Brazil and the United States may have settled, for now, their long-running WTO dispute over U.S. cotton subsidies, but the issues it raised remain. After all, Brazilian producers were not the only ones hurt by U.S. dumping of its highly subsidized cotton on world markets, which not only took market share from competing producers, it depressed the international price for all producers.
How much does agricultural dumping cost farmers in developing countries? I recently completed a study for a Woodrow Wilson Center project that highlights just how high the cost of dumping can be. I benefited from the somewhat controlled experiment represented by U.S.-Mexico agricultural trade under the North American Free Trade Agreement (NAFTA). I call it a controlled experiment because NAFTA liberalized agricultural trade dramatically over a short period of time, Mexico imports most basic grains and meats almost exclusively from the United States, and Mexican farmers grow many of the crops that compete with the imports. In such a case, one can easily see the increase in U.S. exports, the drop in Mexican producer prices, and it is reasonable to assume that the U.S. export price is the reference price for these products in Mexico.
On Tuesday, June 29 the World Trade Organization’s Committee on Financial Services will hold its much anticipated session on the WTO and the financial crisis. Developing countries should follow this session with great scrutiny. The WTO has claimed that it played no negative role in the financial crisis. However, research by the IMF and the UN suggest otherwise.
Work by independent economists, the IMF, and the World Bank has shown that those nations that capital account liberalization is not associated with economic growth in developing countries. Indeed, developing nations need to cross a minimum threshold of institutional development before such liberalization can help spur growth.
Trade officials in the Obama Administration have made it abundantly clear that they will move forward in the WTO’s Doha Round of negotiations only if the larger developing countries agree to open their economies more to U.S. exports. As Kevin Gallagher pointed out on the Triple Crisis Blog (“Obama’s New Trade Agenda”), the administration’s trade policies, and its announced goal of doubling U.S. exports, backtrack from those of the Bush Administration, renege on the basic principles of the Doha Development Round, and undermine precisely the kind of multilateralism President Obama claims to stand for.
Such intransigence does not bode well for the WTO, nor does it give much hope that the Obama Administration will use the current TransPacific Partnership negotiations to forge what it promises will be a “21st century trade agreement.”
Clearly, a creative new approach is needed to break the trade deadlocks. I offer a modest proposal here: Instead of negotiating reductions in tariffs and farm subsidies, it’s time to negotiate reductions in hypocrisy. I call it the Hypocrisy Clause, which mandates phased reductions in “trade-distorting hypocrisy,” with the greatest reductions coming from the most developed hypocrites.
Under the radar screen at the US-China Strategic and Economic Dialogue (SE&D) last month, the US and China continued to discuss a bi-lateral investment treaty (BIT). If the final negotiated text looks like the majority of US BITs it could threaten financial stability and economic growth in China.
The US and China began negotiations toward a BIT in 2008 under the Bush Administration. After taking office, US President Barack Obama gave his seal of approval to the negotiations at the November 2009 SE&D when the two nations agreed to “expedite” them.
China’s development over the past thirty years has been unprecedented. Not only has per capita growth been faster than 8 percent per annum throughout the period, but according to the World Bank China has brought 300 million people—a number roughly the size of the entire population in the US—out of poverty.
Many Triple Crisis bloggers have been examining the effects of the global financial crisis on decision makers at the IMF, particularly as concerns the policy space of developing countries. In these two interviews, Triple Crisis blogger Ilene Grabel considers the effect of the crisis on the economics profession and, in particular, on the policy advice proffered to developing countries by the IMF during the current financial crisis. Ilene focuses on whether the crisis has created more space for developing countries to implement capital controls, and she also discusses the draft proposals for taxing the financial sector that the IMF has presented to the G20 for consideration at its June meeting in Toronto.
Kevin Gallagher and Timothy A. Wise were interviewed in March 2010 about two recent reports they helped co-author on the impacts of the North American Free Trade Agreement (NAFTA) on Mexico and the reforms needed to ensure that U.S. trade agreements have a positive impact on its developing country trading partners. In a Policy Outlook paper with the Carnegie Endowment’s Eduardo Zepeda, they offer a detailed look at Mexico’s poor economic performance under the “NAFTA model.” In a Task Force Report with other NAFTA experts assembled by Boston University’s Pardee Center, they detail the needed reforms to current and future trade agreements in the areas of manufacturing, agriculture, services, intellectual property, investment, labor, environment, and migration. In this interview at the Pardee Center, they outline the main findings of the reports, with a particular emphasis on NAFTA’s controversial investment chapter (one of Gallagher’s ongoing research areas) and the impacts on agriculture (Wise’s specialty). The work is based on ten years of research by the Global Development and Environment Institute on the Lessons from NAFTA.
The recent global economic crisis has been unprecedented since the great depression of 1929-32. The low-income countries have been affected by the crisis severely, particularly because of their low capacity to take external shocks. The commodity boom of 2003-08 allowed increases in national savings, investment and the acceleration of GDP and market value added (MVA) of low-income countries. Nevertheless, it was followed by a “bust” with detrimental impact on their long-term industrialization and development. Food and fuel importing countries, in particular, suffered from both the “boom” and the “bust”; the emergence of the financial crisis took place at the time they were facing high international prices of food and petroleum. In other words, they faced three ‘F’(food, fuel, financial) crises.
As a result of the global economic crisis, the prices of non-oil primary commodities and petroleum fell, from the peak to the trough, by over 36 per cent and 68 per cent, respectively. Nevertheless, food prices did not fall as much as the prices of other commodities and have picked up faster than other commodities after they reached their trough in December 2008.
Democratic Party leaders recently introduced their latest proposal to reform U.S. immigration policy. The proposal, which is given little chance of passage in a polarized election year, offers carrots and sticks in an attempt to bring some semblance of order to a broken and outdated policy that has left nearly 12 million people in the United States without legal documents.
The carrots are few and shriveled: an arduous path to U.S. citizenship for those already in the country. The sticks are large: a further crackdown on border enforcement and increased policing to catch and punish those without papers. No combination of carrots and sticks will address the immigration issue unless reform efforts also take up the agricultural, trade, and labor policies that feed migration.
Do nations have the policy space to deploy capital controls to prevent and mitigate financial crises? In a new report for the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G-24) I examine the extent to which measures to mitigate the global financial crisis and prevent future crises are permissible under a variety of bi-lateral, regional, and multi-lateral trade and investment agreements. I find that the United States trade and investment agreements, and to a lesser extent the WTO, leave little room to maneuver when it comes to capital controls. This is the case despite the increasing economic evidence showing that capital controls can be useful in preventing or mitigating financial crises.
Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. A reader offered a detailed comment, partly in response to my post, “Agribusiness and the food crisis: a new thrust at antitrust.” Following is the reader’s comment (slightly edited for length) followed by a few responses to some of the important questions he raises, in particular about the limited regulation of uncompetitive practices across borders.
Q: “[There is a need for] further research on the abuse of monopoly and monopsony power of agro conglomerates…. The dismantling of commodity boards in developing countries in the 1980s in the context of structural adjustment programmes put the nail in the coffin of any attempt at regulating the commodity markets and ensuring equitable prices for producers…. The problem is that there is no universal anti trust law which can deal with the anti- competitive behaviour of TNCs and the international community has fallen … shy of adopting such legislation. Moreover, attempts at stabilizing commodity prices through negotiations between consuming and producing countries, which had begun in the 1970s in the context of the UN and UNCTAD, were subsequently shelved with the onset of the recession in the early 1980s and the emergence of market fundamentalism. Perhaps these issues would need to be revisited.”