If we're to do business, keep the poison
away. Such is the message reverberating lately in
the global marketplace.
Mercury tests of
tuna sushi bought in October by the New York Times
from Manhattan restaurants and stores revealed
toxic levels high enough to warrant precaution for
children and pregnant women. Some suppliers have
argued that because mercury enters the oceans as
an industrial pollutant, its presence in fish is
out of their control and must instead be dealt
with on a global level.
The West isn't the
only place calling for more transparency and
oversight in global markets. Demand for goods and
services free of risks and flaws is shared widely.
Could this convergence of
attitudes be a step toward
more balanced globalization? That is,
globalization in which poor nations have as much
say about product and service standards as the
Western nations that previously lectured them
about quality and modernization.
Take for
example the parallels between China's problems
with toymakers and the financial turmoil tied to
America's mortgage market. In both situations,
international scrutiny pressured producers to take
responsibility, if not evaluate flaws in the way
they did business.
During the summer of
2007, toys manufactured in China were found to
contain unsafe levels of lead in paint, forcing
major American companies like Mattel and Toys "R"
Us Inc to recall products. Among a series of
safety-related recalls, these incidents aggravated
the business environment between suppliers in the
East and buyers in the West, with the bad PR
spilling over to all things "Made in China".
"China must deal with these concerns in a
head-on and transparent way to preserve the
made-in-China brand," said US Health and Human
Services Secretary Michael Leavitt at a press
conference last fall. Leavitt added that China's
regulatory system needed "to increase its vigor,
its sophistication and its effectiveness," Reuters
reported.
Around the same time, securities
backed by risky subprime mortgages in the United
States threatened to send the country into
recession, impacting markets worldwide - America's
own toxic export.
While China was dealing
with recalls of its manufactured goods, the
country also suffered its first serious setback
from exposure to subprime mortgages. The New York
Times reported in August 2007 that shares in Bank
of China, the country's second-largest bank, fell
5.4% in Hong Kong a day after the bank reported
holding nearly US$9.7 billion in securities tied
to subprime mortgages. Industrial and Commercial
Bank of China, the country's largest Chinese
lender, was also impacted after it disclosed that
it was holding $1.23 billion in securities tied to
such mortgages.
It remains to be seen to
what extent problems related to subprime mortgages
in the United States will impact world markets.
Nevertheless, leaders worldwide are alarmed. Just
as the United States grilled China over its
manufactured goods, leaders from Brazil to South
Africa have called for more oversight of financial
services in America and Europe.
"It is
clear that there was regulatory and supervisory
failure," Trevor A Manuel, the finance minister of
South Africa, told the International Herald
Tribune.
Banks and investment funds from
around the world bought mortgage-related
securities and other financial products based on
those securities in the United States. American
rating agencies had given the products favorable
ratings in many cases and led investors to believe
there was minimal risk. However, a wave of
foreclosures struck the country as homeowners
struggled to pay for their homes. The glut of
unsold property has depressed home prices in the
United States. As a result of the subprime crisis,
the banking industry suffered big losses.
The German government has called for more
transparency of hedge funds, many of which were
heavily invested in the subprime loans. Officials
have gone as far as urging for a global register
of hedge funds and demand that the financial
products be subject to stricter disclosure rules
about their risk exposure, according to the New
York Times.
The blame game makes
headlines. But international scrutiny can also
promote accountability. With the interdependence
of globalization, it is bad business to ignore the
demands and wellbeing of trading partners large
and small. The new atmosphere may force
corporations and governments to be more
transparent.
In the wake of America's
mortgage meltdown, the US Securities and Exchange
Commission has been discussing more oversight of
hedge funds. The agency also signed several
cooperation agreements with regulators from China
to Germany in recent months.
Toy
manufacturers suffered losses this past holiday
season. The Wall Street Journal reported in
December that customers in America and Europe
either canceled or scaled back orders. In
response, companies are taking steps to tighten
standards to calm the fears of Western buyers.
With competition increasing globally, the
rise of accountability is also accompanied by the
potential for entrepreneurial nations to sell
products and services to less-regulated developing
markets, such as Russia and the Middle East, where
the allure of low-cost goods may overcome the
fears, risks, or governance capacities.
Thus, dealers of poison, whether financial
or physical, may still find receptive markets
where the price is right.
Nin-Hai
Tseng, who is working toward a master's degree
in public administration with a concentration in
international economic policy at the School of
International and Public Affairs at Columbia
University, City of New York, serves as a staff
member at Columbia University's Journal of
International Affairs.
(Published
with permission of the Global Policy Innovations
program at the Carnegie Council for
Ethics in International
Affairs.
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