Author Archives: jdingel

What are Colombia’s potential economic gains from a PTA?

Will making US trade preferences for Colombia permanent attract new investment? That’s the White House line, echoed by Nick Kristof. I’m skeptical of the magnitude of the effect.

Jeff Schott at the Peterson Institute of International Economics edited a volume on US-Colombian trade relations a few years ago. He wrote:

An FTA would provide contractual guarantees regarding the permanency of the trade preferences, in stark contrast to the uncertainty that surrounds whether the US Congress will reauthorize the ATPA [Andean Trade Preferences Act] before it expires at the end of 2006. Such uncertainty imposes costs on bilateral trade and investment and has contributed to the lackluster FDI in Colombia by US firms… To be sure, other factors — including Colombia’s macroeconomic policies, security environment, and domestic regulatory policies — may be of equal or greater importance in investment decisions.

Oh, that nasty uncertainty.

Reuters – Feb 14 – Expiring U.S. trade benefits for Colombia, Peru, Ecuador and Bolivia would be renewed through the end of this year… The 10-month extension is a compromise between Democrats who had favored renewing the program for two years and Republicans, who wanted a much shorter renewal to keep pressure on Congress to approve a free trade pact with Colombia.

So Republicans are injecting uncertainty into Colombia’s export opportunities in order to use uncertainty as an argument for the PTA! Sick.

Back to Schott:

To an important extent, attracting investment is the key objective of the FTA. If implemented in conjunction with domestic policies that promote macroeconomic stability and enhance productivity, an FTA could make Colombia a much more attractive host for new investment not only by foreign companies but by Colombians as well…

In sum, the FTA should be seen as part of Colombia’s overall development strategy. Many of the reforms that will likely be required by FTA obligations may well parallel changes in domestic economic policies that were sought by the government but were blocked or diluted because there has been insufficient political support to gain legislative approval.

So the impact of the PTA will be largely contingent on domestic reforms in Colombia. And those reforms face political opposition. How is Colombia doing on those reforms?

Schott and Paul Grieco wrote:

In summary, 10 years ago, Colombia was the clear frontrunner in readiness for a free trade agreement, but today that is no longer the case. While Colombia has come through a turbulent decade without a huge decline in readiness, it has not moved up its readiness score to the levels of current US FTA partners such as Mexico and Chile. As is often the case, the political and economic domestic reforms that are essential to development are also required to leverage the benefits of a free trade agreement with the United States. While the indicators show that Colombia needs to increase gross savings and further reduce its external debt, promoting reforms that strengthen the political sustainability indicator will make the most important contribution to raising Colombia’s readiness score.

Political sustainability, huh? How is it going this week?

A political scandal that has engulfed Colombia’s political class came a step closer to the president, Alvaro Uribe, after his cousin and close political companion was arrested on charges of colluding with rightwing paramilitary groups.

I doubt this pleases investors:

Uribe’s allies are eager to see him serve a third four-year term, even though that is prohibited by the constitution. In 2005, the Constitutional Court approved an amendment that allowed him a single re-election in 2006. Many analysts here believe it is impractical for a tarnished Congress to try to amend the constitution or find other ways to spearhead another reelection effort…

Most of the politicians implicated in the scandal have had close ties to Uribe, and many of them supported the constitutional change that permitted him to run for reelection. Still, the “para-politics” scandal has touched politicians from nearly every party, including the opposition Liberal Party, which has more members linked to the paramilitary groups than any other.

I remain skeptical that this PTA will do much for Colombia in the near future.

What are Colombia's potential economic gains from a PTA?

Will making US trade preferences for Colombia permanent attract new investment? That’s the White House line, echoed by Nick Kristof. I’m skeptical of the magnitude of the effect.

Jeff Schott at the Peterson Institute of International Economics edited a volume on US-Colombian trade relations a few years ago. He wrote:

An FTA would provide contractual guarantees regarding the permanency of the trade preferences, in stark contrast to the uncertainty that surrounds whether the US Congress will reauthorize the ATPA [Andean Trade Preferences Act] before it expires at the end of 2006. Such uncertainty imposes costs on bilateral trade and investment and has contributed to the lackluster FDI in Colombia by US firms… To be sure, other factors — including Colombia’s macroeconomic policies, security environment, and domestic regulatory policies — may be of equal or greater importance in investment decisions.

Oh, that nasty uncertainty.

Reuters – Feb 14 – Expiring U.S. trade benefits for Colombia, Peru, Ecuador and Bolivia would be renewed through the end of this year… The 10-month extension is a compromise between Democrats who had favored renewing the program for two years and Republicans, who wanted a much shorter renewal to keep pressure on Congress to approve a free trade pact with Colombia.

So Republicans are injecting uncertainty into Colombia’s export opportunities in order to use uncertainty as an argument for the PTA! Sick.

Back to Schott:

To an important extent, attracting investment is the key objective of the FTA. If implemented in conjunction with domestic policies that promote macroeconomic stability and enhance productivity, an FTA could make Colombia a much more attractive host for new investment not only by foreign companies but by Colombians as well…

In sum, the FTA should be seen as part of Colombia’s overall development strategy. Many of the reforms that will likely be required by FTA obligations may well parallel changes in domestic economic policies that were sought by the government but were blocked or diluted because there has been insufficient political support to gain legislative approval.

So the impact of the PTA will be largely contingent on domestic reforms in Colombia. And those reforms face political opposition. How is Colombia doing on those reforms?

Schott and Paul Grieco wrote:

In summary, 10 years ago, Colombia was the clear frontrunner in readiness for a free trade agreement, but today that is no longer the case. While Colombia has come through a turbulent decade without a huge decline in readiness, it has not moved up its readiness score to the levels of current US FTA partners such as Mexico and Chile. As is often the case, the political and economic domestic reforms that are essential to development are also required to leverage the benefits of a free trade agreement with the United States. While the indicators show that Colombia needs to increase gross savings and further reduce its external debt, promoting reforms that strengthen the political sustainability indicator will make the most important contribution to raising Colombia’s readiness score.

Political sustainability, huh? How is it going this week?

A political scandal that has engulfed Colombia’s political class came a step closer to the president, Alvaro Uribe, after his cousin and close political companion was arrested on charges of colluding with rightwing paramilitary groups.

I doubt this pleases investors:

Uribe’s allies are eager to see him serve a third four-year term, even though that is prohibited by the constitution. In 2005, the Constitutional Court approved an amendment that allowed him a single re-election in 2006. Many analysts here believe it is impractical for a tarnished Congress to try to amend the constitution or find other ways to spearhead another reelection effort…

Most of the politicians implicated in the scandal have had close ties to Uribe, and many of them supported the constitutional change that permitted him to run for reelection. Still, the “para-politics” scandal has touched politicians from nearly every party, including the opposition Liberal Party, which has more members linked to the paramilitary groups than any other.

I remain skeptical that this PTA will do much for Colombia in the near future.

What are Colombia's potential economic gains from a PTA?

Will making US trade preferences for Colombia permanent attract new investment? That’s the White House line, echoed by Nick Kristof. I’m skeptical of the magnitude of the effect.

Jeff Schott at the Peterson Institute of International Economics edited a volume on US-Colombian trade relations a few years ago. He wrote:

An FTA would provide contractual guarantees regarding the permanency of the trade preferences, in stark contrast to the uncertainty that surrounds whether the US Congress will reauthorize the ATPA [Andean Trade Preferences Act] before it expires at the end of 2006. Such uncertainty imposes costs on bilateral trade and investment and has contributed to the lackluster FDI in Colombia by US firms… To be sure, other factors — including Colombia’s macroeconomic policies, security environment, and domestic regulatory policies — may be of equal or greater importance in investment decisions.

Oh, that nasty uncertainty.

Reuters – Feb 14 – Expiring U.S. trade benefits for Colombia, Peru, Ecuador and Bolivia would be renewed through the end of this year… The 10-month extension is a compromise between Democrats who had favored renewing the program for two years and Republicans, who wanted a much shorter renewal to keep pressure on Congress to approve a free trade pact with Colombia.

So Republicans are injecting uncertainty into Colombia’s export opportunities in order to use uncertainty as an argument for the PTA! Sick.

Back to Schott:

To an important extent, attracting investment is the key objective of the FTA. If implemented in conjunction with domestic policies that promote macroeconomic stability and enhance productivity, an FTA could make Colombia a much more attractive host for new investment not only by foreign companies but by Colombians as well…

In sum, the FTA should be seen as part of Colombia’s overall development strategy. Many of the reforms that will likely be required by FTA obligations may well parallel changes in domestic economic policies that were sought by the government but were blocked or diluted because there has been insufficient political support to gain legislative approval.

So the impact of the PTA will be largely contingent on domestic reforms in Colombia. And those reforms face political opposition. How is Colombia doing on those reforms?

Schott and Paul Grieco wrote:

In summary, 10 years ago, Colombia was the clear frontrunner in readiness for a free trade agreement, but today that is no longer the case. While Colombia has come through a turbulent decade without a huge decline in readiness, it has not moved up its readiness score to the levels of current US FTA partners such as Mexico and Chile. As is often the case, the political and economic domestic reforms that are essential to development are also required to leverage the benefits of a free trade agreement with the United States. While the indicators show that Colombia needs to increase gross savings and further reduce its external debt, promoting reforms that strengthen the political sustainability indicator will make the most important contribution to raising Colombia’s readiness score.

Political sustainability, huh? How is it going this week?

A political scandal that has engulfed Colombia’s political class came a step closer to the president, Alvaro Uribe, after his cousin and close political companion was arrested on charges of colluding with rightwing paramilitary groups.

I doubt this pleases investors:

Uribe’s allies are eager to see him serve a third four-year term, even though that is prohibited by the constitution. In 2005, the Constitutional Court approved an amendment that allowed him a single re-election in 2006. Many analysts here believe it is impractical for a tarnished Congress to try to amend the constitution or find other ways to spearhead another reelection effort…

Most of the politicians implicated in the scandal have had close ties to Uribe, and many of them supported the constitutional change that permitted him to run for reelection. Still, the “para-politics” scandal has touched politicians from nearly every party, including the opposition Liberal Party, which has more members linked to the paramilitary groups than any other.

I remain skeptical that this PTA will do much for Colombia in the near future.

Kristof on US-Colombia PTA

Nick Kristof tries to sell the US-Colombia PTA:

Critics of the free-trade pact worry that it would hurt American workers. But Colombian goods already enter the U.S. duty-free; what would change is that American exporters would get access to the Colombian market.

(Colombia is pushing hard for the pact not because of any immediate trade benefit but because its duty-free access to the U.S. must be regularly renewed. Businesses are reluctant to invest in flower farms or garment factories unless they know that they will be able to export to the U.S. for many years to come.)

So US workers shouldn’t worry because the PTA won’t increase Colombian exports, but Colombia wants the PTA because it’ll attract investments dedicated to exporting for many years? You can’t have it both ways, Mr Kristof.

Albouy vs AJR bleg

David Albouy recently posted a new (Feb ’08) version of his critique of Acemoglu, Johnson, and Robinson’s 2001 AER paper that used European settler mortality rates as an instrument for modern institutional quality.

I haven’t had time to read through the back-and-forth exchanges to form my own judgment. Has any third party summarised the dispute and commented? Albouy is revising and resubmitting at AER, so at least some of his claims must be plausible, huh?

Why export-led development?

Simon Johnson on development strategies:

Michael Spence is in favor of an manufactured export-led strategy. Larry Summers points out that it would be hard for all countries in the world to do this at the same time. And Robert Rubin emphasizes good governance.

Here’s a potential way to put it all together. If your governance is good, you can sustain rapid growth even based on primary commodities — Botswana would be the leading example (but if you want to go back in time, I would suggest Norway and Sweden were mostly commodity producers at key early phases of their development). But if your governance is problematic, then commodities may be more tricky for political reasons; it’s just too tempting to try to grab power and get all those “rents”.

If your governance is an issue, then a strategy based on manufactured exports may make more sense. Why? After all, manufacturing is more footloose than mining (which is obviously tied to mineral deposits). It’s the footloose nature of manufacturing that makes this approach work. If you expropriate some factories, the rest will leave. So you can build an equilibrium in which entrepreneurs believe they will have reasonably good protection for their property rights, even though the laws on the books or the courts or something else about the political environment is not ideal.

And it is striking that almost all countries that have grown fast for the past 30 or so years have done so with manufactured exports as a major focus. It’s also encouraging that exporters of commodities more recently have moved to diversify their exports — this is a key point from chapter 5 of the WEO.

Antidumping in the Supreme Court

Did you know that you can’t dump a service?

The Supreme Court said Monday it will rule on a case that could make it harder for U.S. companies to obtain protective tariffs on low-priced foreign goods.

The dispute centers on whether uranium that U.S. utilities send to France for enrichment and then import for use in nuclear power plants qualifies as a ‘good’ or ‘service.’ The question is critical because only manufactured goods, not services, are subject to U.S. laws that can add punitive tariffs to cheap imports.

The history of “trade-related” intellectual property

Did nineteenth century free traders hurt themselves by including intellectual property rights on their agenda? Does the WTO’s TRIPs provision risk repeating their error in the twenty-first century?

Why is intellectual property trade-related? In any case, should it be? The reassessment has been undertaken by advocates as well as skeptics of globalization…

The perceived connections between trade and one particular form of intellectual property—copyright—is especially worthy of historical scrutiny… International copyright was kept at bay in the United States until 1891… My premise is that the political and doctrinal allegiances of authors of arguments on both sides of the international copyright controversy matter because they reflect how, in the nineteenth century, intellectual property was “trade related.” Those who were at the vanguard of the movement for international copyright were also the leading advocates of free trade… Likewise, the principal articulators of the case against international copyright were also the foremost advocates of protection…

Free traders failed repeatedly for sixty years after the end of the Civil War to reduce the average tariff to its immediate prewar level. They failed despite making a case that, by comparison with the one made for free trade today, was compelling. Specifically, the principles of free labor engendered an antimonopoly argument for trade. Free trade, its advocates argued, would eliminate the special privileges granted to producers in specific industries, most notably cotton goods, iron, and steel. It would promote competition, lower prices, and raise consumers’ real incomes…

Carey attempted to turn the tables on the free traders: he argued that free trade promoted monopoly, and protection mitigated it. His conviction was sincere—but that particular part of his argument was unpersuasive, and relatively few of his followers bothered to repeat it. He was much more persuasive in arguing that international copyright promoted monopoly. In the face of the latter argument, the proponents of free trade and international copyright were put on the defensive…

One wonders whether the tireless advocacy of international copyright by free traders like Bryant—who framed the cause as one inextricably related to free trade—hindered the advancement of their principal cause. The long-awaited sweeping tariff reductions were deferred until 1913. Might the wait have been shorter if the antimonopoly credentials of the free-trade advocates had not been called into question?

That’s from Stephen Meardon, “How TRIPs Got Legs,” History of Political Economy, 2005. (Ungated 2004 working paper)

Read the full article for details of the arguments and some fascinating tidbits such as early 1800s free-trade poetry (so popular in Boston that they published a second edition!).