BlackBerry's Latest Banishment Threat - Indonesia

♠ Posted by Emmanuel in ,, at 12/30/2011 06:03:00 AM
The sheer difficulty of cracking BlackBerry encryption has made several states wary of the Research In Motion service operating in their countries. As a compromise on national security-esque grounds, the Canadian firm RIM has located its servers within the countries that raise such concerns instead of at home--most famously the UAE:
Last year, the UAE threatened to suspend BlackBerry Messenger, email and web browser services unless RIM worked out a way to locate its encrypted computer servers in the country so the state could get access to email and other data -- the same access it says the United States, Russia and other states have.
That concession granted to some, it appears Indonesia is now complaining about how Singapore was made the location of RIM's Southeast Asia servers instead of the region's largest nation and largest user of the popular BlackBerry service. The mooted penalty for this betrayal of sorts is (once again) banning BlackBerry from operating in Indonesia. Via the Jakarta Post:
The Indonesian Telecommunication Regulation Body (BRTI) says that it may have to end the BlackBerry Messenger (BBM) service on all BlackBerry after the smartphone’s manufacturer, Research In Motion (RIM), opted to build a server in Singapore rather than in Indonesia.

“Because RIM has not been cooperative, it is possible that we will soon end BIS (BlackBerry Internet Service) and BBM service. BlackBerry therefore, would just be like other cellular phones,” BRTI member Heru Sutadi told The Jakarta Post on Friday.
The Indonesian government claims that, aside from the usual national security request, RIM indicated that it would build the server in Indonesia before its act of info-treachery:
In September, RIM made a commitment with the government to carry out four agreements by Dec. 31. One of the agreements called for the establishment of a server or a data center. Although the agreement did not specify where the server would be built, the government felt that RIM should make Indonesia a priority as it was home to the most BlackBerry users in Southeast Asia, far exceeding the number of users in Singapore.

The government’s insistence on having a server built in the country was mainly due to security reasons, Heru said. Currently, all data exchanged through the BIS and BBM is processed in Canada, the home of RIM, which makes it impossible for the government to monitor and protect data sent by its millions of Indonesian users.

“With the condition as it is now, we warn that the country’s users to be cautious about using BlackBerry because the data exchanged is not safe or cannot be guaranteed of its safety,” he said.
While the idea that Indonesian users are more at risk now that RIM servers are in Singapore than they were before when the servers were in Canada is risible, I remain a believer that information flows within a nation remain a state's prerogative despite insipid notions to the contrary. Insofar as we haven't moved past notions of state sovereignty to something akin to world government, firms must play by national rules for better or worse.

To be sure, the longstanding presence of active separatist movements and terrorist groups may make Indonesia more legitimately entitled in raising information security concerns. It's too bad that Indonesia appears to want punishing RIM for commercial reasons as well. But, it's a price you have to pay in a world where extraterritoriality does not apply.

Singapore's Fat-Fighting Tool: Military Conscription

♠ Posted by Emmanuel in ,,, at 12/29/2011 08:10:00 AM
Given its sheer girth, the globalization of American-style obesity is not a problem you can sit on and forget about. Industrialized countries already burdened with sizeable health and pensions obligations may, in all likelihood, be underestimating this weighty problem as their citizens become US-huge and encounter all sorts of related problems. Aside from the aesthetic pitfalls of being a nation of fatties, there is an all-you-can-eat buffet of illnesses associated with mega-tubbiness.

Venerable medical journal The Lancet recently featured a series of alarming studies about the consequences of what medical types call "obesogenic" cultures--of which the United States is the prime (rib?) example with forecasts predicting that half of all Yanks will be obese by 2030. Which is not much of a stretch given that over a third of them already are obese. Definitely, health is a very understudied issue in IPE and this gap should be addressed since the health of nations will certainly shape patterns of national indebtedness. A study out of Emory estimates that obesity-related costs for the US will amount to $344B by 2018--about 21% of a gargantuan health care tab. For several nations, health care is the largest line item in the national budget and will only become more so given their aging populations.

Certainly the likes of the United States ought to concern themselves more with their cellulite-superindebtedness complex than their military-industrial one. American indiscipline is a multifaceted construct, with their legendary fiscal depravity combined with physical inactivity and unprecedented gluttony resulting in a health crisis that turbocharges the national debt via endlessly mounting health care costs. Perhaps it's in the genes, though I hope that's not the case.

Such despair. It's depressing enough to make a Yank down a milkshake or twenty. Is there any way out of this bottomless American-style debts 'n' fats trap? Thankfully, there is. Just as Singapore shows the potential way forward for the intensely wasteful and mediocre US education system, so does its lesser known fat-fighting tool of military conscription show a way out. To be sure, many other industrialized countries also have mandatory national service. However, Singapore alone makes it a continuing exercise apart from a few months to a year in your late teens / early twenties. You see, Singaporean males need to devote a couple of weeks each year after completing basic training to military drills. Further, they need to undertake fairly strenuous tests annually to prove their worth lest they be sent off to boot camp indefinitely until they pass. From the Singaporean Ministry of Defence website comes this description:
All PES A, B and C1 active NSmen [national servicemen or "reservists" which include practically all younger Singaporeans] below the age of 45 years for Officers and 40 years for Warrant Officers & below are required to take the IPPT [Individual Physical Proficiency Test] annually. All IPPT eligible NSmen must attempt IPPT once within their IPPT year. They may attempt IPPT during or outside their ICT [in-camp training] and may make as many attempts as they want to improve their IPPT results. The best result achieved will be taken as the record for the IPPT year.
Make no mistake: the IPPT is no wussy exercise, either:
As frontline soldiers, it is essential for all NSmen to maintain physical fitness. The IPPT is designed to test the basic components of physical fitness and motor skills of the NSmen. It comprises the following tests (see diagram below):
Test Item Fitness Component(s)
Sit-Up Abdominal muscular strength and endurance
Standing Broad Jump Lower limbs extensor muscular power
Chin-up Upper limbs muscular strength and endurance
4 * 10m Shuttle Run General speed, agility and co-ordination
2.4Km Run Cardio-respiratory endurance and lower limbs muscular endurance

Your typical sofa-ridden, iPad-fondling Yankee would probably keel over after a 0.24 km run [lotsa wheezing in the background], but that would be no surprise. As I like to say, there are good reasons why even (unbiased) Americans take the example of a society that works rather than one that doesn't--and hasn't for a very long time now. In the case of Singapore, there's a strong incentive to stay fit or face pretty negative consequences. There's no subtle "nudge"-style nannying here. It's so un-American--being practically forced to stay fit, but hey, just see how fat land is faring to see what their indiscipline has resulted in.

Singaporean children are quite a fit bunch, then they have years of military training to keep things that way. While obesity rates have inched up in recent years, they are far from American levels and haven't gone unnoticed. There are noticeable government efforts to fight the fat. To be sure, there too are whingers who would rather park themselves on the La-Z-Boy and fondle the iPad in Singapore. One justification for doing away with the practice is lost economic productivity:

Military service works this way: At 18 all youths have to report for a two-year stint, followed by 10 years of reservist duty, potentially frontline troops in the event of war. The reservists are recalled for annual in-camp training or military exercises, which last one or two weeks. The government has done much to recognise the sacrifice of NS men, giving perks that range from tax incentives to higher savings top-ups and fee discounts. The civil service also offers a slightly higher salary scale for employees who have completed their service.

With Singaporeans facing growing competition from foreign workers, however, national service has become a strain when bosses pass them over in favour of permanent residents (PRs) because of their “cumbersome” reservist duties. Singaporean employers who have gone through it are generally more ready to employ reservists, but foreign companies often feel no such responsibility. They often turn away locals who are still doing reservist duty, preferring to hire foreigners or PRs, who are free of the obligation...

Recently, a fresh Singaporean 26-year-old graduate related his interview at a foreign-owned fabrication plant here. The first question the Taiwanese manager asked him was: “I see you are a Singaporean. Do you need to go back to serve NS every year?” When he replied that he had to report back for in-camp training every year, the manager reacted negatively, observing that reservists who failed fitness tests would need to train until they passed.
Ah, "economics"--the last refuge of a modern-day scoundrel. From talking to folks from Singapore, however, I gather that the couch potatoes are outnumbered (though this assertion can definitely be subject to surveys). Certainly there's no mass movement at present to do away with the practice. Aside from escaping the tedium of office slaving, many young Singaporeans actually look forward to spending some time away with their school buddies. Add in the benefits of camaraderie and fitness and the equation should be clear. Moreover, Singaporeans take their training seriously and are rewarded accordingly. Unlike many other countries' mandatory services, it is possible to become a pilot or suchlike as NSMen.

So yes, it's not only military conscription but also the way the programme is designed with strong disincentives to becoming American-sized at work here. Execution matters. As in so many other things, Singaporeans take pride in their accomplishments and don't tolerate Bart Simpson-esque brattiness which contemporary America is renowned for. While they may be smugly self-superior sometimes, they achieve things the likes of which bumbling America can only dream of nowadays. As a basis of comparison, that Charles "Guantanamo Ghraiber" Graner remains the world's best known US reservist tells you something.

As I said, indiscipline manifests itself in so many ways, but in the end such pathologies are reflective of the societies from whence they came. Anyone else want to end up with American obesity rates? No? That's what I thought.

Like Japan's, I Wish My Gov't Held RMB Bonds

♠ Posted by Emmanuel in ,, at 12/27/2011 02:09:00 PM
This holiday season has been quite active on the IPE front; enough to keep me on my toes. No sooner did some journalists pooh-pooh China's attempts to revitalize the yuan and I too cast doubt on Arvind Subramanian's idea that the yuan would become the world's dominant currency by 2021 that we come across news that China is redoubling its efforts in internationalizing its currency. They are small moves, yes, but this pattern of gradual experimentation should not be dismissed. After all, this formula appears to have taken China from its pre-1979 state to being the world's second largest economy outright.

In any event, the main headline of the hour is of the Japanese PM Yoshihiko Noda travelling to Beijing over Christmas and signing up to an agreement to use renminbi and yen more extensively in the two countries' trade and investment relations as opposed to the US dollar with its built-in depreciation feature for those dumb enough to traffic in that riffraff:
The two Asian economies said that they wanted to reduce costs and risks for their companies – an implicit call for less reliance on the dollar, which is currently their predominant medium of exchange.

Analysts said the agreement could help boost the renminbi’s role in Asia and internationally but that it was only one of the many tiny steps that Beijing has taken to elevate its currency’s status and that the dollar’s position as the world’s premiere reserve currency was safe for now.
That said, there are substantial issues concerning where the likes of Japan can park their RMB given that China's capital account is closed:
The key obstacle to promoting such trade has been China’s reluctance to relax controls on its capital account, meaning that foreign companies that receive its currency have nowhere to invest it apart from the offshore renminbi base of Hong Kong.

Liang Meng, a researcher with the People’s Bank of China, acknowledged that the vow to settle more trade in renminbi would by itself change little. “It’s not like the unimpeded global flows of the dollar. To invest in China, you still have to go through intermediary channels,” he said in the commerce ministry’s newspaper.
Unfortunately alike many others Uncle Sam makes miserable, my country's forex reserves are held mostly in dollars, rendering Treasuries' "store of value" a running gag America plays at the expense of other nations including its so-called friends. (And with a friend like Sammy...) So it comes as a bit of a surprise that erstwhile staunch US "ally" Japan is now trumpeting how it is accumulating PRC sovereign debt--starting with $10 billion worth of real securities instead of helicopter-dropped American pieces of paper:
Japan also sought to downplay its plan to purchase up to $10bn of Chinese government bonds. An unnamed Japanese official was quoted in Chinese media as saying that this was an expression of economic co-operation, not an attempt at diversification of its foreign exchange reserves. [Yeah sure, and I'm sure they're firm believers in "strong dollar" policy too (nudge, nudge, wink, wink).]

Over the past five days, China has also signed currency agreements with Thailand and Pakistan, opening bilateral swap lines worth Rmb70bn and Rmb10bn, respectively. “These are all little parts of the bigger picture of trying to internationalise the renminbi,” said Ken Peng, an economist with BNP Paribas.
So much for that TPP feint. Made to choose between closer economic ties between the US and China, Japan sensibly goes for the rising power. As Depeche Mode once noted, everything counts in large amounts in moving towards a non-dollar centric world. The handshake seals the contract; from the contract there's no turning back. etc. I believe it's time others in the region copied Japan's example and made similar goodwill visits to Beijing--where the money is nowadays--to procure reserves denominated in real (RMB), not play (USD) money.

That settles it; my New Year's resolution is to petition our central bank authorities to swap dollar-denominated detritus in our reserves for the people's money. If there's something that unites all persons, it's the wish that they not be shafted time and again by the likes of helicopter droppers, liars by profession, and mathlexics.

UPDATE: The WSJ has more on the mechanics of this trade. As anyone who has traded forex knows, all basic exchange rates (USD/RMB, GBP/USD, etc.) must have the dollar in there somewhere, making it obligatory to transact by referencing USD. However, the Japan-China deal aims to bypass having to deal with dollars altogether:
[...]China and Japan announced a series of deals that promote the use of the yuan in trade and investment between the world's second- and third-largest economies, which would limit somewhat the use of the dollar in Asia, the world's fastest growing region. Specifically, the two countries agreed to promote direct yuan-yen trade, rather than converting their currencies first to dollars, and also for Japan to hold yuan in its foreign-exchange reserves, which are now largely denominated in dollars.
Also notable is how Hong Kong, the entrepot chosen for yuan liberalization, is becoming even more of a hub for currency exchange due to China making it an offshore centre for the RMB:
So far, China has taken some incremental steps toward setting the yuan free. Hong Kong, the only place outside mainland China where the yuan can trade freely, has become the world's fastest-growing currency market in the world.
Nearly a tenth of all trade with the PRC is now settled in RMB compared to nearly nothing the year before:
The most significant measure China has taken so far is allowing cross-border trade to be invoiced and paid in its currency. Yuan-settled trade now accounts for about 10% of China's total trade, compared with less than 1% a year ago. Analysts at Deutsche Bank AG predict that yuan-settled trade would amount to 3.7 trillion yuan next year, or 15% of China's total trade.
So the RMB really is gaining substantial ground, unbeknownst to many.

2012 EU Carbon Tax on Airlines: US, China Whine

♠ Posted by Emmanuel in ,, at 12/26/2011 09:38:00 AM
For some strange reason, the end of the year--especially between Christmas and New Year--is an especially busy one for trade matters. Sometime ago I discussed how Airbus was in danger of losing aircraft orders due to China being wary of impending EU regulations subjecting even foreign airlines to EU carbon limits under the Emissions Trading System (ETS). If you're unfamiliar with it, PriceWaterhouseCoopers has a neat summary as it applies to airlines. At the start of 2012, these emissions laws will come into effect. North American airlines mounted a challenge recently, but were not entertained by the European legal powers-that-be:
The European Court of Justice threw out Wednesday a case brought by north American airlines against a new EU system charging airlines for carbon emissions. European Union law "including aviation activities in the EU's emissions trading scheme is valid," said judges in a ruling which tees up US reprisals threatened by Secretary of State Hillary Clinton.

The EU is to include all airlines in its Emissions Trading System (ETS), used to charge industries such as oil refineries, power stations and steel works for CO2 emissions as part of Europe's efforts against climate change. Furious US, Canadian and other carriers say their inclusion violates international aviation pacts, but the European Commission said following the ruling that the ETS would enter force as scheduled on January 1.

Under the scheme, airlines would have to pay for 15 percent of the polluting rights accorded to them, the figure rising to 18 percent in 2013-2020. "Application of the emissions trading scheme to aviation infringes neither the principles of customary international law at issue nor the Open Skies Agreement" across the Atlantic [improving access of foreign carriers to European airports], the court decided.

"It is only if the operators of such aircraft choose to operate a commercial air route arriving at or departing from an airport situated in the EU that they are subject to the emissions trading scheme," it added. As a result of this choice, the EU system "infringes neither the principle of territoriality nor the sovereignty of third states, since the scheme is applicable to the operators only when their aircraft are physically in the territory of one of the member states of the EU."
Let's say the EU has rubbed virtually everyone else the wrong way on the matter:
In a letter to EU officials dated December 16, Clinton listed 43 nations from Argentina to Russia to Venezuela also opposed to the EU move. "Halt or, at a minimum, delay or suspend application of this directive," she wrote. "Re-engage with the rest of the world. "The United States stands ready to engage in such an effort. Absent such willingness on the part of the EU, we will be compelled to take appropriate action."

The US House of Representatives passed a bill in October directing the US government to forbid US carriers to take part "in any emissions trading scheme unilaterally established by the European Union."
The (increasingly air travel-happy) Chinese, once more, are particularly aggrieved judging from the reports emanating from our favourite official news agency, which is talking about "trade war"--the aforementioned Airbus incident notwithstanding:
Beijing criticized a decision by Europe's highest court to allow airlines to be charged for carbon emissions on flights to and from the European Union, with state media warning on Thursday it could spark a trade spat and the foreign ministry urging talks.

"This is a trade barrier in the name of environmental protection and will strike a wide blow to passenger benefits and the international airline industry," the state-run Xinhua News Agency said in a commentary. "It will be difficult to avoid a trade war focused on an aviation 'carbon tax'," said Xinhua, whose editorials generally reflect the official government position.
My take is that the law disadvantages non-European airlines proportionately more given that their originating or destination airports are usually farther afield than those which mostly ply their trade in Europe itself.

Also, the EU Court of Justice ruling that US & PRC complaints fail to pass muster since their airlines choose to fly to European destinations and aren't being "forced" to do so is far from unchallengeable. The famous precedent of the tuna-dolphin case comes to mind. Ironically, the US was ruled against by the GATT for "extraterritoriality" or forcing others wishing to sell tuna products in the US to comply with domestic American law protecting dolphins from being caught in tuna nets via the Marine Mammal Protection Act. In the carbon tax matter, the EU takes the role of the US in foisting its carbon tax law on international airlines--particularly those of the bellyaching US and China.

Is it protectionism in disguise as the Chinese suggest? Again, the law applies to all airlines--although international ones will likely have to pony up more per flight on average given that they fly greater distances than those that operate mostly in Europe. However, the tuna-dolphin case sets a precedent which may work in the United States' favour this time around over the application of domestic law internationally via the notion of "extraterritoriality."

Hence, I would not be surprised to see the US and China filing complaints at the WTO next year against the EU. Fancy that; the US and China being on the same side of a trade issue in 2012.

Bid the EUR Adieu, Re-Enter PTE, ITL, GRD, ESP?

♠ Posted by Emmanuel in , at 12/25/2011 07:27:00 AM
Respectively, those are the symbols for the (currently) defunct Portugese escudo, Italian lira, Greek drachma and Spanish peseta.

The most financially morbid article of 2011 comes from the Wall Street Journal. While we still await the killing off of the euro predicted by the FT's Wolfgang Munchau, EMU hater (more later), it appears that major European banks have wasted no time in paving the way for the return of the alphabet soup of currencies the continent had back in the day. The debate on whether benefits of a single currency outweigh those of having multiple currencies that can be debased at a whim--and which the likes of Italy did constantly--rages on. However, more forward-looking financial services providers are more interested in the practicalities of resurrecting these left for dead monies:
As the euro-zone debt crisis intensified in recent months, at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire. That, the banks quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise.

Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions [the interbank transfer folks familiar to those who've sent money abroad], said people familiar with the matter. The banks wanted Swift's technology support and the currency codes that would be necessary to set up the backup systems.

But Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter. That is partly because officials there feared that releasing the information could fuel further doubts and instability in the euro zone, these people said.
Those euro-wrecking Brits--with a large share of their economy in financial services--have been particularly active anticipating the endgame. There are even plans to repatriate UK citizens from these countries [!] if push comes to shove. (Remember the mini-fiasco of Brits stranded on the continent after the Icelandic volcano explosion grounded so many flights.) Anyway...
Nevertheless, governments, finance firms and corporations have been quietly stepping up plans in the past several weeks to prepare for a worst-case scenario. The Financial Services Authority, the U.K.'s bank watchdog, has sent letters to the country's major banks asking for updates on their level of preparedness, and a similar dialogue has begun between banks and regulators in the U.S. in recent weeks, said the people familiar with the matter.

The U.K. Foreign Office has begun making contingency plans to evacuate U.K. residents from Spain and Portugal in the case of bank meltdowns in those countries, said a person familiar with the matter. In a sign of concern over stirring panic, a spokesman was tight-lipped about details apart to say that office is always preparing for all types of scenarios.
And, of course, there is talk of setting up the infrastructure to revive old currencies that most thought left us for the Great Bank Vault in the Sky:
Currencies have three letter codes—such as USD for U.S. dollars—that banks use in a wide range of financial transactions, from complex investment-banking trades to the basic transfer of money. The codes are set by the Geneva-based International Standards Organization, and used by Swift, which is a co-operative company that formats and sends payment orders for some 10,000 firms in more than 200 countries.

One question banks have, and have not been able to clarify, is whether codes for now-defunct currencies, such as GRD for the Greek drachma, will be valid in the current Swift system. A Swift spokesman said the company is ready to take whatever actions are required to maintain normal operations, but that "it is not appropriate this time for Swift to comment on issues specifically associated with the euro zone."

If a new currency emerges, it is handled by a maintenance agency affiliated with the International Standards Organization. A spokesman for that agency, SIX Interbank Clearing Ltd., said the agency has several projects looking at "dire scenarios" but the contingency plans for such scenarios have so far remained confidential.

Once a bank knows what the code is, it is relatively simple to set up a program for that new currency, according to technology experts. The bank must then tweak its infrastructure for expected volume and ensure data for counter-party banks are correct. Systems must then be modified and tested, said a technology executive at a bank in London, a process which takes one to two weeks.
As I said, it's very financially morbid, but planning ahead dictates thinking about the endgame no matter what.

Your Top Migration Stories of 2011

♠ Posted by Emmanuel in at 12/23/2011 04:42:00 PM
The Migration Information Source lists its top migration stories for 2011. You have the usual xenophobia. But, the main themes are evenly split between human security issues involving unstable Middle East states and economic migrants fleeing economic, not combat, warzones in traditional migrant-receiving nations that have seen better times in search for greener pastures in faster-growing developing countries--some of which they left in the first place. Things change, my dear:

1. Arab Spring and Fear of Migrant Surge Expose Rift in EU Immigration Policy Circles - The Arab Spring exposed critical weaknesses and exacerbated long-held disagreements within the European Union related to asylum, immigration, and external border control policy matters that spilled over into the operation of the Schengen area.
2. Economic Malaise Makes Immigrants a Target for Restrictive Legislation, Public Backlash - With unemployment rates remaining persistently high in the wake of the global economic crisis, ongoing turbulence in financial markets, and new austerity in public spending, anxious publics and governments trained their attention on immigration and immigrants during 2011.
3. Immigration in the United States and Parts of Europe Gives Way to Increased Emigration - Immigration flows this year continued to respond sharply to the economic climate in major immigrant-receiving nations, as many people struggled to gain a labor market foothold in the aftermath of the global economic meltdown.
4. Highly Skilled Migrants Seek New Destinations as Global Growth Shifts to Emerging Economies - Developing nations that were once primarily migrant-sending states are now experiencing a boom that is beginning to increase their attractiveness for highly educated and highly skilled migrants and beckoning their diaspora members home.
5. Substantial Investments to Court Diaspora Entrepreneurs for Development Gains - With the goal of building and sustaining economic growth in mind, some countries have intensified their efforts to court investments from their nationals and co-ethnics abroad, recognizing that diaspora entrepreneurs are uniquely positioned to spot opportunities in their countries of origin and capitalize on them.
6. Heading into the 2012 Elections, Republican Presidential Candidates Walk the Immigration Policy Tightrope - The debate season is well underway for the Republican presidential primary races in the United States, and immigration has once again emerged as a highly contentious policy issue.
7. Immigrant Detention under Scrutiny in Australia, United Kingdom, and United States - Public backlash against the detention systems of Australia, the United Kingdom, and the United States mounted in 2011with allegations of unacceptable living conditions, abuse, prolonged detention, and government waste.
8. The Arab Spring and Other Crises in Africa Displace More Than 1 Million People - The succession of displacement and refugee crises arising from the Arab Spring and in Côte d'Ivoire, Somalia, and Sudan highlighted the need for governments and the international community to achieve and maintain readiness to manage population movements triggered by sociopolitical unrest and environmental factors.
9. A Decade after 9/11, Enforcement Focus Prevails in the United States; Broader Immigration Reforms Remain Stalled - As the United States paused in September to mark the tenth anniversary of the 9/11 attacks, the enforcement paradigm that took hold immediately after the terrorist attacks showed no signs of waning.
10. Caught between Two Migration Realities, Mexico Passes New Immigration Legislation - In April 2011, the Mexican Congress unanimously approved an ambitious new migration law that sets out to address longstanding problems related to the immigration and transmigration of Central Americans and the emigration and return migration of Mexicans.

Filipino Migrant Workers & Middle East Crossfire

♠ Posted by Emmanuel in , at 12/23/2011 04:15:00 PM
What is the responsibility of a migrant-sending nation to its people overseas during times of trouble o'er yonder? I suppose it depends on the level of encouragement that the nation in question provides to finding work abroad. In the case of the Philippines with its substantial state infrastructure for helping its citizens find work overseas, perhaps a larger burden of ensuring safety when push comes to shove is placed on the government. insofar as the government is seen as a promoter of large-scale migration, its obligations are more extensive. Hence the constantly depressing coverage of seafarers picked off by pirates in the Gulf of Aden.

Additionally, something striking has been how overseas Filipino workers manage to find themselves caught in virtually every shakeout in the Middle East in recent years. You name it: Lebanon in 2006; Egypt and Libya in 2011...and this year ain't over yet. Compared to those conflagrations, the situation in Syria has been protracted:
The Philippines on Thursday offered to fly its 5,000 citizens in Syria home for free as it again urged them to leave immediately to escape escalating violence, the foreign department said. Foreign Secretary Albert del Rosario said the government would help all Filipinos arrange passage out of the Middle East country, which has been torn by deadly protests against President Bashar al-Assad's regime.

"In view of the escalating violence in Syria, the Department of Foreign Affairs will be raising alert level 4 for the entire country of Syria effective today," he said in a statement. That alert status meant all Filipinos would be repatriated at Philippine government expense, the ministry said.
Yet, alike in those other countries, the notable thing is how these workers are ambivalent about evacuating the strife-hit Syria even when offered a ticket home by the Philippine government. If the pay is relatively good and your workplace is not in the direct line of fire, some may think "Why go?" Once you head home, there is no guarantee that you will be able to find your way back.

'Nature's Banker' on Proper Environment Valuation

♠ Posted by Emmanuel in at 12/21/2011 08:06:00 AM

A few months ago Pavan Sukhdev delivered a very interesting talk at the LSE concerning 'The Economics of Ecosystems and Diversity' that brought home the point for me that resource finitude and non-renewability violate economic logic. That is, the dismal science of allocating scarce resources did not, on a global level, consider this question to the extent that it should.

I subsequently got in touch with Pavan Sukhdev concerning some aspect of his G8-commissioned project since it seemed very fascinating to me. It now turns out that our good man has garnered more of the spotlight as of late. Just today, I received a holiday greeting from him that mentioned how he had recently appeared at the TED conference. Although I am not the biggest fan of the TED shindig, it is nonetheless a good way for him to reach a larger audience with his important message.

What is the value of nature? Can you put a dollar value on the Amazon rainforests' environmental services? How about bee pollination? These are the sorts of questions we need to look at more according to him, and I am in total agreement.

At this point in world history, we really should be better stewards of the earth or 'natural capital' in the lingo. Properly valuing the externalities of environmental abuse is a really good starting point to know just what we have lost and may lose more of if we don't change our ways.

Game Over, America: RMB Eclipses $ by 2021

♠ Posted by Emmanuel in ,, at 12/18/2011 08:14:00 AM
Or so someone now says. Publicity-seeking economic commentators like making bold predictions that sometimes cause them to lose face. Alike various doomsday cult pronouncements that the world will come to an end at a certain date, there is no hiding from being discredited when giving certain dates for things to pass since you can't obviously weasel your way out of them. When you make a public pronouncement, it's on the record. For instance, Wolfgang Munchau is probably eating humble pie at the moment after his 7 December deadline for the euro's abolition came and went with nary a whimper. We're still waiting, bub.

I bring this up because Peterson IIE stalwart Arvind Subramanian makes similarly bold claims about China. More specifically, he takes a look at various economic indicators, extrapolates from them, and argues that 2021 will be the date when the world's most systemically important currency will be the yuan and not the dollar. Along the way, he looks at the rise and fall of eras of British (Pax Britannia) and American (Pax America) dominance and believes that China's rise is more imminent than most believe. Certainly others have made such predictions before--especially more political-economic types alike LSE IDEAS' erstwhile Senior Fellow Martin Jacques. However, Subramanian's take is potential unique in that he is an economist looking at marco data to make similar arguments--and sets a date to boot.

While it is true that linearly predicting China's economic progress based on recent years' performance should lead you to believe that America's eclipse is imminent, others would beg to differ. Certainly the US is going nowhere. With its "new normal" annual rate of growth between 1-2%, it surely isn't keeping up the pace to maintain a decent lead, compelling certain USA#1 cheerleaders to shift the goalposts of the seemingly inevitable American eclipse. The American has-beens may try to portray themselves as the still-ises, but the numbers certainly indicate otherwise.

At any rate, do catch Subramanian's new book on Eclipse: Living in the Shadow of China’s Economic Dominance. What follows is the press blurb to accompany the clip above:
In his new book, Arvind Subramanian presents the following possibilities: What if, contrary to common belief, China's economic dominance is a present-day reality rather than a faraway possibility? What if the renminbi's takeover of the dollar as the world's reserve currency is not decades, but mere years, away? And what if the United States's economic pre-eminence is not, as many economists and policymakers would like to believe, in its own hands, but China's to determine?

Subramanian's analysis is based on a new index of economic dominance grounded in a historical perspective. His examination makes use of real-world examples, comparing China's rise with the past hegemonies of Great Britain and the United States. His attempt to quantify and project economic and currency dominance leads him to the conclusion that China's dominance is not only more imminent, but also broader in scope, and much larger in magnitude, than is currently imagined. He explores the profound effect this might have on the United States, as well as on the global financial and trade system. Subramanian concludes with a series of policy proposals for other nations to reconcile China's rise with continued openness in the global economic order, and to insure against China becoming a malign hegemon.
I certainly think the RMB will become a major world currency. Perhaps it can even help stabilize what Robert Gilpin calls the non-system of flexible exchange rates that has made the world economy lurch from crisis to crisis more frequently given the lack of American stewardship. But, my inclination is to believe that it will be more important in Asia than in the rest of the world as it evolves to being more multipolar than unipolar. That is, while China may surpass the United States in terms of nominal GDP, trade and other indicators, but it probably will not aspire to global hegemony as it so often indicates in an echo of its Communist past. Pax Sinica? The Chinese may eventually become able to take up the lead in the international monetary system, but will they be willing? (As a counterpoint, the US too was reluctant to take up such a role in WWII's aftermath, so you never know.)

Manifold Destiny: PRC Slaps Tariffs On US Autos

♠ Posted by Emmanuel in ,, at 12/16/2011 05:44:00 AM
You can say that eventual trade war is written in the stars above between the world's two largest nations, though here's another example of a skirmish testing the waters. There I was enjoying the holiday season, watching A Charlie Brown Christmas for the nth time when the Yahoo! front page news item from Forbes caught my eye about how "China Gets Revenge On Obama With Tariff On US Autos." The first few lines provide the gist of the PRC argument against alleged US subsidies to the automotive industry:
President Barack Obama hit China automobile tire makers with a trade tariff in 2009 and now Beijing has struck back with a potentially more punitive tariff, as much as a 21% tax hike on U.S. car exports bound for China, the world’s largest auto market.

This week, the Chinese government upped the ante in the Obama-China trade dispute by surprisingly imposing new tariffs on imports of Honda and Cadillac models, Chrysler Jeep Grand Cherokee, the BMW X5 and X3 and Mercedes Benz models made in Michigan, Alabama and South Carolina. China argues that the U.S. provided illegal subsidies to these companies during the economic downturn in 2008 and is selling those vehicles cheaper in China than they are sold for in the U.S.
Tire-car metonymy aside, it seems odd to me why China would retaliate directly in response over tariffs on China-made tires given the time lag and the relatively small volume of such tires being sold in the US. To be sure, the proportion of affected American automobiles affected by this new ruling--those with engines larger than 2.5 litres displacement--will be relatively small as well. More pertinently, the Chinese should have a job on their hands proving that 'transplants' or US-made cars from foreign brands alike the aforementioned Honda, BMW and Mercedes-Benz (ML series) benefited from government subsidies during the Great Recession.

Yes, Chrysler and General Motors received substantial, money-losing state support to keep them alive during the recent recession. However, the case is not clear with regard to the transplants. It is true, for instance, that the state of Alabama gave Mercedes a hefty $300M worth of subsidies to locate its SUV plant there, but that was in 1994, not 2008. Though the states and incentives in question vary, the other transplants like BMW also chose to locate in the (largely union-free) American South during the Nineties and not in the aftermath of the subprime crisis.

In addition to subsidy claims, the New York Times' Keith Bradsher notes that the Chinese are oddly making dumping claims given that these cars sell for much more in China than in the US after all levies are accounted for:
The new tariffs, totaling up to nearly 22 percent of the import prices, will probably have a mainly symbolic function, rather than reducing the already skimpy sales of such vehicles in China. Other tariffs and taxes already in place have limited sales of American imports by helping raise their retail prices by about three times what the same cars and S.U.V.’s sell for in the United States. [my emphasis]

The new tariffs China imposed Wednesday will be antidumping duties of 8.9 percent for G.M. vehicles, 8.8 percent for Chrysler, 2.7 percent for Daimler and 2 percent for BMW. The ministry separately imposed additional antisubsidy [countervailing] duties of 12.9 percent for G.M. and 6.2 percent for Chrysler.
Is it the United States manifold destiny [no sic] to take China to the WTO over this action? That the US is hardly a saint on the matter of propping up its automakers is evident. Hence, the subsidy claims against GM and Chrysler probably pass muster. However, the dumping claims are quite far-fetched IMHO given how much these types of US-made vehicles sell for in China. Still, the PRC is adamant that their actions will hold up even if the US takes the WTO litigation route. Chinese Commerce Minister Chen Deming added the following:
"China according to WTO rules ... conducted in an open manner and rule-based manner investigations into US car imports in China and decided to impose anti-dumping and countervailing measures," he said. "This is in line with WTO rules and not a form of protectionism...[i]f anyone begs to differ, the best solution is to ask the WTO experts to rule," said Chen, adding that China will respect the trade watchdog's verdict.
The pile-up of US cases against China in tires, chickens and solar panels probably made China hurry up with a retaliatory measure to make the larger point that the US is not Mr. Clean, either. However, singling out the big-engine American automobile import sector minimizes the domestic political cost of making this point by angering more price-insensitive luxury brand buyers instead of Jiang Average:
Wednesday's announcement came amid Chinese anger over a U.S. investigation into whether China unfairly subsidizes its solar panel makers. But China's previous experience with trade disputes have taught its officials the lesson that American firms can be allies in opening American markets. In recent years, the U.S. poultry industry lobbied actively against a Congressional ban on negotiating with China to import Chinese cooked chicken -- imposed after Chinese food safety scandals -- because they feared losing the lucrative Chinese market for chicken feet.

China's choice of targets is limited by its reluctance to alienate Chinese consumers with higher prices for imported foodstuffs or raw materials. The value of soy and oilseeds imports from America so far this year is triple that of cars, at about $12 billion. Making imported cotton, chemicals or grains more expensive would also only contribute to inflation in China.

Imported cars, however, appeal mainly to China's wealthiest consumers, who aren't very price sensitive to begin with.
China has laid the gauntlet down by practically daring the US to take it to WTO dispute settlement.

Holy Guacamole, Russia Finally Joins WTO Today!

♠ Posted by Emmanuel in , at 12/16/2011 05:42:00 AM
Yikes, it's finally happening: While the WTO ministerial meetings will almost certainly result in nothing substantial, Russia's road to WTO accession is finally over. As you've gathered through my posts over the years, it's been a long, circuitous process [1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11]. In latter times, the requirement that all WTO members assent to Russian membership has been delayed by Georgia naturally feeling aggrieved over border quarrels with Russia over breakaway provinces Abkhazia and South Ossetia. Think of being unfree to conduct trade with parts of your own country due to another's interference and you can begin to appreciate Georgia's apprehension.

Yet all things must come to pass. Tonight, a night to end all nights in the history of trade negotiations, Russia joins the WTO:
Russia is finally set to join the World Trade Organization (WTO) on Friday at a ceremony in Switzerland, after 18 years negotiating its membership. The Swiss brokered a deal between Russia and Georgia earlier this year that removed the last obstacle to Russia's accession. Georgia had tried to block Russia's WTO entry since the two countries fought a short war in 2008. Russia is by far the biggest economy yet to join the global trade body...

The deal with Georgia hinged on international monitoring of trade along the mutual borders of Abkhazia and South Ossetia. The two provinces have broken away from Georgia and are recognised as independent states by Russia. The formal signing ceremony has been added onto the end of a summit on Thursday between President Dmitry Medvedev and European Union officials in Brussels.
For the record, only Algeria's accession process outdoes Russia's in terms of being drawn out:
Russia’s 18-year path to the WTO was almost record-slow, with only Algeria’s negotiations taking longer at the moment. It was also the world’s largest non-member economy. The hurdle was caused by the principle of consensus the organization uses, which means each member can veto its enlargement.
So I suppose congratulations are obligatory all around to Russia, Georgia, Switzerland (brokers of the trade peace deal) and the WTO. The world's 12th largest trading nation will shortly be on board the multilateral institution that claims in its name to concern itself with world trade. May trade help bring peace on Earth and better shopping opportunities to all mankind. This is the Christmas season, after all.

Hey Saint Jude: The Lost Cause of the UK in the EU

♠ Posted by Emmanuel in at 12/12/2011 01:54:00 PM
For non-Catholic readers, the apostle Saint Jude is the patron saint of lost causes. (He too features in a lot of trinkets as a commercial racket arising from this fame). Over the past few days, I've been thinking of him in relation to the plight of Britain in the European Union. For, the strains of UK membership in Europe are appearing once more. From chafing against contributing to the system of agricultural subsidies known as the Common Agricultural Policy to not joining the Eurozone, Britain's independent streak has always rendered it a less than fully fledged member of the EU in the eyes of many.

By now, I am sure that you have heard of how Britain has managed to further marginalize itself by effectively vetoing an EU treaty change that would entail more enforceable limits on the fiscal deficits Eurozone member countries can run. Which, of course, is churlish since the British famously have not adopted euro currency. nor do they intend to join the eurozone for the foreseeable future despite many of the Conservative Party old guard being quite keen. It is thus odd that British PM David Cameron wanted more guarantees on this occasion that the UK would obtain opt-outs on stricter financial regulations which could hurt London's status as a global financial centre since it's not the main agenda.

Among the things the UK vetoed are the following:
  • a cap of 0.5% of GDP on countries' annual structural deficits
  • "automatic consequences" for countries whose public deficit exceeds 3% of GDP
  • a requirement to submit their national budgets to the European Commission, which will have the power to request that they be revised
Again, it's curious that a chronic go-it-aloner would request to do so when it comes to topics that primarily don't concern it. There's also the matter of what happens to EU financial rule-making now with the UK choosing to isolate itself. Consequently, the British will have no say in drawing up EU-wide regulations but may be compelled to accept whatever the other 26 (or 25 if you also exclude the Euroskeptic-led Czech Republic) come up with anyway:
Just as important, the U.K.'s banks are now worried that the ill-will created by Mr. Cameron's stance means the U.K. "won't even have a seat at the table" the next time financial regulations are negotiated under existing rules, said one lobbyist for the City of London.
The Liberal Democratic-Conservative coalition faces a pretty stern test. The Lib Dems are more pro-Europe, with their leader having met his (Spanish) wife while working in Brussels. While he may want to keep them in the coalition for obvious reasons, you have to wonder how they can keep this coalition together in relatively harmonious fashion until the next scheduled election in 2015.

In any event, the party poopers here are easily identified.

Indian Retail: Mom & Pop 1, Wal-Mart 0

♠ Posted by Emmanuel in , at 12/12/2011 01:26:00 PM
It's somewhat unimaginable for those in Britain for the corner store to politically outmaneuver the likes of mighty retailing giant Tesco, or for those in America to have the Kwik-E-Mart outfox the likes of massive Wal-Mart. Well, in India at least, it seems the little guys have outdone the international retailers at the lobbying game. For, the government has just shelved plans to allow stores to stock more variegated "multibrand" fare that would have paved the way for international retailers alike Tesco, Wal-Mart and Carrefour to begin plying their trade on a larger scale in India.

Alike in many other Asian countries, the Indian retail scene is highly fragmented with a multitude of small retailers or the archetypal mom-and-pop shops. Selection is limited by national laws discouraging "multibrand" retailers or your conventional supermarket fare. Aside from the inconvenience of multi-stop shopping, prices are also higher for obvious reasons:
The enormity of the Indian retail market has dazzled major corporations: Consulting firm A.T. Kearney, which has been polling companies about global-expansion aspirations for more than a dozen years, said India now ranks only below China on their priority lists, ahead of markets like Brazil and the U.S.

But public opposition to the move in India remains rife. Radha Krishna Store in Bengali Market in central Delhi is typical of the mom-and-pop stores the Indian government wants to protect from big-box retailers like Wal-Mart. The small store's shelves are stacked with items as diverse as shampoos, cooking oils, diapers and milk. Kamlesh Gupta and her husband have been operating the store for 25 years.

If chains like Wal-Mart and Tesco are permitted to operate in India, "everything will be over," Mrs. Gupta said. "If they sell goods cheaper than us, who will come here? Already, we have lost 20% of our business since Big Bazaar and Reliance [local chains] started operating in the last two years," she said, referring to two Indian retailers.

To protect stores like these, Uma Bharti, a leader of the main opposition party, the right-of-center Bharatiya Janata Party, had threatened that she would personally set fire to any Wal-Mart stores if they were allowed to enter India. She said she was prepared to go to prison for it. This party's voting constituency includes small retailers.

The political opposition to loosening the foreign-investment rules ensures that, for now, Wal-Mart's only way to grab a piece of the lucrative market is through a partnership with Bharti Enterprises Ltd. to operate wholesale-style "cash and carry" shops selling bulk items to small-business owners. The joint venture only had nine stores as of the end of October, a minuscule presence for a retail giant with more than 9,000 shops in 28 countries.
Forcing supermarket chains to break up their advantages--economies of scale--to deal with mom-and-pop shops sort of defeats the entire purpose of having them around. I guess their belief is that gaining a foothold is better than having none at all. It's also scary to think that a politician of one of India's main political parties threatens to burn Wal-Mart superstores if they're ever put up. Talk about militancy.

What are the chances for retail liberalization now?
The Indian government's decision to put the proposal for multibrand retailers on ice came also as a blow to Tesco, which along with other British businesses has advocated changing the regulations. Tesco has been unable to open stand-alone retail stores in India and instead operates through a franchise deal with Tata Group unit Trent. "The decision to defer [foreign direct investment] is a missed opportunity for Indian producers, farmers and consumers," Tesco said.

Saloni Nangia, senior vice president and head of retail and consumer goods at Technopak, a consulting firm based in New Delhi, is hopeful that the decision to allow foreign retailers to open supermarkets in India might still happen.
One hopes it will eventually happen for the consumer's benefit, but you never know. Lest you think it's an open-and-shut case of Western imperialism at work here, remember that Indian farmers also lose out from this situation in a major way due to spectacular inefficiencies:
The global chains were likely to invest in trucking and distribution systems in India, where government estimates show 40 percent of fruit and vegetables rot before being sold because of the lack of cold-storage facilities and poor transport infrastructure. Farmers will have “assured business” if foreign companies were allowed to invest in multibrand retail, said Pratichee Kapoor, associate director for retail at Technopak Advisors Pvt...

Rajan Bharti Mittal, managing director of Wal-Mart’s wholesale partner Bharti Enterprises, in a statement yesterday called the government’s reversal an “unfortunate” decision. The policy change would have brought “farmers better realization for their produce as well as better prices for the consumer,” he said.
Let the consumers decide for themselves where to shop, I say. 40% wastage due to poor retail infrastructure is really, really terrible.

CSR in Iran? My Way or the Huawei (Router Mfg)

♠ Posted by Emmanuel in ,, at 12/12/2011 10:52:00 AM
There's an interesting article in the WSJ on the recent pullback of Chinese router manufacturer Huawei from doing business with Iran. Given the perceived willingness of Chinese firms to go where Western MNCs dare not roam due to limitations on investing in certain bogey nations alike (yes) Iran, Myanmar and North Korea, this occurrence is eye-opening at the very least. That is, are even Chinese corporations (with government ties, no less) subject to international pressure regarding Iran's alleged nuclear programme, human rights abuses and so forth?
Chinese telecommunications- equipment maker Huawei Technologies Co. said it will scale back its business in Iran, where the company provides services to government-controlled telecom operators, following reports that Iranian police were using mobile-network technology to track down and arrest dissidents.

Shenzhen-based Huawei will "voluntarily restrict its business development there by no longer seeking new customers and limiting its business activities with existing customers," according to a statement Friday on the company's website. It said the company was making the move due to the "increasingly complex situation in Iran." Company spokesmen declined to elaborate.

The action follows a front-page Wall Street Journal article in October that documented how Huawei's business grew in Iran following a pullback by Western companies after the government's bloody crackdown on its citizens two years ago. Iranian human-rights groups outside Iran say there are dozens of documented cases in which dissidents were traced and arrested through the government's ability to track the location of their cellphones—technology for which Huawei has provided support.

Activists hailed the company's decision, noting it was the first time a major Chinese company had decided to scale back its business in Iran. Until now, Iran has viewed its partnership with Chinese companies as a solid alternative to Western contracts.

"This is a significant milestone," said Mark Wallace, president of United Against Nuclear Iran and a former U.S. ambassador to the United Nations. "For the first time a major Chinese business is pulling back from Iran in the face of mounting international scorn for Iran's brutal regime." The New York-based group had been pressuring Huawei to leave Iran and had been communicating privately with the company for several weeks.

A spokesman for the U.S. State Department said it welcomed Huawei's announcement, adding that the U.S. "calls on all firms to exercise vigilance when doing business with Iran and ensure that any business does not contribute to the Government of Iran's ability to repress its own people."
That's all very well and good, but did the bleeding hearts brigade really persuade Huawei to curtail its activities selling routers to Iran that could help their government identify particularly vocal denizens--or is something else? Well, the article goes on to strongly suggest the latter possibility:
Executives at Huawei's highest levels have been discussing for months whether to scale back in Iran, according to people familiar with the matter. Those discussions gained in intensity in recent weeks, particularly after the Journal article, several people said...

Some Huawei executives in Shenzhen see operations in Iran as jeopardizing expansion opportunities in the U.S. and Europe, where the Chinese company has faced skepticism over its compliance procedures and dealings with countries that have pariah regimes. That was a driving factor behind the decision to dial back operations in Iran, a person familiar with the matter said. The Chinese company has held talks with consultants, lawyers and lobbyists from the U.S. on the issue.
Huawei is probably dialling back operations after finding out that Iran is not as lucrative an opportunity as once thought--or is already an exhausted one. As Jessie J sang, the Chinese don't need so much Iranian (money, money) at this point in time. There's also the matter of Huawei trying to establish a better reputation for itself independent of PRC state policy to consider and all of that protectionist "security"-related BS. Insofar as Huawei perceives US and European markets as being larger opportunities than doing business with Iran, well, let the human rights activists think they're having their "way."

I for one don't buy this story--though I have no qualms about using Huawei's routers instead of Cisco's and saving money in the process.

Multilateralism Ain't Dead: A Climate Deal in Durban

♠ Posted by Emmanuel in , at 12/11/2011 11:33:00 AM
Well here's a pleasant surprise: while the fine print remains to be hammered out and non-ratification by the countries concerned remains a distinct possibility, the broad outlines of a multilateral climate deal are in place. While many economics and even IPE blogs do not cover climate change, it is obviously an important and relevant topic since efforts to combat it (a) indirectly place limits on economic activity, (b) shift the relative attractiveness of more- and less-carbon intensive industries and (c) implicate North-South technology transfer in reducing LDC emissions. As my post title intones, there's also the matter of it (d) indicating appetite for multilateral negotiations in general.

Of particular interest it that the world's worst climate offenders, China and the US, have both (tentatively?) assented to having their carbon emissions bound by international law. This result gets around the "if [China; the US] refuses to be involved despite being a major emitter, then why should we?" sort of weaselling out prevalent in the past.

The four elements of the deal are (1) an extension of the Kyoto Protocol, (2) the enabling of a $100B Green Climate Fund to give LDCs technical assistance in reducing GHG emissions, (3) an agreement to make all countries involved sign a deal in 2015 to cut emissions by 2020, and (4) a plan for next year. The first thus concerns Kyoto:
Sunday's deal extends Kyoto, whose first phase of emissions cuts run from 2008 to the end of 2012. The second commitment period will run from January 1 2013 until the end of 2017.
The next one deals with funding and operationalizing the Green Climate Fund I discussed in an earlier post. (However, a proposed tax on trade to contribute to this fund proved unworkable.) Still, you have to wonder if hard-hit industrialized countries are excited about funding it:
Poor nations are most in need of finance to help pay for adapting to global warming and introducing low emission energy and industrial processes. Against the backdrop of a sovereign debt crisis, developed nations are also ill-placed to commit money beyond short-term financing that runs out at the end of next year.

The Durban talks made headway on agreeing the design of Green Climate Fund to channel up to $100 billion a year by 2020 to poorer nations, but achieved little on establishing where the money will come from to fill it. A proposal last week to generate cash from charging international shipping for the carbon emissions it generates faced such opposition it did not survive in the final text [my emphasis].
Then we get to the heart of the matter in the form of a legally binding treaty:
Delegates agreed to start negotiations for a new legally binding treaty to be decided by 2015 and to come into force by 2020. The process for doing so, called the Durban Platform for Enhanced Action, would "develop a new protocol, another legal instrument or agreed outcome with legal force that will be applicable to all Parties to the UN climate convention," under a working group.

The exact nature of what "legal instrument" or "agreed outcome" has not yet been decided. Delegates decided the process towards developing a new legal instrument would "raise levels of ambition" in reducing greenhouse gas emissions.
Lastly, there's ongoing work towards making a "single market" in carbon credits that avoids splintering of the trading activity that could result in "carbon diversion" effects to borrow a phrase from international trade:
Talks agreed to define new market mechanisms under a successor treaty to the Kyoto Protocol, but pushed forward a decision to develop rules for them until next year. Delegates decided the mechanisms would operate under the UNFCCC Conference of the Parties and "bear in mind different circumstances of developed and developing countries."

The EU wants any new market mechanisms to cut greenhouse gas emissions outside of Kyoto anchored in international law, in order to avoid fragmentation of the international carbon market. Parties will now work on developing a framework for new mechanisms over the next 12 months with a view to making recommendations at a summit in Qatar at the end of 2012. The rules must ensure environmental integrity of new markets, seek to avoid double counting and ensure that a net decrease in CO2 emissions is achieved.
What would I prefer, completing the Doha Round or this? I much prefer the latter outcome given the potential consequences of irrevocable climate change as most studies on the subject suggest. It is perhaps with a touch of irony that the next climate shindig (COP 18) will occur in Doha at the end of next year--the tenth anniversary of the launching of the WTO Doha Round.

At the very least, though, it does show that multilateralism is not entirely dead and that there is a growing consensus about the magnitude of the climate problem. While some may quibble with the magnitude of the emissions cuts on the table, the alternative--no deal--would have left us with a greater distance to a meaningful bargain.

Obama, Bushite Climate Obstructionist or Hero?

♠ Posted by Emmanuel in , at 12/08/2011 11:58:00 AM
It's Christmastime, there's no need to be afraid...or is there? One thing for sure is that there will be no snow in Africa this Christmas. Or maybe even a partial deal on combating global warming, for that matter. For the third year running, the end-of-year multilateral agenda is dominated by climate change given that the WTO Doha Development Agenda is in limbo. One of the difficulties with the ongoing meeting in Durban, South Africa concerns establishing a Green Climate Fund. It is meant to, well, fund technology transfer from developed to developing nations for combating climate change. Supposedly, the Durban shindig was to finalize the format of the Green Climate Fund:
[T]he Transitional Committee shall develop and recommend for approval to the COP at its 17th session to be held in Durban, South Africa, from 28 November to 9 December 2011, a number of operational documents for the Green Climate Fund. In the conduct of its work, the COP requested the Transitional Committee to encourage input from all Parties and from relevant international organizations and observers.
To make a long story short, let's just say this is not happening at the moment. The big disagreement, you will not be surprised, concerns how much developed countries are willing to put in towards the establishment of this fund. Love them or hate them, the Yanks still hold many of the cards as to whether such a fund will come into existence:
A flagship green climate fund aimed at channelling billions of dollars to help poor countries tackle global warming has been put on ice at the Durban climate summit as a growing number of countries bicker over how it should work.

Wealthy countries have promised to mobilise up to $100bn a year by 2020 to help developing countries tackle climate change. A significant portion is expected to flow through the fund but there have been tensions from the start over how much control donor and recipient countries should have over the fund...

Ahead of the summit, the US and Saudi Arabia said they would not sign off on a report setting out a blueprint for the fund, which took much of the past year to finalise...

US deputy special envoy for climate change, Jonathan Pershing, told the conference the US wanted to see the fund become operational in Durban. But there had been a “rushed” timetable for agreeing on its design, he said, and “the final draft text raised a number of substantive concerns and included certain errors and inconsistencies that could result in confusion”.

Anti-poverty campaigners agreed there were some aspects of the proposed design of the fund that were not ideal. “But unfortunately, any delay that may now occur would play mostly into the hands of the US and other countries that would rather avoid a discussion of where the money will come from to fill the fund,” said Tim Gore of Oxfam.
Well that's one version of the story. In another one being propagated by climate change deniers, the US is said to be willing to go along with a globally applicable Tobin tax on foreign exchange transactions. The said reason is that ratifying a multilateral climate regime in the US is difficult--remember Kyoto, "the American way of life is not for sale" according to Bush Senior and all that. Hence, the deniers are scaremongering about a backdoor process to rob Americans of their sovereignty, tax them and the rest of that paleoconservative stuff:
President Obama's team of negotiators at the United Nations Climate Change Conference may agree to a tax on foreign currency transactions, designed to pay for a "Green Climate Fund," that would fall disproportionately on American travellers and businesses, according to a group attending the conference that is skeptical of the UN position on global warming.

...Obama is open to implementing this tax and similar policies in the absence of a full climate treaty, which would require congressional approval. "We have learned that while many have discounted this conference, knowing that a full climate treaty is difficult to achieve especially with a U.S. Senate that will not vote to ratify," CFACT says. "Obama and his fellow climate travelers are working around the Senate and planning to stick America with the bill."
Aside from these paleoconservatives not understanding that foreign exchange trading far eclipses actual trade flows (of goods and services), can poor President Obama be both a climate obstructionist and a climate hero (hence a hate figure to climate change deniers)? With the Durban meetings wrapping up soon, I guess we'll know more in the very near future about where the US stands. Certainly the hard-up US and EU nations aren't keen on loosening the purse strings for just anything nowadays. Still, China for one is becoming more amenable to a global deal.

But climate change doesn't matter the way deficits don't matter, right? If I had my way in this crummy world, I'd have sent both camps of fantasists to live in Guantanamo Bay a long time ago for some special conditioning. Serious problems call for serious people, and some folks simply prefer Cloud Cuckoo Land to unrelenting reality.

'China's Reserves Have Fallen 3 Months In a Row'

♠ Posted by Emmanuel in at 12/07/2011 11:13:00 AM
Well here's a very positive development from my point of view and perhaps nearly everyone else's. China having an unfathomably huge $3.2 trillion in foreign exchange reserves may prove to be the apotheosis of a supremely wasteful activity. It is, to me, the largest financial folly in world history--and certainly in nominal amounts. This misallocation of capital has obviously not benefited China's citizens much in receiving public benefits but has fuelled wasteful excesses elsewhere such as funding American tomfoolery through the Afghanistan and Iraq misadventures as well as the subprime crisis.

While Chinese policymakers have long called for rebalancing their economy towards domestic demand, it has not really been evident over the years. Well things may be changing (at long last). Remember, too, that debates in China happen alike those elsewhere in the world between export lobbies that would like to maintain the status quo of dirt-cheap, essentially subsidized inputs and those favouring a more balanced form of growth. In any event, the notable observation in the Reuters wire report that follows is that China's reserves have fallen for three straight months in a row, though we won't know for sure until the official figures come out early next year:
A decline in China's foreign exchange reserves extended through November, providing a good chance for Beijing to speed up capital account opening, an advisor to the Chinese government said on Wednesday. Concerns about "hot money" inflows have long been cited as a reason for Beijing's caution in liberalising its carefully controlled capital account and foreign exchange regime.

But Li Yang, a deputy head of the Chinese Academy of Social Sciences and a former central bank adviser, said the concerns are no longer as potent as China's foreign exchange reserves had been falling every day for the last two months. "It provides a time window for China to speed up its necessary reforms, like capital account opening and yuan convertibility reform and even the exchange rate formation mechanism," Li told reporters.
For all the talk of yuan undervaluation, the currency has appreciated significantly in real terms as inflation remains a factor in China. Hence the ancillary issue of how to handle capital inflows. Moreover, the yuan is no longer a one-way bet as the powers-that-be allow it to move forwards and back nowadays...
China's foreign exchange reserves have expanded rapidly over the last decade, becoming the world's biggest in the process worth some $3.2 trillion, swollen by a huge trade surplus and strong capital inflows. The inflow has driven the yuan some 40 percent higher in real effective terms since China broke its peg to the U.S. dollar in a 2005 landmark reform. The People's Bank of China (PBOC) has managed appreciation carefully since to prevent the exchange rate from rising too sharply while maintaining steady upside.

But the situation had changed abruptly in the last two months as money started to leave China and the yuan began to weaken against the dollar in the onshore market. It has lost around half of one percent since marking a record high to the dollar on November 14 of 6.3354.

"It's still hard to say whether these changes will become trends, but one thing is clear, one-way capital inflow or one-way bets on a yuan rise have become history," Li said. He added that China's 50 basis point cut in the reserve ratio banks are required to hold -- announced on Nov. 30 -- was a move designed to cope with capital outflows and shrinking foreign exchange reserves.

"Foreign exchange reserves declined in September, October and in November -- they have been falling each day," he said.
You can have a lively debate on whether PRC reserves are falling out of (policy) choice or (economic) necessity as traditional export markets sputter anew. It may be a combination of both as the article implies as authorities make adjustments in anticipation of further softening of export performance. The EU is the PRC's largest export destination, remember. But it does look like more changes will be forthcoming in the form of diminished export performance, moderation of maniacal reserve accumulation, and hopefully more emphasis on domestic demand as well as a more liberal capital account. All the while the yuan will actually be subject to market forces--meaning it can depreciate as China's economic performance shifts.

Yes, the Main Beneficiary of the Euro Was...the UK

♠ Posted by Emmanuel in , at 12/07/2011 10:57:00 AM
Probably one of the major irritants in always tense "UK in the EU" relations is the former's ability to corner a lot of the market in trading the currency as well as other euro-denominated instruments. Both are quite interdependent; I would say that London is Europe's financial casino. One observation is the historically close correlation between euro and British pound movements. One can also argue, however, that Britain's status as a top euro-trading centre makes its financial services arguably even more sensitive to fluctuations in that currency's fortunes than those of EMU members.

So goes the euro currency, so goes the UK more than countries actually in the Eurozone. Particularly hard-hit is the square mile of the City of London where employment relies so much on this sort of trading activity. There's a reason why they don't mention the likes of Frankfurt or Zurich.
City job vacancies fell by 42 per cent last month compared with a year ago, as hiring collapsed amid the deepening eurozone crisis, says a report by a leading Square Mile recruiter. Morgan McKinley, a financial specialist, also found in a survey that while two-thirds of City workers still expected to receive a bonus in the new year, a third thought it would be lower than last year’s.
The London banker, never quite a hot property in the Noughties, has seen his ranks among the reserve army of labour grow. Estimates place the current number of such jobs as equivalent to those nearly a decade and a half ago. In other words, ever more folks dreaming of financial fame and glory chasing fewer jobs:
The Centre for Economics and Business Research, a consultancy, has said it expects London to have lost 27,000 financial jobs this year, slashing numbers to levels last seen in 1998. That would take the total to 288,000, well below the peak of 354,000 in 2007. It forecast that this year’s total of bonuses would tumble by 38 per cent to £4.2bn.

Morgan McKinley found that job opportunities in the City fell by 29 per cent last month, compared with October to 2,725 – a figure 42 per cent below last year. Astbury Marsden, another City recruiter, put the fall at 16 per cent since October and said there were five qualified candidates chasing each vacancy, the highest ratio since 2008.
The euro giveth, the euro taketh away. It's an increasingly FILTH-y environment out there (Failed In London, Try Hong Kong). Perhaps it's time for would-be London bankers to FILCH their way as an alternative route to success (my own term of Failed In London, CHina-bound). Either way, the European crisis is doing the City of London no favours.

UPDATE: Also see MP Jo Johnson on this topic more or less.

Chicago Merc Now Takes RMB for Futures Trading

♠ Posted by Emmanuel in ,, at 12/05/2011 11:06:00 AM
The interesting thing about the United States at the current time is that it's the new Italy. Whereas Italy would continually add zeros to the dollar/lira exchange rate to compensate for a lack of competitiveness via depreciation, that route is no longer there since it joined the Eurozone. The US, however, is not similarly compelled to act in a responsible way. Hence its installation of a helicopter dropper as Fed chairman who plays a lead role in bombarding the world economy with dollar emissions in what has come to be known as "international currency war."

Step by step, however, alternatives are emerging. The dollar certainly is suspect as a store of value, "strong dollar" policy pronouncement hilarity aside. A particularly interesting new application now lies in the realm of futures trading. It turns out that the largest US futures exchanges are now allowing the use of RMB for margin. As you know, the Chinese have been experimenting with internationalizing the use of its currency for currency exchange, trade settlement and other purposes in financial centres such as Hong Kong and Singapore. Not one to be left behind, London is lobbying PRC authorities to some extent for similar privileges as the PRC experiments with making its monies more readily available.

So it is probably of little surprise that another heartland of casino capitalism has jumped the gun in allowing yuan held by clients in Hong Kong-based accounts to be used for topping up trading accounts. Welcome to the future...
CME Group Inc, operator of the world's leading energy, grains and precious metals markets, said it will start accepting the Chinese currency traded in the offshore market as collateral on all its exchange-traded futures products. By expanding its list of collateral to include the offshore yuan, or "CNH" as it is popularly known, a Hong Kong depositor can now use CNH deposits to take positions in a variety of futures contracts traded on the CME, a new avenue for using these funds.

Jeremy Hughes, a spokesman at the CME, said the exchange will cap the amount of CNH it would accept at $100 million. CME and European lender HSBC have built the operational framework enabling HSBC Hong Kong to hold CNH deposits from CME clients and to use these deposits as collateral, it said.
As futures trading goes global, so too should the currencies that may be used:
CME is rapidly increasing its China-focused business. In August, it launched dollar-yuan futures for investors wanting to bet on the yuan's direction. It even launched a micro-version of the yuan futures to attract more clients.

CME, which operates the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange, gets the bulk of its revenue from trading fees and sales of market data. Volume originating outside the U.S. now accounts for 22 percent of all CME Group volume, it said in a statement.

China's move to liberalise the offshore yuan market has picked up since its launch in June 2010. At the end of October, total yuan deposits in Hong Kong banks swelled to more than 600 billion yuan, representing nearly 10 percent of all deposits in Hong Kong banks, compared with less than 1 percent in January 2010.
So goes the story in the new age (RMB) as folks become more reluctant to hold sewage ($).