Are Democrats worried about trade diversion & stumbling blocks?

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.

“Breaking The Trade Deadlock”

Sebastian Mallaby, abridged:

The two parties have opposing attitudes on the subject of trade: Republicans see it as a source of growth, Democrats as a source of inequality. This split is undermining the U.S. ability to play its traditional postwar role in driving global trade liberalization. And if anti-trade Democrats can win elections when unemployment stands at 4.4 percent, they may do even better next time…

[T]he real reason Democrats oppose trade has little to do with foreigners’ stance on union rights or endangered species and a lot to do with the fact that trade harms some U.S. workers… So labor and environmental clauses will never reconcile Democrats to trade. To forge a bipartisan consensus, we need a different approach. Here is a three-part formula.

First, Democrats need to be honest about development in the poor world. It’s wrong to pretend that labor regulations, whether inserted in trade agreements or adopted by governments, are a powerful engine of rising living standards in developing countries…

Republicans need to get serious about the fact that, since 1980 or so, real incomes for the majority of Americans have stagnated. Republicans cannot expect support for trade unless they do more to compensate workers who get hit by globalization. They should be working with Democrats to improve the social safety net, linking progress on that front to continued trade liberalization.

Finally, both parties should cooperate on overhauling the nation’s farm program, which comes up for renewal next year…

Of course, it’s a long shot…

Crook on Bush’s liberalization efforts

Clive Crook:

[B]uilding a coalition of support for open international markets is a great political challenge. The truth is, this administration has never so much as tried. It has scored dismally low marks on trade policy, frequently caving to protectionist interests on demand. The president’s standing is so low that if he were to reverse himself now and try to support liberal trade, he might actually set the cause back even more. In all, the outlook for open markets has rarely seemed so bleak.

Under what scenario would increased efforts by the President to support trade liberalization result in damage to the cause?

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]