Impact of Trade on Employment (draft) Min Zar Ni Lin 1 Context of - - PowerPoint PPT Presentation

Impact of Trade on Employment

(draft)

1

Min Zar Ni Lin

Context of Trade and Employment

• Trade is essential for development and employment creation, but

the link between them is complex

• Trade is a double edged sword : create better employment
• pportunities and vice versa

What does literature say?

Relationship between Trade and Employment

• An immediate rise in unemployment in the short run and a reversal of

that rise and an eventual decline in unemployment in the long run (Dutt, Mitra and Ranjan, 2009)

• Aggregate employment is determined by growth in the labour force,

macroeconomic variables, and labour market institutions – and trade

• penness or trade liberalisation plays no role at all (Hoekman and

Winters, 2007)

• The role of technological change and the impact of greater openness
• n the elasticity of demand for labour (UNCTD , 2013)

What does literature say?

• Neoclassical economists used evidence of rising employment and

exports to justify the positive role of foreign manufacturing

• perations (Ariff, 1991)
• However

, there have been extensive accounts of super-exploitation in which workers with higher wages in home countries were replaced with workers with low wages at host sites (Fröbel et al., 1980; Jomo, 1986; Limqueco et al., 1989).

Myanmar and Trade Agreements

• Since 1948, Myanmar is one of the fountain members of GA

TT and of the WTO since 1995.

• Also a member of ILO since 1948
• All the FT

As that Myanmar has signed and that are in effect are related to ASEAN

• As an LDC: preferential access to a number of markets through

Generalized System of Preferences (GSP), incl. through the EU's ͞Everything But Arms͟ scheme and US GSP A+ scheme(its most favorable GSP regime)

MyaŶŵar’s Trade AgreeŵeŶts ;iŶ force aŶd uŶder ŶegotiatioŶͿ

6 Source: ADB (http://aric.adb.org/fta-country); UNESCAP (http://artnet.unescap.org/APTIAD/agg_db.aspx)

FTA name FTA partner countries Status

ASEAN Free Trade Area (AFTA) Brunei, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam Signed and in effect since 1992 ASEAN-Australia and New Zealand Free Trade Agreement (AANZ) ASEAN + Australia and New Zealand Signed and In Effect since 2010 ASEAN-India Comprehensive Economic Cooperation Agreement (incl. AIFTA) ASEAN + India Signed and In Effect since 2010 ASEAN-Japan Comprehensive Economic Partnership (incl. AJFTA) ASEAN + Japan Signed and In Effect since 2008 ASEAN-People's Republic of China Comprehensive Economic Cooperation Agreement (incl. ACFTA) ASEAN + China Signed and In Effect since 2005 ASEAN-Korea Comprehensive Economic Cooperation Agreement (incl. AKFTA) ASEAN + Republic of Korea Signed and In Effect since 2010 ASEAN-Hong Kong, China Free Trade Agreement ASEAN + Hong Kong Negotiations launched in 2014 Regional Comprehensive Economic Partnership ASEAN + Australia, China, India, Japan, Korea, and New Zealand Negotiations launched in 2009 Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area Bangladesh, Bhutan, India, Nepal, Sri Lanka, Thailand Framework Agreement signed in 2004 and negotiations launched Myanmar-US Trade and Investment Framework Agreement USA Framework Agreement signed in 2013

Growth trajectory: Little structural transformation

Increase of per capita trade volume

• MyaŶŵar’s economic relations also confined to

neighboring economies – China, Thailand, India and Singapore are major trading partner .

$18 $ 9

1934

$4 $1 $20 $15 $10 $5 $0 $56 6 $6,34 2 $61 4

2014

$3,146 $2,000 $- $8,000 $6,000 $4,000

Source: J.R. Andrus (1947), ADB (2015) Source: J.R. Andrus (1947), CSO (2015, WTO (2017)

Rice 47% Teak 7% Minera l 10% Oil and Gas 32% Others 4%

1940

Teak 6% Oil and Gas 9% Beans/ Pulses 13% Garment 30% Others 37%

2000

Oil and Gas 30% Beans/ Pulses 8% Garment 8% Others 50%

2014

In Myanmar , agriculture has been mainstay of the economy for last century; 36% of GDP; 60% of population. Myanmar export narrowly based all along: rice, oil/gas, jade, teak, beans/pulses a remains unchanged

hit by US sanctions in 2004

T

• tal exports by destination (%, 2016)

T

• tal imports by main orgin (%, 2016)

Background: Trade and Labor Market Reforms in Myanmar

• Second wave of

reform

• -T

argeting 7.7 % annual average GDP growth (5- year plans)

• Exchange rage

unification)

• Exempted commercial tax for 7

agri/livestock items

• from 10% to 2 % for Income tax levied of

CMP exports

• Reduced CIT from 30% to 25% .
• Export T

ax exemption under CMP mode

• non-automatic to automatic licensing
• Removed most of exports taxes except

natural resources

Minimum Wage Law (2013): Social Security Law (2013) Labor Association Law (2012) Dispute Settlement (2014) Skill Law (2015)

Process of setting MW:

• Evidence-based data

analysis to policy input

• Knowledge sharing to

problem solving

• Peaceful tri-partite

dialogue processes/ negotiations

• Leading role of Gov

. Current Government- Ongoing Agenda:

• Implementation of

laws and policies

Government Transition – Nov 2015 US-GSP

(November ,

• 2016. )

reinstated EU-GSP (July 2013)

12-Point Economic Policy

• Relax restrictions on international banking
• A new CBM law
• Trade Liberalization
• Eliminated Export first, import second policy
• Implementing National Single Windows

(Myanmar Automated Cargo Clearance System (MACCS)

• Draft National Standard Law and Metrology

Law (TBTs)

• CIL & FIL (2013),
• simplified company registration procedure

and extended period

Framework for Economic and Social Reforms

• National Export

Strategy – Accessing GVCs and markets

GDP and Exports

1.7% 3.6% 2.8% 3.4%

• 0.4%

2.5% 8.0% 11.4% 12.1% 8.3% 8.9% 8.9% 11.8% 10.3% 9.1% 8.7% 8.0% 7.0% 7.3% 8.4% 8.0% 7.0% 5.9% 6.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Real GDP growht and sector growth rate (2012/13 - 2017/18)

Agriculture Industry Service Real GDP Growth (right scale) 2000 4000 6000 8000 10000 12000

Myanmar’s Export (1990/91 – 2015/16)

Agricultural Products Timber Gas Animal Products Base Metal and Ores Garment Marine Products Jade Other Commodities

Export products distribution

Thailand Myanmar

Source: mit.edu

11

Key features of Myanmar’s trade

T ARIFFS:

• 18.8% of all tariff lines (at HS 8-digit level) are bound, incl. all agricultural lines but only 5.1% of

non-agricultural lines

• Bound tariffs range from 0% (e.g. electrical machinery or transport equipment) to 550% (e.g.

chemicals, beverages, and tobacco, and cereals and preparations)

• In 2015, simple average bound rate was 84.1%; average applied MFN tariff was 5.6%
• This significant difference (82 percentage points), and the fact that only 18.8% of tariff lines are

bound, gives authorities considerable scope to raise tariffs, implying a certain unpredictability for traders

• Average tariffs on agricultural products are higher than those for non-agricultural products: 8.6%
• vs. 5.1%.

12

Key features of Myanmar’s trade

NON-T ARIFF MEASURES (NTMs):

Customs procedures are time-consuming and costly: Myanmar stands at 171 out of 190 in the World Bank’s Ease of Trading Across Border ranking (2018) T

• be able to import, a company must:
• register with DICA (Directorate of Investment & Company Administration)
• register as a "trader" with Ministry of Commerce (MoC)
• join UMFCCI (Federation of Chambers of Commerce and Industry)
• for most products, obtain an import license issued by MoC
• In 2013, import licensing requirements were abolished for 166 products (over 1,900 tariff lines)

T

• be able to export, a company must:
• register as company with DICA and as an exporter with MoC
• for most products, obtain an export license from MoC
• Reform in 2013, but currently only 152 types of goods no longer require export licenses
• for certain products, obtain a recommendation from relevant ministries and/or UMFCCI

Key features of MyaŶŵar’s trade

ST ANDARDS:

• Standardization Law is new (enacted by parliament in 2014)
• Only few standards exist in Myanmar (around 65)
• None of Myanmar's current PT

As contains a chapter on standards and technical regulations

Labor Market Dynamics in Myanmar

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Agri

Below Primary

Industry Services Male Female

Above Middle School

By education level

Primary School Middle School 54%, Male 29%, Urban 46 %, Female 71 %, Rural 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Gender Rural-Urban

By gender and rural-urban Source: Myanmar LFS (2015)

Employed 64% Umemployed 1% Outside LF 35%

Working age population

Employed Umemployed Outside LF 7000 6000 5000 4000 3000 2000 1000

Agriculture Manufacture Servicces Male Female Rural Urban Sector Gender Rural-Urban MMK Axis Title

Daily Wages by sector, gender and rural-urban

5 14.2 27.4 12.5 15.1 16.9 23.6 27.4 18.4 40.6 25.3 35.1 36.1 34.5 28.2 37.4 31.4 27.7 23.8 19.2

Effects of a Minimum Wage on Wage Redistribution (2016)

50000 100000 150000 200000 250000

1 2

Basic Salary (Before)

3 4 5 MMKS

Basic Salary Distribution Across Quintiles

Basic Salary (After) Real Basic Salary (After)

50000 100000 150000 200000 250000 300000

1 2 3 4 5

Real Wage (After)

MMKS

T

• tal Salary (Basic plus additional allowances)

Distribution Across Quintiles

Nominal Wage (Before) Nominal Wage After

70% 9%

86 %

0%

Labour productivity in Myanmar and selected economies

Source: McKinsey ( 2013 ) Myanmar’s moment: Unique opportunities, major challenges, MGI, June

YEARL Y APPROVED AMOUNT OF FOREIGN INVESTMENT (BY SECTOR)

4000 8000 12000 16000 20000 2008-09 2009-10

Source: DICA, Myanmar (2016)

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 (end of 31.10.2016)

US$ Million

Agricultuer Other Services Industrial Estate Real Estate Hotel and Tourism Transport & Communication Construction Oil and Gas Power Manufacturing Mining Livestock & Fisheries

Ease of Doing Business Ranking in Myanmar

Source: World Bank, Ease of Doing Business Indicators

Barriers for business in Myanmar

Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting minority investors Paying taxes Trading across borders Enforcing contract Resolving insolvency

Myanmar East Asia & Pacific

Source: World Bank, Ease of Doing Business 2018.

What does literature say about Trade and Employment in Asia

• In Japan, the author Kiyota (2011) found that the demand for worker-hours

from exports increased but it was not large enough to offset the decrease in demand for worker-hours from slower domestic final demand. The demand for employment from exports has increased since 1985 in both manufacturing and non-manufacturing industries

• In Indonesia, authors Brooks and Manning (2011) observed how in 2005

based on a slower growth in manufacturing exports and a shift away from the light industry , fewer jobs were created through exports in manufacturing

• Rasiah (1993) argued that the evolving labour process in modernising

electronics and textile factories was actually improving working conditions and wages compared to the alternative faced by the peasantry under feudal conditions and workers under oppressive backyards characterised by stagnant technologies in Malaysia.

What does literature say about Trade and Employment in Myanmar?

• According to ADB (2012) the garment exports in Myanmar offer a welcome

diversification from a traditional reliance on primary commodities and remain an important source of employment generation.

• Myint and Rasiah (2012) conducted a study to examine the impact of

export-oriented garment manufacturing on employment, skills and wages in Myanmar working with the Myanmar Garment Manufacturing Association (MGMA)

• They found that being highly labour-intensive, garment production offers

strong employment opportunities at sites capable of attracting transient low wage workers docile enough to absorb high fluctuations in labour demand

What does literature say about Trade and Employment in Myanmar

• Based on the licensing system for exports and imports, Aung (2009)

noted how , through these practices, trade turnovers have increased, trade facilitation has improved tremendously , and job opportunities have opened up for more locals in border areas.

Potential policy areas for future

• Heavy reliance on income from natural resource-based sectors could lead

to growth in unemployment and long-term structural problems such as rising income inequality, de-industrialization (Dutch disease), and environmental degradation. Therefore, the Government should utilize its resource-based revenues to invest in infrastructure and human capital, in

• rder to pave a way for economic diversification and specialization for

sustainable and inclusive development of Myanmar (ESCAP , 2012b).

• If Myanmar could increase exports of such products instead of ex- porting

its unprocecessed natural resources, the value of its exports would be much higher and contribute more to the country’s economic develop- ment and, at the same time, provide employment opportunities and a better livelihood to local people and would contribute to human resources devel- opment through technology transfers (Aung, 2009).

Potential policy areas for future

• Due to the lack of diversification, the country is susceptible to

demand and price fluctuations. A broadening of the productive base would provide added stability and a source of employment for the many people who are currently engaged as surplus rural workers or low paying informal activities (ADB, 2012)

• The development of infrastructure, education and intermediary
• rganizations that support technological upgrading in firms. Only then

can the demand for the creation of quality jobs and improvements to working conditions be achieved (Myint and Rasiah, 2012).