Tag Archives: protection

Krugman’s take on protection

It seems Krug­man will say any­thing to score a point. He wants to argue that insuf­fi­cient demand (unem­ploy­ment) is a prob­lem and that redis­tri­b­u­tion (trade taxes) is not. “…the attempt to place blame for the Depres­sion on pro­tec­tion­ism is a sort of Noble Lie, an attempt to scare peo­ple into trade pol­icy that’s good for other […]

Rotten ideas about the renminbi

The prospect of a U.S.-China clash over cur­rency con­trols next month when the U.S. Trea­sury Sec­re­tary is sup­posed to pro­nounce on China’s ‘cur­rency manip­u­la­tion’ has prompted hyper­bolic fears (Mar­tin Wolf, in the FT says he “won­ders whether the open global econ­omy is going to sur­vive…”!) and at least two fee­ble plans.

One is from the IMF, which wants a new mandate—although it admits that’s not really necessary—to under­take explicit mul­ti­lat­eral sur­veil­lance of Sys­temic Sta­bil­ity (i.e. imbal­ances in exter­nal accounts). But the Fund does a bad job of jus­ti­fy­ing its claim for a new role. The Con­clu­sions (on page 12) of the cur­rent pro­posal from the Fund man­age­ment offer no bet­ter rea­son that that it wants to feel impor­tant as the man­ager of a new ‘peer review’ process. Ho hum!

A much worse idea comes from Arvind Sub­ra­ma­niam in today’s Finan­cial Times. He wants the WTO not only to engage in sur­veil­lance but also to enforce the ‘right’ value for currencies.

The World Trade Organ­i­sa­tion is a nat­ural forum for devel­op­ing new mul­ti­lat­eral rules. First, under­val­ued exchange rates are de facto pro­tec­tion­ist trade poli­cies because they are a com­bi­na­tion of export sub­si­dies and import tariffs…:”

Even if we accept that there is an equiv­a­lence between cur­rency man­age­ment and trade mea­sures, we have to ask so what? You’d imag­ine, wouldn’t you, that a trade econ­o­mist would recall that, in WTO, nei­ther of these trade instru­ments is nec­es­sar­ily “pro­tec­tion­ist” and that nei­ther is ille­gal (or even dep­re­cated)! This is not much of an argu­ment for WTO intervention.

Sec­ond, the WTO has a bet­ter record on enforce­ment of rules. Its dis­pute set­tle­ment sys­tem, although not per­fect, has been rea­son­ably effec­tive in allow­ing mem­bers to ini­ti­ate and set­tle disputes…What is needed is a new rule in the WTO pro­scrib­ing under­val­ued exchange rates.

Uh-huh. But does Prof. Sub­ra­ma­niam recall what is needed to add a ‘rule’ to the WTO? If not ‘con­sen­sus’ (or ‘explicit con­sen­sus’ in the Doha nego­ti­at­ing man­date), then a very strong qual­i­fied major­ity (⅔ of Mem­bers accord­ing to Arti­cle X of the Marakesh Agree­ment). Fur­ther­more, a new rule adopted by a major­ity vote applies only to Mem­bers that accept it; unless a fur­ther another strong major­ity (¾ of Mem­bers) decides to expel any Mem­ber that does not accept the new rule.

Now think for a sec­ond or two what sort of mess a pro­posal to penal­ize per­sis­tent trade sur­pluses would cre­ate in WTO. Remem­ber, we’re talk­ing about an Orga­ni­za­tion that—for the present at least—can’t decide which way is up (in the Doha round), let alone what con­sti­tutes an “under­val­ued exchange rate”

Imag­ine, too, that hor­ri­ble wran­gle end­ing up in a major­ity vote on the new rule, which will inevitably be aimed at China and pos­si­bly Ger­many. But will also poten­tially hit a lot of oth­ers; Thai­land and Viet­nam, for exam­ple. What we have here is a recipe for a hecatomb of the WTO.

The IMF would con­tinue to be the sole forum for broad exchange rate sur­veil­lance. But in those rare instances of sub­stan­tial and per­sis­tent under­val­u­a­tion, we envis­age a more effec­tive delin­eation of respon­si­bil­ity, with the IMF con­tin­u­ing to play a tech­ni­cal role in assess­ing when a country’s exchange rate was under­val­ued, and the WTO assum­ing the enforce­ment role.” Extract from FT.com / Com­ment / Opin­ion — The weak ren­minbi is not just America’s problem

Fat chance! Even if the IMF could actu­ally dis­cover the ‘cor­rect’ inter­na­tional price of a cur­rency, the WTO would break if tasked with enforc­ing it.

Trade-war not likely

Pre­cisely

Tak­ing a legal case over exchange rate mis­align­ments to the WTO would prob­a­bly fail, and take years in any case. The only real route left is to uni­lat­er­ally slap tar­iffs on Chi­nese imports to com­pen­sate for alleged cur­rency under­val­u­a­tion. That would be a nuclear option that really could spark the destruc­tion of the post­war world trad­ing sys­tem, and it doesn’t look like the US is quite des­per­ate enough for that yet.” Extract from Alan Beat­tie in the FT — Skir­mishes are not all-out trade war

Apple’s patent protectionism

In an action before the U.S. Fed­eral courts and the Inter­na­tional Trade Com­mis­sion, Apple Inc. is attack­ing a Tai­wanese man­u­fac­turer of Google’s Android Phone for alleged abuseof 20 soft­ware patents. It seems the suits are aimed at slow­ing the growth of com­pe­ti­tion for the iPhone and, pos­si­bly, aimed at Google’s pro­posed web oper­at­ing system.

The pros­e­cu­tion of soft­ware patents, espe­cially those for ‘user inter­face inno­va­tions’, is a dubi­ous action at best that is some­times (often? usu­ally?) an abuse of market-competition prin­ci­ples. Worse, in this case, Apple has cho­sen to pur­sue it’s com­peti­tors under the noto­ri­ous, pro­tec­tion­ist, S.337 of the US Trade Act of 1930 which does not pro­vide dam­ages for infringe­ment of patent rights but pro­hibits imports of goods likely to infringe a U.S. patent.

Sec­tion 337 of the US Trade Act (1930) was the sub­ject of a well-known GATT com­plaint brought by the Euro­pean Com­mu­ni­ties against the USA in 1998. The Panel Report, adopted by the GATT Con­tract­ing Par­ties, concluded:

…that Sec­tion 337 of the United States Tar­iff Act of 1930 is incon­sis­tent with Arti­cle III:4 [of GATT], in that it accords to imported prod­ucts chal­lenged as infring­ing United States patents treat­ment less favourable than the treat­ment accorded to prod­ucts of United States ori­gin sim­i­larly chal­lenged, and that these incon­sis­ten­cies can­not be jus­ti­fied in all respects under Arti­cle XX(d).

The GATT Panel rec­om­mended that Mem­ber gov­ern­ments ask the USA to amend it’s leg­is­la­tion to bring it back into con­for­mity with the GATT. But this was the mid­dle of the Uruguay Round of nego­ti­a­tions, focussing on the TRIPS nego­ti­a­tions on intel­lec­tual prop­erty. The USA took no action as rec­om­mended by the Panel. Finally, in 2000 the EC again requested con­sul­ta­tions with the USA over S.337, now cit­ing its con­cerns about incom­pat­i­bil­ity with the TRIPS Agreement…but, again, there has been no action by the USA.

The Apple com­men­tariat, is unhappy about the idea of pro­tect­ing soft­ware patents to con­sol­i­date what is, already, a dom­i­nant pos­tion for Apple in the phone mar­ket. Here are two pretty big guns from that world, blast­ing Apple with both barrels.

” What­ever ben­e­fit in the mar­ket Apple hopes to achieve by this suit to me seems likely to be worth far less than the loss of good will and pres­tige Apple will suf­fer if they vig­or­ously pur­sue this case (let alone if they ini­ti­ate more such suits).” Extract from John Gru­ber: This Apple-HTC Patent Thing
But when you sue some­one for doing some­thing you do your­self, you become one of the bad guys. Can you name a com­pany you admire that spends its time enforc­ing patents, instead of inno­vat­ing? Remem­ber the pirate flag you flew over Apple’s head­quar­ters when you were build­ing the Mac? Is Apple part of the Navy now?” Extract from Will Ship­ley: An Open Let­ter to Steve Jobs Con­cern­ing the HTC Lawsuits.

Good idea or insidious threat?

When an econ­omy has trade lever­age, the threat of dis­crim­i­na­tory duties need not be sim­ple protectionism.

The US can help China make the nec­es­sary adjust­ments toward a reduc­tion in imbal­ances by adopt­ing a uni­form tar­iff of 10 per cent on all Chi­nese imports, based on their val­ues when they enter the US. Six months after the estab­lish­ment of this tar­iff, the rate would increase by one per­cent­age point a month until the Chi­nese trade sur­plus with the US declines to $5bn a month.” Extract from FT.com / Com­ment / Opin­ion — Tar­iffs can per­suade Bei­jing to free the renminbi

But who, other than China, would loose if this idea worked and the Ren­minbi was reval­ued? Most of the rest of the world. Espe­cially economies with a com­par­a­tive advan­tage in agri­cul­tural pro­duc­tion (Aus­tralia, New Zealand, Latin Amer­ica) for whom imported Chi­nese defla­tion of man­u­fac­tures prices off­sets the EU’s depres­sion of agri­cul­tural prices (and infla­tion of man­u­fac­tures prices).

In prin­ci­ple, too, every­one would loose from another U.S. defec­tion from the core mul­ti­lat­eral trade rules. But per­haps you could make the case that this kind of extra­or­di­nary action (like the 1980’s Nixon Admin­is­tra­tion ‘shocku’ blow against Japan) doesn’t really impact the rules.

Global Trade Alert

Global Trade Alert website

Just before the Lon­don G-20 Meet­ing in April, Andy Stoler and I wrote a paper for a book­let pub­lished by the Cen­ter for Eco­nomic Pol­icy Research in which we sug­gested that the best way to make G-20 gov­ern­ments live up to their promises was to expose their mis­deeds on trade policy—including those that nom­i­nally com­plied with their WTO obligation—using a pub­lic website.

Specif­i­cally, we rec­om­mended that the site should not be run by one of the global insti­tu­tions (WTO, World Bank) that are owned by gov­ern­ments, but should be a pri­vate ven­ture open to con­tri­bu­tions from indi­vid­u­als around the world. Why? Well, as the FT notes, in an edi­to­r­ial today, sov­er­eigns are not likely to put much pres­sure on themselves:

The prob­lem with nam­ing and sham­ing wrong­do­ers is that, all too often, they turn out to be shame­less.” Extract from Finan­cial Times

I am delighted to learn that the co-editor of the book­let (Simon Evenett) and the pub­lish­ers (CEPR) have cre­ated just such a web­site: Global Trade Alert. It has been launched in the past cou­ple of weeks with the back­ing of insti­tu­tional spon­sors (gov­ern­ment funds, mostly) and an advi­sory board of dis­tin­guished ana­lysts. GTA already lists a cou­ple of dozen mea­sures with use­ful details includ­ing the trad­ing part­ners and tar­iff lines affected (for goods measures).

A nicely imple­mented and poten­tially intrigu­ing exper­i­ment in global trans­parency. Please visit and contribute.

Anti-dumping actions on the rise

Chart of anti-dumping investigations by exporting country

Let me first of all get in an ‘I told you so’.

Anti-dumping com­plaints are counter-cyclical. Invari­ably, the num­bers rise, with a lag, as indus­trial out­put slumps. We’ve seen declin­ing lev­els up to 2007 but now… WTO is report­ing a 27% year-on-year rise in the num­ber of investigations.

The Mem­bers report­ing the high­est num­ber of new ini­ti­a­tions dur­ing July-December 2008 were India, report­ing 42, fol­lowed by Brazil, report­ing 16, China (11), Turkey (10), Argentina and the Euro­pean Com­mu­ni­ties (9 each), Indone­sia (6), Ukraine (4), Pak­istan and the United States (3), Aus­tralia and Colom­bia (2 each), and Canada, Korea and Mex­ico (1 each).” Extract from WTO Press Release

This devel­op­ment only makes the cur­rent Pro­duc­tiv­ity Com­mis­sion enquiry all the more rel­e­vant, because you can bet it won’t be long before the Aus­tralian gov­ern­ment will be pressed to scratch harder at the anti-dumper’s itch.