Last weekend, at the Russian-hosted Eastern Economic Forum in Vladivostok, Japan’s Prime Minister Shinzo Abe and Russian President Vladimir Putin met twice. On Friday they held closed bilateral talks, and on Saturday they appeared in a televised panel along with South Korean President Park Geun-hye. The economic forum, in its second year, is an effort by Moscow to encourage and facilitate investment in Russia’s vast and underdeveloped far east, a current priority for Putin as his economy struggles under western sanctions and low oil prices. Most of the discussion surrounding Putin and Abe’s two meetings concerns the now over 70-year-old dispute over 4 islands in the south of the Kuril chain.
Following the end of World War II, the Allies signed a peace treaty with Japan in San Francisco in 1951. The Soviet Union, however, did not sign onto the treaty because of the failure to resolve the ownership the southernmost Kuril Islands, a chain beginning to the north of Japan. This is not to say, as many have, that Russia is still technically at war with Japan. The two countries ended the state of war and restored diplomatic relations with their 1956 Joint Declaration (1). The two items left for future negotiation by the declaration were a formal peace treaty and resolution of the island dispute. The 4 contested islands: Iturup, Kunashir, Shikotan, and Habomai, were occupied by the Soviet Union after the Japanese surrender in 1945 (2). Included in the Joint Declaration is the stipulation that the USSR would hand over the smaller Shikotan and Habomai Islands, though they would not formally change hands until the conclusion of a peace treaty. Since then, little progress has been made, though both sides remain committed (at least publicly) to ultimately resolving the issue.
In 2004, Russian Foreign Minister Sergei Lavrov acknowledged while on a trip to Japan with President Putin that Russia was the Soviet Union’s successor in the declaration (3). But despite over a dozen meetings on the matter between Putin and Abe since they have both held office simultaneously, the status quo remains the same. As a former Indian diplomat mused, the main outcome of each meeting seems simply to be the scheduling of the next meeting (4).
Prime Minister Abe changed tactics while intensifying his push for progress ahead of his meeting with President Putin in Vladivostok, taking a so-called “two-track” approach that was favored by then-Prime Minister Yoshiro Mori in the early 2000s. The approach involves asking for the return of Habomai and Shikotan while continuing talks on the two others, as opposed to insisting on Russian agreement to a comprehensive return. Russia, on the other hand, favors a peace treaty that would return the aforementioned two and allow Russia to retain Iturup and Kunashir indefinitely (2).
On the incentives front, Abe is untethering many economic benefits from the return of the islands, with the hope that increased investment and improved diplomatic ties will lead to progress in negotiations. Previously certain economic linkages were conditional on the beginnings of an agreement for the islands. For example, joint oil exploration in eastern Russia and cooperation in development of other forms of energy are all on the table. Such projects would leverage Russia’s resource endowments with Japanese companies’ high-tech capabilities. Also in the works is the purchase of a 10%, $9.6 billion stake in Rosneft by a government-backed Japanese oil company. The Russian SOE could use the capital injection after years of pain from U.S. and E.U.-led sanctions and perpetually low oil prices (5).
In his televised discussion with Putin and President Geun-hye, Abe advocated greater friendship and cooperation between the two countries, saying the two should work together to improve the region’s infrastructure, education, and medical services, and an “end to the unnatural state of affairs that has continued these 70 years,” all of which Putin responded to amicably. The two will meet again in Abe’s home prefecture on December 15th to continue discussion on these issues (6).
Despite all the enthusiasm, it is unrealistic to expect a breakthrough anytime soon. This is far from the first concerted effort to move the needle—in fact, Abe’s father tried to resolve the issue during his tenure as foreign minister in the 1980s (7). Now, like then, Russia has serious interest in retaining the islands. Not only do the islands offer valuable fishing territory, but they are populated by Russians, who moved there after the Soviet Union occupied the islands and expelled any Japanese (8). Expecting the same man who annexed Crimea in the name of the ethnic Russian population to give up territory populated by ethnic Russian citizens of the federation is quixotic. No matter the economic boon that might come with it, such an action would hurt Putin politically and run counter to his own ideals. Expect continued willingness by both sides to discuss the issue, but little progress towards a peace treaty that is in many ways unnecessary.
(1) “Joint Declaration by the Union of Soviet Socialist Republics and Japan.” University of Tokyo. Web.
(2) “Tokyo returns to two-track approach over isle row with Russia.” The Japan Times. 2 September 2016. Web.
(3) Golovin, Vasily. “A Dispute between Neighbors.” Kommersant. 15 November 2004. Web.
(4) Bhadrakumar, M.K. “Russia wins poker game with Japan over Kuril Islands.” Asia Times. 4 September 2016. Web.
(5) Hille, Kathrin. “Japan’s Abe makes plea for friendship with Russia.” Financial Times. 3 September 2016. Web.
(6) Rich, Motoko. “Onstage With Putin, Shinzo Abe of Japan Calls for Resolution of Island Dispute.” The New York Times. 3 September 2016. Web.
(7) Takenaka, Kiyoshi and Pinchuk, Denis. “Russian, Japanese leaders express new resolve to settle island row.” Reuters. 3 September 2016.
(8) Hill, Kathrin and Harding, Robin. “Putin and Abe make conciliatory noises over disputed
islands." Financial Times. 2 September 2016. Web.
Image: © Igor Dolgov | Dreamstime.com - Tsuneo Kitamura
The dominant narrative of the struggle for global hegemony pits a rapidly ascending China against a more stagnant United States seeking to maintain its position as the world’s sole superpower, but from an economic standpoint the 21st century could very well belong to India. With a more advantageous and growth oriented population pyramid and fertility rate India is roundly expected to leap past China as the world’s most populous country in as little as a decade, and will not face the same troubling uptick in dependency ratios as its powerhouse neighbor or the OECD nations (1,2). Short term projections forecast India continuing to grow at a steady rate of just over 7% while China’s economy slows down (3,4). However, the South Asian state faces internal and close to home hurdles if it is to meet the most optimistic predictions, and become a leading economic power.
Especially visible this summer is the continued dependency of large portions of the Indian economy and population on the fickle pattern of drought and monsoon. Well over half of India’s 1.2 billion-person population depends on agriculture for a living. Agricultural land makes up 60% of the total land area in India but only 1/3 of this is irrigated, the rest depending on the monsoon season, from which the country gets ¾ of its annual rainfall in a 4-month span between June and September (5). As this year’s monsoon season approached a crisis mounted; After two years of weak monsoons and sweltering temperatures, well over 330 million people were facing acute water shortages (6). Output of major cash crops had plummeted, as farmers delay planting in expectation of further water shortfalls. Soybean production, for example, had plummeted to an 11-year low (7). This not only puts the population of farmers and their families at risk of malnutrition and starvation as incomes dwindle and belts tighten, but also increases the price of these goods across the country. 30% of India’s population is below the poverty line, and for these hundreds of millions rising food inflation can be the difference between life and death (5). As a corollary, when agricultural shortages push up inflation they also force the central bank to be warier towards the interest rate cuts it wants to make to incentivize business investment and boost growth (8).
Thankfully, this year’s monsoon is bringing much needed relief to India’s water-starved population, ending the two-year drought and increasing crop planting. Unfortunately, even successful monsoon seasons bring negative consequences. Severe flooding happens at least once every 5 years (8). Already this year more than 300 people have been killed as rainfall hammers the parched earth, and over a million are living in temporary shelters. The BBC estimates that the floods have affected almost 9 million people thus far9. Indian government, likely at the state level, needs to improve protections against extreme rainfall events, planning proactively rather than reactively. This need will become more urgent as instances of extreme rainfall increase with the changing climate. The Intergovernmental Panel on Climate Change predicts that rainfall patterns in India will become more erratic, and that the amount of extreme weather events will increase, especially in the peninsular regions (9).
Of even more concern than improving the resiliency of infrastructure to flooding is a larger shift in farming practice to make Indian farmers’ water usage more sustainable and reduce dependence on the monsoon season for successful harvests and planting planning. The Water Resources Group estimates that about half of the demand for water in India will be unmet by 2030. There are 20 major river basins in India, 14 of which are already categorized as water-stressed, and contain ¾ of the Indian population (10). This problem is not unsolvable, and the solution lies in agricultural reform. 85% of India’s water consumption is by agriculture, and Indian farmers are highly inefficient in their use of it. Water is used twice as productively by Chinese rice farmers than their Indian counterparts, and these trends are mirrored across most crops (10). Indian farmers heavily pump groundwater—often growing water-heavy crops in areas unsuited for them, which is economically feasible thanks to subsidized electricity. They use more of it than China and America combined, and the water table is suffering.
Projects to alleviate the suffering of farmers tend to focus on meeting their insatiable demand, building canals and other artificial waterways to divert rivers and relocate water to the driest regions (6,10). Instead, the government should seek to reduce demand and help farmers implement more sustainable farming and watering practices so they can weather dry years more easily and tax the dwindling groundwater less. As the population booms, more efficient and less volatile agriculture will be a necessity.
Progress on Tax Reform
On a more positive note, India’s central government took a huge step forward this month towards simplifying the byzantine and fragmented tax code. On August 3rd a constitutional amendment that allows for the creation of a Goods and Services Tax (GST) passed the upper house of parliament (11). This move has been in the works for years, with the introduction of a GST promised by the previous government as early as 2010.
Previously, India’s constitution gave states the power to tax goods, and the central government the power to tax services. Though strange, this seems as though it could work. However, the central government also has the ability to levy an excise duty on goods at their point of manufacture (12). Thus, under the current system, producers of goods are taxed by the central government, and goods are again taxed as they move from state to state within India and are ultimately sold.
One obvious problem is the prolific amount of double or cascading taxation, as manufactures are taxed multiple times by revenue collectors from the central and different state governments. A second issue that arises is the need for economic checkpoints along state borders, to ensure that taxes are paid. These checkpoints bring two unintended consequences. The first is major transportation slowdowns and delays. The Economist reported in 2009 that waiting at checkpoints can add over 30 hours to the cross country truck drive from Kolkata to Mumbai (12). This is essentially a doubling of the time and cost of transporting goods in India, deterring foreign investors and businessmen who would love to reach a wide swath of India’s huge consumer market. The second problem with the checkpoints is that they are plagued with corruption, and inspectors are often charging their own taxes before allowing vehicles to cross the border, adding further cost and uncertainty to the already complex process of moving goods across state lines.
Of course, not all business owners simply accept the onerous paperwork and cost or decide to sell simply within their own state. The lack of a streamlined tax system is a major contributing factor to the highly developed informal economy in India, in which goods escape taxation all together, depriving governments of revenue needed for much needed budget balancing and investment in human development and infrastructure. The difficulty of tax compliance drives many businesses to black market suppliers. Only 8.5 million out of an estimated 63 million enterprises in India pay taxes (13). With a simplified GST system, more businesses might opt for the legal route as the risk of law breaking begins to outweigh the benefits.
The next step for the implementation of a GST is the ratification of the constitutional amendment legislation by at least half of India’s states, and then another parliamentary bill containing the specifics of the tax. The winter session of Indian parliament begins in November—such a bill could be introduced then (11). If all goes according to plan, and negotiations between the central and state governments over the tax rates are amicable, India could begin implementing the GST in the next year.
In a final system, there will be a GST for each of India’s 29 states and 7 federally administered union territories, a federal GST, and a central/state integrated one for inter-state supplies of goods and services (14). Though this may seem complicated, and it will take time to implement, it is leagues simpler than the current confusion. All that needs to be done for a given good is determine which tax’s jurisdiction it falls under, and then that tax is added to the good’s final price. An important note to make here is that the burden of the tax is being shifted from producers to consumers. Canada, Australia, and New Zealand all saw one-time increases in inflation after implementation of a similar tax, driven by suddenly higher prices (11). Over time the burden should distribute more equally as base prices are pushed down, feasible thanks to lower tax costs for producers.
India’s GST makes the country more attractive to FDI, will increase legitimate and total intra-country trade, and will increase government revenues. It is important progress for a country with such economic potential but so many problems left to solve. Further reform on income taxes and economic interactions across individual states is needed. Infrastructure requires a serious upgrade, but the budget deficit is already unfortunately wide. Serious conflict flash-points exist to both the East and West, and charting a geopolitical course that does not submit to either the US or China will be difficult. But India’s economic potential is widely recognized, and with proper management investors will continue to pour in and trade will continue to grow. A successful transition from a rural majority dependent on environmentally inefficient agriculture will be another key to long term growth and a shift to a higher standard of living for the population as a whole.
(1) Kottasova, Ivana. “Biggest Populations in 2050: Mover over Russia and Mexico. Here comes Africa.” CNN Money. CNN. 18 August 2015. Web.
(2) “Attitudes about Aging: A Global Perspective.” Pew Research Center. 30 January 2014. Web.
(3) “New Growth Projections Predict the Rise of India, East Africa and Fall of Oil Economies.” Harvard Kennedy School. 7 May 2015. Web.
(4) “India to be world’s highest growth nation in 21st century: IBM study.” Business Standard. 10 December 2015. Web.
(5) “South Asia: India.” The World Factbook. Central Intelligence Agency. 29 July 2016. Web.
(6) “Why India has a water crisis.” The Economist. 24 May 2016. Web.
(7) Parija, Pratik. “India Soy Crop Seen Rebounding from Decade Low on Monsoon Boost.” Bloomberg Markets. Bloomberg. 17 August 2016. Web.
(8) Abraham, Thomas Kutty. “India’s Monsoon.” Bloomberg Quick Take. Bloomberg. 10 August 2016. Web.
(9) Rowlatt, Justin. “India Climate: What do drowning rhinos and drought tell us?” BBC. 6 August 2016. Web.
(10) “India Infrastructure Report 2011, Water: Policy and Performance for Sustainable Development.” Infrastructure Development Finance Company. Oxford University Press. 2011. Web.”
(11) Krishnan, Unni. “What’s the Big Deal About India’s Goods and Services Tax? Q&A.” Bloomberg. 2 August 2016 Web.
(12) “Tax reform in India: Trickle Through”. The Economist. 17 December 2009. Web.
(13) Edens, Rob. “Why is India’s GST such a big deal?” The Diplomat. 16 August 2016. Web.
(14) Biswas, Soutik. “Why India’s GST is one of the world’s most complete tax reforms.” BBC. Web.
Image: © Matyas Rehak | Dreamstime.com - Flooded street in Varanasi
Since the Brexit referendum in June, talk in both the United Kingdom and China has begun about a possible bilateral trade agreement between the two major economies. Such a deal could not only open opportunities for investors in both countries, but would also be highly symbolic: China’s first such agreement with a major Western power. On August 2, the Chinese ministry of commerce expressed willingness to jointly conduct a feasibility study for a hypothetical FTA (1).
The drive for enhanced trade between the UK and China is nothing new. In 2013, then-Prime Minister David Cameron promised in a visit to China that he would push heavily for a free trade deal between the EU and China (2). And a year ago a large contingent of Chinese officials and businessman, including President Xi Jinping, visited Britain, where an assortment of investments was announced. David Cameron called the visit and the deals the beginning of a “golden era” for relations (3). That golden shine is somewhat dulled at the moment by newly elected Prime Minister Theresa May’s ordered review of a nuclear power station project (4). If the May government cancels Chinese investment agreements made under Cameron, the chance of negotiations might be shot, but long-term desire in both countries for greater economic linkages will persist—with good reason.
Trade between China and the UK totaled almost £60 billion in 2014. This largely reflects the high levels of Chinese imports into Britain; China is now Britain’s second largest importer, behind only the United States. The percentage of imports occupied by Chinese goods more than doubled since 2004 to 7% in 2014. China is the destination for 3.2% of British exports, still outside of the top 5. This lopsided trading relationship, similar to China’s with most developed countries, can be explained by the prominence of goods over services in the bilateral trade flows (5).
From 2004 to 2014 trade in goods represented 80% of total trade between China and the United Kingdom (6). This is not ideal for a country where services make up almost 80% of GDP (7). Britain’s Office for National Statistics most recently reported an annual deficit in trade in goods of £10.2 billion, and a surplus in trade in services of £21.7 billion. Put another way, trade in services accounts for about a fourth of UK imports, but almost half of the kingdom’s exports (8).
If Britain can negotiate a deal that reduces barriers in trade in services, the nation’s trade balance with China and on the aggregate could improve markedly. China has notoriously strict capital controls, which its leaders trumpet as protection from malicious speculators and volatility in the global economy. Additionally, these limits and requirements make it much more difficult for foreign banks to expand into China. And if they do, they must maintain a representative office in China for two years and have more than $10 billion in assets before incorporating in China. Even then, it takes at least another year to prove to regulators that they deserve the ability to offer domestic currency services (9). London’s world class banking industry would profitably leap into China if they could quickly begin providing services to the massive middle class.
England is also well known for its insurance services, and China for onerous stipulations for foreign insurers. Regulatory hurdles have kept the market share of foreign-invested companies around 1%. And in the life and health insurance sectors, foreign companies must enter the market in a joint-venture with at least 50% of the equity coming from a Chinese firm. (9)
For China, these limits are not only protectionist but pragmatic. They allow the party to make sure it keeps an eye on foreign companies, especially in sectors that are important to the health of the economy (or can endanger it). Convincing the CCP-controlled nation to relinquish such safeguards will not be easy. Liam Fox, responsible for Britain’s post-Brexit trade negotiations, might not aim so high.
Law firms, the final component of London’s high end services triumvirate, could see gains in their access to China with or without a deal. Though burdensome regulations linger, China is committed to making it easier for foreign legal service providers to operate in the country, as part of its accession deal with the WTO (10).
For the strong services sector, a trade agreement with China would be a boon. Increasing bilateral investment could also bring money to Britain, as well as open up new opportunities for British investors. But for the industrial sector; accounting for 20% of the economy, politically important, and already hurting, a wide-reaching trade deal with China would be a nightmare (7). Cheap Chinese-manufactured goods and industrial products, such as overproduced and cheap steel, would pummel prices in the United Kingdom and further punish a worker population besieged by globalization.
It will be interesting to see what details emerge in the next couple years if substantive negotiations begin. Both countries stand to seriously benefit from reduction of barriers in the other, but are loathe to forego their own protections.
(1) Nan, Zhong. “China willing to start talks with UK about FTA.” The China Post. 4 August 2016. Web.
(2) Osborn and Blanchard. “Cameron irritates Brussels by pushing EU-China trade deal.” Reuters UK. 3 December 2013. Web.
(3) Inman, Macalister, Topham, and Sweney. “The UK’s deals worth billions with China: what do they really mean?” The Guardian. 24 October 2015. Web.
(4) Kynge and Mance. “China warns UK over £18bn nuclear power deal.” Financial Times. 8 August 2016. Web.
(5) Webb, Dominic. “Statistics on UK trade with China.” House of Commons Library. 12 November 2015. Web.
(6) “How important is China to the UK economy?” Office for National Statistics. 9 June 2016. Web.
(7) “United Kingdom.” The World Factbook. Central Intelligence Agency. 29 July 2016. Web.
(8) “UK trade: May 2016.” Office for National Statistics. 8 July 2016. Web.
(9) “Foreign Trade Barriers: China.” Office of the United States Trade Representative. Web.
(10) Grimley, John. “China’s legal market in 2014: An overview.” Asia Law Portal. 26 November 2014. Web.
Image: © Waihs | Dreamstime.com - <a href="https://www.dreamstime.com/editorial-stock-photo-chinese-guangdong-free-trade-area-shenzhen-qianhai-shekou-experimentation-area-was-established-year-later-scenery-image70617558#res14972580">Chinese (Guangdong) free trade area of Shenzhen Qianhai Shekou experimentation area</a>
The aftermath of the failed coup in Turkey raises pertinent questions about the stability of the government and democratic system in the important NATO member and American ally in the fight against ISIS. Less prevalent are considerations of the potential economic effects. Despite initial worries, it appears that regional trade routes such as the Bosphorus Strait will not be disrupted. Shipping sources reported no disruptions after a brief closure during the fighting (1). However, Turkey’s own economy could suffer. The emerging market already faces continuing downward pressure on its currency, a current account deficit, and investor skittishness over President Erdogan’s conspicuous consolidation of power. Further moves in this direction could exacerbate these issues.
The coup attempt will likely dissuade some foreign investors and reduce highly beneficial FDI flows into Turkey. Last year, FDI into Turkey totaled $16.75 billion, more than 2% of GDP. This number has not been stable, reaching $22 billion in 2007 before plunging during the global financial crisis to as low as $8.6 billion, recovering to $16 billion in 2011, and then falling again (2). The government maintains a strong public commitment to stable macroeconomic policy and a market economy, encouraging these flows (3). This credible stance should help the country weather the post-coup uncertainty, but foreign investment has shown itself to be as finicky as it is important to the economy.
In the shorter term, the coup caused further depreciation of the Turkish lira and pain in the Turkish stock and bond markets. All three plummeted in the immediate aftermath of the coup and remain low, though they are rallying. The movement is similar to what happened in early May, when Prime Minister Ahmet Davutoglu announced that he would resign. The Prime Minister publicly disagreed with Erdogan on a number of issues, including increasing the power of the executive. When he withdrew himself from upcoming leadership elections for the AKP party (of which Erdogan is also a member), it was seen as a victory for the President and a further consolidation of power to his office (4).
As of July 25th the lira had recovered 2.3% from the record low of almost 3.1 lira to the dollar, but still remained more than 5% below its position before the coup (5). Major stock market indices look similar to the lira: trending upwards since January, taking a big hit in May, and now beginning to recover from their precipitous drop several weeks ago (6).
Traders still expect currency volatility in the coming months. The lira’s expected volatility shot up from 10% to 18% with the coup, but fell to 14% in the week afterward. It was almost as low as 8% before the Prime Minister’s resignation announcement, after which it briefly hit 14% (7). These numbers are far from apocalyptic but show how each event made experts warier.
The lira’s strength is important to Turkey. The World Bank noted in a recent economic report that its stability helped combat inflationary pressures in Turkey (8). Inflation was 7.64% year on year in June, and has consistently been above the central bank’s target of 5% (9). A fall in the value of the lira would also widen Turkey’s current account deficit, which persists thanks to a consistent trade deficit: $64 billion in 2015 (10).
In 2012 the lira hovered at around 1.8 to the dollar, and has trended downwards since, now floating closer to 3 per dollar (11). 2016 started off optimistically for Turkey, with a steady uptick in the value of the lira until the political turmoil in May. The rally was aided by the central bank’s policy of boosting the value of the lira by spending foreign exchange reserves. However, analysts see this practice slowing down, likely because reserve levels are getting too low for it to remain feasible (12). If traders sense an inability of the central bank to assist its currency, it could weaken even further.
Further hurting the outlook, Standard & Poors changed Turkey’s credit-rating from stable to negative (3). Moody’s is still considering its own downgrade of Turkey’s investment rating (5). S&P made the opposite move in May, but warned of the continuing downward pressure on the Turkish lira due to the ongoing withdrawal of investors from the country, alongside weak demand for exports (13).
Despite current negativity, if the course holds, market rallies will continue and Turkey could recover relatively quickly from the shock caused by the coup. The government quickly regained full control of the state, and there was no major disruption of economic activity. The real danger in the remainder of 2016 will be possible further moves by President Erdogan to concentrate power in the executive. When he forced out his most powerful rival in May, markets responded as quickly and negatively as they did when the civilian government’s control of the country was in question. This reveals major concerns about the safety of Turkish democracy and a corollary danger to foreign investments and capital. With a state of emergency now declared, Erdogan can make laws by decree (14). If he uses this power to enhance his position, expect extremely unfavorable reactions in the markets. Investors will be watching closely, and the central bank may be helpless if the lira begins to tumble again.
(1) Saul, Jonathan. “Med-Black oil tanker rates weaken after failed coup in Turkey.” CNBC. 18 July 2016. Web.
(2) Cetingulec, Mehmet. “Should they stay or should they go? Turkey leaves foreign investors at odds.” Al-monitor. 1 April 2016. Web.
(3) “Turkey’s economy after the coup.” Al Jazeera. 23 July 2016. Web
(4) Cunningham, Erin. “Turkey’s prime minister resigns amid high-level rifts and deepening crises.” The Washington Post. 5 May 2016. Web.
(5) Lewin, Joel. “Turkish lira, stocks and bonds continue to rebound.” Financial Times. 25 July 2016. Web.
(6) “Turkey Stock Market.” Trading Economics. Web.
(7) Ozsoy, Tugce. “Lira Volatility Eases as Turkey Coup Shock Abates: Chart.” Bloomberg. 25 July 2016. Web.
(8) “First Half of 2016 in Turkey Sees Slower GDP Growth than 2015, says World Bank.” The World Bank. 15 July 2016. Web.
(9) “Turkey Inflation Rate.” Trading Economics. Web
(10) “Foreign Trade Statistics.” Turkish Statistical Institute. Web.
(11) “XE Currency Charts (USD/TRY).” XE. Web.
(12) Sindreu, Jon. “The Turkish Lira May Not Get its Mojo Back.” The Wall Street Journal. 23 May 2016. Web.
(13) Candemir, Yeliz. “S&P Raises Turkey’s Credit Rating to Stable.” The Wall Street Journal. 6 May 2016. Web.
(14) “Turkey declares ‘state of emergency’ after failed coup.” Al Jazeera. 20 July 2016. Web.
Image: © Evren Kalinbacak | Dreamstime.com - <a href="https://www.dreamstime.com/stock-photo-haydarpasa-port-istanbul-city-image45354667#res14972580">Haydarpasa Port, Istanbul</a>
The British referendum to leave the European Union sent the stock market, pound, and consumer and investor confidence tumbling, but there is one group that undoubtedly stands to gain: international trade experts. Britain suddenly faces the enormous task of negotiating trade deals with all the nations and blocs that it currently exchanges goods and capital with under agreements made through the European Commission, as well as the opportunity to further liberalize trade with major trading partners. Chancellor of the Exchequer and former Foreign Secretary Phillip Hammond made clear that Britain is already on the hunt for experienced trade negotiators, something the nation seriously lacks after 43 years in the European Union (1).
Two new departments in the British government will handle post-EU trade deals; the Brexit office headed by David Davis will negotiate with EU member countries, and the International Trade Department headed by Liam Fox claims negotiations with countries outside the EU (2). According to EU officials, Britain cannot legally negotiate bilateral trade deals until it leaves the union (3). Though documents may not be signed until after that day, Theresa May’s government is rushing to begin discussions with the kingdom’s major trading partners. EU leaders might complain if Britain puts too much effort into new trade negotiations while delaying formal triggering of Article 50, but third party states prefer preparing themselves for an independent Britain rather than holding off in the name of the EU—at a cost to their own economy.
Already things are looking up for the UK. Malcolm Turnbull, the Australian prime minister, made clear he wants to quickly make a trade deal. Liam Fox has flown to the United States to speak with senior trade officials (4). Before that trip, he had also told press that Britain began productive trade talks with Canada on July 15th. In the same interview he put the number of EU-external free trade deals Britain is “scoping” at about a dozen, while stressing the attractiveness of a trade agreement with the world’s fifth biggest economy outside the auspices of the EU. The British people just resoundingly demonstrated the extent of anti-globalization sentiment in the country, but negotiators would at least only have to balance the demands of one national constituency rather than the 28 in the EU. Despite the sentiment of Brexit, the UK could find itself at the forefront of 21st century trade liberalization if its negotiators are effective and its politicians able to sell new deals at home.
The United States and China are top priorities for negotiations, says Mark Price, the Minister of State for Trade and Investment (6). The EU has trade agreements with neither (7). After earlier reports that the Chinese Ministry of Commerce is interested in a free trade deal with Britain, Chancellor Hammond this week told the BBC he began precursory discussions with Chinese counterparts. Such a deal could theoretically open the doors to major Chinese investment in Britain, alongside much greater access and ease of business for British service companies (such as banks and insurers) in China (8).” Do not expect an ambitious deal between China and the UK anytime soon; the threat Chinese manufactured goods pose to British industry makes the lowering of tariffs towards them almost politically impossible, especially now.
The United States’ top trade official, Trade Representative Michael Froman, met with Liam Fox this week, but also heads to Brussels to continue work on the TTIP, which Price mentioned as a potential guide for a US-UK trade deal (9). Earlier in the month, Froman raised the possibility that Britain could become a member of the TTIP as a third party (currently negotiations are between the EU and US), or even join the TPP—despite the presumed geographic criteria (10). He reiterated the ambiguous legal nature of trade talks at this point—before Britain actually leaves the Union, but also brought up a more practical hurdle. Until third party states understand the relationship between an independent Britain and the European Union, discussions between officials can’t leave the preliminary stages. When the degree of future EU-UK integration becomes clear, other trade talks can move into substantive discussion and spectators can see how much the new government can deliver on its early optimism.
(1) Schomberg, William. “Britain to hire foreign trade negotiators after Brexit,
says Hammond.” Reuters. 4 July 2016. Web.
(2) Mance, Henry. “The UK has no trade negotiators, says former Brexit minister.”
Financial Times. 15 July 2016. Web.
(3) Wintour, Patrick. “UK officials seek draft agreements with EU before
triggering article 50.” The Guardian. 22 July 2016. Web.
(4) Ross, Tim. “Brexit free-trade deals planned with the USA and Australia.” The
Telegraph. 16 July 2016. Web.
(5) Addison, Stephen. “UK opens ‘very fruitful’ trade talks with Canada, says
minister.” Reuters Canada. 16 July 2016. Web.
(6) Spicer and Henry. “UK trade minister’s quest begins with hiring negotiators.”
Reuters. 26 July 2016. Web.
(7) “Ageements.” European Commission. Web.
(8) Ahmed, Kamal. “UK explores multi-billion pound free trade deal with China.”
British Broadcasting Corporation. 24 July 2016. Web.
(9) Wintour, Patrick. “British-EU relations likely to be resolved by 2020, says
Liam Fox.” The Guardian. 26 July 2016. Web.
(10) Lawder, David. “U.S. trade chief holds talks on UK trade deal possibilities.”
Reuters. 14 July 2016. Web.
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Born out of a speech by President Obama at a 2009 G-8 meeting in response to a multi-decade long decline in agricultural investment and recent price spikes, the United States’ Feed the Future initiative seeks to advance global food security. This task is undertaken through programs such as USAID’s Yaajeende, which is designed to improve rural small scale agriculture and nutrition in Senegal (1).
The Yaajeende initiative was launched in 2010 with a 5-year mandate and budget of $40 million from the government via USAID, and implemented by the National Cooperative Business Association’s international arm, the Cooperative League of the USA. CLUSA notes that Senegal, with a large rural population, is heavily dependent on food imports, which account for 70% of consumption, and that many families struggle to consume a nutritionally diverse diet or do not understand the problem of nutrient deficiency (2).
Yaajeende is not a nation wide effort, rather it focuses on one million people in rural communities across four eastern regions of the African nation, which has a total population of around 14 million (3). Nor does it put money in the hands of officials at any level of the government, instead acting as a sort of NGO. Improvements are organized around smallholder farmers, women, children, and overall household wellbeing. Much of this is done by fostering local private sector growth and knowledge sharing among individuals. The initiative’s original goals for the targeted population were to reduce the number of children stunted due to poor nutrition by 25%, reduce the number of underweight children by 35%, and increase household incomes by 250% (2).
Three major components of Yaajeende are promotion of best practice for agriculture, increase of household assets (e.g. reclamation of previously unusable land or animal provision), and dissemination of information encouraging a more well-rounded diet, such as through educational initiatives in schools.
On the cornerstone issue of food security, via agricultural best practice, the creation of Community Based Service Providers, or CBSPs, is a crucial element. In essence, these are local entrepreneurs that bridge the gap between the farmers in their community and suppliers that sell agricultural inputs. They are given rudimentary business training by Yaajeende, and the program brings in private sector firms to teach them relevant technical skills (4). Not only can CBSPs get farmers access to higher quality seeds and fertilizers, but they can also help farmers use tools they purchase through them, as well as acquire financing to facilitate sales from suppliers. The initiative imagines them as jacks of all trades that can help uneducated farmers improve their methodologies and yields.
Two major midterm evaluations published in 2014 both gave very positive reviews of the Yaajeende project. The first, commissioned to development company Chemonics by USAID, states that “Yaajeende has been highly successful in reaching its target groups and beneficiaries: the poor and the vulnerable,” and “Yaajeende’s achievements are universally recognized by government officials at the central, regional, and local levels in Senegal (5).” The report goes on to laud the effectiveness of CSBPs in propagating innovation and efficient farming techniques, and the success of projects to increase household assets, such as bio-reclamation of degraded land. Separately, the USAID Office of Inspector General audited Yaajeende and reported that it was on track in all regards, quite impressive for any government program (6). These measures of success included a number of active CSBPs that was easily on track to meet the program goal of 1,000 in 5 years, and these CSBP’s economic activity was beyond what was expected at the mid point of the program (7).
Yaajeende’s numerous successes recently garnered it a two-year extension to 2017, and its implementers are touting it as an example of how effective community level interventions can be in improving agriculture, nutrition, and health outcomes for women (8). CLUSA has reason to be proud of itself: it reports a child stunting decrease of 36%, a tripling of children under 2 who are deemed to be achieving a minimally acceptable diet (to a meager 40%), and that 73% of households now receive a dietary score of “high”.
There is still considerable work to be done, but Yaajeende’s strategy is working, and should be studied by others in the international aid community. Local level encouragement of conscientious entrepreneurship, combined with education on nutrition and better agriculture, is an effective way to improve the lives of the world’s most impoverished rural populations, and ought to be further pursued by governments and NGOs.
(1) “Feed the Future: 2015 Year in Review.” Feed the Future. Web. 28 June 2016.
(2) “Project Profile: USAID Yaajeende Agriculture and Nutrition Development Program for Food Security in Senegal.” National Cooperative Business Association CLUSA International. Web. 28 June 2016.
(3) “The World Factbook: Senegal.” Central Intelligence Agency. 16 June 2016. Web. 28 June 2016.
(4) “Yaajeende Community Based Solution Providers.” US Agency for International Development. 22 June 2016. Web. 28 June 2016.
(5) “Yaajeende Agricultural Development Project Mid-Term Performance Evaluation.” US Agency for International Development. 9 June 2014. Web. 28 June 2016.
(6) “Audit of USAID/Senegal’s Yaajeende Agricultural Development Program.” Office of Inspector General, US Agency for International Development. 8 August 2014. Web. 28 June 2016.
(7) “You ARE what you EAT – Nutrition Led Agriculture in Senegal.” Seed-Africa.org. 5 May 2014. Web. 28 June 2016.
(8) “Project Profile: USAID Yaajeende Food Security and Nutrition Program.” NCBA CLUSA. Web. 28 June 2016.
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Rye is a senior at the University of Southern California earning a B.A. with a double major in International Relations and Economics, while also earning a specialization in Computer Programming through the school of engineering's Information Technology Program. He is heavily interested in international politics, economics, diplomacy, and law. Rye plans to attend law school with an eye on a future career as a lawyer in the realm of international trade and business. He has interned with Sandia National Laboratories for 2 years as a Foreign Policy Analyst supporting the Nonproliferation Research and Development Group, with specific work regarding the JCPOA with Iran and US-Russia Arms Control. Rye grew up in a boisterous household in New Mexico and loves hiking, camping, and any physical activity outdoors.