The Two Faces of International Commodity Trade

March 27, 2013 by

Global Geopolitics & Political Economy / IPS

Pascal Lamy

GENEVA, Mar 27 (IPS) – For decades, commodity trade has been understood from the point of view of “commodity dependent” exporting countries, those whose revenues are largely generated by commodities exports. The trend of decreasing agricultural commodity prices was the focus of attention. However, from the beginning of the 2000s, there was an upward trend in agricultural commodity prices culminating in the price peak of 2007-08.

Following this period, food prices have started to ease but remain at relatively high levels underpinned by continuing strong demand resulting, among other factors, from the “nutritional transition” that goes hand in hand with poverty reduction, rising costs of inputs and often slow reaction of supply to price signals, stemming notably from partial “marketisation” of livelihood farming.

Nominal prices of agricultural commodities are expected to trend upwards over the next ten years, or even more, and are projected to average 10 to 30 percent above those of the previous decade.

PLamy-300x234

Pascal Lamy. Credit: Couresy of WTO.

These developments have shifted the focus from commodity trade, and more specifically food commodity trade, more towards importing developing countries and the bill they have to pay for their food commodity imports. This is the “food security” concern, which is an important one for the global community.

Does looking at the two faces of the same “commodity coin” imply some contradiction as regards the role of the World Trade Organisation (WTO) in opening trade and the disciplines applicable to international commodity trade? On the contrary, the WTO can contribute to ensuring that commodity trade can address both import and export priorities.

Export subsidies are recognised as the most egregious form of trade distorting support. In the past, export subsidies contributed to decreases in already low world prices, with negative consequences for producers and exporters from developing countries. While agricultural commodity prices are generally higher now, it remains true that eliminating export subsidies and agreeing on further disciplines on export credits, exporting state trading enterprises and food aid modalities would contribute to a less distorted and more predictable international trading system.

Export restrictions can contribute to unpredictability and price volatility. By promoting consistent and predictable trade measures through binding and transparent rules, the WTO could bring a more positive contribution.

Policies that support domestic prices, or subsidise agricultural commodity production in some other way, artificially encourage production. These policies end up discouraging imports or leading to subsidised exports having a direct impact on more efficient producers in other countries. Reducing trade distorting domestic support would therefore increase global welfare by eliminating inefficiencies introduced by government intervention and offer producers a fairer price.

Regional and bilateral agreements tend to leave domestic support out of their scope. The multilateral negotiating table remains the sole forum for ensuring a fairer trade in agriculture products, one that allows countries to better capitalise on their comparative advantages.

Consider the case of cotton. A number of poor countries are dependent on cotton exports for their economic development. However, the cotton sector remains highly subsidised, especially in some developed countries as well as in some emerging ones. These subsidies depress prices and increase the difficulties faced by countries such as Benin, Burkina Faso, Mali and Chad. Progress has been made in this area, especially on strengthening the development support aspects, or on improving market access for cotton exporters but more remains to be done, in particular to address the trade distorting subsidies that remain.

Bound tariffs on agricultural goods remain substantially higher than those on manufactures almost everywhere around the world. Furthermore, tariff escalation where tariffs increase with value addition to commodities is frequent in agriculture. Reduction in peak agricultural tariffs increases market access opportunities for countries enjoying a comparative advantage, can lower the cost of food for consumers and also allows for the diversification of production, including value-added processing, and export markets.

Trade opening has created opportunities for agrifood firms to reorganise their production and distribution systems around value chains. A particular challenge is to ensure that smaller companies in poorer countries can join in value chains. Aid for Trade has an important role to play here. This is why the WTO’s Fourth Global Review of Aid for Trade, to be held next July, will focus on connecting to value chains including in the agrifood sector.

With the help of surveys by companies on the ground, we will examine the barriers which developing countries face in entering, establishing and moving up value chains, something that is of key importance for commodity exporters too.

Recommitting to commodity sector development in all its aspects is crucial to the objectives of promoting growth and eradicating poverty.

All rights reserved, IPS – Inter Press Service, 2013.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Development, Report, Trade Tagged With:

As Cyprus Collapses, It’s a Race to the Mediterranean Gas Finish Line

March 27, 2013 by

By. Jen Alic of Oilprice.com

Cyprus is preparing for total financial collapse as the European Central Bank turns its back on the island after its parliament rejected a scheme to make Cypriot citizens pay a levy on savings deposits in return for a share in potential gas futures to fund a bailout.

On Wednesday, the Greek-Cypriot government voted against asking its citizens to bank on the future of gas exports by paying a 3-15% levy on bank deposits in return for a stake in potential gas sales. The scheme would have partly funded a $13 billion EU bailout.

It would have been a major gamble that had Cypriots asking how much gas the island actually has and whether it will prove commercially viable any time soon.

In the end, not even the parliament was willing to take the gamble, forcing Cypriots to look elsewhere for cash, hitting up Russia in desperate talks this week, but to no avail.

The bank deposit levy would not have gone down well in Russia, whose citizens use Cypriot banks to store their “offshore” cash. Some of the largest accounts belong to Russians and other foreigners, and the levy scheme would have targeted accounts with over 20,000 euros. So it made sense that Cyprus would then turn to Russia for help, but so far Moscow hasn’t put any concrete offers on the table.

Plan A (the levy scheme) has been rejected. Plan B (Russia) has been ineffective. Plan C has yet to reveal itself. And without a Plan C, the banks can’t reopen. The minute they open their doors there will be a withdrawal rush that will force their collapse.

In the meantime, cashing in on the island’s major gas potential is more urgent than ever—but these are still very early days.

In the end, it’s all about gas and the race to the finish line to develop massive Mediterranean discoveries. Cyprus has found itself right in the middle of this geopolitical game in which its gas potential is a tool in a showdown between Russia and the European Union.

The EU favored the Cypriot bank deposit levy but it would have hit at the massive accounts of Russian oligarchs. Without the promise of Levant Basin gas, the EU wouldn’t have had the bravado for such a move because Russia holds too much power over Europe’s gas supply.

Cypriot Gas Potential

The Greek Cypriot government believes it is sitting on an amazing 60 trillion cubic feet of gas, but these are early days—these aren’t proven reserves and commercial viability could be years away. In the best-case scenario, production could feasibly begin in five years.

Exports are even further afield, with some analysts suggesting 2020 as a start date.

In 2011, the first (and only) gas was discovered offshore Cyprus, in Block 12, which is licensed to Houston-based Noble Energy Inc. (NBL). The block holds an estimated 8 trillion cubic feet of gas.

To date, the Greek Cypriots have awarded licenses for six offshore exploration blocks that could contain up to 40 trillion cubic feet of gas. Aside from Noble, these licenses have gone to Total SA of France and a joint venture between Eni SpA (ENI) of Italy and Korea Gas Corp.

But the process of exploring, developing, extracting, processing and getting gas to market is a long one. Getting the gas extracted offshore and then pumped onshore could take at least five years and some very expensive infrastructure that does not presently exist. The gas would have to be liquefied so it could be transported by seaborne tankers.

The potential is there: Cyprus’ gas discoveries adjoin Israeli territorial waters where the discovery of the massive Leviathan gasfield (425 billion cubic meters or 16 trillion cubic feet) and smaller Tamar gasfield (250 billion cubic meters or 9 trillion cubic feet) have foreign companies in a rush to cash in on this.

There are myriad problems to extracting Cypriot gas—not the least of which is the fact that some of this offshore exploration territory is disputed by Turkey, which has controlled part of the island since 1974.

Gas exploration has taken this dispute to a new level, with Turkey sending in warships to halt drilling in 2011, and threatening to bar foreign companies exploring in Cyprus from any license opportunities in Turkey. The situation is likely to intensify as Noble prepares to begin exploratory drilling later this year in Block 12.

In the meantime, there is no shortage of competition on this arena. Cyprus will have to vie with Israel, Lebanon and Syria—all of which have made offshore gas discoveries of late in the Mediterranean’s Levant Basin, which has an estimated total of 122 trillion cubic feet of gas and 1.7 billion barrels of oil.

Blackmailing Cyprus?

While Greek Cypriot citizens are not willing to gamble away their savings on gas futures, Russia and the European Union are certainly less hesitant.

This is both a negotiating point for Cyprus and a convenient tool of blackmail for Russia and the EU. Essentially, the bailout is the prop on a stage that will determine who gets control of these assets.

Theoretically, Cyprus could guarantee Russia exploration rights in return for assistance. As much as this is possible, the EU could ease its bailout negotiations if it becomes clear that a Russian bailout of sorts is imminent.

Gas finds in the Mediterranean and particularly across the Levant Basin—home to Israel’s Leviathan and Tamar fields—could be the answer to Russian gas hegemony in Europe. The question is: How much does Cyprus count in this equation? A lot.

Though only half of the estimated resources in the Levant Basin, Cyprus’ potential 60 trillion cubic feet of gas could equal 40% of the EU’s gas supplies and be worth a whopping $400 billion if commercial viability is proven.

Russia is keen to keep Cyprus and Israel from cooperating too much toward the goal of loosening Russia’s grip on Europe before Moscow manages to gain a greater share of the Asian market.

Russia is also not keen on Israel’s plan to lay an undersea natural gas pipeline to Turkey’s south coast to sell its gas from the Leviathan field to Europe. Turkey hasn’t agreed to this deal yet, but it is certainly considering it. This is fraught with all kinds of political problems at home, so for now Ankara is keeping it as low profile as possible.

With all of this in mind, Russia is doing its best to get in on the Levant largesse itself. While it’s also courting Lebanon and Syria, dating Israel is already in full force. Gazprom has signed a deal with Israel that would give it control of Tamar’s gas and access to the Asian market for its liquefied natural gas (LNG). Tamar will probably begin producing already in April at a 1 billion cubic feet/day capacity.

In accordance with this deal, which Israel has yet to approve, Gazprom will provide financial support for the development of the Tamar Floating LNG Project. In return, Gazprom will get exclusive rights to purchase and export Tamar LNG. It is also significant because Tamar is a US-Israeli joint venture—so essentially the plan is to help Russia diversify from the European market.

What does this mean for Cyprus? The chess pieces are still being put on the board, and both fortunately and unfortunately, Cyprus’ gas potential will be intricately linked to its bailout potential.

Source: http://oilprice.com/Energy/Natural-Gas/Cypriot-Bailout-Linked-to-Gas-Potential.html

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Filed Under: Economic Crisis, Energy, Europe, Featured, Geopolitics, Trade Tagged With: ,

Haiti-Dominican Republic Trade: Exports or Exploits?

February 17, 2013 by

Global Geopolitics & Political Economy / IPS

D24_products

A typical scene: mounds of Dominican products for sale in a marketplace in Pétion-ville, Haiti. Photo: Jude Stanley Roy/HGW

Correspondents

PORT-AU-PRINCE, Feb 16 (Haiti Grassroots Watch) – "I get everything at the Haiti-Dominican Republic: carrots, squash, eggplant, cabbage, peppers, eggs, salami," explained a merchant at the Croix des Bossales marketplace, her stand teeming with goods. "The border is what feeds us."The vendor – who refused to give her name for fear of reprisal from Haitian tax collectors – sells vegetables and other food products at Croix des Bossales, the biggest open market in Port-au-Prince. Here, as in Haitian supermarkets, mountains of Dominican pasta, towers of Dominican eggs, mounds of Dominican plantains and piles upon piles of tomato paste, ketchup, mayonnaise and other prepared foods are everywhere.

Haiti has food. But less and less of it is produced inside the country, and great deal of it now comes from the Dominican Republic, the Haiti Grassroots Watch (HGW) investigative journalism partnership has discovered. Haitian products are difficult even for merchants to find. "We can’t find them. They hardly even exist," one egg seller attested as she sat next to a tower of eggs in grey Dominican egg crates.

In hardware stores, sacks of Dominican cement reach the ceilings. In most of the eight stores visited by HGW teams, salespeople said cement from the neighbouring nation sold at a lower price than the "Haitian" product, which is actually imported and then bagged in country.

"Haitian cement is more expensive, but it’s better," a worker at one store, GB Hardware said. "Dominican cement is cheaper, but it’s also lower in quality." At another store, Alliance Distribution S.A., a salesman reported that it getting Dominican cement delivered was "easier and quicker".

Haiti undoubtedly needs these products. But is the flow of Dominican products a simple matter of exports, or is Haiti’s neighbor exploiting an economy weakened by a devastating earthquake?

Widening commercial deficit

Even before Haiti became independent in 1804, its economy was mostly extroverted, and governments after the revolution rarely developed economic policies that encouraged national industries and modernised agricultural production to keep up with population growth.

Local elites tended to export raw goods such as coffee, cacao, indigo and sugar and import foodstuffs and finished products. Haiti did not follow the "import substitution" trend that swept most ex-colonies in Latin America, Africa and Asia in the 1950 and 1960s, and up until the 1970s, Haiti was largely self-sufficient in food, cement and other products. Since then, the country has suffered an increasingly negative trade balance.

"We are following a growth model that weakens productive sectors in the face of imports and importers," explained economist Camille Chalmers, professor at the State University of Haiti and director of a platform of organisations who promote "alternative development".

The bordering Dominican Republic, however, followed a different path.

Their model goes back "50 or 60 years", according to Maria Isabel Gasso, president of the Santo Domingo Chamber of Commerce. "For a while, there were laws that promoted industries and production, and also laws promoting exports and the Free Trade Zones. These industries have been there for years…and they have benefited from various policies promoting exports and production."

Neoliberal knockdown

Neoliberal economic policies – reduction of protective tariffs, privatisation of state industries, and cuts to social services – at the end of the twentieth century took its toll on Haiti’s ailing economy. Tariffs on food and other agricultural products were first cut in 1982 and plummeted to zero or three percent in 1995. Today, Haiti has the lowest tariffs in the Caribbean.

The drastic reductions were part of the 1994 "Paris Plan", an agreement between the exiled government of Jean Bertrand Aristide and international actors such as the United States and the International Monetary Fund (IMF) in which the Aristide government would enact a series of neoliberal policies in exchange for international support for its return to power in 1994 after being overthrown in a bloody coup d’état in 1991.

Since 1995, Haiti’s trade balance has widened, from about 500 million U.S. dollars that year to about 2.2 billion dollars for the 2011-2012 fiscal year, according to the IMF. Similarly, the food "deficit" has grown from 242 million U.S. dollars in 2000 to 342 million dollars in 2007. According to the Haitian Ministry of Agriculture, Haiti imported 57 percent of its food in 2005. That figure is undoubtedly higher today.

Ministry of Commerce director general Luc Espéca is conscious of the damages wrought by these policies, admitting that local "producers can’t sell what they’ve grown. When you work had to produce something, but then you don’t make a profit, you get discouraged."

The neoliberal policies affected the economy in other ways too. The Aristide government had to sell off state enterprises, among them the state cement company, even though Haiti possesses all the raw materials necessary for cement.

Still, imports and lowered tariffs are not the only reasons Haiti’s agricultural production hasn’t kept pace with population growth. Factors such as the lack of public and private sector investment in agricultural production, or Haiti’s antiquated land tenure system, have all contributed.

"When I came back to Haiti in 1976, we made everything: pipes, cement, etc," remembered Gérald Emile "Aby" Brun, a vice president of the 30-year-old Haitian construction and architecture firm TECINA S.A, who regretted that his country no longer produces cement. The state telephone company, "the flour mill, the same thing happened to all of them", he told HGW, blaming in part Haitian "capitalists".

"The Haitian capitalist is afraid of the country’s instability and of the corruption of a series of governments," Burn continued. "He doesn’t want to take any chances and wait 10 or 15 years to make his profit. In fact, Haitian ‘industrialists’ are not industrialists at all. Three-quarters of them are vendors, merchants."

Haiti Grassroots Watch could not find exact data on the amount of Dominican cement exported to Haiti, but the Dominican Association of Portland Cement Producers said that six major companies employ 15,000 people and that cement makes up 21 percent of the country’s exports.

The direction of Haitian production

Many are calling for the Haitian government to rescue Haitian production, which cannot satisfy the nation’s demands. Dominican producers are increasingly capitalising on this weakness, especially since the January 2010 earthquake.

"The Haitian state is not defending Haitian economic actors," said Chalmers.

Gasso, of the Santo Domingo Chamber of Commerce, generally agreed. "I personally would like to see Haitian products here, but the Haitian government is the one who needs to promote what it needs to promote in Haiti in order for there to be exports," Gasso said. "They need a plan. When a boat leaves port without a destination, it doesn’t get anywhere."

Surrounded by mountains of Dominican vegetables and seated beside colleagues hawking Dominican pastas and eggs, the Croix de Bossales merchant agreed with Gasso. She wanted to see change but remained pessimistic.

"We need a change but where will it come from? I don’t know. All we hear are beautiful words," she said. "We need people to become aware so that we can rescue the country from this terrible situation."

*Haiti Grassroots Watch is a partnership of AlterPresse, the Society of the Animation of Social Communication (SAKS), the Network of Women Community Radio Broadcasters (REFRAKA), community radio stations from the Association of Haitian Community Media and students from the Journalism Laboratory at the State University of Haiti.

This report is part of the "New Visions for Haitian-Dominican Reality – More and better journalism" program, financed by the European Union and coordinated by the UNESCO Chair in Communication, Democracy and Governance at the Pontificia Universidad Católica Madre y Maestra in Santo Domingo, Dominican Republic.

All rights reserved, IPS – Inter Press Service, 2013.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Latin America, Report, Trade Tagged With: ,

Recovery in manufacturing needed to spur job creation

February 7, 2013 by

AAM – Thursday, February 07, 2013

Washington, DC – The Alliance for American Manufacturing (AAM) today praised a new report by the Economic Policy Institute (EPI) that sees trade deficit reduction as a key step for U.S. job growth. The study suggests that eliminating currency manipulation by trading partners, and investing in a series of coordinated manufacturing policies, could create between 2.2 million and 4.7 million U.S. jobs. Reducing the trade deficit could also lead to a manufacturing recovery, particularly in industrial states like Ohio.

“This report shows that Congress is obsessed with the wrong deficit,” said AAM President Scott Paul. “To grow jobs and boost the economy, we must eliminate the trade deficit. Ending currency manipulation will get us part of the way there, but we also need a smart manufacturing policy, one that focuses on innovation, public investment, skills, and trade enforcement.”

According to the report, the international U.S. goods trade deficit could be reduced by between $190 billion and $400 billion over the course of three years through elimination of currency manipulation on the part of America’s trading partners. Such a reduction in the trade deficit could reduce the national unemployment rate by between 1.0 and 2.1 percent, and create 620,000 to 1.3 million manufacturing jobs.

In addition, such a reduction in the trade deficit could shrink the federal budget deficit by between $78.8 billion and $165.8 billion as growth in output expands tax receipts and reduces safety net payments. These reductions would continue as long as the trade balance remained stable.

Currency manipulation is only one of many constraints on manufacturing job growth. Paul says that other countries’ dumping practices, along with insufficient U.S. investment in infrastructure and other factors have also been barriers to the recovery of U.S. manufacturing.

“Eliminating our trade deficit would be an incredible shot in the arm for the U.S. economy,” said Paul. “We are pleased the EPI report sheds light on this overlooked deficit. We commend Sen. Sherrod Brown for his leadership in working to grow manufacturing jobs in Ohio and the rest of the nation, and we look forward to working with him to enact common-sense solutions.”

AAM has called for the implementation of national manufacturing strategy, and Paul says the EPI report will add urgency to calls for a manufacturing recovery.

Said Paul, “With 7.9 percent unemployment and manufacturing jobs growth stalled, we need action, not talk. Solving our trade deficit must take precedence.”

READ THE FULL REPORT.

The Alliance for American Manufacturing is a non-profit, non-partisan partnership formed in 2007 by some of America’s leading manufacturers and the United Steelworkers to explore common solutions to challenging public policy topics such as job creation, infrastructure investment, international trade, and global competitiveness. For more information, please visit www.americanmanufacturing.org. 


Filed Under: Development, Featured, Trade, United States Tagged With: ,

Q&A: Raising Tariffs “Common Sense” Not Protectionism

February 4, 2013 by

Global Geopolitics & Political Economy / IPS

Minister-of-Trade-and-Industry-Rob-Davies_1-365x472

South African Trade and Industry Minister Rob Davies announced plans to increase tariffs where there is scope for this on chicken imported from Brazil and other countries. Courtesy: Department of Trade and Industry.

John Fraser

JOHANNESBURG, Jan 30 (IPS) – South Africa has denied that it is taking a protectionist stance to protect its own producers against foreign competition, but says it is justified in boosting tariffs where this is allowed under international trade agreements.Trade and Industry Minister Rob Davies spoke to IPS in Pretoria about the current trade landscape and the challenges the country will face in 2013.

He recently announced plans to increase tariffs where there is scope for this on chicken imported from Brazil and other countries, a move that was questioned by some South African trade experts, who had expected measures just against Brazil.

Excerpts of the interview follow.

Q: South Africa is to host the BRICS (Brazil, Russia, India and China) Summit in Durban in March, and you have been preparing for this through meetings with some other BRICS Trade Ministers at the World Economic Forum in Davos? What are the big issues on which you are focusing?

A: There will be a World Trade Organization (WTO) ministerial meeting in Bali at the end of the year.

A process is going on about a small package of issues for agreement at Bali, starting with trade facilitation, which will be easier for developed countries to meet. Many developing countries have resource issues. There is concern in the BRICS group that this is not self-balancing – many developing countries may have to take measures, but what are the benefits to them in other areas?

There is also the Doha Round (a wide-ranging WTO negotiation which has been going on without conclusion for over a decade). The BRICS say the Doha mandate is still valid, while some forces see that agenda being surpassed by an agenda on trade facilitation.

Q: Given the slow progress to date on the Doha Round, do you still see the WTO as relevant?

A: Through the WTO, there is a set of rules which are in place which are very important, and which set the parameters for any member country. As the negotiation of the Doha Round remains a slow task, the (WTO’s) dispute mechanism is becoming rather over-loaded.

I think there is an attempt to get developing countries to remove the space between their applied (actual) tariffs and bound rates (the higher tariffs which could be applied). The gap allows us space for implementing policy, and is something which was not in place in the 1930s.

Q: You recently announced that instead of imposing targeted anti-dumping measures against chicken imports from Brazil, you would apply a general tariff increase which would mostly impact those countries which do not have a specific free trade agreement with South Africa. Why this approach?

A: This is an issue which is covered by WTO rules and there are quite tight rules. We imposed provisional anti-dumping measures and then did an investigation. Brazil indicated they had concerns, which seemed enough for them to go to a (WTO) dispute settlement mechanism. We put a team in place to look at this.

We were well aware the Brazilians were going to fight this all the way through, as they do not have any anti-dumping duties against their chicken exports and this could have become a precedent.

Who knows if we would have won or not? We looked at the impact of the provisional duty (which South Africa imposed early in 2012 against chicken imports from Brazil). It was not that local production took the place of allegedly dumped Brazilian chicken. It was other imports (that filled the gap). The issue is imported chicken from all parts of the world. There is space to increase (the general tariff) and this will probably deliver better results for South Africa.

Q: Aside from the issue of Brazilian chicken, South African trade officials have said recently that tariffs may be increased on other imports. This is been interpreted as a move towards protectionism. How do you respond?

A: What we are saying is common sense. We haven’t set zero tariffs for everything across the world. We say there are ceilings on tariffs, but we never said tariffs can’t increase. With the onset of the recession, there are calls that we should use that space (between actual tariffs and the ceiling). We say protectionism is when you act against the rules, because the rules govern the status quo.

We haven’t seen a breaking of the rules, which has been a contribution to seeing that the crisis didn’t end in a great depression. We have seen a triple-dip recession in parts of the world – but that has little to do with tariffs.

Q: South Africa is hosting the BRICS Summit at the end of March. What can we expect?

A: This is the first time we will have hosted a BRICS Summit in Africa, and we are building a relationship between BRICS and Africa. Our ambition is to take the establishment of the BRICS Development Bank further forward.

There will also be a Trade Ministers’ meeting, linked to a business forum. There will be the launch of a BRICS Business Council to strengthen inter-BRICS relations. There will also be a BRICS’ co-operatives meetings. We are starting to define a programme of inter-BRICS cooperation.

We will use this as a platform for building cooperation with other countries, for example the African countries. The BRICS Development Bank isn’t just for the BRICS countries, but we also have an ambition to see it play a role in financing infrastructure in Africa, outside our borders.

Q: There is an overlapping organisation to the BRICS, known as IBSA (India, Brazil, and South Africa). Does the BRICS grouping make this smaller grouping irrelevant?

A: IBSA continues – there are some very important programmes. We have, for example, a strong set of co-operative agreements between small business agencies. These have been very valuable. The IBSA partnership was the basis on which we engaged in serious learning about industrial policy from Brazil, which was the basis of our own industrial policy action plan. This is not replicated in the BRICS.

All rights reserved, IPS – Inter Press Service, 2013.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Africa, Economy, Report, Trade Tagged With: , ,

Investment Treaties Can Prove Damn Costly

November 24, 2012 by

Global Geopolitics & Political Economy / IDN

A spate of lawsuits triggered by transnational corporations against Argentina, Ecuador, India. Indonesia, Uruguay, Vietnam, Australia and Canada, involving compensation worth billions of dollars is causing grave public concern and preparing the ground for reviewing so-called bilateral investment treaties.

By Martin Khor* | IDN-InDepth NewsAnalysis

GENEVA (IDN) – A growing number of international law suits has highlighted an emerging global crisis: the nature and effects of investment treaties signed between governments, which are allowing private companies and investors to sue countries for millions or even billions of dollars.

The most recent cases involving investment include a $1.8 billion judgment against Ecuador obtained by the U.S. oil company Occidental Petroleum, a $2 billion suit filed against Indonesia by a UK mining company Churchill, cases taken against Uruguay and Australia for public health measures by tobacco companies, suits threatened against India by several multinational companies, and even the seizure of an Argentinian warship in a Ghana port on behalf of a U.S. investment firm.

The law suits, which have resulted in judgments totalling many billions of dollars against governments, were taken by companies and investors claiming that their investments including future profits had been affected by a range of government policies, including non-compliance with contracts or new health, environmental or economic measures.

Most of arbitration cases are taken up in the ICSID (International Centre for Settlement of Investment Disputes), based in the World Bank in Washington.

The tribunal system is widely criticised for its lack of professionalism and transparency, its conflicts of interest and the secrecy of its cases and outcomes.

The epidemic of cases and the high losses that governments have suffered or will potentially suffer is giving rise to grave concerns and calls by several governments as well as public interest groups and legal experts to review and amend the agreements that have led to the legal suits.

The agreements are of two main types: the bilateral investment treaties (BITS) signed between pairs of governments (of which there are now around 3,000) and the investment chapter contained in bilateral or regional free trade agreements (especially those involving the United States).

Many of these agreements have “investor-to-state” dispute systems, under which a private company or investor can directly sue governments in an international tribunal by claiming that their property or profits have been “expropriated” or adversely affected by a violation of contracts or by recent policy measures.

The following are some recent cases of legal suits taken by investors against countries:

An ICSID tribunal in October awarded a judgment for U.S.-based Occidental Petroleum (Oxy) against Ecuador of $1.8 billion, its largest ever award, in a case taken under the U.S.-Ecuador BIT. In addition, Ecuador has to pay $589 million in backdated compound interest and half of the costs of the tribunal, making its total penalty around $2.4 billion. The government had annulled a contract with Oxy because it violated a clause that the company would not sell its rights to another firm without permission. The tribunal agreed the violation took place but judged that the annulment was not fair and equitable treatment to the company. (Source: Ben Beachy, Public Citizen Global Trade Watch)

The Indonesian government was sued in June for $2 billion by a London-based mining company Churchill, which claims its right to mine in Busang (East Kalimantan) was violated when the local government revoked the concession rights held by a local company in which it had invested. The government is countering the Churchill case, claiming that Churchill did not have the correct type of mining licenses. Law Minister Amir Syamsuddin said Churchill’s acquisition of a local company broke the law as they did not report nor get approval from the regency government and Jakarta. Two Ministers and other senior officials will be representing Indonesia at the case in ICSID. (Source: The Straits Times, Singapore, September 18, 2012)

The tobacco company Philip Morris sued Uruguay for alleged breaches to the Uruguay-Swiss BIT for requiring cigarette packs to display graphic health warnings and sued Australia under the Australia-Hong Kong BITS for requiring plain packaging for its cigarettes. The company claims that the packaging requirements in both countries violates its investment, including its trademark which as an intellectual property is an investment asset.

The Indian government has planned to review its bilateral investment agreements after foreign telecommunication companies gave notice that they would take up BITS cases against India after the 2G licenses given to them were cancelled by the Supreme Court in April 2012. The company Sistema invoked the treaty between India and Russia, while Telenor invoked the agreement with Singapore through which the telecom firm routed its investment, according to an Indian Express report, which also quoted a government official: “We need to relook clauses in such treaties in order to ensure that such an eventuality does not happen in the future again.”

There are two known pending cases taken in international tribunals against Vietnam. In 2010, U.S. businessman Michael L. Mackenzie, filed a case claiming that Vietnamese authorities failed to protect his investments in a resort development project in Vietnam. In 2011, the company Dialasie SAS sued Vietnam under the France-Vietnam BIT. Dialasie had a contract with Vietnam’s social security agency to operate a private dialysis clinic in Ho Chi Minh City but it was closed in 2006 amidst a series of disputes with local health-care authorities. (Source: Luke Eric Peterson, IA Reporter).

In November 2012, a U.S. energy company Lone Pine Resources sued Canada under the investment chapter of the NAFTA (North American Free Trade Agreement) for $250 million because the Quebec provincial government declared a moratorium on fracking (a method of obtaining shale gas) and also banned drilling below the St. Lawrence River, which the company claims is a violation of its drilling permit. (Sources: The Toronto Star, and The Globe and Mail, November 15, 2012).

The ease and unease

The ease with which investors are able to bring and win cases against governments for such a wide range of issues is due to the nature of the investment agreements.

First, the definition of “investment” which is the subject of the treaties is usually very broad, covering direct investment, portfolio investment, loans, franchises, licenses, contracts, intellectual property and other assets. Investors can bring up cases in claiming that their rights to any of these have been violated.

Second, the treaties grant national treatment, “fair and equitable treatment” and investor protection to investors. The definitions of these are so flexible that investors are able to claim their rights are violated for a wide range of reasons.

Third, many of the treaties prevent governments from controlling or regulating inflows and outflows of capital, and some restrict or disallow governments from imposing performance requirements on foreign companies.

Fourth, the treaties prohibit expropriation of the investments. The definition of “expropriation” is very broad; it includes direct expropriation such as takeovers of property but also indirect expropriation including “regulatory takings”, or the implementation of new policy measures that affect the potential revenue and profits of the investors. Thus, investors have sued governments for changes to or cancellation of contracts, and for health and environmental policies and regulations.

Fifth, some of the treaties allow for investors to directly sue governments in international tribunals, including ICSID, the Washington-based and World Bank-linked tribunal mentioned in most investment treaties. These cases have caused many governments to divert scarce time and resources to defend several cases.

Sixth, the arbitration system is riddled with major weaknesses that are not found in normal courts. In many cases, the tribunal members are lawyers who have also acted for investors in other cases. For example, in the case taken by Dialasie against Vietnam, the chair of the tribunal is a European lawyer who has also worked extensively as counsel for investors in many other cases.

According to international trade and investment expert, Chakravarthi Raghavan, “The ICSID panels are constituted of lawyers who sometimes are on panel, and sometimes suing for firms against governments, and don’t have any obligation to disclose conflicts of interest. It is time that BITs and ICSID system and these quite arbitrary, ‘arbitration’ panels are exposed.”

Seventh, the BITS arbitration cases are shrouded in secrecy. They are not held in the open, and the existence or results of cases are not officially made known.

Eighth, it is difficult for a country to exit from a BIT even if it has decided it is against its interests, as many BITs have a “survival clause”; the country is bound by its provisions 10-15 years after giving notice of exiting.

Outrage

The growing number of cases could also be due to the setting up of law firms, especially in the U.S. and Europe, that specialise in investment disputes, and which encourage investors to take up cases in order to profit or benefit.

The BITs as well as FTAs’ investment component have caused outrage among public interest groups which are concerned that these treaties prevent or punish the implementation of required health, safety, environmental and developmental measures.

Governments, especially in developing countries, are also increasingly concerned. Faced with a multitude of law suits, several governments have recently taken action to review or revise their investment treaties.

South Africa, after completing a review of its BITS, has decided not to sign any new BITS, will attempt to exit from or re-negotiate existing ones, and will formulate a new model BIT.

Australia, in April 2011, announced it would not agree to including investor-state dispute settlement provisions in its BITS and free trade agreements.

India in April 2012 announced it is reviewing its BITS, especially their dispute resolution component, after facing the threat of suits arising from a Supreme Court order nullifying the award of 2G contracts to several foreign telecommunication companies.

And some Latin American countries including Ecuador, Venezuela and Bolivia have expressed their serious concerns about BITs and announced their exit from ICSID.

The UN Conference on Trade and Development (UNCTAD), which has been a major promoter of BITS, is also changing its mind about the benefits of these treaties. It now distinguishes between the normal BITS which it calls “agreements for freedom of investors” and a new type of BITS which it terms “investment agreements for sustainable development”, and it is promoting the move from the first to the second type.

With so many problems arising and so many cases being taken against countries, the review and reform of investment treaties should be accelerated at both national and international levels.

*Martin Khor is the Executive Director of the South Centre. This article first appeared in the South Bulletin issue 69 and is being republished by arrangement with the South Centre. [IDN-InDepthNews – November 22, 2012]

2012 IDN-InDepthNews | Analysis That Matters

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Filed Under: Development, Diplomacy, Economy, Featured, Justice, Trade Tagged With: , , , , ,

Kyrgyzstan’s Economic Nationalism Threatens to Choke Chinese Trade

November 24, 2012 by

Global Geopolitics & Political Economy / IPS

Chris Rickleton

BISHKEK, Nov 23 (EurasiaNet) – A surge of economic nationalism is making life uncomfortable for Chinese companies working in Kyrgyzstan.Faced with obstacles to trade and investment in the restive republic, Beijing is looking for ways to mitigate risk. Kyrgyzstan, Chinese officials know, is not the only place in Central Asia eager for business.

Case in point: Early this month, Kyrgyzstan’s parliament voted to ban Chinese trucks from entering the country. Accused of damaging roads and monopolising trucking routes, the giant lorries, typically the HOWO make, are the same types of trucks that have been plying the domestic market with cheap consumer goods and fuelling Kyrgyzstan’s re-export trade for years.

Ironically, Chinese companies paid with Chinese credit are repaving many of the highways the lorries may be forbidden from traversing.

That’s not lost on proponents of the ban, who, in addition to insisting they are protecting some 60,000 domestic truck drivers and loaders, also perceive their giant neighbour as a threat to Kyrgyz sovereignty. Temirbek Shabdanaliev, head of the Association of Kyrgyz Carriers, a lobby group that pushed for the ban, says that “parliamentary deputies showed their patriotism” with the vote.

As it stands now, the legislation has no legal force until President Almazbek Atambayev signs it. Yet such a motion would have been unlikely prior to the country’s 2010 uprising, which ushered in a more pluralistic and capricious political system, say observers.

Under ousted President Kurmanbek Bakiyev, Kyrgyzstan’s economy became hooked to re-exporting Chinese goods to other Central Asian countries. Kyrgyzstan surpassed Kazakhstan as Central Asia’s leading importer of Chinese goods in 2009, its low tariffs effectively promoting Beijing’s trade interests in the region.

Bakiyev was no great negotiator, says Shabdanaliev. According to the trucker association head, Bakiyev’s administration signed a bilateral agreement with China in 2007 that permitted Chinese lorries to weigh up to 55 tonnes, including cargo. That marginalised local drivers who often operate smaller trucks.

At the start of this year, officials cut the upper limit to 48.5 tonnes, although corrupt border officials often overlook regulations, Shabdanaliev says.

“China’s wealth is good for us. It can enrich the country,” Shabdanaliev told EurasiaNet.org. “But in bilateral negotiations we must defend our national interests. If we let our guard down time and again, there won’t be a national interest to defend.”

Parliament’s Nov. 1 action, initiated by the nationalist former speaker, Akmatbek Keldibekov of the opposition Ata-Jurt party, came just days after a brawl between Chinese workers and local residents at the Chinese-operated Taldy-Bulak Levoberezhnyi gold field. The incident forced workers to abandon the site.

Writing in the Chinese press, the head of the Chinese Chamber of Commerce in Kyrgyzstan blamed “opposition parties” for creating “an unstable and risky situation” for foreign investors. He implied politicians were stoking fear of China to further their own business interests. The Chinese Embassy in Bishkek refused EurasiaNet.org’s request for comment.

These types of disruptions have not gone unnoticed in Beijing, where officials know they have other export options, says Alexandros Petersen, a China expert and author of The World Island: Eurasian Geopolitics and the Fate of the West. Beijing is investing in road infrastructure across the region.

Petersen argues that Chinese decision makers are “hedging their bets, building the Khorgos Special Economic Zone in Kazakhstan and opening new customs houses at the Kulma Pass to Tajikistan” to diversify its trade routes into Central Asia.

Moreover, while Kyrgyzstan’s liberal trade regime and WTO membership made it a convenient entry point for goods heading toward richer and larger markets, the country remains a small market in and of itself.

Recent events may force China’s trade chiefs to wonder whether Kyrgyzstan is worth the trouble, a pertinent question in light of the two-billion-dollar-plus proposed railway linking its western Xinjiang province with Uzbekistan via Kyrgyzstan. Many in Kyrgyzstan have loudly denounced that project, too.

As the current cargo row demonstrates, China’s economic might has not translated into political leverage in Bishkek’s halls of power. But on the streets, Beijing has friends: market traders and every day consumers.

Damira Doolotalieva – head of Kyrgyzstan’s Union of Traders, which represents entrepreneurs working out of two of Central Asia’s largest markets, Dordoi and Kara-Suu – has urged Atambayev not to sign the lorry law, warning of a potential backlash: Kyrgyz trucks carry only a third as much as their Chinese counterparts can haul.

Chinese carriers are thus cheaper, she says, and the extra expense of using Kyrgyz trucks will be passed onto local consumers. “Parliament has … taken a decision that will fall on the shoulders of regular entrepreneurs and simple people,” she said.

*Editor’s note: Chris Rickleton is a Bishkek-based journalist.

This story originally appeared on Eurasianet.org.

All rights reserved, IPS – Inter Press Service, 2012.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Asia, Featured, Politics, Trade Tagged With: ,

Global Rebalancing – Implications For Asia

November 16, 2012 by

Global Geopolitics & Political Economy / IPS

Supachai Panitchpakdi

Nov 15 (IPS) – Although it remains the fastest growing region, Asia is already experiencing an economic slowdown, with gross domestic product (GDP) expected to fall from 6.8 percent in 2011 to slightly below six percent in 2012. Several countries – including China, India and Turkey – have been adversely affected by weaker demand from developed countries.

Given the headwinds from the international economy, some developing countries have since relaxed their monetary conditions and many of them have applied countercyclical measures that are helping to boost household incomes and to maintain a much needed shift from external to domestic demand, alongside the role of investment.

China, for example, has played a critical role in global rebalancing, being the chief engine of world growth since 2009 and having reduced its surplus markedly (from 10 percent of GDP in 2007 to two percent in 2012) as it shifted its economy towards domestic demand.

In China and other major economies in the region, however, internal rebalancing remains unfinished as private consumption should take on a greater role relative to investment. High wage growth will help to support this goal as well as helping to promote further external rebalancing.

High and volatile commodity prices also present a risk to the rebalancing process for the Asian region, because they can be a drag on growth. Rising oil prices, for example, act as an immediate dampener on aggregate spending in fuel-importing countries, contracting spending more or less immediately, whereas any spendi, Ang expansion from fuel-exporting countries occurs only after a lag.

However the main risk continues to be concentrated in the developed economies, where the United Nations Conference on Trade and Development (UNCTAD) has long been concerned that premature and excessive fiscal austerity is choking recovery and growth unnecessarily. The developing economies in Asia have played a major role stoking the engine of growth since the crisis, but this could be derailed if there continues to be a decline in consumer demand from their traditional markets in the advanced economies, and the effects of a reduction in this demand would of course have further spill-over effects if it provoked a downturn in Asian household and investment demand.

The second aspect of the rebalancing has occurred after the crisis. Global trade rebalancing has been largely due to the decrease in China’s exports and the increase in its domestic demand. Trade imbalances for many other East and South-East Asian (ASEAN) countries have not altered significantly. In 2011, the trade surplus of ASEAN as a whole had recovered to its 2007 level and it is currently similar in size to that of China, at about 100 billion dollars.

The rebalancing of the last three years has been due to a number of factors: the worsening terms of trade, especially for China, the decrease in international demand for products collaboratively (vertically) produced by East Asian countries, and the increase in domestic demand in China.

In practice, while China’s trade surplus is largely related to its trade with high-income markets, that of other East Asia countries is largely owing to trade with China. Indeed, the trade surplus of ASEAN countries with China has been increasing in the recent years.

The implications of this rebalancing are largely related to Chinese imports from the region. In this regard, the increase in Chinese domestic demand and the weak international demand for Chinese manufactures are resulting in a shift in the composition of Chinese imports. In practice, China imports relatively fewer goods to fuel its export sectors, and more consumption goods to meet the increasing domestic demand.

In this context, regional partners serving the Chinese export industry (those with vertical supply chain links with China) are likely to continue to be negatively affected as long as demand for Chinese exports remains weak. On the other hand, regional firms serving the Chinese domestic markets are likely to show continuous growth. However, a caveat is that China’s demand for final goods is still largely met by domestic producers, and thus the increase in domestic demand may not have large external spillovers.

A reduction in international demand for Chinese exports may also accelerate the transformation of the Chinese manufacturing industry towards higher value-added goods. This clearly depends on the extent to which Chinese firms are able to upgrade along the value chain and to capture market share in these segments.

If (or when) this occurs, it may have repercussions for the vertical integration of production processes in the region. In practice, Chinese firms could turn from vertically integrated partners into competitors of firms in more advanced countries. On the other hand, the process of manufacturing upgrading may benefit less advanced economies in the region, which are presently competitors of Chinese firms.

Ultimately, what is most important is that regional markets remain open, so that rising domestic demand in each country is met not only by domestic enterprises but also by those operating in other countries of the region. (END/COPYRIGHT IPS))

* Supachai Panitchpakdi is the secretary-general of the United Nations Conference on Trade and Development (UNCTAD).

All rights reserved, IPS – Inter Press Service, 2012.

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Filed Under: Asia, Development, Economy, Trade Tagged With: , , ,

Bolivian Sugar Industry Recovers and Seeks Markets

November 13, 2012 by

Global Geopolitics & Political Economy / IPS

Franz Chavez

LA PAZ, Nov 13 (IPS) – Bolivia’s sugar mills are once again operating at full capacity, with producers flooding the domestic market and desperate to obtain permits to export a surplus of 138,000 tons to Chile, Colombia, Peru and the United States.The low point for sugar producers, marked by scarcity, speculation and smuggling, was in 2010, and remains a bad memory for this newly blossoming agroindustrial sector in the eastern department of Santa Cruz, home to four of the country’s five sugar mills: Guabirá, La Bélgica, San Aurelio and Unión Agroindustrial de Cañeros (Unagro).

The fifth, Industrias Agrícolas Bermejo Sociedad Anónima, is located in the region of Bermejo, in the southern department of Tarija.

This year, sugar production in Santa Cruz is expected to total 11 million quintals (506,000 tons). In Bolivia, the quintal, equivalent to 46 kg, is the unit of weight used for products like sugar.

Once domestic demand is met, a surplus of approximately three million quintals (138,000 tons) will remain. But according to the general manager of Unagro, Marcelo Fraija, “only one million can be exported with the government’s authorisation.”

A study conducted in 2010 found that investment in the sector in land, crops, industrial facilities, farming machinery and infrastructure totaled some 500 million dollars, said Andreas Noack, the manager of Social Responsibility at the Bolivian Foreign Trade Institute (IBCE).

That same year, the sugar mills in Santa Cruz produced 395,000 tons, while the one in Bermejo produced 42,366 tons.

Abrupt changes in weather patterns in the nine provinces of Santa Cruz, where 131,600 hectares of sugar cane are grown, led to a drop in production, and the government was forced to intervene in the market.

Domestic consumption that year was estimated at 345,000 tons, but the authorities deemed it necessary to impose price controls. The prices set for the Bolivian market were lower than those being charged in neighbouring Peru, and large quantities of sugar ended up being smuggled across the border.

With the domestic supply running out, the government prohibited exports and began to import sugar from Colombia. But the situation was finally resolved when the government backtracked and set a wholesale price closer to what the market-driven price would have been, and conditions returned to normal.

“We will never see a repeat of this period,” when imports were agreed upon by the government and producers as a means of “protecting food security,” Fraija told Tierrámerica*.

But the regulation of exports remains intact, for the purpose of guaranteeing the domestic supply, and sugar producers are calling on the Ministry of Rural and Agricultural Development to lift these restrictions.

In 2009, Bolivia’s sugar exports totaled 75 million dollars, although sales had reached over 100 million dollars in previous harvests. During the first nine months of this year, sugar exports totaled less than 17,000 dollars and account for a mere 0.19 percent of the country’s total exports.

“We are happy with the 2012 harvest,” which benefited from good weather conditions and loans granted by the government to sugar producers with terms of up to four years and guarantees from companies and unions, said Hugo Gutiérrez, former president of the Union of Sugar Cane Producers of Santa Cruz.

The harvest began in May, and attracted around 2,000 cane cutters and their families from the cold high plains of the Andes in western Bolivia to the sugar cane plantations of the eastern region, divided among roughly 3,500 landowners.

This year these seasonal workers were paid between 4.3 and 4.6 dollars for every ton of sugar cane cut. But when labour is scarce, plantation owners have been forced to pay up to five dollars and use machinery, Gutiérrez told Tierramérica.

Some plantations are up 500 hectares in size, but small producers grow sugar cane on parcels of between 20 and 300 hectares. The harvest is moving ahead full steam and will continue until late November, when the rains interrupt work in the cane fields.

“The government was right to be concerned over the amount of sugar leaving the country when prices were low,” Mariano Aguilera, the former president of the region’s largest sugar mill, Guabirá, told Tierramérica. But “today is different and clear trade policies are needed,” he said.

Producers have made sacrifices to transform their crops and adapt them to capricious climate conditions, said Gutiérrez. “On the one hand, the government helps us out with financial support, but on the other, it closes the doors to exports.”

Sugar producers are now facing an even bigger problem: international sugar prices are dropping. The world market price has fallen from 800 dollars a ton at the beginning of the year to 500 dollars, stressed Fraija.

In Bermejo, 1,165 km south of La Paz, despair is growing among producers due to the small amount of sugar sold on the domestic market and the lack of demand for the growing stored reserves.

Given this situation, a bill signed into law on Nov. 10 to create a tax to finance scientific research on sugar cane has met with fierce opposition.

The Sugar Cane Producers Union of Guabirá set up roadblocks on highways in Santa Cruz to protest the proposed tax on producers of 0.007 Bolivian pesos per liter of alcohol and 20 cents per quintal of sugar.

Producers see the measure as a duplication of efforts. A Centre for Research on Sugar Cane Technology Transfer has already been operating at the Guabirá Sugar Mill for a number of years.

* This story was originally published by Latin American newspapers that are part of the Tierramérica network. Tierramérica is a specialised news service produced by IPS with the backing of the United Nations Development Programme, United Nations Environment Programme and the World Bank.

All rights reserved, IPS – Inter Press Service, 2012.

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Filed Under: Economy, Latin America, Report, Trade Tagged With: ,

Manufacturing Works: New Post-Election Analysis Finds Manufacturing, China, and Outsourcing Dominated 2012 Political TV Advertising

November 13, 2012 by

Nearly 1 Million Ad Occurrences Focused on Jobs, Trade, and Outsourcing

Alliance for American Manufacturing

November 13, 2012—More than 975,000 mentions were made in presidential TV advertising about the key issues of jobs, outsourcing, and trade generally or involving China specifically, and Gov. Romney’s involvement with Bain Capital, according to a new report released today by Kantar Media’s Campaign Media Analysis Group (CMAG) conducted for the Alliance for American Manufacturing (AAM).

The new report analyzed the broadcast TV advertising airtime devoted to the presidential race as well as key Senate races in four industrial states: Indiana, Ohio, Pennsylvania and Wisconsin. The analysis was based on advertising tracked in all 210 U.S. media markets as well as on 11 national broadcast networks and more than 80 national cable networks.

“America’s airwaves were jammed with 30- and 60-second ads about persistent joblessness, the government bailout of the automakers, and the impact of outsourcing and trade—specifically, trade with China—on domestic employment,” said Elizabeth Wilner, vice president of Kantar Media’s Campaign Media Analysis Group. “Even in today’s service-and-dotcom economy, one of the most popular images in 2012 political advertising was the American factory. Whether depicted as desolate through chained gates or shot from a brightly lit, busy floor, the factory starred in an air war dominated by debate over the American economy.”

According to AAM Executive Director Scott Paul, “Both the Democratic and Republican candidates spent a stunning amount of money on television advertising to convince voters that they could best represent the interests of America’s manufacturers and their workers. Obviously they latched on to the right issues because jobs and outsourcing are absolute, top-of-mind issues. Across the partisan spectrum, these issues move voters.”

This summer, bipartisan pollsters Mark Mellman and Whit Ayres conducted a national poll for AAM that found voters greatly concerned about outsourcing, with 62 percent of voters saying Washington needs to get tougher when China violates trade agreements. And fully 83 percent of voters express an unfavorable view of companies that outsource jobs to China.

China dominated the trade debate overall. In all five of the races examined by CMAG, the majority of trade-centered TV advertising put the spotlight on China. In the Wisconsin and Indiana Senate races, China was the focus of all the TV advertising about trade. In the Pennsylvania Senate race, it was the focus of all Republican advertising about trade. In the Ohio Senate race, the vast majority of trade-related advertising focused on China—and all of it was aired by Democratic advertisers.

“China has become a pivotal issue,” said Paul. “The only question now, after all the hundreds of millions that have been spent, is whether the winning candidates will follow through on their promises. Voters will be watching for action.”

Added Paul, “The auto rescue may have been unpopular when it was initiated in 2009, but it was a key to the President’s victory in Ohio in 2012. Persuading voters that you stand for American manufacturing is going to be a litmus test for any serious national candidate moving forward.”

Some key findings from the study:

o Republicans outspent and out-aired Democrats on jobs. In all five races, Republicans spent more money and had higher spot count rates than Democrats on advertising that mentioned “jobs.”

o Democrats’ ads about jobs focused on businesses that sent jobs overseas and laid off workers, which explains why the two sides’ spending and spot-count levels on jobs were closer to parity in the Presidential contest but much further apart in the Senate races. While Bain Capital’s business practices were a major theme of advertising in the race for the White House, the issue was exclusive to that race.

o Despite being outspent and out-aired, Democrats’ messaging on jobs proved more effective.

o Republican mentions of “jobs” tended to increase, and Democratic mentions tended to decrease, around the release time of the monthly jobs reports.

o “Jobs” was the most-mentioned issue in 2012 advertising by far, not just in the five races but in federal races overall.

o In the four Senate races in particular, Republicans outspent and out-aired Democrats on jobs mentions by anywhere from 2:1 to 4:1. The Democrats used their ads about outsourcing and firing workers to distance the Republican candidates from the voting blocs they needed to win, often punctuating them with taglines such as, “He’s not for us anymore,” and “If [he] wins, the middle class loses.”

o Looking more closely at the presidential race, Democrats spent $57 million in TV advertising attacking Gov. Romney’s former firm, Bain Capital, for its alleged practices of shipping jobs overseas or eliminating them altogether. The Obama campaign also devoted substantial advertising to the outsourcing angle, including an ad suggesting that, under Romney’s leadership, Bain laid off workers and destroyed livelihoods.

o While the anti-Bain ads received enormous media attention, more money—$68 million—actually was spent to advertise about trade. The two sides spent roughly the same amount on ads mentioning trade, about $34 million, but all the Republican spending went toward ads specifically mentioning China trade. The Romney campaign in particular used ads to accuse the President of not being tough enough on China trade and currency manipulation.

o The Ohio market in general and Cleveland in particular were dominant for both presidential ad spending and occurrences on all these issues. Across all markets seeing presidential advertising, Cleveland ranked second-highest for both spending and spot mentions of jobs: $37 million and 33,877, respectively. For anti-Bain mentions, it ranked second-highest for spending and highest for spots: $4.8 million and 5,676. On trade, it ranked second-highest for spending and highest for spots: $5.8 million and 5,138. And on China trade, it ranked highest for both spending and spots: $4.6 million and 4,722.

READ THE FULL REPORT: Post-election analysis by Kantar Media/CMAG.

DOWNLOAD: Kantar Media/CMAG’s full summary of election ads and costs.

VIEW A CHART: Spot count trend of TV ads mentioning "jobs" in the election.

The Alliance for American Manufacturing is a non-profit, non-partisan partnership formed in 2007 by some of America’s leading manufacturers and the United Steelworkers to explore common solutions to challenging public policy topics such as job creation, infrastructure investment, international trade, and global competitiveness. For more information, please visit www.americanmanufacturing.org. 


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