International Expansion Blog

Global Glance: February 29, 2016

2/29/2016

A quick look at intriguing international stories

By John Bostwick, Managing Editor, Radius

John Bostwick, Managing Editor, RadiusWelcome back to Global Glance. This week we look at:

The Lifting of Sanctions on Iran: What It Means for US Businesses

The Seattle Times reported last Thursday that a Vancouver man was arrested by US federal authorities for shipping prohibited items to Iran, a violation of trade sanctions. (The items included pressure transducers, thermal imagers and other technical products.) Among other things, the charges are a reminder that despite the lifting of certain sanctions against Iran last month, significant restrictions remain. According to the Times, assistant US attorney Todd Greenberg “argued in court that even under the eased sanctions regime, providing those items for the Iranian military would be prohibited.”

For information on the Iran sanctions, start with US Treasury Secretary Jacob Lew’s January 16 statement announcing “Implementation Day,” when the US and other nations lifted nuclear-related sanctions in return for Iran meeting its commitments under the Joint Comprehensive Plan of Action (JCPOA). (The JCPOA is the 2015 deal between Iran and the US, the EU and the five permanent members of the UN Security Council, plus Germany, known as P5+1.)

Lew’s statement includes this critical caveat (the italics are mine): “We will continue to target sanctionable activities outside of the JCPOA – including those related to Iran’s support for terrorism, regional destabilization, human rights abuses, and ballistic missile development. … the US embargo broadly remains in place, meaning that US persons, including US banks, will still be prohibited from virtually all dealings with Iranian entities.” In other words, US businesses still need to beware of investing in Iran.

For more background, read “Iran: Implementation Day Explained,” published in The Financial Times. It notes that Iran has been subject to a number of sanctions from a number of sources, including the US, the UN and the EU. As of Implementation Day, “the UN sanctions — which the Iranians particularly disliked — have been unwound, as has the EU embargo on oil imports.” But, the article adds, “in most cases the restrictions on Americans will continue,” including “the sanctions on doing business with companies linked to the Iranian Revolutionary Guards, which will apply to other countries as well. That means that a European or Asian business wanting to do a deal in Iran will need to make sure its partners are not a front for the IRGC, which controls a considerable part of the Iranian economy.”

An article in The Washington Post further explores the ramifications of Implementation Day for European and American businesses. Because of relatively stringent sanctions still in place for US companies, only a few “are openly exploring business with Iran, even as European energy giants, carmakers and banks angle for a piece of the reopened market.” That said, even non-US businesses must be mindful of continued US sanctions. As Global Glancers have seen, laws governing anticorruption, data protection and other areas of global commerce increasingly bleed across borders. Here’s the Post again: “… many major European companies [have been forced] into a cautious creep in Iran for fear that they could run afoul of US rules.”

For more information on the effects of the sanctions — both those lifted and those remaining — check out Bloomberg.com’s article “Benefits of Iran Sanctions Relief to Bypass Most US Firms.” It notes that while a handful US companies, particularly those in the airline industry, will benefit from the lifted sanctions, most will likely refrain from investing in Iran. As a former US Treasury Department official quoted in the article explains, “Any company going into Iran has to deal with a whole range of business and compliance risks, not to mention reputation risks.” And if you’re thinking of establishing an overseas entity to bypass US sanctions, consider this passage form the Bloomberg.com piece: “Even if a US-based company is granted a license for a foreign subsidiary, it will have to take great pains to ensure its American business is walled off from any Iranian entities still sanctioned under US law.”

India’s Jat Protests and Caste System

If you’re from the US or some other Western nation, chances are you’re aware of India’s caste system but haven’t the faintest clue about its history, let alone its lingering effects and subtleties. Recent protests in New Delhi involving the Jat caste are particularly difficult to understand without at least some historical context, as the roots of the unrest lie in the caste system itself. An article from last Monday’s New York Times reported on the events in New Delhi, explaining that over the preceding four days Jat protesters “had blocked roads around the capital, set fire to railway stations and cars, and temporarily shut down a crucial canal that is a major source of the city’s water.” As a result, 19 people have died.

Which brings us back to the caste system, that millennia-old Hindu classification model. A BBC.com primer on the subject explains that the system “divides Hindus into four main categories — Brahmins, Kshatriyas, Vaishyas and the Shudras,” which sounds simple enough. But, the article adds, “the main castes were further divided into about 3,000 castes and 25,000 sub-castes, each based on their specific occupation. Outside of this Hindu caste system were the achhoots — the Dalits or the untouchables.”

This intricate structure, with its many restrictions and privileges, survived intact for centuries until, the BBC.com article goes on, independent India’s constitution came into force in 1950. The constitution “banned discrimination on the basis of caste, and, in an attempt to correct historical injustices and provide a level playing field to the traditionally disadvantaged, the authorities announced quotas in government jobs and educational institutions for scheduled castes and tribes, the lowest in the caste hierarchy.”

Those government-job quotas are at the heart of today’s Jat protests. A good article in US News explains that the Jats are “the dominant landowning caste” in the Indian state where the protests are taking place, and that “today, they are without doubt the single most powerful community in the state.” However, the decline of Indian agriculture has eroded the Jats’ status and economic power. (The article notes that India’s agricultural crisis has led to a staggering 300,000 suicides by farmers in the last two decades.)

Basically, the Jats want to be put on a list of groups considered “backward,” therefore making the Jats eligible for certain government jobs. The Times sums up the situation: “It is one of [India’s] major paradoxes that a population that has been trying for decades to rid itself of the caste system finds so many groups demanding to be ranked lower on the socioeconomic ladder in order to advance themselves economically.”

For a good piece on the caste system written by someone raised in India, read CNN.com’s “Why India Is Still Fighting Over Caste System,” by Ravi Agrawal. Agrawal likens India’s quota system to affirmative action in the US. He observes: “By and large, the Indian system of quotas has endured and been appreciated,” but “there are small pockets of groups who resent the system.” His article actually appeared last year, after a different series of violent protests in New Delhi involving grievances over the justness of quota system. He wrote (prophetically) that the 2015 protests showed “there are numerous fault lines in India's complex society and history that can flare up almost anytime.”

Group of 20 Meets in Shanghai on Global Economy

Less than two weeks ago, the Organization for Economic Cooperation and Development released its Interim Economic Outlook report, which predicted the global economy’s growth rate would be relatively sluggish through 2017. In a press release, OECD Chief Economist Catherine L. Mann urged advanced economies to work together to develop “policies with strong short-run benefits and that also contribute to long-term growth.”

Last Friday, the OECD released its Going for Growth 2016 report, which takes up Mann’s previous theme of collaborative economic policy development. A related OECD press release noted that the report “makes the case for prioritizing growth-enhancing measures that can best support demand in the short term, combining structural policies targeted toward regulatory reform with investment in public infrastructure.” In a separate statement, Mann added: “All countries contributing collectively to reform efforts and to supportive demand improves the prospects for a return to higher productivity and more inclusive growth both at home and in the global economy.”

The OECD report was released to coincide with the meeting of G20 finance ministers and central bank governors in Shanghai. Friday’s press release explains that the report “forms the basis of the OECD’s wider contribution to the G20 Framework for Strong, Sustainable and Balanced Growth.”

At this point, we’d do well to remind ourselves that developing policies in a single country is challenging, let alone developing them in concert with representatives from myriad other countries. An article last Friday in The Financial Times titled “Clashes Over Policy at Shanghai G20 Meeting” speaks to these challenges. The article reports: “Finance ministers and central bankers clashed on Friday over issues ranging from the need for global stimulus to negative interest rates, suggesting they were unlikely to agree on ‘bold’ measures urged by the International Monetary Fund earlier this week.” The article indicates that some at the meeting have “expressed disappointment at the apparent lack of urgency in Shanghai,” and that a French minister “said a coordinated boost to demand was a long way off.”

For more background on the G20 meeting in Shanghai, check out “Global Finance Leaders Meet as Economic Skies Darken,” published last Thursday in The New York Times. That also stresses the seriousness of the global economic situation, and cautions that “the economic policy makers of the Group of 20 nations … will be hard-pressed to come up with solutions.” It also addresses specific areas of concern, noting that “one of the biggest question marks over the group lies in how much it might do on currencies, beyond a general call for more stable exchange rates.”