Tag Archives: trade

Seals, Morality, and the WTO

REUTERS/Paul Darrow

REUTERS/Paul Darrow

I recently returned from a conference in which a coauthor and I presented some research on clubbing seals to death. No, not on the methodology of the ugly business; instead, we were looking at the economic and legal questions raised by a recent pair of decisions by the World Trade Organization’s dispute settlement mechanism. The case raises issues of morality, extraterritoriality, and the dangers of a global trading system adrift.

To set the scene, Canada and Norway both engage in commercial seal hunts. The hunters ultimately sell the seal skins and furs commercially. In part to preserve those skins and furs, the hunters club the seals in the head to stun them before killing them.

More than a few people find this process offensive. In 2009, the European Union adopted measures to ban the sale of seal products in most cases (Foreshadowing: the “most” ends up mattering a lot). This prompted a formal complaint at the WTO later that year. Canada and Norway claimed, in effect, that the European Union had reneged on past promises of trade liberalization. The premise was that when Canada and Norway signed agreements such as the Uruguay Round of trade talks in the early 1990s, they did so on the understanding that their products would gain access to foreign markets. When Europe closed its markets to these particular products, the value of the original deal was diminished in Canadian and Norwegian eyes.

The European Union, which contains 28 countries but negotiates with a single voice at the WTO, responded that it was within its rights. The central trade agreement in question offered a number of exceptions that countries could use to justify the imposition of trade barriers. The language reads, “nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures…”—and then goes on to list the exceptions. Curiously, Europe did not opt for the one that concluded “…necessary to protect human, animal, or plant life or health.” Instead, Europe claimed that its seal trade barriers were “…necessary to protect public morals.”

The European Union recently ended up losing the case, both in front of the original panel and in front of the appellate body, though each used different reasoning. A key factor was the pliability of European moral concern. The original measures that banned seal product trade had, in fact, permitted it when hunts were performed by indigenous communities (e.g. Inuit) or when hunts were part of “marine resource management.” There was no evidence that these types of hunts were any more humane; they were just instances in which other European objectives (e.g. protecting indigenous communities) came into conflict with their expressed moral concerns.

A major challenge for the dispute panels was to figure out just how broad this “public morals” exception ought to be. Though it had appeared in trade agreements for a long time, it had not really been invoked much. Thus, its scope was ill-defined. This was what made the EU Seals case noteworthy; it grappled with a clause that, under an expansive interpretation, could blow an enormous hole in countries’ trade liberalization commitments. After all, countries are permitted to ban products that are dangerous or unhealthy, but there is a natural limitation to this license to block trade—one can test whether the products are, in fact, dangerous. But if countries can block products because they claim their citizenry has moral concerns about the way the product was produced, there are no such natural limits. As one of the conference participants had noted in previous work, a country could express moral concern about products made by trade partners who supported Israel or Taiwan. The intent of the original WTO agreement was clearly not to allow countries to reinstate protection whenever they felt like it. Yet the “moral concern” exception is there on the books. How to strike a balance?

The jurists decided that, at a minimum, the moral concern had to be pure. An abhorrence of seal clubbing, except when done by an Inuit, did not meet that test. This largely postponed the question. It served as a check against simple protectionist motives, in which moral concerns were put forward as an excuse for discriminating against imports. But it leaves open the extent to which countries can use their moral concern about the production methods, policies, and practices of other countries to justify barriers (which may, in turn, look a lot like sanctions).

The question is a difficult one. Judicial systems everywhere fill in blanks in the law when vague phrases demand interpretation. But they usually operate in conjunction with active legislatures, who can clarify the laws if they so choose. Further, justices often undergo careful selection and vetting procedures, as with the US Supreme Court, for which nominees are picked by the president and approved by the Senate. This process gives their interpretations some legitimacy (though, as this last week demonstrated, it hardly immunizes them against criticism).

The WTO dispute settlement mechanism does not enjoy either of these advantages. Global trade talks launched in 2001 have largely stalled and struggled to produce even modest results. The last two full global trade agreements concluded in 1994 and 1979. Policymakers have sometimes been tempted toward complacency about the lack of negotiation progress. The 1994 agreement strengthened dispute settlement; why not just let that system work and enjoy the benefits? The difficult questions of the EU Seals case show the dangers of such an approach. New political questions require new political agreements. Such an agreement at the WTO is long overdue.

The TPP and Evel Knievel – Up in the Air

Last night, as part of the Chicago and the World Forum, Ian Bremmer proclaimed that the most important region of the world for US foreign policy was Asia. Further, he said, the most important US undertaking in Asia was the Trans-Pacific Partnership (TPP) trade agreement. At roughly the same time that he was speaking, TPP ministerial negotiations in Singapore were coming up short. The disappointment came on the heels of a successful weekend WTO deal in Bali that had led some to proclaim a Trade Renaissance.

The twelve assembled TPP ministers didn’t admit defeat, of course. They heralded “substantial progress.” In a briefing, USTR Michael Froman said, “If I had to describe the outcome of the meeting, I would say ‘great momentum.’”

No doubt progress was made. But it can be notoriously difficult to figure out just how much. Herewith, some points to consider:

  1. We’ve been here before. We haven’t been at this level of progress, with this set of participants, exactly. But in November 2011, the United States was hosting the APEC meetings in Hawaii, TPP negotiations had been active for almost two years, and there were serious hopes that the agreement among the nine participants would be concluded then and there. Participants knew that beyond those meetings lay a US election and few deadlines that would force tough choices. As it happened, the negotiations could not conclude and the leaders were left praising themselves for good progress.
  2. Are they 65% done? Japan’s Vice Economy Minister just gave that figure as the degree of agreement among TPP participants. But what does that mean? Appropriately cautious, Amb. Froman reminded that “the thing about trade negotiations…is that nothing is agreed to until everything is agreed to.” To see the issue, think of the late daredevil Evel Knievel. He would pull off stunts like jumping his motorcycle over 15 cars parked in a row. To do so, he would rev his motorcycle along a straight-away, ride up a ramp, then, if all went well, fly over the cars and land on the other side. For Knievel, would 65% done mean the straightaway, before he mounted the ramp? It was certainly important for him to pick up speed that way, and that would have been 2/3 of the measured distance. But it would hardly have counted as 2/3 of the difficulty of the task.
  3. Ambition vs. Conclusion. In 2011, there were nine participants in the TPP negotiations. Since then, Canada, Mexico, and Japan all joined, bringing the number to twelve. When Japan joined, one former USTR privately predicted that the negotiations would now not conclude during the Obama presidency. Reportedly, delegations in Singapore were upset with Japan’s limited offers of liberalization. The 2011 delay posed a dilemma, however. As long as the negotiations were to conclude soon, it was reasonable to ask allies like Canada, Mexico, and Japan to wait to join. As the talks dragged on, such a stiff-arm seemed undiplomatic. Further, the three countries’ admission undoubtedly raised the level of ambition of the talks and the potential economic impact of the TPP. But when they were allowed in, the talks became significantly harder to conclude.  Now, as a 2013 deadline passes, S. Korea has expressed interest in joining…
  4. This is level one of two. Robert Putnam helped clarify the difficulty of international negotiations by describing “two-level games.” International negotiators need to reach agreement among themselves, and among critical constituencies at home. So far, the Obama administration has neglected the consensus-building at home on trade. One indication of this is the domestic drumbeat for enforceable measures against ‘currency manipulation.’ There is no indication such measures are on the TPP agenda, nor would the other countries likely accept them.

None of this implies that TPP is a lost cause. However, it does imply that President Obama will need to make TPP a top priority for the new year and devote substantial time to the project if it is to have a chance. Given the centrality of TPP for Asian relations and the centrality of Asia in this administration’s foreign policy, that’s not an unreasonable prioritization.

Guest Commentary: TTIP – Views from Europe

By Fredrik Erixon, director and cofounder of the European Centre for International Political Economy (ECIPE), a world-economy think tank based in Brussels, and was the Convenor of the Transatlantic Task Force on Trade, a joint project of ECIPE and the German Marshall Fund of the US that spearheaded the TTIP negotiations. A fuller version of his analysis can be found here (PDF).

Failures in the World Trade Organisation’s Doha Round have prompted countries to turn to preferential trade agreements. But are they worth their salt? While the most outstanding feature of past FTAs is that they have not had impressive effects on growth in trade and Gross Domestic Product (GDP), the negotiations for a Transatlantic Trade and Investment Partnership (TTIP) may change this verdict. Clearly, TTIP will be won or lost for its economic merits. And the pro-growth effects of TTIP are really what persuaded reluctant officials and politicians in Europe to join countries like Germany and Sweden in their efforts to push for a transatlantic FTA. Given Europe’s poor growth rates, trade agreements that could deliver higher economic growth have been given a new hearing.

Few would deny that TTIP has the capacity to deliver a sizeable contribution to GDP in Europe. The gains from this FTA would be bigger than from other FTAs for the reason that it involves two large economies. Simply, size matters. A “conservative” estimate by the Centre for Economic Policy Research in London suggests the TTIP gain for the EU to be in the tune of 0.3-0.5 percent of GDP (the GDP gains are slightly smaller for the US).

However, political scepticism of TTIP is less concerned with the bilateral economic gains (or losses) and more directed to its consequences on the World Trade Organisation as the central forum of trade negotiations. But perhaps surprisingly to some, the debate in Europe over TTIP has taken a different view. Generally, it has not thrived on the notion that TTIP should be an attempt to build a Fortress Atlantic – or that it is a strategy to gang up on China or other emerging powers competing with the US and Europe.

So while the strange acronym of TTIP is for some a code word for the death knell of the WTO, many trade observers in Europe would argue it is the substance that should be used to give global trade policy a needed shot in the arm.

TTIP, like the TPP, was not born out of deep and genuine beliefs in the principles of free markets or the classical school of free trade. Like any other trade agreement in the past years, these initiatives build on conditional views of free trade and free competition mixed up with soft mercantilism and a growing urgency to support economic growth. Yet it is the best available strategy to rejuvenate global efforts to liberalise trade.

In the past 15 years, the multilateral trading system has been a leaderless system with no clear direction that has unified the key members. The system itself benefited for several decades from the leadership by the United States, which considered this system to be critical for its overall strategic objective of spreading market-based capitalism. There were willing followers to the US leadership, but none other than the US had the requisite economic, political, and institutional capacity to underwrite the system. Yet since the collapse of the Cold War, American leadership has withered away, and its general position on trade liberalisation has somewhat changed. Absent political leadership and direction, the Doha Round got stuck because the political instinct of many countries was to favour status quo rather than new liberalisation as long as there is no external pressure that prompts them to revisit that position.

Like many other things in economic life, trade liberalisation tends to be driven by two motives: profits and fear. Countries agree to open up for greater foreign competition because they believe it will boost their economy or because they fear that other countries will go ahead without them if they stubbornly resist liberalisation. Despite all the success of trade-oriented models of growth, many countries have grown to think that they will not stand to benefit much from new trade liberalisation – and that they have no reason to fear failure.

TTIP may partly change this. It is a big initiative. And if the two biggest economies of the world go for a bilateral agreement, it means that there is a risk for other countries that stand outside that bilateral agreement and, which is important, other efforts to liberalise trade. That risk is mostly about not having a voice in the design of the trade reforms that are likely to serve as benchmarks in future international agreements. It is far less about loosing current trade access – but it is about the fear of not having as good access to trade that will be liberalised in the future. Consequently, if TTIP is the ‘real thing,’ if it achieves the promise of ushering the world into 21st Century trade policy, the response from the larger emerging economies cannot be no response at all. The political and economic opportunity costs of status quo would have been changed.

Global Trade enters Crunch Time

Those who enjoy sports will be familiar with the rhythm of a season. In the period before the first games are played, every squad is filled with ambition and whispers about exciting new players. Then there are the initial games when those hopes are put to the test. Ultimately, one reaches the point in a season when the team must either win a big game or forget thoughts of post-season glory for at least another year.

The global trade agenda is entering an analogous critical stage.  There was a joyous pre-season with calls for new, improved, 21st century trade agreements. There were predictions of fabulous trophies for the successful – hundreds of billions of dollars in economic growth, countless new jobs!

The analogy to sports gets a little strained in one particular dimension, though. Following the progress of trade undertakings like the Trans-Pacific Partnership (TPP), the Trans-Atlantic Trade and Investment Partnership (TTIP) with Europe, or the WTO talks differs from a sports season in that one doesn’t actually get to watch the games. Instead, it’s the equivalent of being kept on the outside of the stadia where the games are played and just hearing the occasional rumor – “That player took a big hit!”; “Someone just made an amazing play!”; “I hear cheering! That has to be a good sign.”

The negotiations themselves are conducted in secrecy – a tradition that has become a sore point with complaints about the lack of transparency. Devotees are left to parse the emanating rumors or to wait for an established deadline, when the players who have been battling out of sight will all emerge beaming and victorious, with their helmets raised above their heads – or they will stagger out looking battered and dejected.

We are just now reaching one such key deadline. Next week, trade luminaries are scheduled to gather in Bali for a World Trade Organization Ministerial meeting. Cheering for a WTO agreement has recently been as fulfilling as backing the Cubs for the World Series. Yet lately there has been legitimate cause for hope. Even though the grand ambitions of the Doha talks, launched in 2001, were stymied years back, there was a recent move afoot to try for a less ambitious package, one that would demonstrate that the WTO was still relevant. Not only that, but there was a new manager. The Brazilian Roberto Azevêdo took over the WTO this fall from the Frenchman Pascal Lamy.

At The Chicago Council’s recent conference on the Frontiers of Economic Integration, former US Trade Representative Susan Schwab highlighted the importance of the Bali meeting, to be held Dec. 3-6. She said that the potential for a modest package was as important as anything that had gone on in global negotiations for the last two decades. She showered Azevêdo with praise, stating that if anyone could pull off the difficult feat of bringing 150 countries together, he had the skills to do it.

But the latest news coming out of the negotiating arena sounds grim. The negotiators involved failed to agree on a text for ministers to take up at the ministerial next week. Azevêdo was quoted as saying that members had “stopped making the tough political calls.”

In the sporting world, a setback like this would invariably be followed by predictions of redoubled effort and renewed hope next season. But the opportunities on the global trading scene are fewer and farther between. Instead of such bromides, Azevêdo warned of dire consequences from a Bali failure, both for the multilateral trading system and the global economy.

It is an inauspicious start for the critical phase of the global trade season. The TPP talks were intended to conclude by the end of this year. Senate Finance Committee Chairman Max Baucus (D-MT) has been saying he would like to get agreement on US trade negotiating authority by the end of this year as well, though past deadlines have already been missed. And the TTIP talks are meant to wrap up before the European Commission turns over in late 2014. Trade fans will be listening, increasingly nervous, for hopeful news. They will take little consolation from suggestions to just “wait for next year.”

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.

Congress and the Currency Manipulation Craze

At last month’s trade conference and then on this blog, former Missouri Gov. Matt Blunt, now President of the American Automotive Policy Council, explained why US auto producers would like to link rules against currency manipulation to new trade agreements. “From an automotive perspective, currency manipulation both subsidizes our competitors’ exports to the US and around the world, and puts US exports at an equal cost disadvantage.”

He described growing congressional support. A filibuster-busting 60 US senators last month sent a letter to Treasury Secretary Jacob Lew and US Trade Representative Michael Froman asking for new enforceable rules in trade agreements to attack currency manipulation.  A majority of House members signed a similar letter in June.

Blunt and the senators cite a Peterson Institute study arguing that foreign currency manipulation has already cost between one and five million jobs. “A free trade agreement purporting to increase trade, but failing to address foreign currency manipulation, could lead to a permanent unfair relationship that further harms the United States economy,” the senators write.

But how would such a policy work? Will we have trade dispute panels sitting in judgment of core macroeconomic policies? Should we be fixated today on the economic philosophy of Roberto Azevêdo (new head of the World Trade Organization) rather than Janet Yellen?

If every currency depreciation were accompanied by a finance minister shouting: “Ha! Take that you foreign exporters!” then the manipulation determination would be relatively easy.  In practice, however, currencies can move for any number of reasons. Fixed exchange rates can deviate from “ideal” values when central banks are slow to move them, or when countries have different inflation rates. Market-determined currencies can swing with trader sentiment, or depreciate when central banks drop interest rates or engage in quantitative easing.

What happens if a central bank decides an economic recovery is too slow and unemployment is too high and it responds with massive purchases of bonds and other financial instruments? Such a move is highly likely to drive down its currency. Will that country be guilty of manipulation?

If you were thinking of Japan while reading that last paragraph, you were thinking like a member of Congress. If you were thinking of Chairman Bernanke’s September decision to postpone tapering, you were thinking like finance ministers all around the world. When the United States first engaged in quantitative easing, it was Brazil’s finance minister, Guido Mantega, who decried the launch of “currency wars.”

In fact, the world trading system already has a rule governing currency manipulation. It says that a country’s exchange arrangements should not frustrate the intent of the agreement. Adjacent provisions say, roughly, ‘We have no idea what this means; please ask the International Monetary Fund.’

Herein lies the problem. There is no agreed-upon proper value for a currency. One can construct some useful reference values, like the exchange rate that would make a specific bundle of goods in Japan cost the same as an identical bundle in the United States (so-called ‘purchasing power parity’).  But there is no good economic reason to demand that such rates hold all the time. Further, market-determined exchange rates fluctuate so much that no reference value will be held for long. There have been attempts to set multilateral currency policy standards – at least implicitly – as recently as the G-20 meetings in Seoul in 2010. They failed. If a trade dispute panel were to sit in judgment on a currency manipulation case, it would have very little guidance in how to rule.

The core problem with Congress’ recent approach is the belief that any determinant of trade flows ought to be subject to international regulation. In the past, trade rules carefully distinguished between measures that specifically supported a product or industry (such as a production subsidy) and broader policies that affected costs (such as education or roads). Monetary policy and exchange rates properly fall in the latter category.

Congress has constitutional authority over trade and needs to be taken seriously on this. There may be a case for another attempt at tighter global rules governing countries’ monetary policies. With a little reflection, though, we will probably decide we do not want those rules to be written and enforced by small committees of international trade lawyers.

Guest Commentary: Explaining Differing US and European Data Privacy Perceptions

By Stephen Ezell, Senior Analyst, Information Technology and Innovation Foundation

In recent months, heightened by revelations regarding the United States’ global surveillance and data gathering operations, data privacy has become one of the most contentious policy issues dividing the United States and its European trade negotiation partners. So what explains the differing approaches to data privacy between the United States and Europe?

It starts with the fact that, in Europe, privacy is viewed as a fundamental human right, and, as such, it takes primacy over other personal and societal values. In contrast, in the United States, many people view privacy more as a consumer right and as one value among many, and thus believe that privacy must be balanced against other competing interests.

In particular, in the United States, it’s viewed as reasonable to give consumers more ability to manage their privacy settings online in exchange for the provision of innovative digital services. In fact, many of the most popular Websites on the Internet would not exist today without online advertising, which supports the creation and maintenance of new online content, applications, and services: everything from Google’s free email service Gmail to Facebook’s social networking services. Online advertising provides the revenue that fuels innovative business models and drives much of the Internet economy.

But Europeans place a higher priority on privacy. For instance, proposed updates to the European Union’s 2002 Privacy and Electronic Communications Directive (PECD) would introduce restrictive privacy regulations limiting the ability of advertisers to collect and use information about consumers for targeted advertising. The regulations would limit the ability to target online advertisements to users based on certain protected categories of data, such as an individual’s race or ethnic origin, political opinions, religion or beliefs, trade-union membership, genetic information, health, sex life, and criminal history. These restrictions could potentially prevent or limit marketers from effectively creating targeted ad campaigns for services. For example, whereas it would be perfectly acceptable in the United States to present a Web advertisement for ChristianMingle.com or JDate based on one’s Web search history or social network posts, this would be forbidden by European data privacy rules.

Moreover, even in analyzing the impact of existing PECD privacy rules, Avi Goldfarb and Catherine Tucker found that they resulted in an average reduction in the effectiveness of online ads of approximately 65 percent. The authors write “the empirical findings of this paper suggest that even moderate privacy regulation does reduce the effectiveness of online advertising, that these costs are not borne equally by all Websites, and that the costs should be weighed against the benefits to consumers.” If European advertisers reduced their spending on online advertising in line with the reduction in effectiveness resulting from stricter privacy regulations, “revenue for online display advertising could fall by more than half from $8 billion to $2.8 billion.” Likewise, in a broader analysis of the economic impacts from Europe’s Data Privacy Directive, ECIPE finds that if fully implemented it would reduce EU GDP by 0.35 percent, in even the most conservative estimate.

The second difference is that the United States tends to manage data privacy issues on an industry-by-industry basis, thus we have HIPAA (Health Insurance Portability and Accountability Act) regulating health data privacy rights, Gramm–Leach–Bliley rules regulating privacy of financial data, etc. The United States is not likely to pass an overarching, across-the-board data privacy law — along the lines favored by the Europeans — anytime soon. Thus, the Safe Harbor program — a framework that allows US companies to self-certify that they adhere to a set of privacy principles enabling them to comply with requirements of the EU Data Protection Directive — will remain vital to successful Trans-Atlantic trade and free flows of data.

However, in the wake of the PRISM revelations, some European data protection authorities have called for a suspension of data transfers under the Safe Harbor agreement, since US companies are in “apparent violation.” Moreover, Germany announced on November 3 that it intends to push for tough data protection controls to be included in the Trans-Atlantic Trade and Investment Partnership Agreement (TTIP). But the US perspective is that the Safe Harbor program has worked satisfactorily, has robust enforcement mechanisms, and should be continued.

At the end of the day, data flows are critical to a global, networked economy and thus data issues need to be a component of future high-standard trade agreements. At the same time, those agreements need to preserve a framework that permits different kinds of data privacy rules to be in place among countries. From the American perspective, it’s a global economy, and we can’t have one country or region saying here are the data privacy rules that the entire world has to play by. In summary, trade policy has just barely begun to scratch the surface of issues raised by digital trade, and it’s high-time for the global trade agenda to enter the digital age.

Guest Commentary: Importance of Strict Currency Manipulation Rules in TPP

By Former Governor of Missouri Matt Blunt, President of the American Automotive Policy Council

The fate of the Trans-Pacific Partnership (TPP) may be decided over the next few months, possibly even before the end of the year. TPP has the potential to be the most important trade pact since NAFTA and could create thousands of jobs in the United States, boosting exports and the overall economy. Regrettably, these benefits are in jeopardy unless the agreement includes strong and enforceable currency disciplines.

From an automotive perspective, currency manipulation both subsidizes our competitors’ exports to the US and around the world, and puts US exports at an equal cost disadvantage. The Peterson Institute estimates that foreign currency manipulation has resulted in a loss of 1-5 million jobs in the United States, and an increase of between $200-500 million in the US trade deficit.

Japan has a long history of intervening in its currency markets to sustain its export-driven economy. Japan’s inclusion in the TPP makes it vital that the TPP include a strong and enforceable currency discipline.

There is growing support for addressing this 21st century trade barrier. A broad, bipartisan majority of the US Congress has called for strict currency manipulation rules in the TPP. One letter signed by 230 US House members and another signed by 60 US Senators called for a high standard agreement that includes strong and enforceable currency disciplines. As a broad swath of America’s elected officials have acknowledged, trade is key to our future economic growth, but it needs to be done right.

Everyone agrees, the Trans-Pacific Partnership could be an economic boon throughout the Pacific Rim. However, the negotiating members must ensure that currency manipulation rules are in place and enforced. Otherwise, years of work and negotiations will not deliver on the economic growth that will benefit us all.

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.

TPP: United we stand, divided…

Bloomberg just reported on a dire assessment of the prospects for the Trans-Pacific Partnership trade agreement. An analysis by the Asian Development Bank said that the TPP “risks collapsing and producing a series of bilateral deals if the 12 nations involved cannot reach agreement…” The report based this concern on the apparent lack of movement in recent talks and on the launch of bilateral discussions between the United States and Japan under the auspices of the TPP.

It can be very difficult to tell just how much peril the TPP is in, given that the discussions take place behind closed doors. Nor is it uncommon to have bilateral talks before reaching a broader deal. But the failure of the Obama administration to win trade negotiating authority and public statements from participating countries like Malaysia suggest that there could be real cause for concern.

It would be very problematic to dissolve the TPP into a series of bilaterals. I have written before about the challenges of a “lite” agreement that fell short of the more ambitious goals participants have set. Among the problems with doing this in the TPP context: Critics who lambasted the Bush administration for pursuing puny trade accords with Panama and Oman could be accused of hypocrisy if they were left trumpeting bilateral liberalization with Bahrain. People have been known to live through accusations of hypocrisy, though.

There are two more serious problems with a piecemeal TPP approach. First, it likely makes a difficult political task in the United States harder, not easier. Trade votes have been politically divisive in the last couple decades; sequential conclusions would mean repeated votes. More troubling – and mystifying – is the tendency for trade opponents to focus more intensely on countries when they are involved in bilateral or trilateral agreements than when they are part of larger accords. For example, there was no particular outcry when Mexico joined the GATT in 1986, even though that was the point at which the United States committed to low tariffs toward Mexico. There were substantially greater objections less than a decade later when Mexico joined the United States in NAFTA. A similar story was repeated with Colombia – GATT in 1981, controversial entry into a bilateral FTA in 2011. For TPP, that history has implications for Vietnam.

Even more important, a fragmented TPP would fail at its overarching goal of setting the standards for a 21st century trade agreement. The United States already has bilateral deals with many of the participants; the point was to knit those together and come up with new approaches that others would have to follow on issues such as services liberalization, intellectual property protection, and the treatment of state-owned enterprises. It is relatively straightforward to apply different tariffs on different countries; it is much harder to apply different standards depending on the trading partner.

None of this is meant to downplay the serious challenges of reaching agreement among 12 countries across a broad negotiating agenda. The pressure is mounting, as those countries have set a goal of completing the agreement this year. But a move to break the agreement up into bilaterals would be tantamount to failure.