Saturday, July 05, 2008
JURIST Staffer Eric Linge, Pitt Law '10, from Addis Ababa...
Joining the World Trade Organization (WTO) is not easy. Especially for a country like Ethiopia that has a history of communism to unwind, reams of technical laws have to be rewritten to be WTO compliant. But before legislators even sit down to rewrite laws, there is much apprehension. The WTO promises change to a nation's import export balance sheet, and this promise scares politicians and business owners alike. An Ethiopian hotel owner told me that if the tourism sector were further liberalized, surely foreign hotel chains like Holiday Inn would enter the market and crush locals like him.
In Ethiopia there is a general lack of knowledge about the nuts and bolts of WTO membership among business owners and politicians alike. The WTO is most famous for its organizational goal to facilitate international trade by reducing barriers to trade: tariffs, subsidies, import quotas, et cetera. To many Ethiopian business owners and politicians, any change is scary. But an often-cited reason for the fear and it may be just a convenient reason is that WTO membership will force Ethiopians to compete with foreign businesses.
What these politicians and business owners miss are the benefits that membership would bring to anyone already doing business in Ethiopia. WTO member countries are required to implement and maintain an international standard of transparency, predictability, and consistency in their commercial legal regime. Even if an LDC (least developed country) like Ethiopia did not immediately benefit from increased trade revenue as a WTO member, implementing international commercial law standards could make business owners more likely to reinvest profits in their businesses and could inspire foreigners to invest. For example, if Ethiopia joins the WTO, tariff rates must be bound at an upper limit. This means that an importer would not discover one day that his normal tariff rate had recently been raised 100 percent.
Another major benefit that WTO membership would bring is reform of customs valuations. The current state of customs valuation in Ethiopia demonstrates the frustrating lack of predictability to many laws in Ethiopia. With a small manufacturing base, Ethiopia is a country heavily reliant on imports, and customs duties must be paid on these imports. Generally, the customs duty is a percentage of the total value of the good being imported, and this is what the WTO requires, save for some fallback valuation methods. However, the WTO requires the duty to be paid on a good's "actual value," which is rarely reflected in Ethiopian valuation methods.
Ethiopia's valuation method on used vehicles (used vehicles are imported much more than new) is unique and would not be compliant with any of the WTO valuation methods. The customs value is based on what a database says the value was when the vehicle was new. A depreciation allowance of 10 percent per year with a maximum allowance of 30 percent is then deducted to arrive at the customs value. This means that for all vehicles more than three years old, the customs value will never fall below 70 percent. Never mind that vehicles by their nature depreciate rapidly. This practice leads to the overpricing of used vehicles in Ethiopian markets, and the valuation method appears to have no purpose other than to earn extra revenue for the government.
Most other goods are valued at their listing in a published valuation database separate from the vehicle database, and often these values do not reflect a good's actual value. This published valuation database sometimes contains multiple listings for the same good with different prices for each listing, and customs officers have been known to use versions of the database that have been outdated for years. In other words, an importer does not always know for sure what he will pay.
If customs valuation is reformed and stabilized, importers will become more interested in conducting business within Ethiopia, and foreign investors would be more inspired to invest in the nation's economy. This investment is just one example of a benefit that membership in the WTO would bring to Ethiopia's business owners. If they and politicians recognized the economic benefits of reform driven by the WTO's mandated international standards, they would be more likely to support WTO membership.
Wednesday, July 02, 2008
Aleksandra (Sasha) Williams, Pitt Law '10, files from Kiev:
The whole is often greater than the sum of its parts, especially if some of those parts do not make it into a suitcase during a 20 minute frantic packing effort with the airport taxi already waiting outside. Thus, a digital camera missing a battery charger is far less useful than one might imagine. I hate to admit it, but once my battery finally died, I fondly thought of Wal-Mart. Unfortunately, Kiev does not have one. Neither does it have the kind of battery or the charger I need anywhere outside of the few and far away official Sony distributor stores. But Kiev has Petrivka - one of several "unofficial markets" located in the heart of Kiev. Quite a few people suggested I look there for anything I may need. So I did.
Although Petrivka has some legitimate vendors, it can aptly be described as a massive intellectual property rights violation with occasional counterfeit and stolen property booths. Despite the official legislative and executive efforts to crack down on production and distribution of pirated and unlicensed goods, this particular "black market" continues to thrive. To be fair, it used to do a lot better a decade ago, when no enforceable laws hindered any of its operations. Then in 2000, the Verkhovna Rada (Ukraine's parliament) made the first substantial step towards protecting intellectual property rights by revising its Criminal Code to introduce criminal liability for manufacture, distribution, sale and purchase of pirated goods. However, enforcement of this law against large-scale manufacturers and distributors proved to be difficult, and by 2002 the United States imposed trade sanctions on Ukraine. The sanctions were eventually lifted in 2005 after the Verkhovna Rada, closely advised and supervised by the US, passed legislation that gave more teeth to law enforcement and lowered the threshold for criminal and civil liability. In turn, the US government managed to convince Microsoft and several other companies to use "dynamic pricing" which allowed Ukrainian consumers to buy licensed products for a fraction of their "western" cost. Together with frequent inspections, seizures and legal actions against offenders this significantly slowed down the black market bustle.
However, Petrivka stoically endured these difficulties and emerged relatively unscathed. It had to scale down and start camouflaging its illegal operations. Most vendors also now offer a choice between a much more expensive "licensed" item and its "unlicensed" version. Nonetheless, Petrivka is far from going under. For example, Sex in the City DVDs were available here well before the movie came out in the Kiev theaters on June 19. Also, after seeing most of Kievans dressed head to toe in Gucci and Dior, it becomes abundantly clear that most of their designer threads did not come from the obscenely overpriced boutiques, especially considering that Petrivka offers knockoffs for $5-$50. Finally, according to several polls, about 90% of all computers within Kiev ran pirated software as recently as a year ago.
Little separates these seemingly benign scams from others with grave consequences. The same "black markets" that, like Petrivka, offer bootleg books and fake Chanel bags also sell contaminated or expired medications and substandard equipment that can cause industrial accidents. Besides, "unofficial trade" violates numerous laws, tax codes, licenses, embargos and other regulations used by nations to organize and enforce rules. As for my battery charger, I sincerely hope that I at least gathered some good professional ethics karma by not buying it at Petrivka, because the one I ended up purchasing cost twice as much.
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