News, events and analyses related to global trade and snippets of changing trade matrix during the month of February 2015

 

East Africa

Kenya, Tanzania and Zambia

Everything to make African safari that much spicier 

With ITC (International Trade Centre) and Finland facilitating the ‘Promoting Intraregional Trade in Eastern Africa’ project that targets sector-led growth in Kenya, Tanzania and Zambia, Eastern Africa is expected to fast spruce up its spice and honey sectors and develop a competitive edge in exports. As part of the project, in Kenya, ITC has partnered with German engineering and electronics major Bosch, to train three Kenyan small and medium-sized enterprises operating in food processing and distribution in applying ‘Lean Methodology’ to their production and delivery processes. All three enterprises have started reporting significant improvements in their operational efficiencies, leading to greater competitiveness and profitability. Similarly, in Tanzania, Trade Support Institutions (TSIs) in the honey and mango sectors have strengthened regional cooperation. The Tanzanian Association of Mango Growers visited Mali to learn about best practices and supply chain solutions for exporting to international markets. In Zambia too, the project has contributed to new product and packaging standards. It’s worth noting that agricultural products are East Africa’s main exports, led by fermented black tea – $1.06 billion worth of which was exported by East African Community (EAC) in CY2013, most of which was imported by Egypt, Pakistan, the United Kingdom and Kenya. However, the main concern about EAC’s fermented black tea is the fact that for the last two years, value of exports have dropped from $1.31 billion in CY2011 to $1.13 in CY2012 and subsequently, to $1.06 in CY2013. Simialrly, despite huge potential, while EAC’s exports of honey is yet to take off in a meaningful way, those of spices like pepper and cinnamon are yet to get into double digit million dollars per annum.

 

Australia-Korea

FTA

The kangaroo jumps higher

Do FTAs benefit the deficit-struck party? Doubts persist still. In an effort to strike a positive note, Australia’s Minister for Trade and Investment, Andrew Robb, announced that the country’s Free Trade Agreement with Korea (KAFTA) has already started delivering significant benefits to Tasmania, particularly its horticulture industry, and has strengthened the local workforce and economy. Speaking while on tour of the facilities of one of Australia’s largest cherry exporters – Reid Fruits at Plenty – Robb said, Tasmania’s reputation as a world class producer of the premium variety has meant that farmers are well placed to capitalise on Asia’s increasing demand for the country’s clean, green and quality exports. When KAFTA was introduced on December 12 last year, Korea’s 24% tariff on cherry imports was scrapped. As a result, Reid Fruits’ exports to Korea have sky-rocketed, rising from 5 MT last season to 183 MT during the current season. Exports to China are also expected to surge in the future when the China-Australia Free Trade Agreement (ChAFTA) comes into force later this year,” he added. It is interesting to note however that at present, both South Korea and China run a merchandise trade deficit with Australia (amounting to $55 billion and $163 billion respectively during the past five years). This at a time when both the Asian giants have recorded a surplus with the world (South Korea: $192 billion; and China: $1 trillion during the past five years). Apparently, this FTA appears skewed in favour of Australia. Robb, you’d have done nobler to announce FTA benefits to Korea and China!

 

USA-China

Arguments that (will) continue

A never ending saga

It seems there is never going be an end to the US-China squabbles in bilateral trade. In continuation of quibbling over certain questionable practices by China, the United States has gone complaining to the World Trade Organisation (WTO) Secretariat with a request for consultations over the former implementing certain measures that allegedly provide export-contingent subsidies to enterprises in several industrial sectors. These sectors include textiles, agriculture, medical products, light industry, special chemical engineering, new materials, and hardware and building materials. According to the United States, China designates a cluster of enterprises in a particular industry as a Demonstration Base and then provides export-contingent subsidies to those enterprises. It also expressed the view that in addition to this, China also provides certain other export-contingent subsidies to its manufacturers, producers, and farmers.

 

South Africa-USA

Poultry Trade

Someone chickening out?

American poultry exporters, particularly those in the state of Delaware, are up in arms against South Africa’s high tariff barriers against American chickens. They claim if South Africa continues to shun American chickens, then American lawmakers should impose similar barriers on all South Africa’s exports to the US. And lending a voice to these exporters is Senator Chris Coons who represents Delaware. Recently, Coons asked, “You (South Africa) want unlimited access to American market to sell autos, yet you won’t let my state send its biggest agriculture export into your country?” Justifying his question, Coons said, “There are 14,000 people in my state whose lives depend on chicken. Chicken here is not just a product; it’s a way of life.” In stake amidst all this is the African Growth and Opportunity Act, a trade deal that provides certain African goods duty-free access to the US market. American chicken exporters, who are asking lawmakers to repeal this Act if South Africa doesn’t relent, claim that the African nation started imposing very high duties on American chickens the very year, the law – which it heavily benefits out of – was passed. The question now is, if South Africa will stand guard or chicken out?

 

ASEAN Trade

ASEAN Economic Community (AEC)

Initiatives for integration

ASEAN initiatives to declare itself a single economic community are on the fast track. According to Malaysian Deputy Minister of International Trade and Industry, Datuk Ir Hamim Samur, Malaysia, as Chair of ASEAN in 2015, was focused on making ASEAN Economic Community (AEC) a reality by the year-end. “ASEAN member states’ aim is to complete 95% of the integration measures by that date,” Samur said. Referring to the advantages of the integration, he said the enormous potential of ASEAN, combined with the conclusion of negotiations for Regional Comprehensive Economic Partnership (RCEP), would ensure bright prospects for the region’s economic growth. “RCEP involves nations with a combined gross domestic product of $17 trillion, which is larger than that of the US or the EU,” he added. It’s worth noting that RCEP, formally launched in 2012, is a proposed free trade agreement (FTA) between ASEAN members and the six countries with which ASEAN has existing FTAs – Australia, China, India, Japan, South Korea and New Zealand. Onlookers however claim that RCEP will become a forum where China will dominate (which already enjoys a huge trade surplus with the world), thereby diminishing influence of other related parties in the bloc.

 

UK-USA Trade

Chocolate

In bad taste for the Yankees

In a move that is sure to leave a bitter taste among American chocolate lovers, confectioner giant Hershey has reached an agreement with American company Let’s Buy British (L.B.B.), which prevents L.B.B. from importing Cadbury’s chocolates and Nestlé’s British-made KitKat, Toffee Crisps, Yorkies and Maltesers into the country. Hershey’s has threatened legal action amidst claims that importing of these products infringed on its trademarks and trade licences as they were produced for the UK market and were never meant for sale in US. Hersey’s has further contended that the UK-made chocolate bars were packaged in a manner which was very similar to the products that it manufactured under licence from Cadbury and that this similarity caused confusion. While the threat of legal action is centred on packaging of the products, many feel the prime difference is taste of the products. It’s worth noting that the differences in rules in UK and US mean that the versions of chocolate bars produced in the two lands follow different recipes. To be classed as chocolate in Britain, there must be a minimum of 20% cocoa solids, but in the US, it only has to have 10% cocoa solids. Also, fat content in British chocolates is higher.

 

Sri Lanka-Bangladesh

FTA

Not just a toy for the biggies

According to Sri Lanka’s Minister for Trade and Commerce Rishad Bathiudeen, Bangladesh and the island nation can boost bilateral trade by 7x if they can come together and forge an FTA. Bathiudeen said this while speaking at a three-day workshop on international trade finance organised by the Sri Lanka and Bangladesh chapters of International Chamber of Commerce. According to ITC data, bilateral trade between the two nations was at a measly $107.1 million in CY2013, with Sri Lanka having a surplus of $57.1 million. It has long been felt that bilateral trade amongst South Asian nations has not even managed a miniscule of its potential as mistrust and political difference have hijacked economics.

 

Argentina-China

Trade Accord

All roses have a thorn

A recent agreement between China and Argentina to boost trade relationships, will lead to commoditisation of the Argentine economy. This according to agricultural economists of Argentina, who fear that the agreement will lead to Argentina exporting more oilseeds and grains to China, instead of value-added products. On the other hand, those in favour of the agreement claim that Argentina, because of its size, has the potential to produce food grains to feed 10x of its population and hence, should use such agreements to increase its food grains exports. It’s worth noting that in CY2013 bilateral trade between Argentina and China was worth over $16 billion and was tilted heavily in favour of
the latter.

 

USA-Peru Trade

A step to reduce Peru’s trade deficit with us

Reaching the deepest pockets

Nutritional inputs are poised to invigorate Peru’s exports to the United States. Industry players in Peru expect exports of Sacha Inchi – a nutrient-rich traditional plant – to US to jump to $2.5 million in 2015, following the lifting of a major barrier to trade in what is their largest export market. This follows the US Food and Drug Administration (USFDA) approving a submission prepared on behalf of Peruvian exporters and classifying sacha inchi oil as ‘generally regarded as safe’ (GRAS), a key threshold for exporting large quantities of food products into the US market. It’s worth noting that the exports of sacha inchi oil to the US currently hovers around $0.5 million. “At least five American importers were waiting for the GRAS approval to finalise contracts with us,” Juan Manuel Benavides, Director, Amazon Health, said after the approval. Miguel Navarro, Operations Manager, Agroindustrias Osho, another exporter of the oil, said, “The US market for ingredients is huge, but the use of ingredients requires GRAS status.” Sacha Inchi, sometimes called inca peanut, is a plant rich in protein and fatty acids. It is cultivated and harvested in Peru’s Amazon region, including the San Martin area, where it provides a source of income to over 1,200 families. It is interesting to note that in recent years, US’ trade surplus with Peru has headed north. The difference really took off post-2009, when the US-Peru FTA came into force (Feb 1, 2009). [The FTA ensured that more than four-fifths of US exports to Peru were no longer subject to import tariffs, with the remaining products becoming tariff-free by 2019.] Big reason why such a development becomes all the more important.