Poor, poor WTO Director-General Pascal Lamy. Forever in search of the completion of the Doha Development Agenda, he must trot out the old reasons that have failed to convince member nations again and again: we're disadvantaging poor nations, we're endangering processes of trade liberalization that have brought the world so many benefits, etc. By now, you'd have thought he'd have come up with other arguments, but we're arguably no better off in terms of the prospects for completing Doha after nearly a decade. Now he's even contemplating Doha failure--not a good sign for the WTO's designated (and voluntary) cheerleader.
At any rate, unbeknownst to all but the keenest of trade followers, Lamy has been pushing negotiators to prepare revised negotiation texts in time for Easter. (Setting an Easter target has been a repeated if futile goal in the past.) In other words, we are not even at a stage wherein participants find common ground on what to discuss. Let's just say things are (surprise!) not progressing to his liking. He says:
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In all honesty, we’re not on target
So, with less than a month to go, are we on track to meet this target?
In all honesty I must tell you we are not. Since the 8 March TNC we have continued to see an impressive level of activity at every level of our negotiating process. On the multilateral track, the Negotiating Chairs have diligently and systematically worked through their individual agendas and I can only express my admiration for the energy and tenacity with which they have approached their task.
On the bilateral and plurilateral levels activity has also been intense.
Overall, there have been elements of progress. But, in truth, far from enough. While the Negotiating Groups are proceeding across the board, including on a number of technical issues, the bilateral and plurilateral discussions on the market access leg have reached an impasse. The outstanding substantive gaps which existed three weeks ago persist today.
The absence of progress in NAMA [non-agricultural market access] sectorals constitutes today a major obstacle to progress on to the remaining market access issues. However, let me be clear, this is not the only market access related problem area. There are other issues whether in agriculture or to a larger extent in services — which have not been resolved either. As G-20 Leaders agreed at Seoul, what is needed overall is a spirit of “give and take” and we need this across all areas.
This is the hard reality that we collectively must face up to. As the Chairman of the TNC I have an obligation to ensure transparency and inclusiveness at the multilateral level and as such it is incumbent on me to share with you my frank and honest assessment of the seriousness of the current situation. In the same spirit it is my responsibility to caution you against the temptation to rush to conclusions or to point fingers. It has been tried before and it simply does not work. In the blame game everybody loses.
Positive reality and consultations
On the contrary, I believe our focus now should be on recognizing and respecting the collective determination among all Members to work hard to overcome the few, yet important, issues that continue to divide you. This, if you wish, is a positive reality facing us all. Clearly, Members will have to take a closer look at individual positions and tactics. Clearly, your political masters will want to know and understand why we are where are. You must all be in a position to answer the call from your leaders who pledged to conclude the Round in 2011. Throwing in the towel now is certainly not what Ministers and Leaders instructed us to do last year, neither is it what they are expecting from us.
Over the coming two weeks, starting April 4, I will undertake consultations with a number of Members with a view to understanding the size of the gaps on the NAMA market access. Once I have done this I intend to report to the entire membership. Together — and on the basis of an across the board view of progress in all areas in the negotiation, including the regulatory part as well as market access — we will then decide on the next steps.
I do not think that today is the time for long interventions. Now is the time for all of you, and in particular those among you who bear the largest responsibility in the system, to reflect on the consequences of failure. To reflect on the costs of the non-Round to the world economy as well as to the development prospects of Members, in particular the smaller and least-developed which are more dependent on an improved set of global trade rules. And above, it is time to think about the consequences of the non-Round to the multilateral trading system which we have so patiently built over the last 70 years. It is the time to think hard about multilateralism, which your leaders, yourselves and myself preach at every occasion. In politics, as in life, there is always a moment when intentions and reality face the test of truth. We are nearly there today.
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The United States remains the biggest demandeur of NAMA or non-agricultural market access to developing countries. In turn, its LDC interlocutors claim that proposed gains from agricultural market access to developed countries alike the US are not substantial enough to warrant the kind of NAMA opening desired. IMHO, the difficulties which lie in negotiating this area are attributable to American decline since it can no longer singlehandedly force the issue unlike in years gone by. From that perspective--making the WTO's power distribution more equitable--cutting America down to size is actually a welcome development.
Sunday, April 3, 2011
The Abyss: Pascal Lamy Broaches Doha Failure
Tuesday, March 1, 2011
Can Manny Pacquiao Knock Out Chinese Textiles?
I have thus been following the progress of the "Save Our Industries Act" whose progress has been mixed in the American legislature. Alike nearly every other country in the world, the Philippines and the United States' textiles and garments industries have not been faring well in the face of Chinese competition, especially since the phase-out of textile quotas (the Multi-Fibre Agreement or MFA) in 2005. Go ask Brazil. Sensing an opportunity to ride the wave of Sinophobia as well as industrial survival instincts, both countries have teamed up to try and beat China at its own game by tilting the playing field via political shenanigans. --------------------------------
A Historical Partnership: the United States and the Philippines
• The United States and the Philippines share enduring historical and cultural ties. The Philippines, a former U.S. colony, continues to share goals and foster strong political, economic and security relationship with the United States.
• The United States maintains special preference trading relations with all its former colonies, but not the Philippines.
• The Philippines maintains a fair and balanced trading relationship with the United States: In 2008, U.S. exports to the Philippines were US $8.3 billion and the U.S. imports from the Philippines amounted to some US $8.7 billion, while the U.S. trade deficit reached as high as US $10-18 billion with other ASEAN countries.
• The program would continue this balanced, mutually beneficial trade relationship.
SUMMARY OF THE PROPOSED SAVE OUR INDUSTRIES ACT OR THE SAVE ACT
THE 809 COMPONENT:
• Under the 809 component of the program, if the eligible garment’s essential character is comprised of U.S.-made fabrics and yarns and is cut and wholly assembled in the Philippines, then it would qualify to re-enter the United States free of duty.
• In addition, if the eligible garment’s essential character is comprised of U.S. spun yarn or extruded yarn formed in the Philippines, it may re-enter the United States at 50 percent of the most favored nation (MFN) duty.
CUT & SEW RULES FOR SELECTED PRODUCTS:
• Recognizing the success of the 809 component requires a competitive Philippine sewing industry to provide U.S. retailers with a variety of products, the program would also provide duty-free benefits for a limited number of non-import sensitive apparel articles.
ENFORCEMENT:
• Ensuring strict customs enforcement and preventing transshipment of apparel articles is central to the proposed program. The Philippines continues to enforce the Memorandum of Understanding Concerning Cooperation in Trade in Textile and Apparel Goods it signed with the United States in August 2006.
• The Philippines would also establish procedures to allow the U.S. Government access to information for shipments before they reach U.S. Customs, similar to the Electronic Visa Information System (ELVIS), which had previously been in force in the Philippines.
MUTUAL BENEFITS FOR U.S. & PHILIPPINE INDUSTRIES & WORKERS
• U.S. textile and Philippine apparel manufacturers share the same challenges and risks stemming from the end of the U.S. quota system that controlled apparel imports from China until the beginning of 2009. Moreover, over the past several years both industries continued to incur substantial job losses.
• Under the SAVE Act, for the first time, U.S. textile manufacturers would have a meaningful opportunity to compete in Asia in the higher end fashion market in addition to their already established market presence with Western Hemisphere countries, which account for 75 % of U.S. fabric exports.
• The proposed program is designed to facilitate higher levels of trade in textiles and apparel between the United States and the Philippines, to enhance the commercial well being of their respective industries, and to sustain and create jobs in times of global economic hardship.
“[Reid] was behind 4% in the polls before I got out there,” Pacquiao told The Times on Wednesday before a workout at Wild Card Gym in Hollywood, where he’s preparing for his Nov. 13 junior-middleweight title fight against Mexico’s Antonio Margarito. “There’s a lot of Filipinos in Las Vegas.” Population figures show an estimated 30,000 Filipinos in Las Vegas, with perhaps triple that in all of Nevada. Reid defeated Tea Party candidate Sharron Angle by 40,000 votes, with three-fourths of Asians reporting at exit polls that they voted for Reid.
Pacquiao smiled at the thought of how the assistance he provided a major Washington player could benefit his country in the future. “I also helped Brown here,” Pacquiao said, referring to the governor-elect who defeated Meg Whitman by a more lopsided margin Tuesday. “I helped him campaign. I gave a message to the Filipino community to support Gov. Brown, and they did.”
The Department of Trade and Industry (DTI) believes it has a better chance of passing its proposed "Save our Industries Act" bill, which has been refiled in the US Congress recently, as the new bill presents a more comprehensive strategy to justify its passage. "At this point, our chance is 50-50, but I believe we will improve our chances as more sponsors of the bill come in," Trade and Industry undersecretary Cristino L. Panlilio told reporters.
The proposed legislative measure was refiled recently by Senator John Ensign of Nevada. "We are still seeking for additional sponsors to help push this bill," Panlilio said. While the "Save Act" bill is a stand-alone legislative measure, Panlilio said it could still be incorporated or as a rider in other proposed trade bills [whoa, talk about the rest of the world learning dirty tricks of American politics].
In the last US Congress, the Save Act bill was principally authored by Senators Jim McDermott, Daniel Inouye, Kit Bond and Harry Reid. It also gained support from 15 representatives. This time the DTI has adopted a comprehensive approach including the bill’s champion, the extent of activities to be undertaken and a mapping operation of the local industry.
Earlier, Panlilio said that DTI has spent P60 million [about USD 1.4M] in the last two years, including that of the DTI leaders of the past administration and the new government in pushing for the passage of the bill. Panlilio said the bulk of this money went to Washington consultants who helped in the crafting of the bill, but which failed to pass in the last US Congress.
The P60 million formed part of total of P250 million that have been spent on various initiatives for the garment sector out of the P650 million industry fund, which represents the revenues generated from the fees in administering the garments export quota by the defunct Garments and Textile Export Board.
The lobby to push for the bill in the US Congress started in 2009 that resulted in the filing of the bill in June of that same year. The DTI had mounted several initiatives to lobby for the passage of the bill including tapping the Filipino-American communities in the U.S. and a viral marketing campaign that also involved Rep. Manny Pacquiao, who is again endorsing the bill. “Last year this administration conducted two missions to the U.S. for this bill, but the bulk of the expenses involved the consultancy fees for the experts that the government had to hire,” Panlilio said.
Under the Save Act bill, the Philippines will produce garments using American textile, yarns and fabrics. The finished product would then be exported to the U.S. duty-free. This bill is seen as a win-win solution to revive the ailing textile industry in the U.S. and revive the garments manufacturing of the Philippines. The passage of the Save Act is expected to revive the country’s garment industry that used to export over $3 billion and employ over 600,000 people because exports of garments to the U.S. using American yarns and fabrics would be allowed duty-free access in the U.S. market.
- Isn't this Act a blatant violation of WTO principles of non-discrimination?
- Given its lack of American legislative success and possible WTO litigation, aren't limited Philippine trade promotion funds better spent elsewhere?
- What is the wisdom in the Philippines siding with a falling world power (the United States) and offending a rising one (China)?
UPDATE: After consulting with Simon Lester of the IELP blog, he suggests that US/Philippine attempts to include this Act under the Generalized System of Preferences (exemptions from WTO rules) is unlikely. Given that the phasing out of MFA was meant to remove such exceptions, I'd say international momentum is against this bill's champions.
Tuesday, February 1, 2011
Why China Isn't Going to Bail Out Europe's PIGS
And now for a feature with a little help from one of my cyber-friends. Iana Dreyer should be familiar to longtime IPE Zone reader via her previous blog Global Conditions. Having now joined the European Centre for IPE (ECIPE) headed by none other than the LSE's Razeen Sally, she is now a regular at ECIPE's fine Trade Matters blog. I am late to this feature having lost touch somewhat (sorry, Iana) but she had a very informative op-ed recently in Bloomberg on why China is not likely to be the "saviour" of Europe [1, 2]. Having amassed so much in foreign exchange reserves--probably over three trillion by now by my reckoning--China has very considerably usurped the United States as the ultimate sugardaddy of the world economy. Or so they think, that is:
China is worried about Europe’s economic future. But how far is it prepared to go to ensure the euro survives the sovereign-debt crisis? Not far enough. China’s pledges to purchase Greek and Spanish bonds as well as statements of financial support for Portugal show trade and investment are at stake. After all, Europe is China’s premier export destination.The argument here--one that I fully endorse--is that China's support is mostly verbal and reactive rather than proactive. That is, China wouldn't wish for any more systemic disorder in the international monetary system stemming from perceptions that it is pulling the rug from under its purchases of euro-denominated sovereigns. However, it too isn't willing to meaningfully step up its purchases of Greek, Portugese and other "Club Med" debt.
“We do have confidence in European financial markets and the euro,” People’s Bank of China Deputy Governor Yi Gang said at a briefing in London this month. “We will be here for a very long period of time. China has been a long-term, stable investor in Europe.” But while signaling a well-appreciated support for the euro, these purchases are mainly symbolic gestures. They won’t be massive, nor will they increase in any meaningful way.
Rather, it wants to improve its relations with these countries as members of the Eurozone that have been wary of China. (Spain appears quite Sino-friendly already.) Something not mentioned in the op-ed but is nonetheless implicit is this point: Having not moved up the value-added ladder so much, Greece and Portugal produce quite a few labour-intensive goods like textiles and clothing in the PRC's line of fire. Recall, for instance, that these two countries were the most vocal in calling for safeguard mechanisms to be invoked during the "bra wars" of 2005.
The two things China wants most of all from the EU remain the same, and warmer relations with peripheral economies should help its cause. First, it wants the EU to restrain use of antidumping measures against China made easy by its continuing classification as a "non-market economy" by the EU. The EU has been at the receiving end of China's charm offensive to be classified as a market economy before 2016 since the WTO is only obligated to change this classification 15 years after China's accession to the the trade body. And there is the continuing matter of China wanting the arms embargo on it in effect since the 1989 Tiananmen Square protests were quelled by use of force:
By buying bonds and striking investment deals in cash-strapped European companies, China is trying to make friends and build bridges. It is keen to be recognized by the European Union as a market economy. This recognition would force Europe to limit the number of antidumping cases launched by the EU against imports from China.Good work, Iana, and we hope to read more of your insightful writings whatever outlet you choose!
Building alliances with Mediterranean governments that are traditionally wary of China’s trade can help it achieve this goal. China’s display of “soft,” business-centered diplomacy may also help the Asian nation in sensitive discussions with Europe’s leaders over the EU arms embargo imposed against China after the Tiananmen Square crackdown in 1989.
Saturday, January 29, 2011
From Davos to Doha: WTO Round Done in 2011?
What have we found?
The same old fears
Wish you were here
And now for some postcards from Davos. Sometime ago, I had a self-parodying feature of T-shirts being sold at the WTO headquarters gift shop in Geneva depicting how trade talks to conclude the Doha Development Agenda--now considerably the longest-running trade round in GATT/WTO history by a comfortable margin--have literally spanned the globe to little effect. At the start of this year, then, it is apropos that the usual suspects of world leaders and trade ministers are affirming the benefits of trade liberalization and that we're near the finish line. From the newswire reports [1, 2], we gather assertions that:
- Failure to conclude Doha represents a failure of global leadership (Thai Prime Minister Abhisit Vejjajiva);
- Fair, free and open trade is more important than aid for developing nations (Indonesian President Susilo Bambang Yudhoyono);
- We are so very nearly there (German Chancellor Angela Merkel);
- It is not true that the Doha Development Round is dead (British Prime Minister David Cameron, who even mentions Monty Python's "Dead Parrot" sketch--watch this video if the reference is obscure)
And so the reasons why a trade deal benefits us all and why we are close to one get rehashed, year after year. Meanwhile, the usual "election in the US" angle is repeated ad infinitum. It makes you want to cue the Pink Floyd, right? But hey, if even they could reunite, perhaps pigs will fly and (sigh) Doha is a done deal in 2011.
UPDATE: Trade Diversion points us in the direction of an accompanying report on setting a deadline and defining a trade deal for 2011 penned by Jagdish Bhagwati, Peter Sutherland, and more trade illuminati.
Tuesday, January 4, 2011
Khodorkovsky, Rule of Law & Russia Joining WTO
This is yet another entry in the long-running saga of Russian WTO accession [1, 2, 3, 4, 5, 6, 7]. I think you know how this story goes: the seemingly arbitrary (re-)incarceration of Vladimir Putin's political foe and onetime oligarch Mikhail Khodorkovsky bodes ill for Russia's attempts to join the WTO for obvious reasons. To Western eyes, the lack of stability and transparency in Russia are definite no-nos whose implications spill over into the trade realm. That is, how can the whims of a handful be the basis for its membership in a rule-based organization?
First we have a US trade official commenting on how this has set back Russia's chances (as if it were making significant strides, but I digress):
The sentencing handed down to former Russian tycoon Mikhail Khodorkovsky will complicate Russia's bid to join the World Trade Organization, a senior Obama administration official said on Thursday.Ah, but don't worry, says Vladimir Putin. He sees 2011 as the year it finally happens. In fact, he's rather less worried about governance than he is about keeping automobile tariffs intact:
"It is not going to help their cause, it is only going to complicate their cause," the official said. "The WTO is a rules based, rule of law organization. Most countries around the world do not look at this verdict as a demonstration of the deepening of the rule of law in Russia. It will definitely have an effect on Russia's reputation," the official added.
Prime Minister Vladimir Putin said Wednesday that Russia can be expected to enter the World Trade Organization in 2011, but "questions still remain," Interfax reported.Putin makes it sound as if Russia would be doing the WTO a favour instead of the other way around IMHO.
Putin also said Moscow could use "the so-called technical regulations," used by the members of WTO, to protect its auto industry after entering the organization. "If we see that the auto industry gets into unequal conditions of competition, we will find the methods of protection," Putin said.
Sunday, January 2, 2011
Will Japan Join the Trans-Pacific Partnership PTA?
To be sure, there's an element of Japanese firms believing they will be at a competitive disadvantage (from trade diversion) if they fall behind in signing trade deals alike regional competitors such as South Korea. In a manner of speaking, it's precisely the effect the US wants to create of "bandwagoning" on an American- and not a Chinese-led trade facilitation vehicle: if you don't get on board, you may be left behind.Japan's embattled prime minister vowed to intensify his push for a controversial free-trade agreement, using his New Year's statement to promise progress on one of his top policy initiatives, despite his political weakness. Prime Minister Naoto Kan said he will focus this year on the Trans-Pacific Partnership [TPP] Agreement and will seek the overhaul of Japan's agricultural sector that would be required to join the pact...
In the New Year's message the prime minister laid out goals for 2011 in broad terms that include steps to help reignite Japan's economic formidability. Japan will "seek new possibilities in agriculture, forestry and fisheries," while also promoting free trade, he said.
Mr. Kan's ability to win the reforms needed to make those policy changes—or even to stay in office much longer—is unclear. A flurry of recent public opinion polls show his popular support rate has fallen below 30%, a level that leaves him little political capital to make tough reforms.
On the trade agreement, the prime minister faces tough resistance from farm lobbies and fellow party politicians in his battle to lift heavy tariffs that have long protected the domestic agricultural sector from overseas competition. Mr. Kan's plans to initiate talks to join the Trans-Pacific Partnership during the Asia-Pacific Economic Cooperation meeting in early November sparked broadsides from Japanese farming groups.
The regional trade agreement seeks to eliminate all tariffs among member nations in 10 years. While the pact would pinch the country's declining agricultural sector even more, it would help make Japanese manufacturers more competitive on the international stage. Facing increasingly tough competition from China and fearing the empowerment of South Korean rivals as a result of Seoul's aggressive trade liberalization, Japanese manufacturers are fighting hard to get the government to commit to the agreement.
Saturday, December 4, 2010
Korea-US FTA Negotiated; US Congress Up Next
Whoa, the Obama administration has actually negotiated a trade deal. As trade junkies know, one of the leftover bilaterals from the Bush administration was KORUSFTA. One stumbling block was US automakers demanding better access to the Korean car market. (Remember that this had also been a US demand on Japan during the Nineties that was all for nought, so I don't expect anything substantially different here in terms of results.) Another stumbling block was Korean resistance to American exports of beef from older cattle that was supposedly more prone to mad cow disease. I wasn't really expecting both to be resolved soon, so go figure. Perhaps a newly-belligerent North Korea has just reminded South Korea how tenuous its security situation remains so many decades after the Korean conflict, hence the need to cosy up to Washington.
At any rate, the story is not over yet as the focus shifts from international economic diplomacy to domestic politics. The Korean parliament will need to ratify this deal. Remember, this is the same National Assembly where legislators started beating each other up over KORUSFTA a few months back. Meanwhile, the Obamanites will also have to shepherd this FTA through the US Congress since Obama doesn't possess the fast-track authority his predecessor enjoyed for most of his term.
From the Yonhap News Agency:
South Korean President Lee Myung-bak called for early ratification of the revised free trade agreement (FTA) between Seoul and Washington, expecting it to be beneficial for both countries, according to Cheong Wa Dae Saturday. On Friday (Korean time), the two countries finalized revisions of the FTA in Washington, ending a three-year deadlock over U.S. demands for wider access to South Korea's auto market.UPDATE: Jonathan at Trade Diversion collates news reports that suggest that since KORUSFTA was negotiated while fast-track authority was in effect (under the Bush administration), its stipulations will hold when Obama introduces this FTA to Congress. That is, legislators cannot modify its content but only vote on it on a straight yea/nay basis.
Kim Jong-hoon, the chief negotiator for Seoul, said "a substantial outcome" was made on automobiles and other areas during the talks. The presidential office issued a statement by Lee expressing his hope that the new FTA would be quickly ratified in both countries so that the free trade pact can "finally bear fruits."
Lee also said the FTA should bring huge economic benefits for both countries and will help take the South Korea-U.S. alliance to the next level. "The latest agreement is significant in that it equally reflects interests of both countries and has formed the basis for a 'win-win' situation," Lee was quoted as saying. "Everyone worked together to find alternatives that would be acceptable by both sides in order to ratify and put in effect the KORUS FTA...With the KORUS FTA, our exports will enjoy major growth," Lee said. "And our economy will have an opportunity to improve in its quality."
Lawmakers on Saturday, however, said ratifying the latest agreement will not be easy, recalling violent clashes at the National Assembly over the ratification of the previous deal in December 2008. Rep. Nam Kyung-pil of the ruling Grand National Party (GNP), who heads the National Assembly standing committee on foreign affairs and trade, said reaching a new deal was one thing, but putting it through the parliament was another.
"Additional negotiations between governments and ratification at the National Assembly are on different levels," Nam said. "Once the details of the latest talks are available, then our committee will have in-depth discussions. We will also have to take into account opinions of the public and the reaction by the U.S. Congress." Rep. Yoo Ji-jun, also of GNP, said a "stern review" will be necessary to ensure the balance of interests has been maintained after new negotiations.
The ruling party welcomed the revised pact. Its spokeswoman Bae Eun-hee said the FTA gives the export-driven South Korea a chance to beef up its presence in one of the world's largest markets. She also urged political opponents against turning "this matter of our livelihood into a political ideology," and said parties from both spectrums should exercise bipartanships for the sake of national interests.
The main opposition Democratic Party (DP), however, argued the latest FTA was a result of "humiliating" negotiations that will block South Korean automobiles from entering the U.S. market. "If we have made unilateral concessions or the balance of interests has been compromised, then we won't accept the new deal, since it will be detrimental to our national interest and also to healthy development of South Korea-U.S. relations," said the DP spokeswoman Cha Young.
Wednesday, December 1, 2010
Whatever's Become of the Financial Stability Board?
Whatever happened to the Financial Stability Board (FSB) that came into effect during the earlier G-20 meetings? It didn't have much to say to the G-20 at the most recent meetings in Seoul. The reasons why we haven't heard much about this Bank of International Settlements (BIS)-hosted entity since then can stem from two major sources: (a) it isn't doing enough that merits attention or (b) the work it does is highly technical and isn't ready fodder for the business sections of newspapers. As Eric Helleiner explains in his new article in Global Policy, it's likely a mix of both reasons as to why its profile has been relatively low. Given the difficulty of the tasks it faces, chances of widespread accord on current proposals remain low. What follow are the abstract and the policy implications from the article though the rest is of course well worth reading:
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ABSTRACT
Created in April 2009, the Financial Stability Board (FSB) represents the G20 leaders’ first major international institutional innovation. Why was it established and what role will it play in global economic governance? The creation of the FSB has been linked to a US-led effort to strengthen an international prudential standards regime that had evolved in the years leading up to the 2007–08 global financial crisis. The FSB faces a number of serious challenges in its new role: developing effective mechanisms for monitoring and encouraging compliance; promoting the development of effective international standards and fostering consensus on their content; establishing its legitimacy vis-Ã -vis non-members and within member countries; and clarifying its relationship with other global governance institutions. Since these are very difficult tasks, the FSB may be forced to assume a less ambitious role in international regulatory politics than some of its creators initially envisioned.
POLICY IMPLICATIONS
- The creation of the FSB is part of an ambitious effort to strengthen international prudential standards in response to the recent global financial crisis.
- The FSB faces many challenges: developing effective mechanisms for monitoring and encouraging compliance; promoting the development of effective international standards and fostering consensus on their content; establishing its legitimacy vis-Ã -vis non-members and within member countries; and clarifying its relationship with other global governance institutions.
- If these challenges prove too daunting, the FSB can still play an important, though less ambitious, role of fostering international cooperation to support a more pluralistic and decentralized international regulatory order.
Monday, November 29, 2010
Cancun Climate Conference: An Incremental Solution
[NOTE: I've been rather silent on environmental issues these past few weeks, so I hope this post and the one before it rectify this imbalance ahead of the Climate Change Conference in Cancun which starts later today.] While I remain ambivalent about the idea of civil disobedience as a spur to public acceptance of climate change as an important global policy issue, I am rather more upbeat about an article which just appeared in the LSE house journal Global Policy. Although my biases may be showing, I do believe it showcases some of the most cogent commentary on global policy issues you can find nowadays. That it's freely accessible (for now) is further icing on the cake. Here is another case in point -
Having witnessed the no-event that was last year's Copenhagen summit, I am wary that the one which begins in Cancun will have a similar result. In trying to fashion a grand deal that pleases so many parties, the UN has had a very hard time pleasing even some. Call it Doha Development Agenda disease. In general, I believe that the The end result of overambition may be a failure to agree on particular issues concerning climate change which different countries share. Accordingly, Robert Falkner, Hannes Stephan, and John Vogler offer a different approach: why not chop climate change down into manageable, bite-size pieces that more countries will find digestible? This kind of gradualism makes perfect sense to me given the complexity of this topic.
The abstract and policy implications follow, though the rest is well worth reading:
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ABSTRACT
This article reviews the options for future international climate policy after the 2009 Copenhagen conference. It argues that a major reassessment of the current approach to building a climate regime is required. This approach, which we refer to as the ‘global deal’ strategy, is predicated on the idea of negotiating a comprehensive, universal and legally binding treaty that prescribes, in a top-down fashion, generally applicable policies based on previously agreed principles. From a review of the history of the ‘global deal’ strategy from Rio (1992) to Kyoto (1997) and beyond we conclude that this approach has been producing diminishing returns for some time, and that it is time to consider an alternative path – if not goal – for climate policy. The alternative that, in our view, is most likely to move the world closer towards a working international climate regime is a ‘building blocks’ approach, which develops different elements of climate governance in an incremental fashion and embeds them in an international political framework. In fact, this alternative is already emergent in international politics. The goal of a full treaty has been abandoned for the next climate conference in Mexico, which is instead aiming at a number of partial agreements (on finance, forestry, technology transfer, adaptation) under the UNFCCC umbrella. For this to produce results, a more strategic approach is needed to ensure that – over time – such partial elements add up to an ambitious and internationally coordinated climate policy which does not drive down the level of aspiration and commitment.
POLICY IMPLICATIONS
- The current approach to negotiating a comprehensive, universal and legally binding ‘global deal’ on climate change is unlikely to succeed. A strategic rethink is needed on how to advance global climate protection in the current global political and economic environment.
- An alternative approach is the ‘building blocks’ strategy, which develops different elements of climate governance in an incremental fashion and embeds them in a broader political framework. In fact, such an approach is already emergent in post-Copenhagen international climate politics.
- The building blocks approach offers the hope of breaking the current diplomatic stalemate but remains a second best scenario. It promises no swift, short-term solutions, risks strengthening the logic of free-riding and may lead to excessive regulatory fragmentation.
- A more strategic, long-term vision is required for the building blocks model to lead to the creation of an ambitious international architecture for climate protection and prevent the slide into a purely decentralised, ‘bottom-up’ approach.
Monday, November 15, 2010
APEC: To a 'Free Trade Area of the Asia-Pacific'
This story is convoluted, but it will be of interest to all you followers of trade negotiations. Again somewhat lost in all the talk about international currency wars and global economic imbalances was the just-concluded APEC meeting in Yokohama, Japan. The Asia-Pacific Economic Cooperation (APEC) is rightly regarded by many as a non-event on the world's calendar, being little more than an opportunity to play dress-up in nifty native costumes and make Dubya look silly in times past. However, the Yokohama meeting may be said to be a tick above the moribund in the arena of regional economic integration that I have great interest in following.
A few weeks ago, an event hosted here at LSE IDEAS (this link contains a video interview of Warwick's Asia expert Shaun Breslin) discussed contrasting visions of economic integration in the Asia-Pacific. My previous wrap-up post featuring presentation slides has more. In brief, the three largest economies in the world are proposing different versions of integration that suit their interests. China is keenest on ASEAN+3 or ASEAN's ten member states plus China, Japan, and South Korea, Meanwhile, the Japanese are championing the East Asian Community or the so-called ASEAN+6: the countries mentioned above plus Australia, New Zealand, and India. Lastly, the Americans still want to turn APEC--not originally envisioned as a free trade grouping--into one. The US is keen on turning the current Trans-Pacific Partnership (TPP) among Brunei, Singapore, Chile, and New Zealand--a very odd set of countries in geographical terms--into something wider. The US aside, Australia, Vietnam and Peru are also in the negotiating process. Malaysia recently joined TPP negotiations--perhaps a sign that the US strategy of making TPP a bandwagon for regional integration that doesn't leave it behind alike ASEAN+3 or +6 is working.
Professor Breslin believes that the proliferation of preferential trade agreements is designed to forestall the creation of a regional FTA. That is, it becomes more and more difficult to conclude an agreement once you gather more economies with disparate interests. Notice that I said "parties" instead of "countries." For, in an interesting twist, Taiwan is considering whether to join TPP negotiations as well. Remember, APEC is composed of economies, not countries. This expediency allows APEC member Taiwan a workaround to its exclusion in the likes of ASEAN+3 or +6 at China's will.
For a counterblast to Professor Breslin's idea that the proliferation of such proposals is meant to delay the emergence of a pan-regional trade deal, consider what the APEC participants have said in their 2010 Leaders' Declaration. By contrast, they suggest that ASEAN+3, ASEAN+6, and TPP are not competing but complementary arrangements that may eventually lead to a Free Trade Area of the Asia-Pacific" presumably involving the bulk of APEC economies:
We will further promote regional economic integration, working toward the target year of 2020 envisaged by the Bogor Goals for all APEC economies to achieve free and open trade and investment.Again, there is much reason for scepticism. How can the US complete a deal with nine participants when it cannot even complete a bilateral arrangement with South Korea after three years, for example? Recall, too, that the Bogor Goals are well off track. The text of the 1994 Leaders' Declaration says APEC's achievements should include "the industrialized economies achieving the goal of free and open trade and investment no later than the year 2010 and developing economies no later than the year 2020." 2010 is about to end, yet agricultural protectionism remains rife in the likes of the US and Japan. As for the Doha Development Round, forget about it since most of the rest of the world already has.
We will take concrete steps toward realization of a Free Trade Area of the Asia-Pacific (FTAAP), which is a major instrument to further APEC's regional economic integration agenda. An FTAAP should be pursued as a comprehensive free trade agreement by developing and building on ongoing regional undertakings, such as ASEAN+3, ASEAN+6, and the Trans-Pacific Partnership, among others. To this end, APEC will make an important and meaningful contribution as an incubator of an FTAAP by providing leadership and intellectual input into the process of its development, and by playing a critical role in defining, shaping, and addressing the "next generation" trade and investment issues that FTAAP should contain. APEC should contribute to the pursuit of an FTAAP by continuing and further developing its work on sectoral initiatives in such areas as investment; services; e-commerce; rules of origin; standards and conformance; trade facilitation; and environmental goods and services.
Importantly, remember that this is not the first time the US has tabled the FTAAP idea. Alike the Free Trade Area of the Americas (FTAA), FTAAP has singularly failed to find adherents. Ah well, hope always springs eternal for some.
Korea-US FTA Still Not There Yet
[NOTE: This should be the last South Korea post for a while after--count 'em--three consecutive ones.] It has been a very hectic week in the Asia-Pacific region with any number of things going on: US President Obama visiting our large neighbours India and Indonesia; the not-so-consensual G-20 in Seoul; and the annual Asia-Pacific Economic Cooperation shindig, this year in the Japanese industrial town of Yokohama (more on that in the post above). Something that bears mention, however, is the continuing Obama administration futility in concluding any sort of trade agreement. From the Bush administration, Obama inherited pending deals with Colombia and Panama in the Americas as well as with South Korea in the Asia-Pacific. Speaking of which, legislative approval in both countries does not yet appear to be on the horizon.
Let us begin with the Korea side. In early January 2009, Korean legislators from the opposition were literally smashing up parliament over plans to put the Korea-US Free Trade Agreement (the rather unwieldy KORUSFTA). Korean lawmakers apparently enjoy a vigorous democracy for they were beating each other up again by mid-2009 over another issue. Like Japan, South Korea has some of the most protected agricultural producers in the region, and the continuing fear is that KORUSFTA would unleash a flood of American imports. There is also the related and quite frankly nonsensical Korean retention of age limits on US beef imports to consider as a barrier. Previously in place for the mad cow scare that has long since died down Stateside, many Koreans--especially their lawmakers--retain a quite frankly unreasonable fear of US beef contamination. So serious is this mass delusion that Korea's government was nearly toppled over it. Again, if such Korean hysteria were true, there would be thousands of Americans keeling over, but there is absolutely no sign of that happening.
On the US side, there is an equal delusion that American automakers hold of opening the Korean automotive market to their wares. In the mid-1990s, these same US car manufacturers were keen on exploiting the also secluded Japanese auto market. Simply put, it won't happen as there is little demand for American gas guzzlers in these Asian markets. Market liberalization, while categorically desirable, is a ploy that certainly didn't work for the likes of GM, Ford, and Chrysler in Japan as they still have minuscule market shares there. I have little reason to believe that opening up the Korean market will do them any better.
At any rate, that's my reading of events. The Wall Street Journal summarizes what happened in South Korea that resulted in...a continuing legislative stalemate for both the Americans and the Koreans:
The presidents of the U.S. and South Korea were unable to overcome disputes over cars, cattle and domestic politics, potentially killing the biggest bilateral trade deal the U.S. has taken up in more than a decade. The failure to resolve issues by Barack Obama's self-imposed deadline was a blow to the president, who has put export growth at the center of his jobs agenda and had invested political capital in getting a deal by the Group of 20 summit in Seoul.I see limited scope for KORUSFTA going forward soon given that it is such a political hot potato in both countries. Sitting on the desk since 2007 and not being put to a vote in either country is a surefire sign that things are amiss. Legislative attention is concentrated in other places in the US, while Korean anxiety over mad cow borders on the irrational. With the Obama administration being unable (or unwilling) to move KORUSFTA forward, there's also a question of whether resistance is specific to Korea or generalized aversion to trade, period.
A U.S. trade official said working-level staff from both sides will meet Friday. But chances for a deal look dim given opposition Mr. Obama faces from Ford Motor Co., labor unions and Democratic lawmakers. Labor leaders and some powerful politicians from both parties praised Mr. Obama for not going ahead with a deal they characterized as bad for U.S. workers. "President Obama is exactly right in holding out for a deal that puts working people's interests first," said Richard Trumka, president of the AFL-CIO.
Polls suggest U.S. political support for trade-opening deals is weakening amid high unemployment. While Republican congressional leaders have suggested they would support moving forward on such deals, some newly elected GOP lawmakers have expressed doubts. Without presidential pressure, trade experts say the South Korea agreement, which has languished in Congress since 2007, could return to limbo along with pending trade agreements with Colombia and Panama and the dormant Doha round of global trade talks. In addition, Mr. Obama hasn't moved to resolve a festering trade dispute with Mexico because of pressure from Democratic lawmakers and unions...
One stumbling block was Korea's refusal to change a provision in the 2007 pact that provided an immediate end to a 2.5% tariff the U.S. levies on imports of Korean cars, said House Ways and Means Committee Chairman Sander Levin (D., Mich.). The U.S. wanted the tariff reduced gradually, while Korea eliminates safety and environmental rules that U.S. auto makers, led by Ford, said help keep Korea the world's most closed car market. The effect of reducing the U.S. tariff more slowly likely wouldn't be large because South Korea's Hyundai Motor Co. already gets around it on more than half of the cars it sells in the U.S., by making them in Alabama and Georgia...
The U.S. also wants Korea gradually to drop its ban on imports of U.S. beef from older cattle, which began after the U.S. had a case of mad-cow disease seven years ago. Previously thought the easier of the two issues, it is a hot button politically for Korea and prompted a walkout by Korean negotiators.
In the end, the parties ran out of time. U.S. Trade Representative Ron Kirk said, "We won't be driven by artificial deadlines," though it was Mr. Obama who set the G-20 deadline. The president alluded to the political pressures. "If we rush something that then can't garner popular support, that's going to be a problem," said Mr. Obama, who had criticized the moribund 2007 Korea pact when he was a candidate. "We think we can make the case, but we want to make sure that that case is airtight."
His plan to revive the Korea trade deal originated in the spring, with a conversation with then-Chief of Staff Rahm Emanuel about broadening the national-security relationship with South Korea. The idea was that reviving the pact could broaden that relationship; help meet Mr. Obama's goal of doubling U.S. exports by 2015; and further U.S. economic interests in Asia as a counterweight to China.
Limiting new trade talks to cars and beef allowed the White House to convince Korea, which had paid a heavy political price for the 2007 agreement, that the pact wouldn't be "renegotiated" but "supplemented" by two side agreements. The narrow reopening also made success more likely, and Mr. Obama in June set the deadline to coincide with the G-20 summit, in part to pressure negotiators to get the job done. The bruising election season chilled the climate for new trade action, as Democrats trumpeted opposition to the Korea deal and some populist Republicans expressed skepticism of free-trade deals...
The Korean auto rules the U.S. wants changed are a blend of American and European emissions and other standards, which force foreign producers to make slight modifications to enter the Korean market. Doing so is expensive, and when unit shipments are low it can force car makers to raise prices. "Free-trade agreements should be about free trade, and we greatly appreciate President Obama's and Ambassador Kirk's commitment to that fundamental principle," said Ford Chief Executive Alan Mulally.
Detroit auto makers and the United Auto Workers got fresh backing Thursday from two prominent Michigan lawmakers who will likely be gatekeepers for any trade pact, should one be reached. House Ways and Means Chairman Mr. Levin and the panel's senior minority member, Michigan Republican Rep. Dave Camp—who are likely to switch positions in the next Congress—jointly said that the effort to salvage a U.S.-Korea trade deal will succeed only if it addresses "the dangerously lopsided trade in automotive vehicles."
South Korean President Lee Myung-bak also faces a political dynamic, including pressure not to change an agreement that was portrayed as a victory over U.S. negotiators when it was first struck in 2007.
Friday, November 12, 2010
I'm a Seoul Man: G-20 Punts on Econ Imbalances
Got what I got the hard way
And I'll make it better each and every day
So honey don't you fret
Cause you ain't seen nothing yet
I'm a Seoul man
As more or less expected given constant quarrels over global economic imbalances, the South Korea G-20 did not produce a definitive deal concerning them just yet. All concerned have decided to leave the matter for finance ministers and central bankers to tackle in the first half of 2011. When in doubt in these sorts of multilateral negotiations, agree not to disagree just yet.
Admittedly, I am somewhat vexed by this outcome even by the desires of large current account surplus-running G-20 members like China and Germany given that the process of recommending remedial action will most likely not be made binding, period. Still, we are where we are which is rather close to where we began. The communique is well worth reading even if it gets a bit tedious and repetitive at times. Below, however is an excerpt describing the key Mutual Assessment Process (MAP)--ostensibly "we're all watching out for each other" as opposed to "the US-dominated IMF watching over you" or something similar to make things more palatable to the likes of China:
[To] enhance the Mutual Assessment Process (MAP) to promote external sustainability. We will strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Persistently large imbalances, assessed against indicative guidelines to be agreed by our Finance Ministers and Central Bank Governors, warrant an assessment of their nature and the root causes of impediments to adjustment as part of the MAP, recognizing the need to take into account national or regional circumstances, including large commodity producers. These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken. To support our efforts toward meeting these commitments, we call on our Framework Working Group, with technical support from the IMF and other international organizations, to develop these indicative guidelines, with progress to be discussed by our Finance Ministers and Central Bank Governors in the first half of 2011 [my emphasis]; and, in Gyeongju, our Finance Ministers and Central Bank Governors called on the IMF to provide an assessment as part of the MAP on the progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies. In light of this, the first such assessment, to be based on the above mentioned indicative guidelines, will be initiated and undertaken in due course under the French Presidency.So the South Koreans are probably glad to have managed to avoid being placed in the global economic imbalances hot seat. Now, the task not falls to the 2011 chairs...the French! Can you imagine Sarkozy and Co. delivering verdicts to Germany to lighten up on its structural surplus sometime later next year? As far as economic diplomacy goes, that's entertainment! (Or what passes for it. This is an IPE blog still at the end of the day.)
Tuesday, June 1, 2010
WTO Bashes PRC in Trade Report; So Does US
There appear to be some fireworks in store as the WTO is about to release its biannual survey of China's trade practices in a Trade Policy Review. Think of it as the trade equivalent of the IMF's Article IV surveillance. This publication is the third such report to come out since China joined the WTO in 2001. The ever-reliable Reuters alerts us to potentially controversial viewpoints aired by the WTO. Although it's supposed not to take sides in looming trade disputes, it's said to clearly fault China on disallowing the export of rare earth metals and other important but not-so-abundant raw materials (more on this in a recent post):
China's curbs on exports of some raw materials to conserve resources may not meet the stated goals while giving Chinese manufacturers an unfair advantage, the World Trade Organization said on Monday. The remarks, in a report prepared for China's two-yearly trade policy review, constituted a rare comment by the WTO's secretariat on a current dispute between members.For trade law junkies, the pending case at the dispute settlement referred to above is DS 398. So China has received a fairly hard time from the WTO. Those critical of the WTO will probably say that the US is simply getting its policy preferences across since it basically set the outlines of the organization. However, note that the current US Permanent Representative to the WTO Michael Punke is, if anything, even more critical of China than the WTO. In addition to it limiting the export of critical raw materials, Punke lodges a laundry list of grievances against China's trade practices, saying that progress towards trade liberalization since 2006 has stalled:
By cutting off exports of some raw materials, China makes them more expensive for foreign manufacturers who use them while making them cheaper for its own processing industry, which is able to sell finished goods abroad more cheaply than foreign competitors can. China's restrictions on raw materials sales have been challenged by the United States, European Union and Mexico, and the WTO set up a panel in December to rule on the complaints...
China uses restrictions such as prohibitions, licensing, quotas, taxes and partial tax rebates to manage certain exports in order to conserve resources and energy, it said. The report questioned whether this approach was economically effective, and noted that such restraints tend to reduce export volumes of the targeted products, diverting supplies to the domestic market and depressing their domestic prices.
"Export restraints... may implicitly assist domestic downstream processing of the products concerned," it said.
Turning to the analysis in the Secretariat’s Report, the United States notes its disagreement with the Report’s broad assertion that “China has maintained its long-term strategy of gradually opening up its economy to international trade and FDI” since its Trade Policy Review in 2008. In the United States’ view, this statement should be qualified.As plentiful as it may seem, the above is only an excerpt of a very long list of US bellyaching about China's trade practices. Still, it's notable that currency matters were not brought up, as it does focus more on conventional trade-related issues (or those which have been subject to legal action at the WTO in the past).
In the first years after China’s accession to the WTO, China made noteworthy progress in adopting economic reforms that facilitated its transition toward a market economy and increased the openness of its economy to trade and investment. However, beginning in 2006, progress toward further market liberalization began to slow.
By the time of China’s Trade Policy Review in 2008, the United States noted evidence of a possible trend toward a more restrictive trade regime, citing several Chinese measures signaling new restrictions on market access and foreign investment in China. At the root of many of these problems was China’s continued pursuit of problematic industrial policies that relied on excessive government intervention in the market through an array of trade-distorting measures designed to promote and protect domestic industries. This government intervention appeared to be a reflection of China’s historic yet unfinished transition from a centrally planned economy to a free-market economy governed by rule of law.
Since China’s Trade Policy Review in 2008, there is increasing evidence of such a restrictive trend. Examples from the past two years include: (1) the continued and incrementally more restrictive use of export quotas and export duties on a large number of raw material inputs; (2) the selective use of other border measures such as value-added tax rebates to encourage or discourage exports of particular products; (3) the setting and enforcement of unique Chinese national standards, such as an informal requirement that all new 3G mobile handsets be enabled with a unique Chinese national standard for wireless Internet access; (4) China’s government procurement practices, including an array of new central, provincial and local government “Buy China” policies; (5) a new Postal Law that excludes foreign suppliers from a major segment of the domestic express delivery market; (6) impediments to the foreign supply of value-added telecommunications services and an informal ban on new entrants in China’s basic telecommunications sector; and (7) continuing significant restrictions on foreign investment in China, along with continuing consideration of “national economic security” when evaluating foreign investment through mergers and acquisitions.
The final report is yet to be posted on the WTO site, but I'll update this post when it is. At the end, of the day, though, it boils down to this question for Ambassador Punke & Co: so what are you going to do about it? Don't wimp out all the time like Geithner if you want some respect. Show them you're a real man, not a punk, Punke...
Wednesday, April 21, 2010
BRICs On the Brink of a Quarrel Over Chinese RMB
A few days ago, Brazil, Russia, India, and China conducted a summit in Brazil's capital, Brasilia. What is interesting is that the originally envisioned BRICs grouping by Goldman Sachs' Chief Economist Jim O'Neill has become a grouping in its own right. (Football fans, here's some trivia: one of the Red Knights seeking to rescue Manchester United from the vile Glazers is none other than longtime fan Jim O'Neill.) Aside from all being members of the G-20, they seem to have interest as well in third world solidarity--that only goes so far, though. While China has become Brazil's largest trade partner, there is apparently anxiety as well on the part of Brazil over the value of the RMB. During the recent BRICs gathering that was cut short by Hu Jintao's need to return home because of the earthquake in the Tibetan region, currencies were kept off the table due to the issue's emerging contentiousness:
Hu and Brazilian President Luiz Inacio Lula da Silva signed a five-year "action plan" aimed at boosting trade and energy cooperation. The two nations have grown closer amid a surge in commerce -- in 2009 China became Brazil's top trade partner...Although the meeting was meant to help establish a common position of the upcoming G-20 finance minister's gathering, it appears the Brazilians are unable to keep themselves from prattling about--you guessed it--China's currency practices among themselves. Although current central bank governor Henrique Meirelles obviously won't be heading to the Washington meeting from 22 to 23 April, he is vocal nonetheless:
Brazil and the other BRICs were not expected to risk fraying ties with China by pressuring it to allow the yuan to strengthen, despite concerns about the effect of cheap Chinese exports on their economies...They are not expected to push for a new international reserve currency to rival the dollar, an idea they discussed last year. As the largest holder of U.S. Treasury bonds, China is not keen to see the value of its investments diminish.
A stronger Chinese currency is "critical" for the good of the global economy, Brazil's central bank chief Henrique Meirelles said on Tuesday, joining a chorus of critics of China's foreign exchange policy. Speculation that China may soon revalue its currency and unveil a long-awaited shift in its exchange rate has intensified in recent weeks, and the yuan is likely to figure in discussions at this week's Group of 20 meeting of finance officials in Washington.Can Chinese gradualism meet with Brazilian approval? Wait and see.
"I think it's absolutely critical for the equilibrium of the world economy," Meirelles said when asked by a senator what the impact would be if China revalued its currency. Meirelles was speaking to the Senate's economic affairs committee before traveling to Washington where the spring meetings of the International Monetary Fund and the World Bank will also be held. "There are some distortions in world markets, one of them is a lack of growth and another is China," Meirelles said. "China's exchange rate is the result of the country's big savings ... this generates distortions for China itself..."
This month, Brazil's Finance Minister Guido Mantega waded into the debate when he said that a flexible currency policy in China "would be very good" for the global economy.
Last week, Brazilian President Luiz Inacio Lula da Silva met with his Chinese counterpart Hu Jintao in Brasilia at a summit of the so-called BRIC group of major emerging markets, which also includes Russia and India. But Lula did not mention the yuan, preferring to avoid fraying ties with Beijing over the issue. In a closed-door speech at that summit, Hu reiterated Beijing's long-standing official description of its yuan policy, saying that China remains on course to gradually put in place a managed floating exchange rate system.
Sunday, April 4, 2010
Maneuvers: Geithner Delays China Currency Report
What is Geithner playing at with the news that the US Treasury will delay the release of its report to Congress on the currency policies of US trading partners? The following was posted on the Treasury website just a few hours ago:
I have decided to delay publication of the report to Congress on the international economic and exchange rate policies of our major trading partners due on April 15. There are a series of very important high-level meetings over the next three months that will be critical to bringing about policies that will help create a stronger, more sustainable, and more balanced global economy. Those meetings include a G-20 Finance Ministers and Central Bank Governors meeting in Washington later this month, the Strategic and Economic Dialogue (S&ED) with China in May, and the G-20 Finance Ministers and Leaders meetings in June. I believe these meetings are the best avenue for advancing U.S. interests at this time.This latest American strategy involves agitating for a strengthening of the RMB at a number of upcoming forums. Failure from the Chinese to act, however, might still set in the train of events that leads to it being labelled a manipulator (at long last):
As part of the overall effort to rebalance global demand and sustain growth at a high level, policy adjustments are needed that measurably strengthen domestic demand in some countries and boost saving in others. These are also important to ensure robust job growth. In the United States, private savings has increased, the current account deficit has fallen, and the President has outlined a series of measures to reduce our fiscal deficit.
Countries with large external surpluses and floating exchange rates, such as Germany and Japan, face the challenge of encouraging more robust growth of domestic demand. Surplus economies with inflexible exchange rates should contribute to high and sustained global growth and rebalancing by combining policy efforts to strengthen domestic demand with greater exchange rate flexibility.
This is especially true in China. China's strong fiscal and monetary response to the crisis enabled it to achieve economic growth of nearly 9 percent in 2009, contributing to global recovery. Now, however, China's continued maintenance of a currency peg has required increasingly large volumes of currency intervention. Additionally, China's inflexible exchange rate has made it difficult for other emerging market economies to let their currencies appreciate. A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing.
Our objective is to use the opportunity presented by the G-20 and S&ED meetings with China to make material progress in the coming months.
However, another influential lawmaker, Representative Sander M. Levin, the chairman of the House Ways and Means Committee, endorsed the Treasury’s approach. “The announced delay is for a definite period and for a defined purpose,” Mr. Levin, Democrat of Michigan, said in a statement. But he added that if a multilateral effort did not result in China’s making significant changes, “the administration and Congress will have no choice but to take appropriate action.”Wait and see, boys and girls, wait and see. Obviously, the US move allows a few months' worth of breathing space after Hu Jintao comes along for Obama's nuclear shindig, so don't take it for granted just yet that Geithner will wimp out for a third consecutive time on labelling China a manipulator. More so now, it may depend on what Beijing indicates in the upcoming economic meetings. Nevertheless, it's notable how even this usually token report is delayed in the interest of handling a particularly recalcitrant country from Washington's POV.
Similarly, Leo W. Gerard, president of the United Steelworkers, one of the largest manufacturing unions, said he was comforted by the Treasury stance. “Those are very positive statements,” he said. “We have an administration that’s finally talking about this issue. I’m not so bothered with the postponement if it’s going to bring about a positive direction and change in America.”
Friday, April 2, 2010
Hu Patronizing US Nuke Summit and RMB
Unbeknownst to many, the US has just sent a bipartisan delegation to China in search of better ties. Quarrels over Tibet, Google, Taiwan weapon sales, and the renminbi are great and entertaining and all, but at the end of the day, appeasing your largest creditor makes sense. From our favourite official news agency, Xinhua:
Chinese Vice President Xi Jinping on Thursday urged to remove "disturbance" in the China-U.S. relationship to promote long-term, healthy and stable bilateral ties. Xi made the remarks while meeting with a U.S. bipartisan delegation led by former U.S. Secretary of State Madeleine Albright and former U.S. Assistant Secretary of State Richard Williamson [during the Bush 41 administration].Further signs of a thawing in relations comes via Premier Hu Jintao accepting Obama's invitation to attend a nuclear conference just a few days before the biannual Treasury report on the currency practices of US trade partners. As the FT suggests, it is thus likely that this invitation signals a fairly low chance of China being declared a currency manipulator just two days or so later. Also note that Hu is going on a South American jaunt in support of Chinese interests that may not be quite as welcome to US ones:
The governments, parties and politicians of both China and the United States should "learn from history, cherish current opportunities, march with the times and take a broad view of bilateral ties," Xi said. Xi said he hoped the two sides will overcome difficulties and remove disturbances to improve bilateral ties for the benefit of the two nations and the world.
The 18-member U.S. delegation is in Beijing to attend the first high-level dialogue with the Communist Party of China (CPC), which was held on Wednesday. It is also the first time the two U.S. political parties have sent a bipartisan delegation to China. Xi, also a member of the Standing Committee of the Political Bureau of the CPC Central Committee, spoke highly of the inter-party dialogue, saying the party exchanges will help boost understanding and trust and promote a positive, cooperative and comprehensive China-U.S. relationship in the 21st century.
Xi's remarks came amid a thaw in the China-U.S. ties, which was strained by a U.S. arms sale plan to Taiwan in January and President Barack Obama's meeting with the Dalai Lama in February.
Qin Gang, foreign ministry spokesman, told reporters on Thursday that Mr Hu would participate in the summit on his way to visit Brazil, Venezuela and Chile. The nuclear summit would mainly discuss nuclear terrorism and potential countermeasures, said Mr Qin...Bottom line: much as doing otherwise would alleviate my boredom, I expect Treasury to do nothing about the Chinese yuan (again). There may be some token gestures towards being more vigilant about the matter, but in the end, we all know who floats America's boat nowadays.
Apart from being a foreign policy success for Mr Obama, the decision also makes it less likely that the US will step up pressure on China to liberalise its exchange rate by labelling it a currency manipulator. Some prominent figures in Congress are pushing the White House to make an official designation in its twice-yearly currency report, due by April 15. But the timing of the nuclear summit, on April 12-13, makes such a diplomatically risky move less likely.
UPDATE: Ditto for the WSJ on the symbolism behind Hu's visit.
Tuesday, March 23, 2010
EU Hints at Transatlantic Trade War Over Tankers
Well, here is proof that it's not just my fervid imagination behind a recent post saying just the same thing. Again, I am utterly befuddled as to why other trade or IPE commentators haven't paid more attention to this issue as big, big money is at stake alongside transatlantic trade relations. Just yesterday, I attended an LSE talk where new EU Trade Commissioner Karel de Gucht spoke about evolutions in EU trade policy. While not talking directly about the lost opportunity of supplying the US Air Force with tens of billions' worth of air refuelling tankers, de Gucht made many allusions as to how the trade climate is affected by US policy. In diplomat-speak, it's as close as you can get to--pardon the expression--Yankees suck! It turns out that, somewhere else, he has expressed further thoughts on how transatlantic trade ties are not going too smoothly--especially in the realm of defence procurement:
The threat of a transatlantic trade war in aerospace after America’s decision to exclude EADS from a $50 billion (£33 billion) Pentagon contract has been raised by the European Trade Commissioner. Political tension is rising in European capitals over Washington’s decision to tilt the scales towards Boeing in a military procurement contract to build a fleet of aerial refuelling tankers.Good grief. Is adopting a more unified approach to military procurement via the creation of EU standards a possible non-tariff barrier being thrown in the way of America? The rest of the article discusses how long-awaited decisions on the Boeing-Airbus countersuits at the WTO will be coming down the pike soon, so stay tuned.
“There will be a reaction,” Karel De Gucht, the Commissioner, said. “My impression is that Paris is not pleased.” This month, Northrop Grumman, the partner of EADS in the bid for the Pentagon aerial tanker contract, withdrew its bid, complaining that the terms of the tender clearly favoured the American aerospace giant. The Commissioner pointed to the annual trade gap between Europe and the US in military hardware, with Europe purchasing €5.5 billion (£5 billion) of equipment from America, while its imports from the EU totalled only €2.2 billion.
“If you had added the [tanker] deal, it would have been a balanced situation,” Mr De Gucht said, calling for a more unified European approach to military procurement. “One of the possible answers is to adopt EU standards for military equipment.”
Sunday, March 14, 2010
Wen Jiabao: Calls to Revalue RMB = Protectionism
The Chinese appear to be fighting back in the discussion over the value of their currency. With calls for Chinese currency to move to a more "market-oriented" exchange rate (i.e., revalue) emanating from the American President, Treasury Secretary, belligerent lawmakers, and even noted international economist Paul Krugman, Premier Wen Jiabao's turn has come. First, he cleverly changes the topic by reiterating his previous concerns about the safety of the PRC's dollar assets:
Wen urged America to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit. Treasury Department figures show China’s holdings of Treasury securities dropped for a second month in December to $894.8 billion.And he also equates calls to revalue with "protectionism":
“The Chinese currency is not undervalued,” Mr Wen said during his annual press conference at the closing of the annual meeting of the Chinese legislature. ”We oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies.”China Daily hits all these points as it, of course, conveys the official portrayal of events. So, it appears Chinese leadership does not appreciate calls to revalue--even if many believe it's in their best interests to do so, including myself. What will be interesting to see is if concerted bellyaching from American leadership sets the stage for eventually classifying China as a currency manipulator, opening the door to punitive legislation against China. We will get our first clue if the US is moving towards that direction with Treasury's required mid-April decision.
Mr Wen said he understood that countries wanted to increase exports but said they should not resort to what he described as protectionism. “What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism,” Mr Wen said.
PS: IR/IPE stalwart Joseph Nye has commentary on "China's Bad Bet Against America" in the Korea Times you may want to read featuring the precious line "True, if China dumped its dollars on world markets, it could bring the American economy to its knees, but in doing so it would bring itself to its ankles" [!]
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