Trade Diversion

April 24, 2008

What are Colombia's potential economic gains from a PTA?

Will making US trade preferences for Colombia permanent attract new investment? That's the White House line, echoed by Nick Kristof. I'm skeptical of the magnitude of the effect.

Jeff Schott at the Peterson Institute of International Economics edited a volume on US-Colombian trade relations a few years ago. He wrote:

An FTA would provide contractual guarantees regarding the permanency of the trade preferences, in stark contrast to the uncertainty that surrounds whether the US Congress will reauthorize the ATPA [Andean Trade Preferences Act] before it expires at the end of 2006. Such uncertainty imposes costs on bilateral trade and investment and has contributed to the lackluster FDI in Colombia by US firms... To be sure, other factors — including Colombia’s macroeconomic policies, security environment, and domestic regulatory policies — may be of equal or greater importance in investment decisions.

Oh, that nasty uncertainty.

Reuters - Feb 14 - Expiring U.S. trade benefits for Colombia, Peru, Ecuador and Bolivia would be renewed through the end of this year... The 10-month extension is a compromise between Democrats who had favored renewing the program for two years and Republicans, who wanted a much shorter renewal to keep pressure on Congress to approve a free trade pact with Colombia.

So Republicans are injecting uncertainty into Colombia's export opportunities in order to use uncertainty as an argument for the PTA! Sick.

Back to Schott:

To an important extent, attracting investment is the key objective of the FTA. If implemented in conjunction with domestic policies that promote macroeconomic stability and enhance productivity, an FTA could make Colombia a much more attractive host for new investment not only by foreign companies but by Colombians as well...

In sum, the FTA should be seen as part of Colombia’s overall development strategy. Many of the reforms that will likely be required by FTA obligations may well parallel changes in domestic economic policies that were sought by the government but were blocked or diluted because there has been insufficient political support to gain legislative approval.

So the impact of the PTA will be largely contingent on domestic reforms in Colombia. And those reforms face political opposition. How is Colombia doing on those reforms?

Schott and Paul Grieco wrote:

In summary, 10 years ago, Colombia was the clear frontrunner in readiness for a free trade agreement, but today that is no longer the case. While Colombia has come through a turbulent decade without a huge decline in readiness, it has not moved up its readiness score to the levels of current US FTA partners such as Mexico and Chile. As is often the case, the political and economic domestic reforms that are essential to development are also required to leverage the benefits of a free trade agreement with the United States. While the indicators show that Colombia needs to increase gross savings and further reduce its external debt, promoting reforms that strengthen the political sustainability indicator will make the most important contribution to raising Colombia’s readiness score.

Political sustainability, huh? How is it going this week?

A political scandal that has engulfed Colombia's political class came a step closer to the president, Alvaro Uribe, after his cousin and close political companion was arrested on charges of colluding with rightwing paramilitary groups.

I doubt this pleases investors:

Uribe's allies are eager to see him serve a third four-year term, even though that is prohibited by the constitution. In 2005, the Constitutional Court approved an amendment that allowed him a single re-election in 2006. Many analysts here believe it is impractical for a tarnished Congress to try to amend the constitution or find other ways to spearhead another reelection effort...

Most of the politicians implicated in the scandal have had close ties to Uribe, and many of them supported the constitutional change that permitted him to run for reelection. Still, the "para-politics" scandal has touched politicians from nearly every party, including the opposition Liberal Party, which has more members linked to the paramilitary groups than any other.

I remain skeptical that this PTA will do much for Colombia in the near future.

Posted by Dingel at 09:35 PM | Comments (0)

April 16, 2008

The end of competitive liberalization?

"Competitive liberalization" is a really crummy strategy when you run out of steam at home, huh?

Paul Blustein, of the Brookings Institution, a liberal Washington think-tank, said the impasse was an understandable outcome of the Bush administration’s pursuit of bilateral trade deals such as the Colombia agreement, while multilateral talks have stalled.

“Maybe this time, we will finally learn that trade deals of this ilk can be a lot more trouble than they are worth,” said Mr Blustein. “The Colombia contretemps is the latest sign that the Bush administration’s policy of avidly pursuing such agreements with individual countries is prone to serious backfiring.”

Contrary opinions do exist.

Posted by Dingel at 05:47 PM | Comments (0)

April 15, 2008

What's the 'economic rationale' for the Colombian PTA?

The Economist writes:

Nevertheless Mr Bush has repeatedly made the case for the Colombia trade deal not on its economic rationale, but because it would help a Latin American ally in the war on drugs, and incidentally one whose next-door neighbour is that anti-American irritant, Hugo Chavez, Venezuela’s president.

Um, what is the economic rationale for the US-Colombia PTA? It gives Colombia no new access to US markets, so it can't be aid consumers. It may aid some US investors who want access to the Colombian telecoms market and US agricultural exporters will enjoy some gains. But it's hard to get excited about the economic benefits of this trade deal, and it surely can't be the best place for an unpopular administration to expend its little remaining political capital with respect to international trade.

I don't find the security story a particularly compelling reason to support the agreement either. I spoke with Dan Fisk, Senior Director for Western Hemisphere Affairs, on Friday about potential for the PTA to improve Colombia's security situation. Fisk described the economic benefits for Colombia largely in terms of making permanent the preferential market access Colombia currently enjoys. He said that investors are more likely to make significant long-term investments when trade preferences are permanent, rather than subject to legislative renewal as they are under the Andean Trade Preferences Act. He also argued that investors have been moving to Peru, which does have a PTA with the United States.

While these effects are plausible, I question their magnitude. In the end, this PTA is largely symbolic -- for both international relations and domestic politics.

Posted by Dingel at 07:55 PM | Comments (0)

April 10, 2008

The US-Colombian "free trade" agreement

Regular readers will notice that my coverage of PTAs has fallen off over the years. With respect to the US-Korea deal, this is completely excusable, as I can just claim to have yielded to Ben Muse's dedicated effort. But I've been awfully silent on the US-Colombia deal. Why?

The US-Colombian free trade agreement is not a free trade agreement -- it's a preferential trade agreement. Calling it a PTA instead of an FTA will satisfy both Jagdish Bhagwati and Dean Baker.

But is it even a trade agreement? As Tim Lee notes, "there’s lots of other stuff in here that has nothing to do with free trade." Sadly, this has characterised the state of American trade policy for a number of years. Back in 2003, Bernard Gordon wrote:

These cases highlight the problems of incorporating non-trade issues into trade agreements. Labor and environmental standards began the practice, but no clear end-points now exist. That recalls Jagdish Bhagwati's famous warning that "the spaghetti bowl effect" (by which he meant overlapping rules of origin) would make FTAs hopelessly complex and impossible to administer. Today we would add the "Christmas Tree Effect," the term used in Congress for the many items, each individually attractive though unrelated to a bill's main purpose, that are added to satisfy special interests. Similar baubles and ornaments characterize today's world of proliferating FTAs, and will be sought by powerful negotiating partners. Along with the profoundly dangerous capacity of FTAs to revive a world of blocs, they are among the best reasons to maintain instead the global trade system.

These kind of provisions really bother free trade purists (as they should). They fight to prevent mission creep at the WTO, and developing countries succeed in taking the Singapore issues off the table at Doha. But it's a losing battle -- TRIPS made it into the WTO and PTAs include numerous non-trade provisions.

The real questions about this trade deal is: Why is Colombia offering lots of promises on non-trade issues in negotiations? Recall one possible explanation: the US is a huge export market, and this gives it lots of leverage.

But it seems to me that the thing which we’ll have to face up to is that many of these bilaterals are used by lobbies in the West, to some extent your country, all the time in our country, to establish [inaudible]. You get a little country by itself in a bilateral negotiation, then you can ram anything down its throat. Those guys will sell both their grandmothers to be able to sign on to such an agreement because this is a big market, preferential, we also can give goodies on other dimensions or we can give punishments on other dimensions. We are the [inaudible] which can really procure that consensus very quickly with little doubt.

Now, our job intentionally is to say, “Look, you agree to this”—maybe labor standards, maybe intellectual property standards—which are way in excess of what can be negotiated in Geneva, when there are too many players and so on, who will fight a little bit anyway; then use of capital controls, which you ran through a little bit, with Singapore and Chile. The game goes on. But you see, that you can do one by one. It’s a sort of Leninist policy of divide and conquer all opposition.

Now, if you believe that our lobbies are always doing the right thing, that’s fine. Right? I mean, you can argue that. I don’t—I mean, there are good lobbies, bad lobbies, you can go in excess, but the rest of the world now sees that the bilateral is really an instrument of imposition of non-trade or weakly trade-related issues, and they’re beginning to see the game for what it is. And it’s not really a trade game, it’s a non-trade game.

But what possible market access gains could Colombia hope for? As Matt Yglesias notes:

As best I can tell (peruse the text if you're interested) this actually involves very little changes on the US side at all. In essence, Colombian goods already flow very freely into the United States except for in our more famously protected sectors (agriculture, etc.) and what we're offering Colombia here is a very solemn promise to keep it that way.

Right (although recall that a solemn promise does actually mean something: when Bush hiked up steel tariffs for a few years, our NAFTA partners were exempted). Is Colombia being strong armed to accept elements it dislikes to win market access? I highly doubt it. The US has very low MFN tariffs, except for sectors like agriculture, steel, and textiles, and Colombia has no hope of winning access in those areas.

The most plausible explanation I've encountered is that offered by Dan Drezner: PTAs are a political commitment device. They have "little to do with economics and everything to do with our bilateral and regional relationships."

That's why I've said so little about the US-Colombian preferential trade agreement. I study international economics, not international relations.

Posted by Dingel at 10:28 PM | Comments (0)

April 07, 2008

NZ-China PTA

The Australiasian noodle bowl is heating up! China has signed a bilateral PTA with an OECD member.

New Zealand signed a comprehensive trade agreement with China on Monday, the first developed nation to seal such a deal with the world’s largest developing economy.

Helen Clark, New Zealand’s prime minister, and Wen Jiabao, the Chinese premier, attended a signing ceremony in Beijing to mark the agreement, completed after three years and more than 15 rounds of negotiations.

Phil Goff, New Zealand’s trade minister, has claimed China’s maiden trade agreement with a developed nation as a coup for his country and a potential framework for others.

“Just about every country in the world wants a trade agreement with China. New Zealand was important because we set the basis for the future negotiations and we have tried to come up with a high quality and comprehensive deal,” he said.

Posted by Dingel at 02:32 PM | Comments (0)

April 04, 2008

PTAs: So many, so fast

John Whalley:

In this paper I seek to both characterise and assess the recent wave of regional agreements in the trading system which has accelerated since 2000. Nearly 400 agreements now exist, and, according to WTO analysis, by 2008 a significant number of countries will be party to more than 30 agreements. I suggest these agreements are characterised by several central features: substantial diversity in form, broadened coverage of issues to the degree that RTAs seemingly now provide a platform to which a range of issues are appended; vagueness in language and commitment so that they should be understood as much as process agreements as mutual limitations on trade restriction measures; and in may cases sharp asymmetries of partner size.

I suggest that a number of factors account for growth in these agreements. These include the use of RTAs as a platform to append a range of issues for targeted bilateral negotiation; the failure of multilateral negotiation to extend bargaining to non-trade issues since the Uruguay Round; the prospect of limited failure of the multilateral process; the demonstration effect of large entities going regional and smaller entities seeking safe-haven agreements with their most important large partners; and the uses of agreements by politicians and negotiators to demonstrate action and negotiation seeking advancement.

I conclude by suggesting that, after a minimalist conclusion to the Doha Round, weakened multilateralism may well only accelerate this process.

Posted by Dingel at 09:22 AM | Comments (1)

March 09, 2008

NAFTA Numbers: Cheap Calculations

Philip Levy has a nice primer on NAFTA for those not familiar with the fact that trade affects the composition, not the number, of jobs in an economy. And he lucidly explains the calculations driving the "million jobs lost" estimates. Of course, this was known fifteen years ago, sheesh.

Posted by Dingel at 11:49 AM | Comments (1)

February 29, 2008

Multilateralising Regionalism: The Book

Richard Baldwin writes:

The world’s most important trade talks – the Doha Round – appear to be slipping into a coma while key nations play a waiting game. What are they waiting for? Some are waiting to see if Europe commits to unilaterally dismantling the EU’s massively distortionary agricultural policies during its 2008/2009 review. Others are waiting to see if the next US president is more protectionist or more accommodating. And the major developing nations see their exports growing at double-digit rates despite the stalemate, so what’s the rush?

But trade liberalisation is not standing still. Nations around the global are falling over themselves to liberalise trade regionally, bilaterally and unilaterally. The world trade system is labouring under a massive proliferation of regional trade agreements and the problem gets worse month by month. The resulting tangle of trade deals conspires to inject both inefficiency and discrimination against poor countries into the multilateral system.

Most amazingly, the WTO has had next to no involvement in this important development. The WTO – and this means the WTO membership since the institution only does what its members want – has adopted the role of “innocent bystander”. Key figures in world trade – negotiators, ministers, the WTO secretariat, academics, civil society and the media – need to look beyond the Doha Round. Doha or not, countries will continue to strike bilateral and regional deals. Doha will do little or nothing to ‘tame the tangle’. What is needed is a WTO Action Plan on Regionalism.

The fact that regionalism is here to stay is not news to those who follow these issues. But Baldwin and Philip Thornton have a new book that makes a first pass at policy recommendations to address the new reality:

The action plan outlined in the book calls for:

· Quicker and more detailed disclosure of the start and extent of negotiations on regional trade agreements.
· A WTO-sponsored forum for small countries to exchange experiences of RTAs.
· The creation of a WTO advisory centre on RTAs for developing countries.
· Voluntary guidelines on disciplines for new RTAs and modifications of existing ones.
· Harmonisation of key elements of RTAs, such as “rules of origin” to create templates for existing and new deals.
· The adoption of “most favoured nation” (MFN) clauses in future RTAs that give other countries the protections offered by the RTA.
· Countries to lower their MFN tariff rates on goods that dominate inter-regional trade.

Posted by Dingel at 10:41 AM | Comments (1)

January 24, 2008

EU-India FTA unlikely to be WTO-plus

Fredrik Erixon says that a EU-India FTA faces a number of difficulties:

A strong, commercially-relevant FTA would focus primarily on services and investments – which are two areas that are not really part of centralised EU trade policy. The EU does not have a single market for services, and certainly has no centralised policy for investment agreements. So there has to be a lot of internal negotiations in Europe before it can agree to any real commitments. But the problem is that it is highly unlikely that they will come to common to a position that will support a strong, deep-integrating FTA. Similarly, many aspects of these areas do not fall under the federal competence in India, and policies are rather organised at states level.

Posted by Dingel at 10:37 AM | Comments (0)

November 07, 2007

Preferential trade disappoints Japanese exporters

A story in the WTO Reporter, passed along by Richard Baldwin, says that trade "preferences" aren't what they used to be:

The Japan-Thailand economic partnership agreement took effect Nov. 1, but in a technical twist, Thai tariffs on more than a quarter, or about 2,500 Japanese export goods, remain unchanged or end up being higher than the general tariffs that Thailand previously charged...

The Japan External Trade Organization is telling exporters to make sure to compare Thai general tariff rates with those under the Japan-Thai EPA and choose the lower ones, Harino said, admitting that it is "very complicated" work...

The two countries commenced EPA talks in 2004, and during the intervening period to date, Bangkok lowered its general tariffs on many industrial products, such as auto engines, auto parts, and tires. Of some 10,000 Japanese export items that would qualify for Japan-Thai EPA tariff cuts, approximately 25 percent would be either unchanged or end up being higher than WTO-based MFN general tariff rates until next March.

Posted by Dingel at 05:30 PM | Comments (0)

October 31, 2007

How to construct your PTA

Michael G. Plummer has an article titled "‘Best Practices’ in Regional Trading Agreements: An Application to Asia" in the latest issue of The World Economy:

Given that regionalism in Asia and, indeed, the entire world is a ‘fact on the ground’, the main objective of this paper is to go beyond the traditional ‘building blocs versus stumbling blocs’ debate by underscoring the potential benefits of bilateral and regional agreements under the condition that they follow ‘best practices’, which we develop in Section 3. As an application of these ‘best practices’, we analyse existing regional accords between Asian countries and their regional and extra-regional partners in Section 4...

In fact, the economics literature, as well as the GATT/WTO rounds themselves, have placed far too much emphasis on tariffs. It is true that they are easiest to analyse (for economic models) and negotiate (for policy makers) but they are no longer the most important obstacles to international trade. In fact they have become increasingly irrelevant, and with them much of the standard ‘trade creation and trade diversion’ approach to estimating the worthiness of a regional trading agreement. According to the World Bank (2005, p. 66), the average tariff of NAFTA countries comes to approximately three per cent and that of AFTA slightly less than five per cent. Obviously, the effects of these FTAs, for better or worse, will ultimately not be decided by the usual net efficiency calculations. The economics of FTAs have become far too complicated, and generally speaking economic analysis and negotiators have often failed to keep pace.

In any event, the regionalism trend is here to stay. Regardless of the argumentative merits of the pro- and anti-regionalism camp, it is a ‘fact on the ground’ that preferential trading agreements, in particular FTAs, have been flourishing. There are myriad reasons behind this movement, with convincing economic, political-economy and strictly political arguments. But this does not mean that evaluating regionalism is the economic equivalent of counting how many angels can dance on the head of a pin. An inward-approach to regional economic cooperation could pose serious risks to the countries espousing them as well as to the international marketplace. Given that all major countries now subscribe to regional trading accords to various degrees, this suggests a threat that must be evaluated with continued vigilance.

A successful conclusion to the Doha Development Agenda would be very favourable to the global economy. With respect to the regionalism movement, not only would it, perhaps, strengthen openness rules on Article XXIV beyond the 1994 GATT Understanding, but it would also mitigate the effects of discrimination inherent in regionalism. However, not even a successful Doha will likely turn back the clock on bilateral and regional FTAs. Even if we leave aside the diplomatic and political-economy aspects of regionalism that tend to support the movement, there will remain salient economic influences that will continue to make bilateral, regional and plurilateral FTAs and other forms of regional economic cooperation attractive. Hence, it behoves economists to accept regionalism as a reality, and proscribe means to ensure that the trend be consistent with global market integration as well as being as efficient as possible in terms of minimising costs associated with this second-best commercial policy.

Posted by Dingel at 10:58 AM | Comments (0)

October 23, 2007

Panitchpakdi: Regionalism for development

Former WTO DG and current UNCTAD Secretary-General Supachai Panitchpakdi on "regionalism for development":

[D]eveloping countries should strengthen regional cooperation with other developing countries, and proceed carefully with regard to North-South bilateral agreements...

Bilateral FTAs often transform formerly non-reciprocal trade preferences between developed and developing countries into symmetric market access regulations; thus, the cornerstone of the post-war international trade system, the special and different treatment of developing countries, is continuously being eliminated...

developing countries often have to accept far-reaching commitments regarding formerly classical domestic policy without being adequately compensated in terms of warranted market access and market success...

Simultaneous participation in many FTAs with different rules and implementation horizons makes policy coordination in developing countries increasingly difficult...

[In South-South PTAs,] initial foreign competition within the region may be less difficult to handle, the technological gap vis-à-vis competitors from more advanced countries outside the region may be easier to close, and the probability of finding a level playing field is greater.  In other words, the regional market often sets less exclusive benchmarks than competition with mature suppliers, so that even production at the infant industry stage can be successfully broadened.

I'm not convinced that preserving SD&T or opening trade between similar countries are critical to economic development, but UNCTAD has a 240 page report that makes the case. I just have to find time to read it!

[HT: Emmanuel]

Posted by Dingel at 08:16 AM | Comments (0)

September 27, 2007

How much can trade preferences do for Africa?

CGD's Kim Elliott criticizes Paul Collier's trade policy recommendations:

[H]e overemphasizes the role that preferences can play in boosting Africa's chances to cross the competitiveness threshold, while underestimating the potential for the Doha Round of global negotiations to do any good.

As Collier notes, sub-Saharan apparel exports to the United States grew sharply after the African Growth and Opportunity Act (AGOA) was passed in 2000, allowing duty-free exports of apparel and other goods. But apparel exports sank after the quotas restraining China and other competitive suppliers expired in 2005. 

Renewed restraints on Chinese exports appear to have slowed the decline, but those restrictions expire at the end of next year and the future for sub-Saharan apparel exports remains very uncertain.

This suggests that the current preference margin (the difference between the zero tariff on AGOA-eligible exports and the average 15 percent on other apparel exports) is not sufficient to overcome Africa's other competitiveness problems and that the focus should be on improving infrastructure, skills, regional integration and other supply-side constraints. Given the importance of the rural sector in Africa, Collier also said too little about the need to expand AGOA to cover key agricultural products, including sugar, peanuts, and tobacco. This would extend the benefits of AGOA beyond the five countries responsible for nearly 90 percent of apparel exports...

And what of the costs of a Doha Round failure, which Collier applauds as opening the door for a trade policy focused on the bottom billion?... Collier is right that middle-income countries such as Brazil and Thailand would capture the bulk of these gains, but what of the West African cotton farmers whose plight he laments in his book? Perhaps most import, however, are the consequences of failure for the system of rules that protect the smallest and poorest countries from arbitrary discrimination by rich countries if the WTO loses its credibility. Yes, some new rules, such as those strengthening protection for intellectual property are potentially anti-poor, but the WTO rules provide substantial flexibility and offer a far better deal for developing countries than what they face under unilateral pressure and bilateral negotiations with much larger, richer trading partners.

Posted by Dingel at 10:34 PM | Comments (2)

September 19, 2007

Bhagwati & Hufbauer on regionalism

The WTO hosted a debate between Gary Hufbauer and Jagdish Bhagwati on the merits of PTAs. See video at the WTO Forum. (Windows Media Player required.)

Posted by Dingel at 08:28 AM | Comments (0)

September 17, 2007

Multilateralising regionalism - day three

Audio of the roundtable debate from the WTO's multilateralising regionalism conference is now available.

Shorter Jagdish Bhagwati: We should primarily solve regionalism by driving MFN tariff rates to zero. But I'm open to attacking the problem by whatever means available.

Shorter Richard Baldwin: Over the last fifty years, the GATT succeeded by flexibly adapting to trading challenges. Regionalism has been relatively tame thus far, it's here to stay, and it's the new challenge that must be tackled. The WTO can't pretend to innocently stand aside. It must engage the issue and adapt.

Shorter Arsene Balihuta: Countries say one thing at the WTO and do another while cooking up spaghetti. While developed countries negotiating in Geneva are still beholden to mercantilism and protectionism, it's even uglier when they turn to preferential trade agreements driven by the "mercantilist thirst for captive markets." We should empower the WTO to persuade those cooking spaghetti outside Geneva to keep in mind that they must inevitably return to multilateralism.

Shorter Eirik Glenne: Regionalism is unavoidable and suboptimal. We know it's a problem. Addressing these problems is going to take a long time, and the WTO will have to acquire new authority to address PTAs.

Shorter Mario Matus: The WTO is going in the right direction at the wrong speed. Chile needs to reduce poverty faster, so we're increasing trade faster. We opened unilaterally, then negotiated PTAs which comprehensively cover issues beyond tariffs. For example, we bilaterally negotiated with Canada to end the use of anti-dumping measures. We complement the DSM by bilateral means - where rules overlap, we defer to the WTO. But Chile is still active in the WTO and very keen to promote its succcess. We need a successful Doha to mitigate some of the dangers we face.

Shorter Sun Zhenyu: Regionalism is rampant, but the real future lies in multilateralism. The WTO is not well-positioned to stimulate the multilateralisation of regionalism. The most important task is to complete the Doha round to keep the system running.

Posted by Dingel at 10:37 PM | Comments (1)

PTA negotiations disadvantage developing countries

Bilateral agreements are intrinsically more difficult to evaluate than either multilateral or unilateral liberalisations because of their second best nature ie the balance of costs and benefits is not a given... This problem of measurement is further complicated because increasingly RTA go beyond the simple dismantling of border barriers to trade in goods...

For administrations in developing countries where human capital is often the binding constraint the resource demands of negotiating one or more RTA alongside multilateral and unilateral trade policy-making are potentially much greater. This is a recipe for misunderstandings about implications of specific policy changes demanded by an agreement and in particular for economic and social development. All of this is further complicated by the possibility that each RTA negotiated by any given country could differ markedly from other RTAs under negotiation or in operation by or in that country.

Jim Rollo - The Challenge of Negotiating RTAs for Developing Countries: What could the WTO do to help? (pdf)

Posted by Dingel at 08:56 PM | Comments (0)

September 09, 2007

Who's afraid of the big bad APEC?

APEC leaders are threatening to look at "options and prospects" for a FTAAP in order to pressure recalcitrant countries at the WTO's Doha negotiations. They've got the right outcome at heart, but I don't think the FTAAP is credible leverage.

Posted by Dingel at 10:11 PM | Comments (0)

August 29, 2007

Rushford: "When 'Free Trade' Isn't"

Greg Rushford criticizes Japan's pursuit of preferential trade in the WSJ:

Japan's FTAs (like those of Americans and Europeans) talk free trade but practice protectionism. All of Tokyo's trade bilaterals exclude Japanese rice, where tariffs remain in the stratosphere... The WTO's Doha Round with its pressures for genuine market opening are conveniently ignored.

The FTA between Japan and Indonesia runs to 938 pages containing rules of origin, exclusions for politically sensitive products, and protectionist specifications for 40% of local content on "sensitive" -- read, politically sensitive -- products. There are special rules and various product exclusions for vegetables, sugar, various dairy products, fruits, tobacco and much else. Japan won't cut tariffs for any kind of pineapples from Malaysia, Brunei or Singapore, but will gradually reduce duties for some fresh and dried pineapples from Thailand and the Philippines. But while tariffs on Thai dried pineapples are at 6% in the first year, and will be phased out entirely in six years, the Philippines' dried pineapples will be taxed at 7.2% at first, and won't be duty free until year 11.

This is special-interest politics, not sound economics. The Japanese boast that their FTAs give them preferential access to oil from Brunei, natural gas from Indonesia, and export platforms for Japanese manufacturers in smaller Asian economies. To readers of a certain age, this has a familiar ring.

While it's premature to hit the panic button, it's sure time to sound the alarms. It's simply wrong for the world's leading economies to act as if they want Fortresses Asia, Europe and America. It's truly a cause for concern that while the WTO's Doha Round gets lip service, FTAs get done.

Posted by Dingel at 09:15 PM | Comments (0)

August 28, 2007

Can preferential trade help the Middle East?

Marcus Noland says that the Middle East is a "demographic time-bomb" due to add 150 million people over the next decade or so. It needs faster job growth to keep up and prevent an "employment crisis" (pdf). Unfortunately, US trade policy is doing little to help:

The third component could be preferential trade agreements... [but] the way that the United States has been negotiating these agreements is effectively creating a “hub-and-spoke” system in which individual Arab governments have strong bilateral agreements with the United States but weak or nonexistent agreements among themselves. In part this reflects differences in both capacity and orientation across the Arab governments, and in the specific cases of the militarily vulnerable Gulf oil exporters, a particular interest in deepening ties with a strategic partner. If it were just an issue of variable speed geometry to borrow a European phrase, that would be one thing. The bilateral agreements themselves contain mutual inconsistencies, however, which make incorporating them into a single region-wide accord difficult. The problem is exacerbated by the fact that the rules in the agreements the United States and the European Union reach with the Arab countries are inconsistent. It would be desirable to increase the internal consistency of these arrangements to facilitate integrating them in the future.

For more thoughts on this subject, see Against MEFTA.

Posted by Dingel at 06:31 PM | Comments (0)

August 08, 2007

AGOA: Big gains

More research says AGOA had a strong positive impact:

While imports in the key product categories covered by AGOA (apparel, and a large number of agricultural and manufactured products) increased 94% in the post-AGOA period, we are able to discern that the portion of this increase actually caused by AGOA was much smaller - closer to 34%...

We moreover find that the increase in U.S. imports was not the result of a decrease in European imports. In fact, for manufactured products the Act even appears to have led to an increase in imports into Europe for the AGOA products. While this could be related to a number of factors, it certainly is consistent with the presence of fixed costs to exporting...

Eliminating trade restrictions on apparel products that initially faced a 20-25% tariff caused a four times larger import response than eliminating tariffs in the 10-15% range. It suggests that prior to the Act these tariffs had been quite effective in keeping out imports...

Overall, AGOA resulted in an 8.0% increase in non-oil exports from AGOA countries to the U.S...

the other limitations frequently cited in the African context – poor infrastructure, distorted product and credit markets, high risk, inadequate social capital, and poor public services – did not turn out to be binding constraints to expanding exports under AGOA.

Posted by Dingel at 08:27 AM | Comments (0)

July 22, 2007

EU economic partnership agreements

Enga Kameni writes:

On a recent visit to Cameroon, I tried, albeit unfailingly, to keep track of the CEMAC (Central African Monetary and Economic Community) EU EPA negotiation. It is been rumoured that Central African Region is one of the EPA configurations making greater strides towards the conclusion of EPAs (spare me for using the word rumour, I can say with certainty that CEMAC EU EPA negotiations is the most non-transparent of all the configurations)...

I have on many occasions opined that EPA, if properly managed and sequenced would, in the long run be beneficial to ACP countries. However, the rate at which the negotiations are unfolding in the CEMAC configuration is a cause for concern.

Posted by Dingel at 06:16 PM | Comments (0)

July 19, 2007

Against MEFTA

Bessma Momani offers a plethora of arguments, some compelling and some not, against a Middle East Free Trade Area (MEFTA) in the latest edition of The World Economy:

The US government has often cited the US-Jordanian Free Trade Agreement as a guide for other Middle East states to follow. The MEFTA plan could backfire, however, as structural barriers have limited past attempts to spur intra-regional economic cooperation and trade. A hub-and-spoke relationship results in minimal economic benefit accruing to the Middle East and in minimal intended political benefits to the United States...

Intra-regional economic cooperation and trade... continues to be limited because of four interrelated factors that are chiefly structural.

First, Middle East countries in their respective subregions have similar resources and production structures; accordingly, each country has a low comparative advantage with its neighbour (Fawzy, 2003)... Second, each Middle East economy is relatively small and unable to provide economies of scale in production (Hoekman and Messerlin, 2002, p. 13). There is a significant amount of state-ownership in the region, spurring inefficient and protected industries that further limit the successful adoption of an export strategy... Third, there is a wide disparity of income among Middle East countries; therefore, states have different consumption patterns and production strategies (Hoekman and Messerlin, 2002, p. 13)... Fourth, the Middle East is characterised by a high degree of both tariff and non-tariff barriers... it is most likely that in, the short term, Arab economies will continue to be inward-looking and relatively isolationist...

It is argued that a US plan for a MEFTA will become a hub-and-spoke relationship, due to the structural impediments to economic cooperation in the Middle East. The United States, as the hub, will export higher value-added manufactured goods and services; Middle East countries, as the spokes, will export unprocessed primary goods to the United States. The negative economic implications of a hub-and-spoke relationship on Middle Eastern states are numerous. A hub-and-spoke MEFTA could potentially divert foreign investment away from the Middle East, as investors would prefer to set up manufacturing or service facilities in the United States and get duty-free access to all of the Middle East spokes. Again the lack of trade complementarity in the Middle East will exacerbate this. Companies will see little advantage to setting up facilities in the Middle East, where intra-regional trade is already low. Intra-regional economic cooperation will slow further under a MEFTA. Moreover, American businesses will be deterred from setting up manufacturing facilities in the Middle East as conflict continues in the region...

As the United States continues to negotiate each FTA bilaterally on its own terms and preferences, Middle East countries will have little say in what each new trading partner brings to the negotiation table. New trading partners will either have better access to the US market or new partners will undermine workers’ conditions and environmental standards. Consequently, a hub-and-spoke MEFTA will result in Middle Eastern countries involved in a race to the bottom, where each country will continue to lower wages, erode labour rights and soften commercial regulations to attract American investment away from other signatories...

The current structural impediments to intra-regional economic cooperation, however, will inhibit the prospects of an integrated Middle East economic system. Middle East economies do not complement one another to build an effective economic bloc on their own. Moreover, Middle East socio-political systems are predicated on remaining relatively isolationist and inward-looking. Middle Eastern states have little comparative advantage to increase economic cooperation; therefore, a MEFTA will create a hub-and-spoke relationship. Consequently, we will see Middle Eastern states acceding to the United States for purposes of keeping strong economic ties.

Posted by Dingel at 08:44 PM | Comments (0)

July 17, 2007

Extrovert regionalism

Tamura Akihiko says Japan is now an "extrovert" in trade policy:

So what is Japan's proposal and what makes it so special? The goal of CEPEA [Comprehensive Economic Partnership in East Asia] is to create an efficient, mature market-economy area encompassing the 10 member states of Asean, plus Japan, China and South Korea, as well as India, Australia and New Zealand. Or, put another way, the agreement would mirror the current membership of the EAS.

According to Japan's blueprint, the agreement would, as its name suggests, be a "comprehensive" one both in terms of the sectors covered (trade in manufactured goods, services, investment, etc.) and - perhaps more noteworthy - in terms of how Japan defines its potential FTA/EPA partners. Notably, the decision to include India marks a new departure for Japan into relatively uncharted territory, as Japan looks to include countries that - even though they may not currently constitute a close fit for economic integration - nonetheless display strong signs of evolving into important economic partners in the future...

To uncover the true significance of the plan, we need to compare and contrast the sentiments expressed in CEPEA with the traditional stance that Japan has taken with regard to global economic activities. CEPEA is premised on a different paradigm from previous economic arrangements in the region. Up to now, regionalism in East Asia was driven by nations' responses to perceived threats from other trade blocs such as the European Union and the North American Free Trade Agreement. As such, trade agreements have tended to be both reactive and exclusive. But CEPEA is different in that its goal is not just to set up a regional trade bloc. Instead, it's my view that CEPEA is outward-looking in nature and this inherent characteristic will result in spurring other countries - or even regions - to pursue proactively economic integration with East Asia...

I would like to take particular note of this spirit embedded in CEPEA - one which is not discernable in any other bilateral FTA/EPAs engaged by Japan to date - and call it "extrovert regionalism." This "extrovert" trajectory per se is particularly crucial for Japan - much more than individual trade agreements - because it is this spirit that could tremendously affect the dynamism of the Japanese economy.

Do read the full piece.

Posted by Dingel at 08:29 AM | Comments (0)

June 22, 2007

Asian regionalism: More hype than bite

Richard Pomfret assesses Asian regionalism:

Since the turn of the century, attention has turned east as over 70 RTAs have been signed by East Asian countries. This is striking because during earlier post-1947 waves of RTAs the only serious Asian agreement was ASEAN and this had little impact on trade. China, Japan, Korea, Mongolia and Taiwan stood out as practically the only countries showing complete respect for the MFN principle...

Asian regionalism is posing challenges to international relations, but what is its economic basis and likely economic impact?...

In sum, the pattern for China, as for East Asia in general, in the first half of the 2000s was one of talking regionally but acting bilaterally...

Although regionalism may be viewed as an alternative to multilateralism, in the East Asian context there may be little conflict between the two, at least in their economic consequences. Duty payments on intra-Asian trade tend to be low as a result of trade liberalisation and of the prevalence of duty-drawback systems in response to the production fragmentation and networks which emerged over the last two decades. To the extent that the new RTAs include discriminatory tariffs, as in the China-ASEAN FTA, they tend to be narrow in scope and coverage, with trivial economic impact. To the extent that bilateral or regional agreements include trade facilitating measures, progress in reducing trade costs by improved customs operation and so forth tends to benefit all trades and in practice is non-discriminatory. To the extent that they simplify foreign investment procedures and intra-firm trade, they may start as bilateral but are likely to proliferate until multilateral...

A negative economic consequence of using RTAs for political ends is the lack of transparency about which rules actually apply; even when RTAs are implemented many traders continue to trade on an MFN basis rather than invoking bilateral agreements, e.g. less than 15% of Singapore’s trade with preferred partners is conducted under the terms of bilateral agreements...

In sum, the recent East Asian regional agreements are less threatening to the world trade system than they may appear. They do not threaten the MFN tariff structure in a meaningful way, and if they can promote trade facilitation this will likely benefit Asia-traders from all countries. The major threat is political rather than economic...

Do read the full article.

Posted by Dingel at 01:08 PM | Comments (0)

June 03, 2007

Measuring regionalism

Richard Pomfret has a great article in this month's edition of The World Economy discussing how to think about the prevalence of preferential trade:

The main problem with using counts of RTAs as measures of the increasing importance of regionalism is that, while some agreements are important, many RTAs are inconsequential. Clearly, all notified RTAs should not carry equal weight...

The numbers are inflated because RTAs which cover both trade in goods and trade in services (Australia-Thailand, Japan-Mexico and Panama-El Salvador) require MFN waivers under both GATT and GATS; such double-counting only occurs after 1995 when the GATS came into effect, which biases comparison of the numbers notified before and after the establishment of the WTO...

Counting RTAs is not just a poor measure of the extent of regionalism; it can lead to nonsensical conclusions about trends in the global economy due to the treatment of regional disintegration and integration. The replacement of a regional bloc by a web of bilateral or plurilateral agreements increases the number of RTAs, and by the counting criterion indicates an increase in regionalism. Conversely, the replacement of a network of minor RTAs by a single RTA can be interpreted as a decline in regionalism...

The main reason for the rapid increase in the number of RTAs during the 1990s was the proliferation of bilateral and plurilateral free trade agreements among countries of the former Council for Mutual Economic Assistance and among successor states to Yugoslavia, the USSR and Czechoslovakia... In sum, the increased number of RTAs in the 1990s and early 2000s was largely driven by a decline in regionalism and shift towards multilateralism on the part of two dozen formerly centrally planned economies...

Despite the increased attention being paid to regional arrangements, the hold of multilateralism is stronger than ever as practically all trading nations have now acceded to the WTO, with lower trade barriers and stronger trade dispute settlement procedures than ever before. Perceptions of WTO enfeeblement reflect a tendency of news reporting to highlight conflict rather than accord.

Full article (Blackwell Synergy journal access required).

Posted by Dingel at 10:03 AM | Comments (0)

May 29, 2007

An argument against TPA

Thomas Palley argues that we ought to let TPA lapse:

Over the last two decades the power of corporations has increased dramatically while that of labor has fallen. That power shift is reflected in the increased numbers of Washington K Street lobbyists working on behalf of corporations, which has increased corporate influence over policy and legislation. TPA plays into and amplifies this power shift.

Trade deals are negotiated by the office of the US Trade Representative (USTR), and then sent to Congress for approval. This negotiating process is stacked in favor of business...

Bad agreements pass because the political costs of voting them down on account of specific problems are perceived as too high. Moreover, TPA provides individual congressmen with political cover, enabling them to retain favor with corporate sponsors without having to explain to constituents their lack of action.

Palley's analysis of the political economy of TPA for PTAs is compelling, though I'm confident that we disagree about which elements of PTAs have been undesirable. See Bernard Gordon on the Christmas tree effect for more thoughts on the Congressional role in PTA formulation.

Posted by Dingel at 11:45 PM | Comments (0)

April 21, 2007

Korea-US PTA spurs discussions

Plenty of chatter about PTAs:

Japan Times: Prime Minister Shinzo Abe and U.S. President George W. Bush are likely to discuss making a bilateral free-trade agreement the subject of future negotiations when they meet next week.

Yonhap: South Korea and the European Union will start discussions in early May on forging a free trade agreement.

These announcements are support for those who argued that the Korea-US PTA would galvanize more trade talks, but, as I commented earlier, talk is cheap.

Posted by Dingel at 10:06 PM | Comments (0)

April 16, 2007

Bilateralism in trade dispute settlement

In the Journal of World Trade, ANU's Peter Drahos warns that PTAs may undermine the WTO's dispute settlement regime:

Typically, an FTA will contain a chapter on dispute settlement that establishes committees and detailed procedures for handling disputes between the parties to the agreement. The growing number of these agreements is creating, in effect, a web of bilateral trade dispute resolution fora. The purpose of this article is to draw attention to this bilateral web and in particular to focus on the role that the United States is playing in its construction...

The capacity of a strong State to choose, as it were, its legal battleground has important implications for weaker States, especially in those cases where the stronger State shifts the contest out of the multilateral setting of the WTO...

The effect of creating a web of bilateral dispute resolution fora will be to give the United States and the EU more opportunities to play for rules. If, as Palmeter and Mavroidis suggest, the DSU was the most important achievement of the Uruguay Round, then perhaps the current proliferation of FTAs represents something of a crossroads for the DSU. By constituting many possible trade courts, the United States and the EU are creating a system in which their respective influential domestic trade interests will lobby them to go to the trade court in which those interests are most likely to obtain satisfaction.

How much such a system will help to improve trade liberalization that leads to real economic gains is an open question. In the case of intellectual property rights we have seen that there is a real danger that dispute mechanisms will be used to enforce rent-seeking bargains. More generally, such a system of many trade courts may simply push the trade regime in the direction of a disorderly mixture of confusing obligations, rule uncertainty and prolonged litigation patterns, a system in which the MFN principle really does assume a ghostly interstitial presence.

Full pdf.

If Drahos is right, then the World Trade Organization needs to assert its authority and propose an appropriate framework for the evolution of bilateral dispute settlement mechanisms, lest the multilateral system be dangerously compromised.

Posted by Dingel at 09:04 PM | Comments (0)

April 07, 2007

Hot air is dirt cheap

After reading that the US-Korea FTA has caused the Japanese to talk about a FTA with the US, Tyler Cowen asks: Why are FTAs contagious?

Given the likelihood of a US-Japan deal in the near future, I think the real question is: Why are FTA rumors and press releases contagious?

See my contributions in the comments section for more detail.

Posted by Dingel at 10:22 PM | Comments (0)

PTA round table

Robert Wade, Andre Sapir, Fred Bergsten, Jagdish Bhagwati, and Carla Hills discuss the spaghetti bowl of preferential trade agreements at Martin Wolf's blog. If you follow the issue, you won't find many surprises.

[HT: Muse]

Posted by Dingel at 08:56 AM | Comments (0)

April 04, 2007

KORUS: A test of competitive liberalization theory

Ben Muse, the blogosphere's chief KORUS correspondent, has posted a wealth of links and information about the impact of the agreement in terms of trade diversion and competitive liberalization.

My favorite paragraph (rhetorically, not substantively) is from a FT editorial:

Karan Bhatia, the deputy US trade representative, described the deal as a “real shot in the arm” for the US trade agenda. Maybe, but it is a shot in the kneecaps for the multilateral trading system, which remains the only way to agree and enforce workable trade deals. Unilateral reform always works, of course, but failing that, what we really need instead is some kind of “World Trade Organization”. There’s an idea.

Another paragraph worth highlighting comes from a February op-ed by Fred Bergsten.

Political developments within the United States suggest that Korea has a unique historic opportunity to achieve a preferred trade and indeed overall relationship with the United States that is unlikely to be available to any of its main competitors for a prolonged period of time. This will be realized if Korea can conclude its negotiations for a comprehensive and balanced free trade agreement (FTA) with the United States within the next two to three months so that the deal can be approved by Congress under the “fast track” provisions of President George W. Bush’s current trade promotion authority. Since that authority is unlikely to be extended when it expires next July, or even when a new administration takes office in the United States in 2009, Korea’s key competitors such as Japan and Taiwan will probably be unable to receive similar treatment in the foreseeable future and thus Korea will achieve preferred status for a considerable period.

Locking in preferential advantages for a considerable period doesn't sound like the cascading freeing of trade that competitive liberalization is supposed to encourage.

Posted by Dingel at 05:49 AM | Comments (0)

March 28, 2007

KORUS FTA

The US and South Korea have three days left to complete their FTA negotiations.

Posted by Dingel at 08:33 AM | Comments (0)

March 22, 2007

Europe's PTA strategy in Asia

Iana Dreyer outlines the European Union's new PTA plans. It looks like the EU is seeking to emulate the US approach of offering a WTO-plus template to be adopted as a single undertaking. Iana also offers good reasons to be skeptical of the EU's ambitious hopes for this strategy.

Posted by Dingel at 11:01 PM | Comments (0)

March 19, 2007

SAFTA's troubles

The South Asian Free Trade Agreement is not enjoying smooth sailing -- New Delhi has decided to unilaterally withdraw tariff concessions given to Islamabad because of Pakistan's non-compliance with SAFTA provisions. Read the Khaleej Times story.

Posted by Dingel at 09:00 AM | Comments (0)

March 15, 2007

Will the Doha Round Lead to Preference Erosion?

Mary Amiti & John Romalis:

This paper assesses the likely gains in market access for LDCs and developing countries following proposals for tariff cuts under the Doha Round. This was analyzed by simulating changes in import demand by the United States and the European Union, following cuts in the MFN tariff rates of around 40 percent. In contrast to other studies, our model incorporates preference utilization rates rather than assuming that preferences are fully utilized. Since preference utilization rates are as low as 50 percent for some countries, this is an important contribution in order to avoid over-estimating losses from preference erosion. We take into account all available tariff, trade, and utilization information for all products.

The results show that a cut in MFN tariffs by the United States and the European Union leads
to improved access to their markets for many developing countries that more than offsets losses due to preference erosion. The small numbers of developing countries that are likely to lose market access as a result of multilateral tariff cuts are the ones that receive very large benefits under existing preference schemes. This result can be explained by noting that currently many developing countries actually have inferior market access to developed countries: average tariffs on non-African LDCs’ exports to the United States are higher than those on developed countries (13.1 percent compared with 1.2 percent).

Posted by Dingel at 08:28 AM | Comments (0)

March 08, 2007

The latest in preferential trade

A round up of the latest PTA news, all available at bilaterals.org.

Central African preferential trade may soon emerge:

The Central African Economic and Monetary Community (CEMAC) yesterday held a meeting of its Finance Ministers in Cameroon’s biggest city, Douala, where the fast-tracking of regional integration was on the agenda. Four of the six member countries agreed to move on with a plan to create a free trade zone in the region, while Gabon and Equatorial Guinea asked CEMAC to await further discussions at home before joining the programme, at earliest in June.

South Korea is stubbornly protecting its agricultural markets in FTA talks with the US:

South Korea and the United States made no headway in high-level talks to resolve outstanding agricultural issues that have been a sticking point in bilateral free trade negotiations, the government said Tuesday... "Negotiators wrangled over market liberalization for ’sensitive’ South Korean agricultural produces, but were unable to reach any clear cut conclusions," the official said. He did not elaborate on details, but Seoul said items like rice must be put on the sensitive items list even if a FTA is signed.

The EU's tariff preferences for ACP countries are at risk:

EU trade commissioner Peter Mandelson reiterated the EU threat at a meeting last week that the ACP countries would lose their preferential access to EU markets if Economic Partnership Agreements (EPAs) were not signed by the end of the year... The 79 ACP countries in six regions (the Caribbean, four African regions and the Pacific) seem divided on the urgency of an agreement.

Posted by Dingel at 10:00 PM | Comments (0)

March 05, 2007

New estimates of FTAs' impact on bilateral trade flows

Scott Baiera & Jeffrey Bergstrand:

For over 40 years, the gravity equation has been a workhorse for cross-country empirical analyses of international trade flows and — in particular — the effects of free trade agreements (FTAs) on trade flows. However, the gravity equation is subject to the same econometric critique as earlier cross-industry studies of U.S. tariff and nontariff barriers and U.S. multilateral imports: trade policy is not an exogenous variable. We address econometrically the endogeneity of FTAs. Although instrumental-variable and control-function approaches do not adjust for endogeneity well, a panel approach does. Accounting econometrically for the FTA variable's endogeneity yields striking empirical results: the effect of FTAs on trade flows is quintupled. We find that, on average, an FTA approximately doubles two members' bilateral trade after 10 years.

That's from last summer's JIE.

Posted by Dingel at 11:52 PM | Comments (0)

January 11, 2007

AAFTA

Robert Zoellick may have retired to the private sector, but he is still proposing new regional trade mechanisms (and acronyms!):

This year President Bush and the Democratic-led Congress should launch a new Association of American Free Trade Agreements (AAFTA). The AAFTA could shape the future of the Western Hemisphere, while offering a new foreign and economic policy design that combines trade, open societies, development and democracy. In concert with successful immigration reform, the AAFTA would signal to the Americas that, despite the trials of war and Asia's rising economic influence, U.S. global strategy must have a hemispheric foundation...

Starting with a small secretariat, perhaps in Miami, the AAFTA should advance hemispheric economic integration; link development and democracy with trade and aid; improve working and environmental conditions; and continue to pursue the goal of free trade throughout the hemisphere. It might even foster cooperation in the WTO's global trade negotiations. The AAFTA might be connected to an academic center, which could combine research and practice through an association among universities in the Americas...

Just as Alexander Hamilton created a self-reinforcing financial system that vitalized America to deal with future challenges, the AAFTA would create a working, adaptable mechanism that would strengthen the Americas in the 21st century.

I've read the piece twice and still don't know what this "working, adaptable mechanism" would actually do. The majority of the suggestions have already been tried, and I don't think that fringe benefits like helping businesses negotiate rules of origin and "opportunit[ies] to design labor and environmental partnerships" constitute "a new foreign and economic policy design that combines trade, open societies, development and democracy." Hemispheric trade talks are dead now, and AAFTA looks more like a botched anagram than an FTAA-saver.

[HT: Drezner]

Posted by Dingel at 10:11 AM | Comments (0)

January 06, 2007

Assessing competitive liberalization

Simon Evenett & Michael Meier (pdf):

When the Bush Administration took office in January 2001 the U.S. executive branch had been without trade negotiating authority from Congress for six years. It is unsurprising, therefore, that the newly appointed U.S. trade officials put a high priority on being granted this authority and perhaps felt that they needed a compelling narrative to explain why that authority should be granted and how it would be subsequently used. Competitive Liberalization was adopted as the credo of the Bush Administration's trade officials...

There is no doubt that U.S. trade negotiators have been very active since 2001... At least 18 Trade and Investment Framework Agreements, a pre-cursor to negotiations for a free trade agreement, have been signed. The Doha Round was launched and U.S. officials have contributed to ongoing regional initiatives such as APEC and the FTAA. Some might argue that these activities have restored the United States' central role in the world trading system and this is praise enough. However, is this the right metric to judge Competitive Liberalization? After all, has the implementation of this policy fulfilled the goals articulated for it at the beginning of the Bush Administration? This question is all the more important as Competitive Liberalization represented an explicit break from the United States almost exclusive pursuit of multilateralism.

We argued that a number of factors have limited the effectiveness of the policy of Competitive Liberalization often from the start, including: the internal divisions among U.S. legislators and among the executive branch over the priorities for U.S. trade policy; the associated tendency to load more and more conditions on U.S. trading partners before and during negotiations on free trade agreements; the effect of pre-existing U.S. unilateral preference schemes; and the options available to trading partners to bolster foreign direct investment other than signing free trade agreements with the United States. These constraints, plus concerns about the coherence of the logic underlying Competitive Liberalization and the incentives created by some aspects of this policy, lead us to conclude that the current U.S. trade policy is almost certain to fall well short of its stated goals.

Over the longer term, U.S. officials and trade policy experts may want to reflect on the strength of the supposedly mutually reinforcing aspects of negotiations at the bilateral, regional, and multilateral levels. For if multilateralism and leading regional trade initiatives remain stalled, then Competitive Liberalization may amount to little more than bilateral opportunism masquerading as high principle.

Posted by Dingel at 05:26 PM | Comments (0)

December 21, 2006

Africa "needs a temporary advantage over Asia"

In the FT, Paul Collier advocates trade preferences for African manufactures:

Africa faces three distinctive economic problems, each amenable to a distinct policy. The first is that the region has failed to diversify into labour-intensive manufactures. Although some countries cannot hope to break into global markets – the landlocked, the resource-rich and the failing states – others, such as Kenya, Ghana and Senegal, are well suited for manufactured exports. Unfortunately, in the 1980s when Asia first penetrated these global markets, coastal Africa was mired in poor governance and conflict. Africa’s belated improvements have come too late: the region has missed the globalisation boat. Asian cities now have massive agglomeration economies. African exports need to be pump-primed over the entry threshold constituted by these competing agglomerations and this needs a temporary advantage over Asia in markets of the Organisation for Economic Co-operation and Development...

Africa needs pan-OECD temporary preferential access for its labor-intensive manufactures, combining the best of EBA and Agoa. Such trade policy has the potential to create millions of jobs in Africa.

Posted by Dingel at 01:27 PM | Comments (0)

December 04, 2006

The future of trade policy analysis

Professor Ross Garnaut:

Some economists warned of the emerging dangers of proliferation of preferential trading arrangements when they became apparent from late 2000, and argued against the early and decisive steps that Australia took to hasten the Asia Pacific region down the preferential path. But that debate has come and gone. Mark Antony would have said that it was time to bury the old traditions of free trade, not to praise them. The task now is to analyse the emerging realities, and to apply the lessons to ongoing policy development. [PDF]

Posted by Dingel at 08:38 PM | Comments (0)

November 28, 2006

Shopping for tariff preferences

I find the thrust of this paper by Hiau Looi Kee, Marcelo Olarreaga & Peri Silva entirely unsurprising, but it's worth passing along nonetheless:

This paper addresses two main questions: Can lobbying by Latin America’s exporters in the US explain the observed pattern of tariff preferences? And if yes, what is the return on $1 dollar of lobbying in the United States by Latin American exporters?

Results suggests (sic) that lobbying by Latin American exporters to the US government can indeed help explain the variation in tariff preferences across products and countries. Moreover, the returns to foreign lobbying seem to be relatively high, around 50 percent. Finally, contrary to the empirical literature for the United States described above we found very low values for the estimates of the weight granted to social welfare in the government’s objective function (around two times the weight granted to foreign lobbying contributions), which underscores the importance of foreign (and domestic) lobbying in determining US trade policies.

Posted by Dingel at 10:33 PM | Comments (1)

November 22, 2006

Is a FTAAP feasible?

Dr. Chris Dent of Leeds in the FT:

In my recent book, New Free Trade Agreements in the Asia-Pacific, I note how the current discussions within the Asia-Pacific Economic Co-operation (Apec) forum to establish a Free Trade Area of the Asia-Pacific (FTAAP) was also proposed at Apec's Santiago summit just two years ago. It failed then as it will probably fail now because of the immense political and technical challenge of harmonising a large number of heterogeneous bilateral FTAs into a unified regional agreement. Most of the region's technocrats and economists acknowledge this. It is a majority rather than a minority view.

Furthermore, disagreements over agriculture alone will ensure that the FTAAP is not realistically achievable for many years, if not many decades. Japan-South Korea FTA talks are still officially stalled over a disagreement on seaweed, and not just seaweed generally but a particularly type of it (gim seaweed). Agriculture has also unravelled many other recently initiated bilateral FTA projects in the Asia-Pacific.

A growing number of trade and political economists such as myself are becoming increasingly concerned about the proliferation of FTA activity and its impact on the international trade system. It is time to devote all trade diplomacy efforts to securing a WTO Doha round.

Advocates of an FTAAP generally suggest it as a means of pressuring the EU to return to the table at the WTO rather than as an agreement they would like to see actually implemented. But if "the FTAAP is not realistically achievable for many years," can it be a credible threat?

Posted by Dingel at 12:25 AM | Comments (0)

November 07, 2006

Razeen Sally surveys Asian PTAs

The freshly launched European Centre for International Political Economy (ECIPE) has posted its first working paper, "FTAs and the Prospects for Regional Integration in Asia" by Razeen Sally (pdf). The paper surveys FTAs that countries in the region have pursued. Here are some highlights I found interesting:

The predictable results of foreign-policy-driven FTA negotiations light on economic strategy are bitty, quick-fix sectoral deals... These FTAs hardly go beyond WTO commitments, deliver little, if any, net liberalisation and pro-competitive regulatory reform, and get tied up in knots of restrictive, overlapping rules of origin. Especially for developing countries with limited negotiating capacity, resource-intensive FTA negotiations risk diverting political and bureaucratic attention from the WTO and from necessary domestic reforms...

It is already apparent that China’s FTAs are driven more by “high politics” (competition with Japan to establish leadership credentials in east Asia; securing privileged influence in other regions) than economic strategy. The latter is barely evident in China’s seeming readiness to negotiate (economically nonsensical) PTAs outside east Asia. This contrasts with China’s engagement in the WTO. In the latter, its approach is clearly linked to national economic policies that have a single-minded focus on growth. Commercial realities are front and centre in what China does in the WTO...

Thailand provides a better indicator than Singapore of FTAs in southeast Asia and beyond. Its FTAs have been rushed: careful preparation has been conspicuously lacking. Too many negotiations have been launched, and they have proceeded too fast. High-level policy direction to negotiators has been lacking... This trade-light approach has resulted in weak FTAs that will make little positive difference to competition and effi ciency in the Thai economy, but will create complications in the process (not least with a bewildering array of ROO requirements). The US-Thai FTA is likely to be the sole exception due to American demands for wide and deep commitments (though it will add to Thailand’s ROO noodle bowl). But negotiations have run into serious domestic opposition in Thailand, which threatens to derail them altogether...

India’s approach to FTAs outside south Asia is mostly about foreign policy, with little economic sense or strategy... The India-Thailand FTA is intended to be comprehensive, but is to date limited to an early-harvest that has eliminated tariffs on just 82 products, with very restrictive rules of origin imposed by the Indian government. ASEAN-India negotiations have also been bedevilled by India’s insistence on exempting swathes of economic activity and on very restrictive rules of origin for products covered...

Japan was the last major trading nation to hold out against discriminatory trade agreements, preferring the non-discriminatory WTO track instead. This has changed decisively in the past five years... The Japan-Thailand FTA is indicative of Japan’s overall approach to FTAs. It is a weak agreement born of mutual defensiveness. Thailand has long transition periods for phasing out tariffs in steel and auto parts; and it has exempted large passenger cars from the agreement. In agriculture, Japan has exempted rice, cassava, beef, dairy, sugar and some other products, and agreed to limited tariff liberalisation in other products. Rules of origin are very restrictive on agricultural and fisheries products – at Japanese insistence...

Japan calls its FTAs “economic partnership agreements” (EPAs) – to indicate that they go beyond traditional FTAs in goods and have comprehensive coverage of trade and investment-related issues in goods and services. That is misleading. EPAs are euphemisms for weak and partial FTAs. In essence, Japan seems to be reacting to China’s FTA advance, but without a real strategy...

APEC’s heyday was when it was a cheerleader for non-discriminatory unilateral and multilateral liberalisation in the early-to-mid 1990s. It has lost its way since the Asian crisis: its membership is too diverse and unwieldy for there to be any meaningful trade-policy consensus; its agenda has become impossibly broad and unfocused; and attention has shifted to bilateral and plurilateral FTAs (Scollay, 2001: 1144; Ravenhill, 2000: 322, 324-325). APEC’s vaunted Open (i.e. non-discriminatory) Regionalism is dead in the water; and these days it is driven by shallow conferencitis and summitry. It cannot be expected to contribute anything serious to regional economic integration...

The heart of the matter is that within and across south, southeast and northeast Asia, cross-border commerce is throttled by the protectionist barriers that developing countries erect against each other. The type of FTAs that are being negotiated do not presage a return to 1930s-style warring trade blocs. But they are highly unlikely to make a big dent in existing barriers and thereby spur regional economic integration. They might complicate east-Asian intra-regional production networks (the Factory Asia phenomenon), and distract attention from further unilateral liberalisation and domestic reforms. These FTAs have the hallmarks of trade-light agreements. Some might even come close to being “trade-free” agreements...

More fundamentally, trade policy matters more than trade negotiations. Governments in the region, however, are acting as if it were the other way round. They are relying too much on trade negotiations – particularly FTAs – while neglecting sensible trade-policy reforms at home. This is a reversal of pre-Asian crisis reliance on (non-discriminatory) unilateral liberal- isation. What might change this picture is the mind-concentrating effect of faster unilateral reforms in China and India – China in particular. The Chinese engine of unilateral freer trade might just induce a fresh spurt of liberalisation and structural reform elsewhere – but perhaps largely outside trade negotiations. Only with such market-based reforms at home do FTAs make sense – not least to minimise the effects of trade diversion.

Posted by Dingel at 07:50 PM | Comments (0)

November 03, 2006

The Future of APEC

Jagdish Bhagwati in the FT on APEC:

As the 21-member Asia-Pacific Economic Co-operation organisation (Apec) meets later this month (November 16) in Hanoi, the central question its leaders must confront is their response to the stalemate in the multilateral negotiations launched at Doha. Two options are competing for attention.

First, that Apec should continue to embrace “open regionalism”, acting as a forum where members undertake trade liberalisation in concert and extend it worldwide on a “most favoured nation” basis. Many in the region, led by Ross Garnaut and Peter Drysdale, the Australian economists, argue Apec should maintain this tradition and work actively for the cause of multilateralism by pushing for the conclusion of the Doha round.

Second, that Apec should instead launch a Free Trade Agreement of Asia and the Pacific (FTAAP), converting Apec into a “regional” free trade area...

The proposal to turn Apec into a free trade area runs into insuperable political and technical difficulties... Can anyone seriously believe that an FTAAP – requiring free trade among countries as diverse as China, Japan and the US – can be agreed more easily than Doha can be concluded?

Bhagwati never passes on the opportunity to deploy a metaphor:

These create what I have called the “spaghetti bowl” problem of criss-crossing bilateral agreements that create a chaotic system of discriminatory tariffs depending on source. Optimists such as Koichi Hamada, professor of economics at Yale University, believe merging them would turn the bilateral spaghetti into a (regional) lasagna. But lasagna cannot be made from spaghetti: it needs flat pasta! We would face the impossible technical problem of folding several FTAs together that have different tariff rates and innumerable rules of origin (often defined differently by product) for preferences to kick in.

Impossible technical problem or a tangle that may be tamed?

Posted by Dingel at 04:43 PM | Comments (1)

November 02, 2006

US-Taiwan FTA

Pundits have an inexplicable love affair with preferential trade agreements. Doug Bandow advocates that the US and Taiwan negotiate a free trade agreement for foreign policy reasons. The economic arguments he tosses in are not compelling:

Taipei is America’s eighth biggest trading partner (and America is third on Taiwan’s list), with two-way trade running about $60 billion annually, and is a high-income consumer and high-technology producer. The U.S. exports more to Taiwan than to Australia, Chile and Singapore, all of which now enjoy FTAs.

Estimates of the likely increase in U.S. exports through an FTA run from about 15 percent to 30 percent. An FTA would position U.S. enterprises to take advantage of Taiwan’s ongoing transition toward a service-oriented economy.

The island, with widespread economic penetration throughout Asia, would provide a base for U.S. enterprises to expand their reach. More important, Taiwan’s proximity to China and increasing economic integration with the mainland would indirectly boost American ties with the PRC. Since Beijing views Taiwan as part of one China, U.S. firms operating in Taiwan and investing in Taiwanese concerns might find improved access to the larger China market."

How is the fact that the US and Taiwan are already such active trading partners an argument in favor of a PTA? Isn't that an indication that their bilateral trade barriers are relatively low? Moreover, where does that 15 to 30 percent increase in exports come from?

A US-Taiwan FTA would appear to be mostly trade diverting, not trade creating, primarily because the gains to Taiwan would derive almost entirely from increased exports of apparel, a sector in which the island's production and exports have been declining for years in the face of competition from lower-cost producers... While preferential access to the US apparel market under an FTA would provide short-term economic benefits, it almost certainly would have adverse consequence for Taiwan's long-term economic growth and welfare.

For the United States, the biggest anticipated gains from an FTA with Taiwan are in the auto sector, although these gains also would almost certainly reflect trade diversion.

As for economic integration with the mainland, why should we expect lower import tariffs and quotas to increase the number of "U.S. firms operating in Taiwan and investing in Taiwanese concerns"? It sounds like Bandow wants an investment agreement, not a trade deal, since I doubt that many US businesses will set up shop in Taipei to capitalize on the opportunity to export textiles and apparel to the United States. Moreover, as of May 2006 the deputy USTR wasn't too enthusiastic about Taiwan as a route to the mainland:

Echoing positions long held by the business community, Mr Bhatia said globalisation required integrated cross-border supply chains, in which China played an increasingly important role. Against this background, Taiwan's restrictions on the transfer of commercial technology, imports of certain goods from the mainland, cross-Strait travel, investment in China and direct transport links across the Strait put the island at a disadvantage, he said.

The economic case for a US-Taiwan FTA looks weak. I'll leave the geopolitical issues to more qualified commentators.

Posted by Dingel at 09:09 AM | Comments (0)

October 26, 2006

Will Kaesong break the KORUS FTA?

Democratic electoral victories may turn Congress against free trade, but liberalization wasn't going very far anyway, says Dan Drezner. While I agree that Doha is stalled and the FTAA has all but disappeared, I was surprised that Drezner considers the South Korea-US deal to be "a dead letter" due to the Kaesong complex.

It's been evident from the beginning that the US Congress wouldn't accept products from Kaesong and that the South Koreans would likely have to give in on that issue. Now, North Korea's recent nuclear test has increased the geopolitical importance of achieving a trade deal, and South Korea's ambassador to the US recently signalled flexibility on Kaesong:

Mr Lee hinted that South Korea could show new flexibility over Kaesong, its industrial park in North Korea. Although South Korea suspended humanitarian aid to the North after missile tests in July, critics say it has continued to pump cash into the regime through Kaesong.

“Because of North Korea’s missile tests and nuclear test the situation has become much more aggravated,” he said. “When we started these negotiations we wanted to include it [Kaesong] in the FTA but as time goes by we have noticed that the atmosphere has been shifting rather negatively against this idea.

“We know that,” he added. “That is why we are squeezing our wisdom to find some way out.” [FT]

So Kaesong isn't an intractable barrier, it's just one of many differences plaguing the negotiations. One of the largest hurdles is rice, which has made me skeptical of the deal's chances for a while.

Posted by Dingel at 08:45 AM | Comments (0)

October 17, 2006

Convergence of PTAs and CAFTA

Jaime Granados and Rafael Cornejo are working to "tame the tangle" of preferential trade agreements by analyzing the CAFTA framework and making a number of suggestions:

Few regions in the world have seen such an aggressive proliferation of Regional Trade Agreements (RTAs) as the Americas. This decentralised and uncoordinated process is beginning to cause concern as it threatens to undermine efforts to build a hemispheric trading system. One of the most urgent tasks now facing trade policymakers in the Hemisphere is to analyse how the various RTAs might be made to converge, and the purpose of this paper is to act as a catalyst for such discussions. We have therefore explored how the issues raised by the coexistence of various dissimilar RTAs among seven different countries were resolved in the recently-negotiated Dominican Republic-Central America1 United States Free Trade Agreement (hereinafter ‘DR-CAFTA’ or ‘the Agreement’). This Agreement is a microcosm of what could be a broader negotiation process in the Americas, hence the usefulness of analysing its structure and the approaches used in its development.

By ‘convergence’ we mean the efforts countries make to ensure that theultimate goals of their trade agreements are consistent and, in particular, that they lead, in the most orderly fashion possible, to the creation of a hemispheric free tradesystem governed by common rules or at least by disciplines that ensure a minimum variation in regulations. Convergence efforts aim to avoid the fragmentation of the hemispheric trading system. They seek to align countries within a smaller and simpler framework of free trade disciplines, in the understanding that this process generates better results in terms of the public and private administration of trade flows and of the production apparatus. Given the status quo in the Americas, convergence could, in theory, mean several things: (1) replacing the multitude of existing instruments with fewer instruments; (2) reducing the complexity of existing regulations; (3) eliminating obsolete agreements and instruments; (4) harmonising the rules in the new agreements or the rules of pre-existing agreements; and (5) extending the membership of a specific trade agreement...

Convergence must be pursued at the hemispheric level. A number of imperfect CUs are operating in conjunction with a multitude of more shallow agreements (notably FTAs) in the Americas at the moment, and the real problem of the spaghetti bowl lies in the proliferation of these FTAs. Although there is a need to strengthen the CUs in the subregions of the Americas (to avoid extinction due to loss of relevance amidst competing integration projects), there is an even greater need to promote the convergence of the various FTAs.

The convergence of the FTAs is not only an urgent but also a highly complex issue. The proliferation of FTAs in the Americas is at the point of touching off a fragmentation of the hemispheric trading system, the effects of which are potentially highly negative. The issue needs to be urgently addressed so that this can be avoided before the interest groups become so entrenched that the task becomes unmanageable...

In the end, DR-CAFTA is not about convergence. It is about the accommodation of diverging trade axes and interests. The architecture employed and techniques used in the Agreement, however, may facilitate a new type of simpler agreement over the long term that may help to eradicate the main problems arising from the spaghetti bowl. Thus, convergence in the Americas is simply a process towards an end product or products that remain to be seen.

Despite the current impasse, for the sake of trade convergence in the Americas and for many other reasons, preventing the FTAA from becoming just another four-letter word is still a relevant endeavour. The seeds of a third generation of trade agreements in the Americas – the convergence generation – have already been sown. These agreements, which will require at least flexible trade liberalisation, some kind of origin accumulation among all the countries, and the harmonious coexistence of different origin regimes should already figure among the future plans of trade policymakers.

"Convergence in the Americas: Some Lessons from the DR-CAFTA Process" appears in the July 2006 issue of The World Economy.

Posted by Dingel at 08:40 PM | Comments (0)

The magnitude of trade preferences

Our results showed that the higher the value of preferences offered, the higher the probability that preferences are requested. Using endogenous threshold estimation techniques we also provided evidence that there exists a minimum value of preferences needed for traders to request preferences. More specifically, if the difference between preferential and third country tariff rates are lower than 4 per cent, there are no incentives for traders to request preferences since the costs of obtaining the preferences are expected to be higher than the benefits from obtaining the preferences.

Miriam Manchin - Preference Utilisation and Tariff Reduction in EU Imports from ACP Countries - World Economy - September 2006

Posted by Dingel at 04:39 PM | Comments (0)

October 11, 2006

Pan-Africa FTA

Andrew Mitchell, Shadow Secretary of State for International Development, will be speaking at Cato on October 20th:

Africa is one of the most protectionist regions in the world. Most imports, including life-saving drugs and medical equipment, continue to be subjected to high tariff and nontariff barriers. Moreover, African countries impose some of their highest tariffs on goods from other African countries. African trade liberalization could increase intra-African trade by 54 percent. It is hypocritical for African leaders to call for greater access to global markets while rejecting trade openness at home. Andrew Mitchell will explain why African governments should support a Pan-African Free Trade Agreement if they are truly serious about the benefits of trade liberalization.

If African governments were serious about the benefits, they probably wouldn't confine themselves to a continental agreement. Why are advocates of liberalization investing energy in this idea?

[Does that 54% increase in intra-African trade represent trade diversion or trade creation? No idea, as the context of the calculation is unclear in the policy brief by Marian Tupy, and he obtained the figure through personal communication with a World Bank author.]

Posted by Dingel at 09:31 PM | Comments (2)

September 14, 2006

New Bhagwati book

I am excited to learn that Jagdish Bhagwati is working on a new book:

I am actually halfway through writing a small book titled Termites in the Trading System: How Preferential Trade Agreements are Undermining Multilateral Free Trade. It will advance many other ways in which the proliferation of PTAs is undermining multilateralism in trade.

I hope that he also invests considerable time in suggesting politically feasible solutions to clean up the spaghetti bowl. Regionalism is here to stay, and we need to do more than merely bemoan MFN's erosion.

[HT: PSD]

Posted by Dingel at 08:37 AM | Comments (0)

September 01, 2006

Zedillo bashes PTAs

Ernesto Zedillo: "Every additional PTA will become one more obstacle to the universal and non-discriminatory trade liberalization that the world needs. PTAs have been more easily hijacked by special interests groups and are not resulting in really good instruments... [T]he present deals are little monsters that will be much regretted in the future."

Posted by Dingel at 03:41 PM | Comments (0)

August 31, 2006

Regionalism vs Multilateralism: Empirical Research

One of the most interesting parts of Richard Baldwin's most recent paper (pdf) is his historical narrative arguing that, contrary to some critics' notion that PTAs exploded onto the international trade scene in the 1990s, "multilateral and regional liberalisation proceeded in tandem since 1947."

He uses this history to argue that regionalism can be structured to complement multilateralism. In regards to the Uruguay Round, Baldwin writes:

Plainly the 1980s show no sign of unilateralism, regionalism and multilateralism being substitutes. 1986 saw i) the Uruguay Round launched, ii) a major step in European regional integration (the SEA), iii) a major step in North American integration (CUSFTA talks). The juggernaut approach explains this by noting the reshaping of the political economic landscape induced by trade liberalisation in the 1970s would have lower resistance from import-competing firms to MTNs and RTAs while the expansion of export sectors would have raised political support for both. Moreover, European and North American regional integration, the SEA and CUSFTA, would bolster trans-Atlantic discrimination and this heightened the attractiveness of an MTN to both parties.

Some empirical evidence suggests that regionalism and multilateralism are substitutes at the tariff line level, however. In "PTAs as Stumbling Blocking for Multilateral Trade Liberalization: Evidence for the US," (CEPR) Nuno Limao examines the Uruguay Round of negotiations and finds:

The U.S. multilateral tariff reductions in PTA goods were smaller than those in similar goods not imported from PTA partners. On average an exporter to the U.S. that did not belong to one of its PTAs received about 52% the benefit (in terms of price increases) if it exported any PTA good instead of a similar non-PTA good. This effect is even stronger if the good was exported by all PTAs or was an important export for a PTA partner.

He has another paper with Baybars Karacaovah that finds similar results for the European Union in the last two GATT/WTO rounds.

A story synthesizing these two arguments might suggest that preferential trade has negative impacts upon third parties, which causes them to seek multilateral liberalization. But these MTNs are more successful in liberalizing product lines where trade diversion did not occur. In this story, regionalism does some damage, but it spurs more trade creation than diversion by reenergizing the multilateral talks.

What other available empirical research might flesh out our understanding of the relationship between regionalism and multilateralism?

Posted by Dingel at 05:00 PM | Comments (0)

August 25, 2006

FTAAP & Political Goodwill

Alex Singleton:

It’s a good thing, therefore, that today progress is being on the Free Trade Area of the Asia-Pacific because, in the long run, that will help get the WTO back on track. As far as bilaterals go, it’s a good proposal because it takes the complicated spaghetti bowl of existing bilaterals and simplifies them...

The truth is that for the time being, the WTO is the Plan C for world trade, certainly for the next couple of years, and if the protectionist sentiments continue in the US Congress, much longer. President Bush lacks the political goodwill to regain trade promotion authority, necessary for a WTO deal.

Protectionist sentiments in Congress and a lack of political goodwill? Mr. Singleton's Plan B is a trade deal with China!

Posted by Dingel at 03:33 PM | Comments (0)

August 24, 2006

PTAs after Doha

Guy de Jonquieres thrashes "competitive liberalization" enthusiasts:

The Doha debacle has exposed that theory for what it is. In practice, bilateralism has fed off itself, intensifying the rush into preferential deals while draining energy from the Doha talks, polarising the US Congress and further diminishing its appetite for trade initiatives of all descriptions.

The belief that faster progress can be made in regional groupings than in the World Trade Organisation also defies abundant evidence to the contrary. Apec's dreams of freeing by 2020 trade and investment in the Pacific rim remain dreams. Plans for a free trade area of the Americas are moribund. South America's Mercosur is in trouble, as are its talks on closer links with the European Union. Disputes between the 10 members of the Association of Southeast Asian Nations have dogged their efforts to implement even limited liberalisation. South Asia's plans for a customs union look like a joke, as they exclude trade between India and Pakistan. Regionalism's only big successes are the EU and the North American Free Trade Agreement - and the former is too sui generis to be replicable.

Posted by Dingel at 08:45 AM | Comments (0)

August 02, 2006

Japan proposes giant noodle bowl

Here it comes:

The initiative would be to establish a pan-Asian FTA - involving India, Australia, China, Korea, Japan and New Zealand, along with the 10 members of the Association of Southeast Asian Nations. "The participation of democracies like India and Australia would enable the region to forge more open economic partnerships," Ministry official Hideyasu Tamura said.

Recall that the ASEAN nations negotiate separately, meaning that this pan-Asian FTA will look more like a series of bilaterals than a MFN-friendly APEC deal.

Posted by Dingel at 06:23 PM | Comments (2)

July 27, 2006

Stiglitz & Rashid on AGOA & EBA

Joe Stiglitz and Hamid Rashid indict unilateral preferences for LDCS:

The US has already had some success in pitting the poor against each other. Preferential access for African countries, under the African Growth and Opportunity Act (AGOA) and more recent initiatives, seems to be largely a matter of trade diversion – taking trade from some poor countries and giving it to others. For example, Bangladesh’s share in US clothing markets declined from 4.6% in 2001 to 3.9% in 2004. During the same period, AGOA countries’ market share in the US clothing sector increased from 1.6% to 2.6%, and it is likely to increase further when AGOA countries start to take full advantage of duty-free access. [Project Syndicate]

I am less enthusiastic about their criticism of the EU, however:

A year ago, the leaders of the world’s richest countries committed themselves to alleviating the plight of the poorest. At Doha in November 2001, they pledged to give something more valuable than money: the opportunity for poor countries to sell their goods and earn their way out of poverty. With great fanfare, developed countries seemed for a while to be making good on their promise, as Europe extended the “Everything but Arms” initiative (EBA), under which it was unilaterally to open its markets to the poorest countries of the world.

The opening was less than it seemed. The devil is in the details, as many less developed countries discovered that EBA’s complicated rules of origin, together with supply-side constraints, meant that there was little chance for poor countries to export their newly liberalized products. [Project Syndicate]

First, rules of origin are a necessary feature of preferential trade. If the EU is to impose lower trade barriers upon LDCs than its richer trading partners, then ROOs will be part of the package. And it seems that all ROOs wind up being complicated.

Second, the devilish detail that LDCs face supply-side factors that constrain their exports means that preferential trade programs are unlikely to help. Rather than indicting the EU's policy, this fact reduces their degree of guilt.

On the other hand, their argument against the US is damning:

The US ostensibly agreed to a 97% opening of its markets to the poorest countries. The developing countries were disappointed with the results of Europe’s EBA initiative, and Europe has responded by committing itself to dealing with at least part of the problem that arises from the rules of origin tests. America’s intention was, to the contrary, to seem to be opening up its markets, while doing nothing of the sort, for it appears to allow the US to select a different 3% for each country. The result is what is mockingly coming to be called the EBP initiative: developing countries will be allowed freely to export everything but what they produce. They can export jet engines, supercomputers, airplanes, computer chips of all kinds—just not textiles, agricultural products, or processed foods, the goods they can and do produce.[Project Syndicate]

Posted by Dingel at 06:03 PM | Comments (0)

July 25, 2006

FTAs & the TPA deadline

Now that the WTO negotiations are taking a "time out," as Pascal Lamy has characterized the suspension of scheduled talks, the attention of both analysts and policymakers will shift to bilateral and regional trade deals. The United States has eleven months to complete its FTAs before Bush's trade promotion authority expires.

I'm told that, by law, the President is merely required to notify Congress of his intent to sign an FTA 30 days prior to voting on it (and therefore 30 days prior to the expiration of his authority). The actual, signed agreement can be submitted at any time. [UPDATE: There are additional notification obligations, which are outlined in this CRS report.] But for logistical and political reasons, the administration won't abuse that flexibility by waiting until the last minute. It's hoping to wrap up trade talks by the end of 2006 so that it can introduce legislation to Congress around March.

Talks are underway with Malaysia, South Korea, and Thailand, though the latter stalled earlier this year. Ben Muse has set up a page to track the development of the US-Korea deal. Estimates of the likelihood of completing these agreements on time vary.

Of course, there's not much reason to worry about the timetable if Congress renews TPA. Richard Baldwin comments on my prior post, suggesting that Congress will not want to lose the "competitive liberalization" race with the EU and therefore will extend the president's negotiating authority. Most analysts seem to be leaning the other way:

America's top trade official says the collapse of global trade talks means the US presidential trade deal authority will now likely expire, before any WTO deal can be saved and sent to the US Congress... The last time the TPA expired in the mid-90s it took about eight years to renew it, which many pro-trade lawmakers fear could happen again, leaving the US unable to negotiate even bilateral deals. [abc.net.au]

The White House’s authority from the US Congress to negotiate trade deals expires next year. Most experts and officials think Congress unlikely to renew that authority, rendering any near-term agreement impossible. [Finfacts]

Without the so-called ’fast-track’ authority, which Congress is seen as unlikely to renew, Washington is in effect unable to negotiate international trade deals. [