Tag Archives: international trade

Fast Track Authority and Free Trade

The Trans-Pacific Partnership is a new trade deal that encompasses and accounts for 40 percent of the world’s economy. Proponents contend that the deal will increase US exports, drive down import costs, protect intellectual property rights, and establish minimum environmental and labor standards for participants. Opponents contend that the deal would undermine the influence of labor in the United States.

President Obama has sought to fast-track the new deal under a provision known as trade promotion authority. The move has created interesting alliances on both sides, with Congressional Republicans wanting to grant President Obama the authority. On the other side, liberal Democrats in Congress have found a partner in the Tea Party, promoting a populist message opposing the deal.

What do you think? What impact will the TPP have on the US economy? What are the benefits and the drawbacks? Should the deal be fast-tracked? Why?

The Political Economy of Valentine’s Day

redandwhiterosebouquetValentine’s Day is celebrated across the United States on February 14, and is often marked by the gifting of flowers. But we rarely stop to consider how the global trade in flowers—which increases sharply ahead of both Valentine’s Day and Mother’s Day—connects us to the broader world.

The global trade in cut flowers is estimated to be worth $100 billion annually, with the United States alone accounting for about $13 billion. About 82 percent of all flowers sold in the United States are imported from abroad, with the majority of US-destined flowers arriving from Latin America. Europe, by contrast, tends to import the bulk of its cut flowers from Africa.

The sharp seasonal fluctuations in flower production presents challenges to customs and border officials responsible for inspecting imports. Concerns over pests and disease are the primary focus for their inspections.

Developing countries looking for a comparative advantage in the context of historical subsidies offered to food and cotton producers in the developed world have often transitioned to specialized crops like cut flowers, spices, or specialty coffees in an effort to carve a market niche where they can complete on a more equal playing field.

While the global flower trade has increased sharply over the past decade, concerns over the environmental impact of the practice are growing. A 2009 report by Flowerpetal.com noted that about 80 percent of the estimated 100 million roses sold for Valentine’s Day were produced abroad, generating an estimated 9,000 metric tons of carbon dioxide (CO2) emissions. A similar study by Cranfield University  in 2007 found that a single rose imported from Kenya generated about 1.1 pounds of CO2. The same report noted, however, that imported flowers were far more carbon efficient than flowers raised in greenhouses in Europe, the production of which generated an estimated 6.4 pounds of CO2 per flower. In such a case, the higher CO2 emissions associated with transporting the flowers are offset by the more favorable growing environments abroad.

Then there’s the use of pesticides, herbicides and chemical fertilizers in the growing process, all of which raise potential questions about the ecological suitability of the cut flower trade.

What do you think? Should we be concerned about the ecological questions raised around the cut flower trade? How should we balance ecological concerns associated with climate change and chemical runoff against the clear need to secure economic development in the global south? What solutions might you envision to this tradeoff?

(This story was previously published at Global Food Politics and is reprinted here by permission.)

The End of Globalization?

containershipsAn interesting short video clip from CNN’s Fareed Zakaria GPS asks whether we are witnessing the “end of globalization”?

For much of the last thirty years there has been a steady trend in commerce: global trade has expanded at about twice the pace of the global economy. For example, between 1988 and 2007, global trade grew on average by 6.2 percent a year according to the World Trade Organization. During the same period, the world’s GDP was growing at nearly half that pace: 3.7 percent.

But a strange thing has taken place in the last two years. Growth in global trade has dropped dramatically, to even less than GDP growth. The change leaves one wondering: has the incredible transfer of goods around the world reached some sort of pinnacle? Have we exhausted the drive toward ever-more-globalization?

It’s an interesting question, and likely one without a clear or easy answer. More broadly, I wonder what the end of globalization might even look like? While there is certainly a trend towards the local (just look at all the local food movements), can we envision a world without significantly high levels of global exchange? Just think of all the ways we are connected globally in our daily lives, and ask yourself, what like would look like without all those things?

The Rise of China and the Reshuffling of Global Trade

 

A Mexican farmer harvests blue agave, the plant used to distill tequila.

A Mexican farmer harvests blue agave, the plant used to distill tequila.

The Mexican government last week announced it had shipped their first load of high quality blue agave tequila to China. The shipment, comprised of more than 70,000 bottles, should arrive in China next month. China had initially prohibited the sale of fine tequila in the country, citing concerns over high methanol content. But after Chinese President Xi Jinping visited Mexico in June the ban was lifted. Mexican officials hope that China will become the second largest consumer of tequila—behind only the United States—and expect to export some 10 million liters of tequila to China over the next five years.

The expansion of the high-end tequila market in China is just part of a broader shift in consumption patterns by wealthy Chinese. Demand for high quality single-malt scotcha bottle of which can sell for more than a few hundred dollars and the most expensive have sold for more than $38,000has increased sharply in recent years. The consumption of scotch and other high-end beverages plays an important symbolic role. Writing in the British daily The Independent, Russell Lynch observed,

In China, Scotch is seen as the drink for successful people. They tend to drink in a group sitting around the table and share in the occasion, be it for business entertainment or relationship building. There’s a huge element of “face” in putting a bottle of the good stuff on the table and demonstrating that you’re a good host or business partner, which is why they lean toward more expensive drinks. The houses thus lend themselves to the company’s efforts to premiumise the brand, while recruiting a new generation of drinkers from China’s smaller but faster- growing cities as beer drinkers trade up to spirits, buying Johnnie Walker Black Label and Red Label.

While growth in demand has slowed in recent months, increased global demand has nonetheless resulted in sharp price increases, with the price of single malt scotch up more than 190 percent since 2003. But global demand figures obscure regional changes in the distribution of demand. While Chinese demand increased sharply, demand for single malt scotch in France—historically the world’s largest importer—fell by a quarter over the past few years. Demand in Spain declined by twenty percent, while demand in the United States fell by 2 percent. Demand was increasing among emerging economies, particularly in Russia, Latin America, East Asia, and Africa.

The shifting demand for high-end alcohol thus reflects broader changes in the global economy. As  the emergent economies continue to grow, an increasing number of the nouveau riche seek to define their position through consumption of expensive consumer goods, signaling their arrival in “the good life.”

(This story was originally blogged at Global Food Politics and is reprinted here by permission).

 

Paul Krugman’s Nobel Prize

Congratulations to Paul Krugman, who won this year’s Nobel Prize in Economics for his work on international trade and economic goegraphy.  According to the Nobel Prize Committee,

Krugman’s approach is based on the premise that many goods and services can be produced more cheaply in long series, a concept generally known as economies of scale. Meanwhile, consumers demand a varied supply of goods. As a result, small-scale production for a local market is replaced by large-scale production for the world market, where firms with similar products compete with one another.

Traditional trade theory assumes that countries are different and explains why some countries export agricultural products whereas others export industrial goods. The new theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products – for instance, a country such as Sweden that both exports and imports cars. This kind of trade enables specialization and large-scale production, which result in lower prices and a greater diversity of commodities.

Interested in more Krugman insights?  Head over to his blog, The Conscience of a Liberal.

And for just for fun, try the Journal of Improbable Research, which specializes in publishing work that “makes people laugh, then think.”  It awards its Ig Nobel Prize every year in anticipation of the Nobel Prize Award.

Sanctions in a Globalized Economy

Western companies are divesting from Russia following the South Ossetia crisis and are scaling back investment in Iran over fears of the West imposing new sanction on the country. But as large companies are moving out of Iran, small and medium size companies are moving in to fill the void. According to a story reported in the Financial Times on Thursday, trade between the European Union and Iran actually increased as a result. Between January and April 2008, EU exports to Iran increased by 17.8%, while imports from Iran increased by 24%. The increase in European-Iranian trade occurred despite three UN resolutions in intended to isolate Iran, and despite significant pressure on the part of the European Union to discourage trade and investment in the country.

The debate over the effectiveness of sanctions a foreign policy tool goes back some time. The United Kingdom imposed sanctions on South Rhodesia (which would later become Zimbabwe) in 1965. It hoped that the sanctions would force the white minority government in South Rhodesia to move towards multi-racial democracy. Similar sanctions were often debated (though rarely imposed) on South Africa during the apartheid era. The sanctions against Southern Rhodesia (and the limited trade restrictions imposed against South Africa) were largely ineffective. The United Nations imposed sanctions on Iraq after the first Persian Gulf War. In the Iraqi case, U.S. enforcement of the sanctions made them relatively tight, thought the controversy over the misuse of the UN Oil for Food program later suggested that there were holes there as well. The United States has maintained sanctions against Cuba since 1962, through many other countries (including Canada and most European states) have generally refused to recognize the embargo. The Helms-Burton Act (passed in 1996) attempted to strengthen the Cuban embargo by permitting the government to block access to U.S. markets for any company that does business with Cuba.
This has been a very controversial policy in Europe, and may be a violation of World Trade Organization rules.

The effectiveness of sanctions in an era of economic globalization remains even more debated. On the one hand, economic globalization creates interdependence between countries which could make them more vulnerable to the effects of sanctions (though it also raises the cost of the sanctions for the country which is imposing them). On the other hand, globalization also creates many different avenues for trade. As a result, the closure of one market may merely shift buyers and sellers to new markets or trading partners. Nevertheless, it seem that effective sanctions require a strong international consensus or a country willing to bear the cost of enforcement. The sanctions against Iraq, for example, had both. Where this is not the case (contemporary Iran and Russia), sanctions are not likely to be effective in achieving foreign policy goals.

The Global Cotton Market

In the aftermath of the collapse of the Doha Round of WTO talks last month, Brazil has decided to move forward with a formal complaint against the United States.  At issue is the very issue that caused the collapse of the talks in the first place: agricultural subsidies.  A decision by the WTO’s dispute resolution panel in 2005 found that three programs intended to support US cotton farmers with price guarantees, credit access, and export subsidies, constituted violations of WTO rules.  After the decision, the United States both announced its intention to abide by and appeal the ruling.  The WTO appellate body confirmed the decision of the original panel, ordering the United States to cease its programs.  (A full background report on the case was issued by the Congressional Research Service).

The appellate body’s ruling now permits Brazil to impose retaliatory trade sanctions against US exports to Brazil up to the amount Brazil has lost due to US programs—an estimated $1 billion.  The breakdown of the Doha negotiations suggests that Brazil may now move forward with that option.

So why all the fuss about cotton subsidies?  The United States is the world’s largest cotton exporters, accounting for approximately 41 percent of global trade.  And subsidies are a big reason why.  Subsidies push global cotton prices down; removal of subsidies would increase cotton prices.  But just how much is debated.  A range of analyses from the UN Food and Agriculture Organization, to the World Bank, to the International Cotton Advisory Committee suggest that removal of US cotton subsidies would increase the per-pound price of cotton anywhere between 5 and 26 percent (or between 2 and 11 cents per pound).

Approximately 10 million people in West Africa alone depend on cotton fir their livelihood.  And as a recent article in WorldView Magazine suggested,

For the cotton-dependent countries of West and Central Africa, 11 cents a pound adds up quickly. Based on this figure, Oxfam America estimated that sub-Saharan African countries lost $350 million due to U.S. subsidies in 2001. Millions of dollars in lost export earnings means less money for basic services: education, health care and debt refinancing.

With the Doha Round now dead, the United States has suggested that it does not need to move forward with plans to reduce cotton subsidies. 

So why don’t African cotton producers just sue the United States?  Therein lies the problem with the WTO dispute settlement mechanism.  While every country is free to participate, it takes time and costs money.  And if you do win your case, the only enforcement mechanism available is countervailing (retaliatory) tariffs.  If the United States wins a case against the European Union, it can impose tariffs on EU exports to the US, making them more expensive.  If Burkina Faso wins a similar case, it can similarly impose retaliatory tariffs on US exports to Burkina Faso.  For the relatively poor countries in the global south, it’s not much of a win…American goods become more expensive in the export market.