In an effort to revive stalled World Trade Organization (WTO) talks, US Trade Representative Rob Portman said the US would cut farm subsidies by 60%. EU Trade Commissioner Peter Mandelson responded by saying that the EU “will match, and indeed go substantially beyond” that reduction… Europe’s response came after the US said its offer was valid only if the EU and Japan also made large cuts in trade-distorting support for agriculture. [BBC]

Will Japan move to match?

(On an almost unrelated note, the BBC story features an old photo of anti-WTO protestors in turle costumes. Recall, as Jagdish Bhagwati has noted, that those activists didn’t understand the shrimp/turtle decision and that the WTO actually ruled in favor of the environmental protection.)

Paul Brenton and Takako Ikezuki note ways in which rules of origin can hamper economic development in a working paper from April 2004:

Strict rules of origin are viewed by some as a mechanism for encouraging the development of integrated production structures within developing countries to maximize the impact on employment and to ensure that it is not just low value-added activities that are undertaken in the developing countries. However, there is no evidence that strict rules of origin over the past 30 years have done anything to stimulate the development of integrated production structures in developing countries. In fact such arguments have become redundant in the light of technological changes and global trade liberalization that have led to the fragmentation of production processes and the development of global networks of sourcing.

Strict rules of origin act to constrain the ability of firms to integrate into these global and regional production networks and in effect act to dampen the location of any value-added activities. In the modern world economy, flexibility in the sourcing of inputs is a key element in international competitiveness. In the clothing industry, for example, modern analyses show that the key to moving up the value chain is to shift from simple assembly toward design and ultimately production of own label products. Limitations on the sourcing of materials will be a constraint rather than a stimulus to higher value-added activities.

Thus, it is more than likely that the imposition of restrictive rules of origin rather than stimulating economic development raises costs of production by constraining access to cheap inputs and undermines the ability of firms to compete in overseas markets. It is also no coincidence that restrictive rules of origin act to protect U.S. clothing producers and stimulate demand for U.S. made fabrics. It is perhaps ironic that whilst technical assistance and advice to many of the countries in the region is stressing the importance of access to low cost imported inputs and the need to remove logistical and bureaucratic barriers for competitiveness and growth of exports, the rules of origin that will be imposed under AGOA on clothing products in 2004 will act in exactly the opposite way. They will constrain access to low-cost imported inputs and will raise bureaucratic barriers to exports.

I previously complained that CAFTA was driven by non-trade interests like regional security. Now Declan McCullagh notes that CAFTA will harmonize copyright standards by having our six CAFTA partners adopt the bulk of the Digital Millenium Copyright Act. I wish “trade liberalization” would return to liberalizing trade.

[Hat tip: H&R]

In a post on anti-subsidy activism by celebrities on behalf of Oxfam, Kerry Howley of Reason wonders: “What if Hollywood activists all started making sense?”

She then notes that Minnie Driver’s agricultural product of choice to have dumped on her head was cotton “because she needed to remain relatively clean after her photograph, since she was in the middle of a press tour for a London play.”

Here’s an alternative universe where Minnie Driver does make sense:

Ms. Driver chose cotton because she wanted to protest the agricultural subsidy most damaging to LDCs. Citing a recent conversation with Arvind Panagariya, Driver explained that the campaign against most agricultural subsidies was actually being driven by the middle-income Cairns Group of developing countries, as LDCs already enjoy preferential access to EU markets. Noting that the EU’s internal price for cotton wasn’t elevated above world prices, the actress explained how the abolition of cotton subsidies would not result in a terms-of-trade deterioration for LDCs, whereas the cessation of sugar subsidies would damage the terms of trade for poor exporting nations such as India and the African, Caribbean and Pacific (ACP) countries.

If that didn’t make sense, read this PDF.

Japan said it will impose higher tariffs on 15 U.S. products starting Sept. 1 in retaliation for a U.S. law that distributes the proceeds from anti-dumping levies to affected industries.

The increased tariffs are worth 5.7 billion yen ($51 million), the Ministry of Finance said in a statement today, without identifying the products involved.

Japan wants the U.S. to repeal the so-called Byrd Amendment, which became law in 2000, where proceeds from anti-dumping levies against Japanese steel products are distributed to the U.S. steel industry. [Bloomberg]

The perverse structure of the Byrd Amendment encourages rent-seeking, as Dan Ikenson noted in a September 2004 column:

The legislation was surreptitiously inserted into the agriculture appropriations bill in 2000 by Sen. Robert Byrd after it failed to win support from the congressional committees that have expertise and oversight on trade issues…

By compensating petitioners and supporters of petitions, the Byrd Amendment provides an additional financial incentive to file antidumping and countervailing duty cases. Furthermore, by excluding from compensation those companies that do not support the petitions, the law encourages them to change their positions simply to maintain eligibility for compensation.

Yet despite opposition to the law from President Clinton and advocacy for repeal from President Bush, Congress shows no sign of relenting. [Cato]

The WTO can’t host negotiations on these barriers to trade:

How much do cultural biases affect economic exchange? We try to answer this question by using the relative trust European citizens have for citizens of other countries. First, we document that this trust is affected not only by objective characteristics of the country being trusted, but also by cultural aspects such as religion, a history of conflicts, and genetic similarities. We then find that lower relative levels of trust toward citizens of a country lead to less trade with that country, less portfolio investment, and less direct investment in that country, even after controlling for the objective characteristics of that country. This effect is stronger for good that are more trust intensive and doubles or triples when trust is instrumented with its cultural determinants. We conclude that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.

That’s the abstract of a December 2004 working paper by Luigi Zingales, Paola Sapienza, and Luigi Guiso.

[Hat tip: H&R]