Resisting Protectionist Urges

Occasionally President Bush acts like someone that appreciates free trade:

Beijing has welcomed a decision by US President George W Bush to reject a commission recommendation that called for anti-dumping quotas on imports of Chinese steel pipes… The US International Trade Commission found in October that Chinese producers were dumping imports of circular welded non-alloy steel pipe on the US market at unfairly cheap prices. ITC chairman Stephen Koplan recommended that Bush impose an annual quota of 160,000 tons on such steel imports for three years. Bush argued, however, that action to curb imports would encourage other countries to step into the market and would only serve to drive up costs for US steel consumers. The action was a rare respite from Washington’s usually highly critical stance about the state of US-Sino trade relations as exports from the Asian giant have soared on the back of its surging economy. [The Standard]

Moreover, Ben Muse notes that it looks like the Byrd Amendment will be dead by late 2007.

SAFTA begins

Courtesy of Asia Pulse:

NEW DELHI – The South Asian Free Trade Area (SAFTA), which paves the way for free trade in goods among South Asian Association for Regional Cooperation (SAARC) member countries came into effect on Sunday. As per the agreement, India, Pakistan and Sri Lanka will impose their customs duties to 0-5 per cent by 2013, while the least developed members Bangladesh, Maldives, Nepal and Bhutan will do so by 2018. India, as the larger and relatively developed economy, will provide concessions to Least Developed Countries (LDCs), including a mechanism to compensate for revenue losses, due to a reduction in duties. The LDCs which will be compensated include Bangladesh and Maldives.

Stiglitz & the Shrimp-Turtle case

In a previous post, I noted that Joseph Stiglitz misinterpreted the WTO’s turtle-shrimp decision. He had written:

The WTO puts trade over all else. Those who seek to prohibit the use of nets that harvest shrimp but also catch and endanger turtles are told by the WTO that such regulation would be an unwarranted intrusion on free trade. They discover that trade considerations trump all others, including the environment! [Globalization and Its Discontents, p.216]

In his latest text, Dr. Stiglitz corrects his interpretation:

In its adjudication, the WTO’s Appellate Body made clear that the WTO gives countries the right to take trade action to protect the environment, in particular relating to human health, endangered species, and exhaustible resources… The US lost the case, not because it sought to protect the environment but because it discriminated between WTO members. (The United States was discriminating by giving Asian countries only four months to comply with its law, but allowing Caribbean Basin nations three years.) But the significance of the Shrimp-Turtle rulings is that they endorse the use of trade policy to enforce environmental standards. [Fair Trade For All, p.136-7]

PTAs increase trade liberalization adjustment costs

Andrew Charlton and Joseph Stiglitz make a strong argument against preferential trade agreements on the basis of adjustment costs:

There is a high cost to the roundabout approach. For to the extent that there is temporary trade diversion, some industries are being temporarily encouraged, only to be later discouraged. Adjustment costs are typically high in developing countries; there may be significant costs of entry and exit, and with a scarcity of capital, the burden on developing countries may be particularly large. [Fair Trade For All: How Trade Can Promote Development, p.164]

Another arrow in the anti-PTA quiver.

Globalization and Its Discontents isn’t about trade

I am probably one of the last persons interested in international economics to get around to reading Joe Stiglitz’s Globalization and Its Discontents, so I only have one comment to make.

The book is not about trade. Despite writing that “to understand what went wrong, it’s important to look at the three main institutions that govern globalization: the IMF, the World Bank, and the WTO,” Stiglitz solely focuses upon the International Monetary Fund and its greatest mistakes in the 1990s. Readers looking for insights into the World Bank or World Trade Organization will find little information. In fact, when Stiglitz does criticize the WTO, he provides (what I consider to be) incomplete information.

Late in the book, on page 216, Stiglitz states his first substantive complaint against the WTO:

The WTO puts trade over all else. Those who seek to prohibit the use of nets that harvest shrimp but also catch and endanger turtles are told by the WTO that such regulation would be an unwarranted intrusion on free trade. They discover that trade considerations trump all others, including the environment!

Jagdish Bhagwati:

But the Turtle-Shrimp decision at the WTO in October 1998 upheld GATT Article XX(g) on allowing the US to use it to protect turtles! It only objected to the selective and discriminatory way in which the US legislation was designed and directed at the Asian nations who had brought the complaint to the WTO. [What Really Happened In Seattle (PDF)]

Environmentalists might have a case against the WTO, but Dr. Stiglitz choose a poor example to demonstrate his complaint. See pages 156-158 of Bhagwati’s In Defense of Globalization for further discussion of the shrimp-turtle case and his case against using trade sanctions to promote environmental interests.

Sitglitz then ponders the representation of developing countries at the WTO:

While the voting arrangements at the IMF ensure that the rich countries dominate, at the WTO each country has a single vote and decisions are largely by consensus. But in practice, the United States, Europe, and Japan have dominated in the past. This may now be changing. At the last meeting at Doha, the developing countries… achieved some notable concessions…

The most fundamental change that is required to make globalization work in the way that it should is a change in governance. This entails… changes to ensure that it is not just the voices of trade ministers that are heard in the WTO. [p.225-6]

This is a call for the WTO to expand its governing mandate to non-trade issues. In making this case, Stiglitz implicitly concedes that the WTO has pursued a narrow agenda, rather than “dominating” the process of globalization. In fact, it has been the rich countries that have pushed for an expansion of the WTO’s mission, so as to tie non-trade issues like intellectual property rights to liberalization rounds at the expense of poor countries (an issue that Stiglitz notes on pages 245-6).

Stiglitz expresses concerns about transparency:

At the WTO, the negotiations that lead up to agreements are all done behind closed doors, making it difficult – until it is too late – to see the influence of corporate and other special interests. The deliberations of WTO panels that rule on whether there has been a violation of the WTO agreements occur in secret. [p.227-8]

The negotiations are opaque so that negotiators can make offers conditional upon a reciprocal concession. I imagine that the EU trade ministers would have been even less forthcoming in Hong Kong if every offer they made was subject to scrutiny by an audience in France. Similarly, legal decisions have traditionally been made in private so that a ruling can be judged on its merits independent of the intellectual process that produced it. It is difficult to imagine the US Supreme Court being forced to disclose its rough drafts of opinions. If Stiglitz believes that negotiations and deliberations ought to be transparent, he needs to explain how they would work. His few paragraphs are insufficient for me to understand his proposal.

On page 244, Stiglitz argues that the advanced economies have preached free trade while practicing protectionism. While it is true that developed nations have been hypocritical in this regard, it is important to remember that their rhetorical demands have not become reality, and poor nations remain vastly more protectionist than their rich counterparts. Thus, it isn’t true that the trade agenda has become “unfair” in the sense that the poor have been forced to liberalize more than the rich.

The WTO is mentioned a few more times: the Seattle protests on page three, the WTO’s establishment in 1995 on page seven, a similar note on page sixteen, the IMF-WB-WTO trio’s “domination” of the global scene on page twenty-two, the IMF’s faster pace of liberalization than the WTO on page 62, and the IMF-WB-WTO trio’s “set[ting] the rules of the game” on page 214.

While Stiglitz builds a strong case against the conduct of the IMF in Globalization and Its Discontents, his call for reform of the WTO is unconvincing, as he devotes few pages to the topic. However, Stiglitz’s next book, co-authored with Andrew Charlton, will remedy this. The text, forthcoming in a few weeks, is titled Fair Trade For All: How Trade Can Promote Development.

What’s hampering export-led growth?

A number of bloggers have linked to this NYT op-ed by Tim Harford. It’s good:

Imagine a dream scenario in which the trade ministers emerge from their negotiations this weekend holding hands and proclaiming an end to all agricultural protectionism. What then?

For, say, a banana picker in the Central African Republic, not a lot. The trade barriers at the borders of the rich world may have disappeared, but if our picker wants to sell his bananas abroad he first has to get them onto a ship bound for America or Europe. That takes 116 days, and an incredible 38 signatures – each one an opportunity for some official to collect a bribe. Something is rotten here, and not just the bananas.

Read the whole thing,

WTO concludes meeting in HK without much progress

Other trade bloggers have yet to post about the deal struck in Hong Kong, so I’ll quickly note the highlights of what I learned from two articles in The Standard.

(1) France won in regards to the export subsidies abolition deadline. Countries have until 2013, whereas Brazil and India preferred an earlier deadline of 2010.

(2) Services won’t be liberalized significantly.

(3) The G90 group (African Union + LDCs + ACP) appears to have secured preferential access to the markets of WTO members, although the US and Japan won exemptions for “sensitive” products like rice and textiles.

(4) Benin’s hardline stance on cotton appears to have yielded a few dividends. Although the agreement doesn’t end domestic subsidies for cotton, all export subsidies and tariffs and quota systems against cotton imports from developing countries will be terminated by 2006.

Over all, most folks seem happy with the deal only because it means that trade delegates avoided walking away from Hong Kong empty-handed. Rob Portman, USTR, says there’s “a lot more work to do in agriculture and market access.” The G20 called the deal “modest but not insignificant,” while the EU begrudgingly labeled the compromise “acceptable.”

No one approached the negotiating table at the start of the week expecting a breakthrough, so it’s little surprise that the struggle will continue in 2006.

Exploitation due to preferential trade

The Commonwealth of the Northern Mariana Islands shares an ugly legacy with American Samoa: its quota-free and duty-free access to the US market resulted in tragedy. Just as in Samoa, Asian laborers were lured to work in the CNMI by entrepreneurs who then abused them. Preferential trade once again encouraged risky immigration that left laborers vulnerable to abuse, a harm that could have been prevented by a policy of non-discriminatory free trade.