Author Archives: jdingel

The end of competitive liberalization?

“Competitive liberalization” is a really crummy strategy when you run out of steam at home, huh?

Paul Blustein, of the Brookings Institution, a liberal Washington think-tank, said the impasse was an understandable outcome of the Bush administration’s pursuit of bilateral trade deals such as the Colombia agreement, while multilateral talks have stalled.

“Maybe this time, we will finally learn that trade deals of this ilk can be a lot more trouble than they are worth,” said Mr Blustein. “The Colombia contretemps is the latest sign that the Bush administration’s policy of avidly pursuing such agreements with individual countries is prone to serious backfiring.”

Contrary opinions do exist.

William Easterly: Nobody knows anything

I highly recommend listening to the podcast of this event at the Cato Institute from about a month ago. William Easterly delivers a blistering attack on efforts to plan and organize development, calling for us “to oppose ideas that seek collective expert direction of development… basically any effort by the United Nations, IMF, or World Bank.” He acerbically notes that “there are all these poor people that have the nerve to achieve development anyway in spite of the lack of our expert advice,” and “I don’t think anyone has run around saying, ‘oh thank god, egypt has shown us the way; the secret is to export bathroom ceramics to Italy'” (30% of Egyptian export manufacturing revenues come from bathroom ceramics sold to Italy).

But Easterly’s very critical remarks are born from humility, from the Hayekian insights that “nobody knows anything” and that “to plan or organize progress is a contradiction in terms.” Moreover, he has bad news for those who think that the failures of planning mean we just need to preach free markets and follow a Washington Consensus-style recipe. Free market and liberal democratic institutions are endogenously produced by economic and political entrepreneurs.

Of course, Arvind Subramanian has to remind Easterly of the merits of the conventional wisdom. First, policymakers in developing economies do have to make decisions, and the position that economic development is unpredictable and unknowable isn’t very helpful to those who have to work on these kinds of questions. Second, the fact that the average effect of a policy or endowment is zero does not make it irrelevant — we want to tease out the difference between the above-average and below-average cases, if we can.

The ensuing back-and-forth between Easterly and Subramanian as they try to resolve their disagreements is very enjoyable and offers some great food for future thought.

What’s the ‘economic rationale’ for the Colombian PTA?

The Economist writes:

Nevertheless Mr Bush has repeatedly made the case for the Colombia trade deal not on its economic rationale, but because it would help a Latin American ally in the war on drugs, and incidentally one whose next-door neighbour is that anti-American irritant, Hugo Chavez, Venezuela’s president.

Um, what is the economic rationale for the US-Colombia PTA? It gives Colombia no new access to US markets, so it can’t be aid consumers. It may aid some US investors who want access to the Colombian telecoms market and US agricultural exporters will enjoy some gains. But it’s hard to get excited about the economic benefits of this trade deal, and it surely can’t be the best place for an unpopular administration to expend its little remaining political capital with respect to international trade.

I don’t find the security story a particularly compelling reason to support the agreement either. I spoke with Dan Fisk, Senior Director for Western Hemisphere Affairs, on Friday about potential for the PTA to improve Colombia’s security situation. Fisk described the economic benefits for Colombia largely in terms of making permanent the preferential market access Colombia currently enjoys. He said that investors are more likely to make significant long-term investments when trade preferences are permanent, rather than subject to legislative renewal as they are under the Andean Trade Preferences Act. He also argued that investors have been moving to Peru, which does have a PTA with the United States.

While these effects are plausible, I question their magnitude. In the end, this PTA is largely symbolic — for both international relations and domestic politics.

What's the 'economic rationale' for the Colombian PTA?

The Economist writes:

Nevertheless Mr Bush has repeatedly made the case for the Colombia trade deal not on its economic rationale, but because it would help a Latin American ally in the war on drugs, and incidentally one whose next-door neighbour is that anti-American irritant, Hugo Chavez, Venezuela’s president.

Um, what is the economic rationale for the US-Colombia PTA? It gives Colombia no new access to US markets, so it can’t be aid consumers. It may aid some US investors who want access to the Colombian telecoms market and US agricultural exporters will enjoy some gains. But it’s hard to get excited about the economic benefits of this trade deal, and it surely can’t be the best place for an unpopular administration to expend its little remaining political capital with respect to international trade.

I don’t find the security story a particularly compelling reason to support the agreement either. I spoke with Dan Fisk, Senior Director for Western Hemisphere Affairs, on Friday about potential for the PTA to improve Colombia’s security situation. Fisk described the economic benefits for Colombia largely in terms of making permanent the preferential market access Colombia currently enjoys. He said that investors are more likely to make significant long-term investments when trade preferences are permanent, rather than subject to legislative renewal as they are under the Andean Trade Preferences Act. He also argued that investors have been moving to Peru, which does have a PTA with the United States.

While these effects are plausible, I question their magnitude. In the end, this PTA is largely symbolic — for both international relations and domestic politics.

What's the 'economic rationale' for the Colombian PTA?

The Economist writes:

Nevertheless Mr Bush has repeatedly made the case for the Colombia trade deal not on its economic rationale, but because it would help a Latin American ally in the war on drugs, and incidentally one whose next-door neighbour is that anti-American irritant, Hugo Chavez, Venezuela’s president.

Um, what is the economic rationale for the US-Colombia PTA? It gives Colombia no new access to US markets, so it can’t be aid consumers. It may aid some US investors who want access to the Colombian telecoms market and US agricultural exporters will enjoy some gains. But it’s hard to get excited about the economic benefits of this trade deal, and it surely can’t be the best place for an unpopular administration to expend its little remaining political capital with respect to international trade.

I don’t find the security story a particularly compelling reason to support the agreement either. I spoke with Dan Fisk, Senior Director for Western Hemisphere Affairs, on Friday about potential for the PTA to improve Colombia’s security situation. Fisk described the economic benefits for Colombia largely in terms of making permanent the preferential market access Colombia currently enjoys. He said that investors are more likely to make significant long-term investments when trade preferences are permanent, rather than subject to legislative renewal as they are under the Andean Trade Preferences Act. He also argued that investors have been moving to Peru, which does have a PTA with the United States.

While these effects are plausible, I question their magnitude. In the end, this PTA is largely symbolic — for both international relations and domestic politics.

Tons of talk about tiny trade deals

Barack Obama is a politician, so he’s oscillating between what he knows and what brings in votes, says David Brooks:

Barack Obama delivered a speech in Pittsburgh on Monday on the economic stresses facing American workers. In the speech, he devoted one clause in one sentence to the single biggest factor affecting the workplace: technological change. He then devoted 45 sentences to one of the least important: trade deals…

He wasn’t even talking about trade in general. He was talking about the Nafta- and Cafta-style trade agreements whose negative effects on the American economy are barely measurable. And, to make matters even more inconsequential, he wasn’t even taking a clear stand on such deals themselves…

He wound up in the no-man’s land between Lou Dobbs-style populism and Bill Clinton-style free trade. He made a series of on-the-one-hand/on-the-other-hand distinctions about which sort of trade deals he’d support and which he wouldn’t. It added up to a vague, watered-down version of economic light beer. In the end, he suggested a few minor tweaks in the U.S. tax code that would have a microscopic effect on outsourcing, and a few health and safety provisions which might have teenie-weenie effects on investment decisions. The ideas he sketched out in the speech aren’t dangerous. They’re just trivial.

We all know why Obama spoke the way he did on Monday. The forces transforming the American economy are big and hard to control. If you think your listeners aren’t sophisticated enough to grasp them, it’s much easier to blame those perfidious foreigners for all economic woes. It’s much more heroic to pretend that, by opposing Nafta, you can improve the lives of middle-class voters. Furthermore, these trade deals have become symbolic bogies for union activists. Instead of concerning themselves with the tidal waves washing overhead, they’ve decided to insist on bended-knee submission in the holy war against Colombia.

Similarly, from the Economist:

Democrats are enduring a six-week pause between their last primaries, on March 4th, and the next contest in Pennsylvania on April 22nd. This big rust-belt state has lost over 200,000 manufacturing jobs since 2001. So it’s just the kind of place where demonising trade with foreigners (particularly China) is likely to prove politically useful.

This hyperinflation of trivial trade deals has resulted in a big political conflict over a proposed PTA with Colombia that will have little to no effect on the US economy.

Please get over it!

The ag subsidies exacerbating this food crisis

Kim Elliott highlights a policy instrument readily available to policymakers to address the food prices crisis:

While it is hard to know exactly how much biofuels are to blame for rising food prices, especially for wheat and rice, subsidies for biofuel production are one of the few policy levers available in the short run to relieve demand pressures. So it’s odd that a new World Bank analysis of responses to rising food prices prepared for the Development Committee stops short of recommending changes in the aggressive promotion of biofuel use. Most of the note focuses on ways that developing countries can cope, and that the World Bank and donors can help. The short discussion of bio-fuels focuses on the bank’s role in “informing the discussion” only to conclude:

Trade-offs between energy security, climate change and food security objectives need to be carefully monitored and integrated into both food and bio-fuel policy actions.

This rather tepid response overlooks the many scientific analyses that raise serious questions about the environmental benefits of the current generation of biofuels, especially corn-based ethanol. It has long been known that substituting corn-based ethanol for gasoline does little to cut greenhouse gas emissions because producing it is so resource-intensive. A literature review from the Congressional Resource Service concluded that using corn ethanol cuts net greenhouse gas emissions by only about 20 percent because of the heavy use of fertilizers and pesticides, which are themselves energy-intensive and cause water pollution besides.

Worse, recent research published in Science magazine suggests that when land-use changes are taken into account, production of corn-based ethanol actually leads to a net increase in greenhouse gas emissions…

[I]n the midst of the current crisis, and given the new evidence on the perverse effects on the environment, continuing to subsidize and promote the use of food crops for fuel is simply unconscionable.

Given the success of the ethanol lobby in spite of harsh criticism from economists over the years, I have little hope that policymakers will acknowledge the error of their ways even in the midst of this crisis.

Food prices bring down import barriers

The surge in world food prices is accomplishing what seven years of trade talks haven’t: knocking down import barriers.

The Doha round of global trade negotiations has been stalled since 2001 because developing nations have refused to lower import tariffs that protect their farmers and rich countries won’t give up farm-price supports. Now, import duties are being slashed from Brazil to Burkina Faso in response to prices that the World Bank says have risen 83% the past three years; subsidies in the US and Europe are falling.

”Food prices have done for import liberalization what Doha wouldn’t have been able to achieve for a very long time,” says Arvind Subramanian, a trade expert at the Peterson Institute for International Economics in Washington.

Maybe food prices will help Doha succeed and lock in such liberalization.

The food crisis: Quotas and secret deals

Rising agricultural prices are eliciting interventionist reactions:

Vietnam’s government announced here on Friday that it would cut rice exports by nearly a quarter this year. The government hoped that keeping more rice inside the country would hold down prices.

The same day, India effectively banned the export of all but the most expensive grades of rice. Egypt announced on Thursday that it would impose a six-month ban on rice exports, starting April 1, and on Wednesday, Cambodia banned all rice exports except by government agencies…

Rice is unusual among major agricultural commodities in that most of the major rice-consuming countries are self-sufficient or nearly so. Only 7 percent of the world’s rice production is traded across international borders each year, according to figures from the United Nations Food and Agriculture Organization in Rome…

Vietnam, Egypt and India all limited rice exports last year, but the limits were much less drastic and were imposed much later in the year, after much more rice had been shipped.

Meanwhile, states secretly move to secure supplies:

Governments are racing to strike secretive barter and bilateral agreements with food-exporting countries to secure scarce supplies as the price of agricultural commodities jump to record highs, diplomats and cereal traders say.

The moves coincide with a significant tightening of the global food market as leading exporters of agricultural commodities ban foreign sales. The government-to-government contracts could bypass those restrictions, diplomats say.

Fast track in slow motion

Fred Bergsten thinks the US-Colombian PTA collapse is really bad:

Fred Bergsten, director of the Peterson Institute, said the consequences of the Colombia vote were “enormous” nevertheless.

“This is a calamity for the world trading system,” he said. “It undermines the whole basis for international confidence in the US as a trading partner.”

The decision to suspend the application of fast track was much worse than not having fast track authority at all, he said. It meant that no future fast track authority would be credible.