Fondly Recalling Thatcher's Handbag of IPE Doom

It is one of the most notable incidences in European integration history: Although the exact wording is still being debated to this day, former British Prime Minister Margaret Thatcher famously went before her European Community colleagues in 1984 demanding that the UK not pay so much into the infamous Common Agricultural Policy (CAP) of agricultural subsidies since Britain believed it paid far more than it received in this scheme.

Demanding a rebate, she slammed her handbag into the conference table and exclaimed something to the effect of "I want my money back!" While the CAP's share in the EU budget has gone down from being over three-quarters at its height to less than half today, it remains a big sticking point in WTO negotiations over agricultural market access of LDCs to developed countries, but that's another story for a different post. Here is a brief backgrounder on the UK rebate which exists to this day:

The UK won the rebate in 1984, after the then prime minister Margaret Thatcher threatened to halt payments to the EU budget. "We are not asking the Community or anyone else for money," she said at a summit in Fontainebleau. "We are simply asking to have our own money back".

The UK was then the third poorest member of the Community but was on course to become the biggest net contributor to the EU budget. This was mainly because the UK had relatively few farms, so it got a relatively small share of farm subsidies, which at the time made up 70% of Community expenditure.

The formula for determining how much a country paid into the Community budget was also unfavourable to the UK. It was in effect penalised for raising more revenue from VAT than most other member states and importing more goods from countries outside the Community.

So we now have this splendid story of a charity auction of some famous people's possessions. A finals match ball from England captain Lawrence Dellaglio's 2003 Rugby World Cup winning side went for £13,500. One of "Slowhand" Eric Clapton's Fender Telecasters commanded £16,000. And, apropos for today's story, Mrs Thatcher's now-famous handbag--swung around for emphatic effect in various national and international political arenas in her heyday--highlighted the auction and sold for £25,000:

A handbag belonging to Margaret Thatcher fetched £25,000 when it went under the hammer on Monday, auctioned by Lord Archer. The black glossy leather bag, owned by the former prime minister for more than 30 years, was pictured in a photograph taken as she walked alongside then US president Ronald Reagan during her visit to the United States in 1985.

The lot donated by Lady Thatcher was among a number of highly prized items sold by amateur auctioneer and author Lord Archer for charitable causes. It was bought by an unnamed Cypriot who is understood to have been a student in Britain during Lady Thatcher's tenure as prime minister. The Cypriot, a private buyer, is said to be a "great admirer" of the former Conservative leader.

It literally carries considerable British history, and surpassing prissy stuff like mace, pepper spray and stun guns, made "handbagging" a true weapon worthy of IPE Mortal Kombat:

As the auction at Christie's headquarters in central London concluded, Lord Archer said: "The handbag makes you automatically think of Margaret Thatcher. Someone has captured this and will have, frankly, a historic document for the rest of their lives."

Lady Thatcher's daughter Carol, who joined bidders in the packed sale room, said her mother was "longing to know" how much the bag had raised for her "carefully chosen" charities. "I hope that the highest bidder knows that if he's into handbagging, he's got a weapon with quite a track record. After all, my mother invented the verb 'to handbag'," she said.

Talk about girl power before that hackneyed term was developed:

Edwina Currie, a former minister in Baroness Thatcher's government, said: "It wasn't a shield, it was a weapon. "It said, 'I am Margaret Thatcher, I'm the boss, I'm in charge. I have all this power and I have control'. "That was why the handbag was always so neat and tidy and black and shiny and dominant. It would go on the Cabinet table.

Make no mistake: the Iron Lady had bigger balls than nearly everyone else while maintaining a distinctly feminine touch. WHOMP! Former US Secretary of State George Schultz is said to have enrolled her into the Grand Order of the Handbag:

In 1988 Mrs Thatcher received a handbag as a gift from George Shultz, Ronald Reagan’s secretary of state. He told her it was ‘to mark your ability to produce from within the right form of words to end a tedious discussion. You are the first and only recipient of the Grand Order of the Handbag’.

Those were some days.

Georgia, Still Russia's Roadblock to Joining WTO

I just wanted to add this update to my ever-growing collection of posts pertaining to Russia joining the WTO [1, 2, 3, 4, 5, 6, 7, 8, 9, 10]. The gist of it is that Georgia remains the main obstacle to Russia joining the international trade body. Given Georgia's outright conflict and continuing troubles with Russia over access to its erstwhile breakaway republics of Abkhazia and South Ossetia, the final blocking party was obvious. Imagine having another country controlling access to what you rightfully can claim as your own territory. It's not fun stuff. When we last had dispatches from this front, Switzerland had offered to mediate WTO entry among the quarrelling factions. Many months later, perhaps Swiss efforts haven't been enough. From Bloomberg:

Georgia and Russia haven’t made any “substantial” progress in three months of talks on Russia’s bid to join the World Trade Organization, Prime Minister Nika Gilauri said. “We don’t see any substantial progress yet even though there are some steps,” Gilauri said today in an interview with Bloomberg News at the World Economic Forum on Europe and Central Asia in Vienna. “So far the talks are going very much in the same mode.”

Switzerland in March started mediating negotiations between Russia and Georgia, which fought a five-day war in 2008 over the breakaway Georgian region of South Ossetia. Georgia has cited disputes over customs checkpoints in South Ossetia and another breakaway region, Abkhazia, as reasons to withhold its approval for Russian WTO membership.

Russia, the largest economy outside the WTO, has been seeking to join the Geneva-based trade arbiter since June 1993. The U.S. announced last year it had resolved most issues necessary for Russia’s accession. “The only request from Georgia’s side is for transparency on border crossings, on customs checkpoints,” said Gilauri. “If there is no transparency on checkpoints, how can Russia become a member of the WTO?”

Russia rejects “politicization” of WTO accession talks by Georgia, the Russian Foreign Ministry said in March. The “political window of opportunity” for Russia to enter may “start to close down” at the end of the year as the U.S. and Russia enter election years, Russian Deputy Prime Minister Sergei Ivanov said in an interview with Bloomberg in Miami in April, adding that he is hopeful an agreement will be reached before then.

Like me, do you find it odd that the US election cycle would put off the Russian bid for WTO membership? Despite the usual paeans to equal membership status, some may be just that bit more equal than others--alike the country that was instrumental in creating it. Some things never change, but you have to wonder if US presidential elections really matter that much in an ostensibly multilateral organization.

Meanwhile, As Clausewitz said, war is the continuation of politics by other means--a perfect explanation of the aforementioned conflict. What better way for Georgia to contest Russian checkpoints located in its breakaway republics but to create roadblocks to Russia joining the WTO? Strictly speaking it's not a trade issue being debated, but how does the "free movement of goods and services" sit alongside your neighbour fencing you out from your own territory? Strange but true.

Rumour Mill: Lord Mandelson, Next WTO Chief?

I would advise you to take this latest report with a grain of salt. For, in the last few hours, Gordon Brown's statements championing a greater role for less-developed countries at the IMF which had been interpreted as his bid to become its next managing director have been pooh-poohed--by Brown himself.

That said, we have yet another New Labour stalwart waiting in the wings to fill posts in prominent international economic organizations. While British Prime Minister David Cameron scoffed at the idea of recommending Brown to become the next IMF chief, this new Guardian article suggests Cameron is keener on Peter Mandelson. Unlike Gordon Brown, Lord Mandelson remains remarkably unscathed by the financial crisis insofar as he was brought back by Labour from his role as EU trade commissioner to perform damage control instead of, let's be honest here, inflicting damage. And so the rumour mill churns again with the idea that the more amiable Mandelson has the ear of Cameron when it comes to replacing outgoing WTO Director-General Pascal Lamy who wraps up his second and last term in 2013:

In a sign of the prime minister's high regard for Labour's last business secretary, government sources indicated that Mandelson was seen in Downing Street as a strong candidate to succeed Pascal Lamy, who is to stand down as the WTO director general next year [actually, in September 2013 since his second four-year term began in 2009--but candidates' names must be put forward next year already].

"Peter Mandelson is a strong candidate for an international job," one government source said of Britain's former European trade commissioner. "The director general of the WTO, which will become available next year, is an obvious position. We are sure that Peter Mandelson would have a lot to offer."

The interest in Mandelson may be seen in Labour circles as troublemaking by the coalition, which is rubbishing Gordon Brown's unofficial campaign to fill the vacant position of managing director of the International Monetary Fund after the resignation of Dominique Strauss-Kahn. The former prime minister made a speech in South Africa calling on rich western countries to meet their pledges to fund education for the world's poor.

Mandelson has been ruled out by Britain as a possible IMF head because he is does not have the necessary qualifications as a former finance minister or a former central bank governor. "Peter Mandelson does not have enough credibility for the IMF," the government source said. But the government does believe he would be well placed to succeed Lamy, Mandelson's French predecessor as EU trade commissioner. Lamy is a highly respected figure, though Cameron has been highly critical of the WTO's failure to complete the Doha trade round.

The reporter's angle on the coalition further undermining Gordon Brown is a doubtful one insofar as Brown's chances of political rehabilitation are remote. Neither is he inflicting much damage to the coalition nowadays as he mostly remains silent in parliament.

OTOH, while I remain a Peter Mandelson fan, I doubt whether he fancies the job and if he's really the man for it. After all, he was most enthusiastic about returning from abroad (Brussels, to be exact) when Gordon Brown came a-calling. If he so liked British politics that he would rather have been the de facto PM of a doomed government than stick around in Brussels, why would he want to venture there again? Next, alike at the IMF, I remain keen on an LDC candidate for the post. Just as I was wary of Lamy gaining a second chance at not completing Doha, so should I express caution about another industrialized country head at the WTO. Given the current difficulties over international trade negotiations, LDC voices need someone who feels our pain. Honestly, I am not sure if another ostensibly left-leaning politician with a penchant for the good life is what the WTO needs.

Nevertheless, don't forget the Pascal Lamy was himself a European trade commissioner prior to assuming his current post, so there is precedent there.

The Abyss: Pascal Lamy Broaches Doha Failure

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.

Can Manny Pacquiao Knock Out Chinese Textiles?

Yours truly aside, survey after survey usually shows the same phenomenon among Filipinos of having a very favourable opinion of their former colonial masters in the United States. (Having the second largest Asian population Stateside may have something to do with it.) This was true even at the height of global anti-American fervour after the invasion of Iraq. As a minnow in world affairs, minor players like the Philippines need to piggyback on others' efforts. So, when Bush called for GWOT, our government thought "free money from Washington!" and went along. It seems old habits die hard even when the Chinese are now around who are perhaps even more eager to win friends and influence people.

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.

What does this bill involve? Essentially, US-made fabrics and yarns sent to the Philippines for assembly (undies, t-shirts, trousers, etc.) would be able to claim duty-free re-importation back into America. From the blurb of the "Save Our Industries" website (yes, its proponents have put up an entire site). There is, unsurprisingly, a lot of buddy-buddy rhetoric involved -
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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.

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And now for the bit I promised with the title on famed boxer / congressman / budding protectionist Manny Pacquiao. The man who's arguably the world's most famous pugilist has been approached by those championing this bill. They're betting on Manny delivering the goods Stateside where they assume he's popular, too. Boxers not being well-known for their modesty, Manny claims that he helped deliver the sizable Filipino-American vote, ensuring electoral wins for Senate Majority Leader Harry Reid and new California Governor Jerry Brown:

“[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.”

In addition to recruiting Pacquiao, Philippine trade promotion authorities are spending big on US lobbyists despite taking it on the chin the last time around:

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.

For those of you who are trivia buffs, IPE junkies, or textile industry followers, the Garments and Textile Export Board mentioned above was a Marcos-era creation designed to administer Philippine garments and textiles export quotas during the Multi-Fibre Agreement (MFA) era. With the lapse of MFA in 2005 under WTO strictures, it is not only developed but also developing countries who've been scrambling to contain China's exporting powerhouse.

This bill is interesting as a collaboration between a former textile oppressor (the US which largely set up the MFA) and the oppressed (the Philippines) when faced up with an even more formidable foe in China. Still, I have some simple questions I'd particularly like Philippine trade officials to answer:

1. Isn't this Act a blatant violation of WTO principles of non-discrimination?
2. Given its lack of American legislative success and possible WTO litigation, aren't limited Philippine trade promotion funds better spent elsewhere?
3. What is the wisdom in the Philippines siding with a falling world power (the United States) and offending a rising one (China)?
   

Given the likely answers to these questions, I think "Save Our Industries Act" is a really bad idea. Then again, I don't set Philippine policy--but I'll bet a boxer seeking to KO Chinese imports does [!?]

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.

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.

“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.

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.

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.

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.

Good work, Iana, and we hope to read more of your insightful writings whatever outlet you choose!

From Davos to Doha: WTO Round Done in 2011?

Running over the same old ground
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)

Meanwhile, I am now (belatedly) wiser about the claim that with US elections just around the corner--the 2012 presidential elections, that is--failure to complete Doha this year will mean that the world's largest trading nation will be in gridlock and nothing will be done. OK, here's my complaint: they always say this, too. As we all know, the United States has a four-year election cycle, with even years having either presidential or midterm (congressional) elections. Meanwhile, odd years are always "the year before an election." So, journalists who write on trade usually spin matters thusly: because next year or this year is an election year, it's likely that a multilateral trade deal won't get done due to American lawmakers being distracted or unwilling to appear pro-trade before their increasingly sceptical electorates.

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.

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.

"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.

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:

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 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.

Putin makes it sound as if Russia would be doing the WTO a favour instead of the other way around IMHO.

Will Japan Join the Trans-Pacific Partnership PTA?

If there's a developed country suffering from typical developed country maladies, it's Japan. Massive public debt (largely counterbalanced by huge FX reserves some would argue); a shrinking and aging population; chronic deflation; and a moribund non-export oriented sectorare among its many woes. Meanwhile, I recently discussed how South Korea's leadership was keen on signing on to the Korea-US Free Trade Agreement (KORUSFTA). Many observers including myself saw this as a move partly aimed at shoring its security alliance with the US given North Korea's volatile situation. And so it is with Japan and the US. Given the growing heft of China in the region and its own security-related tussles over the Senkaku islands, Japan's DPJ leadership has for now watered down its rhetoric about being more independent of America and all that jazz. Given their often-uncertain low politics of economic benefits, trade deals are often struck for other considerations--including the high-politics of security.

Like his Korean counterpart Lee Myung-Bak, Prime Minister Naoto Kan of the DPJ is eyeing a trade deal almost as a cure-all. While Japan's economic situation appears less promising than South Korea's, it is also appears keen on solidifying military relations with the US. All the while, the usual promise of more jobs is being bandied about. In either case, liberalization of highly protected agricultural sectors--Japan and South Korea apply among the highest tariffs in the world for imports such as rice--is the politically heavy cost that must be incurred. Naturally, influential and vote-heavy agricultural constituencies are not so happy.

In Japan's case, PM Kan wants to enter negotiations to join the APEC member-based Trans-Pacific Partnership (TPP) of Brunei, Chile, New Zealand, and Singapore alongside potential entrants Australia, Malaysia, Peru, the United States, and Vietnam. What's immediately noticeable about this grouping is China's absence unlike in ASEAN +3 or ASEAN+6 groupings. (For a guide to the bewildering array of Asia-Pacific plutilateral arrangements, see my previous post on an event we held here at LSE IDEAS on Asian economic integration.) The Wall Street Journal writes:

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.

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.

In related developments, also see the Asahi Shimbun's insightful if downcast prognosis on Japan's plight. I honestly wish the Japanese the best of luck since, unlike a certain other country that's also active in the Asia-Pacfic, it isn't trying its darndest to economolest the rest of us.

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.

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.

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.

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-à-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-à-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.

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.

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.

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.

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.

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.

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.

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.

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.)

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.

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.

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:

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.

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.

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).

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...

2/6/2010 UPDATE: The 2010 China Trade Policy Review has finally been posted on the WTO site.