India: Trade Talks on Agriculture, Automobiles, and Finance

The democratic state of India has been a member of the World Trade Organization since January 1, 1995, a development that occurred four years after the presidential assassination in 1991 that spurred economic reform and an opening of the Indian markets. The country now understands that more free and open trade can contribute to the necessary growth of the economy by “foster[ing] investments, increase[ing] the market…and enhanc[ing] global participation.” Evidence of this Wolfian free market system can be seen within India’s participation at an April 16, 2012 meeting with Korea and China, among others. The meeting saw efforts to open markets for exports from the world’s poorest countries, where 12% of the world’s population lives on only 1% of global trade. The meeting’s participants aim to achieve this goal by eliminating non-tariff barriers such as duties and quotas by 85% before the year 2013.

            The evolving automobile industry within India represents one facet of its recent efforts towards stronger global integration. The late 20^th-century Indian automobile industry included the requirement of Public Notice No. 60, a law known as the “indigenization” condition that required a percentage of every car made within the nation to contain parts manufactured on Indian soil. The protectionist measure was revoked starting in April 2001, and recent studies indicate that “India is now turning into a major international hub for technical textiles trading and manufacturing. Multinational companies have started making their presence in India known in various technical textiles sectors such as automobiles” (export.gov/india).

            Despite India’s efforts to increase economic growth through open trade, the agricultural sector represents the last vestiges of their formerly protectionist model. The government continues to support farmers through subsidies and distort prices through high import tariffs, issues which prevent the productivity increasingly prevalent within the technological innovation in the nation. At the heart of the agricultural issue within the nation is poor infrastructure—the government has no means to deal with high unemployment, and the result has been an increasing trend towards the low-skilled agricultural sector of the economy. The agriculture problem for India remains a large concern as well, because “agriculture’s share in India’s overall GDP is gradually declining with the current share at less than 19% while nearly two-thirds of the population depends on agriculture for their livelihood” (export.gov/india). High unemployment because of poor national infrastructure, in other words, prevents the growing economy from developing within the dominant agricultural sector.

            India’s efforts to integrate with world markets depend on the creation of effective infrastructure that the nation hopes will increase once inflation decreases and drive interest rates down—the effect will be manufacturers increasingly willing to both export and build Indian industry. As one Economist article notes, some industries have succeeded in this respect: “India’s carmakers, by and large, have done well…[but] if services are to keep expanding, the country needs huge quantities of skilled labour that will not be easy to come by” (The Economist). Crippled by high unemployment and a lack of productivity, India remains unwilling to open borders within its agriculture sector despite the success of a recently integrated automobile industry.

Works Consulted

“Background Note: India.” Background Notes/Country Fact Sheets. U.S. Department of State: Diplomacy in Action. 17 April 2012. Web. 27 Nov. 2012.

U.S. Department of State-supplied basic facts on Indian demographics, including information on presidential assassination and the beginnings of global trade and investment.

“Day 1: Public Forum begins seeking answers to global trade challenges.” WTO: 2011 News Items. World Trade Organization, 19 Sept. 2011. Web. 27 Nov. 2012.

The WTO’s report on India’s actions to end Public Notice No. 60 and the indigenization condition that encouraged privatization within the automobile industry. The article describes the country’s efforts to greatly reduce import restrictions.

“Import Requirements and Documentation.” Doing Business in India: 2010 Country Commercial Guide for U.S. Companies. US Commercial Service: United States ofAmerica Department of Commerce, 29 April 2011. Web. 27 Nov. 2012.

The article describes the state of the automobile industry within India, focusing on its successful growth and the hope for a globally integrated future in the nation given the continuation of growth in the manufacturing sector of the economy.

“India: Measures Affecting the Automotive Industry.” World Trade. World Trade Organization Appellate Body, 19 Mar. 2002. Web. 27 Nov. 2012.

Information on the April 16, 2012 meeting between India and China, among others, that outlined plans to relinquish nontariff barriers by 2013.

“Leading Sectors for U.S. Export and Investment.” Doing Business in India: 2010 Country 

Commercial Guide for U.S. Companies. US Commercial Service: United States of America Department of Commerce, 29 April 2011. Web. 27 Nov. 2012.

Description within the U.S. Department of Commerce of India’s struggling agricultural sector, including price distortion, declining public investment, and high import tariffs. The article focuses on the effect of the agriculture industry on the Indian economy as a whole.

“The Economy: Express or stopping?” economist.com The Economist, 29 Sept. 2012. Web. 29 Nov. 2012.

The Economist provides information on the problems within the Indian economy that stem from poor agricultural infrastructure, high unemployment, and the high cost of labor. The article mentions the success of a few open markets, but suggests that agriculture’s severe issues will handicap the economic future of the nation as a whole.

Cuban-Virginian Relations…Hope for a More Open Future?

The United States is famous (or really, infamous) for its agricultural subsidies that support American farmers and in doing so prevent foreign farmers from entering the economy. Economists go crazy because of the economic inefficiency and American consumers are faced with higher prices for their run of the mill cantaloupe.

The Washington Post is reporting something different. In a surprising twist of events, one article documents the struggles of Henry Chiles, a nearby apple farmer in Charlottesville renowned for his produce but unable to expand his business to neighboring Cuba because of trade embargos placed on the communist country. The issue is an interesting dilemma—again, we have economic inefficiency, but in this instance the political ramifications for opening up borders with Cuba and expanding the same subsidized industry within the U.S. are too much to cash in upon the benefits of an increase in trade.

The article makes an interesting distinction within the context of a discussion about two countries and their political differences. While the United States as a whole has seen an enormous drop in exports to Cuba (the article cites a move from $711.5 million in 2008 to $363.3 million last year), Virginia as a state has grown in their exports. According to author Laura Vozzella, this increase in Virginian demand abroad is the result of good relations between companies in the state and the Cuban government. Vozzella includes the expertise of one consultant focused on trade in Cuba that explains that, “so many products are so competititve, and they’re priced by the world market anyway. It comes down to two suppliers at basically the same price – that’s where the personal contact becomes very important.” Ironically, despite the economic inefficiency of the national trade embargo, Virginia as a state has experienced economic benefit from an increase in efficiency.

Virginia’s opening of its borders with Cuba speaks to a hope for future national openness, albeit one that must begin with a better relationship between the two nations as a whole. Despite the fact that the trade embargo established by JFK during the Cold War has been reduced, borders between the two nations must be opened even further if economic efficiency is to be reached. The problem then becomes political: even though the Cold War ended more than twenty years ago, anti-Communist sentiment remains. The U.S. as a capitalist country must resist any vestiges of Communism, but ironically, the efficiency of free-market capitalism is being hindered by its own political concerns.

            The issues are thus more political than economic, and for now Virginia will wait, and continue to reap the rewards of a mutually-beneficial relationship. As the farmer Chiles explains, “we know sooner or later that Cuba will open back up again…it’s a market that’s close to us. It makes sense for us to export as close to home as we can.”

Here’s the article:

http://www.washingtonpost.com/local/va-politics/va-farmers-find-eager-trade-partner-cuba/2012/11/25/59834264-3018-11e2-ac4a-33b8b41fb531_story_1.html

Not a Surprise: More Problems in Italy

Reuters published an article this afternoon about manufacturing within Italy, and it immediately sparked my attention because I’m headed there in January for the semester. Not surprisingly considering it’s Italy, but the article talked about the heavy corruption that led to the demise of a steel plant within Taranto in southern Italy.

            As the article introduces, the closing of the plant is problematic because Italy has been plagued by a slow economy and most afflicted by incredibly high unemployment. The government had tried to spur economic activity by taking over the company that ran the plant, but the government in Italy is notoriously corrupt—hence the (alleged) problems with bribery and scandal at the highest levels of the company.

            The article doesn’t address the following issue, but I found it relevant given our IPE discussions. Italy has long been a developed country, and yet it has fallen behind in comparison to the US, China, and even other European countries such as Germany. The country, as the article documents, is dependent upon the manufacturing sector of its economy and represents a focus on a less-advanced industry in comparison to other developed countries.

            Furthermore, the article mentions the “shrinking number of major manufacturing employers in the poor and underdeveloped south.” The issue reminds me of China, where wealth has not been effectively distributed to the more underdeveloped villages in the nation in comparison to the wealthy cities. And yet, Italy does not have the same excuse of massive size in comparison to China—much less infrastructure is needed.

            The bottom line is that the government’s early actions to bail out one manufacturing plant seem to be an ineffective bandaid on a bevy of larger problems. Corruption, ineffective infrastructure, and inequality are plaguing the nation and don’t appear to be disappearing anytime soon. It’ll certainly be an interesting semester.

Here's the link to the article: http://www.reuters.com/article/2012/11/26/us-italy-ilva-idUSBRE8AP0Z520121126

Buying a plane ticket to Greece? Not quite yet.

Reuters posted an article tonight that reports that Greece has finally reached an agreement with the IMF in order to relieve some of its debt and hopefully spur its economy back into fruition. The article reminds me of a couple issues that we have discussed recently in class, not necessarily specific to Greece but relevant in light of their recent struggles.

The first of these is that we have talked in class about how the IMF is often painted as the ‘bad guy’ even after bailing out countries because of the austerity measures they force upon any country needing their assistance. And yet, the article seemed supportive of the organization, lauding their ability to effectively negotiate a deal with Greece that would both spark its economy and also keep other countries in the EU from facing financial difficulty after funding the efforts in Greece. Germany, for obvious reasons, receives special attention and goes so far as to suggest that “a debt cut was legally impossible, not just for Germany but for other euro zone countries, if it was linked to a new guarantee of loans.” Important to note is that news of the specifics of the debt relief wasn’t available, and so German resistance is to one option among a multiple of potentially viable debt relief.

Another element of the debt relief related to the portrayal of the IMF was the implicit debate over whether Greece has the necessary institutions in place in order to effectively use their debt relief in order to help their economy function. Just as with developing countries, foreign aid cannot be helpful without programs established within the country that spread money throughout the nation.

And given this insecurity, will foreign investors want to place their money in a country so dysfunctional even forced IMF sanctions may not be enough? Especially considering much of Greece’s economy is built upon tourism, its financial solvency depends on a positive impression of the country by foreigners around the globe.

These questions are not to discredit Greece or the IMF, but rather to suggest that the article’s celebration of new European success (the article mentions that “the euro strengthened against the dollar after news of a deal was reported by Reuters) should be taken with a grain of salt. Financial solvency for Greece and the EU might be on the way, but it’s not there quite yet.

Not Your Average Energy Island

Returning to my earlier focus on the news concerning U.S. oil production, I wondered what the international opinions of the development would be. From Saudi Arabia they are probably (and understandably) pessimistic—the US would be too if our largest resource might be rendered obsolete.

I found articles on the same subject from the UK (BBC News) and South Sudan (The New Nation), however, and they were surprisingly unconvinced that the US would succeed in fulfilling its announcement. Both articles recognized the danger of the new technology in terms of environmental concerns, while the New Nation article also highlighted the IEA’s warning that the technology “would not insulate the US from developments in international markets and remove its vulnerability to price spikes.” It discourages the popularization of the US as an “energy island,” and reinforced the lack of feasibility in creating a country independent of foreign influence.

The New Nation article made one more insight that I found somewhat disarming. From an international perspective, the author wonders whether the US will cease to patrol the world’s sea lanes it depends upon to transfer oil, and whether China will take over this role. Ironically, China is increasing its dependency on foreign oil while the US attempts to reduce it, further suggesting that China’s imminent dominance might not be the threat it appears.

New Nation article link: http://thenewnationbd.com/newsdetails.aspx?newsid=57255

BBC News article link: http://www.bbc.co.uk/news/business-20304848

Self-Sufficiency and U.S. Oil

Thomas Dietz’s article on the tragedy of the commons outlines a number of concerns that span not only IPE but also sociology, biology, etc. The depletion of natural resources common to the world is a legitimate concern; Dietz is quite convincing in that respect. However he focuses entirely on those resources which are common to the globe. This is the premise of his argument so that makes sense, but I found it hard to read an article about the political ramifications of environmental concerns without thinking about the world’s (specifically U.S.’s) dependency on oil.

In terms of foreign relations and international economies, oil seems to be second to no other concern. Perhaps Dietz’s common focus can be attributed to the fact that the article was written in 2003, because the Washington Post ran an article today in which foreign relations in the Middle East and oil production were at the forefront of the news. The article in the Post is actually much more optimistic than I expected when scanning over the words “U.S. oil” and “Saudi Arabia.”

The article cites new technology in extraction methods as reasoning behind why the U.S. will in the next decade become nearly self-reliant in oil production. The U.S. dependency on foreign oil based in the Middle East has dictated much of foreign policy in the past few decades, and the newfound self-sufficiency will help bolster national security.

The most disturbing piece of the article in my opinion was a small blurb that appeared somewhat out of context at the end of the essay. The author mentions that, “in emerging nations, government subsidies will continue to spur fossil fuels use, even as lower-carbon energy sources become more popular.”

Although the U.S. may strengthen its Middle Eastern relations by subsidizing its own eco-friendly energy sources, the move will also widen the gap between developing and developed countries. The article doesn’t go into enough detail to predict whether this will spawn new political energy turmoil in the future, but it seems unavoidable. By improving relations in one area of the world, the U.S. is worsening them in another.

Link to the Post article: http://www.washingtonpost.com/business/us-oil-output-to-overtake-saudi-arabias-by-2020-iea-says/2012/11/12/4b89c9ee-2cf3-11e2-b631-2aad9d9c73ac_story_1.html

The U.S. Election and IPE

The election is over, but coverage continues. The race between President Obama and Romney was exciting, but it hampered any discussion of IPE within the news as the candidates focused on social issues in the last few days despite largely economy-driven campaigns. In what may seem as if a bit of a stretch, I wondered how this Reuters article about the post-election fiscal cliff relates to our recent Krugman reading.

In criticizing the lack of banking regulation during the early 2000s, Krugman says that, “the Bush administration used federal power, including obscure powers of the Office of the Comptroller of the Currency, to block state-level efforts to impose some oversight on subprime lending” (164). Krugman advocates higher regulation rather than increased innovation in 2004, rejecting Alan Greenspan’s proclamation that the financial sector has “become more resilient.”

Given the danger of the fiscal cliff, would Krugman likewise suggest that we must continue to regulate banks and punish Wall Street for their role in the financial crisis? It seems as though he would be less willing to dismiss the need for financial innovation if he saw the trillion-dollar debt and $600-million dollar tax increases that the article addresses.

The fiscal cliff, as the article mentions, will also be affected by a vote in Greece’s parliament to approve an austerity package with international aid. Upon further digging through Reuters, the austerity package was in fact approved albeit by a narrow margin, but doubt for Greece’s future in the EU remains.

Doubt also exists in terms of Obama’s future and the market. After the election results emerged, the DOW dropped 312.95 points (as documented in the article). Despite Obama’s reelection, the threat of the fiscal cliff and the solvency of the American economy continue to haunt the financial sector. Is the regulation that Krugman lauds in 2004 still essential?

Sorry for the political underpinnings of this blog post, it’s the effect of the omnipresent election. There are vestiges of IPE within it, even if they are sometimes hard to find.