Optimism from Alan Beattie

Alan Beattie:

But, as has always been the case over the past few years, the encircling wraiths of protectionism have yet to be made flesh. In a series of interviews over the past week with current and former administration officials, senators, congressmen, lobbyists and think-tank trade experts, there remains a surprising degree of confidence that free trade can still prevail…

Susan Schwab, US trade representative (USTR), points out that despite all the threats from Congress about China and trade, Capitol Hill has continued to live up to its multilateral responsibilities, repealing cotton farming subsidies and corporate tax breaks found illegal by the WTO, and has backed USTR’s position in multilateral talks. “In the same 12 months we haven’t passed Schumer-Graham, the Congress has enacted pro-trade laws that eliminated WTO-inconsistent practices,” she says…

It is hard at present to see how the mood in Washington will let any but a few bilateral trade deals advance at present. The WTO is, perhaps, about to see a test of the so-called “bicycle” -theory of trade negotiations – that the multilateral system will fall over unless it keeps moving forward with new deals struck and fresh market access gained. But though the bicycle has wavered at the signs of a rough road ahead, the rider has yet to lose balance.

Tidbits

The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel will be announced Monday at the earliest.

allofmp3.com is becoming a major issue in the Russian WTO accession talks.

Sir Ronald Sanders argues that US legislation prohibiting international gambling is protectionist:

Further, the Bill, passed by Congress in September, expressly makes legal bets through the Internet on US horse racing, US Internet lotteries, US fantasy sports and, more critically, allows states and Native American tribes to authorise Internet-gaming of almost any kind that occurs wholly within the borders of the state in which they are located.

So, even though the moral argument is being touted, and the religious right in the US has welcomed the Bill, it has little to do with morals and more to do with stopping Internet gaming companies from outside the US providing services to US customers.

Bob Goodlatte, the Congressman from Virginia, summed up this protectionist position when he declared that the Bill would stop “US $6 billion from being sucked out of the economy” annually.

It is this very protectionist position that caused successive governments of the small Caribbean Island, Antigua and Barbuda, to bring a case against the US to the World Trade Organization (WTO)…

A WTO Panel has already ruled that the US has to bring its laws into conformity with its international obligations. This new Bill, which specifically permits a whole host of domestic Internet betting opportunities, is even more blatantly discriminatory against the supply of gaming services to the US from other countries than US law was before Antigua and Barbuda won its ruling from the WTO.

Therefore, the WTO should take a very dim view of this very protectionist development once Antigua and Barbuda draws it to their attention…

The context of the Bill’s passage also raises serious questions of just how much study Senators gave to it, and the extent to which they really understood that it was also a trade issue with implications for the US in the WTO.

The Senate adopted the Bill in a late night pre-recess session of Congress. It was tagged on at the last minute to the Safe Port Act that was designed to stop companies from other countries (such as almost happened with a Dubai company earlier this year) having security rights at a US port. Many of those who voted for the Bill to cramp Internet gambling were really concerned about the security of US ports.

Double-bind: TPA & Doha

The catch-22 of TPA & Doha has been discussed repeatedly by trade folks over the past few months, though I have yet to hear anyone offer a solution (Jagdish Bhagwati’s optimism in June notwithstanding). Apparently the USTR doesn’t have one either:

Daniel Drezner: There seems to be a catch-22 on reviving Doha. Other countries won’t negotiate seriously with the United States unless they believe that we can get TPA renewed. At the same time, the only way that TPA is likely to be renewed is if Congressmen seen the outline of a Doha deal. How does one escape this conundrum?

Susan Schwab: Good question. [Long pause.]

CVDs on “hidden subsidies”

Joe Stiglitz wants the World Trade Organization to label the United States’ non-participation in the Kyoto Protocol a “hidden subsidy” and allow countries to impose a countervailing duty on US energy-intensive exports.

I fear that once the litigation gates open, “hidden subsidy” will be a phrase that lawyers and protectionists love. Is the absence of labor standards in developing countries a “hidden subsidy” to exporters of labor-intensive manufactures? Is loose anti-trust enforcement a subsidy to exporters in industries with economies of scale? How are we to think about the costs of mandating or providing or failing to mandate various benefits to employees? Costs are subjective; social costs doubly so.

“One of the main purposes of the WTO is to create a level playing field,” says Stiglitz in Making Globalization Work. His previous book, Fair Trade For All, gave me the impression that the WTO has never sought such a goal.

Globalization & Disaggregation

The Economic Council of Finland published a number of papers on globalization last week. Here’s the summary of the lead article by Richard Baldwin:

Three eminent economists from Princeton University have recently argued that globalisation has entered a new phase that requires a new paradigm understand. This paper examines what is new in the new paradigm and considers the policy implications for Europe. Roughly speaking new-paradigm globalisation differs from the old in that it is occurring at a much finer level of disaggregation. Due to radical reductions in international communication and coordination costs, EU firms can offshore many tasks that were previously considered non-traded. This means that international competition – which used to be primarily between firms and sectors in different nations – now occurs between individual workers performing similar tasks in different nations. The really new feature is that deeper new-paradigm globalisation will seem quite unpredictable from the perspective of firms and sectors. Since individual tasks can be offshored, globalisation may help some workers in a given firm while
harming others. Moreover, old-globalisation’s correlation between skill groups and winners and losers breaks down. Certain highly skilled tasks may turn out to be offshore-able, while other highly skilled tasks are not. Increased offshoring will therefore not systematically help or hurt skilled workers in the EU. In particular, many “Information Society” jobs are prone to offshoring so EU policies aimed at moving workers into Information Society jobs may be wasted since those jobs are only ‘good jobs’ because they do not yet face direct international competition. The paper argues that this has important implications for the EU’s competitiveness strategy, education strategy, welfare states, and industrial policy. The underlying theme is that the increased unpredictability should make EU leaders more cautious about moving workers or skills in a particular direction. Flexibility is, as always, the key to allowing Europe to seize the opportunities of globalisation while minimizing the adjustment costs.

The three economists at Princeton cited by Baldwin are Gene Grossman, Esteban Rossi-Hansberg, and Alan Blinder. The two Grossman and Rossi-Hansberg papers on offshoring are available at Grossman’s website. Blinder’s article is his March Foreign Affairs article, with which most readers of this blog are probably familiar.

Anti-Dumping update

Cato’s Dan Ikenson celebrates the 2006 downturn in antidumping complaints and warns of a possible resurgence:

Although antidumping initiations have declined in recent years and structural changes in the world economy should curtail the conditions that traditionally have inspired antidumping cases, efforts are underway to make the law more accessible and more attractive to protection-seeking U.S. industries. If legislation like the Trade Law Reform Act of 2006 becomes law, it will change the analysis industries conduct when considering trade actions, weighing more heavily in favor of bringing more antidumping suits. And if settlements like those that prevailed in the shrimp case fly under the radar and fail to raise legal and ethical questions, antidumping will be marketable as a revenue-generating scheme and pitched with success to industries otherwise dis inclined to bring such actions.

The shelving of the Doha Round is a serious setback for antidumping reform. Without significant changes to curtail the abuse of the antidumping law, sympathetic lawmakers and petitioners’ lawyers are more likely to succeed at broadening the protectionist impact of the antidumping law.

“Gravity for Dummies and Dummies for Gravity Equations”

A new NBER working paper by Richard Baldwin and Daria Taglioni looks like an important extension of the Anderson-van Wincoop approach for trade gravity model fans:

This paper provides a minimalist derivation of the gravity equation and uses it to identify three common errors in the literature, what we call the gold, silver and bronze medal errors. The paper provides estimates of the size of the biases taking the currency union trade effect as an example. We generalize Anderson-Van Wincoop’s multilateral trade resistance factor (which only works with cross section data) to allow for panel data and then show that it can be dealt with using time-varying country dummies with omitted determinants of bilateral trade being dealt with by time-invariant pair dummies.

I’ll get a chance to read the paper next week when I have NBER access, and then I’ll know if “Gravity for Dummies” incorporated the “Log of Gravity.”