Business leaders around the world fear protectionism is on the rise, with an increasing number seeing merger and acquisition deals blocked by local rules, DJ reported from London. A survey of 286 leading global executives carried out by the Economist Intelligence Unit and published yesterday, found just over 50% of those surveyed believe protectionism is rising “significantly or moderately” in developed markets, with just 16% seeing it as falling. One in 5 of those interviewed for the survey said they have seen a proposed investment deal blocked by local trade and investment rules in the past 3 years.

Interesting to see protectionism redefined to include FDI via M&A.

Dr. Menzie Chinn of Wisconsin-Madison hypothesizes that Democrats may have opposed FTAs not because they have protectionist sentiments, but because they prefer multilateralism:

In the wake of the midterm elections, and the failure to renew Vietnamese PNTR, there has been a lot of talk about how more protectionist Democratic lawmakers are…While the rhetoric from some quarters of the Democratic Party is more protectionist than from the Republican Party, I think the story is a little more complicated than initially appears to be the case, although I will not claim to have the answer to the question…

[I]t’s wrong to equate all FTAs with freer trade. Indeed, the proliferation of FTAs poses a number of well-known problems for the global economy…

So, just because American business interests favor these pacts, while labor often opposes, it’s not clear free trade is enhanced by such initiatives; in other words, one should not confuse export-oriented mercantilism with support for free trade…

In this context, it’s of interest to note a paper by Evenett and Meier; they document that many of the pro-bilateral trade agreement incumbents that lost their seats were replaced by skeptics of such agreements. However, interestingly, such skeptics were not similarly skeptical of multilateral trade agreements, such as the Doha Round.

So, the question comes down to [1. trade creation vs diversion 2. stumbling vs building blocs]…

It’s not enough to promote the trade agreements in order to be pro-free trade. One has to implement measures that will sustain an interest-group coalition that will continue to support globalization into the future. Such coalitions must be more durable than the ephemeral political coalition constructed, say, by trading off (steel) protection for TPA; rather, it needs to be one where support for globalization is built upon a recognition of gains — and a safety net that reduces the risk to labor of losses — arising from increasing trade.

So do Democrats favor multilateral trade liberalization to FTAs because they’ve learned a lot from Jagdish Bhagwati? I doubt it.

First, Evenett and Meier use votes on PTAs as their measure of trade skepticism because there hasn’t been a WTO pact on the table since 1994. Democrats haven’t had a chance to vocally oppose multilateral negotiations. Who would waste energy attacking a trade round that isn’t going to be completed for a number of years?

Second, the last time a Democrat attempted to bring up labor standards at the WTO, it basically ended the negotiations. Repeating that error would be silly. Democrats are able to include labor and environmental standards in PTAs because the United States has significantly more bargaining power in a bilateral setting. Bhagwati:

[T]he popularity of the PTAs in the United States… is largely due to the fact that all sorts of lobbies, whether intellectual-property rights or financial sector or labor groups or environmental groups, see the bilateral framework where the United States, a gigantic power, can face down a small power like Chile or Morocco as an ideal framework of trade negotiations where, in exchange for preferential entry into the big United States market, they extract all kinds trade-unrelated concessions desired by these lobbies. And nearly all of these concessions are harmful to the trading system and to the smaller countries!

Senator Chuck Grassley may understand and appreciate the negative impacts of bilateral PTAs upon the multilateral trading system, but I don’t think that Professor Chinn’s line of reasoning matches the motivations of the typical Democratic opponent of PTAs.

Sallie James tabulates the costs of dairy protectionism in Cato’s latest trade briefing paper.

Fretting about the failure of the WTO’s Doha round of negotiations? Fallen off your trade liberalization bicycle? Fearful of rising protectionist sentiments? Relax, says Douglas Irwin:

The fashionable answer among many academic observers and prognosticators is to express concern (and perhaps even fret) about the current state of trade relations, to issue a warning about impending protectionism, and to suggest that the world trading system could collapse without renewed efforts on its behalf. In this paper, I offer a mild dissent. I do not think that there has been or will be a serious backlash against globalization. Indeed, I am surprised by the lack of ‘push back’ or resistance to greater economic integration in the United States and other industrial countries over the past 20 years, even as such integration has accelerated…

Indeed, barring a global war or a major depression, globalization today is probably irreversible as the steady march of technology brings economies together. The technology behind increased international communications, from the telephone and internet to the Boeing 747 and Airbus A-380, cannot be undone. Even if trade policies were to be used in an attempt to offset this shrinkage of the world, they cannot put the globalization genie back into the bottle because the toothpaste is out of the tube (to mix metaphors). To use a historical analogy, when railroads ran deep into the Midwestern United States and Russia in the late nineteenth century, grain prices fell across Europe. Agricultural tariffs rose somewhat in response, but this policy response failed to offset the rapid decline in transport costs. In the end, grain markets were integrated to a much greater degree than before.

Furthermore, the momentum of global economic policy is toward the continued opening of markets, more through bilateral and regional arrangements than through the multilateral process, an issue to which I will return shortly. This makes it difficult to see a revival of protection on the horizon, but economists have not refrained from crying wolf on this score for many years…

The lack of progress in the Doha Round is lamentable, but not surprising. Multilateral trade liberalization has never, ever, been easy. We seem to think of the 1950s and 1960s as the halcyon days of trade liberalization, when there was consensus and political will, and everything was easy. This is a false reading of history. Each of the GATT negotiating rounds was an extremely difficult task. From about 1947 until the end of the Kennedy
Round in 1967, the GATT accomplished virtually nothing. History indicates that progress at the multilateral level should be measured in terms of decades, not years. Doha may be behind schedule; so what else is new? Most trade rounds take about a decade to conclude, and as this text is being written (2005) it has only been less than four years since the commencement of the Doha round…

Let me conclude by saying that, despite the challenges ahead, we should view the pervasive pessimism about world trade negotiations with some degree of scepticism. At the risk of being accused of complaisance, I take comfort from the fact that policy efforts—however erratic—are being made largely in one direction: the opening of world markets. There is globalization fatigue, but not globalization backlash. And it simply takes time to recover from fatigue.

Read the full piece (pdf), which packs plenty of historical perspective into five pages.

Contrasting views.

Jonathan Martin in National Review:

At stake? The free-trade consensus in the Senate that has ensured easy passage of every measure liberalizing trade put forth by the past two administrations… Should seats currently held by free-traders in Ohio, Vermont, Pennsylvania, Virginia, Rhode Island, and Missouri go to “fair traders” — and should the sour environment for Republicans prevent them from gaining any seats from Democrats — the bipartisan commitment to free trade in the Senate would almost certainly end, torpedoing the prospects for any significant legislation in President Bush’s final two years and perhaps longer while fundamentally altering the character of the upper chamber.

Anatole Kaletsky in the Times:

What about global trade? The Democrats are ideologically more protectionist than the Republicans, but this is mitigated by the geographic concentration of the two parties’ support. The South and West of America, where Republicans attract most of their votes, is also the heartland of American protectionism. The Democrats tend to represent the East and West coasts, where voters are more liberal and cosmopolitan, so that a Democratic victory could actually increase the influence in Washington of the liberal economic establishment. In any case, President Bush’s “fast-track” authority to negotiate a global trade agreement expires next July and he has almost no chance of an extension. Thus, whatever happens next Tuesday, a global trade deal is not going to happen before the next president is in office in 2009.

Business Week asks: “Can Georgia Follow Estonia’s Game Plan?”

The article is about Georgia’s efforts “to navigate a path to closer EU relations and assert its sovereignty to a domineering Russia,” but I can’t resist thinking: does that mean having zero tariffs in 2008 and then raising them upon joining the EU?

Dan Drezner notes that President Vladimir Putin has expressed concern about the number foreign players being imported by Russian football (soccer) clubs. Clubs in the Russian Premier League will not be allowed more than five foreign players by 2010, compared to the current limit of eight per club. Drezner’s commenters point out that football protectionism isn’t unique to Russia: many European leagues have quotas on the number of non-EU players. Over the weekend, Reading boss Steve Coppell called for a cap on the number of non-English EPL players. And last year, UEFA imposed a rule mandating a minimum number of “home-grown” players.

Kanika Datta defends a free market in football players:

The presence of so many foreign players in Europe provides a compelling counter argument against quotas in a free market economy. Europe is arguably the nerve centre of the vibrant global soccer industry. A good fifth of the players in its clubs are non-European in origin, if not by actual citizenship… Ironically, too many of these non-European participants play against huge odds, not least of which is the egregious and disturbing surge in racism. This is the response of white supremacists who perceive a loss of jobs for the boys because non-Europeans are muscling their way into European clubs. Not that this deters club owners one whit. As anyone who runs a business will tell you, there is no place for nationality or caste in the money-making stakes.

Visit Thierry Henry’s “Stand Up, Speak Up” campaign against racism in football here.

FT:

Both China and European companies yesterday said they might take legal action against what they described as the European Union’s flawed and illegal decision to slap anti-dumping tariffs on Asian shoe imports.

[HT: GI]

Alan Beattie:

But, as has always been the case over the past few years, the encircling wraiths of protectionism have yet to be made flesh. In a series of interviews over the past week with current and former administration officials, senators, congressmen, lobbyists and think-tank trade experts, there remains a surprising degree of confidence that free trade can still prevail…

Susan Schwab, US trade representative (USTR), points out that despite all the threats from Congress about China and trade, Capitol Hill has continued to live up to its multilateral responsibilities, repealing cotton farming subsidies and corporate tax breaks found illegal by the WTO, and has backed USTR’s position in multilateral talks. “In the same 12 months we haven’t passed Schumer-Graham, the Congress has enacted pro-trade laws that eliminated WTO-inconsistent practices,” she says…

It is hard at present to see how the mood in Washington will let any but a few bilateral trade deals advance at present. The WTO is, perhaps, about to see a test of the so-called “bicycle” -theory of trade negotiations – that the multilateral system will fall over unless it keeps moving forward with new deals struck and fresh market access gained. But though the bicycle has wavered at the signs of a rough road ahead, the rider has yet to lose balance.

Cato’s Dan Ikenson celebrates the 2006 downturn in antidumping complaints and warns of a possible resurgence:

Although antidumping initiations have declined in recent years and structural changes in the world economy should curtail the conditions that traditionally have inspired antidumping cases, efforts are underway to make the law more accessible and more attractive to protection-seeking U.S. industries. If legislation like the Trade Law Reform Act of 2006 becomes law, it will change the analysis industries conduct when considering trade actions, weighing more heavily in favor of bringing more antidumping suits. And if settlements like those that prevailed in the shrimp case fly under the radar and fail to raise legal and ethical questions, antidumping will be marketable as a revenue-generating scheme and pitched with success to industries otherwise dis inclined to bring such actions.

The shelving of the Doha Round is a serious setback for antidumping reform. Without significant changes to curtail the abuse of the antidumping law, sympathetic lawmakers and petitioners’ lawyers are more likely to succeed at broadening the protectionist impact of the antidumping law.