Doha, TPA renewal, and the window of opportunity

If the Bush administration wants to win renewal of its trade promotion authority, most analysts are now saying that it will depend upon the president’s willingness to make concessions to Democrats by including labor and environmental standards. The Democrats seeking these measures generally want them included in bilateral FTAs and aren’t nearly as critical of the WTO negotiations for ignoring these concerns.

If my previous analysis is wrong and there is a chance of TPA renewal, then a Doha-only extension has the best chance. But that depends upon the DDA being sufficiently vibrant so as to make TPA renewal worth it. And without TPA, Doha isn’t going far, hence our nasty catch-22. But some are suggesting that there’s a window of opportunity:

The WTO negotiations have been suspended since late July, when governments proved unable to agree on farm subsidy and tariff cuts. They are now starting to show signs of life, and Geneva-based trade diplomats believe that there is a window of opportunity until around March 2007 for Members to assemble a ‘blueprint’ for a Doha Round deal that would offer gains sufficient to entice Congress into extending TPA. However, many blame the impasse on the US’ refusal to offer deeper reductions to its farm subsidies, and have argued that Washington must make new overtures in order to revive the talks. The passing of the election may have relieved some of the pressure to not announce subsidy cuts. The Bush administration has maintained in recent months that the US would not budge unless other countries modified their negotiating stances too.

Unlike the Reuters story I criticized a week ago, the ICTSD story contains details that make the window plausible. WTO Director-General Pascal Lamy called an informal meeting of the Trade Negotiations Committee on Friday morning. But I doubt the “blueprint” will include labor and environmental provisions, which may be necessary for even a Doha-only TPA renewal to be feasible:

According to the Washington Post, Montana Senator Max Baucus, who is likely to take over the Senate Finance Committee, has said that any legislation prolonging the president’s fast-track powers would have to “strengthen labour and environmental provisions in some way to win broader Democratic support.” Washington publication Inside US Trade reported on 10 November that he would also want TPA extension to be contingent on expanded support for trade adjustment, better enforcement of existing trade agreements, and increased export promotion efforts. Baucus has been a vocal supporter of providing extra unemployment benefits and retraining funds for people who have lost their jobs due to trade liberalisation.

Here are the relevant provisions in the 2002 Trade Act:

OVERALL TRADE NEGOTIATING OBJECTIVES.—The overall trade negotiating objectives of the United States for agreements subject to the provisions of section 2103 are—…

(5) to ensure that trade and environmental policies are mutually supportive and to seek to protect and preserve the environment and enhance the international means of doing so, while optimizing the use of the world’s resources;
(6) to promote respect for worker rights and the rights of children consistent with core labor standards of the ILO (as defined in section 2113(6)) and an understanding of the relationship between trade and worker rights;
(7) to seek provisions in trade agreements under which parties to those agreements strive to ensure that they do not weaken or reduce the protections afforded in domestic environmental and labor laws as an encouragement for trade;

The current provisions seem compatible with the Doha negotiations, and it may be possible to strengthen the labor and environmental provisions of the TPA legislation without negatively impacting the WTO negotiations. That means that we can’t rule out the possibility of TPA being renewed and Doha regaining momentum in 2007.

But that likelihood is small. The murmurs emanating from Geneva are merely low-level informal discussions without ministers, and there doesn’t seem to have been a shift in negotiating stances:

Although no attempts had been made to address the specific issues that have proved so intractable in the negotiations, the agriculture chair has taken the necessary initial steps to ensure that talks can begin more easily once the political will to do so has been established. “Crawford has turned on the engine to warm up the car a bit, but it’s not yet in gear,” said one delegate.

PNTR for Vietnam delayed

A bit of a hiccup heading into this weekend’s APEC meeting hosted by Vietnam:

The bill, which would have granted Vietnam ”permanent normal trade relations” with the US, is needed for the country to enjoy the full benefits of its forthcoming membership of the World Trade Organisation. The House of Representatives voted 228 to 161 to pass the bill, but it failed to reach the two-thirds majority needed to pass it under an accelerated process chosen by the Republican leadership of the House.

Susan Schwab, US trade representative, used her opening press conference at the Apec conference in Hanoi on Wednesday to argue that the defeat arose from procedural problems, not deep-seated rejection of trade deals.

“You have to be a student of our congressional system to understand the vote that took place yesterday,” she told reporters. “The fact is that there was strong bipartisan support in favour of permanent normal trade relations for Vietnam in the House of Representatives”.

With many lawmakers yet to return to Washington after the midterm elections last week, the House failed to muster the two-thirds majority required, Ms Schwab said.

A test of Melitz (2003) with regard to firm size

Virginia Di Nino, Rosen Marinov & Nadia Rocha – “Trade Liberalization and New Exporters’ Size: Theory and Evidence”

This paper tests an empirical implication of Melitz (2003) in the context of falling trade costs, using the EU’s intensive liberalization phase (1993−2002) as a natural experiment. Contrary to the model’s predictions, firms that switch from non-exporting to exporting over the studied period are not concentrated in a particular size range. Our findings, based on a rich data set of French manufacturing enterprises, suggest scope for fine-tuning of the theoretical framework.

Available here (pdf).

The Election & Trade: Seat-by-seat analysis

There were no cases of a “trade-sceptic” being replaced a “trade-friendly” member in either chamber.

Simon Evenett and Michael Meier have produced the race-by-race analysis that I briefly considered while writing this post before I set aside the project as too laborious.

Executive summary:

Tuesday’s U.S. Congressional elections assumed considerable importance for trade negotiators because it is thought that, even if significant progress were made on the Doha Round negotiations in early 2007, Congress would need to extend the U.S. President’s Trade Promotion Authority (TPA) to allow the Round to be completed. Much turns on how the newcomers to the U.S. House and Senate are expected to vote. In this note we examine the stance taken by the 62 individuals who won their elections to the House or Senate for the first time. We compared their stance on trade policy matters during their election campaigns with the incumbents that they will soon replace. Our analysis, therefore, takes account of every known case where a seat changed hands and not just the cases where a Democrat replaced a Republican office.

The degree of importance assigned to this increase in congressional hostility to trade liberalization depends upon one’s assessment of TPA renewal’s chances prior to the election. My Thursday post arguing that the electoral impact on trade liberalization would be small reflects my belief that TPA renewal has been out of the question for a while. Of course, we should be afraid that this increases the risk of protectionism.

In June 2004, I wrote a criticism of Bush’s “competitive liberalization” strategy that included the following paragraph:

The administration’s political capital is not only limited in regards to foreign trading partners – the US populace is likely to be unwilling to sign off on a large number of trade agreements. Congress will only pass a limited number of trade agreements before it becomes uncooperative, out of fear that it will be perceived as liberalizing too quickly. Pressure from protectionist constituents like steel workers has a significant impact upon political calculations. I perceive it as unlikely that free traders will have enough expendable political capital to win the swing votes required to pass both FTAA and Doha agreements in the same congressional session. The problems of domestic political capital also hint at another trouble feature of bilateral trade deals – they expose free trade advocates to lobbying and criticism from anti-trade organizations.

Evenett & Meier write:

This constitutes a major blow to the U.S. Administration’s trade strategy of “Competitive Liberalization.” Far from building a domestic political consensus behind trade reform, as USTR Zeollick had originally hoped, this strategy has probably created the seeds of its own destruction.

I am happy that I was right, but not really.

(To be fair to Zoellick, the strategy was sold as a means to stimulate international movement towards liberalization, not build a domestic political consensus.)

[Massive hat tip to Ben Muse]

Network Topology of International Trade

“The Architecture of Globalization: A Network Approach to International Economic Integration” by Javier Reyes and Raja Kali:

We combine data on international trade linkages with network methods to examine the global trading system as an interdependent complex network. We map the topology of the international trade network and suggest new network based measures of international economic integration, at both a global system-wide level and a local country-level. We develop network based measures that incorporate not only the volume of trade but also the influence that a country has on the international trading system. These measures incorporate the structure and function of the network and may provide a more meaningful approach to globalization than current measures based on trade volumes. We find that in terms of participation and influence in the network, global trade is hierarchical with a core-periphery structure at meaningful levels of trade, though integration of smaller countries into the network increased considerably over the 1990’s. The network is strongly “balkanized” according to geography of trading partners but not as strongly by income or legal origin. Using these new measures we find that a country’s position in the network has substantial implications for economic growth and that network position is a substitute for physical capital but a complement to human capital. We therefore suggest that a network approach to international economic integration has potential for useful applications in international business, finance and development.

Last week, I saw Dr. Kali present an application of their measures: “Financial Contagion on the International Trade Network”

The data are from the Feenstra et al. NBER set of bilateral trade data by commodity for 1962-2000, which sounds powerful based on Kali’s description.

The WTO’s “window of opportunity”

Reuters carries the headline “Global free trade talks back on agenda,” but the only support within the article for that claim is “WTO chief Pascal Lamy… says that negotiators now have a brief ‘window of opportunity’ to resume talks.” Lamy’s job is to play the role of optimist, so that’s unsurprising. More insightful is this paragraph:

Three months on, nothing fundamental seems to have changed, and trade diplomats are pessimistic about concluding a deal that was supposed to rebalance trade rules in favour of the poor and boost business worldwide.

[HT: GI]

Latest NBER Papers

A fresh batch of NBER papers was announced yesterday. Here’s what may interest trade people:

Shang-Jin Wei & Zhiwei Zhang:

Trade reform conditions are common in IMF supported programs. Of the 99 countries that had IMF programs during 1993-2003, 77 had conditions on trade reforms in their programs. Since the WTO has not been found especially effective in promoting trade openness for most developing countries, it is of great interest to see if the IMF has been more effective as it combines carrots and sticks not available to the WTO. Yet, the effectiveness of trade conditions in IMF programs has not been systematically studied. Using a unique dataset, this paper provides such an assessment. It finds that trade conditions are associated with an increase in trade openness on average, but the effect comes mostly from countries that, by some measure, have a high degree of “willingness to reform.”

Jiandong Ju & Shang-Jin Wei:

International capital flows from rich to poor countries can be regarded as either too small (the Lucas paradox in a one-sector model) or too large (when compared with the logic of factor price equalization in a two-sector model). To resolve the paradoxes, we introduce a non-neo-classical model which features financial contracts and firm heterogeneity. In our model, free trade in goods does not imply equal returns to capital across countries. In addition, rich patterns of gross capital flows emerge as a function of financial and property rights institutions. A poor country with an inefficient financial system may simultaneously experience an outflow of financial capital but an inflow of FDI, resulting in a small net flow. In comparison, a country with a low capital-to-labor ratio but a high risk of expropriation may experience outflow of financial capital without compensating inflow of FDI.

Richard E. Baldwin & Virginia Di Nino:

This paper tests whether trade in new goods is partially responsible for the pro-trade effects of the euro and provides a measure of the size of the effect. It works with a very large data set (about 16 million observations) covering twenty countries at the most disaggregated level of trade data that is publicly available. Using predictions from a heterogeneous-firms trade model in a multi-country environment to structure our empirical model, we find that the euro had a positive impact on trade overall. Our findings provide supportive but not conclusive evidence for the new-goods hypothesis. We also determined the pro-trade effect of euro-usage on non-Euroland nations trading with euro-users. We confirmed the absence of trade diversion for non-Eurozone EU members with sizeable overall increase comparable to that of members.

More on the election and trade

Larry Summers echoes my interpretation of the electoral impact on trade policy:

The challenge for trade policy in the next two years will be more to resist protection than to further liberalisation, since both parties want to respond to the economically anxious middle class that disproportionately projects its anxieties on trade agreements. [FT]

On the other hand, Dan Griswold claims that the partisan shift matters:

The election means that the president’s trade agenda has come to a screeching halt. [AFP]

What? I must have missed Bush’s swiftly speeding trade agenda! The election is a tap on the brakes of a vehicle was coming to a rolling stop anyway.

Thomas Friedman advocates FTAs he doesn’t understand?

This Thomas Friedman clip is saddening.

During a CNBC interview with Tim Russert in late July, the acclaimed savant made a notable confession: “We got this free market, and I admit, I was speaking out in Minnesota – my hometown, in fact – and guy stood up in the audience, said, ‘Mr. Friedman, is there any free trade agreement you’d oppose?’ I said, ‘No, absolutely not.’ I said, ‘You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.'”

Jagdish Bhagwati: “Of course, those who are used to sound bites and cannot think of more than two words at the same time will read ‘free trade areas’ as ‘free trade.'” (Free Trade Today)