February 8th, 2010
Susan Aaronson accuses China of poor governance to the degree that its behavior is a threat to the global trading system. I do not understand her argument, so I will quote her at length before I complain that she hasn’t explained her case:
But China’s competitive advantage is to some degree based on its inadequate governance; its failure to enforce its own laws in a transparent, even-handed manner. As part of its accession to the WTO, however, China was required to enforce the rule of law throughout all of its territories…
Inadequate Chinese governance is a trade problem because of the country’s dominance in global markets. Its failure to enforce the rule of law threatens the concept of mutual benefit that underpins the trade regime. China is broken, and a broken China could break the WTO…
it has yet to meet many of the obligations delineated in its protocol of accession. European and American business groups investing in China believe that the country is becoming more interventionist and protectionist (European Business in China 2009 and US China Business Council 2009)…
The rule of law was a key element of China’s accession agreement because trade policymakers understood that how China was governed could distort trade.
In recent years, China has become infamous for its failure to enforce its own laws, whether those laws related to intellectual property, product or food safety, human rights, or employment.
In both its 2006 and 2008 Trade Policy Review at the WTO, member states lauded Chinese trade diplomats for their export prowess but also complained that China was not transparent, accountable, or sufficiently even-handed (WTO 2006, 2008). Nor could they trust Chinese statistics or assertions on enforcement related to key trade issues such as product and food safety or intellectual property protection. Meanwhile, Chinese leaders argued that they are a developing country and thus deserve patience as they learn to govern effectively.
What can the WTO do?
WTO members have the ability to encourage China to address its inadequate governance. They could begin by using the trade policy process more effectively to discuss the rule of law and how it distorts trade. And they could threaten a trade dispute on some aspect of inadequate governance. Under GATT Article XXIII, any country in the WTO is entitled to a “right of redress” for changes in domestic policy that systematically erode market access commitments even if no explicit GATT rule has been violated.
I am familiar with complaints that weak intellectual property enforcement hurts sales of American and European IP products in China. But how does that undermine the world trading system? And while Mattel had to recall toys tainted with lead paint, is there a systematic problem with product safety for Chinese exports? No one is suggesting that Japan’s rule of law is inadequate after a few safety problems with one of its most notable exporters. I understand complaints about China’s rule of law, but how could China “break the WTO”?
Posted in WTO | No Comments »
February 3rd, 2010
If you don’t have access to UNCTAD’s TRAINS via WITS, the WTO’s new tariff database appears to be similar, though not quite as comprehensive. For example, its most recent tariff line duties for Botswana are 2002, whereas TRAINS has them for 2007.
Posted in Uncategorized | 1 Comment »
February 3rd, 2010
In last week’s State of the Union, President Obama said:
Third, we need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So…
So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support 2 million jobs in America.
To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports and reform export controls consistent with national security. We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.
But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. And that’s why we’ll continue to shape a Doha trade agreement that opens global markets and why we will strengthen our trade relations in Asia and with key partners like South Korea, and Panama, and Colombia.
Dan Griswold:
U.S. exports have not doubled in dollar terms during a five-year period since the inflation-plagued 1970s, not exactly a golden era for the U.S. economy. In real terms, according to the U.S. Bureau of Economic Analysis, exports have not come close to doubling during any five-year stretch in the past 40 years. The fastest growth in inflation-adjusted exports came in the second half of the 1980s, when they grew by two-thirds from 1985 to 1990.
Addendum: Menzie Chinn focuses on nominal exports in a long post that concludes:
So, if you didn’t know it already, achieving the goal of doubling nominal exports depends upon exchange rate pass through, the extent of exchange rate depreciation, the rate of rest-of-world GDP growth, and the evolution of export supply (of both goods and services).
Posted in Politics | 2 Comments »
February 2nd, 2010
Sohini Chowdhury, on the job market this year from Purdue University, on the “The Discriminatory Nature of Specific Tariffs“:
This paper evaluates the distortions from specific tariffs levied on agricultural imports by rich countries. Through their non-MFN ad valorem equivalents (AVEs), specific tariffs discriminate against exports from poor countries because of the lower price of their exports. So the MFN specific tariffs levied by rich WTO member countries essentially translate into higher tariff barriers for the exporters of low price goods, suggesting that the benefits of preferential tariffs that poor countries enjoy might be offset by the specific tariffs they face. Our results show that specific tariffs levied by rich countries on their agricultural imports wash away 80% of the welfare benefits and 73% of the market access benefits enjoyed by poor countries from preferential tariffs. A policy implication of this paper is that the WTO should intensify efforts to eliminate specific tariffs.
Posted in Protectionism | No Comments »
February 1st, 2010
Bill Watterson, creator of the beloved Calvin and Hobbes comic strip, also did some editorial cartoons for Sun Newspapers in the early 1980s. This appeared in the Brunswick Sun Times on 2 Feb 1984:
Economists frequently compare trade to technology to explain how trade expands a country’s consumption possibility set (David Friedman’s The Iowa Car Crop, Greg Mankiw’s Isoland inventer) and argue that tariffs are akin to taxes on using a more efficient production technology. Perhaps Bill Watterson’s comic will appear in textbooks soon.
From the Cleveland Sun (via Radley Balko).
Posted in Protectionism | No Comments »
February 1st, 2010
JaeBin Ahn, Amit Khandelwal & Shang-Jin Wei:
We provide systematic evidence that intermediaries play an important role in facilitating trade using a firm-level the census of China’s exports. Intermediaries account for around 20% of China’s exports in 2005. This implies that many firms engage in trade without directly exporting products. We modify a heterogeneous firm model so that firms endogenously select their mode of export – either directly or indirectly through an intermediary. The model predicts that intermediaries will be relatively more important in markets that are more difficult to penetrate. We provide empirical confirmation for this prediction, and generate new facts regarding the activity of intermediaries.
NBER WP 15706.
Posted in Firms | No Comments »
January 24th, 2010
Michael Clemens in the Washington Post on Haiti and immigration:
In research I conducted with economists Claudio Montenegro and Lant Pritchett,we compared how much Haitians earn in the United States vs. Haiti. A moderately educated adult male, born and schooled in Haiti, typically enjoys a standard of living more than six times greater in the United States than in his homeland. In other words, U.S. policy wipes out more than 80 percent of a Haitian’s earning power when it keeps him from coming to the United States. This affects everything from the food he can buy to the construction materials he can afford. The difference has nothing to do with his ability or effort; it results purely from where he is.
HT: MR.
Posted in Immigration | No Comments »
January 20th, 2010
The first WTO dispute of 2010 is, according to Simon Lester, a “classic de facto discrimination case.” The US complaint against the Philippines:
Distilled spirits produced from certain materials that are typically produced in the Philippines are taxed at a low rate. Other distilled spirits are taxed at significantly higher rates. The Philippines’ taxes on distilled spirits appear not to tax similarly imported distilled spirits compared to directly competitive or substitutable domestic distilled spirits. The taxes appear to be applied in a way that affords protection to the domestic products.
The Doha stall will likely last into 2011, so, as has been the case for a couple years, the WTO’s importance to the global trading system in 2010 will be its role in global trade governance and dispute resolution.
Posted in WTO | No Comments »
January 20th, 2010
Now here’s something you don’t see every day – evidence that exporting raises firm-level productivity. The conventional evidence says that exporters are more productive because of selection effects rather than learning-by-exporting (Clerides, Lach, and Tybout, QJE, 1998). But things may be different in Africa:
Proponents of trade liberalization argue that exporting helps firms to achieve higher productivity levels. This hypothesis is examined for a panel of manufacturing firms in nine African countries. The results indicate that exporters in these countries are more productive and, more importantly, exporters increase their productivity advantage after entry into the export market. While the first finding can be explained by selection–only the most productive firms engage in exporting–the latter cannot. The results are robust when unobserved productivity differences and self-selection into the export market are controlled for using different econometric methods. Scale economies are shown to be an important channel for the productivity advance. Credit constraints and contract enforcement problems prevent firms that only produce for the domestic market from fully exploiting scale economies.
Johannes Van Biesebroeck (2005), “Exporting raises productivity in sub-Saharan African manufacturing firms,” Journal of International Economics, 62(2): 373-391.
Posted in Development, Firms | 1 Comment »
January 19th, 2010
NBER Working Paper No. 15628:
Micro-level data have had a profound influence on research in international trade over the last ten years. In many regards, this research agenda has been very successful. New stylized facts have been uncovered and new trade models have been developed to explain these facts. In this paper we investigate to which extent answers to new micro-level questions have affected answers to an old and central question in the field: How large are the gains from trade? A crude summary of our results is: “So far, not much.”
What they’re saying is:
Our analysis focuses on models featuring five basic assumptions: Dixit-Stiglitz preferences, one factor of production, linear cost functions, complete specialization, and iceberg trade costs… A common estimator of the gains from trade… only depends on the value of two aggregate statistics: (i) the share of expenditure on domestic goods, which is equal to one minus the import penetration ratio, and (ii) a gravity-based estimator of the elasticity of imports with respect to variable trade costs, which we refer to as the “trade elasticity.”… within that particular, but important class of models, the mapping between trade data and welfare is independent of the micro-level details of the model we use…
A direct corollary of our analysis under perfect competition is that two very well-known gravity models, Anderson (1979) and Eaton and Kortum (2002), have identical welfare implications. In Anderson (1979), like in any other “Armington” model, there are only con- sumption gains from trade, whereas there are both consumption and production gains from trade in Eaton and Kortum (2002). Nevertheless, our results imply that the gains from trade in these two models are the same: as we go from Anderson (1979) to Eaton and Kortum (2002), the appearance of production gains must be exactly compensated by a decline in consumption gains from trade.
Posted in Theory | 3 Comments »
