On 18 December from 17:00-18:00 Geneva time WTO Director-General Pascal Lamy will host an on-line chat to discuss this suspension, the prospects for relaunching the talks and the future of the WTO and the global trading system… Please note that to keep the event manageable there is a limit of 500 participants, on a first-come first-served basis… To send advance questions that will be answered during the chat: dgchat@wto.org.
Steel AD & CVD rescinded
Nice:
This morning, pursuant to a five-year “Sunset Review,” the U.S. International Trade Commission voted to revoke longstanding antidumping and countervailing duty restrictions against imported carbon steel plate and corrosion-resistant steel from 15 different countries. The ITC also voted to continue the measures against corrosion-resistant steel from Korea and Germany for at least another five years.
While not perfect, today’s outcome is something to rejoice. Revocation of trade remedy restrictions is rare, indeed, and rarer still where steel is concerned.
Brazilian cotton two years after WTO victory
Here’s an interesting story following up on yesteryear’s Brazilian cotton subsidy case:
The future loomed bright for Brazilian cotton growers after their government won a headline-grabbing victory at the World Trade Organization, which declared some U.S. cotton subsidies illegal… And there were predictions that Brazil’s cheaper labor and land would make it even more competitive on the world market.
It hasn’t worked out that way. Some Brazilian farmers, including former top producers, have quit cotton altogether. The WTO frowned on several U.S. cotton subsidies but singled out only “Step-Two” payments, those made to exporters and domestic mills for buying higher-priced American cotton. That represented just about 7 percent of the $3.7 billion that Washington planned to spend on cotton programs this year…
On top of the subsidy issue and the drop in Chinese purchases, Brazil also has a poor road system and high transportation costs. And India has emerged as a competitive threat, with its better transport network. India has also embraced genetically modified cotton, which requires less insecticide. Brazilian farmers will soon be able to plant genetically modified cotton, but it won’t be enough incentive for some.
Although Brazil grabbed much of the spotlight in recent years, the real competitive threat to Texas cotton producers is India, a Texas Tech University agricultural economist says. “We don’t see a big expansion for Brazilian cotton in the future,” Samerendu “Sam” Mohintu said. “It’s going to grow, but at a very slow rate. China is buying from India, which has a transportation advantage” over the United States and Brazil. India’s cotton quality “isn’t as good, but it’s cheap,” Mohintu said.
The EPL’s gains from trade
To follow up on the previous discussion of football protectionism, the Economist has a piece on the infusion of foreign cash into the English Premiership. It concludes:
The truth is that the Premiership is thriving because it is open to global markets. Since its formation in 1992 it has proved a magnet for foreign talent and capital. Around half the registered players now hail from overseas. Foreign players may crowd out English talent at the top of the game and some are accused of lacking commitment to the clubs the temporarily serve. But no one disputes the improved level of skill and professionalism now displayed on English pitches. Foreign managers have also brought new expertise to the game (no English-born manager has yet led a side to the Premiership title). No wonder the high-intensity action of the Premiership draws millions of fans from all over the world each week. The soul of English football, whatever Mr Wenger says, seems to be full of life.
The Economist on food politics
The Economist has an excellent article (subscription required) this week on the appeal of organic foods and fair trade products. It also introduces us to the local-food movement, with which I was previously unfamiliar:
The rise of “Big Organic”, the large-scale production of organic food to meet growing demand, has produced a backlash and claims that the organic movement has sold its soul. Purists worry that the organic movement’s original ideals have been forgotten…
Local food need not be organic, but buying direct from small farmers short-circuits industrial production and distribution systems in the same way that buying organic used to. As a result, local food appears to be immune to being industrialised or corporatised.
The discussion of fair trade coffee echoes the objections documented in Kerry Howley’s piece for Reason, “Absolution in Your Cup.” So does the conclusion:
The idea of saving the world by shopping is appealing; but tackling climate change, boosting development and reforming the global trade system will require difficult political choices… Conventional political activity may not be as enjoyable as shopping, but it is far more likely to make a difference.
Trade preferences & heterogenous firms
Contra the Washington Post’s editorial, Svetlana Demidova, Hiau Looi Kee, and Kala Krishna provide additional evidence that trade preferences aren’t obviously beneficial to development in their newest NBER working paper:
This paper models the responses of firms that are heterogenous in productivity to the different types of trade policies they face in different product and export destinations. It presents direct evidence supportive of the model’s predictions using a dataset of Bangladeshi garments exporters. In particular, it focuses on the effect of differences in trade polices, trade preferences, and the rules of origin (ROOs) needed to obtain them, on the pattern of firm exports and performance…
[O]ur work suggests that trade preferences granted to developing countries that favor more capital intensive sectors can distort their pattern of investment and trade. While such preferences tend to spur investment and exports of the more capital intensive sectors, they also reduce the average productivity of exporters and bias export away from the direction of natural comparative advantage. Consequently, even liberal preferences may be far less effective in promoting development than expected…
Thus, the contribution of this paper is as follows. First, our heterogenous firm model shows how differences in trade policy of the EU and US and in the preferences granted by them to Bangladesh, in combination with the ROOs needed to access them, act as a sorting mechanism for firms. This results in productivity differences between firms that differ in their product lines and markets. We are able to capture both how firm productivity differs according to the toughness of the exporting market, and how the toughness of the market depends on ROOs and trade policy. The former channel is missing in homogenous firm models… Finally, in the area of trade policy-for-growth, our paper suggests that liberal preferences given by the EU to Bangladesh, while spurring exports of the non-woven sector, may reduce its average productivity. Given that the non-woven sector is twice as capital intensive as the woven sector, our result further implies that exports of Bangladesh are biased away from the direction of its natural comparative advantage, and as a result, may be less effective in promoting development.
Two objections to fair trade
The “fair trade” lobbying, on the other hand, is something that I find ill-advised. Oxfam and other charities use the phrase to argue that we should subsidize the producers so as to give them a “just” price that exceeds the market price. But we have two serious problems here. This phrase has been long used in United States discourse as a code word for protectionism. By bringing all kinds of extraneous issues as preconditions for freer trade, the proponents of so-called “fair trade” essentially mask their protectionism in the language of “fairness”, a tactic that has been exposed and denounced for decades in the U.S. but which now is in danger of being legitimated by the witless adoption of the “fair trade” terminology for altruism. Next, if the “fair trade” lobbies want to bamboozle us into being altruistic by channeling subsidies to the producers of commodities such as coffee designated as “fair trade” coffee, we then must confront the fact that many of us prefer to direct our altruism to the poor countries instead in myriad other ways which we consider to be both more desirable and even more efficacious. We need to look in the eye therefore the growing pressures on retailers to violate restraint-of-trade practices by stocking only “fair trade” goods.
Trade politics: anti-liberalization is bipartisan
In his latest Slate piece, Daniel Gross concurs with my election week reflection upon the state of trade politics:
Since the elections, concerned internationalists have fretted that the newly Democratic Congress will curtail the nation’s free-trade policies… these arguments overlook or misunderstand the new politics of trade. It’s not a left-right split. Since 2000, Bush Republicans have done as much as Democrats to throw up trade barriers and tariffs. President Bush has generally spoken a good game about free trade, and his administration has concluded bilateral free-trade agreements with Morocco, Australia, Colombia, and several other countries. But just as free trade was a bipartisan project in the 1990s, the backlash to free trade has been bipartisan in this decade. Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., share little in common except their desire to slap huge protective tariffs on Chinese goods. And, all by themselves, the Republicans have done a great deal to damage the cause of free trade in the last several years.
[HT: CGD]
WaPo calls for trade preference renewal
WaPo editorial:
It shouldn’t matter whether you’re conservative or liberal, for globalization or against: Some trade bills are so obviously beneficial and unobjectionable that there’s no excuse for letting them languish. This is the case with a raft of measures that would extend trade preferences for poor countries — preferences due to expire at the end of the year. Failing to renew them would not save American jobs or advance any other national interest; rather, it would disrupt the economies of U.S. trading partners and create another excuse for foreigners to resent the United States…
These trade measures might founder partly because anti-globalization sentiment is growing in Congress, causing a minority of members to oppose all trade deals, no matter how routine…
But the biggest reason these trade measures may fail is the most scandalous: Most members of Congress know that they ought to be extended, but institutional inertia is stopping them from doing the right thing. For the past several months, Congress has put off dealing with the trade preferences, even though their expiration at the end of the year was no secret. Now the deadline is approaching, and members of Congress complain that they lack time to craft the legislation. What Congress is saying is that leaving town for the holidays is more important than jobs in developing countries. No wonder the United States is seen as arrogant.
It’s not true that trade preferences for poor countries are obviously beneficial and unobjectionable, but I agree that congressional procrastination is inexcusable. Moreover, the unwillingness to renew previously granted tariff cuts (even if ill-advised) may be a first sign of protectionist backsliding, which I worried about after the election.
Bad policy caused China’s great famine
Here’s an interesting tidbit from a paper (pdf) on the impacts of China’s great famine in 1959-61 by Xin Meng and Nancy Qian that’s full of interesting stuff:
Officially, the cause of the famine was a fall in grain output due to bad weather. Several recent studies have argued that although there was a fall in output, the “three years of natural disasters” (san nian zi ran zai hai ), was largely driven by a set of misguided policies (Kueh, 1995; Li and Yang, 2005; Peng, 1987; Yao, 1999; Yang, 1996; Chang and Wen, 1997; Perkins and
Yusuf, 1984; Lin, 1990). Using official aggregated data on historical weather conditions, Kueh (1995) finds that although bad weather was a contributing factor, it was unlikely to have caused the full extent of the grain reduction necessary to explain the severity of the famine…We obtained historical climate data from China’s 205 permanent weather stations and county level data on non-famine grain output and survival. Figure 3A plots the annual mean precipitation and mean temperature by year in the eight provinces included in this study. There is no noticeable difference during the famine years. The relationship between natural conditions and grain output can be examined more directly. We use county-level grain output and weather conditions for non-famine years to estimate the correlation between natural conditions and output. We then use these estimates and climate data from 1959-1961 to predict output during the famine years. If the famine was caused by natural conditions, the predicted output for famine years should be significantly different from normal output. Instead, we find that the predicted output is highly correlated to actual non-famine output. Alternatively, we can also examine the correlation between survival and historical weather conditions. Figure 3B plots a proxy for survival at the county level (the ratio of famine birth cohort population in 1990 to non-famine birth cohort population in 1990) against weather conditions during the famine relative to normal periods (the ratio of famine period rainfall to non-famine rainfall, and the ratio of famine period temperature to non-famine temperature). There is no visible correlation. These results all show that the famine was unlikely to have been caused by “natural” disasters.
It seems that the real question is how much did Mao know?
Trade Diversion 