Monday, April 2, 2007
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Two steps forward, one step back on trade
The two steps forward are that the United States and South Korea signed a free trade deal just before the deadline of having it approved under President Bush's Trade Promotion Authority. The New York Times' Choe Sang Hun explains:
United States and South Korean negotiators struck the world’s largest bilateral free-trade agreement today, giving the United States a badly needed lift to its foreign trade policy at home and South Korea a chance to reinvigorate its export economy.The step back comes from the Bush administration's weekend decision to slap tariffs on Chinese paper. Steven Weisman explains in the NYT:
The Bush administration, in a major escalation of trade pressure on China, said Friday that it would reverse more than 20 years of American policy and impose potentially steep tariffs on Chinese manufactured goods on the ground that China is illegally subsidizing some of its exports.[U.S. trade with China far exceeds trade with South Korea. Why is this only a step back compared to KORUS?--ed.] Two reasons. First, much as I despite countervailing duties, this policy shift seems to make sense within the context of what those duties are supposed to accomplish. As Weisman explains:
American law allows the United States to impose what are called antidumping duties when imports are sold in the United States at prices below what it costs to produce them.Second, I'm willing to bet that this case will end the same way the steel case ended. If the complainants are basing their argument on China's currency valuation, then the WTO ain't going to uphold this action. In which case, three years from now, we know how this wll end -- unless it gets settled in the bilateral Strategic Economic Dialogue between now and then.
UPDATE: they're not basing it on the currency valuation. Never mind. Meanwhile, Trade Diversion is skeptical of Commerce's ability to assess the magnitude of the direct subsidy.
Thanks for following up on these stories. I have two questions/comments:
On CORUS, I was wondering how likely it is to go though smooth ratification in Congress. There are currently two other FTAs that their ratification is delayed (Peru and Colombia) by the Democrats. Is CORUS different from these other agreements in terms of domestic opposition to the deal?
On China, the NYT article that you quote mentions that according to American officials these duties are unrelated to currency valuation. How easy would it be for China to challenge these duties in the WTO on this basis? Also, if you think this policy shift makes sense, why is this a step in the wrong direction?
Bush took the measures on paper to look tough and to try to diffuse some political heat.
Bush will not take tough measures against China, his corporate owners won't let him.
This is like Bush's phony program to look tough on illegal immigration - just political butt covering.posted by: save_the_rustbelt on 04.02.07 at 12:40 PM [permalink]
Why isn't the US-SK FTA also a step backward? I think Bhagwati has this issue pegged correctly. Bilateral FTAs mostly just manage trade and make multilateral trade opening more difficult.posted by: ross on 04.02.07 at 12:40 PM [permalink]
The administration's view, defined by Robert Zoellick when he was USTR and maintained through Portman's and Schwab's tenures in the position, is that bilateral trade deals are what you go for when multilateral deals aren't available. That's pretty much been the case with the Doha round -- not that, in theory, bilateral deals couldn't wreck multi-lateral negotiations, but the ones negotiated in the last six year really can't be blamed for Doha slow progress.posted by: Zathras on 04.02.07 at 12:40 PM [permalink]
Perhaps the bilateral FTAs did not take away resources that would have been put to better work on multilateral trade matters. But that is only one dimension of the problem with bilateral FTAs. They also entrench interests in countries that negotiate advantageous positions against multilateral openings that focus on the same economic activities. Perhaps I am biased by my own East Asia focus, but by and large these agreement appear to manage rather than free trade (see Japan, which refers to them as EPAs Economic Partnership Agreements, rather than FTAs). I can understand why in some contexts, especially given political considerations, FTAs may be embraced. But I don't buy the argument that they are a second best track towards free trade. I suspect time will reveal that FTAs harm prospects for free trade far more than help.posted by: ross on 04.02.07 at 12:40 PM [permalink]
posted by: ross on 04.02.07 at 12:40 PM [permalink]
I also thought at first that the CVD might be part of a yuan revaluation push, but it doesn't look that way. Based on NewPage testimony before Congress in January, the complaint was based on a narrower beef about preferential and concessionary loan treatment of the Chinese pulp and paper industry by government-run banks. I think we're looking more at an American effort to use CVD rulers as a crowbar to remove Chinese trade barriers, in a managed trade process similar to what we tried (rather unsuccessfully) with Japan when their trade surplus was considered the biggest threat to our way of life. Another interesting note is that it looks like the Strategic Economic Dialogue and China trade policy in general are being run by Henry Paulson and Treasury, and Commerce will appear primarily in a supporting role. I blog the issue at China Matters (http://chinamatters.blogspot.com)posted by: China Hand on 04.02.07 at 12:40 PM [permalink]
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