Category Archives: Negotiating

A New Trade Policy For Beijing?

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Imagine China as a world leader in trade liberalization. The World Bank sees such a world and pushes for it in China 2030: Building a Modern, Harmonious, and Creative High-Income Society, a monumental study published yesterday in Beijing and Washington. Parsing the implications of this important work is going to take a while, but I thought I would get a start on the trade policy recommendations. You can find them in Supporting Report 5: Reaching ‘Win-Win’ Solutions with the Rest of the World. There are indications that some of the new leadership coming to Beijing in the fall support the World Bank’s findings, so the Bank’s recommendations may have more of a half-life than the usual.

China's future is more than merchandise.

China has made a fine living by pushing out cheap manufactures and collecting the export earnings from selling those around the world. Beijing has accumulated mountainous foreign reserves, made useful trade contacts in every part of the world, and has set themselves up as an easy target for politicians and competing industries everywhere. The World Bank’s China 2030 report highlights the rise of protectionism in the markets in which China has been most successful – especially those democracies having election years. This protectionism should not be overstated, as many countries, aided and abetted by the World Trade Organization’s rules, have resisted the protectionists’ siren songs – so far. And China is importing a lot, too, which helps offset the protectionist calls. Hard to believe, but China is so resource-hungry that it even runs trade deficits with some countries. Those folks don’t worry about protectionism, but do worry that their mineral or agricultural wealth is fast disappearing in the direction of the Middle Kingdom. It is ironic that the victim of the Opium Wars is now accused of economic imperialism by some.

China 2030 shows a way out, but one that will require a trade policy re-think in Beijing. Yes, Beijing willingly lowered many of its trade barriers, especially tariffs, on manufactured goods when it joined the WTO – in order to realize a reciprocal lowering of other countries’ barriers to China’s goods. But China’s commitment to trade has not moved beyond the basic needs of a mercantilist export policy. Beijing has done just enough liberalization of its imports as necessary to gain market access for its exports. This isn’t unusual and, in fact, such a policy is the norm for most trading economies. But, argues the World Bank, this tit-for-tat approach does not maximize China’s potential gains from trade.

Beijing, says the Bank, needs to become a world leader in the cause of trade liberalization. This will offset the worldwide calls for protection against Chinese exports. China must become a champion both of multilateral trade talks, such as the near-dead Doha Round, and of responsible approaches to regional trade deals. [Instead of just sniffing that it hasn't been invited to the TPP table, for instance, could Beijing actually make positive proposals for how trade around the Pacific could be grown? That would be refreshing.]

The China 2030 report argues that China needs to keep pushing to join the WTO’s government procurement agreement, implying that Chinese companies are strong enough competitors now to compete on an open stage, both at home and abroad. The report also points out that China’s services trade is growing, so it would be reasonable for Beijing to push for more open international trade in services.

The World Bank even argues that it is in China’s interest to push for more detailed international rules on the use of export controls. The WTO’s rules are ill-defined and allow capricious use of export controls, something that Beijing took advantage of with its controls on rare earths. But the bigger issue for China, says the Bank, is access to food supplies. China is already a huge importer of food and is likely to remain so, so it would be in their interest to play a constructive role in defining how export controls can and should be applied. The alternative may be unpleasant surprises as beleaguered food producers control their exports to China in a future crisis. Quite a bit to think about over a banquet in Beijing.

6 Roads From Doha

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Surely there's a way out.

A generation of trade geeks waits for something to come out of the Doha Round’s infertile soil. Green shoots appear from the desert only to whither or get stomped on. The talk in Geneva now is about whether any of Doha’s hard work can be salvaged. Is there any low-hanging fruit that is ripe for picking? Others have moved on to negotiate competitive regional or bilateral “free trade agreements”. These smaller agreements are ostensibly the best thing on offer – or at least have the potential to cut out competitors.

The National Foreign Trade Council commissioned the Sidley Austin law firm to come up with options for getting us out of the Doha morass while still giving hope for multilateral trade liberalization. The title probably won’t grab you: A 21st Century work program for the multilateral trading system Featuring: Analysis of WTO-consistent approaches to plurilateral and non-MFN trade agreements. They could use a new headline writer. The study was written by trade lawyers for other trade lawyers, so I’ll give you a quick roadmap of the ways they recommend for getting out of Doha. Most require at least temporary departures from the WTO’s holy grail of most-favored nation (MFN) treatment and most of the document concerns legal justifications for doing that.

First, pick the low-hanging fruit. And the ripest of all would be an agreement on trade facilitation. Doha’s negotiators have made a lot of progress on the little niggling problems that often stop shipments at borders – or just make life intolerable for businesspeople. Most of these facilitation issues can be dealt with readily by breaking an agreement out of the Doha process and allowing a subset of WTO members to sign on as they are ready to make commitments. In many cases, it is in the offending country’s own interest to smooth its trade processes, so removing facilitation from a tit-for-tat negotiation may speed things up.

Promising, but not so low-hanging, is the possibility for further agreements on trade in services. The Sidley Austin authors think that there has been sufficient progress on services in the Doha Round to create a critical mass of interest in agreements governing telecommunications and financial services. Such an agreement could be concluded under the already-existing General Agreement on Trade in Services (GATS) and so can easily be removed from Doha. Their recommended approach is to use “negative lists” to address new services that come up in the future, meaning that agreements on services trade would cover all services unless they are specifically excluded. This may be more open than some governments can tolerate.

E-Commerce is far more prevalent today than in the dark times when the Doha Round was launched. The study advocates negotiating a separate Information Technology Agreement that would focus initially on tariff reductions for technology products. (Tariff cuts, of course, apply to physical shipments, regardless of whether or not the deal was done via e-commerce.)

Trade leaders should focus on global health care outcomes, forging an agreement or series of agreements designed to promote healthcare worldwide. Previous multilateral sectoral agreements, such as on trade in civil aircraft, may provide a blueprint, though healthcare agreements would be far broader.

Health is the largest sector of the global economy and encompasses goods, services, intellectual property and investment issues across a variety of disciplines including insurance, information technology, standards, facility construction and management, care providers, pharmacy and distribution, biotechnology, devices and diagnostics, and pharmaceuticals.

Similarly, we can build on extensive work in the WTO’s Committee on the Environment to craft multilateral agreements on trade in clean technologies, associated services and products.

Finally, in hopes of building a multilateral system of comprehensible trading rules, the NFTC makes a plea for non-Doha and non-WTO liberalization efforts to somehow be brought under the WTO’s umbrella so that there is a clear way for additional countries to sign on to agreements when it is in their interest to do so. Much of the Sidley Austin paper dwells on how to square non-global agreements with the basic WTO requirement of MFN treatment. I’m not sure they have accomplished this, but I am all in favor of establishing a path to do so.

The Madness Of Cows

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It’s been a long while since I beefed about beef, but it appears that our beef companies will have some new old markets to play in as countries begin to relax barriers erected during the BSE panic of 2003. Amazing how, once a trade barrier is created, how long it takes to get rid of it.

I enjoy a good steak or burger, but I don’t think about the beef trade a whole lot. I was reminded of it, however, when I saw Senator Max Baucus’ announcement last week that the United Arab Emirates is eliminating its ban on U.S. beef. The senator took appropriate credit, of course, and may have actually had something to do with it. It made me wonder where we stand on other countries’ beef restrictions.

Unfounded, unscientific restrictions on beef hurt hardworking ranchers in Montana and across the U.S. and create an unlevel playing field for U.S. beef. Simply put, American beef is 100 percent safe and the best in the world, and there is no reason for it to be banned on scientific grounds. The UAE’s decision to recognize sound science and lift its ban on U.S. beef means millions of dollars in new export opportunities for our ranchers.
- Senator Max Baucus

I recall the bad old days when Japanese negotiators kept their faces straight as they told us that American beef just couldn’t be digested by delicate Japanese stomachs – their justification for keeping U.S. steaks out of the market. The world has changed little since then, though Japan may loosen its restrictions later this year. We have heard that before. If it should happen, that’s bad news for our Australian friends who inherited the Japanese market when we were booted out over one stray Canadian dairy cow that crossed the border.

Who you calling "mad"?

To understand what is happening today, I went back to a 2008 International Trade Commission report on worldwide restrictions on American beef, just to see what had changed. Obviously, bovine spongiform encephalopathy (BSE) isn’t the only reason for import restrictions on beef. But it is a big part of it. In 2008, the ITC estimated that all restrictions restrictions worldwide on beef cost the U.S. industry about $17.3 billion a year. Of that amount, BSE-specific restrictions excluded $11 billion in American beef. The remaining $6.3 billion was mostly traditional tariffs and tariff quotas, most of which would be used to protect local cattle ranchers around the world. So, removing the BSE restrictions would go a long way to restoring the U.S. industry to its previous status of the world’s leading beef export country.

The ITC did not catalog all the BSE-related restrictions in the world, but highlighted those of Japan, South Korea, the European Union, China, Russia and Mexico – all of whom exceeded the recommended restriction level established by the World Organization for Animal Health (OIE). Each had different sorts of restrictions. You can check them out in the ITC report. But are they still in place?

We have been pushing Japan to ease its BSE restrictions for several years, but to no avail so far. The current thinking is that Tokyo may relent later this year, but we have been led to believe that since at least 2009. I’m not holding my breath, though this could be a major boon to Hawaii’s cattle ranchers. The same holds true of South Korea, but here we seem to be well on the way to getting rid of the BSE trade restrictions since they were included in the U.S.-South Korea FTA. I’m not sure of the implementation schedule.

Europe‘s BSE restrictions have been hopelessly commingled with opposition to hormone-fed beef and genetically-modified beef, so it is nearly impossible to separate them out. In fact, Brussels seized on the presence of the one cow with BSE in 2003 to impose new restrictions on hormone-fed beef (hunh?). These restrictions have not been removed, though there is some hope. There is a new report to the European Parliament urging liberalized rules on beef imports from countries that have had BSE cases in the distant past, as well as a proposal that would expand U.S. sales of hormone-free beef in Europe.

China still bans U.S. beef outright, much to the joy of Australian ranchers who have enjoyed a near-monopoly in the Chinese market. Russia‘s restrictions appear to still be in place, though I have not been able to confirm this. There seems to be clear progress in Mexico. Mexican BSE restrictions remain in place, but their application to U.S. beef products has been progressively reduced to a smaller number of products. U.S. beef exports to Mexico topped $818 million in the first ten months of 2011, a 25% increase over the same period in 2010. Who says NAFTA wasn’t worth it?