Types of non-tariff barriers (NTBs)

With fast decline in tariffs due to multilateral, regional, bilateral and unilateral liberalizations, non-tariff barriers (NTBs) have become the most important trade policy tool of almost all countries. Some of the commonly used NTBs, sourced from Hiau Looi Kee and Cristina Neagu’s presentation, are listed below:

• Origin of materials and parts
• Import license fees
• Customs inspection fees
• Testing requirement
• Direct consignment requirement
• Requirement to pass through specified port
• Service charges
• Labeling requirements
• Certification requirement
• Processing history
• Systems Approach
• Temporary geographic prohibition for SP
• Conformity assessments related to SPS
• Traceability information requirements
• Certification required by the exporting agencies
• Storage and transport conditions
• Microbiological criteria on the final product
• Quarantine requirement

Tariffs and NTBs can be either substitute or complementary depending on context. To protect key sectors, countries might increase ad valorem equivalent of NTBs by the same magnitude (keeping protection at its optimal level) of a decrease resulting from slashing tariffs, making them substitutes. Meanwhile, trade policies influenced by interests parties through lobbies and government’s care about social welfare as well as campaign contributions would be to both tariffs and NTBs, making it complementary.

NTBs are harder to implement than tariffs as the latter are more transparent in nature. Some NTBs (like RoO) affect multiple industries while tariffs are more targeted. NTBs are not primary revenue generators as tariffs are, which are important for developing countries.

The authors conclude that tariffs and NTBs could be substitutes within importer-HS6 products, comparing across exporters. Example: preferential tariffs often come with RoO requirements. Also, tariffs and NTBs could be compliments within importer-exporter pair, comparing across products. Example: products that have low tariff barriers often have lower NTBs.

Infrastructure and education are key to unleashing entrepreneurship

Ghani, Kerr and O’Connell argue it is entrepreneurs who create jobs and there is a “strong link between initial levels of young and small firms and subsequent job growth”. They maintain that even though there are not enough entrepreneurs in India (and other South Asian countries) for its stage of development, cities and states that have embraced entrepreneurship have created more jobs than those that have not. So, entrepreneurs create jobs. But, what creates or attracts them? Its physical infrastructure and an educated workforce. It is especially true for manufacturing and services sectors. The authors argue that “supportive industrial structure for input and output markets are strongly linked to higher entrepreneurship rates”.

The authors define entrepreneurship as the presence of young establishments, less than three years old, in the formal manufacturing sector. There area also other characteristics of entrepreneurship such as self-employment, firm size, ownership, entry and innovation.

 

Some of the findings are:

• Their estimate derived from Indian data suggests that a ten percent increase in initial entrepreneurship in a region-industry in 1989 was associated with a 1.3 percent higher rate of employment growth to 2005.
• While infrastructure and an educated workforce encourage entry to entrepreneurs, strict labor regulations discourage them to enter the formal sector.
• Start-ups are more frequent in cities with common labor needs and have customer-supplier relationships with cities’ incumbent businesses.
• For jobs creation, policymakers should focus on promoting entrepreneurship locally. Since educated labor force is a crucial factor for the entry of new entrepreneurs, establishment of local colleges and education institutions should be promoted. [Just look at the number of start-ups and the growth of education institutions in Nepal. They have moved positively and youths are at the forefront of this phenomena.] Similarly, infrastructure such as roads, electricity and telecommunication are prerequisites for enticing entrepreneurs.
• South Asian countries need to work more on developing infrastructure, improving education, lowering entry costs, reducing regulatory burdens, and developing financial access to unleash business creation and job growth.
• It is estimated that almost one million new workers will join the labor force every month for the next two decades in India.

Road to Busan: Aid effectiveness in Nepal

[It was published in Republica, November 23, 2011, p.6]

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Road to Busan

Chandan Sapkota and Rita Shrestha

Between November 29 and December 1 stakeholders associated with the aid industry are gathering in Busan, South Korea, for Fourth High Level Forum on Aid Effectiveness. The summit will review progress made since the last high level forum and make commitments to set new agendas for donor’s involvement in development sector. A group of ‘sherpas’—who are elected representatives of developed and developing countries— is working on commitments to be endorsed at Busan, according to the Organization for Economic Co-operation and Development ( OECD).

The summit is held against the backdrop of the food, fuel, financial and economic crises; concern over aid reduction by donors in the face of the Euro crisis and persistently high unemployment and stagnant growth in the US; increasing role of Southern donors; and climate change concerns. It will determine how over US$160 billion will be spent annually. Importantly, it will dictate how approximately US$1 billion will be spent in Nepal by donors. Hence, for a country whose 26 percent of total annual budget is funded by aid money (both loan and grants), the deliberations and outcomes of this summit are highly significant.

The Busan summit is the fourth in a series that started in 2002 with the First High Level Forum, organized in Rome, which for the first time outlined three principles of aid effectiveness. It was followed by Second High Level Forum in Paris in 2005, which outlined five principles of aid effectiveness. Then Third High Level Forum was organized in Accra in 2008. It accentuated the need to achieve the goals of the second forum and proposed further improvement in the areas of ownership, partnerships and result-oriented activities. The five principles outlined in the Paris Declaration (PD) — ownership, alignment, harmonization, results, and mutual accountability— remain a cornerstone of the evaluation of aid effectiveness.

In order to get a clear picture of what aid has or has not achieved so far with so much assistance, the PD set targets for 13 indicators covering all the five principles. The 2011 Survey on Monitoring the Paris Declaration shows that while at the global level only one out of the 13 targets has been met, there has been ‘considerable progress’ towards meeting the remaining 12 targets. In a way, this shows that the aid industry has failed to meet its own target and has opened up avenues for further criticisms from those who accuse them of inhibiting growth and development in developing countries.

According to a recent country report on monitoring of PD, published by the Ministry of Finance (MoF), the performance on aligning donors’ activities with respect to that of Nepal’s strategies for achieving goals such as poverty reduction, improving institutions and tackling corruption (also referred to as ownership) is well below the target set for 2010 by OECD. This indicates that aid alignment remains a challenge in Nepal. Specifically, technical assistance (over 25 percent of total aid) remains one of the least coordinated activities of donors. No wonder every big or small donor agency is organizing multiple and duplicate conferences and training programs, and publishing reports to just spend the allocated money.

If all technical assistances/capacity building in one sector are to be aligned and coordinated, then a lot of the Kathmandu based donors will find it hard to spend money. Most of their expertise is on technical assistance, which by the way opens up avenues to employ consultants from donor countries themselves. This has created an oversupply of consultants and reports. Usually, hiring certain number of consultants for technical assistance, irrespective of their need, is included as conditionality in assistance packages. The PD infringes on interests and incentives of donor countries, who in principle want to tie up aid to serve interests of their domestic constituencies as well as that of recipient country. At times, the seeming incompatibility of interests and incentives has led to the disinclination of donors to follow the government’s procurement and implementation mechanism, which are aimed at better coordinating aid. In terms of aid predictability, the situation has not improved much as is evident from the wide variation between commitment and disbursement.

In harmonizing aid activities, there has been some improvement in implementing program based approaches but the performance as of now (31 percent) is still short of the OECD target for 2010 (66 percent). Additionally, evaluating the progress in managing for results, the report notes that though the overall framework and procedures to carry out aid activities are already in place, the quality of results-based programming and monitoring is still below expectation. Donors have not fully used the Medium Term Expenditure Framework and the Poverty Monitoring and Analysis System. Note that only 41 percent of total aid inflow is recorded in the budget systems. The government has concluded that donor support is not always “sufficiently consistent and sustained” and they respond more to advocacy activities and less to securing resources to executing the very lessons learned from such activities and capacity building sessions. Furthermore, donors have spread their wings in more sectors in 2009 than they had in 2005, which means that aid fragmentation has in fact increased instead of the goal of decreasing it. Right now the donors lack clear exit strategies to sustain the progress made through technical assistances.

In mutual accountability for development results by both donors and government, there has been some progress but not of the expected level. Sector-wide Approach (SWAp)—which brings together all stakeholders within any sector— in health and education has shown impressive results, but according to the report, there still is not enough interaction between donors and government on matters regarding aid effectiveness. The government is trying to bring in all aid activities under the Foreign Aid Policy (FAP), whose draft is being widely circulated among all stakeholders. However, the policy is still not enacted allegedly due to objections by some donors, who think that FAP as of now, if implemented, will restrict them from fully implementing their own programs under their own guidelines. Moreover, due to the high concentration of donors and their missions (which increased to 341 in 2010 from 262 in 2007), our government officials are becoming more responsive to them rather than to their own citizens.

The Busan summit will take up these issues, formulate new strategies and make commitments drawing lessons from country review reports such as the one prepared by our MoF. The evolving global economic scenario after 2008 means that aligning donors’ domestic interests regarding country ownership, aid alignment and tied-aid will be even more challenging than it were when the PD was crafted. Meanwhile, convincing Southern donors to adhere to the PD principles will face resistance as they are still guided primarily by commercial and foreign policy interests, which are not entirely compatible with the PD. Nepal receives approximately US$ 140 million per year from Southern donors, namely India, China, Kuwait, OPEC Fund, and Saudi Development Fund.

The aid commitment, priorities and strategies of donors, both Development Assistance Committee (DAC) and non-DAC (read as Northern and Southern donors respectively), in Busan will have important implications for development activities in our country. It will primarily determine the course of development interventions before the deadline for achieving the MDGs expires in 2015. By forging a new consensus on development cooperation, the donors have the task of convincing the public that their activities are driven more by the need of the people than by their own self interests.

Sapkota is associated with South Asia Watch on Trade, Economics & Environment; Shrestha is with Alliance for Aid Monitor Nepal. The views expressed are personal.

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Food deficit and insufficient inputs

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Food deficit in Nepal is mainly the result of insufficient inputs in the production process, conversion of food grain into animal feed, erratic rainfall, delayed monsoon and poor land husbandry. The crop yield data show big yield gaps (the gap between attainable yield and the national average yield). The gap is three tons per hectare for wheat, three tons per hectare for maize and two tons per hectare for rice. Thus, over a million hectares of cultivable land yield below average. Agro scientists in Nepal often complain that there is not enough money for research and awareness programs aimed at farmers, which would be of enormous help in reducing these gaps. Unavailability of quality seeds, fertilizers and plant-protection chemicals for the crops are other important factors. Moreover, the government does not have enough space to store all of the food grain produced in the country; instead traders across the border store Nepali harvest, thus leading to seasonal shortages. If the farmers are supported with proper inputs in time and storage facilities are improved, we can attain the goal of food sufficiency in a not too distant future. Also, if the farmers could store rainwater during monsoon for its use in the dry season, millions of tons of additional yield can be achieved. None of these measures require genetic manipulation of seeds, which is Monsanto’s forte. 

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Read more by Krishna Bahadur Karki here.

My take on food security in Nepal here (research brief) and here. Here is a link to a detailed paper on high food prices in South Asia.

Crisis and creative destruction

Well, economic crisis does not necessarily mean exit of uncompetitive firms and entry of competitive ones. This is shown by Hallward-Driemeier and Rijkers in a new paper whose abstract is as follows:

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Using Indonesian manufacturing census data (1991-2001), this paper rejects the hypothesis that the East Asian crisis unequivocally improved the reallocative process. The correlation between productivity and employment growth did not strengthen and the crisis induced the exit of relatively productive firms. The attenuation of the relationship between productivity and survival was stronger in provinces with comparatively lower reductions in minimum wages, but not due to reduced entry, changing loan conditions, or firms connected to the Suharto regime suffering disproportionately. On the bright side, firms that entered during the crisis were relatively more productive, which helped mitigate the reduction in aggregate productivity.

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Analytical framework of the economic crisis in the US and the EU

Mohamed A. El-Erian explains what happened and what needs to happen in the Western economies:

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Each development, and certainly their occurrence in tandem, points to the historic paradigm changes shaping today’s global economy – and to the anxiety that comes with the loss of once-dependable anchors, be they economic and financial or social and political.

Restoring these anchors will take time. There is no game plan as of now, and historic precedents are only partly illuminating. Yet two things seem clear: different countries are opting, either by choice or necessity, for different outcomes; and the global system as a whole faces challenges in reconciling them.

Some changes will be evolutionary, taking many years to manifest themselves; others will be sudden and more disruptive. Yet, as complex as all of this sounds – and, by definition, paradigm changes are complicated affairs that, fortunately, seldom occur – a simple analytical framework may help shed light on what to look for, what to expect and where, and how best to adapt.

The framework relies on an often-used analytical shortcut: identifying a limited set of explanatory variables in what statisticians call “a reduced-form equation.” The objective is not to account for everything, but rather to pinpoint a small number of variables than can explain key factors, albeit neither perfectly nor fully.

Using this approach, it is possible to argue that the future of many Western economies, and that of the global economy, will be shaped by their ability to navigate four inter-related financial, economic, social, and political dynamics.

The first relates to balance sheets. Many Western economies must deal with the nasty legacy of years of excessive borrowing and leveraging; those, like Germany, that do not have this problem are linked to neighbors that do. Faced with this reality, different countries will opt for different de-leveraging options. Indeed, differentiation is already evident.

Some, like Greece, face such a parlous situation that it is difficult to imagine any outcome other than a traumatic default and further economic turmoil; and Greece is unlikely to be the only Western economy forced to restructure its debt. Others, like the United Kingdom, have moved quickly to take firmer control of their destiny, though their austerity drives will inevitably involve considerable sacrifices.

A third group, led by the US, has not yet made an explicit de-leveraging choice. Having more time, they are using the less visible, and much more gradual, path of “financial repression,” under which interest rates are forced down so that creditors, including those on modest fixed incomes, subsidize debtors.

De-leveraging is closely linked to the second variable – namely, economic growth. Simply put, the stronger a country’s ability to generate additional national income, the greater its ability to meet debt obligations while maintaining and enhancing citizens’ standards of living.

Many countries, including Italy and Spain, must overcome structural barriers to competitiveness, growth, and job creation through multi-year reforms of labor markets, pensions, housing, and economic governance. Some, like the US, can combine structural reforms with short-term demand stimulus. A few, led by Germany, are reaping the benefits of years of steadfast (and underappreciated) reforms.

But growth, while necessary, is insufficient by itself, given today’s high unemployment and the extent to which income and wealth inequalities have increased. Hence the third dynamic: the West is being challenged to deliver not just growth, but “inclusive growth,” which, most critically, involves greater “social justice.”

Indeed, there is a deep sense that capitalism in the West has become unfair. Certain players, led by big banks, extracted huge profits during the boom, and avoided the deep losses that they deserved during the bust. Citizens no longer accept the argument that this unfortunate outcome reflects the banks’ special economic role. And why should they, given that record bailouts have not revived growth and employment?

Calls for a fairer system will not go away. If anything, they will spread and grow louder. The West has no choice but to strike a better balance – between capital and labor, between current and future generations, and between the financial sector and the real economy.

This leads to the final variable, the role of politicians and policymakers. It has become fashionable in both America and Europe to point to a debilitating “lack of leadership,” which underscores the extent to which an inherently complex paradigm change is straining traditional mindsets, processes, and governance systems.

Unlike emerging economies, Western countries are not well equipped to deal with structural and secular changes – and understandably so. After all, their histories – and certainly during what was mislabeled as the “Great Moderation” between 1980 and 2008– have been predominantly cyclical. The longer they fail to adjust, the greater the risks.

Those on the receiving end of these four dynamics – the vast majority of us – need not be paralyzed by uncertainty and anxiety. Instead, we can use this simple framework to monitor developments, learn from them, and adapt. Yes, there will still be volatility, unusual strains, and historically odd outcomes. But, remember, a global paradigm shift implies a significant change in opportunities, and not just risks.

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Foreign demand for Nepalese coffee outstrips supply

The National Tea and Coffee Development Board (NTCDB) argues that foreign demand for Nepalese coffee is far higher than supply. It maintains that the annual demand for Nepali coffee is more than 4,000 tonnes but production is only 400 tonnes. If this is true, then here is an export potential product that won’t require export potential study! And, the contribution of donors working in the promotion of this product is commendable. Nepal is exporting coffee mainly to Japan, the US, and the EU.

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With increasing demand, international agencies and local people have been attracted to investing in the sector. “With aid from INGOs, coffee production is projected to reach 8,000 tonnes within a decade,” said Bhandari. INGOs like Helvetas, Winrock and PACT Nepal have been supporting coffee farming.

There are more than 26,000 people engaged in coffee production. Syangja, Palpa, Lalitpur, Ramechhap, Ilam and Gulmi have been identified among 40 coffee growing districts as the main producers of coffee in the country.

Good prospects have led to expansion of coffee farming. According to the NTCDB, the area under coffee cultivation increased to 1,752 hectares in 2010-11 from 1,630 hectares in 2009-10.

Similarly, increasing domestic production has resulted in a decline in imports. Annual coffee imports plunged to Rs 12.51 million from Rs 84.40 million three years ago.

Executive director of the board Raman Prasad Pathak said that demand for Nepali coffee was on the rise due to its better taste and production system which does not use chemicals.

Despite massive demand, the country exported a mere 279.76 tonnes of coffee worth Rs 93.08 million in the last fiscal year. However, the figure is more than double compared to the previous year when exports amounted to 120 tonnes worth Rs 67.5 million.

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Coffee Production
Fiscal year	Plantation area (Hectares)	Production (M.T.)
1994/95	135.7	12.95
1995/56	220.3	29.2
1996/97	259	37.35
1997/98	272.2	55.9
1998/99	277.1	44.5
1999/00	314.3	72.4
2000/01	424	88.7
2001/02	596	139.2
2002/03	764	187.5
2003/04	952	217.5
2004/05	1078	250
2005/06	1285	391
2006/07	1396	460
2007/08	1145	265
2008/09	1531	334