Exporting iron ore is bad for country, says Jindal

JSW Steel MD Sajjan Jindal tells FE:

I think Indian decision-makers need to take a far-sighted view on this issue. In today’s cut-throat competitive world, while every nation is trying to play off its strength in order to remain competitive and survive, we are literally obliterating our strategic advantage by exporting our iron ore. In fact, in 2005-06, we exported almost 90 mt of our 165 mt iron ore production. Many in the mining fraternity believe India has abundant reserves—enough to last for hundreds of years. What they don’t understand is that India’s per capita iron ore availability is one of the lowest in the world at only 21 tonne per person.

Suppose the demand for steel picks up in overseas market, and domestic customers are not willing to pay enough I wonder if steel makers will still make 'strategic advantage' argument and ask the government to ban steel exports.

Anyway, case after case shows that the best way for a country to gain and sustain 'strategic advantage' is to simply let businessmen decide where they source money, material, machines and mangers from and to whom they sell their products/services. Even with this freedom to choose, high transaction costs would mean that businessmen often have to act sub-optimally. I dont know if there is any point in government adding to those costs (by tariffs, immigration restrictions etc). But, governments do that all the time - sometimes in the name of protecting domestic business, and sometimes in the name of national security.

Two examples from today's BS
After a delay of four months, Indian intelligence agencies have given security clearance to International Container Terminal Services Inc (ICTSI) of the Philippines for participating in the Rs 1,200-crore offshore container terminal project at Mumbai Port Trust (MbPT).

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Telecom firms that have non-Indian CEOs or CFOs may get to keep them, as the Department of Telecommunications (DoT) is understood to have convinced security agencies that such foreign executives were no threat to the country.

DoT, which held extensive discussions with security agencies in this regard, had also possibly found a practical solution to allowing companies remote access to haul telecom traffic from outside India, sources said.

When a government runs a business

BS reports

The government want perks of executives of Central Public Sector Enterprises (CPSEs) to be linked to their performance, but is also anxious to see that their earnings do not exceed those of bureaucrats.

The Pay Revision Committee, set up last week, has been asked to examine productivity-linked incentives and performance-related payments.

The government wants the committee, which will be headed by retired Supreme Court Judge M J Rao, to look at performance-linked payments and incentives as a tool to transform CPSEs into professional and successful commercial entities.

However, while talking about linking payments to performance, the government also wants to ensure that this does not lead to a situation where emoluments of officials of CPSEs far exceed those of bureaucrats.

* Governments tend to balance such constraints with its power to make laws that favour state-run organisations. (A recent example. A government agency in West Bengal acquired over 990 acres land for Tata's 1 lakh car project. But, it cannot transfer the land to Tata, because land ceiling laws in that state restrict private land ownership to 24 acres.)

* Some of us argue it's competition that matters, not ownership (pointing out to the much improved service by BSNL these days). But laws that favour state/state-owned businesses should make us think again.

* There is no reason why this should be so. Forget a government doing things that others see as immoral (killing dissenting people in authoritarian states, for example). We saw a few posts back that a government need not necessarily worry about doing things that even it sees as bad for the country. (Whether it's right in thinking so is a different issue)

Reliance wants a level playing field

BS reports:

The country’s leading retail chains have raised apprehensions that the collaboration between Bharti Enterprises and Wal-Mart could provide backdoor entry to the world’s largest retailer.

Retailers point out that the government allows 100 per cent foreign direct investment in wholesale cash-and-carry and Bharti Enterprises and Wal-Mart are planning a joint venture in this area.

However, there is nothing preventing them from supplying products to only stores controlled by Bharti Enterprises, which is planning to set up a nationwide retail chain.

According to sources, Reliance Retail boss Mukesh Ambani has met Commerce Minister Kamal Nath to seek a level field for Indian retailers.

What about government giving a level field for smaller retailers, facing unfair competition from Reliance Retail!

Joint economic zone opens in Pakistan

China has opened its first overseas joint economic zone in Pakistan in a bid to accelerate domestic enterprises' overseas investment.

The joint economic zone, covering 1.03 square kilometres at Manga Mandi, 40 kilometres south of Lahore, was established by China's leading home appliance maker Haier and Pakistani firm Ruba.

Haier has a 55 per cent stake in the joint venture, while Ruba holds the remaining share in what will be Pakistan's largest home appliance production base and the first Sino-Pakistani joint venture of its kind.

"China attaches great importance to economic relations with Pakistan. Investment in Pakistan benefits both nations," Chinese President Hu Jintao said after inaugurating the Haier-Ruba Economic Zone.

The two sides are expected to invest around US$250 million in the construction of the zone over the next five years. here.

the world believes china's ministers have had tremendous success with their ability to promote chinese enterprise. now, they want to help pakistan to do the same. this would be an interesting space to watch!

India tops in using anti-dumping probes

Business Line reports

The number of initiations of new anti-dumping investigations worldwide continued its recently noticeable declining trend during the first half of this year. But India keeps its head high on deploying this trade defensive measure with its new initiations of dumping probe during January-June 2006 standing by far the highest at 20.

According to the Geneva-based World Trade Organisation Secretariat, during January-June 2006, 20 members reported initiating a total of 87 new investigations, down from 105 initiations in the corresponding period of 2005. But the number of new final measures increased to 71 during this period, against 55 such measures applied during Jan-June 2005.

Members reporting the most new initiations during the period under review were in descending order: India, with 20 new investigations, up from 14 during the corresponding period of 2005; the European Union 17, Australia nine and Argentina, Indonesia and Turkey at five each.

India's finance and commerce ministers love to point out that tariff rates in India have come down - and that consumers have gained. At the same time, you have these anti-dumping measures that stand in the way of free trade and of customers getting the benefit of lower costs. FE today carries an Economist piece on a paper (by a University of California at Davis political science professor) that makes this contradiction less obscure. Here is the abstract:

A growing body of research shows that democracies have more liberal trade policies than do autocracies. I argue, in contrast, that democracy has contradictory effects on different types of trade policies because electoral competition generates more information about some than about others. It generates considerable information about policies whose effects on consumer welfare are easy to explain to voters, but less information about policies whose effects are more complex. By increasing the transparency of some policies relative to others, democracy induces politicians to reduce transparent trade barriers but also to replace them with less transparent ones. I test this hypothesis by examining the impact of democracy on tariffs, “core” nontariff barriers (NTBs) such as quotas, and “quality” NTBs such as product standards in 75 countries in the 1990s. I find that democracy leads to lower tariffs, higher core NTBs, and even higher quality NTBs. I conclude that democracy promotes “optimal obfuscation” that allows politicians to protect their markets while maintaining a veneer of liberalization.

Here is the Economist on the connection between free trade abd anti-dumping measures:

In other cases, however, governments have promised to fight dumping in order to win support for radical trade reform. Several of Latin America's young democracies, for example, were keen to slash tariffs and peg their exchange rates to fight inflation. They promised to defend companies against super-cheap imports as a way to sugar this free-trade pill. Mexico, for example, launched 83 antidumping investigations in 1993, more than any other country. But this was partly to shore up support for the North American Free-Trade Agreement.

Liquor

S Anand writes in Outlook:

Both retail and wholesale vending of liquor in the state is controlled by the Tamil Nadu State Marketing Corporation Limited (Tasmac), launched in 1983. During MGR's chief ministership, the state decided to control all wholesale vending of India-Made Foreign Liquor (IMFL). In October 2003, the J. Jayalalitha government took over retail vending as well, ostensibly to put an end to the "cartelisation in the liquor trade". The M. Karunanidhi-led DMK government has found no reason to reverse the policy since revenue from the sale of liquor has broken a 23-year-old record.

'Drinks are bad for you, your home and the nation'. This is a warning you will see prominantly displayed in all liquor retail shops in Tamil Nadu. I am not sure, but i think it's mandatory for them to do so - like the health warning on cigarette covers.

(While we are on that subject, bidi makers in andhra pradesh are up against a rule that asks them to display a danger symbol (skull etc) on beedi covers. Their voices are louder now because there is an election around the corner. I read in BL yesterday that the government might relent because it thinks the rule would affect the livelihood of beedi workers.

I wonder if you still need magnifying glasses to read the statutory warning on cigarrette packets. Compare this to the large photos of decomposing lungs you get to see on them in developed countries. I don't know what to make out of such government rules - but, clearly, the question in this case is why impose it on beedis and not on cigarettes, or for that matter on cigars. Lobbying power?)

Back to alcohol, the irony about the gloomy warning is that those shops are run by the government itself. If government thinks that alcohol is bad for home and the country, and yet has no qualms about selling the stuff to fill its own coffers, what happens to the leftist argument it's the market that doesn't care about what's good and what's bad, and that the market needs government intervention to make it behave?

I dont see any point in government banning alcohol, or for that matter, drugs. (That people will find a way around them is just one of the reasons. Medical shops in Tripura place huge orders for cough syrup, only to send them across the border to Bangladesh and sell to people who see cough syrup as an alternative to alcohol, banned in B'desh for religious reasons. Btw, India is building a huge fence between the two countries - not to stop the movement of cough syrup, but, it says, to stop illegal immigrants. But that's a different story.) Less so in a government selling them.

In any case, it's doing a bad job even in that. Anand goes on:

Not only are Tasmac outlets filthy, they also force brands like Cosmopolitan whiskey and Day & Night rum on buyers. Sometimes even Romanov and Blue Riband are unavailable. Says veteran journalist Sam Rajappa: "These rotgut, local brands are badly distilled molasses. Tasmac peddles arrack packaged as IMFL." Breweries in TN ensure that other brands don't get a foothold in the state.

Meanwhile ET reports:

THE European Union (EU) has challenged the Tamil Nadu government’s policy of prohibiting sale of imported liquor in the state claiming that the provision went against India’s obligations under the World Trade Organisation (WTO). The EU’s complaint against the state’s retail policy for liquor is in addition to its other accusation that the actual import duties charged by the country on wines and spirits is much higher than the level at which the country has bound its duties at the WTO.

The EU has sought consultations with India at the WTO on both the issues and if the two fail to reach an amicable solution to the problem, it could blow up into a fullfledged dispute.

In a submission made to the dispute settlement body of the WTO, the EU pointed out that measures taken by the Tamil Nadu government to establish a legal basis for awarding licences for the sale (including wholesale and retail distribution) within the state of wines and spirits produced in other Indian states, but not for sale of wines and spirits imported into India from other WTO members. Therefore, state authorities do not issue licences for sale of imported wines and spirits.

Pressure mounts for corn export ban

FE reports:

‘‘Exports have really picked up in the past two weeks,’’ Amol Sheth, president of the All India Starch Manufacturers Association said on phone from Ahmedabad, citing exports of 100,000 tonne in the past 15 days.

‘‘If India doesn’t ban exports, it could touch one million tonne as all of southeast Asia is short of the grain.’’

The real question to ask is what would be the stage two/stage three impact if government decides not to impose a ban.