Business

Positioning ourselves to gain from trade

“If we do not take action, those who have the most reason to be dissatisfied with our present rate of growth will be tempted to seek short-sighted and narrow solutions—to resist automation, to reduce the work week to 35 hours or even lower, to shut out imports. … But these are all self-defeating expedients which can only restrict the economy, not expand it.” [President John F. Kennedy, 1962]
The excerpt above was taken from a speech in which the late United States president was introducing the country’s Trade Adjustment Assistance Program (TAA). The TAA program is a federal program designed to provide aid to workers who had lost their jobs due to foreign trade. According to the official site for this program, it “seeks to provide these trade-affected workers with opportunities to obtain the skills, resources, and support they need to become re-employed.”
In 2010, the US government allocated over US$975 million (almost BZ$2 billion) to this program. But, this isn’t the only service that the world’s largest economy provides to trade-affected workers. There is also the Trade Readjustment Allowance (TRA), which is an income-support payment program that supports individuals whose jobs were affected by foreign imports.
The official TRA site explains that the program provides benefits such as “paid training for a new job, financial help in making a job search in other areas, or relocation to an area where jobs are more plentiful.”
Writing in a 2011 article, a think tank researcher pointed out that the US Congress had allocated US$1.1 billion (BZ$2.2 billion) to the TRA. Ignoring the fact that this country has other unemployment insurance programs, the fact is that in 2010 alone these two trade-related safety net programs, the TAA and TRA, had a combined budget of more than $2.1 billion (Bz$4.2 billion).
The fact that the world’s largest economy finds it necessary to even have programs such as these around is testament to the reality that as much as there are gains to be had from international trade, there are also risks. And among those risks, is the reality that employers can be adversely affected by trade with other countries. As a result, the employer may either fire workers or, at the very least, reduce wages “as a result of foreign trade.”
WTO
But the world—including Belize—has to accept that we live in a global economy and trade is here to stay. The United States citizens will continue to complain about jobs being lost to China and other Asian countries as long as businesses find it prudent and cheaper to move factories eastward. And “offshoring” will continue to be a common practice as long as companies continue to find it beneficial to do so.
Let’s look at the emerging Business Process Outsourcing (BPO) sector in Belize. Because companies find it more cost effective to establish their call centers here in Belize as opposed to establishing such centers in their home country, thousands of jobs have been created for Belizean locals. There are indeed gains from this type of business activity.
And in an era in which the World Trade Organization’s philosophy dominates, the opening up of the economy will continue to be a factor for Belizean businesses to tackle.
The WTO discourages “‘unfair’ practices, such as export subsidies and dumping products at below cost to gain market share”. The organization also promotes a non-discriminatory philosophy: “A country should not discriminate between its trading partners and it should not discriminate between its own and foreign products, services or nationals.”
While the WTO has given developing countries a transition period to adjust to its principles, the end goal remains the same, a fact that Belize’s agriculture products will have to face when all preferential treatment are removed from the European markets in the next few years.
FECTAB vs. Carnival
So far, we have seen two significant principles at work: the WTO’s influence on trade practices is changing the landscape in such a way that it does away with protectionism and trade barriers, and we see the world’s largest economy literally spending billions to provide a safety net for its citizens that don’t share (at least not immediately) in the gains from trade.
It is indeed a case of the survival of the fittest and we have to ask where is Belize in its ability to keep up with the rest of the world, especially when all preferentiality has expired.
But we don’t have to wait too long. We are already seeing this being exemplified in the cruise tourism industry battle among Belizean, independent tour operators—most of whom are members of the Federation of Cruise Tourism Association of Belize (FECTAB)— Carnival Cruise Lines, and Carnival’s local partner, Chukka Caribbean (a Jamaican-based company).
The ongoing ‘price wars’ between FECTAB and Carnival is the most recent edition of a long-standing discord between these parties. On one end, we can comprehend and relate to FECTAB, who say that the cruise line’s decision to lower its prices for the cave tubbing and zipplining tours is a direct attack that adversely affects their businesses. One local tour operator has already admitted to being forced to have lower his price, so as to keep his customers from cancelling their tour with him. That same tour operator has also noted that since the ‘price war’ began, his workers’ salaries have been reduced.
FECTAB President Tom Greenwood explained earlier this month that Carnival’s new prices come in direct competition with local operators. “There has been several cancellations of tours with local operators, because the tourist, when they see Carnival’s prices, they naturally gravitate towards what seems cheaper,” Greenwood informed.
On the other end, Director of Tourism Laura Esquivel-Frampton had also reminded that this is the way of the world economy. “Carnival isn’t doing anything illegal. Although the CARICOM Single Market Economy (CSME) has rules against unfair trade practices, Carnival is an American company,” Frampton explained, as she made reference to the same WTO principles we’ve discussed earlier.
Responding to comments about the price war’s ability to undervalue the tourism product, Chukka Caribbean’s Country Manager Valerie Woods said: “If it is that the media is getting statements that the pricing by Carnival is undervaluing the tourism product, it begs the question if that tourism product has been undervalued for many years, because the price is what has been charged by many operators for many years now.”
There is the factor of not discriminating as pointed out by the WTO; therefore, it becomes clear that while there are normative reasons to frown on Carnival’s price manoeuvre, there may not be sufficient legal grounds to stop them from competing in a free-trade world.
Stepping up to the plate—Access to Finance
Given the soon-to-be obsoleteness of protectionism, we have to ask the tough questions like: how can we protect Belize’s cruise tourism industry, without being discriminatory or practising free-trade Luddism?
FECTAB isn’t wrong to be asking for government’s assistance in this matter. They may, however, be asking for the wrong kinds of help. The US doesn’t subsidize its industries to protect against the realities of an open economy, but it does invest billions in positioning its people.
According to Valdimar Andrade, the Belize Tourism Board’s director of Cruise and Regional Initiatives, the government is already working with FECTAB members in terms of providing training and other assistance to enable them to up their quality standards, levels of service, and rate of product development.
Andrade explained that it is the BTB’s hope to get them up to an international standard, which—among other things—would enable them to acquire direct cruise line contracts similar to what Chukka Caribbean and other local tour operators have with the various cruise lines.
But, if local operators are already receiving this level of assistance from the BTB, why have they not implemented these measures and expanded? The answer here is simple: financial constraints. The local operators would find it relatively expensive to modify their operations in the aforementioned areas—quality standards (terms of safety), level of service, and product development.
We’ve heard of this concern before. The Private Sector Assessment Report had named “access to finance” as one of the primary obstructions to wide-spread private sector development. The Report states: “Credit to the private sector in general does not appear to be supply constrained in Belize, as banks have been flush with liquidity. However, credit is expensive and access to finance poses a particular challenge for micro-and small-sized businesses. Loans to businesses are available at high interest rates and with collateral that generally exceeds the loan value.”
Members of FECTAB have corroborated this concern, saying that their inability to access adequate levels of financing has made it difficult to upgrade their services or expand. FECTAB President Tom Greenwood told Reporter, “The high cost is due to a cornucopia of things, but it’s the equipment cost that remains the ‘deadly choice.’”
It is, therefore, at this point that the question must be asked: what should public-private dialogue be between FECTAB and government?
No one would expect the Belizean government to be able to afford the level of safety nets provided by TRA and TAA; as a matter of fact, those programs are reactionary. It is more proactive for the group to call on the government to assist its members with financing, in the form of a low-interest-rate loans program, designed to help these companies fast track their development.
This, however, is a point that both Andrade and Greenwood agrees with.
The former explained that as various capacity-building measures are concluded between the BTB and FECTAB (and other stakeholder groups), the BTB would be able to make recommendations to government for the operators to receive preferential loans from the likes of the Development Finance Corporation or the newly established National Bank of Belize.
Greenwood expressed high hopes with the soon-to-be expansion of the National Bank to Belize City. “The National Bank with it’s low interest rates is a blessing,” Greenwood shared.
In the end
The fact of the matter continues to be that as time progresses, economies will become more and more open, and Belize will not be spared for long. If the US found it necessary to institute TRA and TAA, it is evident that international trade is here to stay, and developed economies have geared up for the long haul.
It then behooves the Belizean public sector and the private sector to ensure that our country’s private sector grows to a point where it can step up to the plate and compete within this global economy.
For example, what’s to stop local tour operators—once they gain access to the requisite financing and training—from exporting their services to other countries in the same way Chukka expanded from Jamaica, and in the same way Island Routes is planning to advance throughout the Caribbean?
But there are good signs in the air, as Greenwood pointed out that he himself is optimistic with the way forward. “We’re working well with the BTB; with Mr. Andrade, and [Director of Tourism Laura Esquivel] Frampton.”
In the end, Belizeans need not fear trade. There are many gains to be had from it, if we approach it properly.
Therefore, we go back to Kennedy’s words:
“If we do not take action, those who have the most reason to be dissatisfied with our present rate of growth will be tempted to seek short-sighted and narrow solutions… But these are all self-defeating expedients which can only restrict the economy, not expand it.”

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