Saturday, December 23, 2006

Proposed “Green” Tax Unlikely

Source: Mandelson to reject 'green' tax proposal -

Concerns are rising in Europe that Kyoto compliance costs are putting European industry at a competitive disadvantage with the United States and other nations that have no signed the environmental protocol. As a countermeasure, French officials, supported by the EU’s industry commissioner, are proposing a “green” tax on goods from countries that have not ratified the Kyoto treaty.

Petr Mandelson, the EU trade commissioner, is quick to underscore the impracticality of the “green” tax approach for two reasons. First, such a tax would be impermissible under WTO rules; non-participation in Kyoto is not illegal and cannot be punished by trade sanctions. Second, there is a practical problem in determining which goods to tax. Mandelson provided two examples: the U.S. has not ratified Kyoto, yet some individual states have equally stringent environmental standards; on the other hand, China has ratified Kyoto, but, as a developing country, does not face the same environmental requirements. Rather than a tax, Mandelson favors positive incentives for environmental compliance, including removal of all tariffs on renewable energy and clean power generation equipment.


Are signatories to the Kyoto protocol placing their industry at a competitive disadvantage? Should nations be allowed to use tariffs to compensate for voluntarily-assumed environmental compliance costs, or is that the cost of doing the “right” thing?

Tuesday, December 19, 2006

Holiday Hiatus

Thank you very much to all of you who have supported our Blog and who enjoy reading our weekly News and Developments postings. As you might be aware, this is a student run Blog and all the postings are made by University of Iowa law students. We are currently on winter break, and as such, the Blog will be on a short hiatus until the week of January 8th, 2007.

Thank you again for reading and see you in 2007!

Happy Holidays!

Tuesday, December 12, 2006

Recent Report Highlights World Bank Downfalls

Source: World Bank Study Faults Its Work in Rural Africa

According to a recent report produced by the Independent Evaluation Group of the World Bank, the bank has “too often failed to tackle effectively the deprivation in the African countryside, home to most of the continent’s poor people.” The report stated that the bank’s aid to rural areas produced poor results in about half the 48 countries it studied.

The report concluded that the bank “tended to spread itself too thin, underestimate[s] resistance to its efforts to combat corruption and patronage, and pay[s] too little attention to ensuring that economic growth improved the lot of the poor.”

Specifically, the bank has had several shortcomings in its educational reforms, although education has been Wolfowitz’s priority since taking charge of the bank in 2005. According to the report, the bank has sought to increase education in poor countries but has paid very little attention to learning outcomes. For example, in Uganda, school attendance has rapidly increased, but currently 94 students share a classroom and three students share each textbook.

The evaluation team also found that although the bank pushed for countries’ adoption of anticorruption laws, the agencies the bank helped finance to carry out the laws had little enforcement capability.

The bank’s management seems receptive to the report and states that the bank is “now more focused on improving the management of particular public services.”

1. How should the World Bank effectively follow up on the African reforms the bank helped to implement and how much involvement should the bank have in these countries’ programs after such implementation?

2. Should the bank practice a “hands-off” approach once their funding is used to implement the programs? Or, should the bank remain heavily involved throughout the process to ensure that the programs produce the desired results?

Friday, December 08, 2006

Oil Company Leaves Peru; Is it Part of a Larger Trend?

Sources: Houston Chronicle, Occidental Washes its Hands of Peru; International Herald Tribune, Amazon Indians Say US Oil Company Should Clean Up Waste.

Los Angeles-based Occidental Petroleum Corporation announced on December 6 that it will abandon its search efforts for oil and natural gas in the remote jungles of Peru. The company sold its pumping operation to the Argentine company Pluspetrol in 1999, but even though it is not presently producing petroleum in the country, it still holds drilling rights for more than six million acres.

The company claims that its move to leave the area is purely business motivated, enabling it to focus more on its Middle Eastern and North American operations. Global energy analysts, however, believe that the decision to leave Peru is reflective of the changing political climate over the control of natural gas resources in South America, citing the governments’ control over such resources in Bolivia and Ecuador and the increasing percentage of earnings that companies are shelling out to Latin American states. In fact, in May 2006, Ecuador’s government seized Occidental’s oil operations in that country, and Occidental is still contesting that move. Given these recent events, analysts posit that oil companies such as Occidental simply are not willing to “continue to fight against a trend of nationalization that’s just going to cause them a lot of headaches.”

For many indigenous advocates Occidental’s move is a great victory, and they hope that “[b]y announcing their decision to withdrawal entirely from Peru, Occidental is setting precedent for the oil industry.” The battle with the company is not over, however, as indigenous leaders are now calling for the company to engage in extensive environmental clean-up. Leaders of the Achuar indigenous community say that Occidental has degraded the environment for the past thirty years and now must recognize its role in its restoration. The company must be held liable for its “toxic legacy,” the non-profit group Amazon Watch stated. Occidental claims that responsibility for the clean-up is with Pluspetrol as part of the 1999 purchase agreement.


(1) What are some of the reasons against allowing oil companies to contract away their liability for environmental clean-up? Are their legitimate business reasons for allowing companies to do so, even at the expense of the people their company affected?

(2) Is Occidental's move indicative of a larger hesitancy on the part of oil companies to work in the region? What are some of the benefits of having Latin American or national companies control the oil reserves in Peru?

Monday, December 04, 2006

Update: The dollar's wild ride on the global currency seesaw

International Herald-Tribune: “Currencies: Dollar seen digging itself into deeper hole on rates”
Reuters: “Dollar little changed after selloff”
International Herald-Tribune: “Little risk for the U.S. as the dollar weakens”

Reports are mixed. The dollar continues its ride on the global currency seesaw. The dollar is bouncing back…the dollar is digging itself into a hole…speculators may buy dollars despite last week’s fears of a selloff to take advantage of typically low December values…a declining dollar is not necessarily a bad thing…

Despite conflicting views about what recent currency fluctuations mean, most reports agree that future market behavior with respect to the dollar depends on whether the Federal Reserve moves to cut interest rates to stave off inflation as expected…and whether the European Central Bank (ECB) raises rates in response to the surging euro. Another key factor is the U.S. Department of Labor’s monthly jobs report, which is expected to show a rise in November hiring, a good sign for the U.S. economy among the host of indicators showing continued slippage (e.g., the continuing trade deficit, dips in the housing market, and decreased output by manufacturing interests).

For an idea of what the actual numbers look like, here are some key currency valuations from this morning (December 4, 2006) in New York:

“The euro traded down 0.01 percent [against the dollar] to $1.3329, off an earlier 20-month low of $1.3367…[and] hit a record high above 154.10 yen before falling back to 153.78. The dollar was steady at 115.35 yen after hitting a four-month low below 115 on Friday.”

From a lay perspective it is interesting, if not utterly confounding, that the variations in value at the heart of all this speculation amounts to fractions of a cent on the dollar. However, it is important to keep in mind that what seems miniscule on a micro- level adds up on the macro- level. Fractions of cents on the dollar (or euro, or yen) must be considered in light of all the dollars (or euros, or yen) in circulation. It adds up.

Consider: The dollar has dropped 11% thus far in 2006. Nearly 4% of that fall occurred in the last two weeks. Is this good or bad? It depends. A dollar that falls too quickly and too far is dangerous for the U.S. economy, but a dollar that is weaker against the euro and Asian currencies could help with the U.S. trade deficit and by extension the nation’s currently faltering economy.

For perspective, note that the ECB doesn’t want the euro to climb too high. Strong exports--driven by a lower-valued currency—are considered by many to have been the key to the burgeoning EU economy. The moral: seek moderation in all things, especially currency values.


1. Even with a reasonably weaker dollar in relation to European and Asian currencies, the U.S. plan to improve exports and decrease the trade gap is undercut by the fact that the Chinese yuan is still pegged to the dollar. Given that China is a major U.S. trading partner and competitor, how will the U.S. be able to benefit from a weaker dollar if China does not revalue its currency?


See December 1, 2006 "Notes & Developments" posting, "U.S. dollar ahead in global currency limbo..."

Sunday, December 03, 2006

EU partially halts talks with Turkey

Source: EU to 'part freeze' Turkey talks - CNN

Citing Turkey’s failure to open its ports, the European Commission recommended this past week to partially suspend talks (8 of the 35 policy areas composing the talks are to be suspended) with Turkey regarding its possible membership in the EU. It additionally said that no policy area talks will reach resolution until Turkey followed through on its commitments to open its ports to traffic with Cyprus.

A senior EU official said a strong message needed to be sent to Turkey that it needs to meet its obligations; EU foreign ministers will make the ultimate decision on December 11th when they convene. Unfortunately, experts believe the Commission’s move will fail to sway Turkish officials on their stance against Cyprus.

Analysts in Turkey fear that suspension of talks will negatively affect the reform process in Turkey. Turkey offered to open its ports to Cyprus contingent on the EU pledging to put an end to the economic isolation faced by Turkish Cypriot in northern Cyprus – that isolation being chiefly caused by the Greek Cypriot government in Nicosia.


- Will a failure of Turkey and the EU to reach a compromise on the issue over Cyprus cause more instability in the region?

Saturday, December 02, 2006

Economic Growth Outlook 2007 is Grey for South Korea

Sources: South Korea Braces for Slowdown, 2007 Growth Outlook Dimmer on Weak Demand, South Korea May Cut Down Growth Target for 2007 on North Korea Risk

The Organization of Economic Cooperation and Development is predicting a slow down in South Korea's economic growth in 2007, blaming it mainly on a slump in private spending and exports. The report states that weak corporate earnings has led to lower bonuses and sluggish private spending since the middle of 2006. The predicted growth rate is 4.4% for next year, down from 5% this past year. The Vice Finance and Economy Minister Bahk Byong-won reported that the job growth rate has not been as fast as expected coupled with a disappointing gross national income growth rate, which altogether contributes to a grey outlook for consumption rates in the near future.

Of course, the biggest grey cloud over South Korea's economic health for the New Year has been the nuclear stand-off with North Korea. Economists had said that uncertainty and concerns that North Korea could be preparing for a second nuclear test could dampen the business outlook to the extent of having a negative impact on the overall economy. Due to these and other unexpected factors, the Finance Minister has had to revise and downgrade his economic growth target and forecast to reflect the new pessimism that has taken hold of the nation since the nuclear issues first made news.

However, some analysts are looking to several factors that may help South Korea make this slump short-lived. For example, decreasing oil prices and a stabilized exchange rate will help corporations to cut back on losses. In addition, Korea's increasing focus on information technology technology and communications products along with its trading ties with China may help speed up the exporting rates.


1) What measures can South Korea take to better brace itself in the case of increasing intensity in the nuclear conflict with North Korea?

2) How can the government help businesses to pick up and also encourage domestic spending? Should it implement strategic budget spending or tax incentives to these ends?

3) Have the sluggish U.S. economy and the increase in global interest rates also played a part in the economic slow-down of South Korea? In what way?

Islamic Development Bank Poverty Alleviation Fund to Help African Countries

Source: Islamic Bank proposes $10bn poverty fund -

Recently, the Islamic Development Bank (IDB) announced that it was setting up a Poverty Alleviation Fund totaling ten-billion-dollars.

This fund will be used to alleviate poverty in the Organisation of Islamic Conference (OIC) member countries, especially Africa. Kuwait and Saudi Arabia have already pledge 300 million and one billion dollars respectively to the fund. The balance will come from other member countries.

The fund should be up and running by the middle of 2007. And the fund will be operated within the framework of the Millennium Development Goals (MDGs) targets. Special focus will be on primary education, health (including malaria and HIV/AIDS), infrastructure, and agriculture. In addition, the fund will be targeted to micro-finance, small businesses and emergency assistance, recovery and reconstruction.

The IDB has annually committed over four billion dollars for development projects and since its inception in 1975, the bank has approved more than 50 billion dollars for development needs.


How can the IDB ensure that the fund is used to achieve the MDGs?

Africa May not Meet Millenium Development Goals

Source: Annan calls for concerted efforts at Africa's development -

Busumuru Kofi Annan stated on Thursday that even though Africa has come a long way the continent as a whole is falling behind in the race to reach the Millennium Development Goals (MDGs). Annan stated that developing countries, international donors and the United Nations must pitch in together to enable these goals to be met.

The MDGs aim to eradicate a number of social ills. The goals include a fifty percent reduction in poverty and hunger, universal primary education, increased gender equality, a two-thirds reduction in child mortality, a reduction in the incidence of malaria and HIV/AIDS, and a fifty percent reduction in the number of people who do not have access to drinkable water. All of these goals are to be accomplished by 2015.

Annan stressed the importance of the developing countries themselves living up to their commitments. He stated that the way to accomplish this is for these countries to adopt specific comprehensive national strategies and implement them.
However, Annan also noted that developed and middle-income countries need to be involved as well. According to Annan, where developing countries have adopted such strategies, developed and middle-income countries need to live up to their commitments to help with the implementation and success of such strategies.

Friday, December 01, 2006

Angola Seeks Membership in OPEC

Angola Set to Join OPEC Oil Group
Oil Helps Angola but Poverty Rife
Angola Angles for OPEC Membership

Angola has approved a plan to join the Organization of the Petroleum Exporting Countries (OPEC). OPEC is an international organization made of eleven oil producing nations. Its mission is to "coordinate and unify the petroleum policies of member countries; and to ensure the stabilization of oil prices in order to secure an efficient, economic, and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital to those investing in the petroleum industry." OPEC’s eleven current members are Algeria, Indonesia, Iran, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, Venezuela, and Iraq. Angola would be the first country to join OPEC since 1971. The country hopes to join by March 2007, a move that may counter Middle East control of the organization.

Angola is sub-Saharan Africa’s second biggest oil exporter, behind Nigeria. In 2005, Angola’s oil revenues boosted the country’s economy by 18%. The country now produces 1.4 million barrels of crude oil per day and is expected to produce even more next year.

Angola believes that membership in OPEC will give the country more influence on the world stage. Joining OPEC, which should be a formality, will also boost the prestige of Angola’s President, Jose Eduardo dos Santos.

Angola is trying to rebuild its economy four years after the end of civil war that last 27 years. Most people survive on $2 per day. Angola’s economy is highly concentrated in a few sectors. Apart from oil, construction, distribution and diamonds, other commercial activity is limited. The IMF has previously requested that Angola improve transparency regarding its oil sector.

Question: Should Angola join OPEC or remain independent, as Washington urges?

Chinese Migrant Workers Causing Paranoia Among Russians

Sources: Fears Grow of Chinese Entering Russian East, Diplomats Talk After Migrant Brawl in Russia

In 2000, President Vladimir Putin warned that if the migrants from east asian countries kept flowing into Russia for work at high rates, then it would just be a matter of time before large parts of the population of Russia would be speaking Japanese, Chinese, and Korean. These fears are being voiced during a time when Russia and China have been working diligently on forming closer ties. In the past few years, their relationship has improved by an economic inter-dependence: China is a main supplier of weapons to Russia and Russia has promised to build gas and oil pipelines to supply China. Yet it has become a common fear among Russians these days that the Chinese are flooding into Russia's sparsely populated areas by the millions.

Recent studies have shown, however, that in fact almost twice as many Russians are granted visa by China than the other way around. This indicates that what some have perceived as a great influx of Chinese into Russia is actually a problem of declining population due to Russians leaving. Russian leaders have identified the far east areas of Russia has having problems retaining their populations because of a lack of business development, among other things. At the same time, Russia has recognized that the Chinese who are living and working in these areas are vital to their economies. Chinese traders set up giant markets where they sell to the Russians every kind of good imaginable. The Russians who employ them for wages much lower than they can get their fellow Russians to work for value these Chinese workers highly. In any case, the seemingly high ratio of Chinese to Russians in these areas have been a cause for much tension between the migrant workers and Russian police. Russian police often harass the Chinese workers, who must bribe them with money and favors. There have also been break-outs of fights and riots between Chinese workers and Russian police. The situation has given birth to a paranoia on the side of the Russians, whose leaders vow that "Chinatowns" in Russia will not be tolerated.


1) One of the major worries that Russians have of this situation is that it seems the Chinese are able to reap benefits from it to a much greater extent than the Russians. What kind of deals can Russia make with China so that it can increase its benefits as well? What is it about the infrastructures if each country that lends to a one-sided gain?

2) Who would suffer more between the two countries, and in what way, if Russia were to limit the influx of Chinese migrant workers?

3) How can the Russian government calm the reactionary nationalism the country is experiencing as a result of this tension with China before it stokes violence, or else channel it in a way that can be productive?

Meltdown in Mexican Congress ends with inauguration

AP: "Mexican legislators brawl before inauguration"
Univision: "Calderon asume presidencia de Mexico"

Politicians in general—and legislators in particular—are often cast as corrupt, out-of-touch, self-interested, and boring. However, it is not entirely unusual for the legislative arena to become rather heated...and anything but boring.

Fistfights have erupted in a number of national legislative bodies around the world throughout history. Included among these are two instances in the United States (in 1856 and 1902, both involving members of the South Carolina delegation) and more recent occurrences in the Ukraine (in 2005 over WTO reforms), Zimbabwe (in 2004 during debate), and Taiwan (in 2003 over national defense funding).

The most recent parliamentary brawl to take place occurred in Mexico City. The catalyst: the much-contested impending inauguration of President-elect Felipe Calderon. The 3-day parliamentary breakdown was only the latest culmination of controversy surrounding Calderon since his narrow victory over leftist candidate Lopez Obrador.

Legislators opposed to Calderon began the standoff n Congress—an attempt to prevent the inauguration—which deteriorated into a series of scuffles between opposing party members. Calderon was eventually inaugurated in a short and stealthy proceeding before the Congress, as required by the Mexican Constitution.

Those opposed to Calderon fear that he will seek to privatize Mexico’s nationalized oil industry. The subject is a sensitive one because the nationalization of the nation’s oil resources in 1938 is a point of national pride in Mexico. The formation of PEMEX (Petroleos Mexicanos) is celebrated by Mexicans as a victory in ensuring that Mexico would control – and enjoy the benefits of – her natural resources. An amendment to that effect was also added to the Mexican Constitution in 1960.

If a major goal of the opposition to Calderon is to ensure that Mexico’s oil industry is not privatized, do you believe the parliamentary standoff was effective in demonstrating that Calderon lacks the imprimatur of the political machine—as well as the Mexican people—in any privatization scheme involving PEMEX?

U.S. dollar ahead in global currency limbo...

Globe and Mail: “Struggling U.S. dollar triggers currency concerns”

FOX News: “Dollar Continues Swoon After Weak Economic Data”

It’s not a game any currency wants to be winning, but the United States dollar appears to be showing the world “how low it can go.” The dollar is currently at a 14-year low against the British pound and a 20-month low against the euro.

The Institute for Supply Management (ISM) released its survey of national manufacturing interests in the U.S., confirming a continued slowdown in the U.S. economy. Analysts reported that European currency is an increasingly attractive investment these days and that the prevailing mentality is not only to avoid buying dollars, but to sell.

Reports also indicate that China, an increasingly powerful player in global financial markets, may have played a role in the recent and sudden weakness of the dollar by indicating last week that it may begin liquidating its $1 trillion investment in U.S. dollars based on fears that holding so many dollars—China is the single biggest investor in U.S. currency—is not a “winning” investment strategy. In anticipation of such a move by China, Russia, Middle Eastern nations and other investors in the dollar have already announced plans to cut their holdings of the currency.

While China has yet to act or announce plans to liquidate dollar holdings, the possibility and its potential repercussions have made investors nervous. One outcome looming should China follow through on a dollar-dumping strategy: The dollar will plummet, as will the Chinese yuan, which is still “pegged” to the dollar. Other currencies (e.g., the euro, pound, yen) will rise accordingly. Some analysts fear that in the long-term this situation could lead to “trade chaos.”

The lead player in this problem is the United States, a wealthy, developed country that appears to be having fiscal problems resulting in drops on currency value that are further exacerbated by concerns about the wisdom of continued investment in the currency.

While institutions like the International Monetary Fund (IMF) traditionally provide aid and advice to developing countries, it is arguable that the U.S. is—or will be at some point in the not-so-distant-future--in need of fiscal policy advice to resurrect and/or stabilize the dollar.

Are the IMF and World Bank capable of addressing and/or responding to global trade and monetary issues that find their source in a developed country?

How amenable would the United States be to accepting advice regarding fiscal policy from the IMF and/or World Bank?

Does the United States already exercise too much control over these institutions—politically and financially—to be able to benefit from the expertise they provide to less entangled nations?

Given the effect that financial destabilization of the U.S. would have on global trade, what role should other nations--or international organizations--play in ensuring that the current situation does not grow worse, escalating into long-term "trade chaos"?