Author Archives: jdingel

Nsour: Establish an agreement on PTAs

Mohammad Nsour, who was involved in McGill Law’s PTAs database that I’ve mentioned before, has published his doctoral thesis as Rethinking the World Trade Order: Towards a Better Legal Understanding of the Role of Regionalism in the Multilateral Trade Regime. The publisher’s summary:

Regional Trade Agreements (RTAs) have proliferated at an unprecedented pace since the creation of the World Trade Organization (WTO). Although the WTO legally recognizes countries’ entitlement to form RTAs, neither the WTO nor parties to RTAs have an unequivocal understanding of the relationship between the WTO and RTAs. In other words, the legal controversies, the result of uncertainty regarding the application of the WTO/GATT laws, risk undermining the objectives of the multilateral trade system. This research tackles a phenomenon that is widely believed to be heavily economic and political. It highlights the economic and political aspects of regionalism, but largely concentrates on the legal dimension of regionalism. The main argument of the book is that the first step to achieving harmony between multilateralism and regionalism is the identification of the legal uncertainties that regionalism produces when countries form RTAs without taking into account the substantive and procedural aspect of the applicable WTO/ GATT laws. The book calls for the creation of a legal instrument (i.e. agreement on RTAs) that combines all of the applicable laws on RTAs, and simultaneously clarifies the legal language used therein. Likewise, the WTO should have a proactive role, not merely as a coordinator of RTAs, but as a watchdog for the multilateral system that has the power to prosecute violating RTAs. The author is aware that political concerns are top priorities for governments and policy makers when dealing with regionalism. Hence, legal solutions or proposals are not sufficient to create a better international trade system without the good will of the WTO Members who are, in fact, the players who are striving to craft more regional trade arrangements.

Does renminbi undervaluation cost US jobs?

Check out the clashing views on the renminbi and American jobs at Foreign Policy.

Fred Bergsten wants China to significantly revalue the renminbi (something like a 10% immediate appreciation), saying that “China is exporting large doses of unemployment to the rest of the world.” He thinks a trade correction would create a million US jobs, using a rule of thumb in which “$1 billion of exports supports about 6,000 to 8,000 (mainly high-paying manufacturing) jobs in the United States.”

Phil Levy offers the rebuttal. In normal times, most believe the trade balance doesn’t affect employment. In a recession, could the trade balance affect the unemployment rate? He points to Ray Fair’s econometric model, which suggests that Chinese undervaluation has actually created US jobs. He’s also not a fan of Bergsten’s rule of thumb.

The US-Sino Currency Dispute: New Insights from Economics, Politics, and Law

The US Treasury didn’t issue its currency manipulator report today, but there’s still plenty of reading material on the renminbi being published. The CEPR eBook The US-Sino Currency Dispute: New Insights from Economics, Politics, and Law, edited by Simon J. Evenett, is available online at http://www.voxeu.org.

Stiglitz on renminbi revaluation

Joe Stiglitz’s latest column at Project Syndicate warns the US against starting a trade war over China’s exchange rate.

On perspective:

Even in absolute value, Saudi Arabia’s multilateral merchandise surplus of $212 billion in 2008 dwarfs China’s $175 billion surplus; as a percentage of GDP, Saudi Arabia’s current-account surplus, at 11.5% of GDP, is more than twice that of China. Saudi Arabia’s surplus would be far higher were it not for US armaments exports.

In a global economy with deficient aggregate demand, current-account surpluses are a problem. But China’s current-account surplus is actually less than the combined figure for Japan and Germany; as a percentage of GDP, it is 5%, compared to Germany’s 5.2%.

On politics:

China recognizes that its currency needs to appreciate over the long run, and politicizing the speed at which it does so has been counterproductive. (Since it began revaluing its exchange rate in July 2005, the adjustment has been half or more of what most experts think is required.) Moreover, starting a bilateral confrontation is unwise.

Since China’s multilateral surplus is the economic issue and many countries are concerned about it, the US should seek a multilateral, rules-based solution. Imposing unilateral duties after unilaterally labeling China a “currency manipulator” would undermine the multilateral system, with little payoff. China might respond by imposing duties on those American products effectively directly or indirectly subsidized by America’s massive bailouts of its banks and car companies.

No one wins from a trade war. So America should be wary of igniting one in the midst of an uncertain global recovery – as popular as it might be with politicians whose constituents are justly concerned about high unemployment, and as easy as it is to look for blame elsewhere.