Dan Griswold describes the latest from the House Agriculture Committee:
Sadly, the new 2007 farm bill looks a lot like the old 2002 farm bill that is due to expire on September 30. No real changes were made in the Title 1 commodity programs that lavish production subsidies on farmers who grow corn, wheat, cotton, and other program crops. Trade barriers remain against imports of lower-priced sugar, rice, and dairy products.
Andres Opennheimer writes:
There would be dozens of qualified candidates for the top IMF job from emerging countries, who would not make anybody nervous in the U.S., German or British treasuries.
Among others: former Mexican President Ernesto Zedillo; former Brazilian Central Bank President Pedro Malan; former Argentine Central Bank Gov. Mario Blejer; India’s planning minister, Montek Singh Ahluwalia; or the former chairman of Poland’s National Bank, Leszek Balcerowicz.
Any of them would be a more credible broker of future financial crises, a more even-handed monitor of the world economy, than Sarkozy’s candidate.
Bessma Momani offers a plethora of arguments, some compelling and some not, against a Middle East Free Trade Area (MEFTA) in the latest edition of The World Economy:
The US government has often cited the US-Jordanian Free Trade Agreement as a guide for other Middle East states to follow. The MEFTA plan could backfire, however, as structural barriers have limited past attempts to spur intra-regional economic cooperation and trade. A hub-and-spoke relationship results in minimal economic benefit accruing to the Middle East and in minimal intended political benefits to the United States…
Intra-regional economic cooperation and trade… continues to be limited because of four interrelated factors that are chiefly structural.
First, Middle East countries in their respective subregions have similar resources and production structures; accordingly, each country has a low comparative advantage with its neighbour (Fawzy, 2003)… Second, each Middle East economy is relatively small and unable to provide economies of scale in production (Hoekman and Messerlin, 2002, p. 13). There is a significant amount of state-ownership in the region, spurring inefficient and protected industries that further limit the successful adoption of an export strategy… Third, there is a wide disparity of income among Middle East countries; therefore, states have different consumption patterns and production strategies (Hoekman and Messerlin, 2002, p. 13)… Fourth, the Middle East is characterised by a high degree of both tariff and non-tariff barriers… it is most likely that in, the short term, Arab economies will continue to be inward-looking and relatively isolationist…
It is argued that a US plan for a MEFTA will become a hub-and-spoke relationship, due to the structural impediments to economic cooperation in the Middle East. The United States, as the hub, will export higher value-added manufactured goods and services; Middle East countries, as the spokes, will export unprocessed primary goods to the United States. The negative economic implications of a hub-and-spoke relationship on Middle Eastern states are numerous. A hub-and-spoke MEFTA could potentially divert foreign investment away from the Middle East, as investors would prefer to set up manufacturing or service facilities in the United States and get duty-free access to all of the Middle East spokes. Again the lack of trade complementarity in the Middle East will exacerbate this. Companies will see little advantage to setting up facilities in the Middle East, where intra-regional trade is already low. Intra-regional economic cooperation will slow further under a MEFTA. Moreover, American businesses will be deterred from setting up manufacturing facilities in the Middle East as conflict continues in the region…
As the United States continues to negotiate each FTA bilaterally on its own terms and preferences, Middle East countries will have little say in what each new trading partner brings to the negotiation table. New trading partners will either have better access to the US market or new partners will undermine workers’ conditions and environmental standards. Consequently, a hub-and-spoke MEFTA will result in Middle Eastern countries involved in a race to the bottom, where each country will continue to lower wages, erode labour rights and soften commercial regulations to attract American investment away from other signatories…
The current structural impediments to intra-regional economic cooperation, however, will inhibit the prospects of an integrated Middle East economic system. Middle East economies do not complement one another to build an effective economic bloc on their own. Moreover, Middle East socio-political systems are predicated on remaining relatively isolationist and inward-looking. Middle Eastern states have little comparative advantage to increase economic cooperation; therefore, a MEFTA will create a hub-and-spoke relationship. Consequently, we will see Middle Eastern states acceding to the United States for purposes of keeping strong economic ties.
Haiu Looi Kee, Alessandro Nicita & Marcelo Olarreaga describe their efforts to translate theory into practice in measuring the restrictiveness of trade policy. Their VoxEU article is full of interesting details.
[HT: Muse]
I haven’t read the paper, but the abstract is interesting:
Brazil is found to account for nearly one-half of all the benefits to developing countries deriving from global agricultural trade reform. These gains are associated with improvements in the welfare of each group and a lower incidence of poverty. Large-scale producers gain more than smallholders as they tend to be relatively specialised in export products, but there are important gains to agricultural employees, who are relatively poor, and to urban households, who benefit from the expansion of the agro-food sector. Overall, there is no discernible impact on income inequality, and no evidence that the gains to commercial farmers occur at the expense of poorer households.
Via David Altig, a WSJ piece that’s skeptical of China’s ability to ascend the product quality ladder:
China’s industries are composed of hundreds of thousands of tiny factories and farms — plus traders, brokers, haulers and agents, all of whom take control of the goods and materials but add little value to the product. With every additional player in the chain, the cost, risk and time grow. Effective quality control in this environment is difficult… As the product recalls demonstrate, China can barely make low-value goods reliably, much less higher-value ones. The problems are structural, not the result of a few bad apples…
To compete head-to-head with the American economy, China will have to revolutionize the very way its industries are organized. It must shake out the thousands of low-value middlemen and integrate the tiny factories into larger, more competitive companies. It must train a workforce in modern technology and business practices. And, it must instill transparency and a uniform rule of law. Such an effort could span generations.
These observations complement more scholarly work in weakening Dani Rodrik’s argument that China’s export profile is unusually sophisticated.
Via David Altig, a WSJ piece that’s skeptical of China’s ability to ascend the product quality ladder:
China’s industries are composed of hundreds of thousands of tiny factories and farms — plus traders, brokers, haulers and agents, all of whom take control of the goods and materials but add little value to the product. With every additional player in the chain, the cost, risk and time grow. Effective quality control in this environment is difficult… As the product recalls demonstrate, China can barely make low-value goods reliably, much less higher-value ones. The problems are structural, not the result of a few bad apples…
To compete head-to-head with the American economy, China will have to revolutionize the very way its industries are organized. It must shake out the thousands of low-value middlemen and integrate the tiny factories into larger, more competitive companies. It must train a workforce in modern technology and business practices. And, it must instill transparency and a uniform rule of law. Such an effort could span generations.
These observations complement more scholarly work in weakening Dani Rodrik’s argument that China’s export profile is unusually sophisticated.
Via David Altig, a WSJ piece that’s skeptical of China’s ability to ascend the product quality ladder:
China’s industries are composed of hundreds of thousands of tiny factories and farms — plus traders, brokers, haulers and agents, all of whom take control of the goods and materials but add little value to the product. With every additional player in the chain, the cost, risk and time grow. Effective quality control in this environment is difficult… As the product recalls demonstrate, China can barely make low-value goods reliably, much less higher-value ones. The problems are structural, not the result of a few bad apples…
To compete head-to-head with the American economy, China will have to revolutionize the very way its industries are organized. It must shake out the thousands of low-value middlemen and integrate the tiny factories into larger, more competitive companies. It must train a workforce in modern technology and business practices. And, it must instill transparency and a uniform rule of law. Such an effort could span generations.
These observations complement more scholarly work in weakening Dani Rodrik’s argument that China’s export profile is unusually sophisticated.
A new NBER paper shreds an old stereotype, reports Bryan Caplan:
Kristin Butcher and Anne Piehl shows that, despite their demographics, immigrants are drastically less criminal than native-born Americans… [G]iven their demographics, we should expect immigrants to commit crimes at double the native rate. But for some reason(s), demographics yield a massive overprediction; immigrants commit crimes at one-tenth the expected rate given their demographics. Yes, if immigrants acted like otherwise similar natives, they were be ten times as criminal as they actually are.
See Caplan’s post for more commentary and an ungated link to the working paper.
Tamura Akihiko says Japan is now an “extrovert” in trade policy:
So what is Japan’s proposal and what makes it so special? The goal of CEPEA [Comprehensive Economic Partnership in East Asia] is to create an efficient, mature market-economy area encompassing the 10 member states of Asean, plus Japan, China and South Korea, as well as India, Australia and New Zealand. Or, put another way, the agreement would mirror the current membership of the EAS.
According to Japan’s blueprint, the agreement would, as its name suggests, be a “comprehensive” one both in terms of the sectors covered (trade in manufactured goods, services, investment, etc.) and – perhaps more noteworthy – in terms of how Japan defines its potential FTA/EPA partners. Notably, the decision to include India marks a new departure for Japan into relatively uncharted territory, as Japan looks to include countries that – even though they may not currently constitute a close fit for economic integration – nonetheless display strong signs of evolving into important economic partners in the future…
To uncover the true significance of the plan, we need to compare and contrast the sentiments expressed in CEPEA with the traditional stance that Japan has taken with regard to global economic activities. CEPEA is premised on a different paradigm from previous economic arrangements in the region. Up to now, regionalism in East Asia was driven by nations’ responses to perceived threats from other trade blocs such as the European Union and the North American Free Trade Agreement. As such, trade agreements have tended to be both reactive and exclusive. But CEPEA is different in that its goal is not just to set up a regional trade bloc. Instead, it’s my view that CEPEA is outward-looking in nature and this inherent characteristic will result in spurring other countries – or even regions – to pursue proactively economic integration with East Asia…
I would like to take particular note of this spirit embedded in CEPEA – one which is not discernable in any other bilateral FTA/EPAs engaged by Japan to date – and call it “extrovert regionalism.” This “extrovert” trajectory per se is particularly crucial for Japan – much more than individual trade agreements – because it is this spirit that could tremendously affect the dynamism of the Japanese economy.
Do read the full piece.
Trade Diversion 