Both the World Bank and the IMF data reveals that the two-way United States-European Union trade has been roughly balanced over time. The very high levels of foreign investment accounted for by each in the other’s markets means that the Transatlantic economy is arguably the most integrated on Earth. US policy makers understand that trade and investment between Europe and the United States make the Transatlantic market the most integrated economic area in the world. This is not “FAKE NEWS”, but a quote from the web site of the Office of the United States Trade Representative.
According to Jean-Francois Boittin, the former French Diplomat and Treasury official, except for the only one whose opinion really matters in America’s contemporary parallel “truth” universe is that of the current occupant of the White House. The President, Donald Trump, in his speeches and tweets, loves to hammer away at the fact that other countries “rape” the United States. President Trump is particularly irate about the “scandalous” tariff that the European Union imposes on imported cars which levied at 10%, when the United Sates has a tariff of only 2.5%; hence a call for reciprocity.
It sounds entirely reasonable, if it weren’t for those pesky details. The real world is, alas, more complex. Jean-Francois Boittin noted that President Trump and his sidekick Wilbur Ross, the current United States Secretary of Commerce, live in a world where everything is binary. Their preferred alternatives are: Either I win – or you lose. Everything else is “cheating.”
Krzysztof Bledowski, senior Polish economist argued that both President Trump and Commerce Secretary Ross conveniently forget that there are actually two US tariffs on automobiles: 2.5% on light vehicles, and 25% on pickup trucks. The second one, in case you care about the truth, was not any untoward demand by the Europeans. Instead, it was imposed by Lyndon B. Johnson, the 36th President of the United States, all the way back in 1964.
According to Krzysztof Bledowski, the pretext for this tariff was the so-called chicken war with Europe. The real motive was to answer the plea from the United Autoworkers Union (UAW) to keep Volkswagen mini-buses out of the United States market. The 25% tariff, at this high level an aberration even in the United States, the world champion of the so-called tariff peaks has not been touched since.
Krzysztof Bledowski further noted that the problem for President Trump arises as soon as one realizes that trade negotiations are actually more complex than a game of strip poker. In trade negotiations, the tit-for-tat is called reciprocity. It is measured not in a binary fashion, but across many sectors, in accordance with Ricardian principles. Think Bordeaux wine versus British textiles in the 18th century.
And so it was that, Jean-Francois Boittin recalls that during the last major tariff negotiation between the United States and the European Union, the Uruguay Round in the GATT (1986-1993), American and European negotiators spent sleepless nights making sure that their bilateral concessions were strictly equivalent. Never once did the United States side request a reduction of the European Union tariff on automobiles.
Was that a matter of their incompetence? Or a sign of a traitor to the American cause? No. In the US, the main competitor to the car market at the time was Japan. The Big Three – GM, Ford and Chrysler – lived happily sheltered behind the wall of the 25% duty on pick-ups. They also loved the euphemistically called “voluntary exports restraints.”Those are GATT-illegal export restrictions which were adamantly pursued by the United States government and which Japan agreed to in the trade equivalent of a shot-gun wedding.
Meanwhile, the Europeans chose to maintain their tariffs at 10%. This move received the enthusiastic support of the European subsidiaries of the US “Big Three” automobile manufacturers. Their European subsidiaries, mostly established in Germany, catered to the local market under the protection of the GATT or WTO legal, European Union tariff, which raised by 10% the cost of imported Japanese cars.
The magic question here is the following. Would an alignment of the European duty rate on the American one, down to 2.5% from the current 10%, generate a tidal wave of made-in-America cars to Europe? According to Jean-Francois Boittin it is unlikely. Even President Donald Trump should know why. He has owned more Ferraris, Lamborghinis or Mercedes-Benzes than Cadillacs. Not that such truth would matter to him. For President Trump, it’s always “do as I say,” not as I do myself.
James Dorsey, Singaporean award winning journalist and senior fellow at the S. Rajaratnam School of International Studies stated that selling cars to Europe is a bit like selling coal to Newcastle, in the olden days, when there was still coal in Newcastle. Look at car rankings inside the United States: Japanese and European cars top United States models in terms of customer satisfaction.
James Dorsey argued that it should not come as a surprise to anyone who ever took an Economy 101 class. If you are a Big Three manufacturer in Detroit, why would you try to compete on the light vehicle market with exports to Europe when you can have big fat margins on domestic sales of pick-ups inside the United States, protected behind a 25% tariff wall? Add that any move by the Trump administration to weaken the fuel economy standards or raise emissions will be an added handicap in the European market, where consumers care about fuel costs and the fight against climate change.
Enough said about cars. If you want to look at surpluses on a strictly sectoral basis, what if the US trading partners were looking at deficits in the aerospace industries or services or Hollywood movies? Or to the digital economy and the insolent domination of the Silicon Valley-based tax artists, called internet robber barons? As the saying goes, better not to throw stones when you live in a glass house.
US tariffs and reciprocity
Strong Companies Strong Economy
Capital: What is the motivation behind the establishment of the new Ethiopian Employers Confederation? What are the main services and benefits that investors can access when becoming a member of confederation?
Feteh: We have a structural and a representation motive to establish the confederation. As you may be aware just two or three years ago there were only two employers’ federations. During that time three employers’ federations were established.
According to the proclamation 377/96 and the international labor convention 87, more than ten single employers can establish an association, more than two associations can establish a federation and more than two federations can establish a confederation. In the context of Ethiopia the employees established their confederation for the long term and they have worked to protect their member’s interest strongly.
Next to tell you this background, as more federations are established most federations are representing their members in the stages of the negotiations of their interests with the government and the employee delegates. As we all are a federation, we can’t be a member of the Ethiopian Employers Federation as we all are in the same and equal structure. If so there needs to be an umbrella structure which represents all federations. The only structure is a confederation. Structural and representation problems are pushing us to establish the confederation and to be a strong negotiator for our members and to all Ethiopian Employers. Most of the business sectors still do not associate themselves in the employers’ structure. As we all are in the federation level in different sectors and regions and there is not any umbrella structure, we can’t support others to organize based on their needs, sectors and regions.
Capital: There are only five federations who are currently willing to establish the confederation. Will you work to bring other federations to work with you?
Feteh: In Ethiopia there are only 6 Employers’ Federations which are established and registered. We planned to establish as a sixth. One federation has still not participated in this establishment as I mentioned. If they come and join us, all federations are here.
As a council we are supporting the Transport sector employers’ federation. They are already established and under the registration process with the Ministry of Labor and Social Affairs. They will join us when they finish the legal process. As our priority activity, we will establish the industrial, the transport, the communication, the health, construction and the media employers’ federations step by step. There are many existing associations which are established in different structures and proclamations beyond the labour structure. We will work with the existing association to associate them in the labour proclamation and to join us to be a strong voice for Ethiopian Employers.
Capital: There is an old employers’ federation who working on the same area with the planned employers’ confederation, why is a new employers’ confederation needed instead of strengthening the old one?
Feteh: We are establishing a confederation, not a federation. A Confederation is a collection of Federations as mentioned in the proclamation and the convention. So it is not the same structure.We don’t have a right to strengthen another federation as we all are equal level federations. The old Employers Federation can’t be a confederation unless it is combined with the other federations as the legal ground permits. When we establish the organizing council, we will write a letter to the EEF to join this council to establish the Ethiopian Employers’ Confederation. But still they haven’t responded to our calling. All federations and the council believe that unity is the right choice to be strong and we will wait for them until we have established the confederation after some days. And also as the umbrella any existing federation like EEF and newly established employers federation will join the confederation after the establishment also.
Capital: What will be the impact of the confederation on the growth of the country’s economy?
Feteh: It is well known that the main economic operators are the employers and the investors. If this structure is well managed the industry piece will come. If there is a industrial piece in the economy, the productivity will come, If the productivity comes, there will be the an increasing of the income and increasing of the tax which is paid to the government for infrastructure, when the infrastructure is developed, the local and international investors will be motivated to work in Ethiopia and the job opportunities which is the main challenge of a developing country will be solved. It will have more and more contribution to the country’s economy. The confederation will be the strong voice for employers and investors to have strong social dialogues and to bargain with the government and the employees. When this strong chance happens, the challenges of investors and employers will be solved and the good governance will happen for lubricating the economic movement.
Capital: Could you give us an example of the relationship that you will have with the Government that will help solve any past problems or issues faced by employers?
Feteh: Our plan is to be a bridge for the employers and the government. As we all see most of the cases of employers are solved after many resources are damaged. If this structure is strong as planned, any of the employers and investors challenges and questions will be submitted to the concerned government structure that is well organized and supported by a study. This is the best chance for the government to solve any issues immediately and easily. When the government issues any rules and regulations, this representation can handle the benefit of the members before it is finalized and applied. After the establishment our first activity will be organizing a national conference with the participation of the employers, the government, employees, education sectors, international and local labour organizations and all necessary stakeholders. We will sit for two or three days and discuss all issues of employers and investors to create a benchmark or a starting point to hand all issues with all stakeholders.
Capital: How will foreign investors be involved in the Ethiopian Employers’ Confederation?
Feteh: It is well known that all foreigner investors work within the country with the country’s law and regulations even if some are working with international laws. They all will participate in the confederation through the sectorial federation which will be established or the existing one. As we are structured in labour issues all investors have the same issue when they operate their business in Ethiopia. As example, the foreign industrialist will associate with the industry employers and the like.
Capital: Low wages are a big concern that local workers want addressed by employers. Will the new confederation push the government to have a minimum and fair wage in the country?
Feteh: As we are establishing the industrial piece, there should be a peaceful Environment with employees. We believe when the employees are well paid and happy the productivity will increase. But Ethiopia is in the stage of attracting foreign investors. One of the attractive factors is cheap labour and the availability of enough labour. A minimum wage is the best strategy when you have more and more educated and well trained employees. When you set the minimum wage there will be a minimum requirement of the employee’s capacity. When you see in our country, there is lack of the well-educated and trained employees. So before pushing to set the minimum wage we should work on providing trained employees. However, we will work with the employers to understand that well paid employees will be productive.
Capital: VAT, a hard currency shortage and lack of capital are the main concerns of employers. How will the confederation work to bring some positive results by working with the government?
Feteh: VAT for employers is not a problem. VAT always affects the last user or consumers. VAT is a challenge for employers when there is no equal treatment. When someone works without VAT and some with VAT, it may affect the price strategy of the VAT payers. This should be in account with the tax authority.It is not only the concern of the employers it is also the concern of the government and the consumers too. We will work on it.
Regarding the hard currency, the solution does not only depend on the government. We also have to work to solve the problem. We should promote our country to attract international investors. Our local investors should work in the business of export items. Unless we work on this problem is will affect us. As it is well known the government motivates and give more privileges to the exporters. So we should use this chance before the foreigners dominate us. There are different market privileges for Africa. Attracting investment and the available capital to match is important. As the foreign investors can get different capital from international financers, the government has assigned and is focusing available capital on local investors. We will work on this with the government.
Capital: It is often said that employers are reluctant to hire fresh graduates due to their “unrealistic” expectations and unwillingness to learn new skills. How will the confederation work to mitigate this problem?
Feteh: I raised this issue to the International Brand operators when they were in Addis Ababa for the 5th African Hotel Expansion Summit. I said that when international brands come to Ethiopia they should consider training fresh graduates before the hotel operation begins. What is happening now is they advertize better wages so employees transfer from the local hotel to the new hotel. They have a chance to train their own employees if they do this and support the sector development. They promised to consider this. When we see the industrial parks, most of the international investors are training their own and fresh graduates before operating their factory. We support this kind of management of labour. As we announced in the press conference, our motto is more work for more employees.
Capital: Not hiring workers who are living near a given company and poor social responsibility have caused many companies to not be appreciated by local communities and that sometimes has led to communities damaging the companies. What will be the confederation’s role in challenging this problem?
Feteh: I believe that each investment should have some percent of contribution to the society from their investment. Now international buyers and consumers request a social contribution from the seller to buy their products. Most of the international investors who operate in Ethiopia have started making social contributions.
For example, the Sher Flower Company, which operates around Ziway has built a hospital, school, stadium and other social enterprises. Our hotel, the Central Hawassa Hotel, has helped build the public library, supported sports, and provided books to prisoners. I believe this culture is coming to Ethiopia. We are seeing different events of damages when it does not happen.
