Société Anonyme opened their first car plants in Rwanda and Namibia, respectively. Car imports from Africa could become a great alternative to the European imports.

Although ambitious, the AfCFTA is also riddled with implementation problems. Decades of socialist African governments whose main objective was their own enrichment have resulted in substantial infrastructure problems, among other things, in many countries. The construction and modernization of infrastructure combined with establishing efficient customs check procedures is key to making the AfCFTA succeed.

This is where China has stepped in to fill the gap. Last November, Chinese Foreign Minister Wang Yi (pictured) said that his government “will provide cash assistance and capacity-building training to its [AfCFTA] secretariat.”

Such support for the AfCFTA is not surprising. Over the years, China has made itself indispensable for Africa’s leaders. Between 2003 and 2019, Chinese foreign direct investment in Africa has increased from $75 million USD in 2003 to $2.7 billion USD in 2019. There is no sign of this trend losing momentum.

Although it can be seen as beneficial to Africa’s development, active Chinese participation in Africa’s development is increasingly worrisome. There is no such thing as free Chinese money. By investing in Africa, China is making the continent indebted, and it won’t hesitate to ask for something in return. Knowing China’s appetites—taking the port of Hambantota in Sri Lanka is one example—it is not hard to predict what will happen. Aside from active political involvement, China will also ask for preferential access to the AfCFTA once it is fully functioning.

Africa presents many opportunities for the United States. Almost all African products can freely enter the U.S. through the African Growth and Opportunity Act, a trade preference program launched in 2000. The U.S. has also formally committed to supporting the AfCFTA, but its impact is negligible compared to that of China.

More active engagement from the U.S. in AfCFTA is crucial financially and ideologically. The foundations laid by the AfCFTA today will determine the continent’s fate. U.S. assistance in the form of investments and general support will be key in shaping a better and freer tomorrow for Africans, revitalizing trade globally, and counteracting China’s influence.

Originally published here

Kesempitan hidup sekarang, dorong rakyat pilih barangan seludup

Kehilangan kerja, potongan gaji dan berkurangnya peluang-peluang pekerjaan kini mengakibatkan kesulitan kewangan kepada ramai pengguna di seluruh Malaysia dan keadaan ini akan menyemarakkan perdagangan haram secara besar-besaran, kata kumpulan advokasi pengguna global, Consumer Choice Center (CCC).

Ulasan CCC ini adalah susulan Laporan Jabatan Perangkaan (DoSM) mengenai Gaji dan Ganjaran 2020 yang mendapat median gaji dan ganjaran bulanan mencatat penurunan dua angka sebanyak 15.6% kepada RM2,062. Selain itu, DoSM semalam melaporkan graduan yang gagal memperoleh kerja meningkat sebanyak 22.5% pada 2020.

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Income crunch set to fuel illicit trade

LOSS of jobs, salary cuts and reduced employment opportunities are causing financial difficulties for many consumers throughout Malaysia and this situation is set to fuel illicit trade exponentially, said global consumer advocacy group Consumer Choice Center (CCC) in a statement today.

The comment from CCC came following the recent Department of Statistics Malaysia’s (DOSM) Salaries and Wages Report 2020 that found median monthly salaries and wages recording a double-digit decline of 15.6% to RM2,062. In addition, DOSM also reported that Malaysia’s unemployed graduates rose by 22.5% in 2020.

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消费人陷财困 非法贸易交易剧增


消费人选择中心的“全球消费人权益倡导组织”强调,该组织对大马统计局发布2020年薪酬报告有关月薪中值挫跌15.6% 至2062令吉的数据发文告。

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Income crunch set to fuel illicit cigarette trade

LOSS of jobs, salary cuts and reduced employment opportunities are causing financial difficulties for many consumers throughout Malaysia, with such situation set to fuel illicit trade exponentially.

Global consumer advocacy group Consumer Choice Centre (CCC) derived at the above conclusion following the recent Department of Statistics Malaysia’s (DOSM) Salaries & Wages Report 2020 which found median monthly salaries and wages recording a double-digit decline of 15.6% to RM2,062.

Read the full article here.

Kemelut kewangan cetus peningkatan perdagangan haram

Kehilangan pekerjaan, kurangnya peluang pekerjaan dan gaji pekerja dipotong telah mengakibatkan masyarakat berdepan dengan masalah kesulitan kewangan sekali gus mencetuskan kepada perlakuan perdagangan haram secara besar-besaran.

Pengarah Urusan Kumpulan advokasi pengguna global, Consumer Choice Center (CCC), Fred Roeder berkata, pengguna yang terjejas oleh kekangan kredit biasanya akan mencari kaedah alternatif untuk berjimat dalam perbelanjaan mereka.

Read the full article here.

Kesempitan hidup akan meningkatkan dagangan haram

Kehilangan kerja, potongan gaji dan kurangnya peluang pekerjaan kini mengakibatkan kesulitan kewangan kepada ramai pengguna di seluruh Malaysia dan keadaan ini akan meningkatkan perdagangan haram secara besar-besaran, kata kumpulan advokasi pengguna global, Consumer Choice Center (CCC).

Pengarah Urusan CCC, Fred Roeder berkata, pengguna yang terjejas oleh kekangan kredit biasanya akan mencari cara dan kaedah alternatif untuk berjimat dalam perbelanjaan harian mereka.

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The intellectual bankruptcy of “gastronationalism”

Consumers should decide what food they want.

Across Europe, food protectionists are back. Using the excuse of COVID-19, they claim that international trade competition is a problem for domestic producers. In several European legislations, it is proposed to impose quotas of local products on traders, in others it is ministers who make calls for “food patriotism”. It is at such times that it is worth remembering the extent to which this gastro-nationalism is problematic.

The Corn Laws were a perfect example of protectionism in the 19th century: the great conservative landowners in Westminster decided that the UK should tax foreign grain heavily in order to benefit local producers. 

The result of this trade policy seems self-evident: while British producers benefited, grain prices soared in the 1830s. As soon as the competition was neutralised, the big landowners were able to raise prices, which mainly harmed the working classes. On 31 January 1849, the disastrous results of the Corn Laws were finally recognised by a law passed in 1846. They were repealed and the import taxes disappeared.

Replacing the word “corn” or “United Kingdom” with any other product or country will not make any difference to the reality of economic principles: protectionism does not work, it impoverishes consumers and in particular the poorest. Unfortunately, this message does not seem to impress our French neighbours. Agriculture Minister Didier Guillaume called on the French “to be patriotic about food” even if “French tomatoes cost more”, according to RTL Radio France. The minister did not mince his words in the rest of his statements on the radio channel:

“Our fellow citizens must buy French. We must develop our agriculture if we want food sovereignty, agricultural sovereignty. But as it is a bit more expensive, we must work to be more competitive. French agriculture must be competitive. The prices paid to producers must be higher than they are today.

Since March, the French government has been in talks with the country’s supermarkets to buy fresh local produce. As a result, France’s largest retail chains, such as Carrefour and E.Leclerc, have shifted almost all their supplies to local farms.

Other countries have gone further than France.

The Polish government has denounced 15 domestic processors for importing milk from other EU countries instead of buying it from Polish farmers.

“The economic patriotism of these companies raises concerns,” the government said in a circular that remained online, even after the list of dairy plants that used foreign milk was removed in the first quarter of 2020.

The opposition comes from Berlin. Ahead of the agriculture ministers’ video conference a few weeks ago, Julia Klöckner, Germany’s agriculture minister, said the Coronavirus crisis underlined the importance of the single market and that EU countries should refrain from implementing protectionist policies to help their economies recover.

“Cross-border supply chains and the free movement of goods are essential to ensure the security of supply for citizens. And that is why I warn against ‘consumer nationalism’. It is only a supposed strength that is quickly fading away. We must not jeopardise the achievements of the internal market,” the statement said.

On the EU side, it is interesting to note that Internal Market Commissioner Thierry Breton seems determined to oppose any protectionist moves (at least outside the protectionist framework already established by the EU itself).

Originally published here.

After this crisis, let’s not give in to protectionism

We don’t need more tariffs

In the wake of the COVID-19 crisis, we are hearing more and more calls for a protectionist economic policy. However, this policy has been intellectually bankrupt for centuries and is detrimental to consumer welfare.

At the political level, COVID-19 has shown us one thing: political positions are very much stuck. All political sides feel confirmed in their worldviews prior to this crisis. The socialists say that this crisis ensures that social security is not developed enough. For nationalists, it is globalisation and open borders that have caused this pandemic. European federalists believe that the COVID-19 crisis demonstrates the importance of centralised decision-making in the European Union. Finally, environmentalists find that the drastic decrease in production allows for a cleaner society and that it is possible to live with much less.

Like all these groups, the protectionists play their own political game and say that we need more tariffs and that we need to “bring production back” to Europe. 

They complain about Europe’s dependence on countries like China or India and that this crisis has shown the value of repatriating industries they consider more “essential” than others. Protectionist ideas have the particularity of being represented as much on the extreme left as on the extreme right and even in the centre of the political spectrum. It turns out that protectionism has been embedded in our political mindset for centuries.

Colbertism seems eternal

Jean-Baptiste Colbert, Minister of Finance under Louis XIV, engaged in an avalanche of granting monopolies, luxury subsidies and cartel privileges, and set up a powerful system of central bureaucracy governed by civil servants called intendants. Their role was to enforce the network of controls and regulations he had created. 

His system also relied on inspections, censuses and forms to identify citizens who might have deviated from the state’s regulations. The Quartermasters used a network of spies and informants to uncover any violations of the cartel’s restrictions and regulations. In addition, the spies monitored each other. Penalties for violations ranged from confiscation and destruction of production deemed “inferior”, to heavy fines, public ridicule and even banned from the profession.

Colbert was also convinced that international trade was a zero-sum game. Drawing on the ideas of mercantilism, he believed that state intervention was necessary to ensure that more resources were kept within the country. The reasoning is quite simple: to accumulate gold, a country must always sell more goods abroad than it buys. Colbert sought to build a French economy that sold abroad but bought at home. Jean-Baptiste Colbert’s set of economic measures was known as “Colbertism”.

Today, this system is known as “protectionism”, and is still quite common in political thinking. In Europe, we have abandoned this economic philosophy (although the European Commission accepts that some member states subsidise their local industries in times of crisis), but externally, the EU has maintained three categories of protectionist measures:

Customs duties through the common external tariff,

Production standards that impose convergence costs,

Subsidies to local producers, through the Common Agricultural Policy (CAP)

The question is whether these measures really protect the European economy. If we need to go back in time to explain the origins of protectionism, we should also draw some lessons from the past. In his 1841 Treatise on Political Economy, the French economist Jean-Baptiste Say explained:

“The importation of foreign products is favourable to the sale of indigenous products; for we can only buy foreign goods with the products of our industry, our land and our capital, for which this trade, therefore, provides an outlet. – It is in money, it will be said, that we pay for foreign goods. – When this is the case, our soil not producing money, it is necessary to buy this money with the products of our industry; thus, whether the purchases made abroad are paid for in goods or in money, they provide the national industry with similar outlets.

To view international trade, especially from a “trade deficit” perspective, as a zero-sum game is wrong. The idea that industry should be brought back to Europe, probably through trade measures, is also misleading. It turns out that liberalising trade links is beneficial to both exporting and importing countries: the incoming resources give us the opportunity to improve our economic situation. 

The act of trade benefits both actors, not just one. To believe that only the seller wins (because he or she makes money) is a serious economic misunderstanding.

Certainly, the COVID-19 crisis is very problematic, and we indeed see a shortage of certain medical materials. However, producing gloves and masks in Europe will not be economically viable and who is to say that the same tools will be needed for the next health crisis? This shows us once again the fatal error of thinking that it would be possible to organise society and its economy through central planning managed by the state.

As Jean-Baptiste Say said in his works, to (re)launch economic activity, we must remove the measures that slow us down, including excessive bureaucracy and excessive taxes. In other words, it is not a question of hindering trade but rather of allowing trade to multiply.

Originally published here.

Illicit trade is booming: what can be done

The Irish Revenue recently released their annual report for 2020.

According to the findings, there has been a 250% increase in illegal cigarettes seized since 2019. The sharp increase represents an urgent need for the Irish government to reconsider its approach towards fighting illicit trade. Contrary to popular opinion, taxes are not effective in achieving that.

Illicit trade is a consequence of restrictive policies that create valuable incentives for criminals to provide consumers with a cheaper — and less safe — alternative. Irish fiscal policies aimed at cutting down the demand for cigarettes, for example, such as a 50 cent increase of the excise duty on a pack of cigarettes, plays to the benefit of smugglers seeking quick profits. 

Smugglers exploit a regulatory disparity within Europe, in particular that concerns countries that are in close territorial proximity to the EU. In Minsk the price of a pack is around 1.40 EUR, 10 times cheaper than in Ireland. In 2020 alone, Latvian authorities confiscated 21 million illegal cigarettes from Belarus through a single border entry. It is important to keep in mind the numbers include only the detected cases, and, in reality, the scope of criminal undertakings is much greater. 

The same applies to products across the board, such as drugs. In February, in Cork, the Revenue made one of the largest seizures of cocaine valued at 12.04 million EUR. These are illicit products that can threaten consumer well-being. Some 20 per cent of Irish teenagers have consumed illegal drugs at some point in their lives, and the only way to obtain these is through the black market, where no regulations or age-restrictions apply.

Black markets exist not only because there are groups willing to take the risk of smuggling products across borders, but also because there is a demand for overregulated products. A survey conducted by iReach for the Forest Ireland in October 2020 found that 70% of adults (including 67% of non-smokers) in Ireland agree that it is “understandable” that consumers might choose not to buy cigarettes and tobacco from legitimate retailers in Ireland. 

Ireland as a tobacco high-cost country is, therefore, especially vulnerable to criminal activities, and while detection efforts should be extended, decisive steps in the form of tax cuts or commitment to abstain from further tax increases should be taken. 

A 2010 study on the impact of cigarette tax reduction on consumption behaviour in Canada published by CIRANO (Centre interuniversitaire de recherche en analyse des organisations) in Montreal found that each additional dollar in final applicable taxes raises the incentive to resort to consuming contraband cigarettes by 5.1 per cent, while each additional dollar in tax cuts decreased it by 5.9%. Therefore, higher taxes increase the attractiveness of the black market, and the deeper the tax cuts, the higher the likelihood of stopping smuggling.

While it is true that the cigarette prevalence in Ireland has been consistently dropping, it doesn’t mean that if the government cut taxes the rates would shoot back up. Canada provides a valuable example. In 1994, the Canadian government slashed taxes on cigarettes to tackle the booming illicit trade. Despite alarmist expectations, the smoking prevalence dropped, and the trend has persisted. Compared to pre-tax cuts times, illicit trade has also significantly decreased.

The Irish Heart Foundation’s recommendation to annually increase the price of cigarettes so that the overall cost of a pack reaches €20 by 2025 doesn’t stand up to scrutiny, and will only lead to further spikes in illegal trade in Ireland. 

In order to succeed, the Irish government should escalate detection efforts to target the supply side of the illicit market, and consider significant tax cuts, or, at least, disregard calls for more increases of tobacco excise taxes.

Originally published here.

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