Category Archives: Conference

Guest Commentary: Bali and Its Lessons

In late October, The Chicago Council and partners gathered some of the world’s leading experts on international trade to discuss what would come next in economic integration. Below, one of these experts, Uri Dadush, senior associate at the Carnegie Endowment for International Peace, offers his analysis of an important subsequent event–the limited global trade deal that was agreed in Bali in December. He notes the modest achievements of the Bali deal, but also draws lessons for how the World Trade Organization needs to change in the future.

At a time when US trade debates are about to heat up, a broad description of the outlook for global trade, drawing on the October gathering, is also now available here.

By Uri Dadush, Senior Associate, Carnegie Endowment for International Peace

The Bali agreement rescued the World Trade Organization (WTO) from oblivion, but it also underscored the severe limitations of multilateral negotiations and the need to reform the institution. Encouragingly, it also points the way to how the WTO can change.

In Bali, the WTO reaffirmed the importance of its development mandate, but only by reiterating the contents of prior agreements, adding little new. It also, however, took a significant step forward and one, smaller one, backward. The step forward was to establish trade facilitation—in this case essentially entailing the proper functioning of customs—as part and parcel of the WTO’s functioning, including the creation of a standing committee to oversee the implementation of the agreement.

The step backward was to allow (temporarily, but temporary easily becomes permanent in trade policy) India and other developing countries a major exception to limits on agricultural subsidies on account of food security. It is easy to imagine how such an exception will make it more difficult to make progress on eliminating all trade-distorting agricultural subsidies, traditionally a defensive agenda of advanced countries, and one on which the WTO supposedly plays a unique role. And failure to move on agricultural subsidies in the future will reduce the chances that advanced countries will obtain their long-sought quid pro quo, which is improved and more secure access to manufactures and service markets in developing countries.

But trade facilitation stood out as an exception on which many could agree. True, the significance of the trade facilitation agreement can be easily overstated, since in Bali it was whittled down to what is effectively a “best efforts” endeavor with an open-ended implementation schedule for developing countries. This includes freedom on their part to self-select what gets done faster, and what gets done on an indefinite schedule. Meanwhile, advanced countries and some developing countries have already largely implemented the good practices the agreement entails, such as prompt publication of changes in regulations, pre-shipping inspections where appropriate, redress procedures, and rapid processing times. But the importance of the trade facilitation agreement can also be understated, since extensive research has shown that the cost of custom delays can easily outstrip that of tariffs, and even a “best efforts” international agreement can strengthen the hands of reformers when the political will to improve exists.

Still, even the staunchest multilateralists will agree that Bali represents slim pickings for a wide-ranging negotiation that began in Doha 12 years before, and that negotiations involving 160 very diverse countries (Yemen being the latest addition) are very unlikely to yield anything other than minimum common denominator outcomes. Bali therefore underscores the need to move to a more efficient model for WTO negotiations, one that can involve a smaller, critical mass of players willing to engage on a narrow set of issues—so-called “plurilaterals”—rather than requiring that all countries agree on every aspect. There are illustrious precedents for this, including, for example, the government procurement agreement, the information technology agreement, and the agreement on financial services, all three of which are now the object of negotiation to be extended or deepened in various ways.

The problem with plurilaterals is not only that countries understandably resist any attempt to impose WTO disciplines on them if they have not been part of the negotiation, but they are also reluctant to let others negotiate agreements under the WTO aegis (including dispute settlement, etc.) that puts them at a disadvantage. Short of conducting the negotiations outside the WTO (as in the case currently of the negotiations on TISA—the Trade in Services Agreement), there are three complementary ways to square this circle: grant the excluded countries similar terms as the included ones, include them in the negotiations even if they ultimately opt out of the final deal, and side-payments.

The Bali package is billed as a multilateral deal since everyone was involved in its negotiation, but, given its narrow nature, it can equally be interpreted as a plurilateral deal on trade facilitation since, by allowing plenty of wiggle room in its provisions and allowing developing countries indefinite implementation periods, the trade facilitation agreement effectively bestows a near-free rider status on those that choose not to pursue it. In this light, the reaffirmation of the development mandate, especially for LDCs, and the food security exception for India were side payment for a rather limited agreement on trade facilitation.

The loose provisions in the trade facilitation deal are far from satisfactory from a narrow legal perspective. But from a development perspective, the picture is not as bleak: most countries want to undertake these reforms anyway, and given the complexities of carrying them out in a politicized environment, one can still see the agreement as a big step forward, since it establishes a roadmap and gives reforms a jolt, leaving open the possibility that more binding disciplines will be agreed in the future.

Thus, an important achievement of Bali—and one for which the new Director-General Roberto Azevêdo has to be recognized—is that it points the way to a more flexible modus operandi for the WTO, one that may allow for progress in other relatively narrow aspects of the Doha agenda in the future, or to go beyond Doha. Bali could also begin to shift the emphasis from the legalism for which the WTO and its predecessor, the GATT, are well known, onto the encouragement and support of trade reforms at a country’s own pace.

Moreover, everyone should recognize that progress in world trade does not depend only on the WTO, even though the institution continues to play a crucial role in keeping trade open and predictable. Regional agreements supplanted it long ago as the most active arena of international negotiations and will take on even greater prominence in the future as a number of mega-regional deals such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership take shape, even if some of them ultimately fail.

Furthermore, technology trends and the domestic pressure to enact reforms have always been the most important drivers of global trade by far, and will continue to be. With the growth of foreign direct investment and the proliferation of global value chains, foreign investment and trade have become an essential component of production, making self-sufficiency almost unthinkable. And the rise of an informed middle class in developing countries places new demands for access to quality products at a reasonable price.

Contrary to the dire predictions of trade pessimists, there is thus little reason to doubt that world trade will resume its rapid upward trajectory as the effects of the financial crisis recede. That, in turn, will raise the stakes on revitalizing the WTO as a central plank of post-war prosperity. Hopefully, Bali will be remembered as the first step in the institution’s long and hard journey of reform.

Guest Commentary: Japan’s Agriculture and the TPP

As US presidents encounter domestic policy obstacles, they traditionally turn their attention to foreign affairs. At the top of the agenda for the Obama administration has been the conclusion of the Trans-Pacific Partnership talks, scheduled to wrap up this calendar year. The economic potential of the TPP and its degree of difficulty both increased significantly when Japan joined as a full participant this last summer. Not only is there a lengthy history of contentious trade negotiations between the United States and Japan, but there is the long-time sticking point of agricultural trade. If TPP is to succeed, Japan will need to make politically difficult concessions on agricultural liberalization. Below, Yutaka Harada, an expert at the Tokyo Foundation and Waseda University, summarizes his view of why Japan needs the TPP. A fuller version of his analysis can be found here (PDF).

By Yutaka Harada, Tokyo Foundation and Waseda University

Many Japanese industries are perceived to be strong, active, and competitive in the global market, but agriculture is usually considered an exception. For years, the farm sector has sought protection from international competition, subsidies, and favorable government treatment, and it has been largely successful in getting them until now. In spite of these privileges, Japanese agriculture is in a perilous state, and most farmers oppose any movements toward free trade.

In spite of opposition from powerful agricultural lobbies though, the Japanese government has decided to join the Trans-Pacific Partnership (TPP).

The State of Japanese Agriculture

At a glance, the situation of Japanese agriculture seems absurd. The average age of Japanese famers is 65.8. Fields and rice paddies that have been abandoned and are no longer cultivated total 400,000 hectares (Japan’s arable land is 4.5 million hectares), while another 1,100,000 hectares lie unused owing to the government policy of reducing rice cultivation acreage. Japanese agriculture is in a state of collapse.

Potential for Growth

Despite such dire conditions, there are some areas with potential for growth. Looking at the shares of sales by farm scale, we see that in the case of broilers (chicken), farms with sales of more than 10 million yen (100,000 dollars) accounted for 98% of total sales. Similarly, the shares claimed by farms with sales of more than 10 million yen were 97% or higher for eggs, pork, and milk cows.

By contrast, the shares of 10-million-yen-plus farms were 39%, 51%, and 63% for fruits, rice, and vegetables, respectively. Relatively low shares were also seen for beef, wheat, flowers, beans, and potatoes.

The figures suggest that large farms were dominant for those agricultural products that lend themselves to large-scale production. There is less economy of scale for fruits, vegetables, and flowers. There is considerable potential economies of scale for rice, wheat, beans, and potatoes, but such potential is not realized at present.

Wrong Policies

Why has Japanese agriculture been unable to develop? One possible culprit is government policy that has discouraged farmers from taking advantage of economies of scale.

One might even say that the goal of Japanese agricultural policy has not been to develop agriculture but to maintain the number of farming households, which have tended to vote for the ruling Liberal Democratic Party.

This policy might have been meaningful when the Japan Socialist Party (now the Social Democratic Party) was strong, especially among urban voters, and there was a possibility that the JSP could knock the LDP from power, but such a possibility disappeared many years ago.

What Can Be Done?

In order to correct the shortcomings of Japan’s agricultural policy, it is important to have an understanding of the distorted system of protection for agricultural products. Tariff rates for flowers are zero, those for vegetables range from 3% to 9%, and those for fruits are between 10% and 20%. By contrast, tariffs are extremely high for rice, tapioca starch, butter, sugar, wheat, potato starch, and skimmed milk, being from around 200% to 800%.

Additionally, many unprotected agricultural sectors have been growing while heavily protected ones have not. Sales of vegetables, fruits, and flowers are 2.1 trillion yen, 0.7 trillion yen, and 0.3 trillion yen, respectively. Sales of rice, meanwhile, are only 1.8 trillion yen, with sales in unprotected sectors now being larger than in protected ones. Unprotected sectors are those that can stand on their own feet, increase sales, and make profits, while the protected sectors have been losing sales and continue to depend on protection from the government.

Farm Sector Depends on Japan’s Overall Prosperity

The average agricultural income of Japanese farms is only 0.5 million yen per year. Half a million yen is only about 5,000 dollars. Obviously, this is not enough to live on in modern-day Japan.

Then, how do they live? The average income from side jobs is 1.9 million yen and average pension revenue is 2.1 million yen. Total income, including from agriculture, is 4.5 million yen. This is how they survive.

The figures suggest that for the average farmer, the most important consideration in making a living is to secure a steady income from a side job and to receive pension benefits. Getting a stable side job will become easier if the Japanese economy is growing, and for this, Japan’s best option would be to open its doors wider to the global market and to seek further trade liberalization.

And what are the most important considerations in receiving pension benefits? Since benefits are paid from the contributions of the working-age population, then it follows that Japan needs to be prosperous with many job opportunities. For this, too, Japan should seek liberalized global trade. In short, Japan needs the TPP to ensure its own prosperity.

Taking a Byte Out of Trade

Europeans have reacted to accusations of US spying with revulsion. In today’s Financial Times, Chicago Council President Ivo Daalder explores the degree to which European leaders’ surprise might be disingenuous, but also whether governments should refrain from crossing certain lines as they inevitably gather intelligence.

The furor over allegations that the United States has tapped Spanish phones or listened in on German Chancellor Merkel’s cell conversations touches on trade in at least two ways. First, alleged US government actions threaten a rift between the United States and the European Union at a time when the two are supposed to be racing ahead with a trade agreement, the Transatlantic Trade and Investment Partnership. Second, the dispute over government actions can color discussions about privacy concerns when setting rules for the private sector.

As part of the upcoming conference on “Frontiers of Economic Integration,” we will have a breakout panel devoted to issues of data privacy and electronic commerce. On the question of whether the spat over spying will impede the negotiations, one of the panelists at Wednesday’s session, Hosuk Lee-Makiyama, this summer argued that it should not. Hosuk, director of the European Center for International Political Economy, wrote:

European bluster over NSA spying is unlikely to decide the fate of trans-Atlantic trade talks, which faced huge obstacles long before Edward Snowden started leaking security briefs. For those of us who work within the narrow circles around Brussels, the only real surprise is that someone would actually bother to eavesdrop on us when every journalist and embassy intern seems to have access to the EU’s own ‘classified’ documents.

Hosuk also cautioned last month against letting the reaction to revelations serve as an excuse to block data flows.

Both Hosuk and fellow panelist Stephen Ezell have addressed broader questions about digital trade in the US and global economy in testimony before the US International Trade Commission (here and here). Stephen, a senior analyst with the Information Technology & Innovation Foundation (ITIF), has also co-authored a report on “How to Craft an Innovation Maximizing TTIP Agreement.”

There are a range of interesting policy and economic questions surrounding electronic commerce that did not necessarily arise back in the day, when countries just shipped manufactured goods in exchange for commodities. With such knowledgeable panelists – as they say these days – it should be interesting to listen in.

Guest Commentary: The TPP – Big Stakes for Canada

While the Trans-Pacific Partnership started small last decade, the trade agreement has grown rapidly. One recent growth spurt came when Canada and Mexico joined just over a year ago. Below, one of our expert panelists for next week’s conference, Hugh Stephens, a veteran Canadian diplomat and trade expert, discusses Canada’s interest in the TPP and what is at stake in the negotiations. An extended version of his analysis can also be found here (PDF).

By Hugh Stephens, Executive in Residence, Asia Pacific Foundation of Canada

Will the TPP, which has dragged on for about 4 years and 19 negotiating rounds, be DOA when it arrives at the doors of Congress? If so, that will be a profound disappointment for New Zealand, which sees the TPP as its best hope to get access to the US market but also to others, especially Canada, which has gone to rather extraordinary lengths to be finally invited to join the TPP club. It took some considerable effort for Canada to pry its way into the talks in June of 2012 (it actually joined the negotiations in September of that year after the completion of Congressional review of its interest), after having initially rebuffed the invitation to join the TPP’s predecessor, the P4. When Canada did finally decide to play catch-up and seek to join the TPP negotiations, it found that the welcome mat was missing. In particular, the US Administration was not helpful; discouraging at best, obstructionist at worst.

It may seem strange that the US was cool to the admittance of its NAFTA partner and the largest single market for US goods, the 10th or 11th largest economy in the world according to most measures. But initially at least Canada was seen as an additional complication to completion of the TPP, a “difficult” negotiating partner that brought its own baggage (such as a less than robust IPR regime, a traditional antipathy to the interests of the brand-name pharmaceutical manufacturers, a penchant for protecting so-called “cultural industries”, and other trade issues that did not align with US interests) that might have resonated with some of the other TPP countries. Canada mounted a counter-offensive, both in Washington and in the Asia Pacific region, cultivating US industries and companies concerned about the integrity of the North American supply chain, as well as making direct approaches to other TPP players, none of whom (with the possible exception of New Zealand that has opposed Canada’s supply management policies in dairy for many years) had any particular reason to oppose Canadian entry. In the end, Canada got its wishes, in part because of the desire of Mexico to also join the TPP and illogicality of splitting NAFTA.

What accounts for Canada’s change of heart from disinterested bystander to ardent advocate? It lies in part with the Conservative government of Stephen Harper awakening to the reality of Canada’s vulnerability to its excessive dependence on the US market combined with the aggressive growth of economies in Asia. A succession of minority governments had left policy-making in Canada focused heavily on Canadian domestic politics, necessary for political survival. With the winning of a majority in 2011, the Conservatives put their trade and jobs platform into high gear. A key component was trade liberalization, both with Europe (Canada and the EU have just announced the preliminary conclusion of the CETA—the Canada-EU Trade Agreement) and Asia. The TPP was the best vehicle available to Canada to establish a trade foothold in Asia, given the lack of progress of bilateral trade negotiations with Singapore, Korea, Thailand and India. The addition of Japan, long anticipated, was another key element in the Canadian calculus since even though Canada and Japan have embarked on bilateral talks, the TPP might conclude first and Canada cannot afford to let the US gain the advantage as it had with Korea. And if the US was going to negotiate improved access to its market, Canada had better be at the table to protect its NAFTA access.

Looking beyond the tactical advantage of being inside rather than outside the TPP negotiating tent, Canada has been creating its own “pivot” to Asia. Although it has a long history of engagement with Asia, these links had been allowed to atrophy in recent years. Canada wants back in—to the EAS, to other regional fora, and to be a part of the regional trade architecture. The TPP may or may not be a stepping stone to a wider Free Trade Area of the Asia Pacific (which is where the true economic gains will come) but Canada does not want to take the chance of being excluded from the game. The TPP is both a short term tactical move and a longer term strategic play. If, after all the effort, the TPP gets sidetracked because of a standoff between the Obama Administration and Congress, there will be some very frustrated policy-makers not only north of the Canada-US border, but in other TPP capitals as well.

Fixing Trade Policy Post-Shutdown

We are just over a week away from the “Frontiers of Economic Integration” conference in Chicago. We will be fortunate to welcome a number of leading trade policy voices from around the world. As much as we can, we hope to feature their work and provide a public forum for discussion here on the blog.

I wanted to kick things off by highlighting the recent work of two participants. Both based in Washington, Dan Ikenson and Claude Barfield are responding to the turbulent recent weeks in US trade policy. Trade was not center stage in the DC fight over the debt limit and government funding, but it was heavily impacted. I make some arguments about the serious implications for advancing trade agreements, particularly the Trans-Pacific Partnership (TPP), over at Foreign Policy.

Dan Ikenson will offer his TPP thoughts at the conference next week. In the meantime, he last week provided a “Roadmap for Success” for the US negotiations with Europe, the Trans-Atlantic Trade and Investment Partnership. He emphasizes the need to develop a realistic set of goals for the negotiation and to try for a series of three agreements, rather than a single grand bargain.

Claude Barfield says it is crucial, in the wake of the Washington tumult, for the Obama administration to turn full attention to concluding the TPP. He puts this argument in the broader context of US relations with Asia. At the conference, Claude will be demonstrating another facet of his expertise, speaking on intellectual property issues in trade. He  wrote about those issues last month, in a piece on “Sorting out the high-tech patent mess.” That was in the wake of the US Trade Representative’s decision not to block the import of iPhones over a patent-infringement claim.

More voices from the conference and the world of trade policy soon to come.

Making a “World of Cents”

APEC CEO Summit 2013

APEC CEO Summit 2013; Image courtesy of facebook.com/ApecCeoSummit2013

Once upon a time, economic matters were seen as peripheral in global affairs. International relations could be found in the front section; markets and finance were subjects for the business pages.

No more. A budget dispute in Washington has prevented President Obama from traveling to meet with Asia-Pacific leaders. Had he been able to attend, negotiations for a massive trade agreement would have been the most salient topic of discussion. And the entire European post-war political project now seems to revolve around questions of sovereign debt, bank supervision, and the promises of the European Central Bank.

This blog will be a forum to discuss such matters. In a world in which economic imperatives can drive foreign policies and political disputes can propel economic measures, the interconnections can be fascinating to explore.

I will freely share my thoughts – the perspective of a PhD economist who has also worked at the State Department – but I will also welcome select others who can enrich the conversation. One opportunity to bring in such voices will occur in the latter part of this month, when leading thinkers about international trade gather in Chicago to discuss the global trade policy agenda.

Whether the contributions are mine or from others, whether they deal with trade, finance, or development, the hope is that they will all offer insight into global affairs and they will all make a “world of cents.”