By Madhukar SJB Rana
China is to limit labour-intensive exports to US and Europe. This gives a golden opportunity and challenge for Nepal’s economic diplomacy.
The International Monetary Fund (IMF) has recently raised China’s economic growth forecast for 2007 to 11.2 percent; up 1.2 percentage points from its forecast in April. The growth in China for 2008 is expected to be 10.5 percent, 1.0 point higher from the earlier forecast, the IMF said in a revision of its World Economic Outlook (WEO). We can anticipate even better growth rates given its habitual, better-than-anticipated, past performance. And 2008 is the year of the Olympics Games when unprecedented number of visitors are expected to visit China. It is anticipated that the Chinese athletes make China the world’s greatest sporting nation by bagging more medals than the US.
“For some time China has been the largest contributor to the global growth measured in purchasing power parity,” Charles Collyns, the IMF deputy director of research, said at a news conference. “With the growth slowdown in the United States, China will be contributing the largest part to the increase in the global growth measured at market exchange rates as well as purchasing parity terms,” he noted.
China ’s record $112.5 billion trade surplus in the first half of this year has fanned tensions with the United States and the European Union, while flooding its economy with more than $1.3 trillion in foreign currency reserves. Hence, under severe pressure from IMF, US and Europe for China to let its currency float – effectively appreciating its value upwards— China has opted for another route to curtail its balance of trade surplus by
curbing its export of inexpensive, labor-intensive products to force manufacturers into making higher-quality goods.
The Chinese Ministry of Commerce will expand a catalogue of goods subject to mandatory export limits in the second half of 2007, following a recent move to increase a tax on exporters, said Wang Qinhua, the ministry’s industry director. “The new policy will add cost and affect the cash flow of exporters, especially those engaged in the labor-intensive part of the industry,” she said. Herein lies a grand opportunity and also a challenge to the economic diplomacy of Nepal’s Ministry of Foreign Affairs (MOFA) by being able to negotiate the relocation of these foot loose, labour-intensive industries into Nepal to kick start its industrialization process.
What could, nevertheless, be these products? Prominent ones will, undoubtedly, be textiles, garments, leather and leather products which have suffered from Chinese competition to cause acute loss of our overseas markets even with GSP and other manner of preferences for least developed countries (LDCs) given by Australia, Europe and Canada.
We should move to invite China to help with the proposed Garment and Textile Export Processing Zone (GT-EPZ) in Birgunj and also locate its garment and textiles ventures herein fully protected from the irrational labour, customs, excise and income tax laws and their implementation. They should also be allowed to import duty free petroleum products for their own manufacturing use.
We may examine whether it is not eminently advisable to set up Handicraft and Jewellery Export Villages in Kathmandu Valley, Pokhara Valley and Surkhet Valley to locate these Chinese business to not only use our labour, but also to engage in value adding joint ventures for product development and global marketing of our own indigenous handicrafts. Chinese investment in this industrial sub-sector will eradicate infrastructure constraints in respect of power, transportation, storage and design plaguing these industries in Nepal, which are still operating as cottage industries with all its limitations on scale and quality.
Nothing is more vital for the economic growth, employment and health of the rural households, especially in the Hills and Mountains, than the rapid development and modernization of the livestock sector, which will get an unprecedented backward linkage for multiplier development with the invitation to Chinese leather and leather product businesses to migrate to Nepal. As to where such EPZs will be situated needs to be studied keeping in view best possibilities for backward linkages. Will it be located in Biratnagar, Birgunj, Bhairahawa, Nepalgunj or in some other places? Here one has also to keep in mind the environmental hazards when locating these industries in cities and towns.
Finally, the above aims will not be realized if the labour unions do not get their act right and change behaviour from a protective ‘labour aristocracy’ that is incorrigibly rent-seeking to one that is proactively serving the national interest by helping to create—not restrict— jobs for the unemployed through higher private sector investment, higher productivity and greater labour benefits and welfare for all.
All this can be achieved with the promulgation of a new Industrial Relations (IR) Act that will, first and foremost, allow company employees to decide, by secret ballot, whether they wish to form unions or not?
If yes, do they wish to be organized as trade unions or as company? If trade unions, then lay down procedures for union rights, duties, financial contributions and election of union leaders in a manner that promotes accountability, transparency, competition and dissent within unions, including the right to resign from union membership.
The IR Act should seek to promote a national federation for each union. This would be a fitting social reflection to the demand for Nepal as a federal state since federalism is not simply about political structures but also cultural, social and economic too.
A well designed corporate-level grievance handling system is a must. It must not be open to external political influences as they lead the company away from its vision, mission, goals and core values. Organizations gain from legitimate functional conflicts but not from dysfunctional ones which, most often, are of the win-lose variety.
Last but not the least, very clear-cut rules and regulations must be spelled out for collective bargaining with management (to be defined); along with rules for declaring of lock-outs and strikes, including the minimum time for notification of such drastic measures; payment of salaries and wages during seizure of work; and methods of conflict resolution through such graded measures as facilitation, conciliation, mediation and arbitration. Minimization of access to the courts should be sought as in business time is of the essence in a globalized economy.
It goes without saying that the onus for good IR lies with management and each strike or lock out is an indication of its managerial ineffectiveness— provided the government do not put extraneous influences on behalf of any side and prevent political parties from undue encroachment on management rights and privileges.
The labour market should be allowed to function through such an institutional innovation as the IR Act, whose absence will retard the much needed industrialization in Nepal plagued by population explosion, acute land scarcity and loss of comparative advantages in staples like rice, wheat, paddy and maize.
We need a growth-oriented model of development for quick transformation of our rural economy for which foreign direct investment is needed. Taking advantage of this strategic opportunity from our northern neighbour, China, which is also a partner in SAARC, is a chance in a lifetime. It should be seriously studied and fully debated by government, FNCCI, CNI, Chambers of Commerce and product and professional associations, at the earliest, lest Chinese investors go elsewhere, especially to least developed African nations. Through such a national debate, the much sought after economic diplomacy policy, announced in 1996 by then Foreign Minister, Dr Prakash C. Lohani, can come to fruition as a strategic reality.
(Rana is a former Minister of Finance)
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