Author Archives: jdingel

Russian WTO accession update

Russian recently struck a deal with the EU that makes the former’s accession to the WTO likely to occur in 2011. Russia is hoping to do so before July. Robert Amsterdam describes what may lie ahead:

The benefits of Russian entry, on one hand, are very positive. Moscow has agreed to phase out most of its export tariffs, including timber, which will certainly benefit the European community as a whole. Russia has also agreed to waive flyover royalties that it has imposed on international airlines for passing through Siberia en route to East Asia. Although this is a minor concession, it will still put an additional $400 million back in the hands of European carriers instead of the archaic Russian national airline Aeroflot.

On the other hand, Russia will eventually have to face other WTO members’ geopolitical concerns before accession. First off, Georgia will demand Russian withdrawal and cessation of support for breakaway provinces South Ossetia and Abkhazia. The 2008 War and Russia’s ongoing occupation of the territories in question will inevitably be a major topic of debate.

Another concern, in addition to Russia’s forceful reassertion over its traditional sphere of influence in Eastern Europe and Central Asia, is Russia’s ability or willingness to counter corruption in its government and business community. If China’s integration into the WTO since 2001 has been of any guidance, Russia’s entry should build anti-corruption measures and promote the international system’s benefits and openness to the Russian people. WTO membership is surely opposed by the more nefarious economic powers within Russia – admission to the organization will lead to more oversight and honest competition for services and products.

Here’s a 2006 post mentioning “Russia’s long-sought entry into the World Trade Organization”. Could we see both the Doha round and Russia’s membership finally conclude in 2011?

[HT: LWS]

Are iPhones “made in China”? Measuring value added in trade flows

If you found the Wall Street Journal‘s Wednesday story on gross value vs value added in trade statistics intriguing…

Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China’s contribution is the last step—assembling and shipping the phones.
So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month…

Mr. Lamy said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.

To correct for that bias is difficult because it requires detailed knowledge of how products are put together.

… then you might enjoy Robert Johnson and Guillermo Noguera’s “Accounting for Intermediates: Production Sharing and Trade in Value Added“:

These adjustments imply that bilateral trade imbalances often differ in value added and gross terms. For example, the U.S.-China imbalance is approximately 30-40% smaller when measured on a value added basis, while the U.S.-Japan imbalance is approximately 33% higher. These adjustments point to the importance of triangular production chains within Asia.

MFN in unlikely places

Trade economists are very familiar with “most-favored nation” status. The non-discrimination principle lies at heart of the GATT-WTO post-WWII global trading regime, and its history goes back even further. Here’s a 1901 book on MFN clauses in trade treaties.

But trade economists probably aren’t so familiar with the use of “most-favored-nation clauses” in healthcare markets. The term has been appropriated without modification, so “most favored nation” really means “most favored third-party payor” in a contract with a healthcare provider.  And while MFN is largely favored by trade economists, it seems that “MFN” clauses in healthcare contracts may cause lots of trouble.

Will the revised Korea-US PTA be fast tracked?

(Updated 6 Dec 2010, 7pm.)

The US-Korea PTA is back on the table, as US automakers won some concessions from South Korea:

The new supplement agreement allows 25,000 cars per U.S. automaker to qualify for entry into the South Korean market based on U.S. safety standards. That is about four times the amount agreed to under the deal struck in 2007.

It also allows the United States to keep a 25 percent tariff on trucks until the eighth year, instead of beginning to reduce it in the first year. The United States will still have to eliminate the duty in year 10 of the pact.

South Korea is no longer required to eliminate immediately its 8 percent tariff on U.S. auto imports, but will reduce it to 4 percent for four years before eliminating it.

Seoul will still immediately eliminate a 10 percent tariff on U.S. trucks under the revised pact.

South Korea was given an additional two years — until 2016 — to eliminate duties on some U.S. pork products.

The deal needs to be ratified by the Korean National Assembly and the US Congress. Last month, Jeff Schott said that the deal could still be “fast tracked” to Congress because it was signed by President Bush before his trade promotion authority expired. I do not know if yesterday’s revisions (“supplement agreement”) also qualify under the old TPA or if the revised PTA will be subject to Congressional amendments.

UPDATE: Reuter’s Doug Palmer says that White House and USTR both say the revised deal is eligible under the old trade-promotion authority.

NBER ITI, Fall 2010

The NBER’s fall trade meetings are this weekend in San Francisco. The agenda and three-quarters of the papers are online.

Financing trade
Antras & Foley: “Poultry in Motion: A Study of International Trade Finance Practices”
Chor & Manova: “Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis”
Feenstra, Li & Yu: “Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China”
Re-examining trade theory
Handbury & Weinstein: “Is New Economic Geography Right? Evidence from Price Data”
Markusen: “Putting Per-Capita Income Back into Trade Theory”
Firm and sector heterogeneity
Cosar, Guner & Tybout: “Firm Dynamics, Job Turnover and Wage Distributions in an Open Economy”
Simonovska & Waugh: “The Elasticity of Trade: Estimates and Evidence”
Harrigan & Schlychkov: “Export Prices of US Firms”

The US-Colombia PTA is not about economics

If you approach the subject as an economist, the US-Colombia PTA’s political deadlock is tough to understand. As I noted repeatedly 30 months ago (1, 2, 3, 4) when the PTA was in the news, Colombia’s only meaningful benefit would be making its regularly renewed tariff preferences permanent. US exporters would face lower tariffs in a few areas. Thus, the deal won’t cause substantial change in the economic environment. The PTA’s significance lies in its foreign-policy role, not its economic content.

Nonetheless, writing in the WSJ, Mary O’Grady tries to make the trade deal about economics:

But to make sense of the Obama administration’s opposition to a Colombia FTA—when the U.S. is already open to Colombian exports under the Andean Trade Preference Act (ATPA)—takes real mind-bending.

The advantage for Colombia of the trade agreement is that it will codify ATPA, so it doesn’t have to be renewed every few years. In exchange, Colombia commits to opening to U.S. foreign investment and exports. Consumers, producers and investors in both countries come out winners.

There are also geopolitical gains for the U.S., which benefits from the institutionalization of open markets…

Next year, Ottawa’s Colombia free trade agreement will enter into force, and Canadian producers will join the list of competitors who have an advantage over Americans in the Colombian market. The European Union and South Korea have also signed FTAs with Colombia and will have advantages on the industrial production front.

It’s hard to understand what Mr. Obama is thinking about besides his loyalty to the AFL-CIO. But Colombia’s plans are clear. It wants to trade with the U.S. But if it is rejected, it will simply buy and sell with the rest of the world.

The economics are clear. But I think O’Grady has missed part of the politics. News coverage suggests that Democrats are worried about human rights issue in Colombia, American unions are concerned about violence against Colombian union leaders, and Colombia is arguing that its labor conditions have improved. No one seems to be worried about a flood of Colombian imports hurting US jobs. If that’s the case, then it’s likely fruitless to talk about the economics rather than the politics of the trade deal.

Is the FTAAP any more likely than it was three years ago?

At their meeting last week, APEC leaders announced intentions to negotiate a Free Trade Area of the Asia-Pacific (FTAAP) by 2020. Emmanuel lists reasons to think it’s empty rhetoric:

Again, there is much reason for scepticism. How can the US complete a deal with nine participants when it cannot even complete a bilateral arrangement with South Koreaafter three years, for example? Recall, too, that the Bogor Goals are well off track. The text of the 1994 Leaders’ Declaration says APEC’s achievements should include “the industrialized economies achieving the goal of free and open trade and investment no later than the year 2010 and developing economies no later than the year 2020.” 2010 is about to end, yet agricultural protectionism remains rife in the likes of the US and Japan. As for the Doha Development Round, forget about it since most of the rest of the world already has.

Importantly, remember that this is not the first time the US has tabled the FTAAP idea. Alike the Free Trade Area of the Americas (FTAA), FTAAP has singularly failed to find adherents. Ah well, hope always springs eternal for some.

I don’t see how the FTAAP’s prospects have improved since 2007, which is the last time I discussed the proposal, echoing the skepticism of Chris Dent and Jagdish Bhagwati. That year, Vinod Aggarwal laid out the skeptical case (pdf) at length in a chapter titled “The Political Economy of a Free Trade Area of the Asia-Pacific: A U.S. Perspective” in An APEC Trade Agenda?.