Let the Tsunami politics begin!!

[JJsushi]

Now that the Tsunami disaster is not page 1 news anymore the real issues will commence

 

 

 

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Trade Friction Looms as U.S.

Weighs Export Relief for Asia

 

By GREG HITT, PHILIP SHISHKIN and REBECCA BUCKMAN

Staff Reporters of THE WALL STREET JOURNAL

January 13, 2005; Page A1

 

While the world's economic heavyweights are moving to extend debt relief to tsunami-hit countries, a fight is brewing over the assistance some Asian nations also want: new trade concessions that give them wider access to Western markets.

 

Sri Lankan textile executives are calling on their government to press for reduced tariffs on exports to the U.S. and Europe, and the Thai prime minister wants lower tariffs for shrimp exports. The pleas for assistance underscore the broader pressures on the region, and the difficulties that lie ahead as relief efforts turn from emergency aid to crafting a broader recovery plan. Those demands will face big political and legal hurdles in the U.S. and in Europe, though Europeans seem more receptive.

 

Even before tsunami waves swept through the Indian Ocean three weeks ago, southern Asia was facing significant economic challenges, in particular the end-of-2004 expiration of the international system that controlled trade in textiles involving dozens of nations and hundreds of billions of dollars.

 

 

 

 

 

Under the 1973 Multifiber Agreement, developed markets set quotas that limited the amount of apparel imported from less-developed markets. The end of the quota system opens the door to cheap-labor competition from China that threatens to cut jobs and economic growth in Sri Lanka and several other textile-producing nations in southern Asia.

 

In the catastrophe's aftermath, Europe and the U.S. are united behind the idea of providing, at minimum, debt relief. Yesterday, the Paris Club group of 19 creditor nations offered to allow Asian nations to suspend all debt payments so that they could use the money to help cover the costs of rebuilding after a disaster that took at least 150,000 lives (see related article).

 

The choice facing the West entails challenges similar to those posed after the Sept. 11, 2001, terrorist strikes in the U.S., when Washington juggled requests by Pakistan -- a key ally in the Afghan war -- for special textile trade preferences. The U.S. ended up granting Pakistan only marginal relief.

 

On the issue of providing broader economic assistance, Europe seems more prepared to go along. U.S. officials say they are open to considering action. But Washington's immediate focus is on delivering emergency provisions, and officials stress that the details of any long-term U.S. recovery package are still in the formative stage. "We have been in active consultations with the trade ministries from tsunami-affected countries, discussing possible ways to help facilitate reconstruction efforts," says Richard Mills, spokesman for the U.S. Trade Representative's office.

 

Pressure is mounting in the U.S. from shrimp and textile producers to resist extending any special favors to countries hit hard by the tsunami. Both industries complain that they have suffered from low-priced foreign competition, and have fought in recent years for greater government protection.

 

Shrimp from six Asian and South American countries have been involved in a long-running trade dispute over American shrimpers' complaints about low-priced imports. Last week, the U.S. International Trade Commission determined that shrimp imports from the countries, including India and Thailand, had harmed U.S. fishermen and processors. The action set the stage for the administration to impose new duties on foreign shrimp, but the ITC said it would initiate a review of the India and Thailand cases in light of the catastrophe.

 

The Southern Shrimp Alliance, an American advocacy group representing fishermen and processors in eight Southern states, is pressing the administration not to overturn the actions against India and Thailand. "We should do all we can to aid those who have lost so much," said Eddie Gordon, president of the alliance. But "we do not believe the tsunamis change our legal cases."

 

Already bracing for a surge in textile and garment imports from China, the U.S. producers of these goods also bridle at granting relief. "You don't go to the intensive-care unit when you're looking for blood donations," said Jim Schollaert, a top lobbyist for the American Manufacturing Trade Coalition, an influential textile advocacy group. "This industry has already been bled white."

 

The U.S. imports more than $3 billion of shrimp annually, and more than $70 billion in garments. And imports are much in the spotlight as the U.S. trade deficit ballooned last year to $561.33 billion through November, compared with the $496.5 billion deficit for all of 2003 (see related article above).

 

There's no doubt that Washington policy makers will eventually address economic assistance for southern Asia. When lawmakers reconvene later this month, calls are likely to grow for an aid package dedicated to reconstructing the damaged countries. But the details could be difficult to work out, especially if the legislative debate turns to providing targeted assistance.

 

"We certainly need to show leadership in helping those countries, but these are all tough issues," says Rep. Jim Davis of Florida. Mr. Davis, a moderate Democrat, is generally a supporter of free trade, but he worries about the economic health of shrimpers in his Tampa-area district. "These folks haven't got all the money in the world to hire lawyers, and wait five years for results."

 

European Union trade officials are exploring several ways to help southern Asia. In particular, they are considering a proposal to speed up overhaul of a system that hands trade preferences to poor and developing countries. All developing countries can benefit from the new rules once they are in place. Exports to the EU of Thai shrimp, Indonesian fish and Indian and Sri Lankan textiles are expected to boom once the new rules kick in. Significantly, the rules will give Sri Lanka duty-free access to EU textiles markets.

 

The EU is also looking into diverting existing funds into trade-assistance plans targeting the affected areas. Every year, the EU gives several million euros toward long-term trade development projects such as training. These funds could, for instance, be redirected to help rebuild devastated fishing industries to be in line with international food-safety standards. That way, rebuilding will also ensure the long-term health of those countries' export markets, officials said. Such measures could help Indonesian and Thai tuna and shrimp exports.

 

"The important thing is to reorient the aid so that it helps countries trade in the long run," said EU spokeswoman Claude Veron-Reville.

 

The near-term focus is on debt relief. The debt moratorium envisioned by the Paris Club could last for as long as a year. So far, only Indonesia, Sri Lanka and the Seychelles have indicated they would take up the creditors' offer, said Jean-Pierre Jouyet, the Paris Club chairman. Thailand, which also suffered from the tsunami but doesn't have large debt obligations to the Paris Club, has said it isn't interested.

 

Indonesia, which sustained the highest losses, welcomed the offer but said it needed more aid. "We are perfectly grateful for the efforts made to relieve our debt," Foreign Minister Hassan Wirayuda said in Paris on Tuesday. "But it is obvious that we would also appreciate receiving donations rather than new credits." Indonesian officials said their projected debt-service cost for 2005 and 2006 will total $3.6 billion and that they preferred a two-year moratorium.

 

---- Juliane von Reppert-Bismarck in Brussels and Patrick Barta in Bangkok, Thailand, contributed to this article.

[JJsushi]

Aid Boosts Sri Lankan Rupee,

Putting Pressure on Export Sector

 

By JAMES HOOKWAY and JAY SOLOMON

Staff Reporters of THE WALL STREET JOURNAL

January 13, 2005; Page A10

 

COLOMBO, Sri Lanka -- A sudden rise in the value of the Sri Lankan rupee -- driven by speculation and a large influx of tsunami-related foreign aid -- is causing unwelcome economic pain to key exporters on this island nation.

 

Exporters of Sri Lanka's world-renowned tea are being particularly damaged by the strength of the rupee, which has risen 6% against the dollar since the Dec. 26 tsunami to close yesterday at 98.25 rupees to the dollar. In 2003, companies such as Akbar Brothers Ltd. and Bartleet & Co. represented 15%, or $700 million, of Sri Lanka's total agricultural exports.

 

 

 

 

 

Tea and other export companies' expenses are denominated in rupees, but their revenues are measured in dollars. Measured in rupees, the average export price of tea has fallen 40 rupees to 210 rupees a kilogram since the tsunami smashed into Sri Lanka's eastern coast. The sudden and unexpected rise in the value of the Sri Lankan currency has many traders scrambling to meet obligations.

 

"We're doing everything at a loss at the moment," said Sanjeeva Unamboowe, manager of the tea department at Colombo-based trading house Adamexpo Co.

 

Other Sri Lankan exporters of commodities products are also concerned about the sharp rise in the rupee.

 

Adamjee Lukmanjee & Sons Ltd. is one of Sri Lanka's largest exporters of coconut products and spices. It generated 1.5 billion Sri Lankan rupees in revenue last year. Managing director Murtaza Lukmanjee says his company will sustain significant foreign-exchange losses if the rupee doesn't reverse its sharp appreciation against the dollar soon. "The revaluation has left us totally exposed," Mr. Lukmanjee says. "The effect on our industry will be pretty severe."

 

Nobody knows how much further the currency might rise. Many Sri Lankans, from tea traders to taxi drivers to the central-bank governor, expect the currency to rack up further gains as international aid pledges turn into cash.

 

A number of Sri Lanka's commodities exporters and brokers are starting to lobby Sri Lanka's central bank to take action. Lanka Commodity Brokers Ltd. sent out a circular on Tuesday urging government authorities to stop the dollar's slide against the rupee.

 

The textile industry, too, is hurting. Industry executives have called on the Sri Lankan government to ask the U.S. and Europe to reduce tariffs on the country's textile exports to help it recover from both the tsunami and the rise in the value of the Sri Lankan currency. (See related article.)

[Gaining Strength]

 

Textiles comprise nearly 50% of Sri Lanka's total exports, and European Union Trade Commissioner Peter Mandelson Tuesday said he would try to speed up the implementation of new rules that would allow Sri Lankan exports to enter the EU duty-free.

 

The International Monetary Fund, meanwhile, has said the Sri Lankan government should find a way to allow aid to flow into the country without disrupting businesses otherwise unaffected by the disaster. Speaking to reporters in New Delhi, IMF chief economist Raghuram Rajan said, "There must be a process to sequence the flow of aid. You have the aid commitments made, but it is not necessary to draw that aid into the economy quickly if it cannot be used immediately."

 

To be sure, the overall impact of the influx of aid represents a boost for the Sri Lankan economy. More than 30,000 people died in the tsunami disaster here, and much of the country's tourism infrastructure was destroyed. The Sri Lankan government estimates the total cost of rebuilding schools, highways, bridges and railway lines will reach $1.3 billion to $1.5 billion in the next few years. So far, the Asian Development Bank, World Bank and IMF have said they will likely provide $500 million in tsunami-related assistance. More is expected from other sources.

 

In the long term, the amount of aid coming into Sri Lanka is likely to exceed the actual cost of reconstruction, said Joseph Tan, an economist at Standard Chartered Bank in Singapore. "There is likely to be a surplus of aid, which in the long term will act as a fiscal stimulus to the economy."

 

Sri Lanka's central bank has resisted interfering with the currency market, despite the sharp rise of the rupee. On Tuesday, it said it would leave monetary policy unchanged, asserting the economy was largely unaffected by the disaster, except for the fishing and tourism industries. Yesterday, a senior official at the central bank said that "for the moment, our exports are competitive."

 

Back at the tea auction, traders said they were confident the country wouldn't lose its tea production to competitors such as India.

 

Naleem Najumdeen, a tea taster and trader at Eastern Brokers Ltd. contended Sri Lankan tea is generally regarded as superior to teas produced elsewhere. "People will still buy," Mr. Najumdeen said. "Sri Lanka tea is still the best ... But there's going to be a period of uncertainty for a while."

[JJsushi]

Paris Club Allows

Tsunami-Hit Nations

To Suspend Debts

 

By PHILIP SHISHKIN and JULIANE VON REPPERT-BISMARCK

Staff Reporters of THE WALL STREET JOURNAL

January 13, 2005

 

As the world's leading creditor nations offered to freeze Asian debts to help cope with the tsunami destruction, some countries hit by the waves are asking for another kind of aid: better access for their exports to Western markets.

 

The Paris Club, an informal group of 19 creditor countries including the U.S., Western European states and Australia, agreed yesterday to allow Asian nations to suspend all debt payments to the club and use the money to help cover the costs of rebuilding after a disaster that took at least 150,000 lives.

 

The debt moratorium could last for as long as a year. So far, only Indonesia, Sri Lanka and the Seychelles have indicated they would take up the creditors' offer, said Jean-Pierre Jouyet, the Paris Club chairman. Thailand, which also suffered from the tsunami but doesn't have large debt obligations to the Paris Club, has said it isn't interested in the debt freeze.

 

Indonesia, which sustained the highest losses, welcomed the offer but said it needed more aid. "We are perfectly grateful for the efforts made to relieve our debt," Foreign Minister Hassan Wirayuda said in Paris on Tuesday. "But it is obvious that we would also appreciate receiving donations rather than new credits." Indonesian officials said their projected debt-service cost for 2005 and 2006 will total $3.6 billion (?2.74 billion) and that they preferred a two-year moratorium.

 

Sri Lanka has earmarked $500 million for debt costs in 2005, money it will now be able to divert for reconstruction. "The moratorium will afford a certain space to our economy to master the resources for reconstruction," said Romesh Jayasinghe, Sri Lanka's ambassador to the European Union. The country's foreign minister has recently asked the international community to consider debt forgiveness, but that is unlikely to happen.

 

As the Asian nations tally their losses and reconstruction costs, they are stepping up calls on Europe and the U.S. to lift some trade restrictions.

 

Sri Lankan officials are lobbying the EU to relax some of its import restrictions, such as the "rules of origin" requirement that lands some Sri Lankan exports, such as apparel, in a higher tariff bracket. Though Sri Lanka was pressing the EU for trade concessions long before the tsunami, Colombo hopes that the disaster will add impetus to the talks. "Trade, not aid, is really the engine for growth," said Mr. Jayasinghe. "Market access [to Europe] is something we would also hope for."

 

Renewed pressure for better trade terms with the West also is coming from Thailand. Thai officials are hoping for lower tariffs on shrimp exports to the U.S., even as Washington is considering raising them to protect the American shrimp industry.

 

While the U.S. resisted calls for trade relief from the tsunami-struck region, the EU trade department vowed to take action. But European efforts will take months to implement, will target only a small portion of industry in the region and may be mainly effective at jostling recalcitrant European governments into accepting trade policy drafted in Brussels, observers said.

 

In particular, the EU said it will speed up the overhaul of a system that hands preferential trade tariffs to poor and developing countries.

 

But the EU ruled out aiding stricken countries by giving them the benefits of the plan ahead of other countries. Instead, it will push for the new system to launch early around the world -- one or two months before its current July 1 deadline, officials said. "We are hoping the tsunami will provide the necessary momentum to push this reform through quickly," said an EU official.

 

The proposal for discounted tariffs is designed to benefit developing countries around the world, but many of the plan's benefits directly relate to the needs of the areas hit by the tsunami. Sri Lanka's textile industry -- which makes up about half of its exports -- will see exports to the EU rise under the plan. Thai shrimp, Indonesian tuna and Indian textiles also will flow into the EU in greater volume after the new rules kick in.

 

The EU also will use the momentum of tsunami awareness to relax rules about where countries in the Asian region may source their materials for textiles and still qualify for preferential exporter treatment, officials said.

 

Europe also may stop import tariffs against companies damaged by the waves. The EU levels so-called antidumping measures against products that include Indian plastics, Indonesian chemicals and Thai steel and iron tubes, because it believes these are being sold into the EU at below-market prices. Any companies that can prove they were struck by the tsunami may qualify for a reprieve.

[JJsushi]

China Is Small Player

In Tsunami Aid Effort

 

By MARTIN FACKLER in Jakarta and CHARLES HUTZLER in Beijing

Staff Reporters of THE WALL STREET JOURNAL

January 10, 2005; Page A10

 

As other nations offer increasingly generous aid packages to Asian nations struck by the deadly tsunami, rising power China has been conspicuous for its relatively minor presence in the multinational relief effort.

 

Since the walls of water struck Dec. 26, some governments have announced big sums and taken a prominent role in disaster response. The U.S. dispatched 13,000 military personnel and a flotilla of warships and helicopters to the region and pledged $350 million of aid. Japan has sent a pair of destroyers and a supply ship in a rare overseas aid mission for its military, and promised $500 million. Australia has offered $810 million. Even Norway has promised $183 million.

 

 

China's government-aid pledges total $83 million. Its presence on the ground is limited to a half-dozen medical teams, DNA experts and contributions of communications equipment to Indonesia's battered Aceh region.

 

Beijing seems to be missing a golden opportunity to raise its presence in its backyard. But experts note that this is China's largest overseas-aid effort ever, and the country can't realistically be expected to offer much more. Despite all the hype about its growing strength, China remains a developing nation with relatively limited resources -- constraints that the tsunami-aid efforts have thrown into stark relief.

 

"China hasn't been able to shine," says Dewi Fortuna Anwar of the Indonesian Institute of Sciences in Jakarta, Indonesia. "We can see from China's response that it is not really in the same league as the U.S. or Australia."

 

Experts say this could have been a good chance for China to improve its image in places like Southeast Asia, where a flood of inexpensive Chinese manufactured goods has threatened jobs. In 1997-98, when currencies in Thailand, Indonesia and elsewhere took a nose dive and plunged Southeast Asia into financial chaos, China held its currency firm despite the damage a strong yuan might have done to its own exports. This response won broad respect in the region at a time that Washington was seen by many as responding slowly to the crisis, Dr. Anwar says.

 

There were expectations China might try to take a bigger role during the tsunami crisis as well. In Japan, China's largest rival in Asia, news reports said Foreign Ministry officials huddled in the early days after the earthquake and resulting wave not only to discuss how much aid would be needed, but also to speculate on how generous China would be -- to be sure Tokyo gave more. These fears pushed Japan to make a hefty pre-emptive pledge of $500 million, according to these reports.

 

China knows its relief efforts are falling short by comparison. After Beijing's initial contribution of $2.6 million received criticism from foreign media, the Ministry of Foreign Affairs convened a meeting of senior officials to see what could be done to bolster the government's relief effort and shore up its image, people informed about the meeting said. Beijing later raised its pledge to $83 million.

 

"All these relief efforts have political implications" for China and the U.S., says Liang Yingming, an expert on Southeast Asian affairs recently retired from Peking University.

 

However, any hand-wringing has been tempered by the realization that China can do little to compete head-on with the U.S., or even Japan, Chinese foreign-policy experts say. Not only is China still much poorer than those countries, these experts say, it also doesn't have the logistical capabilities or experience in mounting relief abroad. China's military lacks a real blue-water navy, including aircraft carriers, and it has no jumbo cargo planes and very few helicopters equipped for long-distance cargo hauling.

 

Mindful of these limitations, China nonetheless is trying to mount a credible effort. It sent Premier Wen Jiabao to Jakarta to attend Thursday's aid summit. Mr. Wen announced $20 million in additional aid, bringing China's total commitment to $83 million, and said his country would forgive Sri Lanka's debt.

 

There are signs the Beijing leadership is a bit embarrassed by its minor presence. The Propaganda Department issued guidelines on coverage for state media that said reports should emphasize China's relief efforts, not those of other countries, said one Chinese newspaper journalist, who asked not to be named. Among the taboos in the directives is a ban on comparing China's donations with those of other countries, particularly wealthier regional rival Japan, the journalist said. An official at the news office of Central Propaganda Department declined to confirm or deny the existence of the guidelines.

 

Still, Chinese foreign-policy experts say they are hopeful that even the limited contributions will help convey a sense of China's rising role in the region. Southeast Asian governments "know that the strongest countries belong to the U.S. relief coalition" and China wasn't part of that, says Jin Canrong, an international relations expert at Renmin University in Beijing. "But they also know that China's resources are greater now than before."