Leaking customs and weak trade

That's the title of my Op-Ed published in today's The Kathmandu Post. The article basically centers on the argument that in order to realize potential gains from trade, just joining free trade blocs is not enough; the developing countries like Nepal should focus on fine-tuning trade facilitation to promote exports and reduce domestic inefficiencies. This requires taking care of institutions that help facilitate trade, which of course cannot be done overnight.

Almost after five years of sluggish growth, Nepal's economy has grown at over 5 percent this year. According to UN ESCAP's recent estimate, the real GDP growth rate is expected to be 4 percent in 2008, up from a low of 0.1 percent in 2002. Various factors like windfall growth in agricultural sector, tourism, and remittance helped push up the otherwise lagging economy.

Now, it is time to ponder on how to sustain this, or even achieve higher GDP growth rate, in the coming year(s). This growth rate won't be sustained if we continue to bank on tourism and agriculture - both are vulnerable to external factors like weather. No country has sustained such a growth rate even for a short time without fine-tuning and promoting trade, both export-oriented policies and policies aimed at reducing domestic inefficiencies. Nepal is already a member of regional and global trading blocs. However, the potential gains from trade have not yet been realized, at least when we look at the impact on the GDP growth rate.

Curiosity abound when we learn that despite being a member of many trading blocs, Nepal has not seen even a minimal impact on the GDP growth rate. Closer look at this puzzle divulges an uncomfortable fact that despite being one of the most open economies in South Asia, Nepal still has one of the most cumbersome and investor unfriendly trade facilitation procedures in the world - one of the constraints to realization of the potential gains from trade.

Procedural hassles and delays in clearing goods at the customs are not new things; businessmen and economists have been calling for reforms for a long time. Years of neglect from the state to reform governance and trade facilitation has severely impacted Nepal's trade standing in the world. Nepal's trade facilitation process is so slow and inefficient that, in every parameter for trade facilitation that the World Economic Forum (WEF) came up with in its recent publication The Global Trade Enabling Report 2008, it was ranked at the bottom position, along with countries like Chad and Burundi.

Read the full Op-Ed here.

Links of Interest

Jamie Diamond: Cutting aid would have dire consequences

85 Percent of Africa's Land Has No Titles

Stiglitz and Sen, Food and Morals: Reflections on intellectual cowardice (very fascinating discussion on why economists are so detached from reality, especially in the context of rising food prices)

Cell phones used to expedite work in government offices!

This is one novel use of cell phones. Forgoing ages old tradition of ringing bells in offices to communicate between different departments and to call caretakers, some officials in the Nepalese government jobs have been using cell phones. How? Well, by giving missed calls!

One missed call and the peon attends to the seniors to offer his service like serving tea, photocopying documents, printing and so on. The system of pushing call bell beneath senior officers' desks has been replaced by mobile phones.

Krishna Poudel, who works as a peon at the District Election Office, says, "Who needs buzzer system when there is mobile phone. With the help of mobile phone I can now hear my seniors call, no matter where I am."

Chief Returning Officer Mahesh Raj Timalsina is also happy with this practice. "We press the call bell and sometimes they do not hear it so it is better to give them a missed call instead," he says.

I don't know how efficient this system would be, but this is one novel use of cell phones! More here.

WTO should give developing countries policy space

Here is a piece from The Guardian. The writers from GADE blame the US's intransigence for collapse of the WTO talks and believe that the developing countries were right to walk away...well, it is everybody's fault for the failure, not only US's!:

...Rich-country negotiators, and even those from agricultural export powers like Brazil, expressed surprise that the issue that brought down the negotiations was something as seemingly arcane as the "special safeguard mechanism" - the right for developing country governments to raise tariffs in the event of sudden or large increases in imports that threaten to undermine domestic producers. They shouldn't have been. The measure is exactly the kind of "policy space" for development that the poorest countries have sought from this so-called development round.

...Cheap, subsidised imports of staple foods - markets the US and other developed countries dominate - flooded local markets, driving down prices and putting already-poor farmers out of business. Each country became more dependent on imported food, losing its capacity to produce its own. Then prices spiked, exposing the life-threatening danger of such policies.

Any government that wants to take the food security of its residents seriously needs precisely the kind of policy instruments India and China were demanding.

More stuff on the collapse of the WTO talks here in my earlier post.

Meager benefits of the Doha Round for the developing countries

Here is a research done by Sandra Polaski from Carnegie Endowment for International Peace (CEIP) about the winners and losers from the Doha Round under different scenarios. The general equilibrium model showed that total gains from trade to be between $32-55 billion, with rich nations getting $30 billion; middle income countries like China, Brazil and SA getting $20 billion; and poor countries getting $5 billion (about $2 per head).

Global Real Income Gains from Trade Scenarios:

	Agriculture	Central Doha	Central Doha with “Special Products”	Hong Kong	Full liberalization
Gain in US$ (billion)	5.4	58.6	57.7	43.4	168.1
Gain over base year GDP	0.02%	0.19%	0.18%	0.14%	0.53%

 

Polaski also argues that a complete agricultural trade liberalization might actually hurt the developing countries. Full elimination of agricultural subsidies could increase food prices, which is not good for net food importers. Developing countries might gain more from liberalization of goods than agriculture.

The biggest winners among industrial nations would be Japan and the European Union, where incomes stand to grow by $6.5 billion and $5.8 billion, respectively. Among developing nations, the chief beneficiary by far would be China, which would gain $10.3 billion in annual income, or more than four times the increase expected for India. In fact, China's expected benefits account for nearly half of those likely to accrue to the developing world. The biggest losers would be Bangladesh, Malawi, Tanzania, and Uganda and the rest of the nations of sub-Saharan Africa (excluding South Africa). The numbers are so small, however, relative to the size of national economies, that the precise figures are less important than the broad picture they paint.

Here is a paper on how India would stand on different trade policy choices. In terms of change in real income, it seems that India would benefit the most from the Doha Round. Surprisingly, India would lose from India-EU FTA.

Here is a previous blog post on why the most recent Doha Round of trade negotiations failed.

Dalits and discrimination in Nepal

Jay Ram Hirajan, a member of dalit community, waiting in front of a local police station seeking protection and justice. He was threatened of eviction (also black coal painting on his face) from Rupendehi by locals who alleged him of de-purifying utensils belonging to a non-dalit community. Hirajan's pet pig entered houses owned by two locals and touched cooking utensils, which was handed to Hirajan by the locals and ordered him to pay the cost of replacing new ones. He was warned of forced face painting with coal powder and eviction if he did not comply with the local's demand. In the picture, he is seen with the utensils in front of a local police station seeking protection and justice. (Source: Kantipur daily, July 30, 2008)

Social discrimination based on caste system is one of the constraints to mainstreaming marginalized groups into the national economy. These groups have been marginalized for centuries, resulting in a highly unequal social setting where the most poorest and discriminated ones never rises above a certain level, irrespective of the level of economic progress in the country. Somebody tell people to shed off useless conservatism and embrace socially progressive ideas!

Links of Interest

The world cannot grow its way out of this slowdown 

Kenneth Rogoff raises the inflationary alarm: "In policymaker’s zealous attempts to avoid a plain vanilla supply shock recession, they are taking excessive risks with inflation and budget discipline that may ultimately lead to a much greater and more protracted downturn." Well, I would be more worried about a fire engulfing my house right now then a potential fire that would engulf my house! Inflation does posses a risk but it is in the long run, when according to Keynes "we all are dead." That said, I believe that we can manage the dangers of inflation as time passes by being particularly careful with embedded inflation expectations. Mark Thoma weighs in: "Inflation is a concern, but raising interest rates too fast risks throwing the financial sector into a tailspin, and that would bring the economy down with it, and that's a risk I'd rather not take. We need to keep an eye out for signs that inflation is becoming embedded and self-reinforcing, but we need to be even more concerned about a domino effect taking hold in the financial sector. That danger is not yet over." More by Krugman here

Is the WTO no-deal a big deal?

If the real effects of a no-agreement are not likely to be important, is all this noise about the Geneva failure justified? Yes. Perhaps. To the extent that an agreement in the WTO would have strengthened (or at least would have not weakened) the multilateral trading system, the no-agreement may well be a setback. Such a system binds countries to respect a certain set of trading rules, for example preventing possible temptations towards self-sufficiency in the face of difficult domestic and international situations. This is not to deny the importance of domestic policy space. Allowing for moderate policy space is welcome to satisfy particular domestic needs, but a weak multilateral trade regime may allow for an abuse of domestic policy, which may promote protectionism. This is especially the case in a time of adverse international economic environment, as the current one.

Collapse of the WTO trade talks: A pity, and potentially a problem, but not a disaster

Putting a lasso on inflation

There are other ways to approach the challenge of high prices, of course. In its paper, the Asian Development Bank recommended income support to poor families...It's a cheaper and more economically efficient solution than one-size-fits-all subsidies, and it also allows households to prioritize their own purchases. Moreover, once people have the ability to pay global prices for the commodities they need, the problem of guaranteeing supply to the local market simply disappears.

What is Called Development? Exploring the Nexus of Economy

India lags behind Ethiopia in child nourishment