Mandelson favors preferential unilateral liberalization on LDC exports

In the Doha talks, the so-called Least- Developed Countries, many in Africa, were to get quota-free and duty-free access to sell products in wealthy markets without being asked to open up their economies. Mandelson said Tuesday that he favored pushing ahead with these measures – agreed to at a WTO ministers meeting late year in Hong Kong – even without a full Doha agreement. “We should extract from the rubble a significant development package,” he said. [IHT]

Since both the US AGOA and EU EBA preferential programs have limitations (AGOA has tariff rate quotas; EBA delays liberalizing sugar, rice, and bananas), there is room for this brand of trade liberalization. Does “pushing ahead with these measures” mean coordinated unilateralism by the rich countries or low-level activity at the WTO?

(Based on the work I’ve done on AGOA’s impact on beneficiaries’ exports, I’m skeptical of characterizing its expansion as “a significant development package.”)

FTAs & the TPA deadline

Now that the WTO negotiations are taking a “time out,” as Pascal Lamy has characterized the suspension of scheduled talks, the attention of both analysts and policymakers will shift to bilateral and regional trade deals. The United States has eleven months to complete its FTAs before Bush’s trade promotion authority expires.

I’m told that, by law, the President is merely required to notify Congress of his intent to sign an FTA 30 days prior to voting on it (and therefore 30 days prior to the expiration of his authority). The actual, signed agreement can be submitted at any time. [UPDATE: There are additional notification obligations, which are outlined in this CRS report.] But for logistical and political reasons, the administration won’t abuse that flexibility by waiting until the last minute. It’s hoping to wrap up trade talks by the end of 2006 so that it can introduce legislation to Congress around March.

Talks are underway with Malaysia, South Korea, and Thailand, though the latter stalled earlier this year. Ben Muse has set up a page to track the development of the US-Korea deal. Estimates of the likelihood of completing these agreements on time vary.

Of course, there’s not much reason to worry about the timetable if Congress renews TPA. Richard Baldwin comments on my prior post, suggesting that Congress will not want to lose the “competitive liberalization” race with the EU and therefore will extend the president’s negotiating authority. Most analysts seem to be leaning the other way:

America’s top trade official says the collapse of global trade talks means the US presidential trade deal authority will now likely expire, before any WTO deal can be saved and sent to the US Congress… The last time the TPA expired in the mid-90s it took about eight years to renew it, which many pro-trade lawmakers fear could happen again, leaving the US unable to negotiate even bilateral deals. [abc.net.au]

The White House’s authority from the US Congress to negotiate trade deals expires next year. Most experts and officials think Congress unlikely to renew that authority, rendering any near-term agreement impossible. [Finfacts]

Without the so-called ’fast-track’ authority, which Congress is seen as unlikely to renew, Washington is in effect unable to negotiate international trade deals. [Reuters]

Of course, noting popular opinion without explaining why many people hold that view isn’t terribly convincing. Most newspaper accounts aren’t giving a very good account of the political factors in play.

I haven’t strongly committed to an opinion on the subject, but at this point I am not expecting TPA renewal. First, Jagdish Bhagwati previously commented that making progress at Doha was key to any bid for renewal so as to demonstrate to the Congress that value of granting TPA. Second, Chuck Grassley told Pascal Lamy it won’t happen.

What other evidence is available on this question?

Doha collapse to be formalized soon

CNN:

Global free trade talks collapsed on Monday after nearly five years of on-off haggling and resuming them could take years, officials and diplomats said.

The suspension of the World Trade Organization’s (WTO) Doha round, which was expected to be announced formally by WTO chief Pascal Lamy later on Monday, came after major trading powers failed in a last ditch bid to overcome differences on reforming world farm trade, which lies at the heart of the round.

“The WTO negotiations are suspended,” Indian Commerce and Industry Minister Kamal Nath told journalists. When asked how long the suspension could last, he replied: “Anywhere from months to years,” he said.

UPDATE: There doesn’t seem to be much to say. We all saw this coming. And there’s plenty of blame to go around. You could attack Susan Schwab for not accepting a minimalist outcome or the US for not being willing to move first so as to put the focus on countries who are clearly more protectionist or those nations for being the worst offenders or the special interests for being special interests or Bush for being Bush.

Regardless, no allocation of blame is likely to restart the negotiations. It’s time to start pursuing other strategies.

Now that’s an import barrier

In one decade in the eighteenth century, according to the Swedish economist and historian Eli Heckscher in his book of 1932, Mercantilism, the French government sent tens of thousands of souls to the galleys and executed 16,000 (that’s about 4.4 people a day over the ten years…) for the hideous crime of importing printed calico cloth. [McCloskey]

Strong Export Growth Lately

I haven’t seen other trade bloggers mention it yet, so I’ll just pass on the word in case you missed it earlier this week: US export growth has outpaced import growth so far this year, by a score of something like 10 percent to 6 percent. That mildly reduces the trade deficit. Typical coverage available here.

Does Doha’s collapse mean a resurgence of protectionism?

The Doha round is likely to stall out by the end of the summer. In that light, this FT piece by Alan Beattie from last summer is relevant:

The Doha round of multilateral liberalisation talks is behind schedule and in trouble. Prospects for trade seem bleak.

But are they? In practice, according to many trade officials, experts and practitioners, the World Trade Organisation system has so far done a good job of holding protectionist sentiment in check. Some warn that the system will start to give way, or at least that further liberalisation is in jeopardy. Yet, in spite of the stress induced by rapid change in the global economy, there is little sign that the gains from previous advances are being lost.

The bare statistics do not support the idea that a wave of protectionism has swept over the global economy. There has been no rise in the use of “anti-dumping” or “safeguards” actions – emergency limits used by countries to prevent surges in imports. The most recent figures from the WTO, for the second half of last year, showed new anti-dumping actions falling to 103 from 135 a year earlier.

Experts attribute much of the gap between protectionist rhetoric and (generally) laisser-faire practice to the rules of WTO agreements and particularly the judgments of its disputes settlements mechanism, involving three-person panels sitting in Geneva…

Peter Mandelson… believes in the power of global trade rules. “The barriers against protectionism we have put in place over the past decade are strong enough to stand immense pressures and indeed ratchet up liberalisation.”…

Given the slowness of the negotiations so far, it would be a brave observer who bet on rapid progress. But at a time when the world economy is coping with stalling jobs growth in some of the richest nations, colossal global current account imbalances and the emergence of China as a fearsomely huge and efficient competitor across a range of industries, the freedom to trade – so painfully achieved over previous decades – has yet to receive a serious challenge.

Will the WTO’s institutional credibility hold up when there are no ongoing negotiations to futher liberalize trade? Or should we expect backsliding in the wake of Doha’s failure?

What does the Asian FTA explosion look like?

One of the graphics that immediately pops out at you when you skim through Richard Baldwin’s new paper (pdf) is this:

20060719noodlebowl

As Baldwin commented back in May:

On paper, East Asian regionalism looks rather tidy…A very neat hub-and-spoke arrangement with ASEAN at the center… While this tidy description is attractive, the reality is quite different.

ASEAN has a rather unique method of negotiating FTAs. Every nation defines its own sensitive list. And preferences are only granted on goods that are on neither partner’s list. This means that the actual tariffs applied on any given good can be quite different for each of the 45 bilateral trade flows among ASEAN nations.

What this means is that AFTA actually should be thought of as 45 separate bilateral agreements, although of course the existence of ASEAN means that the 45 are coordinated to some extent. For the same reason, the China-ASEAN and Korea-ASEAN are likely to operate like 10 separate bilaterals with limited coordination.

Thus the real picture is marked by what might be called “the Noodle Bowl Syndrome”.

Many of those FTAs are still being negotiated. Even most of the already completed FTAs haven’t fully kicked in: real tariff discrimination will be phased in between now and 2010.

The liberalization that created the massive intra-regional trade we see today was mostly unilateral liberalization not preferential liberalization. East Asia has yet to see what real discriminatory trade liberalization means, but it is scheduled to find out soon.

Oh boy.

Regionalism is here to stay

I recently participated in a policy group discussion that considered the topic of preferential trade. Although most of us involved felt that PTAs were damaging to the global trading system, we weren’t offer to able many substantive policy proposals to remedy the situation. I could merely repeat the chorus that I picked up from Jagdish Bhagwati’s January 2005 FEER piece: If MFN tariffs go to zero, then discrimination is meaningless.

To the degree that PTAs hinder the progress towards free trade, that isn’t a very helpful prescription; it’s like saying that the cure for a disease is good health. Thankfully, more innovative policy proposals are beginning to emerge:

Three facts: 1) Regionalism is here to stay. A large fraction of the world trade is conducted under a motley assortment of free trade agreements and the list of agreements is lengthening at an accelerating pace. 2) This motley assortment is a poor way to run the world trade system and getting poorer. 3) The World Trade Organisation (WTO) has been little more than an “innocent bystander” in this process.

Two conclusions: 1) The WTO risks a serious erosion of its relevance if it continues in its “innocent bystander” role. 2) The WTO is probably the only international organisation that is well-placed to help tame the tangle of free trade deals at the global level; it is probably the only international organisation that has a clear incentive to do so.

This paper suggests some ways in which the WTO might help ‘tame the tangle’ of free trade deals by fostering a multilateralision of preferential trade agreements.

That’s the opening to “Multilateralising regionalism,” a brief policy essay by Richard E. Baldwin that he posted on his website this morning. It summarizes his 2006 World Economy Annual Lecture, which is also available online.

Opponents of preferential trade have been holding out and hoping that we might rollback the “competitive liberalization” strategy for too long. It should have become obvious sometime between Cancun and Hong Kong that we lost those political battles. The explosion of Asian FTAs was the nail in the coffin. Regionalism is here to stay.

I concede that I have been guilty of hoping that discriminatory trade practices were reversible rather than embracing the theory of the second-best and thinking about how to minimize the damage that PTAs do. It’s time to shift gears. In the future, my blog posts will highlight scholarship that acknowledges the undesirability of preferential trade and explores possible coping mechanisms or remedies.

Thanks to Richard Baldwin for starting that process. I’ll offer more thoughts on his paper later in the week.

Cultural Protectionism: Korea’s Screen Quota

I don’t usually read the Huffington Post, but I stumbled across this post today while doing some research. In the midst of recommending appropriate caution about the US desire to include stringent intellectual property rules in upcoming preferential trade agreements with Malaysia, South Korea, and Thailand, James Love wrote this silly passage:

In the Korea negotiations one of the big demands by the US is to cut back the Korean “screen quotas,” that mandated theaters to show Korean movies at least 40 percent of the time (146 days per year). The US wants this cut back, so that Koreans will watch more Hollywood films. The creative community in Korean is highly mobilized in opposition to this, which they fear will devastate the Korean film industry. If the USTR “wins” this negotiation, it will reduce global cultural diversity.

Technically, “global cultural diversity” will be reduced if one defines that phrase to mean the supply of Korean films being shown in theaters, regardless of consumption. But more films that consumers actually want to see will be shown, so there will be a global cultural welfare gain. Moreover, if a culture’s existence depends upon governmental mandates impinging freedom of choice, why is it valuable?

Korean economist Kim Young-bong debunked the cultural protectionist argument a few years ago in the Joong Ang Daily. James Love ought to acquaint himself with the benefits of cultural hybridization through globalization rather than defending governmental discrimination.