Category Archives: Non-Tariff Barriers

PTAs as first-mover advantages

Brookings’ Joshua Meltzer takes an extended look at the future of the global trading system (html / pdf / event). The introduction is a good overview of the status quo’s challenges, though knowledgeable observers will find plenty of room for disagreement in assessing the shape and magnitude of various obstacles (e.g. the bicycle theory of trade negotiations, PTAs’ diversion of attention from multilateral talks).

The discussion of WTO legitimacy at the end of the piece is very interesting, though I won’t focus on it in this post. (More on that subject can be found in this Oxford book on trade ethics.)

In the middle of the article, Meltzer hints at an argument that has perhaps not received sufficient attention:

For the United States, the European Union, China, and Japan, bilateral and even regional FTAs maximize their ability to get their own way. Were these outcomes to become templates for future multilateral trade rounds, then a two-level game that leverages FTA outcomes into the WTO might undermine the WTO’s legitimacy.

One such danger is that FTAs might be a means for the US or EU to try to lock in first-mover advantages in shaping regulatory standards (such as technical barriers to trade). While preferential tariffs can be undone relatively easy by further tariff cuts, plurilateral agreements that promulgate the adoption of a larger economy’s preferred technical standard might serve to determine which standard is later adopted multilaterally. A first mover might gain at the expense of others if its preferred standard is worse for world welfare. (This scenario would be most damaging if technical standards are to be harmonized, but it also highlights the difficulties of harmonization. If mutual recognition is the future of reconciling technical barriers to trade, then the scope for first-mover advantages may be reduced.)

Mishra & Mishra: “Border Bias”

This paper is psychology, not economics per se, but it’s about the border bias nonetheless:

In this research, we documented a bias in which people underestimate the potential risk of a disaster to a target location when the disaster spreads from a different state, but not when it spreads from an equally distant location within the same state. We term this the border bias. Following research on categorization, we propose that people consider locations within a state to be part of the same superordinate category, but consider locations in two different states to be parts of different superordinate categories. The border bias occurs because people apply state-based categorization to events that are not governed by human-made boundaries. Such categorization results in state borders being considered physical barriers that can keep disasters at bay. We demonstrated the border bias for different types of disasters (earthquake, environmental risk) and tested the underlying process in three studies.

[HT: MR]

Google wants to influence trade negotiations

USTR Ron Kirk visited Google last week for a round table on “Supporting Silicon Valley in the Global Economy.” One of the big headlines coming out of event is an argument, pushed by Google, that online censorship is a trade barrier.

The analogy/conflation between web openness and trade openness seems increasingly prevalent. The Economist devoted a cover story to the internet’s openness earlier this month and said that “the internet is as much a trade pact as an invention… Just as a free-trade agreement between countries increases the size of the market and boosts gains from trade, so the internet led to greater gains from the exchange of data and allowed innovation to flourish.”

While at some level the analogy is appropriate because there are common lessons, such as the fact that specialization is limited by the size of the market, I doubt that it’s as valuable when discussing the nuts and bolts of such (informational or economic) exchanges or the policies that should be adopted. But Google is pushing it hard:

Chief Legal Officer David Drummond… said Google is seeing an “alarming increase” in governments around the world censoring the Web, and he called on the U.S. government to treat the issue much as it would if a foreign nation was blocking the trade of physical goods.

“If this was happening with physical trade, we’d all be saying this violates trade agreements,” he said…

Drummond said barriers take several forms, such as blocking access to Google’s YouTube video service or by imposing licensing requirements that stipulate the company must install servers within a country in order to create a “local presence”–a definition that subjects content on those servers to local laws.

This argument, as presented by the WSJ, isn’t consistent with WTO law. Trade barriers discriminate between domestically produced goods and imports produced abroad. To quote myself:

Banning the consumption of tradable goods and services isn’t a WTO violation per se; international trade law emphasizes non-discrimination in the treatment of foreign and domestic products. Consider Antigua’s online gambling case against the US at the WTO. The basis for its claims was not that the US was obliged to allow online gambling, but that if it allowed domestic online gambling (such as allowed by the Interstate Horseracing Act), it was obliged by its GATS commitments to also allow online gambling provided by foreign suppliers. Similarly, I suspect that censorship only constitutes a trade barrier if foreign sources of information are censored more heavily than domestic providers, i.e. a difference in national treatment.

In short, “free trade” doesn’t mean “everything goes” and local laws can’t govern consumption. Free trade means non-discrimination with respect to producers’ origins.

The more plausible line of argument is that trade agreements can be used as leverage in negotiating non-trade issues:

“In our view at Google it’s high time for us to start really sinking our teeth into this one,” said Drummond.

“We have great opportunities now with pending trade agreements to start putting some pressure on countries to recognize that Internet freedom not only is a core value — that we should be holding them to account from a human rights standpoint — but also that if you want to be part of the community of free trade, you are going to have to find a way to allow the Internet to be open.”

But making trade negotiations contingent on pledges against government censorship doesn’t mean that Chinese-style internet censorship constitutes a trade barrier in the traditional WTO sense.

PTAs and the incidence of antidumping actions

Preferential trade agreements spur discriminatory anti-dumping practices:

“In this paper we empirically explore the possibility of additional discrimination via PTAs by focusing on the extent to which PTAs alter the pattern of antidumping (AD) activity… AD provisions in PTAs have decreased the number of intra-PTA AD cases by 33-55% and increased the number of AD actions against non-PTA members by 10-30%… PTAs without AD language do not experience any change in AD activity whereas PTAs with AD rules are characterized by protection reduction and protection diversion.”

Just as it’s difficult to assess the net benefits of trade creation minus trade diversion, it’s likely tough to discern the net benefit of PTAs’ AD clauses in terms of protection reduction minus protection diversion.

Freedom fries: How attitudes shape trade flows

Guy Michaels & Xiaojia Zhi, 2010. “Freedom Fries,” American Economic Journal: Applied Economics, vol. 2(3), pages 256-81, July.

Do firms always choose the cheapest suitable inputs, or can group attitudes affect their choices? To investigate this question, we examine the deterioration of relations between the United States and France from 2002-2003, when France’s favorability rating in the US fell by 48 percentage points. We estimate that the worsening attitudes reduced bilateral trade by about 9 percent and that trade in inputs probably declined similarly, by about 8 percent. We use these estimates to calculate the average decrease in firms’ willingness to pay for French (or US) commodities when attitudes worsened.

[HT: Pierre-Louis]

Who receives US farm subsidies?

The US Department of Agriculture is no longer centralizing data that made it easier to pinpoint individuals who receive farm payments, which total about $15 billion annually. The Environmental Working Group has long been publicizing the individuals who receive subsidy payments, such as members of Congress, Scottie Pippen, and Ted Turner. Now EWG’s job is more difficult due to less transparent government.

Via Wilkinson.

Brazil, U.S. Agree to Avoid Tariffs in Cotton Dispute

Bloomberg:

The Obama administration offered $147.3 million in assistance to Brazilian cotton producers and suspended an export-credit program for American farmers, in a bid to end a trade dispute with the Latin American nation.
The government will also seek to ease sanitary barriers to Brazilian imports of pork and beef, U.S. Trade Representative Ron Kirk said in a statement today on the preliminary deal. The U.S., which lost a World Trade Organization ruling in August that said its cotton subsidies violate global trade rules, will work with Brazil to reach a comprehensive agreement by June.
“We now have a clear path forward, one that is in the best interest of both the United States and Brazil,” Kirk said. “As a result of our discussions with Brazil we have avoided imposition of higher tariffs.”
The U.S. for now dodges as much as $830 million in trade sanctions on 102 goods including ketchup, cars and boats that Brazil targeted. In addition to financial assistance for Brazilian farmers, the U.S. halted the GSM-102 program that guarantees the credit foreign customers use to by American cotton, and said it will be restarted with higher fees.
Any other changes to U.S. cotton programs are pushed back until at least 2012, when the U.S. Congress will have to revisit the broader issue of farm subsidies before existing legislation governing the nation’s agriculture policies expires.

Censorship as a trade barrier

Gilbert Kaplan says that if Chinese censorship forces out US content companies like Google, the US should retaliate by erecting trade barriers to Chinese computer hardware exports. Nate Anderson at Ars Technica reports:

Dealing with censorship as a trade violation isn’t a new idea. Computer industry lobbying group CCIA was talking up trade complaints as a way to handle Chinese censorship back in January. CEO Ed Black said at the time, “It is increasingly apparent that censorship is a barrier to trade, and that China cannot limit the free flow of information and still comply with its international trade obligations. The Chinese government has said it is gathering more information before deciding how to proceed and we would urge that they look at the issue holistically with government, economic and trade officials involved in the decision.”

Of course, lobbyists aren’t the best source to describe trade law. I’d prefer to consult the folks at IELP, for example.

Banning the consumption of tradable goods and services isn’t a WTO violation per se; international trade law emphasizes non-discrimination in the treatment of foreign and domestic products. Consider Antigua’s online gambling case against the US at the WTO. The basis for its claims was not that the US was obliged to allow online gambling, but that if it allowed domestic online gambling (such as allowed by the Interstate Horseracing Act), it was obliged by its GATS commitments to also allow online gambling provided by foreign suppliers. Similarly, I suspect that censorship only constitutes a trade barrier if foreign sources of information are censored more heavily than domestic providers, i.e. a difference in national treatment.

If China censors both domestic and foreign internet sites, then it is unlikely that its WTO commitments oblige it to liberalize both. Thus, the line of thinking from folks like Dan Drezner and Simon Lester (1, 2) is that WTO law isn’t much of a tool to wield against Chinese censorship.

Counterproductive efforts against child labor

Matthias Doepke &  Fabrizio Zilibotti say international boycotts and sanctions against child labor actually exacerbate the problem:

In our analysis, we find that international interventions weaken domestic support for child-labour restrictions because they reduce competition between children and unskilled adult workers in the labour market. Unskilled workers then have less incentive to push for child-labour regulation.

When effective, trade sanctions or consumer boycotts move child workers from formal employment in the export sector to informal production, often in family-based agriculture. In the export sector, particularly in factories, children and adults perform similar tasks and therefore compete directly for jobs. In the informal sector, children and adults usually have different work responsibilities.

For example, on family farms children often specialise in tasks such as tending small animals, allowing adults to work in areas where they are most productive. Once adult and child labour become complementary in this way, restrictions on child labour no longer raise adult wages, which removes unskilled workers’ (and their unions’) incentives for supporting child-labour regulation.