By Nin-Hai Tseng | January 30, 2008
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 massive 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 U.S. 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," as reported by Reuters.
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 percent in Hong Kong a day after the bank reported holding nearly $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 U.S. 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.
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