Tuesday, November 8, 2005

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So how is trade integration going?

I've seen better weeks for those who want trade expansion.

At the Summit of the Americas in Mar del Plata, everyone took a "wait-and-see" approach to the proposed Free Trade Area of the Americas. The Economist explains:

At the first Summit of the Americas, in Miami in 1994, all the region’s governments signed up to a common vision of democracy and free trade. That consensus was starting to fray by the third summit, in Quebec in 2001; now at Mar del Plata, the fourth, it has unravelled. The gathering’s worthy official theme was to promote employment. But how? The plan for a Free Trade Area of the Americas (FTAA), originally due to come into effect this year, has stalled, as Mr Bush admitted even before the summit, saying that the Doha round of world trade talks should take precedence. Brazil echoed this sentiment at Mar del Plata, saying it wanted to see the outcome of negotiations at the World Trade Organisation (WTO) before moving forward on a regional agreement. Argentina also demurred. With three out of Latin America's four biggest economies reluctant, hopes for a regional agreement were dashed.

This makes sense. So how are those WTO negotiations going? The Associated Press reports that India's Commerce Minister is not optimistic:

The World Trade Organization may not be able to achieve the goals it has set for a new trade treaty when ministers meet in Hong Kong later this year, the Indian commerce minister said Monday.

"With the few days left, with the vastness of what is on the table, we may not be having" the complete blueprint that was planned, Kamal Nath told reporters following a meeting of key trade negotiators.

Ministers from the 148 WTO members meet in Hong Kong Dec. 13-18 aiming to create a detailed framework for a major trade treaty that would lower import barriers and reduce subsidies. But major differences exist in areas including agriculture and market access for manufactured goods.

"It isn't that Hong Kong is going to be a failure. We are tempering expectations based upon the timing and the intricacy," said Nath, who chaired the meeting of ministers from India, the United States, the European Union, Brazil and Japan.

With only weeks to go before the Hong Kong meeting, ministers seemed to be trying to avoid the kind of crushing disaster they faced at the last WTO ministerial in Cancun, Mexico, in 2001, which collapsed in disarray and acrimony, paralyzing the global trade body for months.

[So this is Europe's fault, right?--ed. Well, at this point the answer is yes and no. Certainly EU intransigence on agricultural matters doesn't help. On the other hand, the developing countries are now in a position where they need to make concessions as well. Consider the Indian Commerce Minister's remarks in this story by the Independent's Philip Thornton In a wide-ranging interview with The Independent, Kamal Nath lashes out at the attitude taken by rich nations in the WTO talks ­ especially that of Europe's trade commissioner Peter Mandelson. He appears baffled that Europe has offered to eliminate domestic subsidies and reduce tariffs ­ but in exchange for concessions in other areas, notably service industries and market access for industrial goods.

"I welcome Peter Mandelson's proposal to say he will reduce by so much but then he says 'I want my pound of flesh'," Mr Nath said. He compared Mr Mandelson to a politician seeking a knighthood simply for obeying a traffic light. "He is looking to be rewarded and rewarded for behaving as one should.

"It is a step in the right direction but it is a question of giving an inch and asking for a mile ­ not just asking for a foot but a mile."

On the one hand, Nath is correct in saying that the EU should liberalize its agricultural sector no matter what. On the other hand, the GATT/WTO process was designed for states to get concessions from other countries in order to gain the concessions they want. From an economic standpoint, this kind of reciprocity makes no sense (it's better for countries to unilaterally lower all their tariffs, quotas, and barriers). From a political standpoint, however, the Indians -- and other large-market developing countries such as Brazil and China -- are going to have to reciprocate for the Doha round to have any meaning.

UPDATE: Oh, goody, the U.S. has scored a trade "victory," according to Edward Alden of the Financial Times:

Tuesday’s deal to restrain imports of Chinese textiles and clothing is the latest and largest – and the most surprising -- of those agreements. As recently as last month, the talks broke down in the face of Chinese demands for annual increases of as high as 30 per cent in exports to the US. But on Tuesday Beijing signed off on a deal that will bring it little more than 10 per cent annual growth through the end of 2008.

Mr Portman, speaking in London, called it “an example of how the US and China do have the ability to resolve tough trade disputes in a manner that benefits both countries.” Bo Xilai, China’s Commerce minister, said that while it’s “still a far cry from our original expectations” of free trade in textiles and apparel, the stability it brings is “a win-win result.”

posted by Dan on 11.08.05 at 10:32 AM


Dear Dan,

I think you are not being completely fair here. You have to remember that the developing countries have already made the concessions by opening a big part of their markets in the first place -- not to mention financial markets and so on. We wouldn't even be having this discussion if it wasn't for this.

It seems weird that developed countries want more concessions when they have been stalling and postponing a much needed reversal of their agricultural policies and subsidies. In my understanding of the situation, the ball is completely on the EU and the US' courts.


posted by: BB on 11.08.05 at 10:32 AM [permalink]

Why should anyone trust the USA as a partner in a trade deal when they have shown with the softwood lumber issue that they can't be trusted to honour its terms. In spite of several NAFTA and WTO rulings against them, the USA plays politics to the lobbys and continues to charge billions of dollars in illegal tariffs. Not only that, they won't return 4.5 billion of illegal tariffs they have already collected.
I see on the news that the hurricane states are desparate for lumber and are expecting to pay 50 to 100% premiums to get it. Open the Canadain border George and honour your agreements.

posted by: Bruce Jaffary on 11.08.05 at 10:32 AM [permalink]

On top of that, Bruce, this administration has demonstated a hard-core 'f*ck the world' attitude, combined with bizarre levels of incompetancy.

Why negotiate with it, when you can't trust them on multiple levels?

If it persists, you'll have to, but if it changes, then you'll be happier that you hadn't commited yourself.

posted by: Barry on 11.08.05 at 10:32 AM [permalink]

I think your comments with respect to reciprocity and the GATT/WTO are somewhat off the mark. The norm of strong reciprocity under the GATT was largely limited to OECD countries, with differential treatment and more favorable treatment additional norms to deal with developing countries. One could plausibly argue that the conclusion of the uruguay Round creation of the WTO marked the beginning of a major developing country concession (eliminating special trtment, TRIPS, etc) which has yet to be repaid, as much of the developing country agenda was not addressed in the Uruguay Round. There's clearly a difference between Brazil, India, and the least developed countries, and there's no shortage of posturing, but it caould be argued that it's the Quad's turn to make good on reciprocity..

posted by: John Gershman on 11.08.05 at 10:32 AM [permalink]

Your first passage above makes clear that any attempt to paint Hugo Chavez as the Villain of Mar del Plata, as some of their lamer post-summit spin was attempting to do, won't fly. Chavez certainly had his fun but Brazil and Argentina had zero interest in a FTAA deal and were happy to let him carry the ball on that one.

posted by: P O'Neill on 11.08.05 at 10:32 AM [permalink]

Since reciprocity makes no sense from an economic standpoint, why should we be worrying about trade talks at all? Why should countries concern themselves with the trade policies of other nations? If they can't agree on free trade, perhaps they should agree on common trade, treating each other equally, even if it does mean a domestic bias as long the bias is equivalent everywhere.

posted by: Lord on 11.08.05 at 10:32 AM [permalink]

Reciprocity is important from the point of view of the domestic political economy of liberalization.

If a government is to liberalize access to its country it has to accumulate support to more than offset the resistance of domestic firms (and their stakeholders) that compete with imports. Generally, consumers of imports are diffuse and do not have enough at stake to lobby for liberalization. So the government needs to enlist the support of firms that hope to get access to foreign markets. This is why reciprocity is important; reciprocity enables the government to put together a coalition of concentrated winners from liberalization to outweigh the coalition of concentrated losers.

In a world without transactions costs reciprocity would not be necessary, but that is not the world we live in.

posted by: Acad Ronin on 11.08.05 at 10:32 AM [permalink]

Here in Ohio, we have had about as much of the "trade brings prosperity" mantra as we can stand.

Maybe all parties would benefit if we would slow down and clean up the damage as we go.

posted by: save_the_rustbelt on 11.08.05 at 10:32 AM [permalink]

Dollar is at a 2 year high against the Euro. If 6 months ago when it was in 'free fall' the sky was falling, wouldnt the opposite then be roaring prosperity? Just a thought.

posted by: Mark Buehner on 11.08.05 at 10:32 AM [permalink]

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