Author Archives: jdingel

Is the MFN principle obsolete?

FT:

Stuart Eizenstat, a former undersecretary of commerce in the Clinton administration, said… whether the current Doha trade round yielded an agreement or not, it should be the last of its kind. “The world is moving too fast for this kind of consensus-driven, five, six, seven, eight-year rounds.”

What aspects of the world now move so quickly that multilateral negotiations are obsolete? The argument is not obvious to me.

More from the same article:

The Atlantic Council… said the struggle to complete the Doha round showed that it was no longer possible to make meaningful progress in a global negotiating system that operated through consensus. It said economies willing to offer large tariff and subsidy cuts need to be able to deal with the “free rider” problem by not extending the same terms to everyone regardless of whether they made equally big concessions – the so-called MFN principle.

Perhaps that’s a coherent story in regards to tariffs, but since it’s not possible to preferentially rescind subsidies (pdf), that’s not a very helpful suggestion in regards to the Doha round’s primary issue!

Importers

Kala Krishna and Ling Hui Tan model importers (pdf):

Why is it important to model the role of traders explicitly? We do so not simply to inject a dose of realism into the analysis but because the size of the import industry matters for the amount of trade that takes place and the consequent level of social welfare. And the size of the import industry, in turn, is affected by the costs and risks involved in importing. This is where our model differs from the standard partial equilibrium analysis of trade policy under perfect competition: by explicitly introducing entry costs and an element of uncertainty for all potential traders – factors that are crucial in determining the entry decisions of traders and ultimately, the outcome of trade policies – we show that neglecting the role of traders can lead one astray in evaluating the effects of various trade restrictions. Thus, the fundamental contribution of this paper lies in its implications for trade policy, which differ quite substantially from the norm.

Bilateralism in trade dispute settlement

In the Journal of World Trade, ANU’s Peter Drahos warns that PTAs may undermine the WTO’s dispute settlement regime:

Typically, an FTA will contain a chapter on dispute settlement that establishes committees and detailed procedures for handling disputes between the parties to the agreement. The growing number of these agreements is creating, in effect, a web of bilateral trade dispute resolution fora. The purpose of this article is to draw attention to this bilateral web and in particular to focus on the role that the United States is playing in its construction…

The capacity of a strong State to choose, as it were, its legal battleground has important implications for weaker States, especially in those cases where the stronger State shifts the contest out of the multilateral setting of the WTO…

The effect of creating a web of bilateral dispute resolution fora will be to give the United States and the EU more opportunities to play for rules. If, as Palmeter and Mavroidis suggest, the DSU was the most important achievement of the Uruguay Round, then perhaps the current proliferation of FTAs represents something of a crossroads for the DSU. By constituting many possible trade courts, the United States and the EU are creating a system in which their respective influential domestic trade interests will lobby them to go to the trade court in which those interests are most likely to obtain satisfaction.

How much such a system will help to improve trade liberalization that leads to real economic gains is an open question. In the case of intellectual property rights we have seen that there is a real danger that dispute mechanisms will be used to enforce rent-seeking bargains. More generally, such a system of many trade courts may simply push the trade regime in the direction of a disorderly mixture of confusing obligations, rule uncertainty and prolonged litigation patterns, a system in which the MFN principle really does assume a ghostly interstitial presence.

Full pdf.

If Drahos is right, then the World Trade Organization needs to assert its authority and propose an appropriate framework for the evolution of bilateral dispute settlement mechanisms, lest the multilateral system be dangerously compromised.

Buying out the farm

Cato’s Sallie James and Dan Griswold propose a farm bill:

Because the first-best solution of completely ending farm programs as of September 30, 2007—with no compensation or transition payments—is politically infeasible, we advocate that the government buy out the damaging and expensive support for farmers by paying them a fixed amount of money, which they would be free to spend as they wish. Although it would require large up-front outlays, a politically expedient buyout of agricultural subsidies and trade barriers, with concrete steps to ensure the changes are permanent, would be a worthwhile investment.

Is it time to put Doha on ice?

It may be too late for bold moves. Reuters:

Senate Finance Committee Chairman Max Baucus said on Friday he saw no need yet for the U.S. Congress to renew the White House’s trade promotion authority, which expires at the end of June…

“If there’s not a new pending agreement, whether it’s multilateral or bilateral, then there’s not going to be a need for TPA,” Baucus said after a speech…

U.S. Trade Representative Susan Schwab, at a briefing with reporters in New Delhi, said there was no “Plan B” for finishing the WTO talks without trade promotion authority.

Baucus is often regarded as very influential on trade policy issues, so his position may indicate that this round of negotiations is headed into deep freeze until the end of the Bush administration.

How bold a move is needed to revive Doha?

Chad Bown, of Brookings and Brandeis, proposes a bold move:

[T]he United States needs to take a stand by halting all of its remaining bilateral trade negotiations as a step towards a good-faith effort to rekindle the multilateral Doha negotiations. This action would signal leadership and commitment to successfully pursuing and completing the Doha round, which holds the greatest potential for substantial increases in well-being both at home and abroad.

I recommend reading the full piece, in which Bown attacks recent US trade policy efforts as anti-China maneuvers. He gives no quarter to the US-Korea FTA, characterizing it as a policy discriminating against Chinese imports rather than freeing trade.

Would Bown’s proposal suceed in rejuvenating the Doha round? Informal meetings over the last couple months haven’t produced any new momentum, and yesterday’s announcement of a new deadline (end of 2007) does little to inspire confidence in the DDA’s vitality. It may take something quite radical to revive it.

Update: Corrected spelling of Bown. I regret the error.

Immigration and efficiency

Gordon Hanson:

…from a purely economic perspective, illegal immigration is arguably preferable to legal immigration. …the illegal route is for the moment vastly more efficient than the cumbersome legal system. Illegal immigration responds to economic signals in ways that legal immigration does not. Illegal migrants tend to arrive in larger numbers when the U.S. economy is booming and move to regions where job growth is strong. Legal immigration, in contrast, is subject to bureaucratic delays, which tend to disassociate legal inflows from U.S. labor-market conditions. The lengthy visa application process requires employers to plan their hiring far in advance. Once here, guest workers cannot easily move between jobs, limiting their benefit to the U.S. economy.

US bows to WTO decision

The Commerce Department has yielded to the WTO’s ruling on zeroing in the calculation of anti-dumping duties. Though the United States has shown a tendency to initially resist WTO rulings against it, it usually concedes, albeit after waiting a number of months or losing an additional ruling. This strikes me as (somehwat) promising for building up the WTO’s institutional credibility

Measuring the significance of an FTA partner

Daniel Altman uses a misleading metric to describe the US-Korea trade deal, and I’ve seen this fallacy deployed by a number of others discussing FTAs:

Why is it so important? South Korea ranks just behind the European Union, United States, Japan, China and Hong Kong as an exporter. It shipped $284 billion worth of merchandise in 2005, the last year for which the WTO offers global statistics. That amount, which was three times India’s exports, was also equivalent to the total merchandise shipped by the world’s bottom 118 economies, ranked by the same metric.

All but 30 of those economies are also members of the WTO. So signing a free trade agreement with South Korea could be as economically important as signing agreements with 88 of the group’s 150 members. Given the intense and growing trade relationship between the United States and South Korea, it could be even more important.

Trade agreements are supposed to spur new trade, not entitle partners to claiming the existing volume of trade. (Though the latter might be a rough description of trade diversion.) If the US-Korea FTA doesn’t create any new trade, then it doesn’t matter at all that South Korea is already a massive exporter. Present performance is not a measure of potential gains.