Posts

GVCs Progress Developing Economies
In the past, companies primarily produced goods in one country as that was the most efficient way at the time. However, as technology gets more sophisticated, companies are finding that global value chains (GVCs) are the most effective and cost-efficient means of manufacturing goods. This article will explore how GVCs progress developing economies.

What are GVCs?

GVCs are the means behind fragmenting the production process so that different steps can occur in different countries. For example, to make a smartphone, a GVC would call for labor and supplies from multiple suppliers in different countries. Making a smartphone would also require assemblage in another country and selling in other target places. These complex production orders, spanning across multiple countries, have transformed trade as many know it. Both the economic and diplomatic implications of these chains are far-reaching.

The Importance of GVCs

GVCs are robust drivers of productivity and job growth, and they push for improved living standards. The way that a country engages with a GVC determines how that country benefits. According to the Global Value Chain Development Report that the World Bank, World Trade Organization and other partners published, nations that embrace these production chains grow more quickly than normal. They import and export not only manufactured goods but skills, information and technology.

For developing countries, this is an ideal opportunity to vary exports and reinforce the global economy. Under GVC operations, developing countries can grow by embedding more technology and expertise in their production lines. This higher value in labor and production also increases the value of labor and technological tasks, which helps boost the economies of developing countries when exporting products.

Countries that have Grown Under GVCs

Bangladesh, a country in South Asia, uses a GVC model for a variety of sectors, including the garment and apparel sector, which is especially prominent overseas. Garment sector job growth is a catalyst for Bangladesh’s poverty reduction and has had significant positive social impacts.

To elucidate, this GVC model led to the creation of over three million jobs beginning in the early 2000s, with women capturing approximately 70% of those jobs. Not only did this contribute to the growth of Bangladesh’s economy but it also contributed to a 10% rise in female labor force participation in the earlier 2000s.

Another example of how GVCs progress developing economies is in the global technology sector. For example, television designs come from Japan. Input pieces like semiconductors and processors come from South Korea or China. Meanwhile, the entire televisions receive assembly in China. They are exported throughout the world and the participating countries in a chain profit.

The Impact of GVCs

GVCs are evidently important and effective drivers of socio-economic growth for all countries, especially developing countries. They empower people by providing them with jobs and ways to service their abilities. They also allow for nations to take a strong stance in the global economy, encouraging diplomatic relations between countries.

These chains are a means for global growth, shared prosperity and allyship. There is always room for improvement, like finding a balance between importation and exportation. However, nations have already accomplished a lot already. As time passes, countries will hopefully see value in strengthening ties with the surrounding world through GVCs.

Sarah Uddin
Photo: Flickr

Child Labor in Saudi Arabia
Many know Saudi Arabia as one of the richest countries in the world. With the second largest natural oil reserve underground, Saudi Arabia is rapidly accumulating wealth and political power in international affairs. However, there is a dark side to the flashy urban lights of Saudi Arabia. The wealth gap that exists between the rich and the poor, coupled with the country’s patriarchal tradition and its recent conflict with the Houthi movement in Yemen, puts many Saudi and immigrant children in danger of child labor, violence and economic exploitation. Here are 10 facts about child labor in Saudi Arabia.

10 Facts About Child Labor in Saudi Arabia

  1. Poverty is the main cause of Saudi Arabia’s Child Labor. While Saudi Arabia is famous for its wealth, thanks in large part to the second-largest oil deposits in the world, there is a big economic disparity between the poor and the rich. According to a study that the Saudi Arabian government funded in 2015, 22 percent of families in Saudi Arabia depend on their children’s income.
  2. The minimum employment age is 13. In the royal decree of 1969, Saudi Arabia enacted a law that set the minimum employment age to 13 years old and banned children from working in hazardous conditions. This does not apply to works in the family business, domestic labor and agricultural work. Some employers of Saudi Arabia exploit a loophole in the law. For example, this law does not address the child brides of Saudi Arabia. If a child bride does any house chores or agricultural work for her husband’s family, it will not be a violation of the minimum employment age law.
  3. There are cases of child labor trafficking from neighboring countries. Stemming from Saudi Arabia’s recent conflict with Yemen, which left Yemen devastated, wartorn and practically lawless, some Yemeni parents are seeking illegal agents who will traffick their children to Saudi Arabia. While some Yemeni parents traffick their children to Saudi Arabia to save them from the desperate conditions in Yemen, other parents traffick their children in hopes of economic relief provided by their children’s labor in Saudi Arabia. While deportation is the main concern of many Yemeni parents for their trafficked children, many trafficked Yemeni children are in danger of violence, hunger and sexual abuse.
  4. Child workers usually have parents who have low professional and education level. The low education and professional level of child workers’ parents, coupled with economic disparity, make poverty in Saudi Arabia hereditary. Saudi Arabia is taking steps to ameliorate this issue. In early 2018, the Saudi government declared that it aims to eradicate adult illiteracy by 2024. Saudi Arabia’s Ministry of Education established adult education centers across the country and launched the Learning Neighborhood program in 2006 in pursuit of this goal.
  5. Children of migrant workers in Saudi Arabia do not have protection under a law that prohibits forced or compulsory labor. Saudi Arabia’s labor law does prohibit forced labor, however, these measures do not extend to over 12 million migrant workers in the country. Some employers exploit this loophole in the labor laws, which sometimes results in physical, mental and sexual abuse of migrant workers and their children.
  6. Saudi Arabia’s citizenship requirement puts Saudi children in danger of child labor and human trafficking. A Saudi child’s citizenship comes from his or her father. If a child has a citizen mother and a non-citizen father, or from a mother who is not legally married to a citizen father, there is a chance that the country will consider the child a stateless person. As a result of being stateless, Saudi Arabia can deny a child state education, and in certain cases, medical attention. According to the U.S. Department of State, about 5 percent of street begging children in Saudi Arabia are Saudi nationals of unknown parents.
  7. The Saudi government is working with the international community to combat child labor. In 2016, with technical advisory services support from the International Labour Organization (ILO), Saudi Arabia ratified its report for ILO’s Minimum Age Convention of 1973. According to the United Nations’ 2016 report on Saudi Arabia’s adherence to the Convention on the Rights of the Child, Saudi Arabia adopted and implemented regulations against child abuse and human trafficking. As part of the new labor reforms and regulations in 2015, for example, the Labor Ministry of Saudi Arabia can impose SR $20,000 ($5,333) on employers who employ children under 15-years old.
  8. In 2014, the World Trade Organization (WTO) and the Women’s World Summit Foundation (WWSF) launched a campaign against child labor in Saudi Arabia. For 19-days, WWSF campaigned to raise awareness for child labor, abuse and violence against children and youth. The National Family Safety Program of Saudi Arabia also launched its four-day program which raised awareness for economic exploitation and abuse of children in Saudi Arabia. Through these campaigns, both WWSF and the Saudi government aimed to reduce child labor in Saudi Arabia by highlighting that child labor contributes to the abuse of children by harming children’s health, physical development, psychological health and access to education.
  9. UNICEF and the Saudi Ministry of Social Affairs opened a reception center for trafficked Yemeni children. Many trafficked Yemeni children end up in the streets of Saudi Arabian cities as beggars or street vendors. In the worst cases, these trafficked children are under severe danger of exploitation and abuse. When the Saudi authorities detained them, these Yemeni children usually went to prison or open-air enclosures with adult deportees. The center provides shelter for these children.
  10. Saudi Arabia’s Vision 2030 aims to address the country’s poverty. Launched in April 2016, the Saudi government plans to address the country’s poverty by improving state education and empowering nonprofit organizations. These improvements can lead to making more opportunities available for the children and parents of poor economic background, potentially reducing child labor in Saudi Arabia. In this pursuit, the Saudi government granted $51 billion to the education sector. The Ministry of education established educational centers all around the country to improve adult literacy and theories determine that this improvement in adult literacy will also improve child literacy.

Child labor in Saudi Arabia is both a local and international issue. While the stateless and poor children of Saudi Arabia turn to street vending and begging to support their families, many trafficked Yemeni children in the country are under constant threat of violence and exploitation. These 10 facts about child labor in Saudi Arabia show that with the help of the international community and the Saudi government’s increasing awareness of its less fortunate populace, a better future awaits for the children of Saudi Arabia.

YongJin Yi
Photo: Flickr

U.S. Food Policy
The U.S. produces around 38.7 percent of all corn grown globally and around 35 percent of all soybeans. With such a large stake in global markets, it is not surprising that when U.S. food policy changes occur, many and often poorer places feel their effects throughout the globe.

Over 1 billion people work in world agriculture, and in poorer regions, a majority of the workforce population works in agriculture. In Sub-Saharan Africa, for example, over 60 percent of the workforce is involved in agriculture. With such a dependence on agriculture, changes in global markets and farming policies can severely affect these poorer populations. U.S. food policy may impact foreign farmers negatively in four principal ways: restricting imports in which developing countries have a comparative advantage; stimulating an overproduction of commodities in the U.S., that when the U.S. exports lowers the international price of goods from which low-income country farmers derive their income; distorting food markets in developing countries by the provision of in-kind food aid; and reducing official development assistance for agricultural and rural development.

Subsidies

Subsidies are a long-standing agricultural policy in the United States. Originating during the Great Depression, farming subsidies are payments and other support that the U.S. federal government gives to certain farmers. Today, the U.S. distributes around $20 billion to farming businesses annually. In 1930, when the stock market crashed, around 25 percent of Americans lived on farms and ranches and the government intended subsidies to help support these smaller family-run farms. Today, the largest 15 percent of farm businesses receive 85 percent of government subsidies that protect them from price fluctuations and unexpected decreased crop production.

Because of the U.S. subsidy system, it is cheaper for U.S. farmers to produce certain crops and thus it is cheaper for many poor nations to import crops such as wheat, barley and corn, instead of buying and growing locally. As one of the world’s largest cotton producers, subsidies can cause severe global price depression. In 2004, Brazil challenged the U.S. cotton subsidies with the support of the World Trade Organization (WTO). The WTO found that U.S. cotton subsidies were responsible for distorted international markets. In winning the dispute, Brazil could impose $830 million in product sanctions and the U.S. paid $300 million to the Brazil Cotton Institute as reparations.

Subsidies are also the main cause of more market distortion for corn, one of the U.S.’s most lucrative crops. Under the North American Free Trade Agreement (NAFTA), the U.S. exports highly subsidized crops that compete with Mexican products. The exported corn contributed to a 413 percent increase in U.S. exports and a 66 percent decline in Mexican producer prices from the 1990s to 2005.

Cargo Preference

Cargo preference is another policy interfering in international relations between the U.S. and its beneficiaries. The Cargo Preference Act of 1954 ensures that ships operated by U.S.-based companies must transport at least 50 percent of overseas-bound food aid. Because of this regulation, 35-40 cents of each dollar spent on food aid goes toward transportation rather than the food itself.

The United States established Cargo Preference to protect U.S.-flag maritime companies and unions from competing for foreign cargo ships. These companies may increase or decrease the cost of transportation. The disparity between foreign-flag and U.S.-flag ships is very costly to the food aid effort. U.S.-flag ships can cost around $100-135 per metric ton while foreign-flag ships cost around $65 per metric ton. By matching foreign pricing, the country could use the $23.8 million that the country that it would have spent on shipping towards feeding the poor.

If the U.S. were to eradicate cargo preference, there would be an additional $300 million to feed another 9.5 million people each year.

Biofuel Mandates

The Renewable Fuel Standard (RFS) emerged with the Energy Policy Act of 2005. This federal policy requires transportation fuel to contain a minimum volume of renewable fuel, namely ethanol from corn or soybeans. This policy was to help American farmers and decrease dependency on foreign oil.

The policy has, however, had a negative effect on global food prices. According to the Resources for the Future, estimates determine that the RFS in the U.S. and the E.U.’s own biofuel mandate will increase global food prices by 15 percent by 2022. Because the RFS demands more corn for ethanol production and because the U.S. produces 40 percent of the world’s corn crops, the policy has had a critical impact on global corn markets. An Iowa State University study estimates that the RFS has diverted a third of U.S. corn crops (10.8 percent of the global corn market) towards production of ethanol and biofuel and has caused an increase in global corn prices from 8-34 percent.

Proactive Policy

The U.S. government has taken major steps toward improving the food security of poor nations. While many food policies focus on farmers and exporting goods, the Global Food Security Reauthorization Act (GSRA) targets farmers in developing countries. Signed into law in 2018, the GSRA ensures funding and support for the Feed the Future initiative. Feed the Future works with local agriculture sectors in developing countries to help build up strong farming techniques and give them the tools to ensure their food security. Thanks to Feed the Future, estimates state that 23.4 million people now live above the poverty line and that farmers have generated $12 billion in new agricultural sales from 2011 to 2017.

Due to the size and volume of exported crops and resources, the U.S. food policy has a strong pull on global markets. Developing and poor nations can feel the effects of rising and falling global food prices most keenly. Therefore, it is important for U.S. policymakers to assess the impact of these policies and others like them. Luckily, initiatives like Feed the Future are working hard to help build stable agricultural communities in developing countries. With such size and resources, the U.S. has the power to create positive change in global markets.

– Maya Watanabe
Photo: Flickr

Trade in Bangladesh

Increased global integration has happened in Bangladesh as a result of domestic policy changes and the ability to take advantage of emerging opportunities in the international market. The increasing openness of the country’s economy reflects this. With the trend of Bangladesh devoting foreign aid towards project aid, foreign assistance has been playing a key role in increasing trade in Bangladesh.

Aid for Trade in Bangladesh by the World Trade Organization

Trade liberalization is not enough as many developing countries are still unable to take full advantage of it due to a lack of proper infrastructure and the relation between aid and trade flows. As a result, the concept of Aid for Trade (AfT) emerged in 2005 as an effort to assist developing countries to overcome supply-side constraints and improve trade capacity. This initiative also included economic infrastructure and productive capacity-building.

Aid for Trade in Bangladesh has helped strengthen its trade-related supply-side capacities through technical and financial support from various bilateral and multilateral development partners. Bangladesh had received a significant amount of trade-related assistance even before the institutionalization of AfT in 2005.

Over the years, AfT disbursements in Bangladesh have increased from $376.2 million in 2006-2008 to $910.1 million in 2015. As of 2015, the top AfT disbursement donors were Japan with $359.5 million, IDA with $292.4 million, AsDB Special Funds with $88.8 million, the United States with $50.6 million and Korea with $35.2 million. Most of these disbursements went to energy generation and supply, followed by transportation and storage, and agriculture, forestry and fishing.

By 2015, exports of goods increased by 183 percent and commercial services increased by 81 percent. Import of goods increased by 164 percent and commercial services increased by 220 percent, reflecting the increase in trade in Bangladesh.

Bangladesh Regional Connectivity Project 1 by World Bank

On December 7, 2017, the World Bank signed a $150 million agreement with Bangladesh to improve trade-related infrastructure, systems and procedures so that Bangladesh could increase trade regionally with India, Bhutan and Nepal.

The Bangladesh Regional Connectivity Project 1 will develop and improve four land ports – Bhomra, Sheola, Ramgarh and Benapole, which are key ports for regional trade, especially with India. The modernization of these ports will not only increase trade in Bangladesh and its freight volumes but also lessen truck clearance times at border posts. For instance, the expectation is that clearance time will decrease by 83 percent in the Bhomra port.

According to Qimiao Fan, World Bank Country Director for Bangladesh, Bhutan and Nepal, “By addressing the key barriers to trade, especially transport and clearance delays, Bangladesh can become more competitive regionally and globally, and reach more emerging and dynamic markets with diversified product mix, including higher-value garments.”

The project will also develop a National Single Window, a single electronic gateway, through which traders can submit all import, export and transit information needed by the Customs and other regulatory organizations. Not only will it reduce transaction time and costs but also increase transparency in international trade procedures.

The project will also initiate skills development programs to include more women in formal trade networks and global value chains, while also developing the necessary infrastructure, logistics and transport services for women.

Trade Finance Program (TFP) by Asian Development Bank

ADB’s TFP provides guarantees and loans to banks in order to support trade and fill the gaps in trade financing. The program works with over 200 banks to provide financial support to companies so they can actively participate in exports and imports in the challenging markets of Asia. The program supports transactions of commodities and capital goods to medical supplies and consumer goods.

This program has been working with Bangladesh since 2004 and has been involved with 13 local partner banks. It has conducted around 1,983 transactions in total, supporting trade in Bangladesh worth $3.1 billion and benefiting 966 small and medium-sized enterprises in various sectors ranging from food and agricultural goods to commodities and industrial machinery, capital goods and more.

Dutch-Bangla Bank Ltd. (DBBL) in Bangladesh partnered with the bank of TFP in 2009 and signed an agreement on February 22, 2018, to receive $10 million in loans annually from the program to support and increase trade in Bangladesh.

Multilateral and bilateral trade preferences towards Least Developed Countries have played an important role in increasing trade in Bangladesh, specifically the growth of exports, and as a result, the contribution of export-oriented sectors towards the country’s GDP, employment and investment. With diversified programs from development partners, the expectation is that the quality, volume and transparency of trade will increase for Bangladesh.

– Farihah Tasneem
Photo: Flickr

Trade EmbargoesIn a world dominated by complex international relations, tumultuous geopolitical conflicts and volatile financial climates, the sense of protectionism and the implementation of trade barriers are becoming more widespread. An embargo is a term that can be defined as the complete or partial ban on trade, business activities and relations occurring between two countries. Similar to trade sanctions, trade embargoes are involved when countries seek to establish barriers or constraints often for political motives, purposes and gains. But, do they work?

Cuba and the U.S. Trade Embargo

Countries like Cuba, Libya, North Korea, Venezuela, China and Russia have often been on the receiving end of trade embargoes for decades. In the past, U.S. trade embargoes have resulted in sporadic political changes and dire effects on foreign policy.

For instance, Cuba, in particular, has been adversely impacted by the U.S. trade embargo since the culmination of the Cuban Missile Crisis of the 1960s, particularly in regard to the collapse of the sugar industry. The initial decline was catalyzed by the imposition of the Smoot-Hawley Tariff Act. Production further declined after the fall of the Soviet Union and a rise in the embargoes by the United States.

Trade Embargoes and Economies

At times, trade embargoes work because they can contribute to more peace and stability, and they can even prevent the debilitation of human rights violations, terrorism, aggression and nuclear threat. However, long term restrictions can be quite damaging and aggravate poverty and the standard of living for civilians. Owing to the sheer level of economic isolation and threat to trading relationships, the effects of trade embargoes can be especially damaging to the business, trade and commerce of a country, impacting a country’s GDP as well.

As a result of the negative effects of trade embargoes, domestic industries and producers often suffer a decline in their export markets and revenues, thereby threatening jobs and livelihoods. Countries that tend to overspecialize in certain commodities, goods and services may be most affected by these constraints as key sectors of the economy may be adversely impacted. Given their level of development, poorer countries are often restricted to producing goods in the primary industry that may have relatively lower returns.

Unintended Consequences

Trade embargoes may lead to grave economic and geopolitical problems like retaliation, such as the Russian counter-embargo after the 2014 EU Energy embargo during the Russian annexation of Crimea. This can result in an escalation in trade and price wars in the long run. Incidentally, the U.S. and China may now also be on the verge of a major trade war due to the new imposition of trade barriers, most recently on steel and China’s HUWEI chip sales.

Due to deficiencies in the country’s power to export goods and services during an embargo, its trade balance will also tend to suffer to a great degree. For instance, a U.N. arms embargo has been placed on North Korea concerning all armaments and related goods. Since December 2017, trade restraints have also been placed on key industries like oil and agriculture. This has created issues for the North Korean economy, but it has done little to deter the government from nuclear testing.

Open Trade Benefits Economies

According to the IMF, there is significant evidence that countries with open economies are more likely to achieve higher levels of economic growth. With new levels of trade liberalization and globalization, expanding economies are benefitting from massive inflows of capital and investment from stakeholder groups around the world. Moreover, in recent years, burgeoning and fast-paced economies like China are graduating to an open trade policy so that they can bolster trading ties with other key trading players.

In the year 2014, members of the World Trade Organization (WTO) agreed to sign the Trade Facilitation Agreement (TFA). In order to ensure greater ease, competitiveness, and efficiency in trade in the future, trade facilitation measures are now being implemented so that weak bureaucracy and productivity issues may be addressed. TFA will also aid developing economies to boost their exports and have greater access to markets.

The answer is not simple. Trade embargos can work under the right circumstances, but they are not always as effective as one would hope. Furthermore, they can have unexpected consequences. Given the vast scope and potential of free trade and development in a dynamically changing world, eliminating barriers and encouraging greater economic integration may provide a more effective way to address important social and economic issues and have profoundly positive impacts in the long term.

Shivani Ekkanath
Photo: Flickr