Category Archives: WTO

Chinese tire safeguards and "the anti-trade mobs"

In the FT, Chad Bown warns that the Obama administration risks unleashing a global “crisis-driven mob mentality” that will impose numerous trade protections if the US imposes new import restrictions on Chinese tires under its “China safeguard” law. He highlights a number of concerns, but this one stood out:

[A] little-known loophole in the rules governing China’s 2001 WTO accession makes it easy for a global protectionist response to spread faster and further than that which took hold in 2002. Nowadays, once any one country imposes a China safeguard on imports, all other WTO members can immediately follow suit, without investigating whether their own industries have been injured.

Technical barriers to trade

The WTO launches a database of members’ declared technical barriers to trade. See Richard Baldwin’s classic article on the subject:

The main thesis of this paper has five steps: technical barriers to trade (TBTs) are important; liberalization of TBTs will continue; this liberalization will involve hegemonic harmonization or mutual recognition of rules and test; such liberalization will almost surely entail preferential arrangements among rich nations, creating in essence a two-tier system of market access with developing nations in the second tier. The final step is to conclude that the WTO should be modified to address the potentially discriminatory aspects of regional TBT liberalization initiatives. The WTO, in short, should be gearing up to “fight” the battle of frictional barrier liberalization.

FT: "WTO signals backing for border taxes"

Fiona Harvey for the Financial Times:

Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures.

In a report to be published today, written jointly with the United Nations Environment Programme, the WTO said it was possible to implement border measures for environmental reasons under its rules.

“Rules permit, under certain conditions, the use of border tax adjustments on imported and exported products,” said the WTO. “The objective of a border tax adjustment is to level the playing field between taxed domestic industries and untaxed foreign competition by ensuring that internal taxes on products are trade neutral.”

FT: “WTO signals backing for border taxes”

Fiona Harvey for the Financial Times:

Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures.

In a report to be published today, written jointly with the United Nations Environment Programme, the WTO said it was possible to implement border measures for environmental reasons under its rules.

“Rules permit, under certain conditions, the use of border tax adjustments on imported and exported products,” said the WTO. “The objective of a border tax adjustment is to level the playing field between taxed domestic industries and untaxed foreign competition by ensuring that internal taxes on products are trade neutral.”

Russia ends unilateral WTO bid

Russia keeps its never-ending WTO accession bid interesting:

A week after Russian Prime Minister Vladimir Putin announced Russia, Kazakhstan and Belarus would pursue their World Trade Organization memberships jointly as a customs union and not singly, WTO members remain uncertain how the plan would work and what its motives are.

Negotiators from the three ex-Soviet republics briefed WTO members on the plan this week — and also asked them frankly how it could be made to work.

“Nobody knows — and they don’t know,” said one Latin American diplomat. “We were confused by the replies as well.”

Russia, the biggest country outside the body that umpires world trade, has been pursuing membership for 16 years.

Moscow is clearly frustrated at the lack of progress on the talks, which often turn cool when western powers are unhappy with Russia, as after last August’s war with Georgia. In fact, as an existing member, Georgia has an effective veto over Russia in the WTO, which operates by consensus.

Political economy, MFN, and industrial structure

Robert Lawrence:

Although we call the big three automobile companies, they have basically specialized in building trucks…

But another is that the profit margins have been much higher on trucks and vans because the US protects its domestic market with a twenty-five percent tariff. By contrast, the import tariff on regular automobiles is just 2.5 percent…

In 1962, when implementing the European Common Market, the Community denied access to US chicken producers. In response after being unable to resolve the issue diplomatically, the US responded with retaliatory tariffs that included a twenty five percent tariffs on trucks that was aimed at the German Volkswagen Combi-Bus that was enjoying brisk sales in the US. 

Since the trade (GATT) rules required that retaliation be applied on a non-discriminatory basis, the tariffs were levied on all truck-type vehicles imported from all countries and have never been removed. Over time, the Germans stopped building these vehicles and today the tariffs are mainly paid on trucks coming from Asia. The tariffs have bred bad habits, steering Detroit away from building high-quality automobiles towards trucks and truck like cars that have suddenly fallen into disfavor.

If congress wants an explanation for why the big three have been so uncompetitive it should look first at the disguised largess it has been providing them with for years. It has taken a long time — nearly 47 years —  but it seems that eventually the chickens have finally come home to roost.

I think the blame lies with Congress, but I could see them trying to pass the blame to the GATT’s MFN clause.

The WTO as an institutional backstop against protectionism

What’s keeping protectionism in check? Chris Giles and Alan Beattie in the FT:

Leaders of the Group of 20 nations will on Thursday pledge to promote trade as a crucial driver of economic growth, to avoid protectionist measures and to strive for a rapid completion of the Doha round of trade negotiations.

But behind these fine intentions lies the debris of similarly grand past promises and a record of creeping protectionism since the start of the year…

the WTO itself, along with independent trade experts, says that the rise in protectionist actions over the past few months has not been particularly dramatic, largely involving the reversal of cuts in tariffs taken during the commodity price boom of 2007-8.

But it appears to be the existence of binding legal agreements, either under the WTO or bilateral or regional pacts, that have constrained governments, rather than the G20 pledge…

In an attempt to hold governments to their no protectionism pledge, the WTO has begun publishing a document, previously compiled for internal use, which lists actions taken both to loosen and tighten restrictions on trade.

The publication has been controversial within the WTO. Korea and Ecuador both asked for changes to be made after the first version was circulated in January, saying it did not accurately reflect their trade policy.

“I will go further in the direction of name and shame, but I have to go carefully,” Mr Lamy says. “We have to raise the temperature bit by bit.”

Ernesto Zedillo wants "aggressive deterrence" of protectionism

Ernesto Zedillo wants to raise the stakes in our efforts to fight protectionism amidst the global crisis:

Of course, pledges to avoid protectionism by leaders or other high-level officials are always welcome, but as recent events have shown, sooner rather than later, those pledges are blown away by the wind of domestic political pressures and there remains little of practical value.

The only thing that will make leaders think twice about whether or not to fall into the temptation of pleasing a particular constituency with protectionism will be the possibility that, as a consequence of such an action, another of its political constituencies will end up being seriously hurt. This possibility will make dubious the net political benefit of walking the protectionist tightrope.

 What I am suggesting is that pledges by countries to use whatever legal means they have at their disposal to retaliate against others for protectionist actions that harm their exports will prove far more effective than their own pledges not to introduce new trade barriers. Interestingly, a credible pledge to legally retaliate for others’ protectionism does not need to be the result of collective action, unlike the case of a pledge to avoid new trade barriers. All you need is one major trade partner to commit to retaliation for others to follow suit.

If a leader of a trading power is convinced that worldwide protectionism will make of this crisis an even worse disaster, then, in addition to resist domestic pressures for higher trade barriers, that leader should firmly declare that any new action restricting access of his country’s exports to any foreign market shall lead to retaliation against the export sectors of the trade transgressor…

 Needless to say, I am not arguing for the convenience of a nasty trade war. What I am submitting is that if you want to prevent one, it’s better to make the potential contestants aware of the full cost of their own folly starting from day one. In other words, let’s use whatever tools the system has in order to make clear to whoever decides to ride the protectionist wagon that there will be no such a thing as a free ride, but rather that there shall be blood. In short, let the WTO’s teeth bite!

That’s from a new book released today, “The collapse of global trade, murky protectionism, and the crisis: Recommendations for the G20,” edited by Richard Baldwin and Simon Evenett. It includes contributions from Anne Krueger, Jagdish Bhagwati, Peter Gallagher, and many others. Weighing in at over 100 pages, it has plenty for trade policy wonks to chew on.