Transcript Robert Koopman, U.S. International Trade

Trade Initiatives and
Domestic Policy
Bob Koopman
USITC
The Setting
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“The best way to eradicate poverty is to encourage trade
between nations.”
“Trade is the most certain path to lasting prosperity.”
“Corporate-driven globalization under the WTO has
sharply increased income disparity, which the WHO has
identified as one of the key correlates of a country’s
health status. Trade liberalization is producing greater
income inequality between and within nations, which in
turn, has led to greater disparities in public health
conditions and outcomes.”
“A large increase in the volume of international trade
has failed to produce better jobs or higher wages for
most Americans.”
The Current Trade Agenda
 It’s
ambitious
 It’s surprising – given complaints about
lack of political support from key
constituencies
 Does recent history help us understand
the role of the current trade agenda with
respect to domestic support?
 Not really?
The approach…
List the agenda – negotiations and coverage
 Summarize estimates of the net economic
effects of past trade agreements
 Summarize trends in trade and economic growth
 Implications for Doha and the upcoming FTA’s.
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Challenges in measuring the potential economic
effects means challenges in knowing the economic
value of trade offs.
What might all this mean for domestic support?
The Trade Agenda
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What’s being negotiated and being considered for
negotiation - Competitive Liberalization
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FTAA
Australia
CAFTA – Nicaragua, Guatemala, El Salvador, Honduras, Costa
Rica and (Dominican Republic)
Morocco
Panama, Columbia, Bolivia, Ecuador, Peru
SACU – Botswana, Lesotho, Namibia, South Africa, and
Swaziland
Bahrain
Thailand
…and more
Did I mention Doha?
 “By
moving forward on multiple fronts, the
United States is exerting its leverage for
openness, creating a new competition for
in liberalization, targeting the needs of
poorer developing countries, and creating
a fresh political dynamic by putting free
trade on a global offensive.” - The
Presidents Trade Policy Agenda for 2003 http://www.ustr.gov/reports/2003Annual/ov
erview.PDF, downloaded 1/6/04.
 When
making the case for passage of
Trade Promotion Authority the
Administration noted that there “were more
than 130 trade agreements in force around
the world, and that the US was a party to
only 3. There are 30 free trade
agreements in the Western Hemisphere
and the United States is a party to only
one.” http://www.ustr.gov/new.2001-1203-tpa-leadership.htm.
The U.S. negotiating agenda as
described by USTR, is focused on
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market access for consumer and industrial
goods, agricultural products, and services.
intellectual property rights
rules governing unfair trade practices
e-commerce
government procurement
trade facilitation
environmental and labor issues
and capacity building.
Trade agreements signed under
fast track…
 Tokyo,
U.S. Israel FTA, U.S. Canada FTA,
NAFTA, and Uruguay Round.
 See USITC publication 3621 – The impact
of above agreements…
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Includes concise summaries of the setting
and coverage of each negotiation
The Welfare Impacts of the
Agreements
Welfare Gains From Trade Agreements
0
Uruguay
Billions of 1995 dollars
-5
-10
-15
-20
URA
-25
NAFTA
CFTA
US-Israel FTA
Tokyo
Chile and Singapore FTA’s
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Welfare estimates
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for Chile FTA -.001 to +.003% of GDP (-$92 mi to + $280 mil)
for Singapore FTA -.002 to -.001% of GDP (-$184 mil to - $92 mil)
Points to consider
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All partners have fairly open trade regimes
FTA’s most important benefits likely not reciprocal tariff elimination – but
in things difficult to quantify…
• General improvement of business climate
• Specific obligations in
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Intellectual Property
Services
Investment
Temporary entry of businesspersons
Telecoms
Note rules of origin…
Some caveats – and important
ones
 Estimates
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are likely lower bounds
Tariffs and tariffied NTB’s only
No indirect effects – trade and productivity,
scale economies, etc.
– not exactly earth shattering
numbers, nor do they explain why trade
has grown so fast vis a vis GDP growth
 Note the difference in magnitude for
multilateral vs. preferential…
 Still
Traditional welfare estimates are
the tip of the iceberg
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Steel tariffs example
Estimated welfare impact – the tip
• Central case (Es = 10) -$41.6 million
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Underlying est. income changes – in mil. – rest of iceberg
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Tariff revenue
Labor income
Capital income
• Iron and steel ind.
• Other pos. affected ind.
• Indus where K income declines
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Net GDP
$649.9
-386.0
-294.3
239.5
67.4
-601.2
- 30.4
Another bad analogy
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All the political action surrounded how the pie was carved up – not by
how much bigger the pie might have been.
Remaining significant import
restraints
Economic welfare change from liberalization of U.S. significant import restraints, 1991 - 1999
Millions U.S. Dollars
1991
1993
1996
Simultaneous liberalization of all significant restraints
18976
15490
12402
Total including AD/CVD
19441
Individual liberalization
Textiles and apparel
15847
10037
10376
Antidumping, CVD
3951
Jones Act, maritime transport
3086
2790
1704
Peanuts
353
8
Dairy
847
1013
152
Frozen fruit, fruit juices, and vegetables
13
24
28
Sugar
657
661
986
Meat
177
185
All other goods
449
1354
657
Welfare gain as percentage of GDP
including AD/CVD estimate
0.32
0.23
0.29
0.16
1999
14350
13040
917
2.2
109
11
420
140
0.15
5
Trade and economic growth
4.5
4
Index (1978 equals one)
3.5
3
2.5
2
1.5
1
0.5
0
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
GDP
1989
1990
Imports
1991
1992
Exports
1993
1994
1995
1996
1997
1998
1999
2000
2001
What explains trade growth?
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Partly trade policy…empirical research indicates maybe
only 15% to 20% of growth.
Tariff reductions
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1974 applied tariff of 4.64%
2001 applied tariff of 1.59%
other U.S. trade policy changes
reductions in foreign trade barriers
growing incomes
improved transportation and communication
technologies
increased real value of trade in goods and services
from$0.5 tril. To $2.5 tril.
What else contributed?
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In last 3 decades
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Substantial technological progress
Deregulation of several large service industries
Sizable increases in workers average education
levels
Substantial growth in K stock and population
So what was the role of trade policy?
 Political message on both sides pro- and con
seems to over attribute trade changes to trade
policy changes
Real private gross domestic product, exports and imports
by industry sector, 1980 and 2001
Sector
In percent
Services
Machinery and equip.
Agriculture
Chem. and allied prod.
Minerals & metals
Transportation equip.
Forest and fishery prod.
Energy and fuels
Miscellaneous products
Textiles and apparel
Total
Real Priv GDP
1980
2001
Exports
1980
2001
Imports
1980
2001
68.3
6.5
4.4
2.5
4.5
2.0
2.9
4.7
3.0
1.3
100.1
18.7
20.7
16.7
9.6
8.8
11.5
4.0
3.2
5.2
1.6
100.0
15.1
10.8
6.4
4.4
10.8
10.9
4.6
28.2
5.6
3.1
100.0
78.6
6.7
2.7
2.6
2.4
2.0
2.0
1.3
1.2
1.0
100.5
32.1
21.9
6.0
9.8
5.4
12.5
2.9
1.2
6.4
1.7
100.0
16.8
22.6
3.3
7.7
6.3
15.7
3.7
8.7
9.4
5.1
100.0
Services
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Note the shift to services as a share of GDP (HH and
businesses have shifted demand towards services) and
exports (a trade policy focus in later and current rounds.)
Also note that other policies – significant deregulation in
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Banking
Transportation
Communications
And energy
Cliff Winston estimates welfare gains from this
deregulation at $50 million in 1996 – all 5 trade
agreements for all sectors of the economy estimated at
$56 billion.
Growth and Productivity
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Labor supply NFE 78.3 mil 1974, 131.9 mil in
2001
 K stock –
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Total value of private fixed assets up 109% in real
terms from 1974 to 2001 - $11 trillion to $22.1 trillion.
TFP – BLS estimates TFP rose by 24.5%
between 1974 and 2000.
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If size of L and K remain unchanged Q up nearly 25%
just from doing things better.
Doha estimates
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Recent estimates of possible welfare gains of Doha for U.S.
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Francois, van Meijl, van Tongeren (North America)
• $12 - $23 billion
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Agric $2.7 bil.; Manuf. $.5 bil to $13.2 bil.; Services $7.0 bil.
Fontagne, Guerin, and Jean
• $9 – 18 billion
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Brown, Deardorff and Stern (URA est. $19.7 billion)
• $144 billion
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Agric - $11.1 bil; Manuf. $23.6 bil; Services $131.4 bil
A lot of interest in domestic support disciplines by partners. US says
multilateral setting is the place it will deal with agriculture
Do overall welfare gains look big enough for negotiators to take on
the political cost of domestic support?
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Will services and manufacturing put pressure on for agreement?
Who really knows how much protection for services, or even how to go
about really lowering it?
Upcoming FTA’s
Other than FTAA generally small – look for
impacts similar to Chile and Singapore.
 U.S. in the “drivers seat”
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In sensitive ag products – likely slow phase ins, and
limited quota increases.
Other sensitive products – rules of origin
Think MFA with a longer time frame.
Not a lot of pressure from FTA’s for changes in
domestic support
 But a lot of negotiating resources going into
FTA’s.
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What does this all mean for
domestic support?
 Political
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tradeoffs in negotiations
Empirics aren’t clear
 Other
economic policies and
developments
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Budget deficit – large role in Freedom to Farm
• Economic growth and tax policy
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Tight budgets call clear attention to on-budget
expenditures – not much attention to offbudget (consumer borne) support