Trade and Development

A few months ago I was at a panel on the April G-20 summit, when someone asked why there was a pledge to complete the Doha round when no one expected that to happen? 

The answer given by the trade experts in the room was that, as toothless as such a statement might sound, it was worse not to say anything.  The signal of not mentioning Doha was ostensibly worse than the cynicism of claiming that two plus two equals five. 

Bear this in mind when reading the following: 

The world’s biggest economies agreed on Thursday to conclude a comprehensive trade deal in 2010, in the latest attempt to revive the stalled Doha round and give a shot in the arm to the world economy.

Rich countries gathered for the G8 summit agreed with ten other large economies – including India, China and Brazil – that trade talks must resume urgently, with a deadline set for completion next year.

The agreement in the Italian town of L’Aquila will be hailed by world leaders as a decisive moment in reviving the global economy and a statement of intent to conclude a trade round which began in Doha in 2001.

But there will be widespread cynicism over whether such commitments are credible. Every G8 summit – not to mention other international summits – ends with leaders paying lip service to finalising a trade round.

If Obama actually tries a "Nixon goes to China" moment on trade, I might be more optimistic.  But with global warming and health care on the horizon, I have zero confidence that Doha will be completed within the next eighteen months. 

In my last Newsweek column, I asked the rhetorical question, "What if the great powers held a summit and no one cared?"  If this Alan Beattie story in the Financial Times is any indication, we can now replace "summit" with "WTO negotiation" and find out the answer -- it appears to include shopping: 

At this week’s World Trade Organisation ministerial meeting, the teargas and riots of past ministerial meetings like the disastrous Seattle conference of 1999 have been a distant memory. Not all attendees think this a good thing. As one business representative notes darkly: “At least people were paying attention back then.” The twists and turns in this week’s meeting have played to a small audience. The days have long gone when any WTO meeting was attended by a travelling caravan of lobbyists, protesters and journalists. Protracted stasis in the talks has driven away all but the most hardcore. Not one demonstrator is keeping vigil outside the gates. Seminars held by think-tanks draw a handful of attendees. Oxfam, who have doggedly stuck with campaigning on the Doha round, are present and staging one of their trademark photo-stunts – on this occasion four campaigners, dressed up as the main players, “gambling with the future of the poor” at a poker table set up nearby in a park.... After the talks were reduced first to a few dozen selected countries and then to an inner core of just seven to try to make progress, many of the surplus ministers present find themselves unoccupied and somewhat embarrassed. “Frankly, a lot of ministers are sitting around with no idea what they should be doing,” one lobbyist says. “The smarter ones have gone shopping.”

Of course, the absence of media and civil society interest could make it easier to reach an agreement.  Has that happened?  According to the WTO:  

Director-General Pascal Lamy reported to an informal meeting of the Trade Negotiations Committee on 26 July 2008 that after a week of hard work by Ministers, there was now “a basis for possible convergence”. He welcomed the “package of elements” from his consultations as “an important contribution” to progress towards establishment of modalities in agriculture and non-agricultural market access, adding that intensive consultations would continue on the outstanding issues.

Um... not to be too pessimistic, but there's been a "basis for possible convergence" for a few years now.  There just hasn't been any actual convergence.  This Wall Street Journal story by John W. Miller suggests that no one should be holding their breath too long for actual convergence anytime soon: 

A final resolution remains far from certain. China, India, South Africa, Argentina and many others remain opposed to the compromise proposal, drawn up by WTO chief Pascal Lamy Friday in a last-ditch attempt to save the talks. And there are still dozens of unresolved issues on the table....

Brazil's foreign minister, Celso Amorim, sounded a note of optimism on leaving the meeting of delegates from some 30 countries. "There is now a 65% chance of doing a deal, where before there was a 50% chance," he said.

When the protestors reappear, then I'll start paying attention. 

Susan Aaronson has an op-ed in today's Financial Times in which she tries to argue that, of the two major party candidates, Barack Obama "has the more optimistic vision of trade."  Here's the guts of her argument: 

Mr McCain sees trade as a means to the end of economic growth and trade agreements as simply economic instruments. He has said very little about how he would use trade agreements to address negative side effects of globalisation, such as pollution. Nor has he articulated how the US can ensure that the economic growth stimulated by trade is equitable. Beyond suggesting tax breaks for business, he has not explained how the US can ensure that companies remain in the US and continue to hire US workers, rather than rely on technologies to remain productive. To bolster his freer trade bona fides, he has stated: “Only risks to the security of our vital interests or egregious offences to our most cherished political values should disqualify a nation from entering into a free trade agreement with us.” But Mr McCain’s support for freer trade has limits – especially when important constituents are adamant about trade bans. As an example, he supports continued trade sanctions against Cuba and Iran and enhanced targeted sanctions against human rights abusing nations Zimbabwe and Burma. Mr Obama, in contrast, is a trade enthusiast as well as a trade agreements reformer. He sees trade as a means to the end of enhancing human welfare. Thus, he has stated: “From financiers to factory workers, we all have a stake in each other’s success.” He recognises that Americans cannot succeed unless globalisation promotes greater access to resources and opportunities for more of the world’s people (our future growth markets). Mr Obama also believes that trade agreements are essential tools of global governance. He recognises that public concerns about trade are really concerns about inadequate governance – instances where our trade partners are unwilling or unable to adopt and enforce rules to protect workers, consumers and the environment. Demanding such standards in bilateral agreements will not alter global market conditions or empower all workers. Nonetheless, trade agreements can, if properly written, improve both the supply and demand for good governance at the national and international level. Mr Obama also has put forth a consistently positive vision of the potential of trade to promote human rights. Many human rights activists think trade with human rights abusing regimes is a form of complicity that can indirectly perpetuate wrongdoing in countries such as Sudan. But Mr Obama has openly questioned this view, asking whether the US has more or less leverage with less commerce. He has argued that cutting off trade may not be the best (or only) strategy to bring democracy to Cuba or Iran.

I'll give this effort a B- because of the difficulty of the assignment.  Quoting Obama boilerplate on globalization doesn't make him a enthusiast of freer trade.  And Obama's reluctance to deploy economic sanctions is not really connected to his trade policy, since with the exception of Cuba the United States wouldn't be trading a lot with these countries anyway.  Aaronson also elides Obama's insistence on linking trade to employment when the link is weak to nonexistent.  Now, all that said, Aaronson is correct when she says Obama does not intend to be a protectionist.  I think that's true.  My question is whether his trade policies would be protectionist in their effect.  Given that:

• Opening up NAFTA for renegotiation contains a 5% chance of a better agreement and a 95% chance of failure;
• Our trading partners are going to be, at best, reluctant to accept all of Obama's proposed governance improvements;

I just don't see his trade policies going anywhere.  Obama has a perfect vision of where he wants trade politics to go -- whether this vision falls within the set of feasible politics is another question entirely.  One last point, which I've probably made before.  Free traders like myself are not averse to seeing improvements in labor standards, environmental protection, and the like.  We just think that these policies are much more likely to occur when a country gets richer -- and, hey, what do you know, trade can facilitate that enrichment.  UPDATE:  Aaronson responds (cogently as always) in the comments; see also Donald Coffin's comment.  ANOTHER UPDATE:  Secretary of Defense Robert Gates and Colombian Secretary of Defense Juan Manuel Santos have an op-ed in the New York Times that raises an awkward question for Obama's trade enthusiasm.  After recounting Colombia's success in battling FARC, they close: 

Finally, to achieve lasting peace and stability, Colombia must have more foreign investment and free trade. Congress’s approval of the trade promotion agreement would establish a commitment to open markets that would increase growth and investment. Moreover, it would allow American products to enter Colombia duty-free. Colombia’s hard-won freedom from violence can be sustained only through economic prosperity. Together, as partners, we must see Colombia’s transformation to completion. In winning the war, we must also consolidate the peace.

Question to Barack Obama:  in what way does opposing the U.S.-Colombia free trade agreement enhance the dignity of ordinary Colombians? 

You can hear me talk about the merits, demerits and politics of the proposed free trade agreement with Colombia on PRI's Fair Game with Faith Salie. As an added bonus, embarrassing biographical details of your humble blogger are revealed at the very end of the discussion. UPDATE: Wow, I had no idea who Faith Salie was when this was recorded -- and a good thing, too, or I would have been way more nervous and way less coherent.

Kevin Drum and Matthew Yglesias have posts up on the free trade agreement with Colombia and wonder whether it's worth all the trouble it's going to create. Let's respond! Kevin's post boils down to the following facts: a) Trade contributes somewhat to rising inequality and stagnant wage growth at the lower end of the wage spectrum; b) There's little appetite among the American people for freer trade; and c) Trade is pretty free anyway, so why worry about piddling deals like the one with Colombia. In conclusion, Kevin paraphrases Senator Clinton: "Taking a breather to rethink how we approach trade seems pretty reasonable at the moment." Matt's post helps to rebut the first charge. As he observes:

[The FTA] 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.

The Colombia FTA is hardly unique in this regard -- this is pretty much what the state of play was prior to NAFTA as well. So the effect of these kind of FTAs on U.S. wages is less than minimal. It also explains why ratifying this FTA is a good idea -- it locks in U.S. policy. As I've posted previously, the reason these agreements are a good idea is precisely because they prevent the drift towards protectionism that is otherwise inevitable in a pluralist political system. As for Kevin's desired "pause," let's face it, there is going to be zero momentum towards further liberalization beginning in 2009 regardless of whether this FTA is passed. Kevin's pause is happening whether anyone likes it or not. After analyzing the content of the deal, Yglesias concludes the following:

All things considered, this seems to have almost no implications for American well-being, and if I were a member of congress I think I would consider this an excellent moment to let me vote be dictated by pure partisan politics or possibly corruption. If I were a blogger, I would say that lowering barriers to the importation of foreign goods on a unilateral basis would be good policy for the United States and that using bi- or multi-lateral trade negotiations to try to get other countries to adopt "pro-business" policies is a pretty dubious undertaking.

The first point is incomplete and the second point is factually incorrect. The biggest benefit of the FTA with Colombia has little to do with economics and everything to do with our bilateral and regional relationships. Go back to NAFTA. Kevin is right to point out that the agreement's economic effects were not terribly large. On the other hand, even skeptics of trade liberalization -- Dani Rodrik, Paul Krugman, and Joseph Stiglitz -- supported NAFTA because it locked Mexican economic reforms, promoted political reforms, and cemented a stronger bilateral relaionship. There's no reason to believe that the same effects would not take place with Colombia. Matt has been stressing the killings of labor activists in Colombia. However, the EPI graph he highlights shows a pretty dramatic reduction in these killings since 2003. Question to Matt: what's the best way for the United States to help reduce those killings even further -- ratifying or rejecting the FTA? I'd argue the former. FTAs matter more than unilateral reductions of trade barriers because they decrease the likelihood of policy reversals (which, again, is why Hillary Clinton's proposals to renegotiate FTAs every five years or so is such a God-awful idea). Ratifying the FTA with Colombia increases the likelihood that labor killings will continue to decline. A final point: for freer trade to be politically sustainable, there needs to be some kind of reciprocity, which can't happen via unilateral reductions in trade barriers. Historically, unilateral reductions have had a minimal impact on the openness of the global economy. In the 19th century, the repeal of the Corn Laws mattered a hell of a lot less than the Cobden-Chevalier treaty in opening up European economies to each other. In the 20th century, GATT mattered a hell of a lot more than any unilateral U.S. policy in leaving the misbegotten trade policies of the Depression behind. UPDATE: On the other hand, I should point out that Drum is 100% correct on this point he makes in a follow-up post:

Question: which is more important to the cause of free trade: (a) passage of the Colombian trade pact or (b) reining in the monstrosity that is U.S. farm policy? The answer is (b) by several light years. So why do we hear so much about the dire consequences of failing to pass a piddling bilateral trade deal... but almost nothing about the dire consequences of the hideous $300 billion distortion caused by the latest round of farm subsidies ? most of which goes to big agribusiness, not struggling family farms? How about a little more noise on the farm front?

The problem is even bigger than Drum realizes, since cutting back agricultural subsidies are also the key to completing the Doha round. ANOTHER UPDATE: I just want to point out that the initial version of this set a new personal record for number of typos in a single blog post.

Today, the Eisenhower Executive Office Building is on fire. Yesterday, in what is strictly a coincidence, the U.S. Trade Representative, Secretary of Commerce, and Deputy Secretary of State had a little get together in the EEOB on planning U.S. trade policy for the rest of the Bush administration's term of office. The idea was to talk with both trade and Latin American experts from the think tank and academic worlds to see whether/how the Colombian, Panamanian and Korean FTAs will be passed by Congress in 2008. I know all this because I was in the room as an expert. And you can cue massive waves of imposter syndrome here....

One of pieces of accepted wisdom among policy cognoscenti is that while the United States is not terribly generous in terms of foreign aid, it does excel in niche areas, like providing providing relief for humanitarian disasters. The Financial Times' Quentin Peel reports on a new ranking exercise that suggests this perception might not match.... other people's perception:

Sweden, Norway, Denmark and the Netherlands have been ranked as the top four aid donors in providing relief for humanitarian disasters, according to a new index published on Thursday. The study, launched by Kofi Annan, the former United Nations secretary-general, ranks 23 aid donors from the Organisation of Economic Co-operation and Development according to the effectiveness and impartiality of their relief efforts in eight crisis-hit countries. In contrast to the Scandinavian nations, major donors such as the US, Japan and France rank in the bottom half of the index, with low scores for tests such as impartiality and implementing international humanitarian laws. France is criticised for its failure to work effectively with other aid agencies. The humanitarian response index, drawn up by Dara International, a Madrid-based evaluation agency, ranks the European Commission in fifth place, in spite of frequent criticism of its bureaucratic procedures. The UK ranks ninth, Germany 13th, and the US 16th out of the 23. The bottom two countries are Italy and Greece. The purpose of the index, based on the responses of more than 800 aid agencies in the eight disaster zones [Democratic Republic of Congo, Colombia, East Timor, Haiti, Lebanon, Niger, Pakistan and Sudan--DD.], is not to be ?a name-and-shame exercise?, according to Silvia Hidalgo, director-general of Dara, but rather to be ?a vehicle...to improve the quality of humanitarian aid?. Mr Annan, who launched the report in London, said it would serve as ?a crucial tool to help ensure that no disaster is ignored, and that every dollar spent helps those most in need?.

I tried to access the actual report, but Dara's web site, while quite fancy, is also maddeningly short on detail or methodology. Still, two quick thoughts:

1) Are the evaluations of aid agencies really the only metric being used here? Surely some of these agencies were on the losing end of various funding decisions by major power donors. Might that not affect their responses? 2) Is impartiality always a good thing during humanitarian crises? I'm not saying it's necessarily a bad thing, but as a "guiding principle" I'm not sure it's a great idea for every aid donor to act according to these principles either.

It's no secret that I've been in a sour mood as of late on the future of U.S. trade policy. Today's New York Times story on the House's passage of the Peru FTA didn't cheer me up either, because the takeaway point is that its passage was the exception and not the rule. Eoin Callan, however, lifts me from complete and total despair with this Financial Times story:

Diplomats from the US and European Union are laying the groundwork for an unprecedented round of bilateral bargaining in which all of the main transatlantic trade disputes would be put on the table and negotiated in one go. The talks between the world?s two largest trading blocs would link the resolution of billions of dollars-worth of simmering trade disputes and aim to ?clear the decks? with one all-encompassing deal, officials said. The negotiations would tie the fate of a range of US and European industries, including computer manufacturers and producers of genetically modified foods, to a back-and-forth round of bartering that would produce ?winners and losers on both sides?, a senior European official said. The plans appear to have originated in Brussels and coalesced around the Transatlantic Economic Council, which met for the first time on Friday in Washington and brought together senior policymakers from the Bush administration and European Commission.... The chief EU trade negotiator said there was merit in an approach that linked separate trade disputes and ?put them on a ledger, marking down each one, three wins for you, three wins for us?. He said it was easier to achieve a negotiated solution when ?you can get a win on both sides? rather than trying to broker a compromise when trade law clearly favoured one side. A US trade official said: ?We?re up to sitting down at the table to talk about these things and trying to negotiate rather than litigate.?

If this works -- and given the interest groups at play, I'd put the odds of success at about 35% -- then it's win-win-win-win-win. Both the United States and European Union would score some policy victories, and remove some major irritants to the transatlatic relationship. The business community on both sides of the Atlantic would benefit from greater policy certainty. Consumers would gain from increased levels of exchange The biggest winner, however, would likely be the WTO -- because it would save the dispute settlement body from having to decide cases that are way beyond its pay grade.