Author Archives: jdingel

An ITA for the 21st century

During the summer, the “long-simmering dispute over tariffs on IT products” heated up when the US lodged a formal complaint with the WTO against the EU’s tariffs. As I explained, the trouble stems from the fact that the 1996 Information Technology Agreement did not link its zero-tariff commitments to the harmonized product classification schedule. Moreover, technological progress inevitably renders old categorizations obsolete.

In a new ECIPE working paper, Iana Dreyer and Brian Hindley take an in-depth look at the agreement’s shortcomings that led to the current dispute over multifunction IT products and suggest how governments might bring the ITA up to speed. They say that new negotiations are necessary, though they want the current dispute to play itself out before the settlement panel (in contrast, the EU has perhaps seen negotiations as an alternative to litigation). The panel’s ruling regarding product classification might provide a basis for new negotaitions, which Dreyer and Hindley say should ambitiously cover all consumer electronics. I think it is going to be a while before any such negotiations get off the ground, given the current political and economic environment.

Christmas tariffs

The US nominal average ad valorem tariff rate for (12 Days of) Christmas this year, which I calculated using the handy Harmonized (Tariff) Christmas schedule, is only 1.9%. I assume that Santa has MFN status.

Drums 4.8%
Pipes 0%
Milking machines 0%
Swans 1.8%
Geese $.02/kg
Golden rings 5.5%
Calling birds 1.8%
French hens $.02/kg
Turtle doves 1.8%
Partridge 1.8%
Pear tree 0%

Is Doha critical to surviving the crisis?

Joseph Francois says that the emphasis on the Doha Round is misplaced:

Approximately 30% of world trade is locked in at zero tariffs through various European agreements (the European Union treaties and the EEA), another 8% of trade is under zero tariffs locked in through NAFTA, and another 40% involves OECD importers where tariffs are at or very close to bound rates — i.e. there is no “binding overhang” (except for the OECD share involving food trade outside free trade blocks, which is roughly 2.5% of world trade).

On top of this, the commitments undertaken by China and Taiwan when they joined the WTO also limit their room for protectionist manoeuvres. If we also include Hong Kong and Singapore as “safe” importers (they are traditionally staunch free traders), this leaves around 20% of trade “at risk.” This involves Asian importers, Africa, Latin America, OPEC Members, and components of the former Soviet Union… What all this means is that the recent IFPRI study (which has been widely quoted) may greatly overstate the risk of Doha failing. Because of regional and multilateral bindings that really do bind, we will not get a massive unwinding of trade through widespread hikes in applied tariff schedules – unless the EU, NAFTA, and WTO themselves all unwind as well…

We need to devote energy to non-Doha issues in Geneva. These include the risk of rising and excessive use of antidumping, countervailing duty, and safeguard protection; misguided public subsidies (though some of the current ones may be justified on retro-Keynesian grounds); rising protection in the poorest countries; and temptation in the US Congress to violate existing treaty commitments. The WTO members should spend energy on these issues, but the Doha Round is not a critical part of the equation.

Preventing a protectionist outbreak

New VoxEU book on the crisis and protectionism:

When incomes, investment and jobs are under threat, national governments try to cushion the blow – in part by erecting new trade barriers. This time is no exception. According to the latest data from the WTO and ITC, the number of antidumping cases jumped 40% in the first half of 2008 and many nations have already raised tariffs in 2008.

The magnitude of the new protection is modest. However, as the recession spreads and deepens globally, this could change – especially if world leaders lose control of the situation; protectionism and competitive devaluations could trigger a vortex of beggar-thy-neighbour policies.

The universal respect of WTO rules and 60 years of tariff negotiations make a repeat of the 1930s tariff war unlikely. But a WTO-consistent protectionist cycle is a real possibility. Indeed, just such a thing happened on a small scale in the last major financial crisis – the 1997 Asian crisis.

Featuring Richard Baldwin, Jagdish Bhagwati, Ann Capling, Wendy Dobson, Peter Draper, Simon Evenett, Gary Hufbauer, Douglas Irwin, R V Kanoria, Robert Z. Lawrence, Patrick Messerlin, Kevin O’Rourke, Arvind Panagariya, Yung Chul Park, Hadi Soesastro, and Jeffery Schott.

New NBER WPs

Lots from the NBER this week, here are ungated links.

  • Between 1875 and 1913, industrial tariffs are positively correlated with growth while agricultural tariffs are negatively correlated with growth. [Lehmann & O’Rourke]
  • China’s export expansion has only dampened other developing country’s exports by around 1%. [Hanson & Robertson]