Treasury taps into the top 21st century conundrum
July 8, 2009
 By Ann Crotty
The National Treasury was reviewing "the listing of some companies currently classified as foreign on the JSE", it said in a statement issued last week.
Research had been commissioned and "research papers will be published at an appropriate time", it said.
It is commendable that the treasury is attempting to get to grips with the quintessential conundrum of the 21st century.
No doubt its final report on how to classify corporate entities will be compelling reading for as many existential philosophers as financial economists - after all, in the 21st century global economy we are all primarily defined by our position in that economy.
The treasury's ambitious endeavours should, of course, be seen as part of a much wider search for the meaning of "foreign" in today's allegedly global economy. Just a few short years ago it would have been regarded as remarkably vulgar and certainly very unsophisticated to raise the issue of "foreign"; we were all presumed to be happy citizens of a global economy dominated by the US and Europe.
But then things went a bit pear shaped and suddenly governments in these regions were pumping trillions of dollars into their domestic industries. To be expected, after pumping trillions of taxpayer dollars into local industries, politicians in these rich countries were extremely keen to ensure that the full benefits of the bailouts accrued to their citizens and did not leak into other countries.
Inevitably the whole notion of domestic versus foreign was revived, and then very shortly after came talk of protectionism. All of which goes to show that perceptions of vulgarity and lack of sophistication in the economic context are determined not by overall economic efficiency, but by the needs of the world's large economies.
Latest news from the World Trade Organisation is that it has scaled back its forecast for merchandise trade in the face of increasing efforts by various governments to protect their industries through the introduction of import restrictions.
The biggest challenge on this front comes from the "buy American" measures contained in the $787 billion (R6.3 trillion) stimulus package launched by US President Barack Obama earlier this year.
While last-minute amendments were made to the package to ensure it would not contravene any existing US trade agreements, the reality is that much of the money will be disbursed not at federal level but at state level, where politicians are less restricted by international deals.
But whatever way you approach it, implementing a "buy American" policy is about as problematic as the classification exercise the treasury is attempting. For example, how will US politicians deal with an important fact of trade with China - that exports account for 40 percent of the Chinese economy and 60 percent of that activity is owned by foreigners, a large proportion of whom are American?
Consider the quintessential Chinese export, the T-shirt. Heavily subsidised US farmers are one of the largest sources of cotton for this Chinese industry. How will "buy American" deal with that?
The interwoven complexity of it all is highlighted by the multibillion-dollar bailout of American International Group. Tens of billions of these dollars ended up in foreign-owned entities: BNP Paribas ($4.9bn), Societe Generale ($11.9bn), Deutsche Bank ($11.8bn) and Barclays ($8.5bn), for instance.
Perhaps the best thing for the treasury to do is follow the money. Classification should be influenced by who receives the tax, the wages and the dividends.
|
|
