Planet Not For Sale
The Obama administrations message on trade negotiations inherited from its predecessor is emerging and it clearly says: we'll get back to you when we have the necessary cabinet officials in place, such as a U.S. Trade Representative, and have had time to review our trade policy.
So far, the administration has sought a delay in negotiating sessions for two new trade agreements that were scheduled to take place next month, and has opted to refrain from pushing a bilateral investment treaty (BIT) with China during Secretary of State Hillary Clintons trip to Asia.
Delayed from March is the first comprehensive round of trade negotiations for the Trans-Pacific Partnership (TPP), which initially would mean a free trade agreement between the U.S. and New Zealand as well as a U.S.-Brunei FTA. The TPP meeting was scheduled for the week of March 30, and will be the subject of a March 4 interagency hearing chaired by USTR.
The key issue to watch is what position agriculture groups will take on the new agreement, which may hold some promises in the long-term if the TPP were expanded to include Japan, but provides few U.S. export benefits in the near-term.
The U.S. also successfully requested a delay in the March negotiations of a controversial intellectual property rights agreement known as the Anti-Counterfeiting Trade Agreement.
Similarly, Clinton did not press during her visit to China the need for a bilateral investment treaty, though sources emphasize that is a temporary delay.
This pause on trade could last a while longer since it now looks that the Senate Finance Committee hearing for USTR nominee Ron Kirk could slip to the week of March 9 after signals late last week that it could may happen in the first week of March. Finance Committee staff met with Kirk last Thursday (Feb. 19) and discussed Kirk's questionnaire and other submitted documents, according to a committee aide.
When the nomination hearing takes place, it will be interesting to see if Kirk offers more than the typical nominee responses on how the administration will proceed on the controversial pending U.S.-Colombia FTA and what additional steps Colombia has to take to address Democratic objections on labor violence in that country.
One congressional aide said this week he expected Finance Committee members to press Kirk on these specific issues, which Democrats so far have avoided answering detail.
There is also a policy void at the Commerce Dept., because there is no formal nomination for a Commerce Secretary. Former Washington Governor Gary Locke is clearly being vetted for that spot and many seem to hope the third-time nomination will be the charm.
The U.S. postponements of negotiations may well be temporary and driven by the fact there that there is simply no one home at USTR or Commerce to make necessary decisions and vet them with the White House, where key officials are preoccupied with the economic crisis.
But we will not know whether and how the Obama administration wants to deal with this inherited trade agenda until it has undergone an internal trade policy review, which could take roughly two months after Kirks confirmation.
Trade critics in Congress such as Rep. Mike Michaud (D-ME) are clearly hoping this pause by the Obama administration is more than temporary. These members of Congress are poised to call on President Obama to work with them on a new model for trade and investment negotiations before proceeding to any new negotiations.
In a draft letter, these members are pressing the administration to call off BIT talks with China and TPP talks with Chile, Singapore, Brunei and New Zealand because they reflect the bad policies of the past.
The TPP seems to have little exposure so far in Congress judging by the fact that fewer than 20 members signed a draft letter to Obama urging U.S. participation in the March TPP session. One trade skeptic speculated that it is likely the letter, which was championed by Reps. Ellen Tauscher (D-CA) and Ways and Means Ranking Member Kevin Brady (R-TX), will not even be sent in light of that scant response.
The perennially lagging Doha round of trade negotiations will likely come into the spotlight on April 2 when G20 leaders gather in London to tackle the global financial crisis. Obama is likely to face pressure to agree to a political pledge on recommitting to the successful conclusion of the Doha round from U.K. Prime Minister Gordon Brown and others.
The outcome could be bold policy pronouncements on the need to complete the Doha round quickly and to avoid trade-restricting measures in the face of the global economic crisis. But it is unlikely that these statements will translate into Geneva efforts aimed at reviving the stalled negotiations until USTR and the White House decide how they want to proceed on the talks.
Such a review on Doha could lead to a change in the agenda as well as the negotiating approach. The talks are currently deadlocked over negotiating modalities for non-agricultural market access and agriculture.
Leading U.S. lobbying groups in services, industrial goods and agriculture are poised to send a letter to Obama this week reiterating their belief that what is on the negotiating table in Geneva now is simply not good enough. But key trading partners have taken the position that the Doha round is stuck unless the U.S. digs into its pocket for more concessions.
The U.S. delay is not the only political problem the Doha round faces: India will have elections in April, Japan faces elections this year and the European Union is poised to name a new commission in the fall.
Three sacred cows have dominated the market fundamentalist religion of the last 25 years: balanced budgets, private ownership and free trade. Two have recently been sacrificed to reality. Balanced budgets went first, as countries dived into deficit spending without debate to fend off the recession. Belief in private ownership is faltering too, as country after country nationalises its banks.
Faith in free trade, however, is holding out, just about. The major economies are slowly but surely raising protectionist barriers through subsidies and local procurement programmes, yet free-market economists warn us that any moves to protectionism will trigger a trade war, and destroy the world trading system, as happened in the 1930s.
This is a misreading of history. The depression-era shift to protectionism was much less dramatic than is often claimed. The conventional story says that the world trading system collapsed because the US introduced the Smoot-Hawley tariffs in 1930. But this was not a radical shift in policy. America had been the most protectionist country in the world for the previous century, while Smoot-Hawley (pictured, below right) only raised average industrial tariffs from about 37 per cent to about 48 per cent, well within the historical range of US tariffs until then. Tariffs in other countries did rise after 1930, but only moderately, and economic historians have shown that trade shrinkage after the depression had more to do with shrinking demand and the drying-up of trade credits.
Of course, an all-out trade war would not help the world economy recover. Thankfully, at least in the short run, there is no danger of such a thing happening. Unlike in the 1930s, we have the World Trade Organisation, the EU and many regional trade agreements to limit the protections that countries can deploy. Countries will cheat within the boundaries of these agreements, but they can do only so much.
Moreover, the “1930s: never again” story assumes that protectionism is always bad. But this is not true either. Unlike in finance, where things can be speedily re-arranged, the real economy takes time to adjust. Producers must build new factories, and invest in new technologies. Workers must acquire new skills and find new jobs. When big adjustments are needed, temporary protectionism helps to create the breathing space for companies and workers to reinvent themselves.
There are other good reasons to consider limited measures to protect domestic economies. Textbook trade theory says that making countries more and more specialised is an unquestionable good. But this isn’t always true. Britain, for instance, probably over-specialised in finance over the last few decades, while neglecting manufacturing. The international division of labour should be balanced against the need for a broadly based economy, capable of protecting countries and their people against shocks to a particular industry. Voters in advanced countries, meanwhile, might well be willing to swap a little more job stability for slightly more expensive goods in their shops.
Such mild protectionism can be explicitly time limited. Indeed, evidence after the 1970s oil shocks shows that countries like Japan and Sweden that had specific and time-bound protectionism bounced back more quickly than others, like the US, where measures were hidden but more pervasive. The danger today is that we will pretend to believe in free trade, while practising protectionism by other names—just recall Peter Mandelson’s £2.5bn auto industry rescue: “not a bailout,” he said, but a “greening” initiative.
To avoid destroying the legitimacy of the global trading system we urgently need an international agreement, at least an informal one, that sets out some broad rules for this transparent and time-bound protectionism for adjustment purposes.
Emphasising the need to create a more transparent mechanism for the use of “adjustment protectionism” is not to suggest that everything else is fine with the current system. There is another kind of protection which needs to be allowed—one that allows developing countries relief from outside competition while they acquire new technologies and train their workers in new skills.
Such protection, known as “infant industry protection,” was practised by virtually all of today’s rich countries—starting with 18th-century Britain, through 19th-century US, Germany and Sweden, to 20th-century Japan, Korea, Taiwan—as I show in my books, Kicking Away the Ladder and Bad Samaritans.
Despite their own history, over the past quarter century rich countries have done their best to make it increasingly difficult for developing countries to use infant industry protection measures. They have pressed for trade liberalisation as a condition for the aid they give, and for the loans from the international financial organisations that they control. They have pushed for greater restrictions on tariffs, subsidies, regulations on foreign investment and other measures that developing countries need in order to promote their infant industries. This practice has to stop—and, ideally, be reversed.
The reality is that free trade has never worked very well, especially for developing countries, but it is going to malfunction even more in the coming years. Rather than trying to nurse this ailing sacred cow back to health, we should slaughter it —and concentrate our energy on designing a new system of international trade that pragmatically mixes free trade and protectionism.
The present report seeks to explore the relationship between the agreements concludedunder the framework of the World Trade Organization (WTO), particularly the Agreement onAgriculture, and the obligation of the Members of the WTO to respect the human right toadequate food. It is based on the mission of the Special Rapporteur on the right to food to theWTO.
In the report, the Special Rapporteur argues that, if trade is to work for developmentand to contribute to the realization of the right to adequate food, it needs to recognize thespecificity of agricultural products, rather than to treat them as any other commodities, and toallow more flexibilities to developing countries, particularly in order to shield theiragricultural producers from the competition from industrialized countries’ farmers. The mainimpacts of the current multilateral trade regime on the right to food include (a) increaseddependency on international trade which may lead to loss of export revenues when the pricesof export commodities go down, threats to local producers when low-priced imports arrive onthe domestic markets, against which these producers are unable to compete, and balance ofpayments problems for the net food-importing countries when the prices of food commoditiesgo up; (b) potential abuses of market power in increasingly concentrated global food supplychains and further dualization of the domestic farming sector ; and (c) potential impacts onthe environment and on human health and nutrition, impacts that are usually ignored ininternational trade discussions, despite their close relationship to the right to adequate food.
The report proposes ways to reconcile trade with the right to food, addressing thefailure of global governance mechanisms to tackle the lack of coordination between humanrights obligations and trade commitments – a failure which mechanisms ensuring a bettercoordination at the domestic level may not be able to compensate for. The report invitesStates to assess the impacts of trade agreements on the right to food and ensure they do notaccept undertakings under the WTO framework which would be incompatible with theirright-to-food obligations.
By Joshua Chaffin in Brussels and Alan Beattie in Washington
The European Union is gearing up to slap duties on imported US biodiesel inthe latest sign of rising trade tensions as world economies slump intorecession.
The so-called “anti-dumping” and “countervailing” duties, levied againstimports deemed to be priced unfairly low and receiving government subsidy,will be proposed by the European Commission at a meeting early next month.
The Commission’s preliminary findings suggest that the subsidies are pushingdown prices by between 89-99 US cents per gallon and that US companies areunderpricing by 10-82 cents a gallon, according to people involved in thecase. Biodiesel is currently about $2 per gallon. Duties to offset thesemargins would initially be imposed for a four-month period before theCommission made a final ruling on whether the subsidies contravened WTOrules.
The Commission launched in investigation in June after a complaint waslodged by the European Biodiesel Board, a trade group. It declined tocomment on the matter on Friday, beyond saying that its deadline to render ajudgment was March 13.
But the US National Biodiesel Board, which is trying to get the USadministration to launch a case against the EU at the WTO, said the onlyEuropean biodiesel companies suffering were those that had made bad businessdecisions.
“The European biodiesel industry is not being hurt by US competition,” saidManning Feraci, the board’s vice-president for federal affairs. “There areEuropean companies doing quite well, and the data on record in front of theCommission bear that out. We hope the true facts will be reflected in thefinal determination in this case.”
The complaint centres on a US law that grants domestic producers a $1 pergallon tax credit. European producers claim that results in a $250 per tonnecost advantage for US biodiesel – an advantage that was further increasedlast year by the weak dollar.
They have also complained about the so-called “splash-and-dash” trade –producers from Malaysia and elsewhere claiming the credit by adding aminimal amount of US biodiesel on the way to Europe.
US biodiesel exports to Europe have surged to more than 1m tonnes over thepast year, up from just 50,000 tonnes in 2006. They account for about €600m($770m) of the €5bn European market.
The US biodiesel industry says that small European producers far from portsare suffering because of high costs and inefficiencies, while some largercompanies are thriving.
Copyright The Financial Times Limited 2009