The inspection by the US team to the plants at Jebel Ali Free Zone and at Muscat raised concerns about the imposition of the quota system. The 24th part of a series describing the unknown triumphs and travails of doing international business
I had come to Dubai to spend the weekend with the family and arrived on Thursday night and had directly reached the Indian Sports Club, which was not far away from my home. I was also the honorary general secretary and had a lot of paper work to complete, before reaching home that night.
Next morning, being a Friday, we had the morning shift only, and I went to see Perera at the Finetex Plant at Jebel Ali. After a quick lunch with the staff, I returned back to the city to be with family and friends.
On Monday morning, I was in the Finetex plant to review the production and planned export shipments when, Sultan Sulayem’s secretary called to confirm that a special foreign delegation was en route to the factory and I should take personal care. Less than couple of minutes later, they were actually at our site, accompanied by a few officers from the Free Zone, led by Saif Sultan!
Only, when I was introduced, I came to realise that they were the inspectors from the USA, who had come to see the plant. This meant they would make a technical assessment of actual staff and machinery, origin of raw materials, labour strength and whether the goods exported from the plant, and thus from the UAE, were actually ‘made’ there or not!!! Saif also explained that I was the secretary of the JAGTA, and would be able to provide all information and assistance about the plants in the Free Zone, and of course give them any other information relating to plants operating outside in Dubai itself, apart from other six emirates.
For facilitating their work, I called in the few English-speaking supervisors to help them and made it clear that they were free to move anywhere within the plant, check anything and everything they wanted; regardless of the location, such as the warehouses, stores, incoming and outgoing production and raw material details, and our records. I suppose this process may have lasted for a little more than two hours.
They had other hand-picked names, which they chose at random, from the list of exporters they had and they wanted to inspect. On the Free Zone officials’ request, and which they accepted, I accompanied the US team to a few other sites in the zone and outside.
This surprise visit took the best part of the day. By the time we finished the surprise visits to various plants, it was late and as no further information was required from our side, I left around 5.30pm and reached Muscat by about 10pm. Perera had alerted Francisca of my late arrival and soon after dinner I hit the sack, as our production would actually commence by 7am sharp.
It was almost five days later, when I received a call from the Chamber of Commerce and Industry, Muscat, confirming the arrival of the US delegation to inspect various manufacturing facilities and that they were already at one site, and we would be next!
An hour later, they turned up and it was one of the inspectors who immediately recognized me, as the secretary of JAGTA from Dubai! Some of the staff members had taken out their cameras to took photos of the inspection, which the inspector objected; we stopped with apologies.
The team went around inspecting the manufacturing facilities which lasted for about an hour. This included relative documents of arrival of fabrics and accessories, shippers and so on. At that point of time, some finished materials were ready for shipment and online packaging was going on, which they inspected thoroughly.
They declined to accept any hospitality, like they did in Dubai and moved on to the next site.
This surprise visits meant that the imposition of a quota system was imminent and all the manufacturers began to worry about the procedure for allocation of these quotas. Some manufacturers had specialized in hosiery goods; some had exclusive lines of production of shirts; others for blouses; some for trousers and some of the larger units had multiple production lines, manufacturing all the above items. It was going to be a mind boggling exercise.
There were doubting Thomases who felt that in a short while this industry will have to shut down and began secretly discussing the methodology to be followed for buying and selling the quota, a practice that was already prevalent in many exporting countries like India, Pakistan, China, Hong Kong and Sri Lanka.
There were a few others who knew the industry and trade well and so without worrying about the quota system went ahead, in full swing, to accept and manufacture, whatever they were making, in large quantities, by increasing their shifts.
And the bulk of the US importers also gladly supported, sometimes, in meeting the extra airfreight costs by introducing sharing so that the goods could reach the country.
We had series of meetings in the Chambers of Commerce and Industry; and, in fact, the major and the first meeting was organized by JAGTA, outside the Free Zone, so that non-members from all the emirates could participate. Some of the officials came as ‘observers’ as they could not ‘officially’ take the lead in doing such activities. Yet, I must say the Free Zone authorities backed us to the hilt. The Dubai Chamber of Commerce and the ministry officials were most cooperative in these activities. Without their guidance and support the industry would not have lasted the two decades that it did!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at [email protected].)
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The recipe for stagflation requires permitting excessive growth of the money supply with excessive regulation of markets. Both of which exist in China. This is the second part of the article on the slowing Chinese GDP
China’s GDP (gross domestic product) numbers last week confirmed suspicions that China’s economy is slowing. But not to worry, the central bankers of the world will ride to the rescue. Every investor has been conditioned better than one of Pavlov’s dogs to expect that any indication of a slowing economy will bring in another acronym for printing money. Investors will react with a risk rally that will temporarily mask the real problems. The rallies last until the next set of figures again confirming a basic paradox. For wads of additional stimulus to actually promote growth it has to actually go somewhere productive. It hasn’t. In the US the money has simply gotten stuck on corporate balance sheets and encouraged additional profligate government spending. In Europe it has had a similar effect. Banks used the money to buy government bonds, delaying the need for painful adjustments.
The monetary manipulation in developed countries has many harmful side effects, especially to underfunded pension funds to say nothing of pensioners, but at least they have been achieved in market economies. In China flooding the market with more cheap money has an even larger perverse effect, because of the nature of the system.
An example of the problems with the Chinese political economy is how they choose their leaders. The Chinese Communist party uses as system known as paoguan. It means to “run around for titles”. In essence at promotion time members of the party make tribute-paying visits to higher-level officials. In China this process is in high gear. The change of leadership means that offices in 31 provinces and province-level municipalities, 361 cities, 2,811 counties and 34,171 townships will be reshuffled among 80 million members of the party. Many of these offices have vast discretionary power and their decisions can be very lucrative.
A selection process based on paoguan also creates a perverse allocation. Government officials are not chosen by either merit or their appeal to public interest, but by their abilities to manipulate a corrupt system. Patronage and pay off become more important than the actual ability to do the job.
The same problems exist with the Chinese stimulus. With state-owned banks, loans are directed by the state and the state is run by a system of patronage. This guarantees that any stimulus package that the Chinese produce will to go to the wrong place. The unprecedented amounts of stimulus money in the form of massive bank loans went to inefficient state-owned business and local governments. Neither have any intention of paying the money back.
Of course the good news is that state-owned banks have a monopoly. They can generate large profits even with mounting loan losses by paying lower interest rates to captive depositors. This means slower growth, but the financial system remain solvent. Until now.
The Chinese are well aware that the distortions have slowed growth. To change that, they are attempting to gradually reform parts of the system. One such reform is an experiment in the ever entrepreneurial city of Wenzhou.
Since small and medium sized businesses, the more efficient parts of the economy, were excluded from the state banking, a shadow banking system grew to cater to the need. The Wenzhou experiment extends legitimacy to the system. But there is a catch to reform. If the Chinese legitimize private banks, then the state-owned banks no longer have a monopoly and must compete for depositors. Depositors like their western counterparts will shop for yield. This will deprive the state-owned banks of much needed cheap financing to help prop up their balance sheets.
In addition to the Wenzhou reform, the Chinese government has also widened the trading ban for the yuan and raised the cap on foreign investment in the country’s securities market. Although these reforms seem encouraging, both loosen the grip of China’s government on its economy which could potentially lead to sudden drastic moves.
Still despite minor reform, the state retains a tight rein on the economy. It is also reflating. State-owned banks lent up to 2 trillion yuan in the first two months of 2012. This is almost twice what was lent in the last quarter or 2011 and two thirds of the entire lending for 2008. Not only does the patronage system distort this lending, the continuing government restrictions on real estate developers have made the problem worse. It has to be remembered that the recipe for stagflation requires permitting excessive growth of the money supply with excessive regulation of markets. Both of which exist in China.
The vaunted Chinese policy makers are faced with a paradox. Reforms aimed at strengthening the economy could weaken it. Unlike western economies, China’s economy is still growing quickly. To revitalize their economy the Chinese are resorting to more bank loans which will simply increase inflation and bad loans without rekindling growth.
You may also want to read: China’s slowing GDP
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages. Mr Gamble can be contacted at [email protected] or [email protected]).
The Governor of Tripura, DY Patil, had planed to fly down to Pune to pacify activists opposing President Pratibha Patil's post-retirement home; tweets depleted his confidence and he sent his confidante instead, who in turn asked the soldiers to "tone down the agitation"
A couple of days back, President Patil’s men in the Defence Estate Office, Pune, were busy taking measurements of Col Suresh Patil’s outhouse, despite the fact that only Pune Cantonment Board is authorized to do so.
When they found no substance in this raid, the next best thing was to find out a strategy to pacify him and his two colleagues, Commander Ravindra Pathak and Anoop Awasthi, former naval officer, who has been spearheading a campaign against President Patil’s palatial retirement home in Pune measuring a whopping 2,42,000 sq ft when she is entitled to only 4,498 sq ft and that too of an existent government bungalow (she cannot indulge in new construction on government land).
A little bird tells us has it that last night Pratibha Patil asked Governor of Tripura, D Y Patil to fly down to Pune and meet Col Suresh Patil and somehow salvage the situation for her. Apparently, Col Patil got a call this morning as early as 6 am from Governor D Y Patil who said he would be in Pune to meet him at 5.30 p m. He would send his driver and car to pick him up, once he lands in Pune.
The news of the meeting spread like wildfire on the twitter and the media was constantly keeping a close watch on the event, throughout the day. However, 5 pm turned to 6 pm but there was no sign of D Y Patil. Col Patil followed up with the driver every half an hour. He would reply that ``Dada has still not landed.’’ His private aircraft was awaited.
At around 7.30 p m `Dada’ D Y Patil landed but by then he must have been informed of the damage that Twitterati had done to his supposedly secret meeting. Put off by this, D Y Patil instead sent his trusted trustee of D Y Patil educational institutes, B D Kotkar Patil (there are just too many Patils involved in the mega controversy!). He drove to Col Patil’s house at 8.15 p m.States Col Patil, ``we have known each other for many years and we chatted for a while. After about half an hour Kotkar said that he wants to talk to me separately.’’ Kotkar took him aside and asked him to ``tone down the agitation’’ and to have patience until April 24th when D Y Patil will surely meet him. Col Patil replied, ``there is no question of toning down the agitation, instead it would be intensified. Now, it is not just the fight of citizens of India but also Indians who are staying all over the world and have joined us in our campaign. Our demand is that the President must return the land to our soldiers and there is no compromise on that.’’ Kotkar reiterated that D Y Patil would meet them on April 24th.The three soldiers continue their mission to protest against President Patil’s palatial retirement home. On Monday, they are carrying out a signature campaign outside Collector of Pune’s office and will begin an online petition. They request everyone to join the movement.