Cato & PTAs

In recent years, the Cato Institute’s Center for Trade Policy Studies has endorsed (pdf) the Bush administration’s “competitive liberalization” strategy:

Free-trade agreements deviate from the multilateral principle of nondiscrimination, and they can divert trade from
more efficient to less efficient but favored import producers. But under the right conditions, FTAs can inject new competition into our domestic economy, lowering prices for consumers and shifting factors of production to more efficient uses, while leveling the playing field for U.S. exporters.

“The possibility of trade diversion is not sufficient reason to reject the Bush administration’s policy of pursuing FTAs,” wrote Dan Griswold in 2003. But these days, Sallie James, who just joined CTPS in 2006, is sounding warnings about bilateral agreements:

Bilateral trade agreements between an economic power and a small economy country — such as the U.S.-Oman trade deal currently before Congress — are not of great concern. They don’t create much distortion in the world market, said James.
But if economic powers start making two-country deals with each other — specifically blocking out other countries and ignoring trade liberalization — serious repercussions could emerge.
“God help us all if the U.S. and Japan start doing bilateral agreements,” James said, “That will be a serious problem for the world economy.”

This might signal an increased sensitivity at Cato to the distortions induced by PTAs, or merely the likelihood of an increased ratio of trade diversion to trade creation in some of the trade deals that the US may pursue.

The Political Economy of EU CAP Reform

This IHT article about the G8 meeting in Russia suggests that France remains a holdout:

Chirac said the United States should reduce agriculture subsidies and stop export aid. He said concessions made by the European Union trade commissioner, Peter Mandelson, on Oct. 28 were the most the 25-nation bloc could offer. Chirac also asked large emerging countries like Brazil, China and India to make “a significant effort.”

It’s not surprising that France is the most hostile opponent of reforming the Common Agricultural Policy. The nation receives three times the number of payments and twice the funds of any other European country. The top recipients are profiled here.

The Times article above alleges that many of the French recipients are politically powerful and connected to Chirac. That’s not obvious from this page, as the top recipients appear to be corporations. By the way, Fermes Francaises SA, the top French recipient, receives a pittance in comparison to some of the top UK beneficiaries.

To effectively tackle the issue, we need to highlight those corporations’ political connections, as well as other relevant political actors that have an interest in maintaining the CAP. In December, Richard Baldwin of the Graduate Institute of International Studies exposed (pdf) the British royalty as some of the biggest winners in a reverse-Robin Hood scheme. I’d like to see a similar investigation of the well-connected recipients in France.

What’s the best article you’ve seen on the political economy of the CAP?

WTO will evaluate PTAs

The WTO adopted measures on Tuesday to work through the backlog of PTAs awaiting evaluation:

Officials said it opens the way for clearing a huge backlog of some 200 regional trade agreements, or RTAs, many of which have been awaiting the WTO green light for a decade or more, and for fast action in accepting new ones.

“This decision will help break the current logjam in the WTO on regional trade agreements,” Mr Lamy said in a statement…

“Hopefully, this decision is a good omen for much-needed progress in other areas of the talks, such as agriculture and industrial goods trade, where agreement is urgently needed,” added Mr Lamy, currently travelling world capitals in search of a breakthrough on the Round.

This measure has little connection to those other areas and I see no reason for it to spur progress at the negotiating table.

The decision, reached in committee on Monday, provides for WTO economists to present an analysis of each agreement, with trade statistics, which will make it easier for smaller countries to determine how an RTA might affect their trade.

Until now, members have simply been presented with the often complex texts of such agreements.

Only one agreement – between the Czech Republic and Slovakia after the break-up of their former unified state in the early 1990s – has been approved in the last decade.

I raised this topic two months ago, and Ben Muse’s answer to my query on GATT Article XXIV compliance appears to have been correct.

Will the WTO acquiese to the proliferation of PTAs and greenlight all of them? Or will it try to strike some down?

New Stiglitz Book

Joe Stiglitz has a book forthcoming in September titled Making Globalization Work.

And he wants to involve the WTO in fighting global warming:

Not paying the cost of damage to the environment is a subsidy, just as not paying the full costs of workers would be… There is a simple remedy: other countries should prohibit the importation of American goods produced using energy intensive technologies, or, at the very least, impose a high tax on them, to offset the subsidy that those goods currently are receiving… Japan, Europe, and the other signatories of Kyoto should immediately bring a WTO case charging unfair subsidization.

Surely this can’t be the optimal policy tool to address the problem.

Let me introduce you to Amber

In an editorial on the Doha stalemate, the LA Times says:

Much of U.S. agricultural policy is designed to protect the interests of a small number of large and wealthy producers. Laws originally passed to aid small farmers during the Depression now result in astonishing inequities and are often counterproductive. The Washington Post recently revealed that the federal government has paid at least $1.3 billion since 2000 to people who don’t farm at all — they simply happen to own property that was once used as a farm. Meanwhile, real farmers who rent cropland are being forced out of business by landowners who find it more profitable to use their property for other purposes while continuing to collect federal cash for crops they aren’t growing.

Ending these subsidies and lowering agricultural tariffs would boost the U.S. economy, eliminate waste and help farmers in the Third World trade their way out of poverty. It’s a shame Washington thinks that its protectionist farm policies are something to be surrendered only grudgingly, and only if others do so. Good riddance, we say.

While I agree it is absurd to pay $1.3 billion in agricultural subsidies to people who don’t farm at all, abolishing those payments won’t help farmers in the Third World trade their way out of poverty. Poor country exporters are only damaged by subsidies that actually affect their competitors’ level of agricultural output. These trade-distorting payments, which in WTO jargon are classified as “amber box” subsidies, are what the EU and US need to cut more deeply in order to achieve a trade deal with developing countries. Abolishing handouts to non-farmers who live on former farmland is a great idea, but it won’t break the Doha stalemate.

Schwab Demands “Ambitious Outcome”

Bhagwati nailed it. Susan Schwab is being a maximalist:

Those countries’ chief antagonist was the United States, which was represented by Susan C. Schwab, recently appointed U.S. trade representative. Schwab repeatedly maintained that the Doha round, named for the Qatari capital where the WTO started it, must achieve an “ambitious outcome.” That would mean tariff cuts that are deep enough, and with few enough exceptions for special products, to generate significant new trade around the world, including in big developing markets such as India, Brazil, Indonesia and South Africa.

She did not dispute that the United States had emerged as the outlier in the talks, in opposition to most of the WTO membership. “Isn’t that what leadership is about?” she said in an interview. She said she was “dismayed with the number of countries that just seem willing to settle for some least-common-denominator solution.” [WaPo]

Five trade myths you already know are wrong

A number of people have pointed to Alan Beattie’s FT column titled “The truth behind the top five trade myths and why it matters.” You can read most of the article at the New Economist. But if you’re a regular Trade Diversion reader, you’ll find that I’ve already covered each of these myths!

Here are Beatle’s five myths and links my previous posts on the topic:

1. “Ghana is allowed to sell raw cocoa beans to the European Union, but if it exports finished chocolate it gets hit by big tariffs.” No it does not.

2. “Each European Union cow gets $2.40 a day in subsidies, more than what 1bn people each have to live on.” Not really.

3. “The World Trade Organisation is undemocratic and secretive.” Yeah, right.

4. “No economy ever got rich without using tariffs to industrialise.” Hong Kong.

5. “Cutting rich countries’ farm subsidies and tariffs will be a big boost for the world’s poorest.” Sadly, this is not true.

The last link even covers the first comment posted at New Economist, which highlights that cotton subsidies are the exception to that rule. Though I’m already familiar with the nature of these myths, it’s nice to see Beattie offer concise and accurate refutations of them in a publication of the FT‘s renown.