Why consumers in The Bahamas should care about trade and the World Trade Organization (WTO)

Why consumers should care about trade and the WTO

Everyone is a consumer at some point, even businesses, even government. So everyone should be concerned about the impact of wide-open trade on consumers, particularly in a small nation.

Any discussion on the pros and cons of open trade should be about more than just the option of having many more foreign products to choose from in your local market. Open trade discussions should be about more than having a bigger external market for products you don’t or can’t yet produce. Open trade discussions should be about more than the quality of products that enter the local market or the quality standards of the products that are exported.

All of these things are important, but consumers are affected by trade and the absolute free trade of the World Trade Organization (WTO) in much more profound and long-lasting ways than these, because of the inescapable general effects of trade on an economy.

One formula that explains the components of gross domestic product (GDP), which is the benchmark statistic for productivity in any nation, is referred to as the expenditure model. Though not perfect and under considerable review as the yardstick measurement of choice, especially for small countries, GDP prevails as the chosen statistic for evaluating the productivity of an economy.

The expenditure model, in particular, assumes that whatever a country makes is more or less equivalent to what that country spends, or rather what each constituent part of the equation spends. The rationale for this is that whatever is produced has to be bought by someone somewhere in the national economy, however long that process takes.

The economics behind productivity

The expenditure model for GDP in macroeconomics is defined as Y = C + I + G + (X-M), where ‘Y’ is GDP, or everything produced by a country.

‘C’ represents consumption by individuals in an economy, and the GDP equation accounts for all the salaries those individuals earn as being equivalent to the money they spend. The spending by average consumers in the economy accounts for roughly two-thirds of all economic activity. That is how important everyday people are in the success or failure of their economy.

“I” refers to spending by businesses, as opposed to individuals, and it includes (new) capital expenditures to start or grow a business.

“G” represents government spending, which includes spending on defense and other new or additional infrastructure or investment spending by the government. G does not include transfer payments, which is spending on social welfare, as such payments are simply a redirection of money already in the economy or already accounted for in another component of the GDP equation.

“X–M”, or “NX”, refers to net exports, if a country is engaged in trade. A negative number is a trade deficit, and a positive number is a trade surplus.

Now, anything done to the right side of this GDP equation, which assumes a state of equilibrium, ceteris paribus, increases or decreases the left side of the equation, overall GDP, i.e., the national measure of productivity.

To keep it very simple, with respect to trade and net exports (the balance of trade), if X = 700 and M = 400, then our trade surplus is 300, and overall trade, Y, GDP, is higher than if the export/import numbers were reversed, all other things being equal.

If X = 200, and M = 600, then our trade deficit is 400. And overall trade and overall GDP, are lower than if the export/import numbers were reversed, all other things being equal.

If X falls from 200, by 100, and M remains at 600, then our trade deficit grows by 100 to a total of 500, and overall GDP falls more, all other things being equal.

If X and M stay the same, and all other things are equal, there is no change in overall GDP, and productivity is relatively unchanged, which is not a likely occurrence.

If M increases to 800, while X is still just 200, and all other things are equal, then our trade deficit grows even more.

Now this example is oversimplified to emphasize the effect of trade, and there are other things to be considered in trade, for example the fact that trade also occurs in services. But to study the impact of each part of the GDP equation, we have to isolate them one at a time and assume that in the moment nothing else changes. Depending on how much time has passed or how extreme other conditions become, other factors in the equation can either offset the negative impact of a trade deficit, or they can worsen it. But, for the sake of emphasis, we keep our equation, our factors and our example very simple.

The point of this explanation is that without a productive domestic sector, which provides goods (not only or primarily services) for trade, our ability to trade freely with many countries is almost irrelevant.

The necessity of domestic goods

If we produce little to export, in comparison to larger countries, what is our bargaining power really going to be based upon in any trade agreement? And in trading wide-open on the level that larger member countries enjoy in the WTO, how are we really benefiting if we can’t provide goods to trade?

We have little in the way of goods to export, because we have not sought investment in local industry to the extent that could fully maximize our output.

One of the things we can expect by acceding to the WTO is that imports (M in our equation) will increase to a much higher rate, in quantity and frequency, than exists at present.

Our exports value, X, will remain the same or fall, because competition with foreign imports, at least in the beginning, will be too fierce for local producers/exporters to manage adequate or competitive production.

The hope for wide-open trade is that, eventually, the cost of manufacturing will decrease and our exports can rebound, but systems must be in place (product standards, consumer protection regulations, etc.) in order to facilitate this. Moreover, considerable investments in property and equipment, which together produce goods for export, will need to take place, but with current limitations on business capital expansion, there is a very narrow window of time in which to do this.

And how do you grow exports in the middle of fierce competition, especially without a proper framework, plan or government subsidies, which are, in fact, counter to the purpose and expected benefits of free trade as provided for in the WTO?

This is why many believe that WTO-type trade agreements really only give larger countries a place to dump their inferior goods while still making money off of them. And it is why many believe the possibility of domestic production of almost anything that would be imported for little or nothing under such a free trade arrangement will disappear or even cause domestic production to implode. Essentially, wide-open trade is combative against a small domestic market that is chronically undeveloped or underdeveloped.

But there is even greater cause for concern painted by the bigger picture of our GDP equation.

If the value of M increases and the value of X can’t increase, that translates into a falloff in I, where there is less investment in local business, less in available salaries to be paid and less people being hired, such that consumers lose jobs and job opportunities, or their salaries are reduced in order for businesses to remain open, which ultimately reduces the buying power and consumption of individuals.

If C, consumers, are responsible for two-thirds of the active economy, the problem is an even bigger one, because consumers can’t spend what they don’t have. With less spending, the economy then becomes (more) stagnant, or depressed, and it stays the same with respect to growth or it begins to regress into a recession, which, with the implementation of a value-added tax (VAT), will further slow the economy.

Government salvation

In this horrible situation, the only other part of the productivity/GDP equation that can be manipulated in an effort to resurrect the economy is government spending. The more depressed the economy becomes, the more dependent the people will be on the government to restore it, especially in a country where the people rely on the government as a savior and sponsor for all things. But this is a prospect that does not bode well for a country already neck-deep in debt.

Present economic conditions and anticipated economic conditions post-VAT, require the government to inject money into the economy, either through increasing the money supply by printing more money to keep the economy going, or by lowering the prime interest rate charged to banks to allow consumers to be able to afford bank loans and, more importantly, for businesses to be able to afford bank loans for the capital they require to run or grow their businesses which keep people employed and earning income.

Because printing more money, a path the government already seems to be traveling, is inflationary, the preferred method of recovery is to lower the prime interest rate. Too much money, like too much of anything else in the economy, creates a glut; too much money in circulation lowers its value over time.

And with a fixed exchange rate regime, the question of devaluation, forced or otherwise, is raised. The Bahamian dollar value continues to be pegged to the U.S. dollar value in order to facilitate trade, with reliably-valued currencies.

But the very trade agreement we seek to be a part of, in the long run, can become a reason we have to devalue our currency, as trade partners and foreign investors can spot a weakened dollar value inherent in all of our problems in banking, government spending and domestic production.

And all of the deficiencies outlined herein – revenue, taxation, spending and trade – point back to the failure of successive governments to plan an economy that could survive, with strength, into the future.

These deficiencies are both a result of and a cause for the weak condition of our economy which, without extreme overhaul on the most basic level, will only degenerate further.

Where the answer lies

For all the reasons given, the only real answer to all of our most challenging economic concerns is to allow the foreign direct investment our governments are so hell-bent on to occur within and only within partnerships between foreign enterprise and local enterprise in industries that are fundamental to building and sustaining the economy and therefore the country.

This unique and very specific type of foreign direct investment through joint local partnerships only in vital, productive industries will help to increase domestic investment (I), which encourages consumer spending (C) increases, and increases exports (X) by the domestic production sector, which in turn reduces the need for government interjection and intervention (G) in what should be a free market.

The joint foreign-domestic partnership model in key industries also helps support the pegged exchange rate/value of the Bahamian dollar with respect to the U.S. dollar and prevents the likelihood of devaluation because you now have real trade of real exports produced by a real domestic sector, which engages in real productivity. And all of this is better in every way for all consumers.

• Nicole Burrows in an academically trained economist. She can be contacted at: nicole.burrows@outlook.com.

June 25, 2014

thenassauguardian

Making the WTO democratic

By Sir Ronald Sanders:


The World Trade Organization (WTO) held its fifth public forum in Geneva over three days beginning September 15. It has become a kind of international bazaar in which every conceivable idea on trade and development is discussed formally and informally by representatives of virtually every government in the world and more Non-Governmental Organizations (NGOs) than can be easily counted.

A great deal of talk takes place without too much follow-up action.

But, maybe that’s the point. People who talk to each other aren’t warring, so long may the talk continue.

That’s not to say that good ideas don’t emerge from this overcrowded market place. They do. But many perish shortly after they are unveiled, usually because representatives of a powerful government or group of governments regard them as a threat to their interest, and quickly kill them off.

I was in Geneva for a Writers’ Conference on a book on negotiations in the WTO for which I am contributing a chapter. All the writers are from what used to be called the “third world,” a description seldom used these days, not because we have miraculously graduated into some better world, but because other descriptions suit the agenda of those who dictate the form of discourse on the global economy. Far better, in their view, to describe poor countries as “emerging” or “developing” whether or not they are really emerging or developing.

The purpose of the book, which has been commissioned by a progressive organization called CUTS International, is to tell the story of the many aspects of WTO negotiations from the point of view of negotiators from developing countries.

When it is published, it should make fascinating reading. It will break new ground in presenting the personal knowledge and experiences of the writers who were either in the trenches of the negotiations or were marginalized from the “inner sanctum” in which only the rich and powerful nations enjoy belonger’s rights, and into which they invite only those they wish to suborn in order to stich-up deals.

Of the many features of the WTO which point to the need for reform, this insider trading - in what has come to be called ‘the green room’ - is among the worst. No democratically managed organization should continue a process which so blatantly excludes from decision-making the weak, poor, small, and vulnerable nations which – as it happens – make up the majority of world’s countries.

That it has continued so long is entirely the fault of the majority of governments who allow it to happen without tangible and meaningful protest, such as packing their bags and going home leaving the ‘green room’ insiders to deal only with themselves, and returning only when there is a table at which representatives of all parties sit as equals.

But, that would call for two things – courage and solidarity, two very scarce commodities among “third world” governments these days. National interests have changed, some argue, and in pursuing these interests following a “third world” strategy is not productive.

It is worth, noting, however, that a “developed countries” strategy has never altered. The world’s industrialized nations continue to cling to their councils and to exploit their advantages. For instance, the creation of the G20 (the industrialized nations and the larger and wealthier developed countries) has not overshadowed - let alone eliminated - the G7 (the industrialized nations alone) who continue to devise and coordinate their own global positions.

Against this background, I was surprised to hear Pascal Lamy, the Director-General of the WTO, say at the opening of this year’s Public Forum, almost boastfully, that while the G20 has signalled the requirement for institutional reform of some international organizations, “the WTO was not amongst them”.

Lamy went on to say: “That governance battle has already been fought in the trade sphere, and the outcome is a fairly democratic institution where the voice of the small cannot be ignored.”

I have no doubt that Lamy believes what he says, but his belief – however sincere and fervent – does not make his statement right. The governance of the WTO is still an open sore. Despite Lamy’s personal efforts, the organisation still reflects the preponderance of power by the industrialised nations and the marginalization of poor, small, and vulnerable countries.

“No board, no quotas. One member, one vote, is the background rule against which the WTO forges its consensus”, Lamy declared. Oh, were that to be entirely true, what a far better world would mankind inhabit than the one we endure today.

Sure, there is technically no board and no quotas, but every representative of a small or poor nation knows that decision making is still the preserve of a few nations whose economic power allows them to arrogate to themselves the right to dictate agendas and outcomes. The WTO is very far from the consensus decision-making body that it should be. It is still not yet even the “fairly democratic institution” that Lamy believes it to be.

Those who defend the ‘green room’ process do so on the basis that it is impossible to negotiate agreements with over 150 countries at the same table. There is truth in that. But it is equally true that representatives of like-minded groups of these countries can gather on sectorial issues that are important to them such as agriculture or services. This way their voices will be heard during the debate and account taken over their views.

Against this background, it is good for developing countries - and small and vulnerable countries in particular - that the Bahamas is now negotiating the terms of its accession to full membership of the WTO. No country can now afford to stay out of an organisation whose rules govern world trade, and every country should want a say in the rules of the game it has to play.

The Bahamas will strengthen the voice of small and vulnerable countries, who if they act with courage and in solidarity with themselves and other like-minded developing nations, can negotiate meaningful recognition and fair and flexible treatment for their people – in other words, try to make the WTO truly democratic.

September 17, 2010

caribbeannewsnow

Bahamas Blog International

Antigua and Barbuda: Wrong track, wrong direction

Wrong track, wrong direction
by Dr Isaac Newton:


I read Peter Richards’ article ‘Antigua Threatens Sanctions Against the United States’ on Caribarena’s online news with intense interest. I distilled that PM Spencer is expressing a certain brand of ‘righteous anger’ over the United States’ (US) refusal to settle the World Trade Organization (WTO) ruling with Antigua and Barbuda (A&B).

Spencer typically dwells on the egregious effect that the United States’ behavior has had on A&B’s economy. But he gives few considerations and realistic proposals of improving relations with the US. It is reasonable however, that Spencer should advocate that the US should respect voluntary codes of conduct consistent with international rules governing the WTO.

Amongst a thousand reasons, Spencer has one motivation to improve relations with the US. That is, A&B carriers the towering presence of Mount Obama—its highest peak, a tribute paid to President Obama by Spencer himself.

Overshadowed by years of failed negotiations, Spencer has arrived at a formidable impediment. He realizes that as a super power, the US is determined to protect its national interests with little regard for international monitoring and compliance verification of the WTO. The PM now is considering the option of imposing sanctions against the US.

The rational for Spencer’s decision is that the US has sustained its position through a prolonged process of sidestepping that offsets the nation’s progress, tantamount to abusing a small island state. There may be other complexities involved.

Yet, it is a discerning leader indeed who can make a wise choice between the ethics of a little axe cutting down a big tree, and the geo-politics of a M1A1 Abrams’ tank crushing a small rose.

Spencer’s decision is further compounded by a dangling political future at home. He awaits the Eastern Caribbean Court of Appeals’ decision, and within a month may be compelled to go back to the polls with the likelihood of descending into the valley of the shadow of death.

Adding more pepper to the stew, the PM is currently presiding over a deadbeat economy--- which is fundamentally dictated by IMF’s dominant interests. The prevailing mood amongst a vast sector of the population suggests a general exodus. Sensing his tenure is on the brink, and that voters believe his leadership amounts to a travesty of public service, Spencer seems trapped between getting results and the dramatics of appearing tough. Folkloric wisdom cautions, “You don’t cut off your nose to fix your face.”

In this context, imposing sanctions against the US invites a yawn and a smile. It also represents a public autopsy that Spencer is unable to handle the uncertainty of his office with keen thoughtfulness. Perhaps the PM may prove naysayers wrong, but to date, he has not gotten his leadership act together fast enough to reach expected potential.

At best, sanctions against the US may evoke symbolic sympathy from Caricom as well as some members of the international community. I cannot see any benefits whatsoever, bestowed to A&B, anytime in our preferred future. A&B cannot afford to erode its hemispheric relations with and economic ties to the US.

Perhaps Spencer should consider the possibility of another attempt at soft negotiations, even if in the past, this strategy might have been met with subtle but fierce resistance. It is quite possible that the road to effective diplomacy supported by patience, fresh eyes, and a philosophy of finding common ground, can effect flourishing change.

What the PM needs right now is a strategic intelligence pathway that produces a win-win for Antigua and Barbuda and the US. But this requires possibility thinking that does not align with Spencer’s natural mode of political miscalculations.

Seen through critical lens, Spencer has become a captive to the dogma that desperate times call for desperate measures. But the pragmatics of this strategy applied to the WTO’s case, will not yield financial reward or diplomatic right-thinking. Both of these ingredients are needed for the country’s long-term prosperity.

Although I have completely given up on Spencer’s leadership credentials to turn the ship of state in the right direction, the nation needs well-practiced operational-skills to address this matter. But Spencer will have to ignore his string of advisors, whose failed ideas are now brilliantly evident in the trademark of colossal failures, intrinsic to his administration.

Mired in high-stakes politics where perceptions of eroding ethics and unfair treatment intersect to destroy democratic values and international trust, Spencer should see by some force of miraculous intervention, that evoking sanctions against the US, will not guarantee our national successes or lessen our regional challenges.

Ultimately, the PM can not afford to pretend to operate in a vacuum. Should he move towards sanctions, he will induce an aberration, far too costly for our nation to bear. Sanctions would not hurt the US. At best, influential countries, whose economies are linked to Wall Street, may frown at United States’ non-compliance posture. And nothing will happen, except that A&B will feel untold pain.

I hope Spencer will reconsider his odd temptation, and push the envelope in the pursuit of doing what is right for A&B. Or he will continue on the wrong track--- heading farther in the wrong direction.

July 8, 2010

caribbeannetnews

Caribbean Blog International

Greek tragedy, Caricom, economic lessons for Jamaica

By Franklin Johnston



It is time for a mature discussion on Caricom and Jamaica and the EU/Greece crisis can guide us. Caricom is Jamaica's most costly overseas project. What do you know about it? Federation morphed into CARIFTA, now Caricom/CSME. I am "Carisceptic", as it hasn't delivered economic growth and I don't think it can. Jamaica is a global brand. Caricom is not, and for growth we must help our own first!

T&T is right to favour its industry and not give away its LNG. If we give away our bauxite, so be it. We need to chart our own growth path as they do. The Cabinet, PSOJ, UWI, Opposition must come clean. If Caricom is a device to draw down EU and other benefits, fine, but we need more to grow. Caricom has no traction here; most don't know it, the new HQ in Guyana does not affect us and as we are all "British" it is culture neutral.

Caricom is secretive. Where are its accounts? We work, sell and go on vacation north, so an oil spill off Louisiana concerns us, not in the Eastern Caribbean (EC). Caricom is of the cognoscenti; an elite club, those who make up the glitterati at its cocktail parties and banquets; workers have no part in it.

We need an independent inquiry. What can Caricom do for our economy? It went from common market to "single economy". What does this mean? Cabinet must publish full Caricom accounts, staff, expenditure, source of funds, etc. It cost us "a bag" since 1968 - for what? Now, with the shift from regionalisation to globalisation and WTO, is it relevant to our economic growth? No more speculation, we need answers!

What does Greece/EU teach us about Jamaica/CSME? We love Britain and our ex-slave, ex-colonial English-speaking brethren, but Caricom cannot just idolise "Britishness". The EC is not a destination of choice for us and the hostility at Air Jamaica's sale to T&T speaks volumes! Love at long distance is doomed as we are intimate with those close by! Notice, even our men go to Cuba, not the EC, to find wives and mistresses? Very French!

Caricom is our intergenerational project, but it does not work for us. The reason?

The preconditions to economic union are not met in our case. Consider the following:

*The EC is far from us and thousands of sea miles form a barrier to trade, travel, intimacy as they did for the Caribs and Columbus. English heritage is our only link with the EC.

*The union of several small, poor, distant island states with no major natural resource or intellectual property base cannot benefit our economy. CSME is politics, not economics!

*Our large population relative to the size of Caricom (ours is equal to the combined islands), our chronic poverty and failure to be sustainable in our heyday of bauxite and export preferences give our partners no confidence, and though rich, they are too small to support us. Let's now compare some common EU and CSME goals:

*Free movement for work, play and study. This works for Greece but not for us. Greeks can travel in the EU cheaply by air, car or on foot. Only UWI, government officials and the rich can travel in Caricom. Workers from poor members go to rich EU states to find jobs. Our workers are not allowed into the EC to seek employment.

*Common currency. If CSME had a common "cari" our debt would hurt all members. The euro is inflexible, so Greece can't devalue to help itself as it would hurt the eurozone. But the EU has mobilised US$1 trillion to help it. What does Caricom do to help us? Nada! One euro buys little in the north, but a lot in the south, so UK citizens live or work in Greece for the good weather and cheap living. Life is cheaper in the EC but we are not allowed to live there. Britain is not in the euro, but gives billions of pounds to save it as Greece's demand keeps UK factories open. Does T&T, our "trade gorgon", do this for us? No siree!

*Free trade. Caricom trade just makes us owe the EC more. Greece gets subsidy for farms and industry from the EU. In our distress do we get Caricom subsidy? No!

*Integration, fiscal, monetary discipline. The EU rides its members hard. They have to be prudent and balance their budgets. In the EU crackdown on Greece, they require cuts in spending, wages; higher taxes and oversight - it's done; budgets may soon be sent to the EU for approval and banks to pay a levy to fund bailouts. Germans cuss Greece as "lazy freeloaders" and Greeks cuss the EU and Germany as "Nazi", but Greece submits as the subsidies are good! Would we send our budget to Guyana for approval? No way!

The non-economic benefits of Caricom are modest and not unique. Check this:

*Our knowledge-based goals as CCJ can be had without union, some from "English" Canada, or India. We can get weather, legal services etc, based on treaty or payment.

*We all need new friends. EU masons, waiters, etc, work in Greece, the UK, and make friends - this is not so in Caricom. Only our officials and the rich have friends in Caricom!

*Our neighbours offer richer cultures than Anglocentric Caricom. Why not embrace all - French, British and Spanish? Let's unite with our close neighbours and enjoy their opera and ballet, then save up for that costly once-in-a-lifetime trip to T&T carnival!

*We share an ocean, geology, tectonic, climatic, security and air space with Haiti, DR, Puerto Rico, Cuba and our growth, environment and security future is with them. Will Caricom protect us from thousands of miles away? UWI has the EC and UTech must build joint campuses in Cuba, Haiti, DR; exchange students; train multilingual technologists, professionals, managers for job opportunities in the global economy.

We have Usain, Asafa and Bob but the EC states have Kim, Viv, Ato, Rihanna, Armatrading, some Nobel laureates and surpluses - Caricom works for them. Only growth and jobs can save us, so we need to do things differently. Do we focus on a distant market of 3m in Caricom or the 30m market of our close neighbours? A "no-brainer!" Stay conscious!

Alert: To raise standards, top UK universities may no longer admit students who resit A-levels and qualifying exams. One-one coco won't do, so if you got the subjects, but not at the first sitting, then apply to a second-rate university. UWI and UTech, please note!

Dr Franklin Johnston is an international project manager with Teape-Johnston Consultants, currently on assignment in the UK

franklinjohnston@hotmail.com

June 04, 2010

jamaicaobserver

Bahamas Blog International