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Howls of Anguish from Detroit

Kitty Miv, Editor
18 April, 2013

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out three Encomiums to countries which have done Good Things, and award three Execrations for countries which according to my highly personal and partial views have done Bad Things.

The Trans-Pacific Partnership (TPP) had a good week, with Mexico agreeing to allow Japan into the negotiations, and the US administration reaching an agreement over automobile tariffs with Japan, albeit accompanied by howls of anguish from Detroit, and ritual protestations from the usual suspects among protectionist politicians. This will clear the way for the President to give Congress 90 days' notice of his intention to begin actual TPP negotiations. It's thought that this step may happen towards the end of the month when some other existing members overcome their reservations about the inclusion of Japan. All twelve actual and prospective members of the TPP are also members of APEC, and there is an APEC meeting in Indonesia next week, which would be an opportunity for remaining issues to be ironed out, meaning presumably that Japan will have to make the right noises about opening up its agricultural sector to Australia and New Zealand. That is immediately followed by a Canada/Japan meeting in Ottawa, which may provide the final trigger for the US to go ahead.

The TPP is not like Doha, which is stuck because it is all or nothing – all 150 or so members of the WTO have to agree with each other on every aspect of a change, in a series of gruelling parallel country-to-country negotiations, before anything can be finalized. In the TPP, whose goal is complete freedom from tariffs and non-tariff barriers, a country can join the already-existing agreement with the approval of existing members, of whom in fact there are only four: New Zealand, Brunei, Chile and Singapore (it would be a good quiz question). Eight more countries are lining up to join: the USA, Australia, Peru and Vietnam (talks began in 2008); Malaysia (2010); Mexico and Canada (2012); and now Japan.

Of these eight, nobody doubts their intentions, except in the case of Japan, where opinion is evenly split over whether it is sincere, or whether its application to join amounts to a spoiling tactic. The issue of course is agricultural tariffs: Japan's import tariffs are 778% for rice, 360% for butter and 328% for sugar. You wonder why they bother – why not just ban the stuff? New Zealand is the world's biggest exporter of butter, and that is the problem in a nutshell (any British child in the 1950s would expect to see New Zealand Anchor butter on the table under a scheme called Imperial Preference, which had to give way to the EU, of course, another protectionist organization). There are some reasons to think that Japan may finally be ready to bend on the subject of its tariffs. Much farming is amateurish and inefficient, while productive land is left idle. The enormous Japanese farming lobby is growing old, and many Japanese "hobby" farmers say they would be only too happy to sell their land – but they can only do so to other farmers and prices are prohibitive. Mr Abe knows all this, and genuinely wants to reform the agricultural sector. Doing so will however require wholesale legal reform, and it's this rather than a willingness to cut away trade barriers that will create the conditions for Japan to join the TPP. It seems a tall order for Japan's divisive legislature to pass the necessary – and quite contentious – laws by the time that the other seven applicants are ready to join; so, as of now, it seems most likely that Japan will be left outside in the cold.

One country which is conspicuous by its absence from the TPP talks is of course China. Although there are ongoing negotiations between the Middle Kingdom and various other countries, and China has FTAs with a scattering of other countries, notably including ASEAN and New Zealand, on the whole it is lagging. And it considers itself as an injured party in trade affairs, complaining this week about the level of "dumping" and "counter-vailing" measures it is subject to, particular emanating from the USA. A lot of the problem revolves around the designation of China as a "non-market economy" (NME). For anyone who, like me, finds it extraordinary that China should still be regarded as an NME, a word of explanation is in order: an NME is a country in which the State subsidizes enterprises or indulges in other non-market behaviour, despite WTO rules against it. So, an NME is allowed to cheat, if you will; but the other side of the coin is that for an aggrieved counter-party, the burden of proof is lower in anti-dumping proceedings. China's accession agreement to the WTO allows it to retain NME status only until 2015; but the change is not in China's gift, and both the USA and the EU persist in regarding China as an NME, despite frequent requests from China for them to treat it as a market economy.

You can see why it suits the protagonists in the USA and the EU to maintain the NME fiction: in the US it is the Commerce Department which is responsible for "policing" infractions by trading partners, and Commerce was captured by producers long ago; in the EU the situation is more amorphous, but it is of course the Commission which has the power to propose, and to some extent to dispose in trade matters. This week the Commission unveiled a new package of anti-trade measures which will make it easier for European producers to be protectionist in their dealings with NMEs (aka China). I can't understand why EU Trade Commissioner Karel De Gucht called this a balanced package. Normally he has been a good guy, supportive of trade and business, but in this case he seems to have been captured just as thoroughly as Commerce. Shame on him! I am a consumer, and I prefer to buy an i-Pad made in China for x – 3 euros than one made in Varna (Bulgaria) for x + 3 euros, even if the Chinese one has been subsidized to death.

Well, that's all very serious stuff, trade, so let's turn to L'Isle Joyeuse for a little light relief. There are 2,000 islanders looking for work, sorry about that, yet there are 500 vacancies in the financial sector. Sounds as if Jersey is doing well, and all reports agree on that, so what is going on? Jersey has a population of 95,000, of whom 12,000 are employed in the financial sector. GDP per head is about USD60,000; a mid-sized family home with a small garden will set you back USD1.5m. EU nationals can work in Jersey, but you can only get long-term residence if you own a property; non-EU nationals would need a work permit, and very few are issued. Jersey agrees there is a skills gap, and has got various training schemes to try to fill it. But you have to wonder if there isn't local resistance (NIMBYism it's called in English – Not In My Back Yard) to the sort of moves that would be needed to break the log-jam. Long-term, it's not in Jersey's interest to restrict the entry in this way of say, Russians, with financial skills. Anyway, just to amuse myself I looked to see what sort of house I could find, assuming I was a Russian banker made redundant in the Square Mile in London, and there's quite a nice one available this week, just big enough, although no tennis court, USD5m. Unfortunately my redundancy package was only USD3m, so it's no go. Think I'll spend the summer going to Wimbledon and Henley. And Sochi should be fun in February. Then I'll look for work again in the spring next year. Things should have settled down a bit by then.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 48th) three countries are given encomiums and three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany has a neutral ranking, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week..

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Japan, the USA and Mexico get trade medals

And Kitty's Execrations:

The EU and the USA mistreat China

Jersey shuts the doors





About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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