Trade nerds, something for you: unplucking the ITA

Apologies, dear readers, for a new period of relative inactivity on this blog.  A pity, so much going on…. Maybe I’ll find time to comment on The International Commentariat and the Crisis. The fascination with bailout packages is truly amazing. I should be able to find time soon again, because what’s been holding me up is now finally out of the way: a paper written with Brian Hindley and Fredrik Erixon on the information technology agreement  interesting for whoever’s interested in hard-core trade matters (or in cheap and better ICT goods): structure of trade agreements in the WTO, dispute settlement customs classification, IT, and whether LCD monitors or mobile phones with a GPS function can be traded duty free. It follows a dispute filed by the US, Japan and Taiwan in the WTO against the EU this year on its classification practices of complex multifunctional ICT products. Some background was provided by Trade Diversion a few months ago.

No more papers for now, so hopefully more time for real blogging….!

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Sample of a video-audio week-end: US facing its crisis, Russian affairs, Pascal Lamy.

This blog is written by a nerd-of-sorts who hardly ever watches online videos, is still not quite familiar with YouTube, and loves one means of transmitting information above all others:  the written word. This week-end, however, I’ve decided to prioritize listening and watching. A small sample of my audio-video tour:

Aftermath of the Georgia war by Amnesty International: here. (thanks to James over at the Robert Amsterdam blog).

The US debating how to deal with Russia – CNN interview hosted by Fareed Zakaria (thanks again to the Robert Amsterdam  blog…)

Howard Rosen from The Peterson Institute in Washington on how to adapt US unemployment benefit schemes to the reality of today’s workforce. Here. To back up this interview with some written text, I do recommend to read Rosen’s latest Policy Brief on the matter.

The US is handling crisis anxiety. Obama unveiled his big plans yesterday. Here. Some more details and background (in written form…;-)) here.

And, for French speakers: Pascal Lamy, the Secretary-General of the WTO, hosting some diplomatic meetings this week-end in Geneva on a potential, highly hypothetical conclusion of a Doha Round deal, spoke to French radio (France Culture) yesterday morning. One of the questions debated was whether global finace could be regulated following a governance model similar to the WTO (oh my….! do we need a financial dispute settlement body?). No answer of course, but a few interesting thoughts tailored to a French audience on the difference between opening markets and regulating markets.

A bit of self-promotion – some work on Russia

Can something be done about Russia’s tendency to use trade sanctions during political conflicts with its neighbours? Can something be done to avoid that foreign investors in Russia get stripped of their assets? Can the rising tide of trade and protectionism in Russia somehow be halted? Can the EU do something about it, and is it a good idea for Europe to try and discuss a free trade agreement with Russia? Whoever is interested in those kind of questions might want to consider having a look at a new ECIPE paper.

I’ve been examining Russia’s policies for a while and the country’s relations to the EU. This has resulted in a paper, written in collaboration with my colleague Brian Hindley, who has had a closer look at Russia’s WTO accession. For anyone who’s been following my posts on Russian affairs it might be interesting to have a look at it. It has quite an unglamourous title: “Russian Commercial Policies and the European Union – Can Russia be Anchored in a Legal International Economic Order?”. Here is the paper. Ed Lucas, The Economist’s Eastern Europe correspondent who gave a keynote speech at a conference hosted by ECIPE today that was as sensational(ist) as his book on “The New Cold War”, said we should rather have given it the title “We want interdependence, they want a protectionist fence”…. It would have been a more selly title indeed….;-) But in fact it is not that simple: from quotas on Russian steel to cosy national relationships with  the Kremlin and a special Gas Monopoly I don’t want to name, there’s a lot of domestic clean-up to be done. My Director Fredrik Erixon recently had some reflections on EU-Russian energy relations, translated, as well, into a new paper. For anybody who’s interested in this issue, it might well be worth having a look at it.

“Saving the WTO from Doha” – Can the ITA really set a precedent?

As we all know, Doha collapsed yet again in Geneva end of July. This comes as no surprise. It has become “a ritual”, as the FT highlighted in its editorial comment (subscription required) on the matter. It adds: now the WTO needs to be saved from Doha:

“Doha’s stasis is already eroding the WTO’s credibility, and partial deals are already proliferating. It is no longer a question of getting Doha done to save the WTO; it is, regrettably, now largely a question of saving the WTO from Doha.”

The main stumbling block this time was

Précisions

Suite à mon précédent billet, je tenais à faire deux précisions.

– Mon introduction au sujet par l’idée de l’économie de guerre et de l’autarcie /autosuffisance agricole pour parler de la Politique Agricole Commune avait pour objectif d’illustrer ce que peut signifier, et où se trouvent les filiations historiques, de la PAC lorsque ses principes sont poussés à l’ extrême : étatisme extrêmement coûteux et nostalgie romantique pour un passé agraire qui en réalité veut dire misère. Les lois de l’économie s’appliquent aussi en agriculture. Une plus grande division du travail et une extension du marché permet à chacun de produire ce qu’il sait faire mieux et se procurer ce que les autres font mieux… et ainsi d’accroître notre diète. Rien de mieux pour notre santé et nos palais. Des transferts « technologiques » sont aussi rendus possibles par l’accroissement des échanges, par exemple l’introduction de nouvelles plantes qui répondent à de nouveaux besoins.
– J’ai été rapide dans une phrase. Non la PAC n’est pas la cause de la hausse des prix agricoles. Mais, en stimulant un système agricole rigide qui ne sait pas répondre à l’augmentation de la demande, il contribue au renforcement de la rareté qui se fait sentir actuellement. Celle-ci est due à une combinaison de plusieurs facteurs : demande croissante de produits alimentaires et notamment de viande en Chine et en Inde, ce qui augmente la demande de grains pour nourrir le bétail ; quelques mauvaises récoltes que l’on peut attribuer ou non au changement climatique ; la promotion notamment aux Etats-Unis et au Brésil de carburants biologiques, notamment par le biais de subventions et de mesures protectionnistes, ce qui augmente la pression sur l’utilisation de terres arables et contribue à une diversion de production qui accroît la rareté de biens comestibles produits.

Guerre des tranchées agricole

Historiquement, l’autarcie économique est associée aux régimes totalitaires et à la guerre totale. Le tout accompagné d’expansionnisme militaire et territorial, ou du moins de subjugation de pays satellites aux volontés de l’Etat surpuissant. Inutile de faire référence à l’Allemagne nazie ou à l’Union Soviétique du temps to COMECON.

L’autarcie, c’est l’économie de guerre avec un Etat hyper-puissant mobilisant par coercition l’ensemble de la société. Mais on peut aussi considérer l’autarcie ou l’auto-suffisance dans l’agriculture comme reflétant une arriération pré-industrielle. Les paysans d’Ancien Regime étaient certainement plus ou moins autarciques. Mais on vivait dans la misère, et le régime alimentaire était extrêmement limité. Fort heureusement, même sous l’Ancien Régime, nous ne vivions pas en complète autarcie ! Les pommes de terre, partie désormais du folklore germanique entre autres, ou les tomates, sans lesquelles la cuisine méditerranéenne est impensable, nous viennent originairement de Nouveau Monde, la découverte duquel marque plus ou moins les débuts de la « mondialisation ». Tout cela pour dire que,

Responding to the food crisis: free up

Soaring food prices in recent months have triggered a real crisis, riots in various countries, and all sorts of government responses that do not seem to work. Striking moves are export restrictions in Asia, and other countries such as Russia or Argentina, or a ban on trading in agricultural futures in India…

Nancy Birdsall, Center for Global Development, and Arvind Subramanian, from the Peterson Institute cannot be said to be absolute free market fundamentalists. Subramanian for example advocates a limitation to international capital flows, a matter on which I profoundly disagree. But the oped both wrote on how to respond to the food crisis in the Wall Street Journal Asia give their views the more weight when addressed to market skeptics. The problem they identified is thus:

“To prevent future crises, the fundamental incentives in agriculture need to be fixed. That in turn means efficient and food-friendly trade policies around the world. But not only are we far away from that objective, we are moving in the wrong direction.”

Both attack in particular the current fashion of biofuel subsidies (see my previous post on climate change too) and export bans:

Is the negotiating agenda of the Doha Round too narrow?

The Doha patient is still in a coma. Surgical intervention is not in sight yet. But the complementary psychoanalysis at least has started….

With the risk of being accused of promoting only one institution’s reasearch, may I just draw the reader’s attention to a brand new paper by Peter Kleen, Senior Fellow for ECIPE and former head of the Swedish National Board of Trade. In the last months he has been comparing the Uruguay Round with the Doha Round, and trying to extract what their main differences and similarities are, in order to help find out what it is that blocs Doha. The results are summarized in his “So Alike and Yet So Different: A Comparison Between the Uruguay Round and the Doha Round.” The paper reveals many things – developing country coalitions have become more fluid and defensive, business support is not strong because of continued de facto globalization, FTAs and global growth, NGOs play a bigger role. But the Doha Round itself is a not as bold and innovative as the Uruguay Round, which created a new institution and brought in agriculture, services and TRIPs. I very much liked this idea:

“The Uruguay Round introduced into the world trading rules comprehensive frameworks in trade in services and intellectual property. In the Doha Round, however, the only truly new issues [.i.e. three “Singapore issues” – investment, competition, transparency in government procurement”] were eventually dropped.

By scaling down the Doha agenda, the focus on the market access issues in the goods area has increased. A success depends on breaking the “iron triangle”—getting the European Union (EU) to move on agricultural tariffs, the United States (US) on domestic agricultural support and the major developing countries on industrial tariffs. The complicating factors are that further reductions of support and tariffs are politically highly sensitive for many developed and developing countries and there are extremely limited possible trade-offs with concessions in other negotiating areas. Hence the present stalemate.”

Inflation, globalisation, agricultural liberalisation, and maybe a new chance for the Doha Round

(with slightest updates)

Until recently, we thought that the spectre of inflation had faded away. Monetarist theses had triumphed. Central banks have become independent in most OECD countries to shield monetary policy from populist demands to abuse the printing press. Increased globalisation, keeping imports and consumer goods cheap while acting as disciplining force on wages and policies had a positive effect on prices. Inflation is historically, a nightmare: the role of the 1920s hyperinflation in the rise of Nazi Germany is well ascertained. It is also an economic headache – no, a chronic migraine: raising uncertainty over returns, thus acting as a brake to long-term investment decisions. Obviously, rising prices hit the poor most, and developing countries such as those in Latin America suffered enormously during the 1970s and 1980s from excessive levels of inflation. Since the 1990s, inflation has become much less of a concern, and only pariah states like Zimbabwe have been prone to hyperinflation. Until the “credit crunch” last year, the international economic press was rejoicing about an era of low inflation and low interest rates – pretty unprecedented in history – that contributed to the general borrowing binge ranging from “subprime” homebuyers in the US to all the emerging markets, and even poorer nations in Africa.

A recent paper by Gernot Pehnelt at ECIPE corroborated the thesis that globalisation contributes to keeping inflation down. The paper reminds us that
 

“the world has experienced a remarkable process of disinflation, with average inflation rates in industrialized countries falling by 10 percentage points and an even sharper decline of the mean rate of inflation in developing countries.”

In his study, Pehnelt focuses on the case of 20 OECD countries and looks at the relationship between their growing international economic integration and their inflation rates between 1980 and 2005. I’ll let you to the joys of working through the technical details of this econometric study. The result points clearly to a positive effect (checked for its robustness) of globalisation on disinflation – although admittedly it is not all.

Having said all that, we have recently found ourselves faced with a new outburst of inflation all over the world. The European Central Bank is fighting hard to keep its 2% target, emerging markets such as Russia are faced with two-digit inflation rates again, and along with China or Venezuela, they try to fight the spectre by introducing price controls, which are likely to fail (price controls on e.g. food lead to lower supply and a booming black market with skyrocketing prices, that hit most, whom do you think: the poor).

The culprit? Food and commodity prices

Ukraine joins the WTO – the beginning of a long story?

It is confirmed: Ukraine will now accede to the WTO. A big 47-million booming market, Ukraine was the third biggest country outbeside Russia and Iran outside the WTO fold.

Europe is now keen to sign a bilateral free trade agreement with this new frontier country on its Eastern borders. To watch now:

– Ukraine is strong in agriculture: how far will Europe want to open its market in sensitive agricultural products? It could be that the current price hike in agricultural products renders Europe more flexible…

– Ukraine is also very strong in metals. EU anti-dumping exercises tend to focus on metals, and have been hitting Ukraine. How will protectionist forces within Europe influence the outcome of the FTA?

– Ukraine’s economy still needs deep structural and institutional market reforms. Opening up services, accepting international competition in key industries (machinery, cars) might be hard to swallow.

– The EU wants to offer a comprehensive FTA, among others in order to stave off Ukrainian ambitions to join the EU. Given current enlargement fatigue in Europe, the politics of this FTA will be interesting to watch…

– There is/was a tacit “Russia first” policy in WTO accession talks of countries belonging to the former Soviet bloc. Given delays in Russia’s accession, Ukraine is not willing to wait. Russia is not in the position to oppose Ukrainian accession before itself, despite criticising the move by telling Ukraine it is joining on unfavourable conditions (Ukraine accepted restrictions in agricultural subsidies that Russia is still debating with its partners). With FTA talks with the EU looming ahead, Russia’s reaction will need to be watched closely however.

The next CIS country WTO accession in the pipeline is Kazakhstan. ECIPE is preparing a research paper on the matter, it should be out around the end of the month or early March. Watch that space…!