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International Business Brief

Julian Grebe

INTST 150 – International Business

Bellevue College

Fall 2009
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Julian Grebe

International Business 150

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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 Ecuadorian-
made 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,
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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.
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"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
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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
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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.
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"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
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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

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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 ©)
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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
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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
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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.