Motor vehicle subsidies wasted on Ford

Ford Australia made just over a quarter (60,000) of all the cars made in Australia last year and less than one-fifth of all the new cars+light trucks registered in Australia in 2009 (a total of 302,400: see the ABS Motor Vehicle Census)

Ford is not going to be a profit center for its global parent any time soon.

'As soon as choices have to be made, Ford is the next Mitsubishi,' said John Wormald, principal of international consultant Autopolis, referring to the Japanese company's decision to shut down its Adelaide factory two years ago.

Mr Wormald, who is in Australia to advise the Victorian government, said the replacement for the Falcon, due in about five years, could be imported cheaply and the carmaker did not need its Melbourne plant. 'Ford isn't short of assembly capacity in other places,' he said. 'Where's the plan to integrate Australia?'" Extract from Ford will be next carmaker to quit Australia | The Australian

Wormald confirmed what everyone except Kevin Rudd and Kim Carr has understood for decades about the Australian car industry. Referring to the massive $6 billion bribes extended by the Rudd government (including $13 million to prop up Ford's Geelong factory), he said

"Subsidies were doomed to fail because the industry lacked a vision for the future and Ford was most vulnerable because it was isolated from its parent's global operations.

Your thoughts?…

Trade-war not likely

Precisely

"Taking a legal case over exchange rate misalignments to the WTO would probably fail, and take years in any case. The only real route left is to unilaterally slap tariffs on Chinese imports to compensate for alleged currency undervaluation. That would be a nuclear option that really could spark the destruction of the postwar world trading system, and it doesn’t look like the US is quite desperate enough for that yet." Extract from Alan Beattie in the FT - Skirmishes are not all-out trade war

Your thoughts?…

Apple’s patent protectionism

In an action before the U.S. Federal courts and the International Trade Commission, Apple Inc. is attacking a Taiwanese manufacturer of Google's Android Phone for alleged abuse of 20 software patents. It seems the suits are aimed at slowing the growth of competition for the iPhone and, possibly, aimed at Google's proposed web operating system.

The prosecution of software patents, especially those for 'user interface innovations', is a dubious action at best that is sometimes (often? usually?) an abuse of market-competition principles. Worse, in this case, Apple has chosen to pursue it's competitors under the notorious, protectionist, S.337 of the US Trade Act of 1930 which does not provide damages for infringement of patent rights but prohibits imports of goods likely to infringe a U.S. patent.

Section 337 of the US Trade Act (1930) was the subject of a well-known GATT complaint brought by the European Communities against the USA in 1998. The Panel Report, adopted by the GATT Contracting Parties, concluded:

…that Section 337 of the United States Tariff Act of 1930 is inconsistent with Article III:4 [of GATT], in that it accords to imported products challenged as infringing United States patents treatment less favourable than the treatment accorded to products of United States origin similarly challenged, and that these inconsistencies cannot be justified in all respects under Article XX(d).

The GATT Panel recommended that Member governments ask the USA to amend it's legislation to bring it back into conformity with the GATT. But this was the middle of the Uruguay Round of negotiations, focussing on the TRIPS negotiations on intellectual property. The USA took no action as recommended by the Panel. Finally, in 2000 the EC again requested consultations with the USA over S.337, now citing its concerns about incompatibility with the TRIPS Agreement…but, again, there has been no action by the USA.

The Apple commentariat, is unhappy about the idea of protecting software patents to consolidate what is, already, a dominant postion for Apple in the phone market. Here are two pretty big guns from that world, blasting Apple with both barrels.

" Whatever benefit in the market Apple hopes to achieve by this suit to me seems likely to be worth far less than the loss of good will and prestige Apple will suffer if they vigorously pursue this case (let alone if they initiate more such suits)." Extract from John Gruber: This Apple-HTC Patent Thing

"But when you sue someone for doing something you do yourself, you become one of the bad guys. Can you name a company you admire that spends its time enforcing patents, instead of innovating? Remember the pirate flag you flew over Apple's headquarters when you were building the Mac? Is Apple part of the Navy now?" Extract from Will Shipley: An Open Letter to Steve Jobs Concerning the HTC Lawsuits.

Your thoughts?…

Tea leaves

A hiccup? Or a sign that imported deflation—via low-priced Chinese imports—will now start to slow?

"‘Labour availability is tight right now in Guangdong compared to other regions,’ said Paul Hussey, chief executive of Strix. The Isle of Man company, which dominates the global market for thermostatic controls on electric kettles, maintains most of its manufacturing operations in the provincial capital, Guangzhou." Extract from FT.com - Labour shortage hits China export recovery

According to the FT, China's economic stimulus program has increased investment and employment opportunities in the hinterland provinces, reducing the availability of labor in the coastal manufacturing hubs.

If this is not merely a temporary effect of the stimulus but the start of a long-term shift of industrial production away from China's coast it would not be a surprise to find that it was oriented more strongly toward supplying domestic demand than export markets. Transport and handling costs, for example, would make domestic markets a prior target.

Your thoughts?…

EU ramps up farm subsidies

Yow!

"The latest official notification to the WTO shows that total EU support levels have returned to levels not seen since the previous decade, with €90.7 billion of support being reported to the global trade body for 2006/2007 - up from €75.6 billion in 2002, when support was at its lowest in the last fifteen years." Extract from ICTSD

Your thoughts?…

Elaborating the Ag. travesty

It is difficult to believe that the complex, weak, confusing, rent-preserving, ponderous white-elephant being proposed for an agreement on agriculture in the WTO Doha negotiations could be more bloated or further compromised…but that's exactly what seems to be happening.

According to a report^* from ITCSD, developing countries and the EU want to further slow the pace of change where opening markets for products such as sugar, cut flowers, vegetable oils, fruits and juices might threaten some highly profitable deals between of a small group of EU importers and developing country exporters. So much for the poor old consumer!

"Trade sources told Bridges that this provision [to preserve tariff preferences] is meant to refer specifically to sugar; however, the language leaves open the possibility that other products, such as beef, could qualify as well. Specifically, if members use a complex methodology called ‘partial designation’ to select very specific products, then it is possible that those goods, which would not otherwise receive preference erosion treatment, might also qualify." Extract from ICTSD Preference Erosion List Marks ‘New Era’ in WTO Farm Talks

It's time to kill this ugly beast of an agreement and to start again with a simpler deal among countries that want open, competitive markets. If the current Doha text ever gets off the table it will serve only to anchor the development and expansion of international food trade in the morbid swamps of its infamously protectionist past.

^* There's no sign of the EU-ACP proposal yet on the WTO website.

Your thoughts?…

Multilateralism not a ‘single undertaking’

More commentary—this time from the President of the U.S. Council on Foreign Relations—on the significance of the Copenhagen meeting as one of the first signs of whatever-it-turns-out-to-be that follows the pax atlantica

"Multilateralism in the 21st century is, like the century itself, likely to be more fluid and, at times, messy than what we are used to." Extract from Richard Haass in the Financial Times

Haass provides three possible new conformations of multilateralism for the 21^st century that seem plausible to me: 'regionalism' as in regional trade agreements; 'functional' multilateralism—by which he means 'coalitions of the willing' or the 'critical mass' agreements that have been at the core of my recent work on agricultural trade agreements—and; 'informal' multilateralism comprising executive agreements on collaboration that fall some way short of treaties.

What these forms have in common, that distinguishes them from the form of multilateralism embodied in WTO, is that they are not 'single undertaking' agreements of the kind that has so crippled progress in the Doha Round of negotiations. It's past time that the WTO member governments got that idea.

Your thoughts?…

Good idea or insidious threat?

When an economy has trade leverage, the threat of discriminatory duties need not be simple protectionism.

"The US can help China make the necessary adjustments toward a reduction in imbalances by adopting a uniform tariff of 10 per cent on all Chinese imports, based on their values when they enter the US. Six months after the establishment of this tariff, the rate would increase by one percentage point a month until the Chinese trade surplus with the US declines to $5bn a month." Extract from FT.com / Comment / Opinion - Tariffs can persuade Beijing to free the renminbi

But who, other than China, would loose if this idea worked and the Renminbi was revalued? Most of the rest of the world. Especially economies with a comparative advantage in agricultural production (Australia, New Zealand, Latin America) for whom imported Chinese deflation of manufactures prices offsets the EU's depression of agricultural prices (and inflation of manufactures prices).

In principle, too, everyone would loose from another U.S. defection from the core multilateral trade rules. But perhaps you could make the case that this kind of extraordinary action (like the 1980's Nixon Administration 'shocku' blow against Japan) doesn't really impact the rules.

Your thoughts?…

What explains tariff levels?

It's not economic policy (or even necessity) as much as the political economy that drives trade policies.

"The relationship between the overall tariff policy (considering all product groups together) and the socio-economic variables is even more diffuse, and no strong relationship emerges between tariff policy clusters and the socio-economic context. Consequently, we can conclude that trade policy is not over-determined by economic considerations: the decision-making process defining a precise trade policy is the result of more complex interactions." Extract from Mapping the Tariff Waters by Diakantoni and Escaith (WTO Economic Research Division)

Your thoughts?…

Will the G-20 save Doha?

Probably not. The discount on this, the lastest of their promises, is deservedly steep according to the Global Trade Alert website.

It's not a problem of mendacity or lack of 'political courage'. There is simply no consensus on the liberalizing mandate of Doha among this group; we've tested that proposition to exhaustion in the past eight years. The G20 is effectively the same group that has been managing the WTO negotiations since early 2004, when the negotiations resumed after the Cancún collapse. To believe that these 20 Chefs could now confect a banquet from the 'trash pile' of the Agriculture and NAMA negotiating texts would be to believe that heads of government have been 'holding out' on their trade ministers all this time.

Although I doubt this Group can progress Doha, other groups or coalitions will very likely be the basis of future multilateral frameworks to open markets for goods and services. Future agreements will encourage different sub-sets of the WTO's membership to pursue their own objectives without the constraint of WTO's one-rule-for-all.

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Agriculture in the AUSFTA

The first few slides are charts of current data showing a surprisingly poor performance of Australian exports to the USA in the first five years of the implementation period of the free-trade area. The second half of the presentation compares my predictions and expectations for the agreement in 2002 (before the negotiations commenced—a copy of the earlier paper is here) with subsequent experience.

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Eonomic integration of Pacific Islands

It's not surprising to see rhetorical storm-clouds building over this week's Pacific Forum meeting in Cairns and the prospect of a regional economic integration agreement (PACER Plus) in the Pacific. An agreement that entails progressive economic reform and more open markets in the Pacific Islands is bound to threaten entrenched interests.

But this anxiety and pessimism is misplaced:

"'Against a backdrop of the enormous trade imbalance with Australia and New Zealand, and the lack of a strong base of productivity industry in the Pacific, it is clear that a new approach is needed.' An Oxfam report showed a standard FTA with Australia and New Zealand would see Tonga lose 19 percent of government income, Vanuatu 18 percent, Kiribati 15 percent and Samoa 12 percent. " Extract from 3 News (NZ)

I half-agree with that statement: a 'new approach' is needed. But let's be clear what an 'enormous trade imbalance' means in this case. It means that these tiny economies rely on external goods and services (as well as technology and specialized labor) to enjoy some of the benefits of 21st century economy. This is not only a good thing is it in fact indispensable for the people of the Pacific. So let's forget about all of this 'neo-colonialist' dependency nonsense and look seriously at their real opportunities.

The PACER Plus agreement offers the Islands an opportunity to put their economies onto a trajectory for higher and more sustainable growth. Sooner or later they'll have to go there, but their choices will be fewer, and tougher, the longer they delay.

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Remove the buy-local tax on books

Yes! The right recommendation for a more competitive and better-informed (or, at least, better-read) Australia.

"The Government should repeal Australia’s Parallel Import Restrictions (PIRs) for books. The repeal should take effect three years after the date that it is announced." Extract from Research report - Productivity Commission

This discretionary quota on books maintains local margins for the global book publishers and printers at the cost of readers and competitive Australian publishing. Now maybe—at last—we will see a more aggressive release of electronic titles ('Kindle books') in Australia. Welcome to the 21^st century.

Your thoughts?…

Market and PPP measures of GDP

In comments on the previous post, Ian Castles AO, the former Australian Statistician, notes that the World Bank and IMF create confusion in their reports by mixed use of market-exchange-rate (MER) and purchasing-power-parity (PPP) bases for estimating output and growth. Simply, using market exchange rates to compare the value of output among countries over-estimates the size of developed economies and under-estimates the size of developing economies. This confusion affects their analyses of, among other things, trade data.

The charts (click the thumbnails), taken from the two sets of data prepared by the IMF, show the dramatic difference between MER and PPP bases for comparing output and growth. Using the PPP basis for comparison, developing countries' economies are much larger in relation to developed economies and projected to 'close the gap' sometime after 2015 (take the IMF projections with a grain of salt: they're just 'straight line' extensions of current patterns of growth). The only difference between the two charts is the identification of China. Note that using a PPP basis for comparison, China appears less dominant in the developing country group.

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Carbon tariffs, permits and subsidies

Gary Horlick, Washington trade attorney, former senior official of the Commerce Department and a very fine analyst of WTO law, sets out some of the impossibly tricky technical questions in plain langugage

"Perhaps the biggest international trade challenge -- and one on which a lot more work needs to be done -- is how the mechanics of international trade will work if each of the hundred and ninety countries (or even 10-15 regional groupings) has its own individual climate change implementation. What if some of them have border taxes, some require permits for imports, and others instead offset the costs for their domestic industry. Or each country has a cap- and-trade system with different limitations on the permits?" Extract from testimony to the U.S. Senate Finance Committee

A short paper that asks the right questions (to which there are few, if any, satisfactory answers). Thanks to Simon Lester for finding this.

Your thoughts?…

Modeling a Doha agreement on agriculture

To conclude my series of posts on modeling a critical mass agreement on agriculture, I would like to show you how I set up UNCTAD's Agricultural Trade Policy Simulation Model (ATPSM) to project the economic impacts of an agreement to liberalize agricultural trade based on WTO's December, 2008, draft 'modalities'. In my previous post, I compared the results of this simulation with the results of a simulated critical mass agreement, also modeled in ATPSM.

In this video (click the thumbnail image: 17.5 minutes, about 25mb.), I walk through the setup of the simulation. Because the ATPSM program uses a graphic interface to the modeling tools, a video seems to be the best way to give you a feeling for what's going on and, perhaps, prompt you to think of ways to use the program yourself.

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Global Trade Alert

Just before the London G-20 Meeting in April, Andy Stoler and I wrote a paper for a booklet published by the Center for Economic Policy Research in which we suggested that the best way to make G-20 governments live up to their promises was to expose their misdeeds on trade policy—including those that nominally complied with their WTO obligation—using a public website.

Specifically, we recommended that the site should not be run by one of the global institutions (WTO, World Bank) that are owned by governments, but should be a private venture open to contributions from individuals around the world. Why? Well, as the FT notes, in an editorial today, sovereigns are not likely to put much pressure on themselves:

"The problem with naming and shaming wrongdoers is that, all too often, they turn out to be shameless." Extract from Financial Times

I am delighted to learn that the co-editor of the booklet (Simon Evenett) and the publishers (CEPR) have created just such a website: Global Trade Alert. It has been launched in the past couple of weeks with the backing of institutional sponsors (government funds, mostly) and an advisory board of distinguished analysts. GTA already lists a couple of dozen measures with useful details including the trading partners and tariff lines affected (for goods measures).

A nicely implemented and potentially intriguing experiment in global transparency. Please visit and contribute.

Your thoughts?…

Critical mass agreement vs the Doha Round

We'll cut to the chase, shall we, in this fourth of my posts on modeling the impact of a 'critical mass' agreement in agriculture? Click on the tags at the left-side or at the bottom of this article to find the earlier posts.

A 'critical mass' agreement among 38 countries that account for 80 percent of world trade in the 30 top-traded agricultural products (all of them food) to eliminate import duties on those products would achieve about two thirds of the projected value of the global Doha agreement on agriculture. If the members of the CM eliminated production and export subsidies, too (turns out, they won't have much choice) the global gains would be a third as much again as those projected for the Doha agreement.

Click the thumbnail to see the results in a table. A brief explanation of the table: the CM-35 scenario assumes that 3 of the potential members of the critical mass agreement decide not to join. They are China, India and Indonesia. As you can see the projected 'static' global welfare impact is actually slightly larger if they stand-back because China and India (especially) would benefit from the opportunity to 'free ride' on the open markets of the other 35 countries.

 Read more…

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