Author Archives: jdingel

China’s export promotion

Emmanuel, a guest at Brad Setser’s blog, provides a primer on China’s export incentives and rebates, some of which the US will challenge at the WTO.

In the comments section, there’s a link to this interesting piece:

Li Deshui, the outspoken former chief of the National Bureau of Statistics (NBS), recently remarked that a considerable part of China’s trade surplus is not real, but in fact comes from “fake” exports by enterprises that fraudulently obtain export rebates from the government… A popular practice is to export certain goods to get tax rebates and then smuggle or import the goods back to sell in the domestic market.

What completed the Uruguay Round?

Former Director-General of the GATT and WTO Peter Sutherland spoke yesterday about challenges to the multilateral trading system. A few highlights amongst Mr. Sutherland’s comments:

– He believes that TPA renewal under the Democratic Congress is unlikely, but an outline of a Doha round agreement must be on the table within two months for reauthorization to have any chance.
– Doha failure will accelerate bilateralism in trade, which has historically resulted in trade deals that benefit rich countries and harm poor countries.
– Bilateralism is useless to multinational corporations with supply chains spanning many countries.
– One source of Doha’s trouble is the ill-conceived launch as a “development round” with unrealistic expectations. The WTO is not a development institution, and although its mission is to create a favorable and open global trading system that is conducive to development, “trade deals can’t deliver development.” Trade liberalization favors those who trade – the rich countries.
– In regards to the WTO’s ability to do research and advocate on behalf of global trade: “The WTO’s staff is one-quarter of the World Wildlife Fund’s.”
– “Neither the outcome nor the path to it has been satisfactory.” Sutherland echoed the message of the 2005 WTO report he chaired, criticizing the Doha round approach of announcing formulaic headline goals attenuated by numerous details and caveats. He characterized the Uruguay Round as involving more pragmatic give-and-take. Sutherland defended the “green room” sessions as a means of hammering out a consensus amongst key players who could serve as “honest brokers,” arguing that LDCs’ interests largely align with those participating in the green room.
– Similarly, Sutherland emphasized the importance of senior-level negotiators doing the heavy lifting. He noted that when he became Director-General, the Uruguay Round had already suffered two near-catastrophic ministerial meetings, and that the deal was completed six months later without a ministerial meeting. Marrakesh was a coming out party.
– Sutherland also noted that trade preferences can drive countries to specialize in commodity exports in which they don’t have a comparative advantage. His example was Caribbean nations growing bananas thanks to the EU’s ACP preferences, despite Central America’s productive superiority.

During the Q&A, I asked Mr. Sutherland to identify the forces he thinks were responsible for the Uruguay Round’s successful completion. I noted that competing interpretations of that negotiating history motivate current strategies for Doha:

Some in Washington claim the strategy helped break a deadlock in the Uruguay round after the EU balked at opening its protected agricultural market. They say by threatening to turn Apec from a loose grouping of Pacific Rim economies into a rival trade bloc, the US forced the EU back to the bargaining table.
Others, however, think such claims exaggerated. Not only have Apec’s efforts to free regional trade achieved little but, they argue, the EU softened its position on farm trade in the Uruguay round only because mounting costs made reform of its common agricultural policy unavoidable.

Sutherland acknowledged that both of those forces may have played some role (EU internal politics more than the threat of APEC), but argued that individual people matter far more in the actual negotiations. He characterized the APEC narrative as “ex post facto theorizing” rather than a compelling explanation.

Sutherland’s story emphasized the role of particular negotiators and national leaders in building a consensus and hammering out controversies. Particularly amusing was a tale of fervent discussions at 2am in the green room shortly before the completion of the round, in which negotiators debated whether the word “unfair” carried appropriate legal import to be included in a paragraph on anti-dumping. The next morning, shortly before Sutherland was due to announce the round completed, the Japanese representative informed him that the ministry of foreign affairs and MITI disagreed about the text. The ensuing brinksmanship (as narrated by Sutherland) was quite entertaining (in retrospect), and thank goodness it worked out for the best, as Japan raised no objection when Sutherland gaveled the round to a close.



Sutherland’s story of the Uruguay Round’s completion was both amusing and insightful. I hope he someday puts it into print.

The Farm Bill

The Bush administration put forth its farm bill proposal last week. Alan Beattie reports:

But as far as Doha was concerned, as one experienced agricultural policymaker in Washington put it: “There is less to this than meets the eye”.

The headline totals were compatible with, but did not go beyond, the cut in annual allowable trade-distorting farm subsidies from around $22bn to around $17bn (€13bn, £8.6bn) that the Bush administration has already informally offered in the Doha round.

Subsidy programmes that support prices, because they encourage farmers to produce more and hence push down world prices, are classified as “trade-distorting” under WTO rules and are subject to stricter limits. Despite the administration’s rhetoric that it was moving from supporting farmgate prices to protecting farmers’ incomes – the so-called “revenue assurance” principle – the proposed move was modest. The “marketing loan” programme, which subsidises farmers when the prices of their produce fall below a set level, altered the calculation of the price a little to take account of actual market prices, but the change will not be dramatic.

Similarly, a controversial programme called “counter-cyclical payments”, which compensates farmers when prices are low, was adjusted to take account of national crop yields as well as prices, but the change was incremental. The US has sought to classify the counter-cyclical payments as being only somewhat distorting of trade and hence enable them to continue under a Doha deal.

Mr Johanns has repeatedly warned US farmers that the alternative to agreeing reform is to see US agricultural subsidies litigated away piece by piece under the WTO’s dispute resolution mechanism. The US is seeking a renewal of the so-called “peace clause”, under which countries agree not to bring cases against each other over farm subsidies, in the Doha negotiations, but has run into stiff opposition from Brazil, which won a landmark victory against the US cotton subsidy programme in 2005.

What’s the best scope for WTO negotiations?

Former USTR Charlene Barshefsky makes the case for emphasizing sectoral agreements rather than trade rounds at the WTO:

The longer the time-spread between global developments and WTO agreements, the less relevant the WTO will become. That, to me, suggests a policy, as we pursued in the 1990’s under President Clinton, under which parties use the WTO the way it was meant to be used – and that is as a forum for continuing negotiations among the members on issues of growing concern, so as to handle these issues in a rapid and effective manner. In the 1990’s, we concluded global agreements on telecommunications market opening, financial services market opening, information technology (which brought to zero tariffs on all information technology products), and duty-free cyberspace. These were all done under WTO auspices in a sectoral fashion, in a timely way.

The last global round of trade talks was launched in 1986. This round will not conclude until year-end 2007, at the earliest. Had we not pursued these critical sectoral agreements when we did, global telecom and financial services markets would not be nearly as open to the United States as today. Would that have made make any sense, when financial services and telecom are perhaps the most critical aspects of wealth creation?

If we keep waiting for meaningful trade liberalization in large rounds, which can be held up by any issue countries wish to interpose, then we risk the future of the WTO. I believe Doha will conclude. Once it concludes, the WTO must take a hard look at its own responsiveness, and its own role as a regulator, if you will, of global economic behavior, and move toward the negotiation of agreements with the greatest salience.

The most relevant academic piece I’ve found on this topic is a chapter in Economic Development and Multilateral Trade Cooperation by Philip Levy (PDF available online). In his introduction, he writes:

What is the appropriate scope of a negotiating round? Is it generally possible to reach agreements sector by sector? If it is possible, is it advisable?

This paper will attempt to bring existing economic theory to bear on these questions. In the next section, we will review the traditional case for package deals in trade rounds, bolster that case with some theory and then challenge it with the apparent success of sectoral negotiations. We will argue that track record of the sector-by-sector approach is less attractive than it seems and that its successes may well have had negative effects on future negotiations beyond the unfortunate procedural precedent.

Pointers to additional literature on this topic would be much appreciated.

What's the best scope for WTO negotiations?

Former USTR Charlene Barshefsky makes the case for emphasizing sectoral agreements rather than trade rounds at the WTO:

The longer the time-spread between global developments and WTO agreements, the less relevant the WTO will become. That, to me, suggests a policy, as we pursued in the 1990’s under President Clinton, under which parties use the WTO the way it was meant to be used – and that is as a forum for continuing negotiations among the members on issues of growing concern, so as to handle these issues in a rapid and effective manner. In the 1990’s, we concluded global agreements on telecommunications market opening, financial services market opening, information technology (which brought to zero tariffs on all information technology products), and duty-free cyberspace. These were all done under WTO auspices in a sectoral fashion, in a timely way.

The last global round of trade talks was launched in 1986. This round will not conclude until year-end 2007, at the earliest. Had we not pursued these critical sectoral agreements when we did, global telecom and financial services markets would not be nearly as open to the United States as today. Would that have made make any sense, when financial services and telecom are perhaps the most critical aspects of wealth creation?

If we keep waiting for meaningful trade liberalization in large rounds, which can be held up by any issue countries wish to interpose, then we risk the future of the WTO. I believe Doha will conclude. Once it concludes, the WTO must take a hard look at its own responsiveness, and its own role as a regulator, if you will, of global economic behavior, and move toward the negotiation of agreements with the greatest salience.

The most relevant academic piece I’ve found on this topic is a chapter in Economic Development and Multilateral Trade Cooperation by Philip Levy (PDF available online). In his introduction, he writes:

What is the appropriate scope of a negotiating round? Is it generally possible to reach agreements sector by sector? If it is possible, is it advisable?

This paper will attempt to bring existing economic theory to bear on these questions. In the next section, we will review the traditional case for package deals in trade rounds, bolster that case with some theory and then challenge it with the apparent success of sectoral negotiations. We will argue that track record of the sector-by-sector approach is less attractive than it seems and that its successes may well have had negative effects on future negotiations beyond the unfortunate procedural precedent.

Pointers to additional literature on this topic would be much appreciated.

Trade Liberalization and Industrial Restructuring through M&A

Today, I had the pleasure of hearing Holger Breinlich present his most recent work, which introduces new evidence about the reactions of heterogeneous firms to trade liberalization:

This paper analyzes mergers and acquisitions (M&A) as a previously neglected channel of industrial restructuring in the face of trade liberalization. Using the Canada-United States Free Trade Agreement of 1989 as a source of exogenous variation in trade barriers, I show that trade liberalization leads to a significant increase in M&A activity. I also provide evidence that resources are transferred from less to more productive firms in the process and that the magnitude of the overall transfer is quantitatively important. Taken together, these results suggest that M&As are an important alternative to the previously studied adjustment channels of firm and establishment closure and contraction.

Full paper here (pdf).

Farm Bill announcement Wednesday

The farm bill will come down the pipe this week:

[T]he U.S. Agriculture Department announced it will outline its proposals on Wednesday for revamping U.S. farm subsidy programs, which are up for renewal this year. Many countries could see the proposal as a barometer of how serious Washington is about reforming agriculture in the Doha round.

And Bush is spending today asking for TPA extension.