Author Archives: jdingel

Can preferential trade help the Middle East?

Marcus Noland says that the Middle East is a “demographic time-bomb” due to add 150 million people over the next decade or so. It needs faster job growth to keep up and prevent an “employment crisis” (pdf). Unfortunately, US trade policy is doing little to help:

The third component could be preferential trade agreements… [but] the way that the United States has been negotiating these agreements is effectively creating a “hub-and-spoke” system in which individual Arab governments have strong bilateral agreements with the United States but weak or nonexistent agreements among themselves. In part this reflects differences in both capacity and orientation across the Arab governments, and in the specific cases of the militarily vulnerable Gulf oil exporters, a particular interest in deepening ties with a strategic partner. If it were just an issue of variable speed geometry to borrow a European phrase, that would be one thing. The bilateral agreements themselves contain mutual inconsistencies, however, which make incorporating them into a single region-wide accord difficult. The problem is exacerbated by the fact that the rules in the agreements the United States and the European Union reach with the Arab countries are inconsistent. It would be desirable to increase the internal consistency of these arrangements to facilitate integrating them in the future.

For more thoughts on this subject, see Against MEFTA.

Chinese monetary policy

Marvin Goodfriend and Eswar Prasad rethink the renminbi debate at VoxEU:

[U]ntil recently, the rise in the US trade deficit with China was matched by the decline in the deficit with the rest of Asia, leaving the US deficit with all of Asia unchanged. China’s accession to the WTO in 2001 opened up US markets to Chinese imports and more Asian trade is now routed through China in order to take advantage of cheaper labour there to process and package goods in their final stages of production. So the bilateral US (or EU) trade deficit with China is not in itself very meaningful.

Moreover, the renminbi has been maintained at a stable rate relative to the US dollar for over a decade now, even during the Asian crisis when the Chinese were under pressure to devalue the renminbi. So to argue that the fixed exchange rate reflects a new and deliberate policy of undervaluation is disingenuous.

Nevertheless, economic fundamentals — such as the rapid productivity growth in China — clearly point to strong pressures for the renminbi to appreciate in value…

This debate has so far been framed in a way that largely misses the key point. What is essential for China is to have an independent monetary policy oriented to domestic objectives. China’s monetary policy has hitherto been hamstrung by the tightly managed exchange rate regime. This regime prevents the People’s Bank of China (PBC) from raising interest rates to manage domestic demand since such a move could spur further capital inflows and increase pressure on the exchange rate. Giving the PBC room to raise interest rates by freeing it from having to target a particular exchange rate would help rein in credit growth and deter reckless investment, reducing the risk of boom-bust cycles. A key point here is that an independent monetary policy requires a flexible exchange rate, not a one-off revaluation.

Read the full piece to learn about their (daring?) policy prescription: inflation targetting.

Rodrik is wrong about the WTO’s gambling decision

The WTO has ruled in favor of Antigua and Barbados again and again at the WTO, declaring that if the United States allows some forms of online gambling within its borders, then it must allow its citizens to gamble online across borders. This makes Dani Rodrik uncomfortable, but I don’t understand why.

Rodrik argues that the WTO is infringing upon US domestic policy space by interpreting “recreational services” to include online gambling, when “U.S. did not originally intend to include online gambling when it opened its market to similar services.” If that wasn’t the intention, then the WTO ruling is a power grab by the international body:

So the question is precisely who gets allocated the residual rights [to policy-making] in this instance: the international trading regime, or the domestic polity?

This leaves the WTO in a bind. For taking these rules at face value results in decisions such as these that are deeply counterintuitive. As the Harvard law professor Charles Nesson puts it, “people [at the WTO] must be scared out of their wits at the prospects of enforcing a ruling that would instantly galvanize public opinion in the United States against the W.T.O.”

To me, this is another example of how existing WTO practices are leading to the narrowing of policy space to the detriment of legitimacy (and economic logic). When the system serves to enforce new restrictions on domestic policy autonomy that would be wildly unpopular at home, it is time to rethink the system.

I disagree with Professor Rodrik on three issues: (1) the factual claim that gambling wasn’t originally part of the Uruguay Round deal (2) the theoretical claim that the ruling is contrary to economic logic, and (3) the impact claim that Americans will be enraged by this infringement upon their “policy space.”

First, the factual claim. The US should have seen this coming. Other countries did, and specifically excluded gambling from the recreational services provision. Professor I. Nelson Rose of the Whittier Law School writes:

The United States had indeed (accidentally) agreed to let in all forms of gambling when, in 1994, it signed the General Agreement on Trade in Services (GATS). It did this by agreeing to let in all “Recreational, Cultural & Sporting Services” . . . “except sporting.” Other countries put “gambling” on their lists of excluded services; the United States did not.

Perhaps it was an accidental inclusion, but then this is the fault of the USTR for being asleep at the wheel, not the WTO for enforcing its agreement. Other countries were apparently more competent.

Second, the economic logic. What is “deeply counterintuitive” about the decision that a country may not discriminate against economic activities along national borders? Perhaps the WTO could have ruled more narrowly, so that Antigua would merely have the right to sell “lottery tickets, participation in Web-based pro sports fantasy leagues and off-track wagering on horse racing,” rather than all forms of online gambling, but that’s arguing about the proper scope of the discrimination in question, not the principle itself. I think it’s logical to believe that, as Sallie James puts it, “if the United States finds online gambling offensive, it must be consistent in its restrictions and apply them equally to domestic and foreign providers.”

Third, the American anger at the decision. Rodrik’s post makes it appear that Americans are so fond of sovereign “policy space” that they will be quite upset by the WTO’s infringement upon it, but Professor Nesson was explaining that the WTO must be reluctant to enforce its decision because Antigua, aware that, absent transferrable retaliatory rights, a few tariffs upon US exports would provide it negligible leverage, requested an awesome penalty:

Mr. Mendel, who is claiming $3.4 billion in damages on behalf of Antigua, has asked the trade organization to grant a rare form of compensation if the American government refuses to accept the ruling: permission for Antiguans to violate intellectual property laws by allowing them to distribute copies of American music, movie and software products, among others.

Dean Baker rightfully highlighted this clever tactic, but Rodrik omitted it. Whether it is pragmatically wise for Antigua and the WTO to entangle themselves in such a high-stakes showdown is a completely valid question, but I don’t think the ruling lacks economic or legal merits. So why is Dani Rodrik so skeptical of the decision?

Rodrik is wrong about the WTO's gambling decision

The WTO has ruled in favor of Antigua and Barbados again and again at the WTO, declaring that if the United States allows some forms of online gambling within its borders, then it must allow its citizens to gamble online across borders. This makes Dani Rodrik uncomfortable, but I don’t understand why.

Rodrik argues that the WTO is infringing upon US domestic policy space by interpreting “recreational services” to include online gambling, when “U.S. did not originally intend to include online gambling when it opened its market to similar services.” If that wasn’t the intention, then the WTO ruling is a power grab by the international body:

So the question is precisely who gets allocated the residual rights [to policy-making] in this instance: the international trading regime, or the domestic polity?

This leaves the WTO in a bind. For taking these rules at face value results in decisions such as these that are deeply counterintuitive. As the Harvard law professor Charles Nesson puts it, “people [at the WTO] must be scared out of their wits at the prospects of enforcing a ruling that would instantly galvanize public opinion in the United States against the W.T.O.”

To me, this is another example of how existing WTO practices are leading to the narrowing of policy space to the detriment of legitimacy (and economic logic). When the system serves to enforce new restrictions on domestic policy autonomy that would be wildly unpopular at home, it is time to rethink the system.

I disagree with Professor Rodrik on three issues: (1) the factual claim that gambling wasn’t originally part of the Uruguay Round deal (2) the theoretical claim that the ruling is contrary to economic logic, and (3) the impact claim that Americans will be enraged by this infringement upon their “policy space.”

First, the factual claim. The US should have seen this coming. Other countries did, and specifically excluded gambling from the recreational services provision. Professor I. Nelson Rose of the Whittier Law School writes:

The United States had indeed (accidentally) agreed to let in all forms of gambling when, in 1994, it signed the General Agreement on Trade in Services (GATS). It did this by agreeing to let in all “Recreational, Cultural & Sporting Services” . . . “except sporting.” Other countries put “gambling” on their lists of excluded services; the United States did not.

Perhaps it was an accidental inclusion, but then this is the fault of the USTR for being asleep at the wheel, not the WTO for enforcing its agreement. Other countries were apparently more competent.

Second, the economic logic. What is “deeply counterintuitive” about the decision that a country may not discriminate against economic activities along national borders? Perhaps the WTO could have ruled more narrowly, so that Antigua would merely have the right to sell “lottery tickets, participation in Web-based pro sports fantasy leagues and off-track wagering on horse racing,” rather than all forms of online gambling, but that’s arguing about the proper scope of the discrimination in question, not the principle itself. I think it’s logical to believe that, as Sallie James puts it, “if the United States finds online gambling offensive, it must be consistent in its restrictions and apply them equally to domestic and foreign providers.”

Third, the American anger at the decision. Rodrik’s post makes it appear that Americans are so fond of sovereign “policy space” that they will be quite upset by the WTO’s infringement upon it, but Professor Nesson was explaining that the WTO must be reluctant to enforce its decision because Antigua, aware that, absent transferrable retaliatory rights, a few tariffs upon US exports would provide it negligible leverage, requested an awesome penalty:

Mr. Mendel, who is claiming $3.4 billion in damages on behalf of Antigua, has asked the trade organization to grant a rare form of compensation if the American government refuses to accept the ruling: permission for Antiguans to violate intellectual property laws by allowing them to distribute copies of American music, movie and software products, among others.

Dean Baker rightfully highlighted this clever tactic, but Rodrik omitted it. Whether it is pragmatically wise for Antigua and the WTO to entangle themselves in such a high-stakes showdown is a completely valid question, but I don’t think the ruling lacks economic or legal merits. So why is Dani Rodrik so skeptical of the decision?

Rodrik is wrong about the WTO's gambling decision

The WTO has ruled in favor of Antigua and Barbados again and again at the WTO, declaring that if the United States allows some forms of online gambling within its borders, then it must allow its citizens to gamble online across borders. This makes Dani Rodrik uncomfortable, but I don’t understand why.

Rodrik argues that the WTO is infringing upon US domestic policy space by interpreting “recreational services” to include online gambling, when “U.S. did not originally intend to include online gambling when it opened its market to similar services.” If that wasn’t the intention, then the WTO ruling is a power grab by the international body:

So the question is precisely who gets allocated the residual rights [to policy-making] in this instance: the international trading regime, or the domestic polity?

This leaves the WTO in a bind. For taking these rules at face value results in decisions such as these that are deeply counterintuitive. As the Harvard law professor Charles Nesson puts it, “people [at the WTO] must be scared out of their wits at the prospects of enforcing a ruling that would instantly galvanize public opinion in the United States against the W.T.O.”

To me, this is another example of how existing WTO practices are leading to the narrowing of policy space to the detriment of legitimacy (and economic logic). When the system serves to enforce new restrictions on domestic policy autonomy that would be wildly unpopular at home, it is time to rethink the system.

I disagree with Professor Rodrik on three issues: (1) the factual claim that gambling wasn’t originally part of the Uruguay Round deal (2) the theoretical claim that the ruling is contrary to economic logic, and (3) the impact claim that Americans will be enraged by this infringement upon their “policy space.”

First, the factual claim. The US should have seen this coming. Other countries did, and specifically excluded gambling from the recreational services provision. Professor I. Nelson Rose of the Whittier Law School writes:

The United States had indeed (accidentally) agreed to let in all forms of gambling when, in 1994, it signed the General Agreement on Trade in Services (GATS). It did this by agreeing to let in all “Recreational, Cultural & Sporting Services” . . . “except sporting.” Other countries put “gambling” on their lists of excluded services; the United States did not.

Perhaps it was an accidental inclusion, but then this is the fault of the USTR for being asleep at the wheel, not the WTO for enforcing its agreement. Other countries were apparently more competent.

Second, the economic logic. What is “deeply counterintuitive” about the decision that a country may not discriminate against economic activities along national borders? Perhaps the WTO could have ruled more narrowly, so that Antigua would merely have the right to sell “lottery tickets, participation in Web-based pro sports fantasy leagues and off-track wagering on horse racing,” rather than all forms of online gambling, but that’s arguing about the proper scope of the discrimination in question, not the principle itself. I think it’s logical to believe that, as Sallie James puts it, “if the United States finds online gambling offensive, it must be consistent in its restrictions and apply them equally to domestic and foreign providers.”

Third, the American anger at the decision. Rodrik’s post makes it appear that Americans are so fond of sovereign “policy space” that they will be quite upset by the WTO’s infringement upon it, but Professor Nesson was explaining that the WTO must be reluctant to enforce its decision because Antigua, aware that, absent transferrable retaliatory rights, a few tariffs upon US exports would provide it negligible leverage, requested an awesome penalty:

Mr. Mendel, who is claiming $3.4 billion in damages on behalf of Antigua, has asked the trade organization to grant a rare form of compensation if the American government refuses to accept the ruling: permission for Antiguans to violate intellectual property laws by allowing them to distribute copies of American music, movie and software products, among others.

Dean Baker rightfully highlighted this clever tactic, but Rodrik omitted it. Whether it is pragmatically wise for Antigua and the WTO to entangle themselves in such a high-stakes showdown is a completely valid question, but I don’t think the ruling lacks economic or legal merits. So why is Dani Rodrik so skeptical of the decision?

Cheap “fixes” for migrant problems

Problem:

Thousands of migrants try to enter Europe illegally each year and hundreds die on often perilous sea journeys.

Solution:

A $6bn development package for West Africa has been revealed which it is hoped will help halt the emigration of young people from the region.

Solution that might actually work:

Sadly, there is no quick-fix way to keep Africans from attempting the deadly journey to the Canary Islands and Lampedusa in unseaworthy craft, as there is no quick-fix way to keep Mexicans and Central Americans from attempting the risky crossing of America’s southwest desert. But among the highly imperfect solutions, Harvard’s Lant Pritchett has the best: give many of them a humane and dignified path to a substantial degree of economic opportunity through expanded guest worker arrangements.

Cheap "fixes" for migrant problems

Problem:

Thousands of migrants try to enter Europe illegally each year and hundreds die on often perilous sea journeys.

Solution:

A $6bn development package for West Africa has been revealed which it is hoped will help halt the emigration of young people from the region.

Solution that might actually work:

Sadly, there is no quick-fix way to keep Africans from attempting the deadly journey to the Canary Islands and Lampedusa in unseaworthy craft, as there is no quick-fix way to keep Mexicans and Central Americans from attempting the risky crossing of America’s southwest desert. But among the highly imperfect solutions, Harvard’s Lant Pritchett has the best: give many of them a humane and dignified path to a substantial degree of economic opportunity through expanded guest worker arrangements.

What’s the US advantage in FDI returns?

“U.S. investors earn a significantly higher rate of return on their foreign investments than foreigners earn in the United States… about one-third of the excess return earned by U.S. corporations abroad can be explained by firms reporting “extra” income in low tax jurisdictions of their affiliates.” – Barry Bosworth, Susan M. Collins & Gabriel Chodorow-Reich

What's the US advantage in FDI returns?

“U.S. investors earn a significantly higher rate of return on their foreign investments than foreigners earn in the United States… about one-third of the excess return earned by U.S. corporations abroad can be explained by firms reporting “extra” income in low tax jurisdictions of their affiliates.” – Barry Bosworth, Susan M. Collins & Gabriel Chodorow-Reich

What's the US advantage in FDI returns?

“U.S. investors earn a significantly higher rate of return on their foreign investments than foreigners earn in the United States… about one-third of the excess return earned by U.S. corporations abroad can be explained by firms reporting “extra” income in low tax jurisdictions of their affiliates.” – Barry Bosworth, Susan M. Collins & Gabriel Chodorow-Reich