American companies spend about $26 billion each year outsourcing IT services. For years, the lion's share, about 80 percent, of that spending has gone to India. But development is an fickle mistress. Even as she helps countries such as India raise their standards of living, she also spreads her ugly tentacles in the form of higher wages and increased overhead. That, combined with concerns over whether India's educational system can continue to churn out ever higher numbers of IT-savvy workers, has some U.S. firms looking elsewhere for cheap, skilled labor.
The outsourcing phenomenon is no longer limited to a handful of large Asian countries. The hot new destinations for outsourcing are countries such as Mexico, Brazil, and Russia. For instance, one large American firm, CareFirst BlueCross BlueShield, uses Epam Systems Inc., a New Jersey-based company, that employs an outsourced labor force of more than 2,000 people in Russia and Eastern Europe.
What's an Indian outsourcing firm to do when faced with globalization's double-edged sword? Some are following suit by outsourcing their outsourcing. Consider Hyderabad, India-based Satyam Computer Services Ltd. They just opened a 2,000 employee facility in Malaysia, where they can have access to a cheaper yet still skilled labor market. As India's share of U.S. IT outsourcing continues to decline (it's now down to 59 percent) watch for other Indian firms to follow suit.
Good catch by the WSJ's Washington Wire blog:
Joining visiting South Africa’s President Mbeki in the Oval Office Friday, President Bush told reporters that the two leaders “talked about a lot of issues.”
One, he said, was “Darfur and the need for South Africa and the United States and other nations to work with the Sudanese government to enable a peacekeeping force into that country to facilitate aid and save lives.”
Another was economics, particularly the “necessity of trade,” Mr. Bush reported. “We talked about, interestingly enough, [about] the Darfur round,” he said.
(He meant the Doha round of trade negotiations, hosted by the World Trade Organization.)
Blood Diamond, starring Leonardo DiCaprio and Jennifer Connelly, opens tonight in U.S. theaters.
Hollywood's latest take on conflict diamonds isn't shy about pointing the finger at the precious gem industry. But with brutal African civil wars fueled by diamonds now over and new trade controls in place, is buying that engagement ring as ethically charged as it once was?
In an FP web exclusive, Nicholas Stein argues that the issue of conflict diamonds is more multi-faceted than you might think.
If after reading Stein's piece you want to dig deeper into this topic, check out FP's interview with Blood Diamond director Ed Zwick and our photo essay, A Trail of Diamonds, which takes you from the mines of West Africa through to the showrooms of Paris. And if that doesn't use up your guilt quota for the week, this week's List looks at other goods with dubious origins.
The FP List recently spotlighted a few of the contenders for the world's next most powerful stock exchange. It looks like the exchanges in the United States are slipping fast, mainly to London and Hong Kong. John Fund, in an interesting article for the WSJ, lays the blame squarely on laws drafted in the aftermath of the Enron and Worldcom fiascoes. These laws, known as the Sarbanes-Oxley corporate accountability rules, are forcing companies to look elsewhere to list shares and raise capital.
Last year, of the 25 largest initial public offerings in the world, only one took place in America. This year, Hong Kong is likely to end up as the No. 1 market for stock offerings world-wide."
Unfortunately, the increased audit burden placed on companies and executives by the new laws hasn't done much to improve corporate governance. But SarbOx has certainly given places like Hong Kong and London reason to celebrate. At a recent conference in Canada, Henry Tang, Hong Kong's financial secretary, joyously declared, "Thank you, Mr. Sarbanes and Mr. Oxley," referring to Democratic Sen. Paul Sarbanes and Republican Rep. Mike Oxley, the law's chief sponsors. Meanwhile, some observers expect a ripple effect that may hurt, among other things, New York's real estate market if companies continue to push abroad. But all is not lost if reform comes in time:
Hal Scott, a Harvard law professor... told the New York Post that the corporate controls in Sarbox don't exist anywhere else in the world, and compliance costs "are absolutely killing the U.S. in terms of maintaining listings dominance" in world markets. "If we correct it, we have been told to expect an almost immediate turnaround in listings."
Message to Dear Leader: No jet skis for you. No leather chaps, no silk PJs, no flat-screen TV. No Courvoisier, either. For the first time ever, the United States is attempting to use trade sanctions to target a specific person: North Korean president Kim Jong-il, who is known for his love of luxury goods (even while his people are starving). The U.S. has proposed a list of items to be banned from North Korea in the wake of the rogue nation's nuclear tests earlier this year. The ban would be administered through the United Nations, which has already imposed sanctions on the shipment of weapons and other military equipment. What I wonder is, if Kim doesn't have cigars, perfumes, and brandy to shower upon his most favored friends, won't they abandon him? Oh wait, I guess that's the point -- to make him "so ronery, oh so ronery..."
Where do electronics go when they die? Increasingly to Africa, according to a recent article in Environmental Health Perspectives. Every month, exporters contracted by electronics recyclers send about 500 containers filled with used electronic equipment to Lagos, Nigeria, alone. The 40-foot containers can be shipped from the United States for about $5,000 and high tariffs are easily avoided when the contents, up to 75 percent of which are unsalvagable, are classified as "scrap."
Even with so much junk, Nigerian importers are able to make a quick buck because of high local demand for electronic goods—Pentium III computers sell for about $130 and a 27-inch television will set you back around $50. The remainder, equivalent to approximately 100,000 computers per month, ends up in dumps and landfills. That electronic waste (e-waste) is chock-full of pollutants like lead, cadmium and mercury that then seep into the ground and water supply. When the mounds of waste get too high, they are burned, releasing toxins from the plastic casings into the air. (For more about how we're destroying Africa with waste, check out Travis's post, The Global Village's Septic Tank.)
Although both the 1989 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, which the United States has not signed, and the U.S. Resource and Recovery Act bar the export of e-waste, both have exceptions for "recycling." Thus, they leave room for the less scrupulous. In the United States, the only companies that can be trusted to safely recycle, reuse, and dispose of electronic goods are those listed by the Environmental Protection Agency as Plug-In to eCycling Partners or by the Basel Action Network as E-Stewards. So, before you throw away your electronic goods, it might be a good idea to look into where they are headed.
A few days ago, the U.N. General Assembly voted overwhelmingly to urge America to end its nearly 50-year economic embargo of Cuba. Naysayers can be forgiven for pooh-poohing the vote. After all, the resolution was non-binding and it was the 15th straight year that it had been passed.
The U.S. mission at the United Nations responded with Foggy Bottom's usual Cuba rhetoric:
We maintain this embargo to demonstrate our continuing call for economic and political freedom for all Cubans," U.S. envoy Ronald Godard said.
But word is floating around Capitol Hill that, when the Democrats take charge in January, the Cuban embargo may be on the chopping block. Sen. Max Baucus (D-MT), the incoming chairman of the Senate Finance Committee, has said the embargo is a "total failure." In the House, Charlie Rangel (D-NY), who is set to become chairman of the powerful Ways and Means Committee, has in the past sponsored legislation to end the embargo.
Any change in Cuba policy, of course, would require the signature of President Bush. That's hardly a guarantee. But embargo foes must be taking comfort in the fact that Florida Gov. Jeb Bush is stepping down in January. That may give his brother a little more wiggle room, should he desire it.
What is it with this White House and Asia gaffes? Back in April, during Hu Jintao's much-hyped visit to Washington, an American announcer on the White House's South Lawn referred to China's national anthem as that of "the Republic of China" - also known as Taiwan.
Now, just hours before Bush was set to leave for Asia to attend a major economic summit, the White House Web site was caught in yet another major mistake. Last night, the flags of the three countries Bush is to visit this week - Vietnam, Indonesia, and Singapore - were displayed on the White House's site. The problem? The flag shown for Vietnam was actually the flag for South Vietnam, the country that ceased to exist in 1975. Once the FT's Observer pointed out the mistake to the White House, the flag was swiftly replaced. Awkward, huh? Then again, it's not like Bush threw up in the lap of his host or anything.
The World Bank's report on the state of African development is being hailed as good news. That sub-Saharan African growth was 4 percent between 2000 and 2004, compared to 2.4 percent in the 1990s, is certainly a fact to be welcomed. It would, though, take a growth rate of 7+ percent to make a substantial dent in the poverty figures.
Digging around in the numbers is a rather depressing experience. Only nine countries in sub-Saharan Africa have a real GDP of more than $1,000 per capita and just one country breaks the $5,000 mark. By contrast, 32 have a GDP of less than $500 per capita. Only two sub-Saharan African countries have a life expectancy of more than 65 and five have one of less than 40.
The most interesting stats are on AIDS and trade. In all but two sub-Saharan African countries, the HIV/AIDS prevalence rate among women aged 15 to 24 is at least twice that of their male peers. In South Africa, the numbers are 14.8 percent for women, compared to 4.5 for men. The bank calculates that comprehensive trade reform would benefit Africa to the tune of $4.8 billion, with 78 percent of the gains coming from agricultural liberalization. (How do defenders of agricultural tariffs and subsidies sleep at night?) But what really struck me about the trade numbers was how little Africa trades with itself.
Image courtesy of the World Bank
This illustrates the case for a pan-African free trade area. One way to help bring this out would be for developed nations to offer to unilaterally cut tariffs for all African nations prepared to sign up to such a scheme. Can someone please call Bono?
Yesterday, I asked people for their thoughts on why Nicaragua's Daniel Ortega is so America friendly. Passport reader Richard Feinberg, a professor at UCSD's graduate school of international relations and a former president of the Inter-American Dialogue, e-mailed us a thoughtful offering:
You're right, not only is candidate Daniel Ortega not touting anti-Americanism, but he seizes every opening to suggest that he would be able to play ball with the United States. When U.S. Ambassador Paul Trivelli mentioned in passing that the US will be willing to work with whomever is elected in a free and fair election, Ortega jumped on the statement to say that, see, he would be able to maintain normal relations with Uncle Sam. Why? Because polls show that most Nicaraguans do not want a return to confrontation with the United States, on the contrary, most Nicaraguans favor the U.S.-Central American Free Trade Agreement (CAFTA) and welcome U.S. foreign assistance, trade and investment. In fact, the Sandinistas say publicly they welcome the opportunities offered by CAFTA and would seek to exploit them (even as they also welcome promised subsidized oil shipments from Venezuela's Hugo Chavez). Most Nicaraguans -- most Central Americans -- generally look favorably on the United States, indeed polls show that, if given the chance, as many as half or more would move to Miami. Anti-US feelings grow as one moves southward toward Argentina, but in the Central American tropics, politicians jockey to demonstrate their warm relations -- even as they pledge an independent, sovereign foreign policy -- with Washington."
Good point. It has been my experience that most Central Americans are friendly toward the United States, too. So why is the Bush administration so staunchly against Ortega? Given the surging popularity and influence of Chavez, don't we need all the friends we can get in Latin America?
Get ready for the next test of whether Latin America's leftward slide will continue. The arena now is Ecuador, where next month's presidential runoff will be between fruit magnate Alvaro Noboa and Hugo Chávez admirer Rafael Correa.
Mr Correa has promised to shut down the US military’s base in Ecuador and has vowed never to restart talks with Washington on a bilateral trade treaty. He has also hinted that he might default on Ecuador’s debt payments and has pledged to impose higher taxes on foreign investors in the oil industry such as Repsol of Spain, Brazil’s Petrobras, Andes Petroleum of China and Perenco of France.
Noboa did better than expected in the first round, and the bond markets are hopeful that he will prevail against Correa. Expect Chávez to do all he can to prove them wrong.
The U.S. trade deficit rose from $68 billion in July to $69.9 billion in August (a rise of 2.7 percent), on course to set a new record. As of the end of August, the deficit totalled $784.2 billion, 9.4% higher than a year ago. High oil prices, which have pushed up petroleum import costs, and the politically-charged trade deficit with China, aided in setting this new monthly record. These figures have given fuel to the Democrats in the run-up to the mid-term elections, who argue that the Bush administration's mishandling of trade and economic issues is just another reason to give them the boot.
Former Virginia governor Mark Warner's decision not to run for president took Washington by surprise. To most minds, Warner was nicely tucked in as the Democrats' third candidate behind Hillary Clinton and John Edwards. On a political level, the decision is baffling, since Warner passed on the chance to run against the glass-jawed George Allen this year in order to seed the ground in Iowa and New Hampshire. But it appears that this is one politician who isn't using the phrase "spend more time with my family" as a euphemism.
From a global perspective, Warner's withdrawal is not that consequential, since he was a one-term governor who didn’t have any real experience in foreign policy. It does, though, weaken the pro-free trade forces in the Democratic Party, since John Edwards—who has taken to peddling the snake oil of protectionism—is the biggest electoral beneficiary of Warner’s decision to get out. The new Democratic nomination calendar of Iowa, Nevada, New Hampshire, and South Carolina favors Edwards more than any other candidate. Since he is also now the only Southerner in the race, and the clear anti-Hillary candidate, you begin to think he has a serious shot. Then again, the man couldn’t carry his own state as VP. And the real heavyweights—Obama, Gore, and Bill Richardson (a literal, if not metaphorical, heavyweight)—might not stay on the sidelines if it looks like a welterweight is Hillary's most serious competition.
With their economy still stagnant, Japanese have long eyed China's growing economic prowess with trepidation. Now, China's rise is hitting them where it really matters: the dinner table. The New York Times reported yesterday that due to the growing popularity of sushi in China, and especially of the rare bluefish tuna, Japanese are worried that they will be priced out of the market.
Now only Chinese in the coastal areas are eating sushi, or can afford to," [fish farmer Hidemi] Kumai said. "What happens when the Chinese in the vast hinterland start eating sushi?"
Mr. Kumai, who has discovered a method of farming the temperamental - and expensive - bluefish tuna, argues that farming the fish should be a "national project," because "[n]ow Americans and Chinese are eating sushi, so we can't just sit back." And that's just the kind of economic aggression that new Prime Minister Shinzo Abe is advocating.
What does the United States' closest ally in East Asia think about Iran's nuclear ambitions? With Japan's support of U.S.-led operations in Afghanistan and Iraq, it might seem unlikely that Japan would join the ranks of Russia, China, and now France in shunning broad sanctions against Iran for enriching uranium. But don't be surprised if there's a rift in the U.S.-Japan alliance: Japan, which imports almost all of its petroleum, receives about 14 percent of its oil from Iran.
While the issue of nuclear non-proliferation is very important for Japan, securing sufficient oil supplies is in the national interest," Finance Minister Sadakazu Tanigaki said in an August 23 speech to the Foreign Correspondents Club of Japan in Tokyo.
It's in this spirit that talks between Japan and Iran on a $2 billion deal to develop Iran's Azadegan oil field, one of the world's largest, are continuing, perhaps because Tehran threatened to pursue a deal with China or Russia if Japan continued to dawdle.
Even in a slow news period, it is hard to get anyone but the most focused wonk excited about global trade talks. But when the competing headlines are two wars in the Middle East, it is nigh-on-impossible. So, the death of the Doha round has received scant attention. It may seem like old news that Doha has collapsed, but on Monday night it passed the point of no return, even given the Rasputinesque qualities of trade negotiations.
The blame game is in full swing, with some rather undiplomatic language coming from all quarters. The European trade negotiator Peter Mandelson sniped that, "The United States has been asking too much from others in exchange for doing too little themselves. This is not my definition of leadership." This prompted the U.S. Trade Rep. Susan Schwab to retort that the EU's attempt to pin the blame on Uncle Sam was "false and misleading." All this buck passing leaves one wishing to roar, like Mercutio, "A plague on both your houses."
The United States is at fault for refusing to cut its absurd farm subsidies unilaterally. The Bush administration claims it wants to get rid of them, so why not do it anyway? The Europeans, meanwhile, deserve to be chastised for taking their usual approach to market access. This is all so infuriating when you consider, as The Economist points out, that the World Bank calculates that trade liberalization would grow the world economy by $287 billion and propel more than 60 million people out of poverty.
The bad news it is hard to see things getting better as U.S. politics turn increasingly protectionist and the EU thinks it's a good idea to slap quotas on Chinese bras at the slightest hint of an "economic dislocation." As the Swedish statesman Axiel Oxenstierna said back in the 17th century, "Behold, my son, with how little wisdom the world is governed."
Forget the stalled Doha round of international trade talks. The biggest trade story of the last several years will happen tomorrow, when the Japanese government is expected to announce that it will resume imports of U.S. beef. Combined with record high oil prices that are helping drive demand for ethanol, this decision means that U.S. farmers and ranchers are having a pretty good summer. Japan is traditionally the largest importer of U.S. beef, but has banned imports since 2003, when bovine spongiform encephalopathy (mad cow disease) was found in Washington state. The U.S. had threatened to smack Japan with $2.7 billion in sanctions if the ban on U.S. beef was not lifted by mid-August.
Are anti-poverty campaigners allowed to drink champagne? If they are, then I expect that John Edwards poured himself a nice glass of bubbles Saturday night. The DNC Rules and Bylaws Committee just recommended a primary line-up that gives him a great chance of nicking the nomination from under Hillary Clinton's nose.
If the DNC approves the new calendar, the Iowa caucuses will kick things off as usual, followed in quick succession by another caucus in Nevada and then primaries in New Hampshire and South Carolina. It's hard to think of a better schedule for Edwards short of his own North Carolina gaining first in the nation status. Edwards came a strong second in Iowa last time out and has made the state a home away from home since 2004. He leads the field in early polls there, which considering Hillary's name recognition are a little more meaningful than usual. Next comes Nevada, where organized labor - assiduously courted by Edwards in recent years - has a heavy presence. Edward's leading role in the union struggle to raise hotel workers' wages will have won him considerable good will there. Then it's on to New Hampshire, which isn't exactly an Edwards kind of place but neither is it friendly turf for Hillary. South Carolina ends the early stages and Edwards, who won the primary there by 15 points in '04, must be confident of winning in the state of his birth again. Indeed, a friend of the Clintons objected to South Carolina going fourth on the grounds that it was too much of a lock for Edwards. So, it's possible that, after the early rounds, Edwards could have notched up three wins before Hillary has even gotten on the score sheet.
Reading between the lines of Bush and Blair's unintentionally public conversation, you get the impression that they might have been "strategerizing" about how best to gang-up on their old adversary, Jacques Chirac. According to the Sky News transcript their exchange on the Doha Round went like this:
Bush: Who is introducing the trade
Bush: Tell her to call 'em
Bush: Tell her to put him on them on the spot. [sic]
Now, combine this with today's story in the Guardian about how Blair was looking to put renewed pressure on Chirac to cut farm subsidies and you can have a pretty good guess about who Bush wants his new best friend Angela to put "on the spot."
The other revealing exchange is when Blair makes clear that he's prepared to go to the Middle East in Condi's place because there's less pressure on him to actually broker a deal. Check it out after the jump.
The new British Foreign Secretary Margaret Beckett is on her first trip to Washington and earlier today delivered a speech that was noticeable for only glancing at Iran, Iraq, and North Korea. Instead, Beckett concentrated on the failing Doha Round—she said we are "in danger of sleepwalking over a precipice"—and climate change. But before too many Americans laud the broader understanding of world affairs that foreigners have, I should point out that the emphasis of the speech was probably as much a product of Beckett's background as trade and then environment minister as it was of principle. It was like a clever student facing an exam question they hadn't prepared for by smartly weaving all their other knowledge into the answer. This is unsurprising considering that she has only been in the post for a little over two months and hadn't been preparing herself for the role. Indeed, her first reaction when Blair offered her the job was to exclaim "F***!"
While Americans were busy barbecuing and fire-working to celebrate 230 years of independence, a couple of South American leaders got together on July 4th to celebrate a new union of their own. Argentine President Nestor Kirchner joined hands with Venezuela's Hugo Chávez yesterday to celebrate Venezuela's official entrance into MERCOSUR, South America's expanding customs union. Venezuela has now tied a knot of sorts with Argentina, Brazil, Paraguay, and Uruguay, forming an economic club that accounts for 78% of South American GDP.
Is this a move by Chávez to expand his influence south, or are his neighbors simply trying to reign him in by getting him to commit to MERCOSUR's standards on such things as tariffs, foreign relations, and conflict resolution? Or could it be a little bit of both? For now, it's a little bit of neither. Venezuela has up to four years to adopt MERCOSUR standards.
A South American version of the EU may still be a long way off, but let's not forget that the Brussels behemoth also started out as a customs union. And while South American integration is young - MERCOSUR just turned fifteen - it's moving at a healthy clip.
Commentators have been fretting about America's massive foreign debt for years. But is all that hype about America's unsustainable indebtedness just that - hype? On Tuesday, the chair of Bush's Council of Economic Advisors, Eddie Lazear, argued before Congress that history shows the US has nothing to worry about; Australia has sustained massive levels of foreign debt for decades and is still growing strongly.
Australia in particular has been running a current account deficit that has created a level of foreign indebtedness equal to about 72 percent of their GDP, whereas our foreign indebtedness was only about 21 percent of GDP in 2004. Yet, the Australian economy has been very strong and growing at robust rates over the past decades.
Though Lazear makes an interesting point, he forgot to mention that Australia and the US play very different roles in the global economy. While Australia's debt is fairly diversified, most of the US debt is concentrated in the hands of a few large treasuries - notably those of Japan and China. The US economy is strong now, but it's dependent on foreign financing. If a few of those financiers decide they don't want to fund the US debt anymore (as China is contemplating), the American economy could face a downturn.
It's always darkest before the dawn. Nowhere is this cliché more accurate than at world trade talks, as the WTO's former head Mike Moore reminded us in the FT yesterday. But even so, it is already well past five in Geneva and there is no hint of the sun yet. If an agreement doesn't come this weekend, it'll be dark out there for a very long time, as the Bush administration has little chance of getting its fast-track negotiating authority renewed.
What happens at the WTO in the next few days will be more important for development and prosperity than Live8 and Gleneagles. Sure, negotiating over the reduction of tariffs and subsidies and all the trade-offs involved does not have the concrete and emotional appeal of debt cancellation. That is perhaps why the EU and the US feel comfortable being so publicly intransigent. (The Bush administration deserves particular criticism for pulling the über competent and politically savvy Rob Portman from his role as US trade representative this spring to plug a gap on the domestic policy side.)
Maybe we need a Live8-style event to raise public consciousness of the world trade talks. Be honest, were you more than dimly aware that they were going on? That would put pressure on developed and developing countries to make the necessary concessions. Rock stars might feel a little uncomfortable about getting into bed with free traders and international bureaucrats at the WTO, but it's what will bring the dream of making poverty history and feeding the world closer to reality.
European legislation meant to combat international terrorism appears to be aiding the fight against international corporate fraud as well. Today, judges confirmed that three British bankers accused of conspiring from overseas with Enron executives will be sent to the US for trial under the UK's 2003 Extradition Act.
The bilateral legislation, introduced after 9/11 along with a spate of other security measures, was originally aimed at speeding up the extradition of British terror suspects to the US. The extradition proves, however, that the European and American governments' expanded post-9/11 authority can be used to crack down not just on global terrorism - but murky corporate networks too.
Global drug use is down this year, according to the new 2006 UN World Drug Report. While the UN Office on Drugs and Crime reported a stabilization and overal decline in the market for cocaine and other illicit drugs, its executive director, Antonio Maria Costa, warns that increased marijuana use combined with new, highly potent strains of the drug are rendering it as dangerous as heroin and cocaine. Costa criticized governments, especially the UK's, for relaxing their marijuana policies in recent years, saying that they have the "drug problem that they deserve."
This good news about the war on drugs does come with some oddities. It seems that the drug market might be the only one which flourishes both in war and peace: unrest in Afghanistan, where 89 percent of the world's opium originates, has the potential to contribute to increased production, while peace along the India-Pakistan border facilitates easier drug trafficking between the two nations.
In today's NYT, the president and the chief economist at the Fed Bank of Dallas use Foreign Policy's Globalization Index to determine if there's a correlation between how globalized a country is and how good its governance is. The conclusion:
Globalization's critics argue that a more open world economy sets off a race to the bottom by encouraging countries to jettison protections for consumers, workers and the environment. In reality, the opposite is true. If our data demonstrate anything, it is that globalization prompts a race to the top by pushing countries to abandon policies that burden their economies in favor of those that fuel growth and economic opportunity.
There's a chart that sums up their findings really well.
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