Tag: wto

Australian Trade Scholars Offer Perfect Cure for ‘Protectionitis’

Earlier this month, the Lowy Institute in Australia published a paper offering some very sound and, obviously, very timely advice about how to contain, and ultimately, eradicate protectionism. The paper is being circulated among the G20 delegations, who will undoubtedly discuss the topic of trade and protectionism in Pittsburgh next week. So for those of you interested in getting a sense of what will probably be the single best idea on (or at least near) the table at the G20 summit, I highly recommend this 20-pager.

The solution proposed by the authors boils down to a two-word phrase: “Domestic Transparency.” What is meant by that phrase is that “defeating protectionism begins at home.” And by that slogan, the authors mean that the key to reducing, and ultimately eliminating, protectionism is not external pressure from other countries, mercantilist trade negotiations, or filing trade complaints at the WTO, but rather greater awareness at home of the real costs of protectionism. I couldn’t agree more. (In fact better transparency is one of our recommendations in this paper).

When governments impose trade barriers at the behest of special interests, they usually justify that protectionism with diversionary rhetoric concerning some vague conception of the “national interest,” and the imperative of shielding domestic business from unfair competition and other vagaries of the globalized economy. That the protectionist measure itself—the product of special interests diverting productive resources from economic to political ends—forces involuntary and usually unknowing subsidization of those protection-seekers by the same citizens at large who are expected to buy into the national interest canard is a detail about which most people remain in the dark.

The central theme of the Lowy paper is that once people become informed about the costs of protectionism, not only to the broader economy, but in terms of what it means for their own personal budgets, politicians and lobbyists will find it much more difficult to concoct protectionist schemes.

That this paper is written by Australians is no accident. The Aussies have experience and credibility implementing a successful domestic transparency regime, which entailed the establishment of an independent authority (independent from the levers of government and business) to provide advice to governments that is “disinterested, open to public scrutiny, and formulated from the perspective of national welfare rather than the needs of particular producer groups.” The establishment of that agency (oddly named the “Industries Assistance Commission”—one of the authors, Bill Carmichael, is the former Chairman of the IAC) in 1974 and its successor agency (also oddly named the “Productivity Commission”) are widely credited with exposing the costs of protectionism to Australians, who subsequently supported dramatic waves of trade liberalization and have since been skeptical of efforts of industries to secure protection.

In this country, the U.S. International Trade Commission is an agency with a stable of economists that measures the welfare effects of trade liberalization and protectionism. While it may have the resources to conduct the analyses, it doesn’t have the independence. Regrettably, ITC studies are often subject to the whims of politics, particularly when the objectivity and facts in their reports don’t comport with politicians’ “expectations.” We need something similar to Australia’s domestic transparency institution in the United States, and in other countries, too.

G20 members should seriously consider the proposal in this excellent Lowy paper.

Tuesday Afternoon Hypocrisy

An article today in Congress Daily [$] made me laugh out loud. In a “Geez, these people have some nerve” kind of way.

A bunch of politicians have written to Obama, saying that Airbus should be disqualified from the current bidding process for the Air Force refueling tanker contract on the grounds that the World Trade Organization has reportedly (the final ruling is not yet out) ruled EU subsidies to Airbus illegal. Here’s part of their letter:

Buying Airbus tankers would reward European governments with Department of Defense dollars at the same time that the U.S. Trade Representative is trying to punish European governments for flouting international laws… American taxpayers must not be forced to foot the bill for products which benefited from illegal subsidies.

As I wrote to my colleagues when the news came over email, I wonder if those same politicians (authors, by the way, of the auto bailout and cash-for-clunkers) will be as indignant about subsidized companies  if/when Boeing’s subsidies, currently being examined in a counter-challenge at the WTO, are ruled illegal. And how about all those illegal cotton subsidies that the United States doles out? Should taxpayers be footing the bill for storing cotton (scroll down, under “Commodity Certificates”)?

In any case, while I feel sorry for the taxpayers who pay for them, foreign subsidies are a gift to the U.S. consumer.  The bill that American taxpayers are being “forced to foot” is smaller than it otherwise would be because of the corporate welfare flowing to Airbus.  (Note to the libertarian purity police: I’m not advocating for corporate welfare here, just noting the other side of the economic ledger).

French Folly

Following the dubious example set recently by U.S. legislators, French politicians have informally proposed slapping punitive tariffs on goods from countries who refuse to curb greenhouse gas emissions. The German State Secretary for the Environment has, quite rightly, called foul:

There are two problems – the WTO (World Trade Organization), and the signal would be that this is a new form of eco-imperialism,” Machnig said.

 ”We are closing our markets for their products, and I don’t think this is a very helpful signal for the international negotiations.”

I have a paper forthcoming on the carbon tariff issue, but in the meantime here’s a recent op-ed (written jointly with Pat Michaels) on climate change policy mis-steps.

About That Vision Thing…

Does the world need a “shared vision on food and agricultural trade policy”? So says World Trade Organization Director General Pascal Lamy:

Let me start by saying that food and agricultural trade policy does not operate in a vacuum. In other words, no matter how sophisticated our trade policies may be, if domestic policies do not themselves incentivize agriculture, and internalize negative social and environmental externalities, then we will always have a problem.

Here I question what exactly Lamy means by “incentivize”.  Does he mean “make sure we get incentives right”, or does he mean “provide positive incentives to agriculture”? The former probably is harmless if it means simply allowing market forces to work, the latter a potential opening for the types of subsidies and price supports that have done so much damage to agricultural trade policy. Ditto with his wish to “internalize negative social and environmental externalities”: on the face of it, this is a fairly inoffensive goal, and a positively noble one if he is referring to, say, the effects on poor farmers abroad stemming from rich country farm subsidies. But I can see all sorts of nefarious social policies flowing from that prescription if it gets into the wrong hands.

Lamy goes on to make sensible points about the effects of tax policy on agriculture, and makes this statement about the importance of free trade for food security:

To my mind, global integration allows us to think of efficiency beyond national boundaries. It allows us to score efficiency gains on a global scale by shifting agricultural production to where it can best take place. As I often say, if a country such as Egypt were to aim for self-sufficiency in agriculture, it would soon need more than one River Nile. Which basically means that global integration must also allow food, feed, and fibre to travel from countries where they are efficiently produced to countries where there is demand.

All necessary, if not sufficient, conditions for global food security, to be sure. But Lamy then turns to exactly what a global vision for agriculture might involve:

I believe that we could all agree on what the basic objectives are that we seek from our agricultural systems. We all want sufficient food, feed, fibre and some even want fuel. We want nutritious food and feed. We want safe food and feed. We want a decent and rising living standard for our farmers. We want food to be available and affordable for the consumer. We want agricultural production systems that are in tune with local culture and customs, and that respect the environment throughout a product’s entire life-cycle.

Hmm. I’m not sure about all that. For one thing, some of those goals seem potentially in conflict. United States sugar policy, for example, has shown us the results when consumers’ desire for “affordable” food conflicts with sugar farmers’ desire for a “decent and rising living standard” (hint: it’s not the consumers who make out like bandits). Similarly, it is at least conceivable that food grown “in tune with local culture and customs” might be more expensive, or make food less abundant, or even less safe. And if those goals can be in conflict within a country’s borders, I shudder to think what such an overburdened agenda could do to the already-struggling global trading system. At the extreme, a call for a “global vision” of agricultural trade policy could see the return of international commodity agreements and other supranational management nightmares of the mid-late 20th century.

On balance, the WTO has been a force for good in freeing agricultural trade. For sure, commodity markets are still very distorted, and the whole mercantilist basis of the WTO must be questioned. But by trying to harness the desire of exporters for more customers to counteract the pressure on governments to protect domestic industries, the WTO has done much good in the world. Pascal Lamy is right to encourage countries to stay on course with the Doha round of trade negotiations. I just hope that encouraging a “global vision” for agriculture, and pointing to vague notions of “social externalities,” doesn’t run against his stated purpose of freeing farm trade.

More on Cato’s work on agricultural trade policy here.