Tuesday, July 22, 2014
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The Free-Trade Charade

NEW YORK – Though nothing has come of the World Trade Organization’s Doha Development Round of global trade negotiations since they were launched almost a dozen years ago, another round of talks is in the works. But this time the negotiations will not be held on a global, multilateral basis; rather, two huge regional agreements – one transpacific, and the other transatlantic – are to be negotiated. Are the coming talks likely to be more successful?

The Doha Round was torpedoed by the United States’ refusal to eliminate agricultural subsidies – a sine qua non for any true development round, given that 70% of those in the developing world depend on agriculture directly or indirectly. The US position was truly breathtaking, given that the WTO had already judged that America’s cotton subsidies – paid to fewer than 25,000 rich farmers – were illegal. America’s response was to bribe Brazil, which had brought the complaint, not to pursue the matter further, leaving in the lurch millions of poor cotton farmers in Sub-Saharan Africa and India, who suffer from depressed prices because of America’s largesse to its wealthy farmers.

Given this recent history, it now seems clear that the negotiations to create a free-trade area between the US and Europe, and another between the US and much of the Pacific (except for China), are not about establishing a true free-trade system. Instead, the goal is a managed trade regime – managed, that is, to serve the special interests that have long dominated trade policy in the West.

There are a few basic principles that those entering the discussions will, one hopes, take to heart. First, any trade agreement has to be symmetrical. If, as part of the “Trans-Pacific Partnership” (TPP), the US demands that Japan eliminate its rice subsidies, the US should, in turn, offer to eliminate its production (and water) subsidies, not just on rice (which is relatively unimportant in the US) but on other agricultural commodities as well.

Second, no trade agreement should put commercial interests ahead of broader national interests, especially when non-trade-related issues like financial regulation and intellectual property are at stake. America’s trade agreement with Chile, for example, impedes Chile’s use of capital controls – even though the International Monetary Fund now recognizes that capital controls can be an important instrument of macro-prudential policy.

Other trade agreements have insisted on financial liberalization and deregulation as well, even though the 2008 crisis should have taught us that the absence of good regulation can jeopardize economic prosperity. America’s pharmaceutical industry, which wields considerable clout with the office of the US Trade Representative (USTR), has succeeded in foisting on other countries an unbalanced intellectual-property regime, which, designed to fight generic drugs, puts profit ahead of saving lives. Even the US Supreme Court has now said that the US Patent Office went too far in granting patents on genes.

Finally, there must be a commitment to transparency. But those engaging in these trade negotiations should be forewarned: the US is committed to a lack of transparency. The USTR’s office has been reluctant to reveal its negotiating position even to members of the US Congress; on the basis of what has been leaked, one can understand why. The USTR’s office is backtracking on principles – for example, access to generic medicines – that Congress had inserted into earlier trade agreements, like that with Peru.

In the case of the TPP, there is a further concern. Asia has developed an efficient supply chain, with goods flowing easily from one country to another in the process of producing finished goods. But the TPP could interfere with that if China remains outside of it.

With formal tariffs already so low, negotiators will focus largely on non-tariff barriers – such as regulatory barriers. But the USTR’s office, representing corporate interests, will almost surely push for the lowest common standard, leveling downward rather than upward. For example, many countries have tax and regulatory provisions that discourage large automobiles – not because they are trying to discriminate against US goods, but because they worry about pollution and energy efficiency.

The more general point, alluded to earlier, is that trade agreements typically put commercial interests ahead of other values – the right to a healthy life and protection of the environment, to name just two. France, for example, wants a “cultural exception” in trade agreements that would allow it to continue to support its films – from which the whole world benefits. This and other broader values should be non-negotiable.

Indeed, the irony is that the social benefits of such subsidies are enormous, while the costs are negligible. Does anyone really believe that a French art film represents a serious threat to a Hollywood summer blockbuster? Yet Hollywood’s greed knows no limit, and America’s trade negotiators take no prisoners. And that’s precisely why such items should be taken off the table before negotiations begin. Otherwise, arms will be twisted, and there is a real risk that an agreement will sacrifice basic values to commercial interests.

If negotiators created a genuine free-trade regime that put the public interest first, with the views of ordinary citizens given at least as much weight as those of corporate lobbyists, I might be optimistic that what would emerge would strengthen the economy and improve social well-being. The reality, however, is that we have a managed trade regime that puts corporate interests first, and a process of negotiations that is undemocratic and non-transparent.

The likelihood that what emerges from the coming talks will serve ordinary Americans’ interests is low; the outlook for ordinary citizens in other countries is even bleaker.

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  1. CommentedRichard Todd Sorenson

    Professor Stiglitz, doesn't who controls currency globally have to change to create the free trade fairness you espouse? All the unfairness in the global economy is a result of who controls currency. Until we fix that, the rest is just chasing out tail, wouldn't you agree?

  2. CommentedJohn Sullivn John Sullivan

    This argument is flawed because it uses a "metaphysical construct", specifically "broader national interests" as justification for the suspension of individual rights.

    National interests always translate to private interests. The intensification of the division of labor creates wealth. Everything must be examined from the perspective of the consumer, never the producers. It is always the producers who seek collectivist excuses that reduce competition, for their private gain.

    There is no national interest greater than free trade. To argue otherwise suggests an ignorance about economics.

  3. CommentedRay Tapajna

    Free trade is not trade as historically practiced and defined. It is more about divorcing production from investments and moving factories from place to place anywhere in the world for the sake of cheaper labor. It is a race to the bottom since the lowest common denominator is governed by more than a billion people in the world who are willing to work for practically nothing to survive. When investment communities thrive on the process, what is called free trade becomes a nightmare. The U.S. Federal Government sponsored the moving of factories outside the U.S. starting in 1956. This was the same year when the Suez crisis exposed an international money crisis.

    Now economies based on making money on money instead of making are burning out. President Obama tried to put out the fire when he bailed out big money, banks, the stock market and "the too big to fail" corporations. I think everyone knows that this is just a temporary fix especially when all who lost everything due to what is called free trade are ignored. Consumption economics needs consumers. Workers without sufficient buying power will never be able to support the process. Free trade is composed of broken pieces of economies scattered in many places around the globe. Only local value added economies that add several levels of value from the raw product to the retail level work. Talking about the WTO and other elements of the free trade process are a charade. Free trade is a mirage covering economic diseases.
    http://tapsearch.com/tapartnews http://tapsearch.com/tradetraps Ray Tapajna

  4. CommentedJonathan Lam

    Gamesmith94134: The free-trade Charade to James Daniel Paul
    I would agree on the methodology at fault and there is less of a political board available; however, I felt the clear distinction on the Brent and Texas Sweet may suggest the structure on the price and financing in developing the two individual ranks in oil. Perhaps, there is a distinction to the North America cotton and Egyptian cotton too. Then, we are talking of the transnational Corporation deal or a cross border swap that was being monopolized or just merged into trading market that leaving in the lurch millions of poor cotton farmers in Sub-Saharan Africa and India, who suffer from depressed prices because of America’s largesse to its wealthy farmers.
    In development of Zones and WTO creating any hurdle that many transnational corporations may force WTO or the party to adopt; but what if each can develop its own brand or entity through the Zones or World Bank financing such commodity to market on its own. Then, a new round of bargain can reestablish its legitimacy on entity and price if governmental subsidies are being privatized or another trend is developed from the open market system that such entity is publicly financed. In a way, each sovereignty will market its products and commodity instead of being globalized or monopolized. I am not saying the transcontinental board or the present mercantile board gained its advantages over other in the globalization; but if there is a other alternative that the Zones can offer its system to preserve and protect through its finance and reserves system. Since many smaller producers are offering its shares to World Bank or long-term investors to participate, the secondary market will support them to sell individually or join the global market system. Eventually, the commodity market risk would have diversified in a long term run; at least, the chances from monopolized can be lesser through the multinational finance system rather than the local government or official who offer swaps to their sole benefit or corruption.
    It may sound not feasible at present, but there are investors of all kinds like many entrepreneurs ran on principles to maintain its sanity and effectiveness to promote growth. We are not short of long term investors in pension and insurers who are tired to hedge in a shorter term and they are willing to take these smaller ones under their wings for a mutual relationship like partners. Many may enjoy their interest rate offered by the African nations, or wait on more American is going back to work; but what about the pain on the inflation and devaluation on the currencies that infested. It is not standardize the system just like what American did, but it ruins livelihood of many like EU and BRICS.
    Mr. Joseph E. Stiglitz disgruntled over the free-trade charade, and I think we should think of fair trade system that each can develop and grow accordingly; but it is the change of the present system we can anticipate and depend on, instead of waiting on a nation or market to lead-----consumerism or quantitative Easing sucks. We need a fair trade.

    May the Buddha bless you?

  5. CommentedJames Daniel Paul

    If the technology and labour cost are similar in all the countries, firms cannot leverage the price variations in the factors of production. So the issue is the un invited equality of factor pricing the WTO is attempting to establish. In my view it is not the US who is against the WTO, it absolutely in the interest of the transnational corporations to keep the WTO at bay. Ultimately governments are just puppets in the hands of the market. Stiglitz being one of the institutionalist is attempting to facilitate a truce between the market forces and the rest on trade. The question is the methodology. Multiple RTAs have not worked, Syncing the bilaterals have not worked. Rounds of Picnic to Cancun and Doha did not work. You may have to invent a new tool before the "take over". I would recommend a powerful political board could be an alternative. though it has its own problems.. Wish him all the best

  6. CommentedJonathan Lam

    Gamesmith94134: the Free-trade charade

    I often criticize the trade agreement that are not genuinely free-trade, in the process the USTR have manipulated tariff and license through the corporate culture and macroeconomic politics that they represent the corporate interest instead of the people. It is how many claim that we American are the imperialist or the US is committed to a lack of transparency. Often, American would take advantage of those under developed or financed, since the free-trade agreement must be initiated by the USTR or politician, like Mr. Joseph E. Stiglitz would have suggested that even the Congress is kept in darkness and there is a real risk that an agreement will sacrifice basic values to commercial interests. Perhaps, it is how we are falling into the cement of the financial crisis and there is no response from the politicians or trade representatives explaining what was done. Inasmuch, World trade Organization turn itself into a toothless tiger, or even being manipulated to accommodate in these trade disputes. In some respective cases, WTO sent silence and the value of commercial interests is not being restored.

    However, I found the recent development in CFTC Adopts Cross-Border Swaps Rules could bring a better guideline for WTO to adopt and follow. It is helpful bring trade agreements in transparent view from macro-economic finance, commodity or Agribusiness through the cross-Border swaps.
    http://legaltimes.typepad.com/blt/2013/07/cftc-adopts-cross-border-swaps-rules.html
    He also asked what enforcement and legal authority is provided by the guidance. Marcus said the "guidance itself is not binding strictly. We couldn't go into court and...list the violation of the guidance as an actionable claim. But the guidance does tell market participants what the commission's current views are about how to -- how [section] 2(i) applies in the cross-border context and the statute gives us that enforcement authority."

    In the recent developments, IMF agreed to the capital control is a better tool to macro-economic, and why not WTO asserts to its title “Commodity Futures Trading Commission” to the world trade after oversight by the trading Zones like AU, ASEAN, OAS, North America and OCED to Europe? By now, we all understand how we have surpassed the preemption on tariff and tax that many buried themselves in the graveyard of the debts with no revenues. It is certainly hard to thwart off the trade representatives with less value of commercial interests or let the few politicians using the pork barrel to bear its country’s asset to ruin; since the trade agreement is not justified to the value of its commercial interest, and the weaker countries are much too easy to be persuaded or manipulated.

    Perhaps, each must apply to the rule of the Zone that finance and develop its commodity with reserves that can maintain the value or price; instead of, being invaded with capitals that lure to buy-out or just changing hands of owners, and give no productivity but inflation. In the past, I believe it were the technology transfer that made its industry growth; but the experience told me the balance on the labor’s income growth and productivity is not relevant. Often, inflation and national debts won. Perhaps, we really need to set our paces to growth accordingly rather than presume.

    I really believe that WTO should bring the entities of sovereignty to weigh on livelihood of its citizens; and the trade Zones must set value and insurance on its asset to trade to maintain the free-trade agreement. With the agreement of IMF on the capital control, they is hope to sanity in trade and finance for the world; but we must give zones to breathe than being overwhelmed with favoritism. Tax free and low tariff can blindside the value of the goods and services, and trade war makes tumbles in the worst on development or growth for all.

    May the Buddha bless you?

  7. CommentedMark Pitts

    The US is generally much more open to foreign investors and producers than other countries are to US products and investors. China, Japan, Brazil, & India are the most obvious examples.

  8. Commentedhari naidu

    Stiglitz has a tendency to reduce global trade and development issues to simple ideological distraction.

    Those of us who lived/worked through GATT Trade Rounds know better...Clinton Admin was responsible for distorting
    what hitherto was an exclusively trade & tariff negotiations based on quantitative and qualitative analysis - by introducing financial services and liberalizing global trade paradigm.

    National sovereign boarders were ipso facto made strategically irrelevant for exchange control and more....

    WTO and Globalization came together and gave us the first taste of ASEAN financial crisis, then Russian, and, thereafter, the global 2008 financial meltdown.

    Now, I am not arguing that FTA between USA-EU will not be a win-win policy across Atlantic; it will have to deal with NTBs as the ultimate critical trade negotiation obstacle.

  9. CommentedKen Fedio

    Makes you wonder about NAFTA and the specious social arguments about creating an economic buffer between Mexico and the U.S. to curb migration. Things are as wretched as ever across the Rio Grande, but the Narcos are thriving.

  10. CommentedRitesh Kumar Singh

    Chinmaya, you may like to check - "Killing WTO softly"
    http://www.thehindubusinessline.com/todays-paper/tp-opinion/killing-wto-softly/article4712578.ece?goback=%2Egmp_63280%2Egde_63280_member_240584441

  11. CommentedRitesh Kumar Singh

    By frequently violating their WTO commitments, China (e.g. export restraints on industrial inputs and subsidies) and the US (e.g. zeroing and cotton subsidies) are undermining the multilateral trade regime. TPP and TTIP - though will lead to further liberalization of trade...are second best alternatives to the more efficient multilateral trade liberalization under the WTO framework. Keeping China out of TPP as rightly said my the author, will disrupt the Asian production network through forced trade diversion. It's time, everyone pushed Doha round for an early conclusion.

  12. CommentedChinmaya Behera

    Thank you sir for nice article

      CommentedRitesh Kumar Singh

      Chinmaya, you may like to check - "Killing WTO softly"

      http://www.thehindubusinessline.com/todays-paper/tp-opinion/killing-wto-softly/article4712578.ece?goback=%2Egmp_63280%2Egde_63280_member_240584441

  13. CommentedFabrice Londeke

    It's encouraging to see the Obama administration pursuing two huge trade deals. However, it's more suitable for the US to focus on the TPP given the economic potential of the region. Moreover, it's part of Obama's pivot to Asia to counter China. Even though the EU is the largest American trading partner, it's currently in decline.

    Since the DDA has stalled, the US is focusing on regional trade agreements to kick start another round of multilateral trade talks. This competitive liberalization scheme was also employed during the Uruguay Round. Due to a number of contentious issues in the TPP negotiation, it would be awhile until an agreement is reached. Furthermore, the lack of transparency, big business interests, and inclusion of south Asian countries in different economic development levels also make it difficult to find a common ground.

  14. CommentedJohn James

    Thank you for highlighting what will probably be a seminal issue as emerging markets (for want of a more descriptive phrase) become even bigger players on both the supply and demand side of global trade.

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