Monday, April 14, 2008

Trade politics and embarrassing biographical details

You can hear me talk about the merits, demerits and politics of the proposed free trade agreement with Colombia on PRI's Fair Game with Faith Salie.

As an added bonus, embarrassing biographical details of your humble blogger are revealed at the very end of the discussion.

UPDATE: Wow, I had no idea who Faith Salie was when this was recorded -- and a good thing, too, or I would have been way more nervous and way less coherent.

posted by Dan at 11:46 PM | Comments (0) | Trackbacks (0)

Thursday, April 10, 2008

Thoughts on the Colombia trade deal

Kevin Drum and Matthew Yglesias have posts up on the free trade agreement with Colombia and wonder whether it's worth all the trouble it's going to create. Let's respond!

Kevin's post boils down to the following facts: a) Trade contributes somewhat to rising inequality and stagnant wage growth at the lower end of the wage spectrum; b) There's little appetite among the American people for freer trade; and c) Trade is pretty free anyway, so why worry about piddling deals like the one with Colombia. In conclusion, Kevin paraphrases Senator Clinton: "Taking a breather to rethink how we approach trade seems pretty reasonable at the moment."

Matt's post helps to rebut the first charge. As he observes:

[The FTA] actually involves very little changes on the US side at all. In essence, Colombian goods already flow very freely into the United States except for in our more famously protected sectors (agriculture, etc.) and what we're offering Colombia here is a very solemn promise to keep it that way.
The Colombia FTA is hardly unique in this regard -- this is pretty much what the state of play was prior to NAFTA as well. So the effect of these kind of FTAs on U.S. wages is less than minimal.

It also explains why ratifying this FTA is a good idea -- it locks in U.S. policy. As I've posted previously, the reason these agreements are a good idea is precisely because they prevent the drift towards protectionism that is otherwise inevitable in a pluralist political system. As for Kevin's desired "pause," let's face it, there is going to be zero momentum towards further liberalization beginning in 2009 regardless of whether this FTA is passed. Kevin's pause is happening whether anyone likes it or not.

After analyzing the content of the deal, Yglesias concludes the following:

All things considered, this seems to have almost no implications for American well-being, and if I were a member of congress I think I would consider this an excellent moment to let me vote be dictated by pure partisan politics or possibly corruption. If I were a blogger, I would say that lowering barriers to the importation of foreign goods on a unilateral basis would be good policy for the United States and that using bi- or multi-lateral trade negotiations to try to get other countries to adopt "pro-business" policies is a pretty dubious undertaking.
The first point is incomplete and the second point is factually incorrect.

The biggest benefit of the FTA with Colombia has little to do with economics and everything to do with our bilateral and regional relationships. Go back to NAFTA. Kevin is right to point out that the agreement's economic effects were not terribly large. On the other hand, even skeptics of trade liberalization -- Dani Rodrik, Paul Krugman, and Joseph Stiglitz -- supported NAFTA because it locked Mexican economic reforms, promoted political reforms, and cemented a stronger bilateral relaionship.

There's no reason to believe that the same effects would not take place with Colombia. Matt has been stressing the killings of labor activists in Colombia. However, the EPI graph he highlights shows a pretty dramatic reduction in these killings since 2003.

Question to Matt: what's the best way for the United States to help reduce those killings even further -- ratifying or rejecting the FTA? I'd argue the former. FTAs matter more than unilateral reductions of trade barriers because they decrease the likelihood of policy reversals (which, again, is why Hillary Clinton's proposals to renegotiate FTAs every five years or so is such a God-awful idea). Ratifying the FTA with Colombia increases the likelihood that labor killings will continue to decline.

A final point: for freer trade to be politically sustainable, there needs to be some kind of reciprocity, which can't happen via unilateral reductions in trade barriers. Historically, unilateral reductions have had a minimal impact on the openness of the global economy. In the 19th century, the repeal of the Corn Laws mattered a hell of a lot less than the Cobden-Chevalier treaty in opening up European economies to each other. In the 20th century, GATT mattered a hell of a lot more than any unilateral U.S. policy in leaving the misbegotten trade policies of the Depression behind.

UPDATE: On the other hand, I should point out that Drum is 100% correct on this point he makes in a follow-up post:

Question: which is more important to the cause of free trade: (a) passage of the Colombian trade pact or (b) reining in the monstrosity that is U.S. farm policy? The answer is (b) by several light years. So why do we hear so much about the dire consequences of failing to pass a piddling bilateral trade deal... but almost nothing about the dire consequences of the hideous $300 billion distortion caused by the latest round of farm subsidies — most of which goes to big agribusiness, not struggling family farms? How about a little more noise on the farm front?
The problem is even bigger than Drum realizes, since cutting back agricultural subsidies are also the key to completing the Doha round.

ANOTHER UPDATE: I just want to point out that the initial version of this set a new personal record for number of typos in a single blog post.

posted by Dan at 08:52 AM | Comments (0) | Trackbacks (0)

Wednesday, December 19, 2007

A good policymaking day

Today, the Eisenhower Executive Office Building is on fire.

Yesterday, in what is strictly a coincidence, the U.S. Trade Representative, Secretary of Commerce, and Deputy Secretary of State had a little get together in the EEOB on planning U.S. trade policy for the rest of the Bush administration's term of office. The idea was to talk with both trade and Latin American experts from the think tank and academic worlds to see whether/how the Colombian, Panamanian and Korean FTAs will be passed by Congress in 2008.

I know all this because I was in the room as an expert. And you can cue massive waves of imposter syndrome here....

These kind of get-togethers are unusual, but those who had attended sessions like this in the past thought this one was similar to what prior administrations would have done. For yours truly, it was an interesting session for two reasons.

First, the meeting bore a passing resemblance to a class in my Statecraft course. Imagine students putting together a 15-minute PowerPoint presentation to advocate for a particular policy, and then soliciting feedback from the rest of the class. Now replace students with policy principals and you get a sense of this meeting (by my grading, the USTR received an A, the dSOS an A-, and the Secretary of Commerce a B+).

Second, I remembered the sense of accomplishment one occasionally experiences as an actual policymaker. Without getting into specifics, I made a suggestion that caused various people in the room to scribble something down. It wasn't a brilliant idea that would cause people to rethink trade as we know it, it was just a small point. But it was a point that was accepted as useful.

Those of you who go into policymaking, however, will discover that the times when you can suggest an idea and get consensus on it immediately are few and far between. When those moments do occur, savor them, no matter how small the success.

posted by Dan at 04:16 PM | Comments (0) | Trackbacks (0)

Thursday, November 29, 2007

Another exercise in ranking generosity

One of pieces of accepted wisdom among policy cognoscenti is that while the United States is not terribly generous in terms of foreign aid, it does excel in niche areas, like providing providing relief for humanitarian disasters.

The Financial Times' Quentin Peel reports on a new ranking exercise that suggests this perception might not match.... other people's perception:

Sweden, Norway, Denmark and the Netherlands have been ranked as the top four aid donors in providing relief for humanitarian disasters, according to a new index published on Thursday.

The study, launched by Kofi Annan, the former United Nations secretary-general, ranks 23 aid donors from the Organisation of Economic Co-operation and Development according to the effectiveness and impartiality of their relief efforts in eight crisis-hit countries.

In contrast to the Scandinavian nations, major donors such as the US, Japan and France rank in the bottom half of the index, with low scores for tests such as impartiality and implementing international humanitarian laws. France is criticised for its failure to work effectively with other aid agencies.

The humanitarian response index, drawn up by Dara International, a Madrid-based evaluation agency, ranks the European Commission in fifth place, in spite of frequent criticism of its bureaucratic procedures. The UK ranks ninth, Germany 13th, and the US 16th out of the 23. The bottom two countries are Italy and Greece.

The purpose of the index, based on the responses of more than 800 aid agencies in the eight disaster zones [Democratic Republic of Congo, Colombia, East Timor, Haiti, Lebanon, Niger, Pakistan and Sudan--DD.], is not to be “a name-and-shame exercise”, according to Silvia Hidalgo, director-general of Dara, but rather to be “a improve the quality of humanitarian aid”.

Mr Annan, who launched the report in London, said it would serve as “a crucial tool to help ensure that no disaster is ignored, and that every dollar spent helps those most in need”.

I tried to access the actual report, but Dara's web site, while quite fancy, is also maddeningly short on detail or methodology.

Still, two quick thoughts:

1) Are the evaluations of aid agencies really the only metric being used here? Surely some of these agencies were on the losing end of various funding decisions by major power donors. Might that not affect their responses?

2) Is impartiality always a good thing during humanitarian crises? I'm not saying it's necessarily a bad thing, but as a "guiding principle" I'm not sure it's a great idea for every aid donor to act according to these principles either.

posted by Dan at 09:14 AM | Comments (8) | Trackbacks (0)

Friday, November 9, 2007

An optimistic post on trade

It's no secret that I've been in a sour mood as of late on the future of U.S. trade policy. Today's New York Times story on the House's passage of the Peru FTA didn't cheer me up either, because the takeaway point is that its passage was the exception and not the rule.

Eoin Callan, however, lifts me from complete and total despair with this Financial Times story:

Diplomats from the US and European Union are laying the groundwork for an unprecedented round of bilateral bargaining in which all of the main transatlantic trade disputes would be put on the table and negotiated in one go.

The talks between the world’s two largest trading blocs would link the resolution of billions of dollars-worth of simmering trade disputes and aim to “clear the decks” with one all-encompassing deal, officials said.

The negotiations would tie the fate of a range of US and European industries, including computer manufacturers and producers of genetically modified foods, to a back-and-forth round of bartering that would produce “winners and losers on both sides”, a senior European official said.

The plans appear to have originated in Brussels and coalesced around the Transatlantic Economic Council, which met for the first time on Friday in Washington and brought together senior policymakers from the Bush administration and European Commission....

The chief EU trade negotiator said there was merit in an approach that linked separate trade disputes and “put them on a ledger, marking down each one, three wins for you, three wins for us”.

He said it was easier to achieve a negotiated solution when “you can get a win on both sides” rather than trying to broker a compromise when trade law clearly favoured one side.

A US trade official said: “We’re up to sitting down at the table to talk about these things and trying to negotiate rather than litigate.”

If this works -- and given the interest groups at play, I'd put the odds of success at about 35% -- then it's win-win-win-win-win.

Both the United States and European Union would score some policy victories, and remove some major irritants to the transatlatic relationship.

The business community on both sides of the Atlantic would benefit from greater policy certainty.

Consumers would gain from increased levels of exchange

The biggest winner, however, would likely be the WTO -- because it would save the dispute settlement body from having to decide cases that are way beyond its pay grade.

posted by Dan at 08:16 PM | Comments (2) | Trackbacks (0)

Wednesday, October 24, 2007

My not-so-sunny predictions for U.S. trade policy

Policy Innovations -- "The central address for a fairer globalization" asked three trade experts what they see for the future of U.S. trade policy. It appears that Mac Destler and Gary Hufbauer were too busy, so unfortunately for their readers I'm one of the experts, along with Susan Aaronson and Kevin Gallagher.

Go check it out -- you can guess my mood about the future.

My basic point:

In a jittery economy, neither Americans nor members of Congress care about how globalization affects the rest of the world. Their primary concern is how imports are destabilizing their jobs and depressing their wages.
I should have put "allegedly" somewhere in that sentence, but you get the basic idea.

posted by Dan at 02:40 PM | Comments (3) | Trackbacks (0)

Friday, October 19, 2007

Hear me do my best NPR voice

My media whoredom conquers another platform, as today I have an audio commentary for NPR's Marketplace. I talk about Hillary Clinton's trade proposals and the bang-up job they would do in improving America's image.

Discerning readers will observe echoes from this blog post of last week -- but with less snark and more lilting irony. [Sounds like NPR's new motto!!--ed.]

Click here to listen and tell me if my voice can cut it on NPR.

posted by Dan at 01:55 AM | Comments (4) | Trackbacks (0)

Wednesday, October 10, 2007

Grading out the GOP debate on trade

I didn't see the GOP debate yesterday, but looking through the transcipt, I was surprised to see trade came up as an issue.

According to the Wall Street Journal's Jackie Calmes and Amy Shatz:

{S]everal [candidates] reflected skepticism about free trade that is gaining hold in both political parties. The others, while professedly free-traders, acknowledged widespread job losses as a consequence of globalism and a public sense that trading partners, particularly China, are taking advantage of the U.S.
Looking at the transcript, I think Calmes and Shatz are overinterpreting what was said.

The fringe candidates (Hunter, Tancredo) were perfectly happy to sound protectionist. But they're not going to win, so let's skip them.

Some of the mainstream candidates (Romney, Giuliani, Huckabee) had some caveats:

Romney: "We need to make sure that the Chinese begin to float their currency and they protect our designs and our patents and our technology."

Giuliani: "I think you've got to almost separate them into two different categories. There's economic protection and then there's protection for safety, security, and legal rights. And I don't think we've done a particularly good job on the second, and we have to improve those agreements. But we can't throw out the baby with the bathwater. We can't say, because these agreements weren't perfect, because they have problems, because they have issues, we're going to turn our back on free trade."

Huckabee: "the fact is, we don't have fair trade. And that's the issue we've got to address."

The other candidates (Paul, McCain, Thompson) didn't pander at all on this question. Which, of course, means they're doomed.

So, on the whole, the only possible nominee who scared me was Huckabee. The rest of the field sounded relatively sane on the topic. And, credit where it's due, Giuliani scored the best combination of sound policy and sound politics on the issue.

Oh, one last thing -- no one let Ron Paul anywhere near the Federal Reserve.

posted by Dan at 02:47 PM | Comments (7) | Trackbacks (0)

Tuesday, October 9, 2007

Hillary Clinton really wants to improve America's standing abroad

Last week I asked which major party was going to be more trade-friendly.

Yesterday, Hillary Clinton provided part of the answer. The Financial Times' Edward Luce summarizes:

Hillary Clinton, frontrunner for the Democratic party’s presidential nomination, on Monday said that all US trade agreements should be evaluated every five years and, if necessary, amended.

The process should start with the North America Free Trade Agreement, which was the signature trade pact of her husband, Bill Clinton, when he was president.

The comments, which were aimed at union leaders who remain critical of Nafta, which they say has displaced US workers, amount to her strongest break so far with Mr Clinton’s pro-free trade agenda of the 1990s.

Mrs Clinton said Nafta suffered from “serious shortcomings”. She also reiterated her pledge to incorporate strong environmental and labour protections in future trade deals – a measure most economists view as protectionist.

“I think it is time that we assess trade agreements every five years to make sure they’re meeting their goals or to make adjustments if they are not,” she said in a speech in Cedar Rapids, Iowa, which stages the first caucus vote in the presidential nomination process next January. “And we should start by doing that with Nafta.”....

In addition to the five-year trade reviews, Mrs Clinton said she would appoint a federal trade enforcement officer who would monitor compliance with trade agreements.

Click here for more details (it's not all bad; the proposal to expand trade adjustment assistance to cover service-sector workers makes sense). For a party that claims it wants to burnish America's image abroad, the Democrats sure know how to propose specific steps that will piss off our trading partners.

Seriously, if this kind of review is proposed, what incentive would any country have to sign an FTA with the United States? The major benefit of a free-trade agreement with the United States is less economic than political. An FTA increases the certainty of the bilateral relationship. Clinton's "review process" essentially strips away that certainty.

Does Hillary Clinton really want to return Mexican-American relations to the bad old pre-NAFTA days?

As for a "trade enforcement officer," this is the trade equivalent of Michael Dukakis' pledge from 1988 to balance the federal budget deficit through improved tax collection. It's nice politics, but it ain't going to mean a damn thing in terms of reducing the trade deficit or protecting American jobs.

Look, trade expansion does have distributional effects, and it makes sense to expand programs that try to compensate for those effects. Clinton's ham-handed idea is not the answer, however. This will play great on the hustings and contribute to an eroding image of the United States abroad.

Clinton should -- and does -- know better.

posted by Dan at 08:54 AM | Comments (6) | Trackbacks (0)

Friday, October 5, 2007

A small question about trade and parties

If you believe that trade liberalization benefits both the U.S. and global economy, which party is the party for you?

When I came of voting age, the answer was pretty obvious -- the GOP.

Now we live in a world where Obama's chief economic advisor is making more sense on the trade issue than rank-and-file Republicans. (both links courtesy of Greg Mankiw)

Obviously, it is slightly unfair to compare advisors with voters -- and the WSJ article linked above points out that the GOP frontrunners are still talking the talk on trade.

I'm beginning to wonder, however, whether either party will walk the walk.

Question to free traders -- which party do you think is likelier to promote trade liberalization?

posted by Dan at 11:48 AM | Comments (25) | Trackbacks (0)

Thursday, August 9, 2007

Is Nick Kristof insane?

A popular definition of insanity is doing the same thing over and over and expecting different results (intriguingly, the same website attributes this definition to both Benjamin Franklin and Albert Einstein).

That definition came back to me after reading the opening of Nick Kristof's NYT ($$) column today:

Almost nobody has campaigned so energetically for the poor in Africa as Bono, but when Bono spoke at a conference in Africa recently, he was heckled. Several Africans scolded him for demanding more foreign aid, saying that’s not what Africa needs.

A handful of recent books and studies suggest that aid is sometimes oversold, including the superb new work called “The Bottom Billion,” by Paul Collier, the World Bank’s former research economist (it’s the best nonfiction book so far this year). A forthcoming book, “Farewell to Alms,” by Gregory Clark, a University of California economist, even argues that conventional aid can leave African countries worse off than ever.

And a study by two economists formerly of the I.M.F., Raghuram Rajan and Arvind Subramanian, forthcoming in The Review of Economics and Statistics, concludes:

“We find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings suggest that for aid to be effective in the future, the aid apparatus will have to be rethought.”

So does this mean we should give up on foreign aid?

No, not at all. On the contrary, I believe there is an urgent need for more aid.

You can see why I would question Kristof's mental status.

To be fair, however, Kristof would argue that he's not proposing doing the same thing again. The rest of his essay basically argues that while the macro picture suggests aid does not work, the concentration of aid into certain sectors (health and education) and focused programs (the Millennium Challenge Account) has yielded greater gains (eradication of smallpox, etc.).

He has a point, but it's not as big a point as he thinks. Yes, health initiatives have yielded some impressive results, but they're often subject to similar screw-ups. As William Easterly pointed out in The White Man's Burden, foreign aid has distorted efforts to combat the spread of AIDS. By focusing on treatment of those already suffering from HIV, there has been underinvestment in public goods that would get a bigger bang for the buck -- like efforts to prevent the spread of AIDS or to encourage vaccination for other diseases.

So Kristof is not insane... but he might be a little funny in the head.

posted by Dan at 02:01 PM | Comments (3) | Trackbacks (0)

Thursday, July 26, 2007

The power of the farm lobby

The New York Times' David Herszenhorn explains in depressing detail why farm subsidies will not be cut back anytime soon -- despite the fact that market conditions are at an ideal point for doing so:

For the many critics of farm subsidies, including President Bush and Speaker Nancy Pelosi, this seemed like the ideal year for Congress to tackle the federal payments long criticized as enriching big farm interests, violating trade agreements and neglecting small family farms.

Many crop prices are at or near record highs. Concern over the country’s dependence on foreign oil has sent demand for corn-based ethanol soaring. European wheat fields have been battered by too much rain. And market analysts are projecting continued boom years for American farmers into the foreseeable future.

But as the latest farm bill heads to the House floor on Thursday, farm-state lawmakers seem likely to prevail in keeping the old subsidies largely in place, drawing a veto threat on Wednesday from the White House.

“The bill put forth by the committee misses a major opportunity,” Agriculture Secretary Mike Johanns said Wednesday. “The time really is right for reform in farm policy.”

Faced with fierce opposition from the House Agriculture Committee, Ms. Pelosi and other Democratic leaders lowered their sights and are now backing the committee’s bill, in part to protect freshman lawmakers from rural areas who may be vulnerable in the 2008 elections....

A group of dissident lawmakers led by Representatives Ron Kind, Democrat of Wisconsin, and Jeff Flake, Republican of Arizona, is still pushing a plan to curtail the subsidies sharply.

But they have been largely outmuscled by the Agriculture Committee. It 46 members are slightly more than 10 percent of the House but their districts received more than 40 percent of all farm subsidies from 2003 to 2005, according to a database compiled by the Environmental Working Group, which opposes the subsidies.

Critics in Congress include fiscal conservatives who deride the payments as wasteful government spending and liberals who call them corporate welfare for agribusiness. All say the measure will simply perpetuate the overly generous subsidy system, at a point when American farmers are well-positioned to weather changes.

“When farm prosperity is as good as it is right now, this is the time to reform,” said Representative Paul D. Ryan, Republican of Wisconsin and a member of the dissident group. “If we can’t reform these farm programs at this moment in our history, we will never be able to do it.”

The group has proposed an amendment to the farm bill that would cut subsidies and increase spending on environmental conservation, rural development and nutrition programs, including food banks. It would end subsidies to farmers earning more than $250,000 a year, similar to the $200,000 cap proposed by the Bush administration. It would also substantially limit payments that farmers receive under guaranteed loan programs.

The effort by Mr. Kind has exposed divisions among House Democrats, some of whom argue that he could cost the party its new majority. The fear is that freshmen Democrats from rural swing districts could lose their seats if voters blamed them for lower farm subsidies. Mr. Kind rejected such assertions. “The vast majority of our new members benefit from our proposal,” he said....

The strategic maneuvering by the administration, and some unusual alliances on Capitol Hill, reflect the curious politics of farm policies, cutting across party lines and mirroring regional interests more than partisan loyalties.

The keen interest in the bill, even among urban lawmakers from districts without a corn or barley field, underscores the vast scope of the farm bill, which includes not just agriculture policies but nutrition programs like food stamps, and an array of energy, land conservation and other programs.

posted by Dan at 11:20 AM | Comments (2) | Trackbacks (0)

Monday, July 23, 2007

Why TAA is not a valuable bargaining chip

I've had enough conversations with Hill staffers to know the political lay of the land on expanding Trade Adjustment Assistance to service sector workers:

1) Everyone recognizes that the current TAA rules -- which only apply to the manufacturing sector -- make little sense in a world where more and more services are tradeable;

2) Everyone also recognizes that the cost of expanding TAA is pretty small by federal gov't standards -- we're talking a billion or two;

3) Democrats want to expand TAA, but for the past five years Republicans have held TAA hostage for something valuable in return -- support on a particular free trade agreement, an extension of fast track, etc.

4) No deal has ever been made.

I bring all this up because of Lori Montgomery's front-pager in the Washington Post today:
As part of their campaign to soothe an anxious middle class, congressional Democrats are preparing legislation that would significantly expand federal aid to the most obvious victims of the global economy: workers whose jobs move offshore or are lost to foreign imports.

Under a Senate bill to be introduced today, computer programmers, call-center staffers and other service-sector workers who make up the vast majority of the nation's workforce would for the first time be eligible for a generous package of income, health and retraining benefits currently reserved for manufacturing workers who lose their jobs to international trade.

Democrats say the expansion of the Trade Adjustment Assistance (TAA) program would begin to reweave the social safety net for the 21st century, as advances permit more industries to take advantage of cheap foreign labor -- even for skilled, white-collar work. By providing special compensation to more of globalization's losers and retraining them for stable jobs at home, they say, an expanded program could begin to ease the resentment and insecurity arising from the new economy.

A similar bill is nearing completion in the House, and Democrats hope to approve the expansion before the program expires Sept. 30. Trade Adjustment Assistance typically gets strong bipartisan support; Sen. Olympia J. Snowe (R-Maine) is co-sponsoring the bill with Sen. Max Baucus (D-Mont.).

But this year, rancorous politics have developed around broader trade issues, threatening the proposed expansion and, potentially, the program's survival.

"This is not going to be a slam-dunk," said Howard Rosen, executive director of the nonprofit Trade Adjustment Assistance Coalition....

Republicans as well as Democrats have long called for an overhaul of Trade Adjustment Assistance. President Bush has praised the program and promised to improve it. But the politics of trade have been complicated since Democrats took control of Congress with the help of many candidates who campaigned against further trade liberalization.

In the past, Trade Adjustment Assistance has been renewed alongside legislation granting the president fast-track authority to negotiate trade deals without congressional interference. But Bush's fast-track authority expired in June, and House Democrats have made it clear that they do not intend to restore it.

In addition, many Republicans feel scalded by Democratic delays on free-trade deals that the Bush administration has negotiated with Peru and Panama. Those agreements, and more politically divisive agreements with South Korea and Colombia, have not been brought to a vote since a deal to move them forward was made in May.

Now, even some Republican champions of Trade Adjustment Assistance say they are reluctant to sign on to its renewal unless Democrats reconsider their opposition to fast-track authority.

"Frankly, TAA is a very integral part of our efforts to reduce barriers and expand trade . . . and my view is they ought to go together," said Sen. Charles E. Grassley (R-Iowa), the senior Republican on the Finance Committee.

The Bush administration was actively working on a reauthorization proposal for Trade Adjustment Assistance when fast-track expired, the program's advocates said. Now, the administration appears to have backed off to recalibrate its strategy.

I'd love it if the GOP could get this quid pro quo, but it ain't gonna happen. I can't see any TAA program that would convince Democrats to renew fast track.

This is so partly because although many Democrats genuinely want to expand the program, others are offering it only lip service. Unions, in particular, loathe TAA, because even if it provides fiscal relief to their members, it also facilitates the movement of workers to non-union sectors. In other words, TAA undercuts the organizational power of unions. They can't outright oppose it, because they've been calling for it for decades now, but they don't love it.

So, an interesting question -- knowing that fast track ain't happening, should TAA be exapanded? I say yes, because of the poll numbers discussed in the last post. My hunch, however, is that GOP congressmen are going to say no.

The two direct losers from this kind of impasse: service sector workers displaced by offshore outsourcing, and free trade advocates. The first group is small -- the second group is smaller.

posted by Dan at 12:14 PM | Comments (4) | Trackbacks (0)

Tuesday, May 29, 2007

On the optimistic side of cautious optimism

George W. Bush will put forward former US Trade Representative and Deputy Secretary of State Robert Zoellick to become the next president of the World Bank. The FT's Krishna Guha and Eoin Callan report on the reactions:

Hank Paulson, the US treas­ury secretary, said he rec­ommended Mr Zoellick to the White House following consultations with the bank’s other shareholder governments. Mr Paulson told the Financial Times: “Bob Zoellick is someone who has a passion for development. He has trust, respect and support from all the regions of the world.”

Mr Paulson said Mr Zoellick would be able to build international consensus and get results. “He has got great energy and enthusiasm – he gets things done.”

Mr Zoellick, 53, a former US trade representative who is a senior official at Goldman Sachs, is a respected internationalist with extensive contacts in Europe, China, Latin America and Africa. He played a prominent role in the peaceful reunification of Germany and led efforts to revive the Doha trade talks round....

Mr Paulson said he did not come under serious pressure to open up the search process during talks with finance and development ministers.

“Even people who said that in theory they favour an open global search said, given the turmoil at the bank, ‘Please find someone who will have global support and can get appointed quickly so we can get the bank focused on its mission again’,” he said

A senior World Bank manager said there would be mixed feelings about Mr Zoellick’s nomination, with respect for his diplomatic skills offset by concern about his hard-driving management style. The manager said Mr Zoellick was “highly regarded” but seen as a “bit abrasive” with his staff.

“I think there is scepticism about Zoellick’s management skills,” he said.

I've heard this last concern voiced by others in the know. To wich I'd say the following:
1) Having seen and interacted with Zoellick in the past month, he strikes me as being on the calmer side of the DC heavyweight spectrum. He's smart, he knows he's smart, and he does not suffer fools gladly. By beltway standards, however, abrasive does not spring to mind.

2) A mix of diplomatic skills and hard-driving management is pretty much the recipe for the World Bank. Although Paul Wolfowitz did not cover himself in glory during his tenure, the Bank staff also acted in a manner that raised a number of red flags about inmates running the asylum. We'll see where the Bank goes from here.

Brad DeLong is pessimistic:
If Robert Zoellick had not served the Bush administration without distinction as Special Trade Representative and as Deputy Secretary of State, I would be enthusiastic about his World Bank President candidacy. But the fact that he has done nothing in his last two government jobs makes me wonder whether an alternative candidate should be found.
In the past, I've disagreed with DeLong about Zoellick on precisely this point. He's a thoroughly competent man who has served a thoroughly incompetent administration. When Zoellick served in a competent administration, he accomplished only some minor things -- like helping to reunify Germany.

Actually, by moving to the bank, Zoellick will provide an ideal "natural experiment" to test out Brad and my takes on him. So I extend the following challenge to DeLong: if, in three years time, Zoellick is judged as having been successful by, say, Ken Rogoff, William Easterly, and Dani Rodrik, DeLong will owe me 100 units of Special Drawing Rights. If they judge him a failure, I'll pay DeLong.

UPDATE: Philip Levy makes the case for Zoellick over at

posted by Dan at 11:18 PM | Comments (2) | Trackbacks (0)

Tuesday, May 15, 2007

The Wolfowitz Bush managerial style

The pressure is growing on Paul Wolfowitz to leave the World Bank. The Financial Times' Krishna Guha and Eoin Callan -- rapidly becoming the World Bank's internal newsletter -- lays out the situation:

Paul Wolfowitz’s handling of a secondment deal for his girlfriend Shaha Riza broke the World Bank’s code of conduct, three staff rules and the terms of his contract as bank president, the final report by a panel investigating his role has concluded.

The report asks the bank’s board to consider, in the light of its findings, “whether Mr Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible in achieving its mandate”.

It suggests that the board should take into account in making this judgment the “damage done to the reputation of the World Bank group and its president, the lack of confidence expressed by internal and external stakeholders in the present leadership, the erosion of operational effectiveness...and the important strategy and governance challenges the World Bank group is facing”.

also asks the board to undertake a review of the bank’s governance structures “with the aim of ensuring that it is capable of effectively dealing with the challenges raised for the institution”.

The report’s findings – released by near unanimous demand of the board – will lend enormous momentum to the European-led push for Mr Wolfowitz to resign or be forced out.

The US is expected to try to schedule a conference call of deputy finance ministers from the Group of Seven industrialised nations to address the crisis at the bank on Tuesday, after failing to set up such a call on Monday....

Robert Bennett, a lawyer for Mr Wolfowitz, declined comment on the specific findings of the report, but said that overall it was ”clear that the ad hoc committee has simply ignored the overpowering case we presented that he was acting in good faith”.

Tyler Cowen sums up the problem with Wolfowitz:
As an outsider it is hard to judge many aspects of Wolfowitz's tenure. I take his continuing unwillingness to resign to be the biggest argument against his managerial abilities. He has lost the public relations battle and can no longer be effective. Why should he want the job any more? The obvious hypothesis is that he is emotionally committed to a losing battle, and is not placing much weight on the long-term interests of the institution he is running.
Cowen's argument could be extrapolate to apply to the Bush administration as well. Consider the Justice Department. At this juncture, it appears that the White House's revealed preference is to have a loyal but incapacitated and incompetent leader of that department over making any kind of concession to Congress.

What's so amazingly boneheaded about this "double-down" strategy is that, inevitably, the White House will lose on both issues. Which means they will not only lose on these personnel questions, they will lose in a way that further exposes their unique mixture of incompetence and political weakness.

Oh, and lest one think that Wolfowitz's insistence o keeping his job is not hurting the Bank's mission, click here.

UPDATE: The Economist's Free Exchange blog provides another knock against Wolfowitz.

posted by Dan at 08:07 AM | Comments (24) | Trackbacks (0)

Sunday, May 13, 2007

Reactions to the trade deal

I still haven't seen any specifics on the trade deal between Bush and congressional Democrats. I have, however, seen a lot of criticism from across the board -- which either suggests its a really bad deal or it's the optimal outcome given the tight bargaining constraints involved.

In the Wall Street Journal, John D. McKinnon and Greg Hitt look at the usual suspects to see who's upset:

[A]s details of the agreement emerged, some labor and environmental groups pointed to what they viewed as some significant limitations.

Many businesses had worried the deal would make international labor provisions enforceable against American employers. On Friday, U.S. Chamber of Commerce President Tom Donohue said in a statement that the chamber is "encouraged by assurances that the labor provisions cannot be read to require compliance."

That doesn't sit well with AFL-CIO President John Sweeney, who said the agreement doesn't give enough " challenge U.S. laws." He also complained that in the event of violations, "there is no guarantee the executive branch will enforce any new rights workers may gain through these negotiations." He said his organization would reserve judgment on the deal for the time being.

Some environmentalists raised concerns that big potential loopholes remain for foreign investors -- particularly oil and gas companies that have made large investments in South America.

In addition to worker and environmental protections, the deal calls for quicker access to generic drugs for developing countries. Democrats had made inclusion of such a measure a priority, but brand-name drug makers had fought it.

Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America, said his group has been "extremely concerned during this process that core American intellectual-property rights remain protected." Drug makers said they will try to win back lost ground in other coming trade battles in Congress this summer.

Manufacturers, meanwhile, complained that many of the new worker and environmental protections will be hard, if not impossible, to enforce. They urged the U.S. to focus more on currency manipulation, theft of intellectual property and other unfair trade practices.

Free trade promoters? They're not too thrilled either. The Cato Institute's Center for Trade Policy Studies issued the following press release:
The deal constitutes a political victory for Democrats in Congress, who compelled the administration to swallow U.S. union demands, but is unlikely to lead to any new trade liberalization (another union wish). Forging trade policy is a balancing act: the more an agreement is limited to reflect domestic political demands, the less likely prospective trade partners are to see the benefit of agreeing. With respect to the three Latin American agreements, those countries will now have to reopen debate in their legislatures, which might reject the terms.
Maybe, maybe not. As James Surowiecki points out in The New Yorker, the U.S. can get countries to swallow an awful lot of domestic political demands:
Free trade is supposed to be a win-win situation. You sell me your televisions, I sell you my software, and we both prosper. In practice, free-trade agreements are messier than that. Since all industries crave foreign markets to expand into but fear foreign competitors encroaching on their home turf, they lobby their governments to tilt the rules in their favor. Usually, this involves manipulating tariffs and quotas. But, of late, a troubling twist in the game has become more common, as countries use free-trade agreements to rewrite the laws of their trading partners. And the country that is doing this most aggressively is the United States.

Our recent free-trade agreement with South Korea is a good example. Most of the deal is concerned with lowering tariffs, opening markets to competition, and the like, but an important chunk has nothing to do with free trade at all. Instead, it requires South Korea to rewrite its rules on intellectual property, or I.P.—the rules that deal with patents, copyright, and so on. South Korea will now have to adopt the U.S. and E.U. definition of copyright—extending it to seventy years after the death of the author. South Korea will also have to change its rules on patents, and may have to change its national-health-care policy of reimbursing patients only for certain drugs. All these changes will give current patent and copyright holders stronger protection for longer. Recent free-trade agreements with Peru and Colombia insisted on much the same terms. And CAFTA—a free-trade agreement with countries in Central America and the Caribbean—included not just longer copyright and trademark protection but also a dramatic revision in those countries’ patent policies.

The power asymmetries are such that the U.S. can muscle its domestic preferences into an FTA when it can't do the same thing in the WTO.

Is ability this a good thing? Dani Rodrik doubts it:

[T]his new direction is full of pitfalls--not just disguised protectionism as free-trade fundamentalists fear, but also an inevitable tendency to want to impose our own ways of organizing society on our trade partners. The principle of the right to organize is fine, but different democratic societies have different labor laws, all arguably equally "democratic." If we start judging the adequacy of other countries' laws from the perspective of what WE think is the right set of requirements, we will soon be in trouble.

Which is why I don't think the attempt to enlarge trade agreements to incorporate social and other considerations can go really far (unless you are really serious about it and want to create legal and political integration along with economic integration, as in the case of the EU).

I was originally opposed to these provisions, but have become more agnostic about them over time. On the one hand, there's decent evidence that the best way to eliminate labor and environmental abuses is to have countries grow more quickly, thus causing them to treat their workers and their environment better. On the other hand, there's also decent evidence that including these provisions has an actual effect on trading partners.

In a perfect world, I wouldn't clutter trade agreements with these provisions. In the world in which we live, I'll take these provisions as politically necessary -- so long as they are not so onerous that the proposed FTA partner nixes the deal.

UPDATE: My inside-the-beltway source on trade policy e-mailed me the following reaction:

The typical reactions around town last week... were highly skeptical about applicability, implementation, reaction of countries with recently "closed" FTAs, reaction of countries with ratified FTAs who now want might better deal (specifically with regard to pharmaceuticals), and about the methods by which the new dispute settlement mechanisms for labor and environment might actually work. You could probably sum the reaction of many trade pros as follows: "they're making it up as they go along."

posted by Dan at 11:01 PM | Comments (1) | Trackbacks (0)

Friday, May 11, 2007

There's a domestic deal on trade

I still need to look at the fine print, but this Steven Weisman story in the New York Times suggests that a deal has been cut on trade deals for the future:

The Bush administration reached agreement on Thursday with the House speaker, Nancy Pelosi, and other Democrats to attach environmental and worker protections in several pending trade accords, clearing the way for early passage of some pacts and improving prospects for others.

The unusual agreement, which came after weeks of negotiations, would guarantee workers the right to organize, ban child labor and prohibit forced labor in trading-partner countries. It would also require trading partners to enforce environmental laws already on their books and comply with several international environmental agreements.

While the understanding was a victory for Democrats, it also represented a shrewd compromise by the White House. The agreement is the first major bipartisan economic deal to emerge since Democrats took control of Congress in January. It has immediate importance for four countries — Colombia, Panama, Peru and South Korea — that are seeking to enter into trade pacts with the United States.

But officials in Washington predicted that the agreement’s effect would go beyond those countries and could be a template for all trade deals, including a possible worldwide accord.

Administration officials are hoping that the agreement will cause many Democrats to support future trade deals. They hope that enough Democrats will join with Republicans, who generally support such measures, to make passage of the agreements probable, if only narrowly.

Pelosi's presence at this announcement suggests that the dynamics I discussed back in late March kicked in.


UPDATE: Here are links to the Financial Times and Washington Post stories. The Post highlights the key concession:

The key to the agreement, said those involved, was the Bush administration's reluctant assent to Democratic demands for more stringent labor rules. Under the new policy, enforceable labor provisions will be written into the texts of trade deals to protect the rights of workers abroad to organize unions and bargain collectively, while banning forced labor, child labor and workplace discrimination.

The Bush administration resisted such rules, reflecting the fears of business interests that they could boost the power of U.S. labor unions, opening a backdoor for them to rewrite U.S. law to their advantage. But the administration concluded that it had to swallow the labor rules lest its trade deals die in a Congress controlled by the other party.

The deal also includes an agreement between the White House and Congress to develop a "strategic worker assistance and training initiative" that would increase job training and financial assistance for communities that suffer job losses to overseas competition and automation. Democrats said those programs would go beyond existing benefits, but they provided few details.

This should make Dani Rodrik very happy. Predictably, it's pissed off both David Sirota and organized labor.

posted by Dan at 09:25 AM | Comments (5) | Trackbacks (0)

Monday, May 7, 2007

Do I have blinders about Blinder?

Over the weekend, Alan Blinder once again vented his concerns about the future of offshoring, this time in the Washington Post:

[T]wo powerful, historical forces are driving these changes, and both are virtually certain to grow stronger over time.

The first is technology, especially information and communications technology, which has been improving at an astonishing pace in recent decades. As the technology advances, the quality of now-familiar modes of communication (such as telephones, videoconferencing and the Internet) will improve, and entirely new forms of communication may be invented. One clear implication of the upward march of technology is that a widening array of services will become deliverable electronically from afar. And it's not just low-skill services such as key punching, transcription and telemarketing. It's also high-skill services such as radiology, architecture and engineering -- maybe even college teaching.

The second driver is the entry of about 1.5 billion "new" workers into the world economy. These folks aren't new to the world, of course. But they live in places such as China, India and the former Soviet bloc -- countries that used to stand outside the world economy. For those who say, "Sure, but most of them are low-skilled workers," I have two answers. First, even a small percentage of 1.5 billion people is a lot of folks. And second, India and China will certainly educate hundreds of millions more in the coming decades. So there will be a lot of willing and able people available to do the jobs that technology will move offshore.

Looking at these two historic forces from the perspective of the world as a whole, one can only get a warm feeling. Improvements in technology will raise living standards, just as they have since the dawn of the Industrial Revolution. And the availability of millions of new electronically deliverable service jobs in, say, India and China will help alleviate poverty on a mass scale. Offshoring will also reduce costs and boost productivity in the United States. So repeat after me: Globalization is good for the world. Which is where economists usually stop.

And where my alleged apostasy starts.

For these same forces don't look so benign from the viewpoint of an American computer programmer or accountant. They've done what they were told to do: They went to college and prepared for well-paid careers with bountiful employment opportunities. But now their bosses are eyeing legions of well-qualified, English-speaking programmers and accountants in India, for example, who will happily work for a fraction of what Americans earn. Such prospective competition puts a damper on wage increases. And if the jobs do move offshore, displaced American workers may lose not only their jobs but also their pensions and health insurance. These people can be forgiven if they have doubts about the virtues of globalization.

We economists assure folks that things will be all right in the end. Both Americans and Indians will be better off. I think that's right. The basic principles of free trade that Adam Smith and David Ricardo taught us two centuries ago remain valid today: Just like people, nations benefit by specializing in the tasks they do best and trading with other nations for the rest. There's nothing new here theoretically.

But I would argue that there's something new about the coming transition to service offshoring. Those two powerful forces mentioned earlier -- technological advancement and the rise of China and India -- suggest that this particular transition will be large, lengthy and painful.

I've read Blinder's longer paper on this topic, and I must confess -- again -- that I don't see how he's coming to this "large, lengthy and painful" conclusion. As Greg Mankiw points out:
Alan says the transition to the new equilibrium will be "large, lengthy and painful." When he spoke at Harvard last week, he said the transition would take about 30 years. But the very length of the transition will make it less painful. Over the course of a generation, workers can gradually retire from shrinking industries, and new workers can be trained for the growing industries that take their place. Of course, some individuals will experience painful transitions, but that is always the case in a dynamic market economy. I don't expect future transitions to be macroeconomically different than past transitions. Even if imports as a percentage of GDP continue to rise as Alan predicts, I would nonetheless expect the average rate of unemployment for the U.S. economy to be about the same over the next thirty years as it has been over the past thirty.

After the Blinder-Bhagwati debate last week, there was a dinner at the Harvard Faculty Club at which Ben Friedman asked Alan a good question: Now that Alan has had this epiphany about offshoring, does he favor economic policies any different than he favored a decade ago? Alan thought about the question for a moment and then said no. I found that answer reassuring. My fear is that many politicians reading Alan's work on offshore outsourcing will not come to the same conclusion.

This brings us to a point that Dani Rodrik raised earlier in the week about what happens when economists start debating public policy:
Finally, let me note the irony in how a discussion on free trade among economists quickly ends up being a debate on its politics—that is, a debate on whether this or that trade policy which on economic grounds is actually desirable can also be politically feasible. We are way beyond our area of expertise. Your hand-waving is as good as mine.

Scratch any strongly-held view about free trade, and you will find (typically) unexamined political assumptions underneath. Even if we do not end up agreeing, the value of the present exchange is that it is getting us to reveal what those assumptions are.

If you eliminate the word "free" from both paragraphs, then I agree 100 percent with Rodrik.

By economist standards, Alan Blinder is remarkably sophisticated about the ways in which politics and economics intersect. What puzzles me, therefore, is why he is making Cassandra-like noises about a phenomenon that does not justify such warnings if it takes place over several decades (and there's decent evidence that this is the case). As a political scientist, I have two hypotheses:

1) Blinder believes that the political effects of increased offshoring will be substantial enough to make the current tide of protectionist sentiment seem like a baby wave. To prevent a stronger backlash, he feels it necessary to warn people with Very Scary Numbers to prompt action.

2) Blinder believes that the United States should more closely resemble the Scandanavian countries in being both economically open and more socially democratic. Since a direct political campaign for a European-style social welfare state will not fly in the U.S., he feels it necessary to use Very Scary Numbers about trade as a backdoor tactic.

My concern is that however well-intentioned Blinder's tactics might be, he's overlooking another possible outcome of his self-proclaimed apostasy, which is that it empowers economic populists with the mantle of intellectual respectability. Saying that upwards of 40 million jobs will be threatened by offshoring sounds scary, even if the data as of yet doesn't show those jobs have actually been offshored. As some other economists have observed, entrenched interests will always exploit these kind of economic fears to implement policies that serve their own interests. Furthermore, some political scientists have pointed out that these protectionist policies will also be far from transparent.

Maybe Blinder is speaking truth to power and I am simply adopting too static a view of trade policy. But I can't shake the feeling that Blinder has adopted the Jeffrey Sachs theory of political change.

UPDATE: Robin Toner has an excellent front-pager in the New York Times today that gets at how these political questions are playing out among House Democrats. Some of them clearly share the Blinder view of what to do. What disturbs me, however, are passages like this:

Since the Democrats took control of the committee in January, the 75-year-old Mr. [Sander] Levin has met with restless Democratic freshmen who helped their party regain the majority by promising to “do something” about the job losses caused by a globalized economy — and who now want to deliver....

Mr. Levin and his fellow Democrats face a political backlash on trade and globalization as intense as it has been in years, a point underscored by the freshman class of 2006. Across the industrial heartland and the Northeast, those freshman campaigned on a scathing critique of American trade policies. How could Americans compete against workers in developing countries, they asked, while maintaining decent wages, health benefits and pensions?

“It’s an issue near and dear to our hearts, and one we feel we need to deliver change on,” said Representative Betty Sutton, a Democrat from northeast Ohio.

Whenever a politician presents a demand or proffers a promise to "do something" about trade, I get hives.

posted by Dan at 11:49 PM | Comments (13) | Trackbacks (0)

Tuesday, May 1, 2007

As Rogoff goes....

It's a bad, bad sign for Paul Wolfowitz when Kenneth Rogoff decides to write a satirical memo in Wolfowitz's name for It's an even worse sign when he can write the following paragraph:

I trust you [the staff] have not been unduly influenced by the recent letter calling for my immediate resignation, signed by forty-two former World Bank managing directors, senior vice-presidents, vice-presidents, and directors. You and I can surely see through this thinly-veiled attempt to manipulate the value of “Paul Wolfowitz resignation” claims [on TradeSports]. I want to assure you that the World Bank Internal Investigations Unit will look into this matter. If any of the letter’s signatories are found guilty of price manipulation, they will be dealt with harshly. Let’s not forget who is paying their pensions.
Wolfowitz has argued that he's the victim of a smear campaign, and there's a small grain of truth to that charge in that he is not solely responsible for the current imbroglio over his paramour.

However, when the staff that runs Wolfowitz's signature initiative indicates that his problems are compromising that initiative, it's time to say adieu.

posted by Dan at 02:06 PM | Comments (10) | Trackbacks (1)

Wednesday, March 28, 2007

An odd, optimistic moment on trade policy

The Financial Times' Eoin Callan reports that with deadlines on the horizon, suddenly Congress and the President are getting serious about trade policy:

Hank Paulson, Treasury secretary, on Tuesday intervened in negotiations with Congress over US trade policy in a bid to save President George W. Bush’s economic agenda for his last two years in office.

The direct involvement of the Treasury secretary is a sign that the White House is escalating its efforts to broker a consensus on trade with Democrats.

The Bush administration has until Saturday under the president’s fast-track trade promotion authority to notify Congress that it has finalised outstanding Latin American trade deals and completed negotiations with South Korea.

Democratic leaders on Tuesday unveiled a set of proposals on reforming US policy that they said brought them to the “brink” of an agreement to advance new trade agreements....

Charles Rangel, chairman of the ways and means committee in the House of Representatives, said the personal involvement of Mr Paulson was instrumental in creating a last-minute opening for a consensus on trade.

“We could not have got here without him,” Mr Rangel said.

The former head of Goldman Sachs joined the administration with a mandate from the president to lead economic policy.

His involvement will put pressure on Susan Schwab, the US trade representative, to concede Democrats’ demands.

Ms Schwab on Tuesday welcomed the Democratic proposals as “a good faith effort in a continuing dialogue” but did not endorse them.

The reforms are intended to act as a “basic boiler template” for pending and future trade deals and call for “a fair balance between promoting access to medicines and protecting pharmaceutical innovation in developing countries”.

You can access the Democrat talking points here (link courtesy of Salon's Andrew Leonard).

Most of it screams "boilerplate" -- the question is how much of it will come to fruition and whether it represents a shift in the Democrats' bargaining position. Leonard believes that,"most of it is a restatement of the American labor agenda." but Chris Nelson takes a dissenting view his latest Nelson Report:

Notice that this very clearly does not call for “passage into law all of the basic ILO conventions”...something which has been a standard part of Democratic and Labor rhetoric for years.
If Nelson's read of the language is correct, I suspect a deal will be done. This is now less about trade and a lot about politics. With the administration and Congress deadlocked on Iraq, the U.S. attorneys, and just about every other policy imaginable, the poll ratings for both branches of government are below 40%. Both the administration and the Congress need to look like they're actually governing. If they can sign a deal on something -- anything -- then they can counter this deadlock perception.

Ordinarily, this desire to cut a deal just to get something done is anathema to me, because what usually gets done is some God-awful piece is legislation that everyone regrets a few months later. It also feeds the bias that action is always better than inaction in politics. Ironically, however, this could actually lead to something constructive accomplished on trade policy.


posted by Dan at 09:12 AM | Comments (0) | Trackbacks (0)

Wednesday, January 10, 2007

You have to have AAFTA

The Wall Street Journal op-ed page is currently the Beltway bulletin board on trade. A few days ago, former USTR and deputy Secretary of State Robert Zoellick wrote an essay proposing that the United States consolidate our trade diplomacy in the region:

This year President Bush and the Democratic-led Congress should launch a new Association of American Free Trade Agreements (AAFTA). The AAFTA could shape the future of the Western Hemisphere, while offering a new foreign and economic policy design that combines trade, open societies, development and democracy. In concert with successful immigration reform, the AAFTA would signal to the Americas that, despite the trials of war and Asia's rising economic influence, U.S. global strategy must have a hemispheric foundation.

Successful and sustainable international strategies must be constructed across administrations. Ronald Reagan called for free trade throughout the Americas, opened U.S. markets to our Caribbean neighbors, and completed an FTA with Canada. George H.W. Bush completed negotiations for a North American FTA, offered trade preferences to the Andean countries, negotiated peace in Central America, and freed Panama. Bill Clinton secured the passage of Nafta, launched work on a Free Trade Area of the Americas, and backed Plan Colombia.

George W. Bush enacted FTAs with Chile, the five states of Central America and the Dominican Republic. He also completed FTAs with Colombia, Peru and Panama. If Congress passes these agreements, the U.S. will finally have an unbroken line of free trade partners stretching from Alaska to the tip of South America. Not counting the U.S., this free trade assembly would comprise two-thirds of both the population and GDP of the Americas.

The AAFTA would draw together these 13 partners to build on the gains of free trade. It could also include the island states of the Caribbean Basin Trade Partnership Act. Starting with a small secretariat, perhaps in Miami, the AAFTA should advance hemispheric economic integration; link development and democracy with trade and aid; improve working and environmental conditions; and continue to pursue the goal of free trade throughout the hemisphere. It might even foster cooperation in the WTO's global trade negotiations. The AAFTA might be connected to an academic center, which could combine research and practice through an association among universities in the Americas....

The U.S. cannot afford to lose interest in its own neighborhood. The pied pipers of populism in Latin America are taking advantage of the genuine frustrations, especially in indigenous communities, of people who have not been able to climb the ladder of opportunity. We should not let these populists dictate the debate. We already have seen that electorates in Mexico, Colombia, Peru, Central America and the Dominican Republic have recognized that trade with the U.S. offers jobs and hope. We need to build on that foundation with results that link trade, aid, good governance, property rights and better working and environmental conditions. Even where populists prevailed, substantial constituencies who view the U.S. as an economic partner have constrained backward policies.

To launch the AAFTA, the president and the congressional leadership must stand up to America's populist protectionists, too. The new chairmen of the House Ways and Means and Senate Finance Committees, Charles Rangel and Max Baucus, have signaled that trade may offer the best economic policy opportunity to work with the president. As Finance Committee Chair in 2001-02, Sen. Baucus worked closely with Sen. Grassley to authorize the negotiations for these FTAs. Rangel helped push preferential trade for Africa and the Caribbean. In response to urgings from New Democrats and Blue Dogs, the U.S. is the only country that includes mutual labor and environmental commitments in its FTAs, backed by enforcement. The administration worked with the International Labor Organization (ILO) and its developing country partners to check their laws with core ILO standards. In cooperation with Sen. Baucus, the administration developed special environmental review and comment procedures for Cafta, strengthening the role of local NGOs. The AAFTA offers more: an opportunity to design labor and environmental partnerships that would complement the rules in the FTAs. The alternative -- ignoring Latin America or defeating FTAs to court economic isolationists -- would leave the causes of workers and the environment to unlikely friends: poverty and populism.

I'm curious to see how Democrats like Sherrod Brown would react to this, since in many ways, Zoellick is simply proposing a political trade with our FTA partners -- deeper economic integration in return for adding on stringent labor and environmental standards. Nominally, at least, this is what populists like Brown claim to want.

However, I confess that the real point of the post, if you've read this far, is to see how Lou Dobbs covers this sort of proposal:

The answer seems to be, "very, very poorly."
posted by Dan at 07:52 PM | Comments (9) | Trackbacks (0)

Monday, January 8, 2007

A few good trade links

A few if the saner things written about trade in the past few weeks:

1) William Overholt, "Globalization's Unequal Discontents,", December 21, 2006:

Some manufacturing workers in the United States -- such as those who labored in huge factories making basic steel -- have suffered as they've seen their jobs leave America for low-wage countries. But for workers as a whole, the truth about globalization and inequality is the opposite of what the protectionists claim. There are three caveats to the steel worker's story and two larger perspectives on inequality.

One caveat is that protectionists enormously exaggerate the negative effects of globalization by attributing virtually all manufacturing job losses to competition with China. We are told by union leaders and some politicians that America is exporting millions of jobs to China. This is absolutely untrue.

Scholarly studies show that most job losses in the United States are attributable to domestic causes such as increased domestic productivity. A few years ago it took 40 hours of labor to produce a car. Now it takes 15. That translates into a need for fewer workers. Protectionists who blame China for such job losses are being intellectually dishonest. In fact, both China and the U.S. have lost manufacturing jobs due to rising productivity, but China has lost ten times more -- a decline of about 25 million Chinese jobs from over 54 million in 1994 to under 30 million ten years later.

A second caveat is that there are two ways to increase people's standard of living. One is to increase their wages. The other is to decrease prices so that they can buy more things with the same amount of money.

The ability to buy inexpensive, quality Chinese-made shoes and Japanese-made cars at lower prices disproportionately benefits lower income Americans. The Wall Street banker who pays $350 for Church's shoes benefits relatively little, but the janitor who buys shoes for $25 rather than $50 at Payless or Target or Wal-Mart benefits greatly.

Lower prices due to imports from China alone -- ignoring all other similar results of globalization -- probably raise the real incomes of lower income Americans by 5 to 10 percent. That's something no welfare program has ever accomplished.

A third caveat is that the protectionists never mention the jobs created and saved by globalization. If General Motors avoids bankruptcy, as seems likely, one important reason will be the profits it has made by selling cars in China. The vast China market, and the ability of American corporations to expand and refine their operations though a division of labor with China, creates many high level jobs in U.S. operations ranging in diversity from Motorola to IBM to Caterpillar to Boeing to farming.

The first of the larger perspectives on globalization is that open economies adjust faster to their real competitive advantages, allowing them to employ their own people. The most recent U.S. unemployment rate was 4.4 percent. France, along with other relatively protected economies, typically has twice as high a proportion of the population unemployed because their workers are stuck in inappropriate jobs.

Still more protected economies, like many in Latin America, often run much higher rates of unemployment -- up to 40%. Economies more open than the U.S. -- like Singapore and Hong Kong -- historically run lower rates of unemployment.

The worst inequality is between families whose breadwinners have jobs and those who don't. Globalization minimizes that problem.

Globalization has brought countries with about 3 billion people from subhuman conditions of life into modern standards of living with adequate food, basic shelter, modern clothing rather than rags, and life spans that are over 60 rather than under 45. (In the early 1950s China's life expectancy was 41 years, in 2005 it was 72.7 years. This is the greatest reduction of inequality that has happened in human history.

2) Jagdish Bhagwati, "Technology, not Globalisation, Drives Wages Down," Financial Times, January 3, 2007:
Lou Dobbs of CNN, the labour groups’ think-tank Economic Policy Institute and nearly all the Democrats newly elected to Congress believe that globalisation has much to do with the economic distress of the working and middle classes. Therefore they have coherence on their side when they want to lean on the door – even to close it – on trade with poor countries and occasionally on unskilled immigration from them.

Proponents of globalisation, however, find themselves in a politically implausible position: they typically skirt around and hence accept this “distributional” critique of globalisation – yet nonetheless propose that those adversely affected should accept globalisation but be aided so as to cope with their affliction in other ways.

As it happens, globalisation’s supporters are on firmer ground than they fear. Examine the common arguments linking globalisation to the distributional distress and little survives....

The decline in unionisation has been going on for longer than the past two decades of globalisation, shows no dramatic acceleration in the past two decades and is to be attributed to the union-unfriendly provisions of the half-century-old Taft-Hartley provisions that crippled the ability to strike....

The culprit is not globalisation but labour-saving technical change that puts pressure on the wages of the unskilled. Technical change prompts continual economies in the use of unskilled labour. Much empirical argumentation and evidence exists on this. But a telling example comes from Charlie Chaplin’s film, Modern Times. Recall how he goes berserk on the assembly line, the mechanical motion of turning the spanner finally getting to him. There are assembly lines today, but they are without workers; they are managed by computers in a glass cage above, with highly skilled engineers in charge.

Such technical change is quickly spreading through the system. This naturally creates, in the short-run, pressure on the jobs and wages of the workers being displaced....

The pressure on wages becomes relentless, lasting over longer periods than in earlier experience with unskilled labour-saving technical change. But this technical change, which proceeds like a tsunami, has nothing to do with globalisation.

One slight cavil -- that last paragraph by Bhagwati strikes me as a bit of a stretch. I have to think that globalization is one of the drivers for greater technical change.

3) Susan Aaronson, "Labor Rights Not Optional,", January 5, 2007:

[Both] the Democratic alternative and the current Bush administration approach do little to bolster the demand in developing countries for strong labor protections. Neither approach facilitates the ability of citizens in our trade partners to participate in and monitor labor rights enforcement. In countries such as Oman, a U.S. free trade partner, workers cannot easily influence their government or obtain due process in administrative procedures. In addition, some of America’s free trade agreement partners do not provide their citizens with full information about their labor rights under the law. As a result, it is difficult for activists to monitor their government and hold it accountable.

Labor rights advocates should take a page from the environmental chapters of several recent free trade agreements. In 2004, Democratic Senator Max Baucus pressed U.S. trade policymakers to strengthen public participation provisions and embed them in every future trade agreement.

The Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) is the first trade agreement built on Baucus’ suggestions. It includes both a mechanism and secretariat that allows citizens from any one of the seven signatory nations to challenge enforcement of environmental laws. Moreover, the trade agreement requires policymakers to respond to these complaints. To ensure the viability of this model, the United States agreed to fund the first year of the secretariat’s work. In addition to setting up a complaint mechanism, trade and/or environmental ministries in each of the CAFTA countries reached out to their constituents on the environmental chapters. They held hearings, called for public comments, and published their new regulations on the web and in print. Each environment ministry developed a website on environmental activities and outreach. USTR has agreed to replicate this model in other free trade agreements with Colombia and Peru.

But these citizen submission strategies should not be limited to the environmental chapters of free trade agreements. The U.S. government should adopt a similar approach in the labor chapters as well. As the Democrats have promised, the U.S. first should ask its trade partners to ensure that their labor laws meet internationally accepted labor standards before negotiating a trade agreement. In addition, policymakers should also include provisions that ensure public comment on labor law development and or enforcement; allow citizens to petition their government regarding labor law violations; and set up a complaint and hearing process related to labor rights. By so doing, the U.S. would be strengthening local labor movements as well as expanding grassroots pressure for democratic accountability.

America’s founding fathers recognized that democracy and good governance could not flourish if the public did not participate in decision making. In the long run, good governance, like democracy, can’t be exported. But the U.S. can use trade policy to help workers abroad influence and monitor labor rights in their home countries.

UPDATE: Brad Setser protests in the comments about the Overholt piece -- which reminds me that I should have linked this post of his from last week.

posted by Dan at 09:00 AM | Comments (10) | Trackbacks (0)

Thursday, January 4, 2007

The devil is in Max Baucus' details

I've received more than one query about what to make of Max Maucus' Wall Street Journal op-ed on trade policy(subscription only). Here's an excerpt:

Some think that the new Democratic congressional majority will be bad for trade policy. While it is true that some candidates criticized trade in their campaigns, I believe that the new Congress will have both the desire and opportunity to renew U.S. trade policy, with a unifying purpose that Americans can understand and support. Through trade, we must bolster the nation's innovative economy in an increasingly global marketplace. At the same time, we must tackle with equal vigor the negative domestic consequences of globalization, from trade deficits to job losses.

Congress should begin by renewing the administration's fast-track negotiating authority for trade agreements. The current grant expires in June, and trading partners will not negotiate trade agreements with us unless Congress gives the president the ability to bring these agreements to fruition....

Fast-track authority should be improved as it is renewed, with better trade enforcement capability and better environmental and labor provisions. By making those changes, we can protect American interests, project America's values, and help to create consumer classes capable of purchasing more U.S.-made goods. And as we address expiring fast-track authority, we must take on -- head-on -- globalization's downsides, especially worker displacement and the unsustainable trade deficit.

The trade deficit requires action on several fronts, which include beefing up U.S. export promotion programs and dedicating more time and resources to trade enforcement. We must also recognize that the trade deficit has causes closer to home, especially Americans' negative savings rate.

When it comes to helping workers, we must make the Trade Adjustment Assistance (TAA) program, which expires in September, more reflective of today's innovative economy.

TAA is our commitment that America will provide wage and health benefits while trade-displaced workers retool, retrain, and find better jobs. And a renewed TAA must do what today's program does not. TAA must be available to the eight out of 10 American workers who make their money in services professions; and it must apply to all workers displaced by trade, not just those affected by free-trade agreements. In fact, we should seriously examine the idea of expanding TAA into "GAA" -- Globalization Adjustment Assistance that would offer benefits not only to workers displaced by trade, but to those displaced by all aspects of globalization.

In addition to these new priorities, we must refocus current trade efforts. The Doha round is of obvious importance, but the world's economies do not appear ready to make the hard choices necessary to bring the round to an ambitious conclusion. Doha may yet progress in time, as the Uruguay round did after 1990. But until then, America should move forward on commercially significant initiatives with our largest trading partners. We should lay the foundations for a future free-trade agreement with the European Union and Japan by concluding a first ever free-trade agreement in services. We should stitch our current patchwork quilt of free-trade agreements into a seamless, coherent network that we can later open to other countries. Even more immediately, we must enforce China's trade and investment commitments. Doing that will help to boost the U.S. gross domestic product by $86.5 billion over the next three years.

There are three ways to interpret this essay:
1) Baucus, representing pro-trade Democrats, is laying down a marker against protectionist Democrats. For Sherrod Brown, Byron Dorgan, James Webb, etc., he's saying, "It's great that you won your elections with economic populism, but now you have to actually try and craft policy that does not trigger trade wars, runs on the dollar, global recessions, economic development, etc. We agree that cushioning the losers is important, and we're with you on bolstering labor and environmental standards, but let's play like grown ups, shall we?"

2) Baucus, representing the Democratic caucus, is trying to get the Bush administration to sign off on Democratic policy proposals with a veneer of soothing rhetoric. When you boil down the policy proposals, what Baucus is saying doesn't differ all that much from Sherrod Brown and Byron Dorgan: inserting stringent labor and environmental standards into FTAs, "trade enforcement," etc. He's just doing it minus the crackpot economic theories and idiotic rhetoric. Because Dorgan and Brown are so far out there, however, Baucus suddenly looks reasonable proposing something as amorphous as "Globalization Adjustment Assistance."

3) Baucus isn't entirely sure what he's saying. Again, see the GAA. And the lack of suggestions for increasing U.S. savings. Then again, it's only an op-ed, so specificity is tough.

I'll be charitable and say that the op-ed is 40% of (1), 25% of (2), and 35% of (3).

One last point -- Baucus embrace of a service pact with the EU, coming so soon after Angela Merkel's quasi-TAFTA proposal, makes me wonder if the Bush administration will become more enthusiastic about the proposal -- or run away, scared it's an EU-Blue State conspiracy.

posted by Dan at 03:58 PM | Comments (4) | Trackbacks (0)

Tuesday, January 2, 2007

The mother of all economic integrations

Three months ago I discussed German enthusiasm for a transatlantic free trade area. Well, now Bertrand Benoit and Quentin Peel report in the Financial Times that Angela Merkel is planning on taking the next step -- not TAFTA exactly, but defintely liberalizing:

Angela Merkel, German chancellor, will this month launch a sweeping initiative for the harmonisation of US and European legislation to boost investment flows and trade between the world’s largest economic blocs.

Initial talks will review financial market regulations, including delisting rules, which many US-listed European companies feel are too cumbersome, as well as intellectual property law. Ms Merkel is also seeking mutual recognition of technical standards for products such as cars....

Her ambition is to create a single transatlantic market for investors, with common rules and standards on issues such as intellectual property and financial regulation. However, her initiative may face opposition from a more protectionist US and other EU member states....

“Our economic systems are based on the same values,” said Ms Merkel. “We have learnt how to combine the Anglo-Saxon and Continental European legal systems, which are very different from one another . . . think transatlantic co-operation will be more straightforward in many areas than might appear at first glance.”

Ms Merkel’s initiative marks the EU’s first attempt to achieve a transatlantic single market since a similar move by the European Commission in 1998 petered out because of French opposition. Formal negotiations on drafting the partnership should start at the EU-US summit in May, she said.

Matthias Wissmann, chairman of the German parliament’s Europe Committee, estimates that the integration of US and EU financial markets alone could be achieved by 2015 and would cut trading costs on both sides by 60 per cent and the cost of equity capital by 9 per cent.

Ms Merkel stressed that tariffs and customs duties were not part of her plan.

Merkel talks about this in an interview with the FT's Quentin Peel. Some excerpts:
At the forthcoming EU-US summit we want to talk about ever-closer economic co-operation. Our economic systems are based on the same values. The EU and the US have sophisticated patent legislation. We have regulatory mechanisms governing our financial markets. We should be looking for ways to keep developing these together at a transatlantic level. We must watch out that we do not drift apart, but instead come closer together, where there are clear advantages for both sides.

For example, it causes unnecessary friction for patent rules in the US to be structured differently from those in the EU. I think our economies can save a lot of money and effort, in stock market share offerings, for instance, or in setting technical standards. We face the same tough competition from Asian markets, and from Latin America in the future. We must join forces and co-operate, for instance in the fight for better intellectual property protection in the global market.

Now I'm beginning to wonder if John O'Sullivan knew something I did not 18 months ago. I hope so -- for one thing, I could then look forward to Sherrod Brown complain about Polish plumbers.

posted by Dan at 10:45 PM | Comments (3) | Trackbacks (2)

Friday, December 22, 2006

You mess with the wheat, you'll get the chaff

The Washington Post wraps a series on federal farm subsidies with a story by Dan Morgan, Sarah Cohen and Gilbert M. Gaul on what happens when you mess with the trough. This part of the story goes back to 2001, and does something I would not have thought possible -- it makes me sympathize with Karl Rove:

One of the most remarkable examples of the farm lobby's power came in 2001 and 2002, when the existing farm bill was written, expanding payments again over the opposition of the White House and key lawmakers. Reformers see it as a cautionary tale.

The architect of the legislation was Rep. Larry Combest, an aggie through and through, a West Texas Republican who came from three generations of cotton farmers and who took control of the House Agriculture Committee in 1999.

Others on Combest's committee included a cattle rancher and tobacco farmer from Tennessee, a Missouri corn and hog farmer, and a government-subsidized rice farmer from Arkansas. The ranking Democrat, Charles W. Stenholm of Texas, had an ownership interest in cotton farms that got more than $300,000 in subsidies between 2001 and 2005, USDA records show.

With help from a generous mandate from the House Budget Committee -- chaired by Jim Nussle (R-Iowa) -- Combest produced a new farm bill in 2001 authorizing an eye-popping $50 billion, 10-year increase in price supports and income supports for farmers. He boasted that the measure was "a major step away from Freedom to Farm."

For one thing, the bill restored a key pillar of the pre-1996 program: cash payments that compensate for low crop prices. Thousands of farms were eligible even if they never grew crops. Budget officials estimated that change alone would cost $37 billion over a decade.

The Bush White House disliked Combest's bill. Chief political adviser Karl Rove saw it as the antithesis of fiscal responsibility. "We're Republicans," aides remember Rove grumbling. The White House budget office issued a stinging critique, saying the bill was too costly and failed to help farmers most in need.

Combest also faced strong opposition from a disgruntled group of Eastern and Midwestern lawmakers, and from senators who wanted tighter limits on what a farm could collect each year.

But Combest had a strong hand. "He hijacked the process," said a former USDA official who spoke on the condition of anonymity because he still deals with Congress.

At a meeting in Rove's office soon after the Sept. 11, 2001, attacks, Combest delivered a warning, according to several people with knowledge of the session. Unless the administration backed off, Combest warned, he and his farm-bloc allies would sink a top priority of President Bush's: legislation giving the president a free hand to negotiate a global trade treaty strongly favored by big corporations. "You have to ease up," one participant remembers Combest saying.

Over the next several months, the administration laid off its public criticism of Combest's farm bill. Combest withdrew his opposition to trade-promotion authority, and it squeaked through the House by a single vote. He declined to comment for this article.

posted by Dan at 07:44 PM | Comments (2) | Trackbacks (1)

Tuesday, December 12, 2006

Susan Schwab begins to answer my question

When we last left our gripping narrative about the Doha round, I asked a question without an answer:

ME: There seems to be a catch-22 on reviving Doha. Other countries won't negotiate seriously with the United States unless they believe that we can get TPA renewed. At the same time, the only way that TPA is likely to be renewed is if Congressmen seen the outline of a Doha deal. How does one escape this conundrum?

[USTR SUSAN] SCHWAB: Good question. [Long pause.]

In this Wall Street Journal story by Greg Hitt, I see that Schwab has a longer answer (hat tip: Glenn Reynolds):
The Doha round of global trade talks stalled after hitting numerous roadblocks over the summer. Now the White House is working to revive negotiations, even as a new barrier looms: a Congress much more skeptical of free trade.

Administration officials have stepped up the campaign to win support for its plan. Trade Representative Susan Schwab, who spent years as an aide on Capitol Hill, is wooing the incoming trade czars of the new Democratic Congress. Speaking recently to the U.S. Chamber of Commerce, she urged cooperation on trade and Doha. "We cannot let a strong, potential Doha deal slip through our fingers," she said.

Treasury Secretary Henry Paulson is rallying support for Doha around the globe. In London, he said Doha remains the administration's "top trade priority," even with the change in control of Congress next year. In Geneva, U.S. negotiators, after months on the sidelines, are taking part in fresh talks with trading partners on thorny issues, such as cutting farm supports.

The administration is banking that all the political maneuvering will help inject some momentum back into the talks by the spring. The goal isn't necessarily to finish a deal then, but to show enough progress to persuade skeptics in Congress to extend the president's trade-negotiating authority beyond June, when it is set to expire. That authority lets the president negotiate deals with other countries, and put them to Congress for an up-or-down vote -- without amendment. As a practical matter, nations generally don't like to sign deals that could be changed in Congress, so extending that authority would buy U.S. negotiators some extra time to seal a Doha deal.

Whether the Bush administration is able to restart the Doha talks could serve as a measure of the muscle behind critics of free trade in the U.S. And if the impasse on Doha becomes permanent, it could herald the closing of the era of global economic integration that began after World War II.

"A failure of Doha really would signal a crisis of confidence in the multilateral trading system," said C. Fred Bergsten, director of the Peter G. Peterson Institute for International Economics, a free-market think tank in Washington. "The WTO would continue to exist. But there would be a big loss of its standing and its credibility." (emphasis added)

This isn't the worst idea in the world -- though I expect David Sirota to be popping a blood vessel sometime in the next week.

With regard to Bergsten's prediction, I actually think the crisis of confidence is already upon us, if this Economist Intelligence Unit survey is any indication:

[T]he Economist Intelligence Unit conducted a wide-ranging survey of 286 executives spread across the world’s main trading regions. The key findings from the research are highlighted below.

Protectionism is thought to be on the rise, particularly in the developed world. Just over 50% of survey respondents thought that protectionism was rising either significantly or moderately in developed markets, with only 16% believing that it was falling (30% regarded the level of protectionism in those markets as stable). A smaller proportion, although still narrowly the majority, of respondents (39%) thought that protectionism was increasing in emerging markets, whereas one-third reckoned it was declining. In practice, while protectionism is difficult to track, its impact on growth is significant.

The impact on business can be severe... Economist Intelligence Unit forecasts show that a relatively modest backlash against globalisation could shave nearly a full percentage point off world GDP growth over the period 2011-2020. One in five executives to express a view (38 companies in total) say their company has had an investment deal fail in a certain market owing to local trade and investment rules over the past three years. More happily, 25% of the overall sample have entered a new market in that same period because of changes in the rules.

posted by Dan at 02:59 PM | Comments (4) | Trackbacks (0)

Thursday, December 7, 2006

Save the rust belt -- and screw western Washington

The New York Times' Leslie Wayne looks at the renewed demand for Boein's 747 jet. Turns out that the expansion of trade has something to do with it:

[A] funny thing happened to the 747 on the way to the graveyard: it found a new tailwind, and a strong one at that.

Demand is growing for the new 747-8 Intercontinental, which was introduced a year ago. Boeing now has 73 orders for the plane after its latest lift yesterday from Lufthansa, the big German carrier, which announced it was placing a $5.5 billion order for 20 747-8s, and took options to buy 20 more....

In large part, the 747’s new lease on life is owed to global trade. Until the Lufthansa deal was announced, all 747-8 orders had been for the freighter version of the plane. Even the initial orders for the latest model were for air freighters, an unusual move in an industry that likes to kick off new models with orders from high-profile passenger carriers.

But, technological advances, particularly next-generation fuel-efficient engines, improved the economics of operating a four-engine passenger plane like the 747.

“The new 747 is an inexpensive way for Boeing to capture some passenger orders, a lot of cargo orders and make a fair amount of money because of the Airbus 380 hiccup,” said Jon B. Kutler, chief executive of Admiralty Partners, a private investment firm in Santa Monica, Calif., that specializes in aerospace....

When Airbus announced the A380, Boeing looked flat-footed. For years, it appeared to dither about the future of the 747. It ordered up a number of 747-X studies of an advanced version of the plane, but came to no conclusion.

But the dithering paid off. As time marched on, so did technology. And when Boeing shifted its emphasis into developing its new 787 Dreamliner, a wide-body midsize passenger plane, many of the technologies it pioneered for that plane could be adapted to the 747, including the fuel-efficient engines developed for the 787 and a new wing design that could stretch its flying range....

As manufacturing increasingly moves to Asia and worldwide commerce increases, the cargo market is growing at a faster rate than the passenger market — about 6 percent a year, compared with passenger growth of about 4 percent, according to Air Cargo Management. (That said, the passenger market is about three times the size of the freighter market, with revenue of $185 billion last year.)

At the moment, there are 481 747 freighters in use. This compares with 353 in 2000. While there are many smaller cargo planes — and the combined total of all them exceeds the number of 747 freighters in the air — the 747 is the only big cargo plane available and is the only plane that can be used for some large loads.

posted by Dan at 08:51 AM | Comments (2) | Trackbacks (0)

Wednesday, November 22, 2006

I'm sure glad the Democrats are improving our standing in Latin America

The Nelson Report has been assuring me repeatedly that the Democratic takeover of Congress will not mean the end of U.S. trade policy. Here's one example from a report from last week:

It’s our contention that even if the Democrats had not swept the House and Senate elections, the US would still face increasing difficulty as the political arena wrestles over the challenges of adjustment to globalization, especially dealing with a downside which includes mitigating pain at home, and enforcing better behavior by trading partners.
Nelson is correct to point out that trade integration was not exactly going gangbusters prior to the midterms -- but then again, this FT story by Eoin Callan points out that it's possible for integration to slow even further:
The US Congress will reject two trade deals agreed with Colombia and Peru, leading Democrats said, in a significant blow to President George W. Bush’s agenda for his final two years in office.

Democratic lawmakers drafted a letter to Mr Bush on Tuesday night signalling their opposition to the pacts because they lacked tougher labour standards, while a senior congressman rebuked the president for pressing ahead with today’s signing of the Colombian deal.

The fissure worsens the outlook for the administration’s bilateral trade agenda in the wake of the Democrats’ mid-term election sweep and will disrupt economic integration with the Latin American countries.

Sander Levin, a leading Democratic voice on trade issues, said the letter would send a clear signal that “the agreement would not receive the support of the vast majority of Democrats, as presently put together”....

The congressman said labour standards were at the “core” of Democrats’ objections - a sign that the influence of the labour movement within the party has been strengthened by the election result, which saw a notable rise in economic populism among voters.

UPDATE: The Washington Post's Sibylla Brodzinsky and Peter S. Goodman summarize how this kind of thing is going to be perceived south of the border:
"We watch the news and we're nervous about what might happen with what we send to the United States," said Janeth Palacio Ramirez, 35, who supports her 15-year-old daughter and her elderly parents by punching zipper stops onto 7,000 pairs of jeans a day, earning about $200 a month. "Everything we make here goes there, so if there are problems with exports, we'll all lose our jobs."....

The fortunes of Colombia and Peru -- home to more than 72 million people -- may hang in the balance. So, too, might the nature of American engagement with Latin America, regional experts say. The rejection of trade pacts with these countries would humiliate their leaders at a time when they stand as bulwarks against the anti-American populism pressed by Venezuela's president, Hugo Chavez.

Latin America was already recoiling at the prospect of the United States fencing its southern border against illegal immigration. Now, some see the nation walling off its huge marketplace, rescinding the promise of trade, long proffered by the Bush and Clinton administrations as a means of furthering development.

"If you really look at the U.S. agenda in Latin America, trade is the only positive," said Michael Shifter, vice president for policy at the Inter-American Dialogue in Washington. "The rest is immigration, anti-narcotics. It's all negatives." Latin Americans, he said, may well start to question "how serious Americans are about having a constructive relationship."

Hat tip: Pienso

posted by Dan at 05:28 PM | Comments (9) | Trackbacks (4)

Friday, November 10, 2006

The trouble with fair trade, continued

Two months ago I blogged about the serious pitfalls of implementing fair trade certifications in the coffee trade.

Now I see that the Economist's business.viewhas an interesting story about the brewing battle between Starbucks and Oxfam:

Coffee has become a big testing ground for what it means to be an ethical consumer. The hugely successful Fair Trade brand allows many coffee addicts to get their fix with a clearer conscience, safe in the belief that no farmers have been exploited in the growing of it.

So no wonder that Starbucks, an up-market global coffee chain, has reacted like a scalded barista to criticism from Oxfam, a development charity. Oxfam says that Starbucks is depriving farmers in Ethiopia of $88m a year, by opposing the Ethiopian government's efforts to trademark three popular varieties of local coffee bean. At least 60,000 customers worldwide have contacted Starbucks with expressions of concern, prompting the company to post leaflets in its stores defending its behaviour. It accuses Oxfam of “misleading the public”, and insists that the “campaign needs to stop”....

Starbucks also has questions about the different standards of fairness applied by the Fair Trade brand custodians in different parts of the world. It doubts even that the strategy of the Fair Trade movement, to secure farmers a premium over the market price for their beans, is the best basic approach. Starbucks prefers a code known as the CAFE practices (Coffee and Farmer Equity), which aims to help coffee farmers develop sustainable businesses through a mixture of technical support, microfinance loans, and investment in infrastructure and community development where the farmers live.

So far from being a bloodthirsty exploiter happy to keep farmers in poverty, Starbucks emerges as a responsible firm approaching difficult questions in a thoughtful way. It wants to help its suppliers improve their lot. It is certainly no cheapskate. Starbucks says that last year it paid an average price of $1.28 per pound, 23% above the New York Board of Trade's benchmark “C” price, for all its coffees.

Starbucks's enlightened behaviour makes good business sense. The firm has positioned itself at the quality end of the market, where ethically-minded consumers are concentrated. It has absolutely no incentive to behave badly. Strikingly, another quality coffee producer, Illy Café, has similar issues with the Fair Trade movement, and also prefers to build sustainable coffee farming rather than indulge in simplistic Fair Trade posturing.

Who's right? Decide for yourselves! Here's a link to the Oxfam campagn, and here's a link to Starbucks web page on sustaining coffee-producing communities.

UPDATE: Joshua Gans has some thoughts on the matter that are worth checking out.

posted by Dan at 07:14 AM | Comments (11) | Trackbacks (0)

Tuesday, October 3, 2006

What I asked the USTR

When we last left your humble blogger, he was heading to DC to talk about trade with U.S. Trade Representative Susan Schwab and a few other folks at an AEI conference.

Alas, I was unable to access the internet this morning, and so had no opportunity to view the range of questions that I could relay one to the USTR (it would have been Zathras'). However, the following exchange did take place:

ME: There seems to be a catch-22 on reviving Doha. Other countries won't negotiate seriously with the United States unless they believe that we can get TPA renewed. At the same time, the only way that TPA is likely to be renewed is if Congressmen seen the outline of a Doha deal. How does one escape this conundrum?

SCHWAB: Good question. [Long pause.]

So, call me skeptical on the odds of Doha being completed anytime soon. I should stress that this isn't Schwab's fault... it's the hand she was dealt.

One last thought: As David Kane has observed, both Schwab and I are graduates of Williams College. When I was intriduced to the ambassador, I mentioned that we shared the same alma mater. And, for just a brief second, the wised-up, cautious face of a politician was replaced by the joyful look of recognition when one Eph recognizes another Eph.

posted by Dan at 07:54 PM | Comments (1) | Trackbacks (0)

Monday, October 2, 2006

Submit your question to the U.S. Trade Representative!!

Tomorrow I'll be a panelist for an AEI symposium, "The World Trading System after the Collapse of Doha: The WTO, Developing Countries, and Regionalism." The highlight will be a speech by the Honorable Susan C. Schwab, U.S. Trade Representative.

Other panelists include former under secretary of Commerce Grant D. Aldonas, AEI's Claude E. Barfield, former undersecretary of State Alan P. Larson, And Georgetown law professor Daniel K. Tarullo.

I believe I'll be dining with the USTR before her speech. So, readers are encouraged to submit concise, issue-appropriate, and polite questions to pose during the lunch hour.

UPDATE: OK, the lunch is over -- I'll be posting an after-action report later this evening.

posted by Dan at 04:37 PM | Comments (11) | Trackbacks (0)

Thursday, September 28, 2006

What could be done on farm subsidies?

If the Doha round is ever to be resuscitated, it will require the United States to rethink its agricultural subsidies. The Financial Times' Doug Cameron reports on one possible rethink:

The US should offer to end distorting farm subsidies within five years in a bid to revive global trade talks and avoid a clampdown by the World Trade Organisation, according to a report released on Wednesday by an influential group of economists and agriculture officials.

Agricultural subsidies have emerged as the key barrier to progress in the stalled Doha round of multilateral trade talks, though such unilateral action by the US would face fierce opposition as the administration weighs new farm legislation next year....

The year-long study by the task force recommends a raft of measures to replace the existing US subsidy programme, which fed around $20bn to farmers last year, most of it focused on commodity crops such as cotton and corn.

Mike Johanns, the US agriculture secretary, has already stated that the system instituted by the existing farm bill in 2002 may have to change, targeting support at emerging sectors such as biofuels and avoiding further challenges by the WTO.

Brazil has already won at a case against US cotton subsidies through the WTO, and there are fears that this could trigger further challenges against crops such as rice and soyabeans.

“If we don’t take the lead in reducing and eventually ending trade-distorting subsidies, the WTO legal system will do it for us,” said Gus Schumacher, a task force co-chair and former USDA under-secretary who managed the farm subsidy programmes. “We’ll lose control of key farm policy tools and miss the export expansion opportunities in emerging markets that a successful Doha round could bring.”

The health of the US farm economy has improved after two years of bumper crops, rising exports to emerging markets and the boom in corn-derived ethanol, but influential lobbyists such as the American Farm Bureau are pushing for the existing subsidy regime to be extended.

The task force called for the system to be reformed to comply with WTO rules by introducing alternatives such as subsidised insurance programmes to counter poor harvests and sharp falls in global commodity prices. Other measures include new tax-efficient savings accounts for farmers and payments to support environmental initiatives.

Here's a link to the report from the Institute for International Economics and the organization formerly known as the Chicago Council on Foreign Relations the Chicago Council on Global Affairs. This is the interesting part from the executive summary:
We propose that the entire grouping of product-specific, tradedistorting income and support programs, including countercyclical and loan deficiency payments, price supports, and federal crop insurance and disaster payments, be replaced with a new portfolio of approaches that are nondistorting and compliant with WTO green
box rules, including:
Direct payments that are delinked from specific types of production and from market conditions so as to comply fully with green box standards and that are only used during a transition period until other approaches are fully developed

A universal revenue insurance program covering all commodities on a multiproduct basis that allows farmers to purchase coverage at subsidized rates to protect against losses in price and in production

A new land stewardship program that recognizes and rewards the value of the environmental contributions made by farmers and pays producers according to the kind and amount of environmental goods and services they provide

Farmer savings accounts similar in structure to tax-deferred 401(k) accounts that are backed by government matching contributions and that could be tapped for a variety of farm household costs, including health care, education, or retirement savings

A significant investment in public goods that benefit the entire farm sector, including research and infrastructure projects; not less than 20 percent of the federal baseline funds currently committed to trade-distorting domestic support programs (in addition to money spent on stewardship and conservation programs) should be redirected to investments in these sectorwide public goods

Transition measures to protect farmers and owners of rented farmland against investment losses such as declining land values as a result of the proposed changes to support programs

The proper development, experimentation, and implementation of these new programs will take time, but should be accomplished within the five-to-six-year term of the next farm bill.
If it was up to me, I'd transfer more money away from agricultural progams, but that's a political nonstarter. The Chicago Council ask force has a lot of pragmatic ideas. Unfortunately, given the American Farm Bureau's happiness with the status quo and opposition to any change in subsidies prior to Doha's completion, I fear this approach is a nonstarter as well.

posted by Dan at 10:34 PM | Comments (2) | Trackbacks (0)

Thursday, September 14, 2006

Won't you take me to.... Think Tank Town?

I was recently made aware of a place called Think Tank Town. edits and publishes columns submitted by 10 prominent think tanks on a rotating basis every other weekday. Each think tank is free to choose its authors and the topics it believes are most important and timely.

For better or for worse, the Council on Foreign Relations chose me to provide a precis of U.S. Trade Strategy:

U.S. trade policy is at a crossroads between pursuing freer trade or fairer trade. A free trade approach would jumpstart Doha by cutting agricultural subsidies or allowing greater cross-border movement of foreign workers; pursuing free trade agreements with South Korea, India, or Japan if the Doha round cannot be restarted, and pledging an all-out political push for the renewal of TPA in early 2007. A fair trade approach would refuse to make further concessions in the Doha round of negotiations until developing countries and the European Union demonstrate a greater receptivity to American exports; halting bilateral free trade agreements with developing countries; and relying more on "managed trade" arrangements, unilateral trade sanctions, escape clauses and safeguard mechanisms to rebalance U.S. trade.

The free trade orientation provides a more coherent set of economic policies, but carries a significant political risk. Adopting a free trade orientation will promote economic growth, control inflation, and reaffirm U.S. economic leadership to the rest of the world. At the current moment, however, freer trade runs against the tide of public and congressional opinion -- the political price of this policy will be steep. The fair trade orientation provides a more popular set of policies, but carries a significant policy risk. Adopting a tough position on slowing down imports while boosting exports will resonate strongly with many Americans. Because almost any trade barrier can be advocated on grounds of fairness to some group, however, special interests can easily hijack this policy orientation. Internationally, such a policy will be viewed as an abdication of U.S. economic leadership. Slowing down imports will encourage other countries to erect higher trade barriers against U.S. exports. Any kind of global trade war would severely damage the American economy -- and American workers.

Go check it out.

posted by Dan at 11:37 PM | Comments (4) | Trackbacks (0)

Saturday, September 9, 2006

The trouble with implementing fair trade

The Financial Times' Hal Weitzman has an interesting story about the failure to enforce "fair trade" labels on items like coffee:

“Ethical” coffee is being produced in Peru, the world’s top exporter of Fairtrade coffee, by labourers paid less than the legal minimum wage. Industry insiders have also told the FT of non-certified coffee being marked and exported as Fairtrade, and of certified coffee being illegally planted in protected rainforest.

This casts doubt on the certification process used by Fairtrade and similar marks that require producers to pay the minimum wage.

It also raises questions about the assurances certifiers give consumers about how premium-priced fair trade coffee is produced.

As the board member of one Peruvian Fairtrade-certified coffee producer told the FT: “No certifier can guarantee they will purchase 100 per cent of a co-operative’s production, so how can they guarantee that every bag will be produced according to their standards?”

Though certified coffee makes up less than 2 per cent of the global coffee trade it has become increasingly mainstream as large retailers such as Starbucks and McDonald’s adopt it.

The FT visited five Peruvian smallholdings, all of which have Fairtrade certification.

Each farm hires 12-20 casual coffee pickers during the harvest season. All house and feed their workers, which allows them to deduct 30 per cent from their wages.

After that reduction from the legal daily minimum wage for casual agricultural workers of 16 soles ($5), farm owners are still obliged to pay at least 11.20 soles a day. In four of the five farms visited by the FT, pickers received 10 soles a day, while the other farm paid workers 12 soles a day.

Luuk Zonneveld, managing director of Fairtrade Labelling Organizations International, the Bonn-based body that sets fair trade standards, told the FT that the certification system “is not fool- and leak-proof” but said the problem should be put in context.

“Poor farmers often struggle to pay their workers fairly,” he said. “Why are casual labourers there at all? There are wider issues here. We need to ask why this goes on and what we can do to help.”

Click here for a companion story by Weizman that gets at the details of the problem. The most interesting section of the latter piece comes here:
“No certifier is able to check that at no time are workers paid below minimum wage,” says Luuk Zonneveld, Managing Director of Fairtrade Labelling Organizations International (FLO) in Bonn. “This issue comes up everywhere. Poor people struggle to pay their workers fairly.”

The FT’s findings cast doubt on the certification process. “The low pay issue wasn’t picked up in our audit because it wasn’t done at harvest season,” says Chris Wille, Chief of Sustainable Agriculture at Rainforest Alliance. However, Mr Wille says his organisation is aware of the problem and is developing a plan to tackle it.

“There no way to enforce, control and monitor – in a remote rural area of a developing country – how much a small farmer is paying his temporary workers,” says the founder of one Peruvian Fairtrade-certified coffee producer. “Many farmers are earning less than minimum wage themselves.”

Although farmers were paying casual labourers less than the minimum wage in four out of the five certified farms visited by the FT, Mr Zonneveld contends that low pay is not systemic in the coffee sector. That is a view contradicted by Eduardo Montauban, head of the Peruvian Coffee Chamber, a private exporters’ group. “No one in the industry is paying minimum wage,” says Mr Montauban. “It’s simply not feasible for producers.”

This suggests the following:
1) If fair traders really want workers to receive what they believe is a living wage, they're going to have raise the price of properlylabeled coffee;

2) The Rainforest Alliance can't be all that serious about enforcement -- why conduct an audit during off-harvest time unless you are trying not to find violations?

3) Simply demanding that coffee owners pay higher wages won't work -- that's not the market price for labor. This isn't because of evil multinational corporations -- it's the nature of commodity markets in general, plus the labor market in Peru

Is there a solution to the problem? My solution would be to raise the price of fair trade coffee such that everyone in the distribution chain can receive higher wages, and let consumers decide whether the higher price is worth it.

A perfect solution? Hardly -- but it's the one that is the most honest while not restricting employment in poor economies like Peru.

posted by Dan at 02:05 PM | Comments (2) | Trackbacks (0)

Sunday, July 2, 2006

Time is running out before the panic button is pushed and we all go over the brink, fall off a cliff, and cross the Rubicon into the red part of the red zone

Alas, it looks like the Doha round has come to a standstill.

Actually, that's not fair -- the round has been at a standstill since the December 2005 Hong Kong Ministerial.

This has made writing and blogging about the round somewhat difficult -- kinda like trying to describe the same traffic jam for nine months. However, props to AP writer Bradley Klapper for coming up with a novel angle (link via Megan McArdle):

The WTO is surely one of the most cliche-riddled bodies in the world as diplomats compete in a game of words to describe sometimes impenetrably complex trade issues. Even if the metaphors only sometimes add substance, catchy phrases usually mean more to people outside the rarified air of global commerce.

The WTO has been saying for months that "time is running out."

The organization's former director-general Supachai Panitchpakdi cried crisis over a year ago, warning his finger was hovering over "the panic button," even if he had yet to press it.

Since then, the Geneva-based body has approached "the point of no return," reached "the edge of the cliff," "crossed the Rubicon" and faced its share of "do-or-die" deadlines.

The WTO's current chief Pascal Lamy has alternately described himself as the organization's shepherd, nurse, midwife and conductor. He is also fond of referring to the round as a marathon or a jet plane, and the organization as a football team. Does that suggest that he is the pacesetter, pilot or coach?

Lamy's biggest test in metaphor mechanics came after the WTO's trade summit last year in Hong Kong, more noteworthy in the end for its large protests and political finger-pointing than any market-opening deals.

Citing the gathering's minor achievements, he declared the round back on track, even though the tough decisions were pushed back until this summer.

"We now have enough fuel in the tank to cruise at the right negotiating altitude now," he said.

With the year's first deadline in April fast approaching, top trading officials jumped on the bandwagon, adding new turns of phrase if little substance.

India's Trade and Industry Minister Kamal Nath _ who was the first to downplay hopes ahead of Hong Kong, or "recalibrate the level of ambition" _ warned of the EU and U.S. creating a "suicide round."

Former U.S. Trade Representative Rob Portman called April 30 the "drop dead date" for negotiations and six top trading powers met in London in March to break the logjam. After apparently little progress was made, all were eager to cite progress.

"We made progress on narrowing the concepts of numbers," Portman told reporters afterward. He didn't explain further.

Not to be outdone, Nath esoterically added that the meeting was useful for defining "elasticities;" Brazilian Foreign Minister Celso Amorim cited the lack of "a click" necessary to reach a deal.

After Lamy cancelled the "drop dead" session, he called this week's gathering _ dubbed in WTO jargon the "full modalities meeting" _ in its place.

In recent weeks, Lamy has sounded the warning anew.

The marathon runner has warned of "hitting the wall," a runner's term for the point of near exhaustion toward the end of the race.

In May he switched to security alert levels, saying that "we are now in the red zone" due to a lack of movement.

However, he suggested there was still room to recover because countries had yet to reach "the red part of this red zone."

Despite my flippancy about the rhetoric, the collapse of the Doha round would be a very, very, very bad thing. To understand why, consider Greg Mankiw's point: [S]uccess in the Doha round of international trade talks would give the world more every year than what [Warren] Buffett can give once after a lifetime of being the world's most successful investor.

posted by Dan at 10:06 AM | Comments (5) | Trackbacks (0)

Tuesday, April 18, 2006

So I'm thinking Doha is dead

This morning George W. Bush announced a new director of the Office of Management and Budget:

President Bush today selected U.S. Trade Representative Rob Portman to be the new director of the Office of Management and Budget, moving quickly to revamp his team now that his new chief of staff is in place....

Bush, at a morning announcement at the White House, said Portman would "have a leading roll on my economic team."

As Portman's replacement as trade representative, Bush chose deputy trade representative Susan Schwab, a veteran from the administration of George H.W. Bush who has also worked in the private sector for Motorola, among other companies. Schwab was president and chief executive officer of University System of Maryland Foundation before joining the current Bush administration.

Here's a link to the transcript of the announcement.

Portman has done an excellent job at USTR for the brief time he was there, and his move to OMB might be, on the whole, a good thing for fiscal policy. That said, Bush and Bolten have decided to switch teams at USTR in the weeks before various deadlines for the Doha round of trade talks come up. This is a bad, bad sign for the likelihood of those negotiations to succeed.

UPDATE: Many commenters point out that Schwab will likely preserve continuity on trade talks. This may be true, but the optics look very bad to other countries and to Congress.

Two FT reports -- one by Alan Beattie and one by Caroline Daniel -- make this point.

Beattie first:

Rob Portman’s unexpected removal from the post of US trade representative on Tuesday evoked concern among governments and trade experts that the US was downgrading the importance of the so-called “Doha round” of World Trade Organisation talks....

Peter Mandelson, the EU trade commissioner, issued a barbed statement that qualified praise of Mr Portman and Susan Schwab, currently deputy trade representative and Mr Portman’s nominated replacement, with implied criticism about the timing of the move. “I have very much enjoyed working with Rob Portman and I shall be sorry to see him go from this post,” Mr Mandelson said. “We will of course manage without him, but at this stage in the round, it would have been easier to manage with him.”

Privately, other EU officials were less diplomatic, suggesting that the move sent out a clear signal that the US regarded the Doha round as dispensable. “On the face of it, this looks like bad news for the talks at a time when negotiations are at a fragile point and it is bound to lead to further uncertainty,” one official said. The official said that the one bright spot could be that the US would use the change of personnel as cover to moderate its demands for wholesale farm liberalisation in the Doha round....

Lobbyists and trade experts in Washington said that Ms Schwab was technically very well qualified to succeed Mr Portman. But several said that although she had good contacts on Capitol Hill, she would not enter the job with the same political influence as her predecessor....

Tom Buis, president of the National Farmers Union, said: “To me it sends a signal that things aren’t moving as smoothly as anticipated on the trade deal. It may be a realisation that Doha is not going to be the success that the administration hoped it would be.”

The European carping should be taken with a small grain of salt -- they'll jump on any excuse to evade blame for Doha collapsing.

Now Daniel:

The US on Tuesday named Rob Portman, the politically savvy trade representative, to head the White House budget office, a move that signals growing concern over runaway federal spending and a downgrading of trade policy in the administration’s second term....

“There is an awful lot of negativism now about the prospect of trade liberalisation and a backsliding on trade,” a leading Republican strategist confirmed. “There is a sense of giving up on bilateral trade deals and on Doha.”

Clay Shaw, a Florida Republican and chairman of the House Ways and Means Trade Subcommittee, told Congress Daily: “If the Doha round is doomed for failure ... this may be a case of looking for where [Portman’s] talents, which are extraordinary, can best be used.”

posted by Dan at 10:57 AM | Comments (15) | Trackbacks (0)

Friday, April 7, 2006

Trade, development... and free ponies!!

The latest Cato Unbound features New York University's William Easterly, author of The White Man's Burden, on "Why Doesn't Aid Work?" There will also be reaction essays from the World Bank's Branko Milanovic, Deepak Lal of UCLA, and the Center for Global Development's Steve Radelet. Go check it out -- you can read my review of Easterly's book here.

On a related topic, I see that Robert Reich reviewed Joseph Stiglitz and Andrew Charlton's new book Fair Trade for All. As Reich recounts the book's policy prescriptions, it appears that Stiglitz and Charlton believe in free ponies:

Stiglitz and Charlton show that standard economic assumptions are wrong when it comes to many developing economies. When markets in sub-Saharan Africa and elsewhere are opened, people often can't move easily to new industries where the nation has a comparative advantage. Transportation systems that might get them there are often primitive, housing is inadequate and job training is scarce. They're vulnerable in the meantime because safety nets are weak or nonexistent. Most people lack access to credit or insurance because financial institutions are frail, so they're unable to start their own businesses or otherwise take advantage of new opportunities that trade might bring. Many poor countries are already plagued by high unemployment, and job losses in the newly traded sector might just add to it.

Hence, the authors argue, the pace at which poorer nations open their markets to trade should coincide with the development of new institutions — roads, schools, banks and the like — that make such transitions easier and generate real opportunities. Since many poor nations can't afford the investments required to build these institutions, rich nations have a responsibility to help....

Moreover, they warn, one size does not fit all. Richer nations should not force all poorer nations to abide by the same market-opening rules and timetables. Poorer nations have different needs. They are at different stages of economic development (subsistence agriculture in much of Africa and parts of Asia, export-oriented agriculture in Latin America and other parts of Asia, early-stage industrialization elsewhere). They have different political and institutional capacities.

The problem with this argument is the same as the problem with Stiglitz's Globalization and Its Discontents and Sachs' An End to Poverty -- they recognize that markets in the developing world lack vital infrastructure, but fail to recognize that developing governments suffer from even greater institutional deficits. Expecting these governments to determine when their proteted sectors should become unprotected from a welfare economic perspective is wishful thinking -- in large part because these governments will not want to give up the rents that they extract from trade protection.

[But states like Japan and South Korea pulled this off!--ed. That's a matter of some debate, but accept the premise as given. The states that could pull this off have already done it. I ask my readers to identify states with well-developed institutional capabilities that have yet to hit the fast track of economic growth.]

While Stiglitz and Charlton are at it, they should also wish for some ponies.

posted by Dan at 11:16 PM | Comments (8) | Trackbacks (0)

Thursday, December 15, 2005

Everything you always wanted to know about Aid For Trade

A big issue that's come up at the Hong Kong Ministerial is the idea of Aid For Trade. What is Aid for Trade? According to paragraph 51 of the draft Ministerial text of the WTO:

Aid for Trade should aim to help developing countries, particularly LDCs [Least Developed Countries], to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade. Aid for Trade cannot be a substitute for the development benefits that will result from a successful conclusion to the DDA [Doha Development Agenda], particularly on market access. However, it can be a valuable complement to the DDA.
That's still a bit vague, so I've asked Paul Applegarth, a Senior Transatlantic Fellow at the German Marshall Fund of the United States -- and the former CEO of the Millennium Challenge Corporation -- to explain the idea in a bit more detail:

It has long been agreed that this WTO round should be a Development Round, benefiting the poorest people and the poorest countries in the world. Ironically, even as the on-going talks at the Hong Kong Ministerial struggle with issues important for development like agricultural Market Access and trade-distorting subsidies, there has been an increasing recognition that freer trade alone is not enough. Any trade agreement will need to be accompanied by a development financing package to help the poorest countries build the capacity to participate in freer markets.

Providing financing for development does not fall normally within the purview of the WTO, but the issue of Aid for Trade or Trade Capacity Building has achieved sudden prominence here in Hong Kong. The United States has announced its intention to double its Trade Capacity Building assistance by 2010, and it is not alone. Some EU states and Japan have also weighed in. Cynics argue that in some cases the offers are intended to distract from the failure to take more meaningful steps like granting increased market access, but in at least some cases the offers seem genunine. (The U.S. offer for example does not appear to be conditioned on an acceptable WTO deal).

A puzzle in all this is that despite all the talk, there seems to be little understanding of what exactly Aid for Trade or Trade Capacity Buidling is. Some talk about infrastructure, others about meeting international quality standards or reducing customs delays. The World Bank is pushing for expansion of something with the brain-numbing title of the "Enhanced Integrated Framework", notwithstanding the fact that this framework has been around for several years and accomplished little, and on initial examination seems to involve strengthening the capacity of poor countries to negotiate at WTO headquarters in Geneva and funding a number of expatriate consultants to write studies diagnosing the trade needs of LDC's. Good stuff, perhaps, but unlikely to have an immediate impact on boosting the incomes of the rural poor.

It would be easy to dismiss all of this as simply more international bureacratic chatter, if the stakes were not so high. The funding is real, and the opportunity to use it well is real. Fortunately, there are some groups and institutions trying to bring some clarity to the discussion, with the recognition that some concrete proposals need to be developed quickly if the opportunity is not to squandered.

Yesterday, the German Marshall Fund of the United States convened a discussion of key players to move the ball forward. The discussion was led off by remarks from Swedish Ambassador to the WTO Mia Horn, and Miguel Rodriquez of the International Centre for Trade and Sustainable Development in Geneva. There was active partcipation by senior representatives of the Wolrd Bank, the U.K.'s Department for International Development, UNDP, the IMF, USAID, Oxfam, the Overseas Development Institute, the Hewlett Foundation, the Development Assistance Committee of the OECD, the International Lawyers and Economists Against Poverty, the WTO Secretariat, and others.

There was no consensus on the initial range of issues discussed, other than that the opportunity existing to develop some meaningful proposals and that the work needed to be done quickly to take advantage of that opportunity. However, significant progress was made in identifying the key issues: who shoulfd benefit, how to determine effectiveness, funding, and expanding participation by the LDCs themselves.


posted by Dan at 10:35 PM | Comments (2) | Trackbacks (0)