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 […]

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.