The Economist on Exports to Mars: “The world exported $331 billion more than it imported in 2010, according to the IMF’s World Economic Outlook… Either the current-account deficits of countries such as America are being understated or the surpluses of countries like China are being overstated, and by a rising amount… Indeed, the global “surplus” now exceeds China’s.”
The global trade surplus
November 17th, 2011
O Christmas Trees
November 9th, 2011My Twitter feed lit up with comments about Christmas trees today. Simon Lester spots the logic behind the already-abandoned Christmas Tree Promotion Board: Canada and the US make real trees, China produces artificial trees.
Previous holiday installments at Trade Diversion: Christmas Tariffs.
Patent wars at the US ITC
November 8th, 2011Intellectual-property disputes are being adjudicated by the US International Trade Commission in the form of Section 337 disputes, which may result in US Customs banning importation of infringing products. Here’s a long list of open investigations, and here’s a blog dedicated to such disputes. Here’s a patents blog that often covers ITC disputes. I learned of Section 337 disputes from this story about HTC and Apple’s patent war.
A New York Law Journal article describes why IP battles are being waged at the US ITC forum:
The ITC has some distinct advantages for the patent plaintiff as compared to a federal district court. To start with, it is generally not necessary to establish personal jurisdiction and proper venue over each of the respondents, as the commission has in rem jurisdiction over the articles being imported. In addition, the ITC’s procedural schedules are enormously accelerated as compared to the average district court…
The 2006 Supreme Court decision in eBay v. MercExchange made it more difficult for plaintiffs in district court patent litigation to be granted an injunction. Under earlier Federal Circuit precedent, a prevailing plaintiff was virtually guaranteed an injunction, which forced an infringer to settle on the patent holder’s terms or face a complete shutdown of its business. In eBay, the Supreme Court rejected this long-standing rule and instead instructed the lower courts to make a case-by-case determination, based on “well-established principles of equity.”5 This determination is not applicable to exclusion orders in the ITC…
The combination of fast-moving schedules, reduced jurisdictional requirements, and the ready availability of injunction-like remedies make the ITC an ideal forum for the enforcement of patent rights. In addition, the domestic industry requirement, once a significant barrier for NPEs, has become easier to satisfy. As traditional manufacturing facilities abandon the United States, the ITC can still be the forum of choice for those American businesses that manufacture abroad, or even those whose sole business is to exploit patents.
Here’s another piece on the ITC forum, dubbed “outbidding the Supreme Court” (pdf), which says that “a Section 337 action before the ITC may be the most efficient, cost-effective and surefire way for a patentee to obtain the equivalent of a permanent injunction against an infringing party.”
Pakistan grants India MFN status
November 8th, 2011Pakistan has granted MFN status to India (with a list of excepted products). This accelerates liberalization between the two countries that had made some progress with the South Asian FTA (SAFTA). India granted Pakistan MFN status back in 1995. Here’s a State Bank of Pakistan research bulletin arguing for granting India MFN. Here’s a World Bank book on The Challenges and Potential of Pakistan-India Trade, which includes this paragraph:
In fact, the evidence on informal trade indicates that Pakistan has already granted something close to de facto MFN status to India. Traders exploit market arbitrage and the poor enforcement of antismuggling measures to import banned Indian products into Pakistan, hence with the change in the trade regime there could be additional revenues for the government for items that are likely to switch from the informal trade to formal trade.
How did Pakistan not grant India MFN status while being a WTO member since its inception in 1995? While MFN status has been relegated to “least favored nation” status in many circumstances, it seems that it still means something in this part of the world.
Natural disasters and global supply chains
November 7th, 2011
I was on holiday in Bangkok last weekend and witnessed the city’s flooding first hand. Via Sébastien, here’s the global-supply-chain angle on the story:
The world’s biggest names in hard-drive manufacturing, for example, operate from Thailand, where suppliers and customers come together.
Until the floodwaters came, a single facility in Bang Pa-In owned by Western Digital produced one-quarter of the world’s supply of “sliders,” an integral part of hard-disk drives. Over the weekend, workers in bright orange life jackets salvaged what they could from the top floors of the complex. The ground floor resembled an aquarium and the loading bays were home to jumping fish.
“Surely one of the inevitable impacts of this is that never again will so much be concentrated in so few places,” said John Monroe, an expert on storage devices at Gartner, a technology research firm. He estimated it would take a full year for hard-drive production to return to preflood levels.
Séb discusses whether Thailand’s floods and Japan’s earthquake will cause companies to geographically diversify their supply chains.
Is the NAFTA trucking dispute finally over?
October 21st, 2011A Mexican truck will make a delivery to a Dallas suburb this afternoon, thereby realizing some of the liberalization promised by NAFTA 17 years ago. WaPo:
The first Mexican carrier to deliver goods in the U.S. interior under a long-delayed free-trade provision is scheduled to enter the country at Laredo, Texas, shortly after midday Friday.
The truck owned by Nuevo Leon, Mexico-based Transportes Olympic will make a delivery to the Dallas suburb of Garland. That’s despite continuing opposition from the Teamsters union and some lawmakers who fear the program will make U.S. highways more dangerous and cost American jobs.
The truck will carry a monitoring device. The move complies with a provision of the 1994 North American Free Trade Agreement.
The company was also the first approved under the 2007 pilot program before President Barack Obama’s administration canceled it [in 2009]. Mexico retaliated by placing tariffs on 99 agricultural products worth more than $2 billion annually.
A little over a year ago, I noted that Washington insiders didn’t expect the dispute to be resolved “any time soon”, but in the broader context, 14 months isn’t bad. So what does the program do? It includes a lot of measures to address the safety concerns raised by its opponents:
Supporters say especially strict safeguards have been implemented: Electronic devices will track the routes drivers take, how long they drive and how long they rest. Participating drivers must undergo national security and criminal background checks, and inspectors will administer oral English-proficiency exams.
Does this end the dispute? Not necessarily. Look up the Federal Motor Carrier Safety Administration’s announcement in the Federal Register and you’ll discover that this is a three-year pilot program, a fact not made clear by some press coverage. From the Federal Register (pdf):
The Federal Motor Carrier Safety Administration (FMCSA) announces its intent to proceed with the initiation of a United States-Mexico cross-border long-haul trucking pilot program to test and demonstrate the ability of Mexico-domiciled motor carriers to operate safely in the United States beyond the municipalities in the United States on the United States-Mexico international border or the commercial zones of such municipalities (border commercial zones)…
In a pilot program, DOT typically collects specific data for evaluating alternatives to the regulations or innovative approaches to safety while ensuring that the goals of the regulations are satisfied. A pilot program may not last more than 3 years, and the number of participants in a pilot program must be large enough to ensure statistically valid findings.
Will the pilot program have large effects on international trade? Both sides claim big numbers:
Todd Spencer, the executive vice president of the Independent Drivers Association, which represents small independent trucking businesses, said 100,000 trucking jobs will be lost. Proponents say it will spur economic growth as companies save millions by sending the goods door-to-door.
But I doubt we’ll see any such impacts soon. Tire Business reports:
So far two small Mexico-based motor carriers have been certified for the program. They are Transportes Olympic of Monterrey, with two vehicles, and Grupo Behr de Baja California S.A. de C.V. of Tijuana, with five vehicles.
However, the FMCSA is withholding Grupo Behr’s permit while reviewing objections raised by the Teamsters and others regarding Grupo Behr’s safety record. The Teamsters also question Transportes Olympic’s record on safety.
You can track the approvals online at the FMCSA’s website. That site says that Transportes Olympic has registered one vehicle and two drivers. It looks like the dispute will continue in some form, for the time being.
Does the DSM need support from ongoing negotiations?
October 20th, 2011Jeff Schott worries that the WTO’s dispute settlement mechanism may be less effective if the dismal prospects for future negotiations cause dispute panels to expand their coverage:
Of course, WTO members will still be bound by existing obligations and the heralded dispute settlement system will continue to function. But past success is not a guarantee of future performance. Disputes undoubtedly will arise over “gray areas” of WTO law. Without the prospect of new negotiations to update and clarify the WTO rulebook, panelists will be tempted to bridge the gaps in their rulings. That is the danger: If the panelists attempt, or appear to be attempting, to usurp the powers of WTO members by interpreting and possibly expanding the scope of WTO obligations, it will likely trigger a political backlash against the WTO and discourage national compliance with such rulings. Members of Congress already think this is a problem with regard to the numerous WTO rulings against US antidumping practices. Over time, the frozen WTO legislative function will erode political support for compliance with the judicial function of the WTO
New US ag subsidies to replace old US ag subsidies
October 19th, 2011The next five-year agricultural plan farm bill will cover 2013-2017. The NY Times looks at where Congress is headed, in a piece titled “Farmers Facing Loss of Subsidy May Get New One“:
Lawmakers’ reluctance to simply eliminate a subsidy without adding another in its place demonstrates how difficult it is for Washington to trim the federal largess that flows to any powerful interest group. Indeed, the $5 billion program that lawmakers are willing to throw under the tractor, known as the direct payment program, was created in 1996 as a way to wean farmers off all such supports — and instead was made permanent a few years later…
It is unclear how much support a new subsidy would garner, since many lawmakers view farm programs as a likely source of budget savings. Critics say that farm subsidies today have little to do with helping struggling family farmers. Instead, they go predominantly to well-financed operations with large landholdings. All told, the subsidies amount to about $18 billion a year — about half of 1 percent of the federal budget…
Direct payments have come under fire, however, because farmers get them whether markets are high or low. The new subsidy, called shallow-loss protection, would act as a free insurance policy to cover commodity farmers against small drops in revenue. Most commodity farmers already buy crop insurance to protect themselves against major losses caused by large drops in prices or damage to crops. Those policies typically guarantee 75 to 85 percent of a farmer’s revenue, with the federal government spending $6 billion a year to pay more than half the cost of farmers’ premiums.
The proposed new subsidy would add another layer of protection to guarantee 10 to 15 percent of a farmer’s revenue, paying out not only in years of heavy losses, but also when revenue dipped less severely…
It is unclear how much the proposal would cost taxpayers. Dr. Schnitkey said the plan could pay farmers $40 billion over 10 years. That would be $20 billion less than the programs it replaced, including direct payments and some smaller subsidies.
But Dr. Smith, the Montana State economist, said the cost could be much greater because the plan used recent high crop prices as its benchmark.
Creative protectionism: Argentina requires firm-level balanced trade
October 14th, 2011The Economist describes some very unusual trade policies implemented by Argentina:
Argentine manufacturers have been booming ever since the 2001 crash. Over most of that period, a cheap peso has ensured their competitiveness. But since 2005 inflation has been in double digits. As the trade surplus has dwindled, Cristina Fernández, the president, has beefed up her industrial policy. According to Global Trade Alert, a database of restrictions on international commerce, Argentina now imposes more trade limitations deemed “harmful” than any country save Russia…
On the import side, Argentina cannot raise tariffs on its own because it belongs to the Mercosur customs union. So it is resorting to informal tools. Its main method is “non-automatic licensing”, a tactic recognised by the World Trade Organisation that lets countries delay imports for 60 days.
Argentina has made no pretence of honouring that time period. In January it expanded the list of products requiring licences from 400 to 600. It was a limit on phone imports that led Research in Motion to hire Brightstar to make BlackBerrys in Argentina (tax incentives then led the firm to Tierra del Fuego). Other affected goods include toys, pharmaceutical ingredients, tyres, fabrics, leather and farm machinery. On September 15th Argentina blocked imports of books, and over 1m piled up at the borders. Imports of Harley-Davidson motorcycles are frozen until 2012.
For firms that refuse to (or cannot) move production to Argentina, the government offers another option: deals to export goods worth at least as much as a company’s imports. In January customs officials stopped letting Nordenwagen import Porsches. Its cars languished in port for three months before the firm succumbed to a deal. Since its owners also possess Pulenta Estate, a vineyard, they agreed to launch a new line of mass-market wines for export, erasing the family’s trade deficit. They are also considering canning fruits. “It’s not the same margins as fine wines, but it takes time and investment. We’re trying to make it profitable,” says Eduardo Pulenta, the company’s export manager. “We’ll keep working to import cars. That’s what we know how to do.”
Wow.
The policy was adopted in March. Here’s the Global Trade Alert entry from July, which relies on Spanish-language news stories. Here’s an English-language story from April. Thanks to Bernardo Astarloa, who passed along this Spanish-language story in Argentina’s La Nación. It details the products being exported by various car manufacturers in exchange for importing autos into Argentina:
- Porsche: wine and olive oil
- Hyundai: peanuts and soy biofuels
- BMW: rice and leather upholstery
- Alfa Romero: biofuel
- Kia: auto parts, plastics, refrigerators
- Mitsubishi: mineral water, pet food, peanuts
- Nissan: biofuels and soy
An Argentinian commenter at the Economist post argues that these policies don’t add up to much, but their novelty is certainly notable!
Freely traded outside goods have non-trivial consequences
October 10th, 2011Recall that assuming a freely traded, CRS-produced outside good when writing a trade model is non-trivial [Davis (AER, 1998)]:
In the present paper, I show that what previously was regarded as an assumption of convenience – transport costs only for the differentiated goods – matters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home-market effect disappears.
In a recently posted paper (pdf), Svetlana Demidova and Andrés Rodriguez-Clare remind us that a curious result lurking in the heterogeneous firms literature – that unilateral trade liberalization decreases a country’s welfare – hinges on exactly that assumption.
It is interesting to compare this result to that in Demidova (2008) for the setting with CES preferences and Melitz and Ottaviano (2008) for the setting with linear demand, where lowering trade barriers for foreign firms reduces welfare at Home. The reason for this result is that such liberalization in country 1 makes country 2 a better export base, which results in the additional entry of firms there. This entry intensifies competition, which results in less entry and lower welfare in country 1. Our model shows that this result no longer holds when there is no outside good pinning down the wage in both countries.
Chaney (AER, 2008) also assumes a freely traded homogeneous good, so I presume that the same conclusion applies in his environment.
The Demidova & Rodriguez-Clare paper introduces a small open economy version of Melitz (2003), which lets them analyze asymmetric trade policies with endogenous wages very nicely in a (relatively) simple setting. Check it out.
