Sunday, August 1, 2004

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Doha is back on track

Following up on Thursday's post, WTO negotiators have announced a successful "July package" that lays the groundworks for cobbling a successful trade deal. Lisa Schlein has a story for Voice of America:

Delegates to the World Trade Organization have agreed to a deal, which experts say will boost world economic growth by liberalizing world trade. The agreement restarts stalled free trade talks, known as the Doha Development Round, which collapsed last September at a meeting in Cancun, Mexico.

After a week of marathon talks, the World Trade Organization's 147 members approved the agreement by consensus, marking what WTO Director-General Supachai Panitchpakdi calls an historical moment for the organization.

He says the framework agreement will lead toward the elimination of export subsidies, a reduction in domestic subsidies and will produce gains in market access....

West African countries achieved a breakthrough in their demands that rich countries stop subsidizing their cotton farmers. Under the agreement, the United States and other nations have decided that cotton subsidies be treated on a separate fast track. U.S. Trade Representative Robert Zoellick says he is pleased with the outcome of this negotiation....

Chief negotiators at the World Trade Organization say they hope they will be able to conclude the round of trade talks by December 2005, when the next ministerial takes place in Hong Kong.

As this WTO press release points out, this pushes the deadline back from the original January 2005 deadline, but that's to be expected. The WTO Secretary-General is clearly pleased:

Dr. Supachai predicted that the progress now made in agriculture, non-agricultural market access, development issues and trade facilitation would provide substantial momentum to WTO members’ work in other important areas such as rules, services, environment, reform of dispute procedures and intellectual property protection.

“I fully expect that when negotiators return in September negotiations in these areas and all others will recommence with a high degree of enthusiasm,” he said.

WTO members can now put behind them the deadlock 10 months earlier at the Cancún ministerial conference, he said.

[C'mon, it's a froggin' press release -- of course he's going to be upbeat!--ed. Actually, it's been my experience that compared to other international governmental organizations, the WTO press material is remarkably free of spin or artifice.]

You can take a gander at the text of the recent agreement by clicking here.

The contrast between the Bush administration's positive contributions to this step foward on trade and Kerry's praise of the "fair trade" shibboleth, does alter one of the four key factors in my voting decision come November. So, my probability of voting for Kerry has been lowered from .54 to .50.

UPDATE: Robert Tagorda provides plenty of links, including this New York Times story and the Kerry campaign's fatuous press release on the matter. From the latter, this part was particularly inane:

Exports Are Down Under President Bush - The First President Since Herbert Hoover. Exports have fallen in inflation-adjusted terms under President Bush - the first drop under any President since Herbert Hoover. In contrast, most post-World War II Presidential terms have seen 15 to 30 percent real export growth.

Bush Called Job Protection Measures a "Barrier." In a speech to the Women's Entrepreneurship in the 21st Century Forum, George Bush defended the outsourcing of jobs overseas. Bush said, "We cannot expect to sell our goods and services, and create jobs, if America and our partners, trading partners, start raising barriers and closing off markets."

The first point is a non sequitur, since it has little to do with the Bush administration. Exports are largely a function of other countries' aggregate demand and the exchange rate. Under Bush, the dollar has depreciated in value. What's depressed exports has been the sclerotic growth of our major trading partners, not some failure of the Bush administration.

As to the second point, I look forward to hearing the Kerry economic team argue that, "We can expect to sell our goods and services, and create jobs, if America and our partners, trading partners, start raising barriers and closing off markets."

In contrast, USTR head Bob Zoellick said the following in his press release:

President Bush confounded conventional wisdom by empowering me and my Administration colleagues to make trade success a priority, even in an election year, because he believes open markets build stronger economies and help create jobs in the United States and opportunity around the world.

Here's a useful USTR fact sheet as well.

This does not excuse the myriad examples of protectionism committed by this administration -- but the past week has seen some substantive pluses for the Bush team and some rhetorical minuses for the Kerry team on trade.

posted by Dan on 08.01.04 at 11:37 AM


“The contrast between the Bush administration's positive contributions to this step foward on trade and Kerry's praise of the "fair trade" shibboleth..”

Nobody has a right to accuse me of being a President Bush flunky. I have consistently blasted this administration’s lack of guts regarding free trade issues. The following were my views expressed on Brad DeLong’s blog (there are others. This was merely a quick google search):

“Indeed. To say nothing of Brazilian orange juice (100% tariff here in the USA). This certainly seems even less likely when you consider who is governor of Florida and when you have Mary Landrieu terrifying people in Louisiana about imported sugar.”

That is a very fair observation. Both the Democrats and the Republicans tread lightly when dealing with these issues. Mary Landrieu’s recent victory was probably due to the imported sugar flap. The lesson is loud and clear: there is a huge risk in promoting free policies.

Will the Bush administration be brave enough to do the right thing? So far, it has done a less than admirable job.
Posted by: David Thomson on January 3, 2003 02:47 PM”

President Bush leaves something to be desired---but John Kerry will likely prove to be an unmitigated disaster. The latter gentleman will be constantly pressured by Howard Dean and the other trade protectionists. These folks are not going to be casually marginalized and keep their mouths shut. There is a consensus within the Republican Party in support of free trade. Those who think otherwise are in the minority. This is not the case with the Democrats.

“P(voting for Kerry) has been lowered from .54 to .50.”

Gulp, I must embarrassingly ask what the above means to us representing the unwashed masses? I’m afraid that my knowledge is not limitless. There are areas where I’m grossly ignorant. Such is life.

posted by: David Thomson on 08.01.04 at 11:37 AM [permalink]

The classic problem of representative democracy -- that a few people whose ox is gored can raise enough fuss to force changes beneficial to them but bad for the rest of us, shows up nowhere as clearly as in agriculture subsidies. Market access for impovershed countries is the single thing we could best do to relieve world hunger.

I am trying to think of any president or pres hopeful who has shown courage on this issue. Does anyone come to mind?

posted by: Assistant Village Idiot on 08.01.04 at 11:37 AM [permalink]

Dan, you should report your "P(Vote-for-Kerry)" not with a value, but with the two parameters of a beta distribution over the probability...

Then, when something like this comes along, and you're inclined to say,

"Ah ha, a point for Bush!"

You can just update the beta distribution's parameters (which look like pseudo-counts) to update your belief...

Just a thought ("mmmmm.... Bayesian.")

posted by: goofy on 08.01.04 at 11:37 AM [permalink]

Yea, I'm sure those farm subsidies are really gonna go before teh election. When the US (and EU) ACTUALLY drops the subsidies, and decides free-trade doesn't mean fucking the third world up the ass -- come back and let us know.

posted by: jor on 08.01.04 at 11:37 AM [permalink]

It will be a new day when any party actually stops subsidies in agriculture. I've always thought that this revolves around 2 issues:

1. A lot of the main agricultural producing states, are red learning, correct? (Excepting California). Whichever party comes out strongly in favor of ending these subsidies, is going to be taking a massive hit at the polls. Hence the fear and trepidation of both parties.
2. I don't hear many people speaking to this - but isn't there a national security issue involved here? Look at it this way:

Say agricultural subsidies are dropped. Currently, the US produces not only enough food for itself, but also a lot of surplus. I would assume that, if agricultural subsidies are dropped, there would definitely be some businesses (and large ones, since ag is now BIG AG) that will go under.

Because it is not "cost-effective", would the ending of agricultural subsidies, conceivably mean that the United States would no longer be self-sufficient in food creation? And thus, if there were a real crisis in international relations, such that a country or group of countries embargoed the United States, how would the United States feed its own people? (Clearly that's a worse case scenario.)

In a free trade world, this is what you want of course. That the production of a good goes to the area that can produce it most efficiently and cheaply.

But this notion completely and utterly clashes with the idea of an independent nation state.

This is also true in defense, by the way. We aren't seeing Chinese companies getting large defense contracts, now are we?

By the way, I freely admit I am ignorant in this area. This is how I see things at the moment, but I am definitely open to being educated in this, and removing at least one thin veil of ignorance.

For a trade guy like Dan, what is the tension, if there is any, between, the unfettered free trade of goods, and nation state independence and security, regarding both food and security?

I'll start with my own thought. It's a real problem and concern if the "producer" has a high probability of, politically, being a "bad actor". This is current situation with the producers of oil - another precious commodity.

But I welcome any thoughts.

posted by: JC on 08.01.04 at 11:37 AM [permalink]

"Red leaning" (republican), not learning - although Mr. Thomson might prefer that! :)

posted by: JC on 08.01.04 at 11:37 AM [permalink]

Developing countries should take advantage of agricultural subsidies as they represent transfer of wealth from taxpayers of rich countries. See my blog post for more details.

posted by: Ashish Hanwadikar on 08.01.04 at 11:37 AM [permalink]

Exports are down in part because of a strong dollar. But the exchange rate is not an exogenous variable. It's strong in part because of the Bush fiscal train wreck.

posted by: Harold McClure on 08.01.04 at 11:37 AM [permalink]

The President spoke in Missouri on Friday, following Kerry's convention speech.

This looks like the main "trade" part of the speech:

We will do more to make America more job friendly and America's workplaces more family friendly. To keep American jobs in America, regulations should be reasonable and fair. To keep the jobs here at home, we must lessen our dependence on foreign sources of energy. (Applause.) To keep American jobs here, we must end the junk lawsuits that hurt our small businesses. (Applause.) And to keep this economy growing so people can find work, we will not overspend your money, and we will keep your taxes low. (Applause.)

We'll offer America's workers a lifetime of learning, and help them get training for jobs of the future at places like our community colleges. The education and training they offered can bridge -- can be the bridge between people's lives as they are, and people's lives as they want them to be.

Today, I met Kristin Heydt. She's from Springfield, as well. She used to be a bank teller. With the tax relief she and her family had as a result of the tax cuts, she went back to school. She's now a nurse. She completed a program. She now makes three times the amount of money she made before, because of education. (Applause.)

Good education means workers can realize their dreams. To make sure we continue to grow our economy, we will insist on a level playing field when it comes to trade. We want Missouri farmers selling Missouri crops all over the world. (Applause.)


posted by: Tom Maguire on 08.01.04 at 11:37 AM [permalink]

Like they showed on the news last nite here in Japan, the wording of the concessions was so vague, that each side is not obligated to do anything. So for the sake of pushing forward the talks, the issues especially regarding farm subsidies were not directly addressed.

We need fair free trade, but not empty words that nobody has to abide by.

posted by: daniel on 08.01.04 at 11:37 AM [permalink]

"Exports are down in part because of a strong dollar. But the exchange rate is not an exogenous variable. It's strong in part because of the Bush fiscal train wreck. "

Gee, I thought fiscal train wrecks would result in weak currencies. But since the dollar was strong during the late 90s I guess the late 90s must have been a fiscal train wreck as well.

The fundamental problem is that during the 90s we got addicted to a too strong dollar. As a result prices on a wide variety of goods were pushed down or increased only slightly. A consequence of this was that a lot of domestic production capacity was lost. Regardless, any decrease in the dollar's value is going to result in an increase in prices for types of goods that are primarily imported. Whether or not the prices will stop increasing once exchange rates stabilize, during the adjustment phase the political boogeyman of inflation will appear to be back.

The question we should be asking is why the dollar rose to such heights in the first place during the late 90s in the face of huge trade deficits. The most commonly stated reason was that foreigners were willing to finance the deficit due to strong performance of US markets. Another reason was the Fed's attempts to slow down growth by increasing interest rates attracted more capital to the US in search of a decent return with a extremely high degree of safety. Another reason was that foreign governments wanted to grow or stabilize their economies by increasing exports to the US, especially Asian governments, especially after the Asian financial crisis. Another reason was the that the dollar had momentum, so investors could anticipate additional returns on investments because of the appreciation of the dollar. But there are only so many good investments available, so money was dumped into the stock market, which led to an increase in valuations, which led to an increase in foreign investment in the US which led to further increases in the dollar and the valuations of investments in the US. Hence the bubble. Things might have gone well if investors were more selective about the investments they made (ie did not invest in most dot-coms and human genome/biotech bubble stocks). Alas they didn't. And we are still paying the price for the stupidity of the late 90s.

I wonder if we need an additional lever for modulating the money supply in the US, specifically something like an entry tariff on foreign capital. It seems to me that the Fed's efforts were some what counterproductive because the interest rate hikes attracted foreign capital to the US.

posted by: Atm on 08.01.04 at 11:37 AM [permalink]

Just another prayer meeting for the free-trade faithful.

When will you learn?
Maybe when half of america is living in trailer parks and shopping at Wal mart?

That is if YOU are in that half of course.
If you are in the other half it will be business as usual.
Free trade is very nearly boardering on a new form of freemasonry.
It will be solemn rights and secret handshakes, oh yes, seriousness all around until the cameras are gone and nobody's looking.
Then it's "lets play the SS stormtrooper and the nazi milkmaid" time.

Well, thats a good attempt at dark, sarcastic humor, but honestly, free trade is seriously damaging the lower and middle classes in this nation, and it is well on it's way to creating an economic underclass.
Stop worrying about your portfolios, and strart caring about your fellow Americans for a change.

posted by: Steve Ramsey on 08.01.04 at 11:37 AM [permalink]


The philosophy you are espousing has a name - "juche" and look how well that has done....

posted by: Major John on 08.01.04 at 11:37 AM [permalink]

Exports are down in part because of a strong dollar. But the exchange rate is not an exogenous variable. It's strong in part because of the Bush fiscal train wreck.

Are you talking about the same "strong dollar" that lost roughly one third of it's value against the Euro in the last few years? (From 1$ ~ 1.2E to 1$ ~ .82E)

posted by: T. Andrews on 08.01.04 at 11:37 AM [permalink]


Yhe late 1990's was a period of strong investment and modest national savings. We currently have very modest investment and near zero national savings. But Dan is right about the dollar devaluing. However, see my blog at Angrybear (under PGL) for a hopefully better version of this.

posted by: Harold McClure on 08.01.04 at 11:37 AM [permalink]

I have some doubts about the purported breakthrough in the Doha Round. They derive from two questions news stories on this subject do not answer.

First, is USTR Zoellick really speaking for the administration or, having been given a relatively free hand to conduct negotiations that generally do not end up on the evening news, has he made concessions that the White House will back away from when they do end up on the evening news?

Second, has Congress had any input in Doha negotiations at all? Farm subsidies generally and the cotton program in particular did not fall out of the sky; they were enacted by Congress over very weak opposition, especially in the House. There are people in Congress who will regard this "breakthrough" as a collapse, or at least as resulting from an administration concession that they should feel free to repudiate.

posted by: Zathras on 08.01.04 at 11:37 AM [permalink]

On trade and agricultural security; I am not too worried about this issue, JC because any scenario where the rest of the world will not sell food to the United States is past the plausible. Especially since the most likely major trading partner in agricultural products would be Canada. But let's move on with your scenario.

Let's take some proprotion of US production out of use and lay the land fallow due to a change in the cost-price structure of the industry; so what: right now the US maintains roughly 180 day inventory of food stuffs where if nothing else was harvested tomorrow, there is enough food for six months. So in a worse case scenario, the US can eat its own production combined with the current reserves while the year to eighteen months needed to restart production of the currently fallowed land is waited out. Anyways, Great Britian has been able to be a great power for 100+ years (1840s-1957) even though it was never able to feed itself at in this time period.

posted by: fester on 08.01.04 at 11:37 AM [permalink]


Thanks for the response. As I say, it seemed unlikely, but I was wondering if the national security aspect of things were ever in the calculus for these things. Then I suppose the only issue is the political calculus and the fear of political reaction.

posted by: JC on 08.01.04 at 11:37 AM [permalink]

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