China's Investment and Trade in South Asia

The Chinese Prime Minister Mr. Wen Jiabao is on state visits to both India and Pakistan to grow his country's invesment and trade. He has signed deals worth $16 billion in trade with India, and $35 billion in trade and investment with Pakistan this month.

China is now India's largest trade partner, with bilateral trade expected to reach $60 billion during this fiscal year ending March 31, 2011. On Thursday, the two countries set a target for bilateral trade to reach $100 billion by 2015. The bulk of Chinese exports are financed by Chinese banks on attractive terms. And China has invested significantly in many parts of the world including South Asia, more in Pakistan than it has in India.



China is Pakistan’s third largest trading partner with $7 billion in trade in 2009, after the United States and the European Union, while Pakistan is China’s largest investment destination and second biggest trade partner in South Asia.

Currently, China enjoys two-to-one trade advantage with both South Asian nations, with China exporting twice as much as its imports. This large and growing imbalance stems from the fact that India and Pakistan import high-value manufactured products like power generation and telecom equipment from China, while India's biggest export to China is iron ore, and Pakistan's main export to China is cotton yarn.

The Chinese delegation to India and Pakistan was larger than the number in delegations led in recent weeks to India by US President Barack Obama (215), French President Nicolas Sarkozy (more than 60) and British Prime Minister David Cameron (about 40), according to a BBC report. For his Pakistan visit, Mr. Wen was accompanied by dozens of corporate chief executives and 250 business leaders—many of whom were also present during the Chinese leader's visit to India earlier this week, during which he announced economic deals aimed at stabilizing a fragile relationship with New Delhi, according to Wall Street Journal.

India and China signed some 50 deals in power, telecommunications, steel, wind energy, food and marine products worth $16bn at the end of a business conference attended by Mr Wen in the capital, Delhi, on Wednesday evening.

This overtakes the $10bn of agreements signed between Indian and American businesspeople during the recent visit of US President Barack Obama.

In Islamabad, Pakistan, the Chinese Premiere has signed 45 agreements worth $35 billion in just the first two days of his three day visit, approaching the total value ($40 billion) of all of India's agreements signed with China, US, France and Britain during their leaders' recent visits to New Delhi.

Pakistan and China Saturday signed 22 new trade agreements, worth $15-billion, aimed at deepening strategic and economic toes between the two countries, officials told media covering the visit.

These come on the top of another 13 agreements worth around $20 billion signed Friday after bilateral meetings.

The fresh deals were inked at a business summit addressed by Chinese Premier Wen Jiabao and his Pakistani host Prime Minister Yousuf Raza Gilani and attended by business representatives from the two nations.

Gilani said that the corporate and business sectors of both countries must now seize business opportunities offered by Pakistan and take the lead.

Wen urged the investors from his country to invest in Pakistan and help build the economic ties with the traditional Chinese friend.

"We have strong political relations and now we are building economic ties, which can witnessed from the fact that trade has risen from $1 billion in 2000 to $7 billion by 2009," he said.

The state-run Pakistan Television (PTV) said the agreements are expected to bring $25 billion in investments and double the bilateral trade to $15 billion by 2015.

Through their huge investments in Africa and significant commitments in Afghanistan and Pakistan, the Chinese have shown the extraordinary capacity to see great opportunity where others see large risks.

The Chinese know how to do good and do well. They are clearly demonstrating by Mr. Wen's Pakistan visit what they like to call their "all-weather friendship" with Pakistan. The marked shift in focus of this relationship from mostly defense-related deals to broad commerical ties is particularly welcome, given the rise of China as the world's second largest economy after the United States, and a major lender, investor and trading partner of the United States and the European Union.

The positive impact of China-Pakistan business relationship will only be achieved by full implementation of these agreements. Let's hope Pakistanis hold their end of the bargain to realize the full potential of economic ties with the world's fastest growing and the second largest economy.

Related Links:

Haq's Musings

China Signs Power Plant Deals with Pakistan

Soaring Imports from China Worry India

China's Checkbook Diplomacy

Yuan to Replace Dollar in World Trade?

China Sees Opportunities Where Others See Risk

Chinese Do Good and Do Well in Developing World

Can Chimerica Rescue the World Economy?

Food, Fuel Inflation Hits India; Primary Price Index Up 15%, Credit Expansion Up 23%

Soaring Chinese Imports and Twin Deficits Worry India

India is continuing to run large current account and trade deficits. India's trade deficit was an estimated $86.6 billion in April- January 2009-2010, according to media reports. The Reserve Bank of India said the nation's current account deficit widened to $29.8 billion in fiscal 2009, compared with a deficit of $17 billion in prior year.

The nation’s capital account continued to be negative for the second quarter in a row. The gauge of investment flows into and out of the country showed a shortfall of $4.44 billion in the three months to 31 March, compared with a net inflow of $26.5 billion a year earlier, RBI said.

India's government has sent letters to the country's telecom companies ordering them not to buy equipment from Huawei, ZTE, and several other Chinese companies due to security risks, according to a report in Businessweek. A few weeks ago, the Wall Street Journal reported that there was a similar move by Delhi to limit China's growing role in building India's power sector.

Growing Chinese Imports:
India's imports from China expanded 19 per cent and stood at US$ 32.49 billion in 2008-09, while exports were at US$ 9.35 billion. India's trade deficit with China is expected to grow larger this year, a trend India considers alarming given the nature of imports that go into India's essential infrastructure of power generation and telecommunications networks.

Power Sector:

Chinese are now supplying equipment for about 25% of the new generating capacity India is adding to its national grid, up from almost nothing a few years ago. There are thousands of skilled Chinese expatriates at Indian plant sites, along with Chinese chefs, Chinese television and ping pong.

Telecom Sector:
India is already the biggest export market for China's two leading telecom equipment manufacturers, Huawei Technologies and ZTE, as both companies have focused on India in recent years. As India has grown to the world's No. 2 mobile phone market in recent years, its imports of Chinese handsets have soared.



Unlike China, India lacks the necessary industrial and manufacturing base for greater self reliance in infrastructure equipment and defense armaments. India also runs large current account deficits while China is enjoying large surpluses strengthening its economic position in the world.

Defense Equipment:
India is overwhelmingly dependent on foreign imports, mainly Russian and Israeli, for about 70 per cent of its defense requirement, especially for critical military products and high-end defense technology, according to an Indian defense analyst Dinesh Kumar. Kumar adds that "India’s defense ministry officially admits to attaining only 30 to 35 per cent self-reliance capability for its defense requirement. But even this figure is suspect given that India’s self-reliance mostly accrues from transfer of technology, license production and foreign consultancy despite considerable investment in time and money".

On the same theme, Russian newspaper Kommersant reported that "India has had little success with military equipment production, and has had problems producing Russian Su-30MKI fighter jets and T-90S tanks, English Hawk training jets and French Scorpene submarines."

On India's perennial dependence on imports, here's how blogger Vijainder Thakur sees India's loose meaning of "indigenous" Smerch and other imports:

"The Russians will come here set up the plant for us and supply the critical manufacturing machinery. Indian labor and technical management will run the plant which will simply assemble the system. Critical components and the solid propellant rocket motor fuel will still come from Perm Powder Mill. However, bureaucrats in New Delhi and the nation as a whole will be happy. The Smerch system will be proudly paraded on Rajpath every republic day as an indigenous weapon system.

A decade or so down the line, Smerch will get outdated and India will negotiate a new deal with Russia for the license production of a new multiple rocket system for the Indian Army.

China will by then have developed its own follow up system besides having used the solid propellant motors to develop other weapon systems and assist its space research program."

India does export some armaments but its modest record of producing and exporting weapon systems is evident from the fact that India’s defense annual exports averaged only US$ 88 million between 2006-07 and 2008-09. By contrast, Pakistan exported $300 million worth of military hardware and munitions last year.

Alternatives:

India is looking for alternative sources for critical imports to reduce its dependence on the Chinese and Russians. But it faces an uphill task with Chinese imports in particular. China has become the biggest and the most efficient factory for the world's largest American, European and Japanese companies. Even if it does manage to find non-Chinese sources, India will have to pay much higher prices for such imports. And these imports may still contain crucial Chinese components which dominate the international supply chain for most non-Chinese companies, continuing its dependence on the Chinese.

On the defense side, India has begun to diversify away from Russia. Israelis have become major suppliers to India, and the US and Europeans are now bidding to sell military hardware to India. Both Israeli and Western equipment carries significantly higher price tags than imports from Russia.

Summary:

In spite of Gandhi's Swadeshi movement and Indian policy of developing self-reliance, the nation remains heavily dependent on imports from China for its critical infrastructure, and its growing appetite for weapons systems on Russia and Israel. These growing imports are fueling India's current account deficits, and adding to its paranoia with regard to the rise of China. In response, Indian government is acting to reduce dependence on Chinese imports, a move that will likely to add further to its trade imbalance because of the higher costs of imports from non-Chinese and non-Russian sources.

Related Links:

India-Israel Military Relations

Pakistan's Military Production

BRIC, Chindia, and the "Indian Miracle"

India's "Indigenous" Weapons

Pakistan's Telecom Boom

India's Growing Defense Budget

Yuan to Replace Dollar in World Trade?

A series of Chinese government policy changes are enabling Asian companies to settle trades with their Chinese counterparts in renminbi, according to Risk.net website. And increased intra-Asian trading volume may lead Beijing to also consider allowing other trade-related insurance and derivatives denominated in renminbi to be done offshore, according to bankers and regulators in Hong Kong.

Although it is still very early, the Chinese move aims for its currency to join the US dollar and EU's Euro as a major trade and reserve currency. A key hurdle that the Chinese need to cross is the full convertibility of the yuan into other major currencies. Beijing is beginning to get around the convertibility issues by signing currency swap agreements with several of its trading partners, including Argentina, Indonesia, India, Japan, Pakistan, Russia and South Korea. The agreement requires that the central banks of the partner countries have adequate deposits of each others’ currencies. These countries will eventually be able to use the Chinese currency for deals between each other.

It has long been recognized that the US dominance in global affairs is at least partly attributable to the US dollar as the world's biggest reserve and trading currency. Nearly two-thirds of the world's central-bank reserves are denominated in US dollars, according to data from the International Monetary Fund. The euro accounts for about a quarter -- up from 18% when it was introduced in 1999, but less than its predecessor currencies' share in 1995. Because the U.S. is such a huge trading partner for so many countries, the reserve buildup isn't easily unwound.



According to the Wall Street Journal, the dollar is also deeply entrenched in world trade. Businesses lower their transaction costs by dealing in a common currency. More than 80% of exports from Indonesia, Thailand and Pakistan are invoiced in dollars, for instance, according to the latest figures available in research by the European Central Bank, although less than a quarter of their exports go to the U.S.

Taking a page from the history of US rise in the last century, the Chinese efforts on currency appear to be only the first part of its larger push to assert its status as a new superpower of the twenty-first century. In a piece interestingly titled "It’s China’s World. We’re Just Living in It" in the latest issue of Newsweek, the authors argue that the Chinese are looking to reshape the world with China at its center. The larger plan includes the creation of a new framework with a new set of international institutions through which the Chinese can exercise their power.

While many nations want to change at least part of their reserve holdings from US dollars to euros or other alternatives, they know if they sell a significant share of their dollar reserves, it would weaken the dollar's value. That would potentially hurt their own trade competitiveness, and push down the value of their remaining dollar reserves. If they keep the dollars, a buildup of unwanted assets would only mount.

Beijing holds $2 trillion in dollar assets, accumulated through years of exports to America and massive purchases of Treasuries by the Chinese government, according to Businessweek. One way they can reduce their exposure to dollar assets over time is to shift their reserves from long-term Treasuries into shorter-term U.S. bonds. That shift would give the Chinese more flexibility in easing away from the dollar. The New York Times reported recently that the Chinese seem to be maintaining dollar-asset ownership levels, but shifting their holdings into maturities of a year or less—something they have not previously done.

"There is no alternative to the dollar as a trading currency in Asia," Andy Xie, a Hong Kong-based economist told the Wall Street Journal last year. "Eventually, the renminbi [yuan] will replace the dollar in Asia, perhaps in our lifetime. But it will take at least 30 to 40 years."

Here's a similar opinion issued recently by Moody's Investor Service on the status of US dollar as global reserve currency:

Recent speculation about the future of the dollar as the world's reserve currency is, in Moody's view, unfounded. Despite the US's external deficits and dollar depreciation, we believe that the likelihood of the dollar losing its prominent role as a reserve currency remains very low for at least the next three to five years: Regardless of the current state of US public finances, the economic and political factors underpinning the dollar's reserve currency status are still aligned in favour of the dollar and are likely to remain so for some time. There are no plausible alternative currencies that are ready to take the US dollar's place as the global reserve currency. We do not consider the Chinese renminbi and the IMF's Special Drawing Right (SDR) to be credible alternatives. Inertia and the interconnectedness of financial markets, not to mention the size of the global market for dollar-denominated debt, highlight the difficulties of a global switch from the dollar to another currency...



As China begins to surpass America as a major trading partner of many of the largest economies, it has growing economic clout in the world. But the key question is: Can the Chinese come up with their version of Bretton Woods—a system of political and economic public goods that have benefited not only the United States, but the key US allies as well? Only time will tell.

When the 20th century began, the U.S. was already the world's biggest economy, but the British pound still accounted for nearly two-thirds of official foreign-exchange reserves held by the world's central banks. The dollar didn't become the dominant currency until after World War II. Even then, some commodities still traded in pounds: The London sugar market didn't jettison sterling for a dollar-denominated trading contract until around 1980. The history lesson here is that, while the reserve and trade currencies can and do change, it takes a significant re-architecture of the world economy and trade and significant amount of time for it to happen.

The signing of currency swap agreements with several of its trading partners, including Argentina, Indonesia, India, Japan, Pakistan, Russia and South Korea, is a good start for China. But it will take many decades for yuan to displace US dollar after China becomes the world's largest economy around 2040.

Here's a video clip of NYU's Professor Nouriel Rubini's prediction on yuan:



Related Links:

China's Checkbook Power

Godfather's Vito Corleone: A Metaphor For Uncle Sam?

The Future of US Dollar as Reserve Currency

Bretton Woods

China's Growing Role in Afghanistan and Kashmir

China Sees Opportunities Where Others See Risk

Chinese Do Good and Do Well in Developing World

Can Chimerica Rescue the World Economy?

China Asserts its Role as Global Leader

The world's GDP in 2009 will shrink for the first time since WWII, according to the World Bank. Poor developing nations will be particularly hard hit with a shortfall of $270 billion to $700 billion, which will set them back by many years. Many of these nations are looking for help from the traditional donors in the West. But the West itself is preoccupied by its economic woes, with tent cities popping up all over the United States as home foreclosures rise.

According to the latest estimates of the World Bank, almost 40 percent of 107 developing countries are highly exposed to the poverty effects of the current economic crisis, less than 10 percent face little risk and the remainder are moderately exposed. Bangladesh, India, Nepal and Pakistan are ranked among the 43 countries most exposed to poverty risks, raising the horrible specter of further political instability and dangerous social strife in a very important region of the world.

As one of the developing nations facing a serious economic crisis, Pakistan has received International Monetary Fund's commitment of $7.6 billion rescue package. But it needs more help. China refused cash aid to Pakistan during last month's China visit by President Asif Ali Zardari to seek financial assistance. At the time, many press reports inaccurately said that Zardari returned empty handed.

Instead of cash aid, the Chinese offered $450 million to Pakistan as suppliers’ credit for Neelum Jhelum Hydroelectric Project during Zardari's visit. China and Pakistan also signed specific agreements to help Pakistan on a number of other water and power development projects. Prior to these agreements, China has been helping Pakistan in many infrastructure projects such the Gwadar port and a number of nuclear power plants. Looking at how the Chinese are working with many developing nations in Asia and Africa, it appears to be an unwritten Chinese policy to offer trade and investment in projects rather than direct cash aid. Given the rampant government corruption in many developing nations, including Pakistan, the Chinese policy is a sound one. It attempts to benefit the people and the nation more than the corrupt politicians and government officials who they must deal with.

The Chinese government recognizes the crucial role it must play to lead the world out of the current economic crisis. Not only has it announced significant stimulus spending, it is also continuing to lend to the United States to help in America's recovery back to health. Together, the US and China have become the twin locomotives pulling the global economy. The combined behemoth of China and America has been labeled by Harvard business school professor Niall Ferguson as "Chimerica". Ferguson believes "we are living through a challenge to a phenomenon Moritz Schularick and I christened “Chimerica.” In this view, the most important thing to understand about the world economy over the past decade has been the relationship between China and America. If you think of it as one economy called Chimerica, that relationship accounts for around 13 percent of the world’s land surface, a quarter of its population, about a third of its gross domestic product, and somewhere over half of the global economic growth of the past six years."

Along with helping the US economy recover, China has a unique position and policy to help the developing world at the same time. Not only does the West have the white man's colonial baggage to contend with, the western view of Africa is one of wasted aid and growing poverty. This view holds that, if Africa generates any kind of growth, it is in suffering—and in the overseas aid sent to address that, now a $40-billion-a-year industry, according to Time Magazine. Naturally, with a new appeal every year and a new disaster every other, some people are feeling donor fatigue. They have begun to wonder if all that money is doing any good. They argue that aid creates dependence, fuels corruption, undermines democracy and stifles development in Africa and some of the poor underdeveloped nations in Asia and Latin America.

Learning from the western experience, the Chinese have sought to avoid fueling the culture of corruption and dependence by staying away from cash hand-outs. Instead, the trade between Africa and China has grown an average of 30% in the past decade, topping $106 billion last year. Chinese engineers are working across the continent, mining copper in Zambia and cobalt in the Democratic Republic of Congo and tapping oil in Angola, according to Time. Nor is this merely exploitative. China bought its access by agreeing to create a new infrastructure for Africa, building roads, railways, hospitals and schools across the continent. The current economic crisis is not expected to affect China's march in Africa: on the contrary, with the West's plans in Africa on hold at best, Beijing views it as an opportunity to extend China's lead. "We will continue to have a vigorous aid program here, and Chinese companies will continue to invest as much as possible," Chinese Foreign Minister Yang Jiechi said in South Africa in January. "It is a win-win solution." Dambisa Moyo, who wrote Dead Aid, says those who need convincing about Africa should ask themselves if they are convinced about China, "because if you back China, you're backing Africa." Ecobank CEO Ekpe says part of the explanation for China's zeal for Africa is a new way of looking at Africans. "[The Chinese] are not setting out to do good," he says. "They are setting out to do business. It's actually much less demeaning."

Clearly, the Chinese objectives are not entirely altruistic. Their strategy is driven by enlightened self-interest in the developing world, which they see as source of commodities that their industries need as well as growing export market for their products and services. But the Chinese want to do good and do well at the same time by helping to lift people out of poverty in the developing world. By doing so, they want to be seen as friends and partners by the people in Asia, Africa and Latin America. The strategy enhances China's status as the new superpower that takes its global leadership role seriously.

Is India Responsible for Demise of Doha?

India led the charge to kill Doha, say the western government officials and commentators about the failure of the latest round of World Trade Organization (WTO) talks in Geneva to conclude a wide ranging agreement on world trade. Backing India's demands, including right to impose food import tariffs and end to agriculture subsidies in US and Europe, were Brazil, China and other developing nations in Asia. Africans were angry that their trade issues, particularly cotton, were not even discussed as the negotiators from developing giants fought pitched battles with their counterparts in developed nations.

"The way the Doha Round collapsed is a preview of what we're likely to see in other negotiations," said Kimberly Elliott, a senior fellow for the Center for Global Development, a Washington think tank, told the Wall Street Journal. "Emerging markets [such as China and India] are taking a big role," she said, sometimes elbowing out even poorer nations. Other important multilateral negotiations underway include carbon emission reductions which are likely to see similar discord between developed and developing nations.

By all accounts, the key reason for the Doha collapse was the failure to reach agreement on agriculture tariffs by developing countries and farm subsidies by US and Europe. Both sides were looking to protect their farmers from the downside of free trade. To learn more about the political power of US corporate farm lobby, please read my recent post "The US Food Aid and the Farm Lobby". Neither side could muster the courage to face the wrath of their powerful domestic lobbies in reaching a comprehensive agreement that would dramatically increase trade for a whole range of goods and services and significantly cut tariffs. There is a lot of interest by western companies in selling a broad range of luxury goods, financial services and high-tech products in emerging markets. The developing world would benefit by lowered tarriffs and easier access for their goods and services to markets in US, Europe, Japan and South Korea.

Mr. Pascal Lamy, the director general of the world trade organization, said negotiators' positions had converged on 18 of 20 topics on their "to-do list." But they couldn't narrow the gaps on the 19th, a safeguard mechanism sought by developing countries that would let them temporarily raise tariffs when food imports surge and severely lower prices for domestic farmers, according to Mr. Lamy. In particular, China and India wanted the trigger for such tariffs to be a 10% increase for imports, and the U.S. wouldn't settle for a threshold lower than 40%, The Wall Street Journal reports. Once "it became clear that the differences were irreconcilable," Mr. Lamy said, "the remaining issues, including cotton, were not even negotiated." The agreement on cotton was of particular interest to cotton producers in Africa. A successful agreement on cotton would have been felt most keenly in the West and Central African countries of Benin, Burkina Faso, Chad, Mali, and Togo, where cotton accounts for up to 60 percent of exports, as well as other African producers such as Uganda and Tanzania.

Venting his frustration at the failure, Lamy said to reporters, “What members have let slip through their fingers is a package worth more than $130 billion in tariff-saving annually by the end of the implementation period, with $35 billion saving in agriculture and $95 billion in industrial goods".

Prior to the collapse, Pakistani delegation led by Commerce Minister Mr. Ahmad Mukhtar, appeared to be hoping for significants benefits to flow to Pakistan from the success of Doha.

Before hitting the food import tariff deal-breaker, there was a weeklong meeting of 35 trade ministers of leading countries, including Pakistan, which produced significant agreements. Dr. Manzoor Ahmed, Pakistan’s Ambassador to WTO, told Dawn that it has been agreed that the US would cut its allowable subsidies by 70 per cent from $48 billion to $14.7 billion while EU has agreed to cut them by 80 per cent.It has also been agreed that developed countries could cut their agricultural tariffs by an average of 60 per cent.

A few days ago, Dr. Manzoor Ahmad also told Dawn that the most important area for Pakistan’s concern was cuts for tariffs on industrial goods. It had been agreed that all tariffs in developed countries would be brought below 6.5 per cent under the proposed package. Thus, current tariff of 19.6 per cent on export of cotton shirts would be reduced to 5.6 per cent or by over 70 per cent. For knitted shirts of man-made fibers where Pakistan could only manage exports of only two million dollars because of high tariffs of 32 per cent, this would now come down to 6.4 per cent, he said prior to Doha's collapse.

There would be many such new market opportunities for Pakistani exporters, the Pakistani trade rep hoped and added similar opportunities would arise in case of EU where Pakistani exporters would pay tariffs of eight per cent and 12 per cent on most of their exports. All these tariffs would be reduced to below five per cent, he said. On top of that generalized system of preference (GSP) of 20 per cent would likely stay. This would imply a reduction of over 50 per cent in duty on our exports to the EU, Dr Manzoor said and added in many other countries, such as Canada and Australia, also there would be many openings for Pakistani products.

All of Pakistani delegations' hopes and those of other developing nations were dashed, at least for the moment, with the collapse of Doha. There was also regional discord on display among South Asia nations as Bangladesh delegate complained about unfairness. He said, "We ask the Chair to apply the same methodology that was applied for selecting the tariff lines for Pakistan and Sri Lanka, and then give us the tariff lines that come up for Bangladesh." Bangladesh representative continued, "We strongly believe that same and equal methodology should be used, and we will accept the tariff lines that will be selected after application of that methodology".

The Doha collapse has revived the angry rhetoric that has often characterized the WTO standoffs in recent years, arguments that have tended to embrace the urgent geopolitical issues of the day. U.S. trade representative Susan Schwab told the Wall Street Journal that "in the face of the global food crisis, it's unconscionable that this came down to how much countries could raise their barriers to imports of food." Indian trade and commerce minister Kamal Nath, expressing a view felt widely among developing-country negotiators incensed at what they see as excessive, insensitive U.S. demands, said "it's unfortunate that in a development round" -- a major theme of Doha -- "we couldn't agree to an issue of livelihood and security." Mr. Lamy, Le Monde adds, declined to engage in what he called the "accusation game" and said he would consult with WTO members on what to do next.


Free trade advocates argue that the trend toward freer trade is essential for continued growth of the world economy. In 1990, trade represented about 40% of world GDP, according to the World Bank. By 2004, trade exceeded 55% of world GDP, and the global economy had expanded by 50%. The five fastest-growing countries from 1990 to 2004 were Albania, Bosnia and Herzegovina, China, Ireland and Vietnam, and all of them had annual double-digit increases in trade. Meanwhile, the countries that traded the least -- Iran, many African countries -- have stagnated.

Lamenting the demise of Doha, the Wall Street Journal editorial singles out Kamal Nath, the Indian Commerce Minister, for the harshest criticism. The Journal editorial says, "The real battle is between those who want to expand this era of global trade and prosperity, and those who want to carve out their own protected niches."

The Journal editorial goes on to say, "The latter seems to include Indian Commerce Minister Kamal Nath, who is the main villain in this week's failure. He preened as a Third World hero by refusing to open his country further to farm imports, insisting on a "special safeguard mechanism" that would have let countries jack up their tariffs if imports rose too rapidly. He claimed this would protect the "livelihood of millions of farmers" in India. But the rise of India's middle class has coincided precisely with the move of millions from the countryside to cities, as well as India's growing engagement with the world economy. More Indians will stay poorer longer because of his obstinance."

Not everyone is unhappy with the collapse of Doha. The critics of free trade hail Kamal Nath as a hero. Reuters reports that anti-globalization groups welcomed the collapse of talks on a new world trade treaty as a triumph for farmers, workers and the poor around the globe and a blow against "big business." And even mainstream labor and farm groups argued that the deal on the table at the World Trade Organization (WTO) Doha round negotiations over the past few days was so bad that it was just as well that it had been abandoned. "Victory for small farmers, workers, civil society and developing nations," declared the US-based Public Citizen group, which for over a decade has campaigned against the WTO and its drive to liberalize international trade. Public Citizen group is just one of many NGOs that have organized and gained strength over the last decade. This new breed of NGOs opposes what is perceived as the corporate-led globalization efforts to serve the interests of the big multi-national corporations rather the ordinary people in developing and developed countries.

Here's a video clip of Pascal Lamy announcing the failure of WTO Talks in Geneva on July 30, 2008:

The Future of US Dollar As Reserve Currency

There are mounting global concerns about sharp decline in the value of US dollar against the euro and other major world currencies. Not only has it fueled inflation with higher prices of basic commodities such as food grains, oil and metals but it has also diminished the value of the reserves held in dollars by the vast majority of central banks around the world. These issues are giving to rise to a discussion of how long can the US dollar remain as the currency of choice for central bankers. To understand this discussion, let's look at the history of reserve currencies in the past and the current situation with global trade.

When the 20th century began, the U.S. was already the world's biggest economy, but the British pound still accounted for nearly two-thirds of official foreign-exchange reserves held by the world's central banks. The dollar didn't become the dominant currency until after World War II. Even then, some commodities still traded in pounds: The London sugar market didn't jettison sterling for a dollar-denominated trading contract until around 1980. The history lesson here is that, while the reserve and trade currencies can and do change, it takes a significant re-architecture of the world economy and trade and significant amount of time for it to happen. Nearly two-thirds of the world's central-bank reserves remain denominated in dollars, according to data from the International Monetary Fund, despite widespread fears of a mass exodus from the currency. The euro accounts for about a quarter -- up from 18% when it was introduced in 1999, but less than its predecessor currencies' share in 1995. Because the U.S. is such a huge trading partner for so many countries, the reserve buildup isn't easily unwound.
According to the Wall Street Journal, the dollar is also deeply entrenched in world trade. Businesses lower their transaction costs by dealing in a common currency. More than 80% of exports from Indonesia, Thailand and Pakistan are invoiced in dollars, for instance, according to the latest figures available in research by the European Central Bank, although less than a quarter of their exports go to the U.S.

While many nations want to change at least part of their reserve holdings from US dollars to euros, they know if they sell a significant share of their dollar reserves, it would weaken the dollar's value. That would potentially hurt their own trade competitiveness, and push down the value of their remaining dollar reserves. If they keep the dollars, a buildup of unwanted assets would only mount.
"There is no alternative to the dollar as a trading currency in Asia," Andy Xie, a Hong Kong-based economist told the Wall Street Journal. "Eventually, the renminbi [yuan] will replace the dollar in Asia, perhaps in our lifetime. But it will take at least 30 to 40 years."