Author Archives: jdingel

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.

Who were trade skeptics in 1993?

Dan Drezner writes :

Go back to NAFTA. Kevin is right to point out that the agreement’s efonomic effects were not terribly large. On the other hand, even skeptics of trade liberalization — Dani Ro[d]rik, Paul Krugman, and Joseph Stiglitz — supported NAFTA because it locked Mexican economic reforms, promoted political reforms, and cemented a stronger bilateral relaionship.

What? Paul Krugman was a trade skeptic in 1994? And did Joe Stiglitz voice an opinion on NAFTA at the time?

Krugman: Not an ounce of economic skepticism in pieces like this one from November 1993.

Stiglitz: When did he talk about NAFTA before 1999?

The US-Colombian “free trade” agreement

Regular readers will notice that my coverage of PTAs has fallen off over the years. With respect to the US-Korea deal, this is completely excusable, as I can just claim to have yielded to Ben Muse’s dedicated effort. But I’ve been awfully silent on the US-Colombia deal. Why?

The US-Colombian free trade agreement is not a free trade agreement — it’s a preferential trade agreement. Calling it a PTA instead of an FTA will satisfy both Jagdish Bhagwati and Dean Baker.

But is it even a trade agreement? As Tim Lee notes, “there’s lots of other stuff in here that has nothing to do with free trade.” Sadly, this has characterised the state of American trade policy for a number of years. Back in 2003, Bernard Gordon wrote:

These cases highlight the problems of incorporating non-trade issues into trade agreements. Labor and environmental standards began the practice, but no clear end-points now exist. That recalls Jagdish Bhagwati’s famous warning that “the spaghetti bowl effect” (by which he meant overlapping rules of origin) would make FTAs hopelessly complex and impossible to administer. Today we would add the “Christmas Tree Effect,” the term used in Congress for the many items, each individually attractive though unrelated to a bill’s main purpose, that are added to satisfy special interests. Similar baubles and ornaments characterize today’s world of proliferating FTAs, and will be sought by powerful negotiating partners. Along with the profoundly dangerous capacity of FTAs to revive a world of blocs, they are among the best reasons to maintain instead the global trade system.

These kind of provisions really bother free trade purists (as they should). They fight to prevent mission creep at the WTO, and developing countries succeed in taking the Singapore issues off the table at Doha. But it’s a losing battle — TRIPS made it into the WTO and PTAs include numerous non-trade provisions.

The real questions about this trade deal is: Why is Colombia offering lots of promises on non-trade issues in negotiations? Recall one possible explanation: the US is a huge export market, and this gives it lots of leverage.

But it seems to me that the thing which we’ll have to face up to is that many of these bilaterals are used by lobbies in the West, to some extent your country, all the time in our country, to establish [inaudible]. You get a little country by itself in a bilateral negotiation, then you can ram anything down its throat. Those guys will sell both their grandmothers to be able to sign on to such an agreement because this is a big market, preferential, we also can give goodies on other dimensions or we can give punishments on other dimensions. We are the [inaudible] which can really procure that consensus very quickly with little doubt.

Now, our job intentionally is to say, “Look, you agree to this”—maybe labor standards, maybe intellectual property standards—which are way in excess of what can be negotiated in Geneva, when there are too many players and so on, who will fight a little bit anyway; then use of capital controls, which you ran through a little bit, with Singapore and Chile. The game goes on. But you see, that you can do one by one. It’s a sort of Leninist policy of divide and conquer all opposition.

Now, if you believe that our lobbies are always doing the right thing, that’s fine. Right? I mean, you can argue that. I don’t—I mean, there are good lobbies, bad lobbies, you can go in excess, but the rest of the world now sees that the bilateral is really an instrument of imposition of non-trade or weakly trade-related issues, and they’re beginning to see the game for what it is. And it’s not really a trade game, it’s a non-trade game.

But what possible market access gains could Colombia hope for? As Matt Yglesias notes:

As best I can tell (peruse the text if you’re interested) this actually involves very little changes on the US side at all. In essence, Colombian goods already flow very freely into the United States except for in our more famously protected sectors (agriculture, etc.) and what we’re offering Colombia here is a very solemn promise to keep it that way.

Right (although recall that a solemn promise does actually mean something: when Bush hiked up steel tariffs for a few years, our NAFTA partners were exempted). Is Colombia being strong armed to accept elements it dislikes to win market access? I highly doubt it. The US has very low MFN tariffs, except for sectors like agriculture, steel, and textiles, and Colombia has no hope of winning access in those areas.

The most plausible explanation I’ve encountered is that offered by Dan Drezner: PTAs are a political commitment device. They have “little to do with economics and everything to do with our bilateral and regional relationships.”

That’s why I’ve said so little about the US-Colombian preferential trade agreement. I study international economics, not international relations.

The US-Colombian "free trade" agreement

Regular readers will notice that my coverage of PTAs has fallen off over the years. With respect to the US-Korea deal, this is completely excusable, as I can just claim to have yielded to Ben Muse’s dedicated effort. But I’ve been awfully silent on the US-Colombia deal. Why?

The US-Colombian free trade agreement is not a free trade agreement — it’s a preferential trade agreement. Calling it a PTA instead of an FTA will satisfy both Jagdish Bhagwati and Dean Baker.

But is it even a trade agreement? As Tim Lee notes, “there’s lots of other stuff in here that has nothing to do with free trade.” Sadly, this has characterised the state of American trade policy for a number of years. Back in 2003, Bernard Gordon wrote:

These cases highlight the problems of incorporating non-trade issues into trade agreements. Labor and environmental standards began the practice, but no clear end-points now exist. That recalls Jagdish Bhagwati’s famous warning that “the spaghetti bowl effect” (by which he meant overlapping rules of origin) would make FTAs hopelessly complex and impossible to administer. Today we would add the “Christmas Tree Effect,” the term used in Congress for the many items, each individually attractive though unrelated to a bill’s main purpose, that are added to satisfy special interests. Similar baubles and ornaments characterize today’s world of proliferating FTAs, and will be sought by powerful negotiating partners. Along with the profoundly dangerous capacity of FTAs to revive a world of blocs, they are among the best reasons to maintain instead the global trade system.

These kind of provisions really bother free trade purists (as they should). They fight to prevent mission creep at the WTO, and developing countries succeed in taking the Singapore issues off the table at Doha. But it’s a losing battle — TRIPS made it into the WTO and PTAs include numerous non-trade provisions.

The real questions about this trade deal is: Why is Colombia offering lots of promises on non-trade issues in negotiations? Recall one possible explanation: the US is a huge export market, and this gives it lots of leverage.

But it seems to me that the thing which we’ll have to face up to is that many of these bilaterals are used by lobbies in the West, to some extent your country, all the time in our country, to establish [inaudible]. You get a little country by itself in a bilateral negotiation, then you can ram anything down its throat. Those guys will sell both their grandmothers to be able to sign on to such an agreement because this is a big market, preferential, we also can give goodies on other dimensions or we can give punishments on other dimensions. We are the [inaudible] which can really procure that consensus very quickly with little doubt.

Now, our job intentionally is to say, “Look, you agree to this”—maybe labor standards, maybe intellectual property standards—which are way in excess of what can be negotiated in Geneva, when there are too many players and so on, who will fight a little bit anyway; then use of capital controls, which you ran through a little bit, with Singapore and Chile. The game goes on. But you see, that you can do one by one. It’s a sort of Leninist policy of divide and conquer all opposition.

Now, if you believe that our lobbies are always doing the right thing, that’s fine. Right? I mean, you can argue that. I don’t—I mean, there are good lobbies, bad lobbies, you can go in excess, but the rest of the world now sees that the bilateral is really an instrument of imposition of non-trade or weakly trade-related issues, and they’re beginning to see the game for what it is. And it’s not really a trade game, it’s a non-trade game.

But what possible market access gains could Colombia hope for? As Matt Yglesias notes:

As best I can tell (peruse the text if you’re interested) this actually involves very little changes on the US side at all. In essence, Colombian goods already flow very freely into the United States except for in our more famously protected sectors (agriculture, etc.) and what we’re offering Colombia here is a very solemn promise to keep it that way.

Right (although recall that a solemn promise does actually mean something: when Bush hiked up steel tariffs for a few years, our NAFTA partners were exempted). Is Colombia being strong armed to accept elements it dislikes to win market access? I highly doubt it. The US has very low MFN tariffs, except for sectors like agriculture, steel, and textiles, and Colombia has no hope of winning access in those areas.

The most plausible explanation I’ve encountered is that offered by Dan Drezner: PTAs are a political commitment device. They have “little to do with economics and everything to do with our bilateral and regional relationships.”

That’s why I’ve said so little about the US-Colombian preferential trade agreement. I study international economics, not international relations.

Two words for Thomas Friedman

This is a classic moment from a few years ago, but I couldn’t find it in my archives, so I’m posting it again.

Jagdish Bhagwati in 2005:

I often say that, you know, we should never use the phrase “FTA,” free trade agreement, because politicians cannot go beyond a sound bite, which means they can’t read more than two words one time. So if they read “free trade agreement,” they’ll read only “free trade,” and so they’ll think it’s the same thing.

Tom Friedman in 2006:

Asked at a speaking gig, “Mr. Friedman, is there any free-trade agreement you’d oppose?” Friedman replied, “No, absolutely not,” adding, “You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: ‘free trade.'” (Um, dude, you also didn’t know its name: It’s the Central American Free Trade Agreement.)

Two cents on Stiglitz

Emmanuel has spotted a howler in Joe Stiglitz’s 2006 book, Making Globalization Work:

Anderson and Cavanagh of the Institute of Policy Studies famously noted in 2000 that of the world’s 100 largest economic entities, 51 are now corporations and 49 are countries. Stiglitz recycles this idea in ch. 7 of his book on multinational corporations…

Before you do, I feel obligated as an educator to tell you that this argument comparing national output with corporate revenues is technically incorrect and fallacious. It is irksome that Stiglitz did not consult two books on globalization that came out earlier in 2004 that pointed out the flaws in this countries-companies comparison…

As I have previously discussed, the anti-globalization crowd often pumps up factual errors to taboid-ish proportions to make their points. If they are to be taken seriously, then they should start to make sensible arguments instead of bloopers and practical jokes like this one. It is unfortunate that those who should know better sometimes buy into this balderdash.

I would attribute it as an oversight if one of my undergraduate students made this sort of error, but it should absolutely not pass muster with a Nobel laureate in economics.

This one has indeed been around a while. In fact, I recall debunking it myself using the very same sources in 2004!

While we’re reading Stiglitz, let’s return to his first popular book on the topic, Globalization and Its Discontents (see my review from a few years ago). On pages 73–74, Stiglitz writes:

Behind the free market ideology there is a model, often attributed to Adam Smith, which argues that market forces – the profit motive – drive the economy to efficient outcomes as if by an invisible hand. One of the great achievements of modern economics is to show the sense in which, all the conditions under which, Smith’s conclusion is correct. It turns out that these conditions are highly restrictive…

The Washington Consensus policies, however, were based on a simplistic model of the market economy, the competitive equilibrium model, in which Adam Smith’s invisible hand works, and works perfectly. Because in this model there is no need for government – that is, free, unfettered, ‘liberal’ markets work perfectly – the Washington Consensus policies are sometimes referred to as ‘neo-liberal,’ based on ‘market fundamentalism,’ a resuscitation of the laissez-faire policies that were popular in some circles in the 19th century…

The theory says that an efficient market economy requires that all of the assumptions be satisfied.

As Alex Tabarrok reminded Dani Rodrik a while back, those conditions are sufficient but not necessary!

Hat tip to my friend Sabrina (who may or may not endorse my analysis) for the second Stiglitz story.

The cost of rhetoric

Lane Kenworthy has a great post on why Democrats should embrace economic change, including globalization. It’s a long post that’s worth reading, but for those already intimately familiar with the economics and politics of trade, this is the punchline:

But once managed trade is introduced as an option, it ends up crowding out discussion of other approaches…

Neither Obama nor Clinton is likely to press for serious restrictions on trade or offshoring if elected president. This holds for most Democrats running for Congress too. But that isn’t the point. Even if they did follow through on a managed trade agenda, it probably wouldn’t have much impact on actual import levels. Pacts such as NAFTA seldom dramatically alter the degree of cross-border trade; had it not passed, imports from Mexico would not be much lower than they are today. The problem isn’t that managed trade rhetoric might lead to actual trade restrictions; it’s that it distracts from efforts to advance the scope and generosity of adjustment and cushioning policies…

My argument rests on a hypothesis that Democratic leaders’ trade rhetoric has a significant effect on the political feasibility of more generous and extensive social policies. I could be wrong about this. But given that any trade restrictions they might actually put in place would probably do little to stem globalization, it seems to me the potential costs of abandoning managed trade rhetoric are likely small.