Things I’m reading

Richard Baldwin & Simon Evenett, Next Steps: Getting Past the Doha Round Crisis, VoxEU eBook, May 28: A number of former ambassadors to the WTO present suggestions for how we might get out of the Doha dilemma in which negotiators neither make progress nor are willing to kill the round. The task is identifying a way to make a “Doha down payment” and then head for the exits.

Susan Houseman, Christopher Kurz, Paul Lengermann, and Benjamin Mandel, “Offshoring Bias in U.S. Manufacturing“, Journal of Economic Perspectives, Spring 2011: In short, the authors say price indices for imported intermediate inputs do not fully reflect the cost savings achieved through offshoring, which means that the real growth of imported intermediates has been understated. Underestimating inputs means overestimating productivity, so that’s bad news for the growth of value added in US manufacturing.

Romer on the dollar

Christina Romer has a nice introduction to the “strong dollar” mantra and the economics of exchange rates in the NY Times. She concludes:

Perhaps it is time for a more adult conversation. The exchange rate is the purview of market economics, not of the Treasury or strong-dollar ideologues.

The politics of the Doha round and US PTAs

At VoxEU, Richard Baldwin and Fred Bergsten are debating the state of trade politics. Baldwin thinks that the Doha round is the greatest opportunity for meaningful increases in US exporters’ market access and is pessimistic about the outcomes of pursuing a series of bilateral trade deals. Fred Bergsten thinks that the Doha round is failing because it doesn’t offer meaningful market access improvements and defends the Free Trade Area of the Asia Pacific proposal.

PTAs as first-mover advantages

Brookings’ Joshua Meltzer takes an extended look at the future of the global trading system (html / pdf / event). The introduction is a good overview of the status quo’s challenges, though knowledgeable observers will find plenty of room for disagreement in assessing the shape and magnitude of various obstacles (e.g. the bicycle theory of trade negotiations, PTAs’ diversion of attention from multilateral talks).

The discussion of WTO legitimacy at the end of the piece is very interesting, though I won’t focus on it in this post. (More on that subject can be found in this Oxford book on trade ethics.)

In the middle of the article, Meltzer hints at an argument that has perhaps not received sufficient attention:

For the United States, the European Union, China, and Japan, bilateral and even regional FTAs maximize their ability to get their own way. Were these outcomes to become templates for future multilateral trade rounds, then a two-level game that leverages FTA outcomes into the WTO might undermine the WTO’s legitimacy.

One such danger is that FTAs might be a means for the US or EU to try to lock in first-mover advantages in shaping regulatory standards (such as technical barriers to trade). While preferential tariffs can be undone relatively easy by further tariff cuts, plurilateral agreements that promulgate the adoption of a larger economy’s preferred technical standard might serve to determine which standard is later adopted multilaterally. A first mover might gain at the expense of others if its preferred standard is worse for world welfare. (This scenario would be most damaging if technical standards are to be harmonized, but it also highlights the difficulties of harmonization. If mutual recognition is the future of reconciling technical barriers to trade, then the scope for first-mover advantages may be reduced.)

Export pioneers

In a NBER working paper, Artopoulos, Friel, and Hallak describe how firms in Argentina learned to successfully export to high-income markets:

Several developing countries feature weak performances as exporters of differentiated goods to developed countries. This paper builds a conceptual framework to explain the obstacles that prevent producers of differentiated products from establishing a consistent presence in the developed world and the process through which those obstacles may be overcome. We build our framework based on case studies of export emergence in four Argentine industries: motorboats, television programs, wines, and wooden furniture. We find that exporting consistently to developed countries requires drastic changes in how business is conceived and conducted relative to the practices that prevail among domestically-oriented firms. Attempts by these firms to export often do not succeed because they approach foreign markets the same way that they approach the domestic one. Their failure to change the business approach stems from their inability to access critical (tacit) knowledge about differences in consumption patterns and business practices in developed countries. In three of the sectors we study, an export pioneer is the first to implement the necessary changes to established practices. His actions set a benchmark, unleashing a diffusion process that fosters export emergence in the sector. The most salient feature of export pioneers is their knowledge advantage about foreign markets stemming from their embeddedness in the business community of their industry in a developed country.