Will preferential access trigger opposition to Doha?

I’ve frequently warned that preferential trade risks creating vested interests that will oppose future multilateral liberalization. A new paper by Mary Amiti and John Romalis argues that my fears won’t come true in the Doha Round, primarily because actual preferential access is not yet significant. The abstract:

This paper assesses the effects of reducing tariffs under the Doha Round on market access for developing countries. It shows that for many developing countries, actual preferential access is less generous than it appears because of low product coverage or complex rules of origin. Thus lowering tariffs under the multilateral system is likely to lead to a net increase in market access for many developing countries, with gains in market access offsetting losses from preference erosion. Furthermore, comparing various tariff-cutting proposals, the research shows that the largest gains in market access are generated by higher tariff cuts in agriculture.

Full text available here (pdf).

Potential Gains from Korea-US PTA

In light of my skepticism, I’ll post potential gains from the Korea-US PTA as I become aware of them. One area that could benefit from liberalization: film.

A quota system that helps protect the South Korean film industry from giant Hollywood studios was under close scrutiny Friday amid reports that South Korea and the United States may start talks on a free trade agreement in mid-February. The so-called screen quota system is considered a key barrier to South Korea’s much-awaited hope of sealing a bi-lateral investment treaty with Washington.

Under the system, set up in 1966 to protect the local film industry, South Korean movie theaters are required to show local films for 146 days a year. The U. S. government, following intense lobbying from Hollywood, has demanded South Korea scrap or reduce its protective quota if Seoul wants to ink such an investment treaty with the superpower. [Yonhap, 21-Jan-06]

Please post a comment if you can identify other potential gains.

New Globalization Column at IHT

Daniel Altman is beginning a new weekly column at the International Herald Tribune. His premise is that globalization is inevitable, rendering the old “globalization good” vs “globalization bad” debate irrelevant. He hopes to address the pressing questions regarding how best to “manage” globalization.

More on the GMO case and WTO mission creep

Commenting on my previous post, Schiller and Ivan defended the WTO’s recent GMO decision. They say that the WTO was right to condemn the EU for using (bunk) science as an excuse for agricultural protectionism.

I’m very sympathetic to the arguments that the GMOs are reliable and safe. My doubts about the ruling are not a result of an aversion to biotechnology. Rather, I fear that the WTO’s approach to handling environmental regulatory issues will imperil its ability to promote trade liberalization. The intersection of regulatory policy and protectionism will prove much more difficult to handle than the simple collective lowering of trade barriers as accomplished under the GATT. Moreover, the WTO will face a growing number of disputes over non-tariff barriers, especially as tariff walls decline.

The old shrimp & turtle dispute was a case similar to the GMO conflict, but the WTO ruled differently in that instance. It approved import prohibitions targeting a production method (use of shrimp nets without turtle escapes) deemed environmentally unfriendly. If the WTO recognizes trade sanctions and protectionism as legitimate means for promoting and defending environmental interests, then the dispute resolution panel will inevitably become a judge of scientific matters, rather than of compliance with WTO agreements.

If harmonizing trade barriers requires the harmonization of regulatory schemes, then the WTO will confront disputes regarding a plethora of non-trade issues. While I doubt that any state will soon challenge export or import bans regarding nuclear technology, one can imagine that the WTO may have to tackle issues like bans on the transfer of encryption technology. The WTO has already managed to entangle itself in the matter of intellectual property (pdf), a move which has been criticized by economists ranging from Bhagwati to Stiglitz. While most countries are interested in lowering trade barriers, many are much less comfortable with signing onto a global regulatory agency with far greater implications for domestic policy space.

Whether it’s feasible for the WTO to remain focused upon trade liberalization without experiencing mission creep into regulatory issues remains an open question. I don’t see a simple remedy for the problem of protectionism masquerading as environmental, labor or health policy.

GMO case hurts WTO

I agree with Dan Drezner that the WTO ruling on genetically modified foods will hurt the organization. The Europeans strongly feel that the WTO is stepping outside its jurisdiction by condemning EU policy on a non-trade issue, since they consider the import prohibition to be a health and safety matter. They’ll choose to suffer US sanctions rather than allow GMF imports.

Thus, this case was lose-lose for the WTO from the beginning. A ruling against the US would have condemned the <a href=”significant potential benefits of biotechnology, while the ruling against the EU will only undermine the trade body’s credibility.

Economic Sense? We’ll See

Dan Drezner believes that the to-be-negotiated US-Korea FTA/PTA will have a big (beneficial) economic impact. I think we ought to see what’s on the negotiating table before making any judgments. As Drezner’s commenters note, the Koreans are fiercely attached to their agricultural protections.

The USTR press release stresses the size of Korea’s economy (the world’s tenth largest). But the relevant measure is the size of the protectionist distortions that liberalization will remove. Both the US and Korea have relatively low trade barriers, so we shouldn’t necessarily anticipate massive gains from liberalization between two large economies. There may be tariffs peak or barriers to investment, but it’s difficult to know how much progress will be made on those topics. For example, agriculture certainly remains well protected, but that sector is a sacred cow the negotiations are unlikely to touch.

Costs of Sugar Protectionism

Economists frequently describe protectionism as politically feasible due to its concentrated benefits and dispersed costs. Sugar protectionism, however, has concentrated costs:

Producers of hard candy, such as Primrose and Brach’s, which closed its Chicago plant in 2004 to move its operations to Mexico, blame their shifting production strategies on one culprit: U.S. sugar subsidies that keep prices of domestic sugar much higher than prices on the world market. In addition, tight import quotas make it hard to import cheaper foreign-produced sugar.

“We haven’t seen a hard-candy company expansion or new factory for many years,” said Rob Hoffman, director of business development for World Business Chicago. [WaPo]

Update: See this post for more information about sugar protectionism.

US-Korean PTA talks open

Preferential trade agreements used to be sufficiently rare that their creation warranted an announcement. At the current rate, however, I may have to cease the practice.

S KOREA, U.S. TO ANNOUNCE START OF FTA NEGOTIATIONS

WASHINGTON – South Korea and the United States will announce the start of free trade agreement (FTA) negotiations Thursday on Capitol Hill with a July 2007 deadline in mind. The talks will begin in May after three months of consultations between the Bush administration and the Congress. U.S. officials hope to wrap up the talks before the “trade promotion authority” runs out in July.

Exports and development

Ben Muse links to a pair of interesting World Bank papers about exports and development that were recently posted. Nicita (2006) evaluates the impact of Madagascar’s growing textile export industry upon its poor (in short, urban skilled laborers gain the most from the sector’s expansion). Djankov, Freund, and Pham (2006, pdf) examine the impact of administrative delays upon export volume (hint: rent-seeking opportunities greatly reduce exports).

Easterly, no holds barred

In a speech [PDF] given at the Asian Development Bank titled “Planners vs Searchers in Foreign Aid,” William Easterly ripped the development establishment, especially the UN, IMF, and WB. He overstates his case in a few places, but many of his arguments are compelling.