US-India Agreement could revive Trade Deal.

                                                   Comments Due by Nov. 24, 2014

India and the United States reached an agreement on Thursday over food stockpiles, removing a major obstacle to a global trade deal that has been stalled for months.

The pact, which precedes a meeting this weekend of the Group of 20
major economies, allows India to continue its extensive food subsidy
program. In settling the dispute, India returns to the negotiating table on a
broader trade package.

That package, first agreed upon at a World Trade Organization meeting
in December in Bali, Indonesia, is the first significant global trade deal since
the creation of the W.T.O. nearly two decades ago. Aimed at facilitating the
movement of goods across international borders, the agreement focuses on
easing customs procedures, reducing red tape and upgrading border
infrastructure.

Proponents of the deal argue that it would add $1 trillion to the global
economy and create 21 million jobs. Critics, though, have noted that it
would require a substantial investment from developing countries to
upgrade their ports and borders.

But talks on the trade package reached an impasse in July when India
said it would veto the global trade deal unless a dispute over its food
security program was resolved. Since then, India has faced resistance from
other member countries for stalling a critical agreement.

Michael B. Froman, the United States trade representative, said that
President Obama and Prime Minister Narendra Modi of India had discussed
the issue during Mr. Modi’s visit to Washington in September in light of the
“mounting crisis of confidence” facing the W.T.O. after the trade deal was
derailed. “In recent days, officials of both governments worked intensively
and reached an agreement that should give new momentum to multilateral
efforts at the W.T.O.,” Mr. Froman said in a statement.

India views the stockpiling as core to its food security and its efforts to
feed millions of its impoverished citizens.

The Indian government buys food, including grain, from its farmers
and stockpiles it for a public distribution system, where it is sold at
government-run stores at subsidized prices. The food subsidy program,
which has often been criticized as ineffective, is available to 75 percent of
India’s rural population and 50 percent of the urban population, according
the National Food Security Act introduced last year.

W.T.O. rules say that subsidizing more than 10 percent of the grain
produced for food in a country distorts the market for trade. But India
wants to do away with that cap. Countries including the United States and
Pakistan have expressed fears that India was accumulating too much grain
and that it might eventually release the surplus on the world market,
lowering prices for other producers.

In Bali, W.T.O. members had agreed to a temporary solution in which
developing countries would not be penalized for breaching their subsidy
levels until a permanent solution was found by 2017. Indian officials,
though, were concerned that the issue had been sidelined and wanted talks
on the issue to progress.

India and the United States have now agreed on a “peace clause,” which
protects member countries from being legally challenged under W.T.O.
agreements until a permanent solution is found on the stockpiling issue.
The clause will keep India safe from accusations that it subsidizes too much
grain beyond 2017. A timeline for negotiations on stockpiling was also set
giving India the assurance that the issue will be dealt with promptly.
“India and the United States have resolved their differences on public
stockholding of food,” Nirmala Sitharaman, India’s commerce minister, said
on Thursday at a news conference in New Delhi. The move, she said, paves
the way for India to ratify the global trade deal.

“This breakthrough represents a significant step in efforts to get the
Bali package and the multilateral trading system back on track,” Roberto
Azevêdo, the director general of the W.T.O., said in a statement. “It will now
be important to consult with all W.T.O. members so that we can collectively
resolve the current impasse as quickly as possible. Implementation of all
aspects of the Bali package would be a major boost to the W.T.O., enhancing
our ability to deliver beneficial outcomes to all our members.”

Analysts said the agreement with the United States would improve
India’s negotiating position at the G-20 meeting and in other global talks.
“It is a move ahead both for multilateralism at the W.T.O. and for India,
which was being viewed as obstructionist,” said Rajrishi Singhal, a senior
geoeconomics fellow at Gateway House, a foreign policy research group in
Mumbai.
(NYT 11/14/14)

US Trade Policy and the Republican Win

                                                  Comments due by Nov. 17, 2014

The Republican party has won majority in the Senate, possibly providing an opening for two pending U.S. free trade agreements. The U.S. is currently engaged in negotiations on two international pacts.

Republicans have traditionally been more supportive of trade agreements because of the potential to increase economic growth and business, while Democrats have been wary that such policies could negatively impact domestic jobs, labor standards and environmental regulation. The Obama administration has negotiated two such agreements – the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership – but the president hasn’t found backing from Senate Democrats, the chamber responsible for approving trade agreements.

Sen. Mitch McConnell of Kentucky, likely the new Senate majority leader, said Wednesday in Louisville that Republicans and President Barack Obama share an agenda on trade.

“I’ve got a lot of members who believe that international trade agreements are a winner for America and the president and I discussed that right before I came over here,” McConnell said. “I think he’s interested in moving forward. I said, ‘Send us trade agreements, we’re anxious to look at them.’”

Obama also made reference to trade agreements Wednesday in his own postelection press conference, saying it was one area in which Democrats have a “real opportunity” cooperate with Republicans.

Current Senate Majority Leader Harry Reid made clear earlier this year he would not support passage of legislation that would fast track free trade agreements through the chamber after a deal has been reached by international partners. The Trade Protection Authority, which expired in 2007, means the Senate votes a simple yes or no on trade deals – no amendments or modifications are allowed.

“That’s what the world’s looking for in terms of America’s ability to negotiate seriously,” says Yukon Huang, a senior associate at the Carnegie Endowment. “They don’t want negotiate something and later on find it’s going to be renegotiated in the context of congressional discussions.”

Reid said in January, "I think everyone would be well-advised just not to push this right now” of pursuing the Trade Protection Authority.

Some took these comments to mean that passing the legislation before Tuesday’s midterm election would be disadvantageous for Democrats, but that Reid could pursue the agenda in the remaining lame duck session.

Miriam Sapiro, a former deputy U.S. trade representative and visiting fellow at the Brookings Institution, said now the election is over she hopes Reid will be open to the possibility of advancing a trade agenda by passing the Trade Protection Authority, also know as fast-track authority, and thus boosting the chances of a successful Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership.

“These can be tough votes for members because there is concern about potential job loss,” Sapiro says. “In the past, trade agreements have led to growth in net number of jobs. But sometimes there can be particular jobs that are no longer as competitive. There is a legitimate concern of how do you help retrain workers that might be effected by a trade agreement?”

The Trans-Pacific Partnership is an agreement being negotiated by the U.S. and 11 other countries in the Pacific, but notably does not include China. The U.S. and the European Commission are negotiating on the Transatlantic Trade and Investment Partnership.  

Even if the Senate doesn’t advance a trade agenda in the remainder of 2014, the pending agreements are likely to find support among the Republicans in the next session of Congress. Sen. Orrin Hatch, R-Utah, the likely new chair of the Senate Finance Committee, which is responsible for shepherding trade policy, supports the current agreements. 

The fact that the Trans-Pacific Partnership doesn’t include China is also a selling point, says Huang.

“If China were a part of the [Trans-Pacific Partnership], it would probably get much more scrutiny and concern about whether the agreement is in America’s interests. So that removes that element that’s always been very, very contentious,” Huang says.

China isn’t party to the negotiations because when they were initiated, it was unwilling to accept the standards the agreement required on issues like the role of state-run enterprises and intellectual property. Huang says China has since informally requested to join the negotiation process but “essentially was old it was too late.” Negotiations will continue at next week’s Asia-Pacific Economic Cooperation meeting in Beijing, but may not dominate the agenda because of China’s absence.  

Negotiations for the Transatlantic Trade and Investment Partnership lag behind those of its Pacific counterpart, because negotiations only began in 2013. Europe and the U.S. have a lot of work to do in terms of reaching complimentary standards that would allow a free-trade agreement to move forward, says Sapiro. Things like how to build automobiles, rules for the export of animal products, and regulations for how goods are produced differ between the continents and complicate imports.

Another potential barrier to passage of both of the agreements is U.S. agricultural policy, which heavily subsidizes farmers. These price controls, also put in place domestically in Europe and Japan, make it difficult to ensure the countries are on an even playing field in the global economy. Countries have a hard time selling cuts to subsidies domestically.

“America does have a problem in terms of protecting its farm belt and it has a cost for everybody,” Huang says. “But the degree of protection and barriers are even more significant in Japan and Europe so that if there is a mutual understanding and agreement America stands to gain in the process rather than lose.” (US News)

EU-US trade agreement

                                               Comments due by  Nov 9, 2014

2014 should be a transformational year for the transatlantic partnership. The United States and the European Union continue to slog through an underwhelming economic recovery, while conflicts from Ukraine to Iraq to North Africa have forced themselves onto to-do lists in Washington and Brussels. Much like in 1945 or 1989, the decisions made today by President Barack Obama and European leaders will have ramifications that reach far beyond the shores of the North Atlantic.

NATO commanders and strategists conferred recently in Britain to discuss ways to reestablish peace in the face of these threats. This week, European and American negotiators are meeting in Washington on a very different issue: How to jumpstart economic growth and create high-quality jobs on both sides of the Atlantic. Understanding that economic prosperity and international security are inextricably linked, the world’s two largest economic powers – the United States and the EU – are working to establish the Transatlantic Trade and Investment Partnership to set a global gold standard of free trade and regulatory cooperation. Clearly, the trade partnership is not just about economics; as geopolitical tensions across the world worsen, it is vital to show a united transatlantic front bridging security, politics and commerce.

Other nations are watching closely as the United States and the EU negotiate a comprehensive agreement designed to spur growth and send a strong message: The democratic free market economic model can still deliver. Alternative systems that emphasize a greater role of government control and little room for democracy are arising in much of the world. It is crucial that the United States and Europe regain their economic dynamism. Nothing less than our future global leadership and credibility is at stake.

Economic ties across the Atlantic already run deep. Over $2 billion in goods and services crosses the ocean each day, and over 13 million American and European workers already owe their jobs to transatlantic trade and investment. Still, the time is right to deepen our engagement. The United States and Europe will not constitute almost half of global gross domestic product forever. This may be our last and best chance to preserve the kinds of high standards in product safety, digital and data privacy and environmental and labor protections that our citizens justifiably hold dear.

Given its global ramifications, the Transatlantic Trade and Investment Partnership should not be viewed as just another trade agreement. If successfully negotiated, the partnership could provide the platform for another century of transatlantic prosperity. We must not fail. After all, if we cannot agree with our closest partners, what incentives will China, Brazil, India and others have to return to the global negotiating table?

Without question, there are major challenges to overcome, particularly in Europe. Americans and Europeans do not agree on everything; just look at the fallout from last summer’s National Security Agency revelations or differing opinions on the safety of genetically-modified foods. Government leaders have struggled to find a path forward on vital issues like financial regulatory cooperation. The two sides must find a way to partner on energy as Russia continues its aggression in Ukraine. Europe faces a serious threat to its energy supply, but thanks to the shale gas revolution, the United States can eventually become a key partner as the continent diversifies its supply

Public opinion polls show that a majority of Europeans and Americans believe in the idea of an integrated transatlantic market, but that majority erodes when asked to adapt their own rules and regulations to make it a reality. The devil, then, is in the details. It is up to negotiators to find solutions which make it easier to do business across the Atlantic, invest and hire workers without lowering standards. Congress and the European Parliament must then consider the agreement on its merits before approving it.

We should not let our relatively minor disagreements stand in the way of the most significant strategic opportunity in decades to strengthen the economic foundations of the transatlantic alliance. In today’s gridlocked political environment, Republicans and Democrats alike have indicated their willingness to support an agreement that strengthens the U.S. economy and strengthens the transatlantic partnership.

Research from the Atlantic Council, conducted in partnership with the British Embassy in Washington, and the Bertelsmann Foundation, shows that every U.S. state gains jobs and increases their exports once an ambitious agreement is implemented. In all, close to 750,000 U.S. jobs will be added due to increased trade alone. A necessary first step requires the administration and Congress to work together to secure Trade Promotion Authority, which will strengthen the U.S. government’s ability to negotiate an ambitious agreement.

One needs to look no further than the hundreds of millions of people lifted out of poverty over the course of recent decades to realize just how linked peace and prosperity have become. International trade and global economic engagement have given hope and opportunity to countless young people who otherwise might have considered dangerous religious fanaticism or insular nationalism as alternatives. In order to prevent a lost decade of economic stagnation in Europe, fight against a rising wave of political populism and reengage a generation of unemployed youth, the United States and Europe desperately need the kind of deficit-neutral stimulus that only the Transatlantic Trade and Investment Partnership can provide.

Transatlantic leaders have responded strongly together to the global threats represented by Russia and the Islamic State group. Now, leaders must invest time and energy in support of this transatlantic partnership. Only a vibrant, competitive and prosperous transatlantic economy will extend our security and global strategic influence well into the future. This will require hard work and difficult political decisions to inspire and lead an informed public debate on the merits of expanded transatlantic commerce. The Transatlantic Trade and Investment Partnership represents a rare chance to put the U.S.-European economic relationship on par with our mutual commitment to transatlantic security. Let us hope that our leaders do not miss this historic moment. 

Doha Round finally delivers.

(This article appeared in the Economist of December 2013. The Doha round fate is still hanging in the balance)

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                                                  Comments due by Nov. 2, 2014

IT TOOK every bit of the allotted time and then some. In the wee hours of December 6th the members of the World Trade Organisation rose to applaud the successful conclusion of the first multilateral trade agreement negotiated at the WTO. The deal, reached at a ministerial conference on the island of Bali, in Indonesia, is the first fruit to be borne of the long-barren Doha round of international trade talks. But the agreement leaves the future of global talks cloudier than might have been hoped.

Casual observers might be surprised to learn Doha was not already dead, so long and treacherous was the road to the round’s conclusion. Doha, which began in 2001, suffered near-fatal breakdowns in 2003 and 2008. When trade officials worked to resuscitate discussions in 2012 they opted to keep the agenda as simple and attractive as possible. Even so, talks almost collapsed on multiple occasions. Cuba nearly sank an agreement at the eleventh hour, by threatening to oppose any deal that failed to chip away at America’s embargo of the small economy. Over the past few months Roberto Azevedo (pictured above, to the left, with the meeting's host, Indonesia's trade minister), who took over the job of Director-General of the WTO in September, repeatedly warned that this or that disagreement posed a mortal threat to the Bali package. Yet at each turn Mr Azevedo kept the parties at the table until compromise could be reached.

At the heart of the deal is an agreement on “trade facilitation”, or measures to reduce trade costs by cutting red tape in customs procedures. Trade facilitation could cut global trade costs by more than 10%, by one estimate, raising annual global output by over $400 billion, with benefits flowing disproportionately to developing economies. It nonetheless proved a tricky item to settle. Some poorer countries raised concerns about their ability to make the required capacity upgrades, and talks briefly stalled as arrangements for assistance were worked out.

Yet agriculture proved the sorest subject, as ever. Disagreement spanned several issues, the most contentious of which concerned agriculture subsidies. India, its government facing a general election next year, spearheaded an effort to prevent emerging markets from facing challenges at the WTO over subsidies granted to farmers under the aegis of “food security” measures. In the months leading up to the Bali meeting India wrung substantial concessions from rich-world economies, including a four-year “peace clause” that would have granted developing countries protections from such challenges. Not satisfied with that, India later threatened to derail talks unless the issue was reopened. India ultimately won an indefinite waiver, good until a permanent solution can be reached.

Several other disputes received similar papering over. Indeed, while trade facilitation counts as a meaningful achievement, the deal is unlikely to convince sceptics that the multilateral process can produce ambitious reforms—not while those least committed to progress, like India in this case, can threaten to sink an entire agreement unless their demands are met.

Relief at having finally reached a WTO deal will therefore turn quickly to hand-wringing over what should follow. It will fall to Mr Azevedo to read the mood of the membership and chart a course forward. He will emerge from this process with new credibility and a trust in his ability to choose attainable goals. But he will quickly have to make two key decisions: what issues to press and how to achieve them.

Plenty of bullet points remain on the Doha agenda. They include further progress on matters, like the food security waiver, that received inconclusive treatment at Bali, and other long-simmering issues like progress on ending agricultural subsidies altogether. Yet plowing back into such territory risks wasting the momentum of the Bali deal. Mr Azevedo might instead seek to open discussions on fresher subjects. Investment issues provide one possibility; the WTO could work to rein in investment subsidies and set ground rules for when countries can invest across borders without interference. Trade in environmental goods and services, which covers everything from air filters to environmental consulting, is also expected to take centre-stage.

Mr Azevedo will have a more difficult decision in choosing which items to keep on the multilateral docket, for negotiation among all WTO members, and which to let slip into “plurilateral” deals. Plurilaterals can proceed within the WTO, and allow coalitions of willing countries to agree deals that apply only to signatories, and not to all members. Agreements on services and on IT that are now under discussion fall into this category. China’s minister of commerce used a speech in Bali to suggest it supported the use of plurilaterals to move liberalisation forward. It is possible that Bali, while enhancing the role of the WTO as a forum for negotiations, nonetheless reinforced the difficulty in achieving ambitious multilateral reforms.

Still, the landscape for international trade talks looks much different with a Bali deal than without one. The completion of a WTO agreement reflects a broad appetite for trade integration and reduces the risk that regional deals degenerate into a world of Balkanised trade. Not before time.

Why Is Trade Important

                                                          Comments by Oct. 19, 2014

The following is a brief description provided by the WTO of a forum that they held earlier this month. Those of you who find some of these ideas interesting can go to the WTO web pages where the audio of many of these discussions can be found. The audio though is often about 2 hours per round.

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Why trade matters to everyone
This year, the Public Forum will tell the human story behind trade. It will showcase the
myriad connections between trade and people's daily lives and demonstrate how trade
impacts and improves the day-to-day lives of citizens around the globe, whether in
developed or developing countries.
"No nation was ever ruined by trade, even seemingly the most disadvantageous", wrote
Benjamin Franklin in 1774 in a pro-trade pamphlet. Imagine what Franklin might say about
today’s globalized world: trade has become such a pillar of the global economy that we often
do not even realize how often we interact with products and services that come from beyond
our borders. Even a seemingly simple product like your favourite pair of jeans may originate
in one place, be produced in another and shipped from a third country before finding its way
into your local shop. This international production of goods and services contributes to the
development of poorer countries and to the growth of the world economy. Similarly, millions
of products are transported every day across continents and borders to fulfil needs of
consumers from all corners of the world.
Trade creates social and economic opportunities, for consumers, citizens and economic
players. But are these benefits inclusive enough?
Under this thematic umbrella, the following three subthemes will be discussed: trade and
jobs – trade and consumers – trade and Africa.
Trade and jobs
The global economic crisis of 2008 left a lasting impact on the labour market leading to the
elimination of around 50 million jobs. As the world recovers from the economic turmoil, the
rate of job creation has lagged behind. According to ILO figures, global unemployment in
2013 reached almost 202 million and about 400 million more jobs must be created between
2012 and 2022 to keep it from rising further. In this context, how can trade help foster growth
and jobs? Are regional trade agreements the solution? Could the promotion of decent work
create fairer trade and better distribution of the benefits of globalization?
Many global initiatives are currently underway that are designed to promote growth. Free
trade agreements, investment treaties and aid for trade all promise job creation, higher
wages and opportunities for alleviating poverty. Proponents of globalization highlight the
importance of trade in achieving international convergence of labour rights and work
environments. 2
Most economists though believe that trade holds the possibility of both job creation and job
destruction. There is considerable evidence pointing both ways. In 2011, trade between the
United States and the 11 other countries participating in the Trans-Pacific Partnership
negotiations supported nearly 1.2 million jobs in Texas. But some critics also suggest that
NAFTA is responsible for the loss of US jobs.
Some countries have experienced improved standards of living for their people but not all.
What seems clear is that trade alone is not sufficient. A mix of domestic policies in support of
workers, better infrastructure, higher educational performance and sound legal infrastructure
are essential to create the right climate for job creation though trade.
Trade is an integral but not unique instrument of generating growth and employment. What
can therefore be an ideal policy mix for re-stimulating the labour market slump?
Trade and consumers
When tariffs were the major barrier to trade, liberalization was unquestionably beneficial to
consumers, who would benefit from lower prices, greater variety and higher quality. But now
that the world has been stripped off most of tariffs, the non-tariff measures (NTM) in the
forms of sanitary requirements or technical specifications are becoming an obstacle to free
trade. Should regulations which protect consumers, their food, their health and environment
be scaled back? Does the growing number of regional trade agreements pose a threat to the
welfare of the consumers? Or are these standards used by national governments as a form
of neo-protectionism? How best can the balance between free trade and consumer
protection be reached?
In a day and age where e-commerce is booming; flow of Information technology is not
effectively regulated in the global context and neither is international investment. Goods and
services not only flow physically across national borders but are transmitted through optical
fibres and satellites. We are buying things from people we don't know in a currency all of us
don't completely understand, and yet there is no single custodian for the rules that govern
these transactions. How can these gaps be filled? And how can the interests of the
consumers be best protected?
Subjects for discussion may also focus on how intellectual property benefits consumers;
competition policies and consumer protection; services; trademarks and fair trade. The
discussion on trade and consumers is limitless and every angle makes for an important
conversation.
Trade and Africa
Africa is the new frontier for development and the African economies are transforming. In
the last decade Africa has grown steadily at more than 5 per cent, a rate above the
worldwide average. Foreign direct investment has tripled and consumer spending will double
in the next ten years. Economically, this renewal is driven mostly by exports of natural
resources, commodities and improved macroeconomic policies. African countries are as
diverse as they are similar. Most of the continent relies on agriculture but infrastructure and
opportunities are better in some countries than in others. 3
The rule of law is firmly established in some places while in others political instability is all
too common. Yet all of Africa shares an important asset; a young workforce.
Trade has become a necessary tool for development and poverty reduction but what do
Africans get out of open trade? Is growth in Africa inclusive enough? How can value-added
manufacturing be promoted in Africa? How beneficial have the aid for trade initiatives been?
Which policy prescription will allow Africa to enter a new age of economic reforms? What is
the potential benefit for south-south cooperation and intra-Africa trade?
According to the World Bank, in most African countries, women make a major contribution to
trade so can gender equality, education, and health be improved by trade? The possibilities
for discussion are as wide ranging as the diversity of the continent.
Rounding up the Doha Round
A special half day session will be devoted to the Doha Round Roadmap.
After the adoption of the Bali Package at the 9th Ministerial Conference, members’ attention
is now turned to the rest of the Doha Round.
Within the next months, the WTO will build a work program towards the completion of the
Doha Round and this session will gather thoughts and ideas from the Forum's participants on this issue.

The Rise of the Robot

                                                 (Comments due by Oct. 12, 2014)

For decades, people have been predicting how the rise of advanced computing and robotic technologies will affect our lives. On one side, there are warnings that robots will displace humans in the economy, destroying livelihoods, especially for low-skill workers. Others look forward to the vast economic opportunities that robots will present, claiming, for example, that they will improve productivity or take on undesirable jobs. The venture capitalist Peter Thiel, who recently joined the debate, falls into the latter camp, asserting that robots will save us from a future of high prices and low wages.

Figuring out which side is right requires, first and foremost, an understanding of the six ways that humans have historically created value: through our legs, our fingers, our mouths, our brains, our smiles, and our minds. Our legs and other large muscles move things to where we need them to be, so our fingers can rearrange them into useful patterns. Our brains regulate routine activities, keeping the leg- and finger-work on track. Our mouths – indeed, our words, whether spoken or written – enable us to inform and entertain one another. Our smiles help us to connect with others, ensuring that we pull roughly in the same direction. Finally, our minds – our curiosity and creativity – identify and resolve important and interesting challenges.

Thiel, for his part, refutes the argument – often made by robot doomsayers – that the impact of artificial intelligence and advanced robotics on the labor force will mirror globalization’s impact on advanced-country workers. Globalization hurt lower-skill workers in places like the United States, as it enabled people from faraway countries to compete for the leg-and-finger positions in the global division of labor. Given that these new competitors demanded lower wages, they were the obvious choice for many companies.

According to Thiel, the key difference between this phenomenon and the rise of robots lies in consumption. Developing-country workers took advantage of the bargaining power that globalization afforded them to gain resources for their own consumption. Computers and robots, by contrast, do not consume anything except electricity, even as they complete leg, finger, and even brain activities faster and more efficiently than humans would.

Here, Thiel offers an example from his experience as CEO of PayPal. Instead of having humans scrutinize every item in every batch of 1,000,000 transactions for indications of fraud, PayPal’s computers can approve the obviously legitimate transactions, and pass on the 1,000 or so that could be fraudulent for thoughtful consideration by a human. One worker and a computer system can thus do what PayPal would have had to hire 1,000 workers to do a generation ago. Given that the computer system does not need things like food, that thousand-fold increase in productivity will redound entirely to the benefit of the middle class.

Put another way, globalization lowered the wages of low-skill advanced-country workers because others would perform their jobs more cheaply, and then consume the value that they had created. Computers mean that higher-skill workers – and the lower-skill workers who remain to oversee the large robotic factories and warehouses – can spend their time on more valuable activities, assisted by computers that demand little.

Thiel’s argument may be correct. But it is far from airtight.

In fact, Thiel seems to be running into the old diamonds-and-water paradox – water is essential, but costs nothing, whereas diamonds are virtually useless, but extremely expensive – albeit in a sophisticated and subtle way. The paradox exists because, in a market economy, the value of water is set not by the total usefulness of water (infinite) or by the average usefulness of water (very large), but by the marginal value of the last drop of water consumed (very low).

Similarly, the wages and salaries of low- and high-skill workers in the robot-computer economy of the future will not be determined by the (very high) productivity of the one lower-skill worker ensuring that all of the robots are in their places or the one high-skill worker reprogramming the software. Instead, compensation will reflect what workers outside the highly productive computer-robot economy are creating and earning.

The newly industrialized city of Manchester, which horrified Friedrich Engels when he worked there in the 1840s, had the highest level of labor productivity the world had ever seen. But the factory workers’ wages were set not by their extraordinary productivity, but by what they would earn if they returned to the potato fields of pre-famine Ireland.

So the question is not whether robots and computers will make human labor in the goods, high-tech services, and information-producing sectors infinitely more productive. They will. What really matters is whether the jobs outside of the robot-computer economy – jobs involving people’s mouths, smiles, and minds – remain valuable and in high demand.

From 1850 to 1970 or so, rapid technological progress first triggered wage increases in line with productivity gains. Then came the protracted process of income-distribution equalization, as machines, installed to substitute for human legs, and fingers created more jobs in machine-minding, which used human brains and mouths, than it destroyed in sectors requiring routine muscle power or dexterity work. And rising real incomes increased leisure time, thereby boosting demand for smiles and the products of minds.

Will the same occur when machines take over routine brainwork? Maybe. But it is far from being a safe bet on which to rest an entire argument, as Thiel has.

Bradford Delong)

Is TTIP a Zombie Agreement?

                                                   ( Comments due by Oct. 5, 2014 )

The dispute over the planned TTIP transatlantic free trade agreement between the European Union and the United States goes far beyond the treaty itself, the reason being the tradition in which TTIP is grounded.

It is merely the most recent acronym in a constantly expanding family of abbreviations, its best known members including GATT, TRIPS, GATS, MAI, ACTA, CETA and TPP*.

The kinship between these and other international agreements of the past quarter century is obvious from a number of common factors.

More than forty years have passed since the collapse of the Bretton Woods system for the regulation of international capital transactions.

Since then, the belief in free trade has dominated not only economic scholarship, but also economic policy in practice. This has led to growing inequality and numerous economic and currency crises.

Instability has become a permanent state. These consequences, and the fact that protectionist China and Lula da Silva’s free-trade-sceptical Brazil have managed to become industrial nations, have done nothing to alter the dominant free trade dogma.

The lack of theoretical prerequisites for a “comparative advantage” of international trade relations such as full employment and the absence of capital mobility have not led to a rethink.

Following the abandonment of the Bretton Woods coordination, international treaties have been used to implement free trade policy as extensively as possible. Once again, we can see – as Karl Polanyi described it in The Great Transformation – that the establishment and intensification of market relations is a politically motivated project.

One of the reasons for the popularity of international agreements is the possibility for discreet negotiations. Consultations and resolutions on free trade agreements are undertaken in elite circles and arranged outside the daily business of parliamentary politics.

Diplomacy, expertocracy and corporate lobbyism dominate the formulation of international agreements.

Liberated from already much maligned party politics and without direct democratic control, the stakes are hammered in in the field of summit diplomacy. It is only at the very end, once all the important decisions have been taken, that national parliaments give these agreements their blessings.

The task of the elected democratic organs is thus essentially that of adopting secretly negotiated contracts into national law.
 

For the financial big-hitters of corporate lobbying in particular, international free trade agreements offer the perfect stage. They are practically handed a one-stop-shop for their interests, and they profit from a favourable emphasis on the relevant agendas.

The strong focus on trade, economic and investment issues, for instance, means that subjects such as human rights, environmental protection and cultural policy are considered and discussed solely from this perspective.

In the context of TTIP, for example, references are made to “non-tariff barriers” inhibiting trade when discussing various social, environmental and human rights standards, or a “cultural exception”, meaning provisions for the promotion of cultural tradition and diversity.

Of course, such an approach will not necessarily lead per se to a levelling of these types of standards – however, the practical implementation dominated by corporate lobbying generally has exactly this consequence.

The kinship in terms of content and form between TTIP and its aforementioned predecessors makes the agreement an un-dead treaty returned from the grave.

Zombie clauses such as investment protection measures, which did not make their way into previous agreements due to widespread resistance, have reappeared in and around the TTIP negotiations. We are looking at a “recurring dynamic of progressing liberalization projects, their partial weakening after protests, and their repeated adoption” (Oliver Prausmüller and Alice Wagner, Reclaim Public Services, 2014).

A straightforward rejection of TTIP or even of individual clauses and regulation areas is therefore not a sustainable strategy, but merely fights the symptoms.

Equally, turning our backs on multilateralism and returning to our national comfort zones is of just as little use. What we need instead is an end to this type of agreement developed under the banner of free trade and under exclusion of the public.

What we are lacking is ecological, social, cultural and tax-justice agreements drawn up with broad democratic participation.

Free trade could well be a subject in this context, for instance as a non-tariff barrier inhibiting justice.

*GATT stands for General Agreement on Tariffs and Trade (and led to the foundation of the World Trade Organization); TRIPS is a separately negotiated treaty in the GATT context on Trade-Related Aspects of Intellectual Property Rights; GATS stands for General Agreement on Trade in Services; MAI stands for Multilateral Agreement on Investment (an ultimately failed attempt at a multilateral investment protection agreement); ACTA for the failed Anti-Counterfeiting Trade Agreement; CETA stands for Comprehensive Economic and Trade Agreement (between Canada and the EU); TTP refers to the Trans-Pacific Partnership, a free trade agreement between states in the Asia-Pacific region.

Furniture Offshoring

A popular OpEd that speaks to the controversy about off shoring. Read it with an open mind.

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The subtitle of Beth Macy’s new book, “Factory Man” — “How One Furniture Maker Battled Offshoring, Stayed Local, and Helped Save an American Town” — gives every impression that it is going to be an upbeat read, a capitalistic feel-good story.

And, indeed, Macy, a former longtime reporter for The Roanoke Times in Virginia, doesn’t skimp on the story of a furniture baron named John Bassett III, her colorful main character, a Southern charmer with a fondness for quoting General Patton. After being pushed out of his family’s furniture company in (where else?) Bassett, Va., JBIII, as Macy calls him, buys into another, smaller company, Vaughan-Bassett, in the nearby town of Galax, right around the time that Chinese furniture manufacturers began to move seriously into the American furniture market with low-priced knockoffs of American furniture designs.

As furniture manufacturers all around him — including his family’s company — begin shuttering plants and start marketing and selling the Chinese imports, Bassett decides to fight back. Although he, too, has had to shrink his work force, he refuses to shut down his company, and he mobilizes others in the industry to charge the Chinese with dumping their goods on the market — that is, selling them below the cost of manufacturing them.

In 2005, the government did indeed conclude that the Chinese had been dumping furniture, and it put tariffs on Chinese furniture that helped make the Americans a little more competitive. Thanks to something called the Byrd amendment, some of the money from the Chinese went directly to Bassett’s company, which “invested $23 million in new plant equipment, put some in the employee profit-sharing plan, and used some of it to start a companywide free health clinic for families,” writes Macy. “The money saved upwards of 700 jobs in Galax, which, in turn, as some have argued, have saved the town.” Vaughan-Bassett has since become the largest wooden bedroom furniture maker in the country.

Surely, if they make a movie out of “Factory Man” — and I think there is a pretty decent chance they will — that will be the story line.

What is striking about Macy’s first book, though, is how little she does to make that made-for-the-movies plot stand out. Her wonderful central character notwithstanding, she’s really after something else: the effects of globalization on her little corner of the world, that is, the regions of North Carolina and Virginia where furniture making was once king. From her point of view, that story is anything but upbeat.

Nor does she miss the historic twist in her tale: as she notes early on, in the years after the Civil War, Southern entrepreneurs like Bassett’s grandfather capitalized on “cheap, hungry labor and all those tree-stocked hills” to shift furniture manufacturing from places like Grand Rapids, Mich., to the South, where it thrived for a century or more before the Chinese began doing the same thing to them.

But again and again, she comes back to the factories that have been closed, the jobs that have been lost. “Between 2002 and 2012, 63,300 American factories closed their doors and five million factory jobs went away,” she notes. She finds people who, having been laid off, do exactly what you would hope they might do: go to college and become well-paid knowledge workers.

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But far more often she introduces us to people who have been displaced by the Chinese furniture manufacturers and can’t see a better future. It is especially difficult for people who have lost their jobs in what amount to company towns — where there really isn’t any other work to be had. She asks, “What good did it do to have access to cheap consumer goods if you had no money to buy themI happen to think Blonigen is right — that is exactly what we should be doing to make globalization work for us instead of against us. But I also find myself deeply sympathetic to Macy’s essential point, which is that globalization inflicts a great deal of suffering on millions of people, something the news media should do a better job of acknowledging and the government should do a better job of mitigating.She quotes the University of Oregon economist Bruce Blonigen, who tells her, “In reality, we shouldn’t be making bedroom furniture anymore in the United States. Shouldn’t we instead be trying to educate these workers’ kids to get them into high-skilled jobs and away from what’s basically an archaic industry?”

Toward the end of her book, Macy travels to Indonesia, where she talks to a factory executive. “What I do worry about every year is the future of the factory,” he tells her. “I worry that someone somewhere else, somewhere cheaper, will start to make furniture, and that will be that for us.”

It never ends.

Can the BRIC's establish a new development bank bank?

The eyes of the world has focused recently on Brazil,which hosted an event that may prove in time to be the beginning of a grand project in global affairs. It wasn’t the World Cup, though. On July 15, Brazil organized the sixth meeting of leaders of the BRICS nations – Brazil, Russia, India, China and South Africa – and, following that, a meeting among the BRICS and the leaders of South America.

Since 2009, BRICS leaders have been gathering in what has primarily been a symbolic exercise, highlighting and promoting the idea that a strategic shift is underway in the global economy from the developed to the largest and fastest growing developing economies, which will require recalibrating global governance and political leadership. However, as developed economies have slowly recovered from the financial crisis and the BRICS nations have slowed, the utility of largely symbolic meetings has been questioned to the point where the importance of the BRICS itself is unclear to many but the most dedicated advocates.

This changed recently in Fortaleza, Brazil, as the BRICS leaders advanced an agenda of concrete actions, including the establishment of a $50 billion BRICS “New Development Bank” and a $100 billion contingent reserve arrangement designed initially to address global balance of payments pressures within the bloc. Operations are planned to begin in 2016. Given China’s overwhelming economic size vis-à-vis its BRICS partners (some 70 percent of overall GDP), Beijing’s voice will carry greater weight on issues of highest importance. For example, after much debate, the location of the new BRICS bank will be Shanghai; compromise was reached on the leadership, which will rotate among the founding five members.

At the same time, the implications of an international financial institution underwritten by the BRICS are uncertain but potentially significant. It is unclear whether the bank will directly compete with the World Bank or IMF, which are much larger, or regional development banks, or even existing national development banks. But it’s worth noting that China’s initial contribution to the new bank will be only a little less than its paid in capital at the World Bank, and the other BRICS nations will actually contribute more to the new entity than they do to the World Bank.

A key question is the value added for potential borrowers of using the BRICS bank rather than existing global financial institutions. Until the charter of the bank and the procedures are finalized, there is no clear answer. But from a borrowing perspective, one of the most onerous aspects of going to international financial institutions for assistance is the conditionality that goes with lending programs. Over the years, the World Bank, IMF and others have added numerous additional layers of obligations that go well beyond straight financial obligations for repayment and, often, economic restructuring. Now, conditionality often includes social development requirements including poverty alleviation, environmental protection, human rights and gender equality, anti-corruption and other topics in addition to the traditional financial and economic requirements. This is on top of politically sensitive steps which may be required as part of any economic restructuring such as the reduction or elimination of certain subsidies, improved competition policy, central bank independence and the like.

These obligations can be highly intrusive and are often resented by borrowers. At the same time, they are a primary means by which the Westernized international community has promoted the broader dissemination of a vision consistent with its values. To the extent borrowing nations have the option to approach the BRICS bank for assistance that is not conditioned with non-financial obligations, they may find it to be a more attractive proposition. That will both enhance the importance of the BRICS, while also potentially undercutting one of the most important and effective tools that the international community has relied upon in the post-war era to promote policies designed for good governance and economic development. This could become most readily apparent in sectors that the BRICS nations deem strategic, such as the energy and extractive sectors, which are among the sectors worldwide most fraught with environmental, social and local community complications. Established international financial institutions normally consider these matters; the BRICS bank might not.

Even if this scenario is overblown, the existence of new lending options may nonetheless encourage existing development banks, including the World Bank, to soften or reduce their conditionality requirements in order to promote their own lending in certain instances. Such “conditionality arbitrage” might suit the leaders of borrowing nations but it will ultimately blunt the development prospects of their people.

From the lenders’ perspective, they will have to determine whether the political advantages of engagement with nations that may have been shut out of the international financial system or may otherwise be unreliable borrowers outweighs the risks of non-performance of loaned capital.

As the outlines of the BRICS financial facilities are being established, the project architects will have to keep these difficult but relevant issues very much in mind.

Should the Dollar be dethroned?

 THERE are few truisms about the world economy, but
for decades, one has been the role of the United States dollar as the world’s
reserve currency. It’s a core principle of American economic policy. After
all, who wouldn’t want their currency to be the one that foreign banks and
governments want to hold in reserve?
But new research reveals that what was once a privilege is now a
burden, undermining job growth, pumping up budget and trade deficits
and inflating financial bubbles. To get the American economy on track,
the government needs to drop its commitment to maintaining the dollar’s
reserve-currency status.
The reasons are best articulated by Kenneth Austin, a Treasury
Department economist, in the latest issue of The Journal of Post Keynesian
Economics (needless to say, it’s his opinion, not necessarily the
department’s). On the assumption that you don’t have the journal on your
coffee table, allow me to summarize.
It is widely recognized that various countries, including China,
Singapore and South Korea, suppress the value of their currency relative to
the dollar to boost their exports to the United States and reduce its exports
to them. They buy lots of dollars, which increases the dollar’s value relative
to their own currencies, thus making their exports to us cheaper and our
exports to them more expensive.
In 2013, America’s trade deficit was about $475 billion. Its deficit
with China alone was $318 billion.
Though Mr. Austin doesn’t say it explicitly, his work shows that, far
from being a victim of managed trade, the United States is a willing
participant through its efforts to keep the dollar as the world’s most
prominent reserve currency.
When a country wants to boost its exports by making them cheaper
using the aforementioned process, its central bank accumulates currency
from countries that issue reserves. To support this process, these countries
suppress their consumption and boost their national savings. Since global
accounts must balance, when “currency accumulators” save more and
consume less than they produce, other countries — “currency issuers,” like
the United States — must save less and consume more than they produce
(i.e., run trade deficits).
This means that Americans alone do not determine their rates of
savings and consumption. Think of an open, global economy as having one
huge, aggregated amount of income that must all be consumed, saved or
invested. That means individual countries must adjust to one another. If
trade-surplus countries suppress their own consumption and use their
excess savings to accumulate dollars, trade-deficit countries must absorb
those excess savings to finance their excess consumption or investment.
Note that as long as the dollar is the reserve currency, America’s trade
deficit can worsen even when we’re not directly in on the trade. Suppose
South Korea runs a surplus with Brazil. By storing its surplus export
revenues in Treasury bonds, South Korea nudges up the relative value of
the dollar against our competitors’ currencies, and our trade deficit
increases, even though the original transaction had nothing to do with the
United States.
This isn’t just a matter of one academic writing one article. Mr.
Austin’s analysis builds off work by the economist Michael Pettis and,
notably, by the former Federal Reserve chairman Ben S. Bernanke.
A result of this dance, as seen throughout the tepid recovery from the
Great Recession, is insufficient domestic demand in America’s own labor
market. Mr. Austin argues convincingly that the correct metric for
estimating the cost in jobs is the dollar value of reserve sales to foreign
buyers. By his estimation, that amounted to six million jobs in 2008, and
these would tend to be the sort of high-wage manufacturing jobs that are
most vulnerable to changes in exports.
Dethroning “king dollar” would be easier than people think. America
could, for example, enforce rules to prevent other countries from
accumulating too much of our currency. In fact, others do just that
precisely to avoid exporting jobs. The most recent example is Japan’s
intervention to hold down the value of the yen when central banks in Asia
and Latin America started buying Japanese debt.
Of course, if fewer people demanded dollars, interest rates — i.e.,
what America would pay people to hold its debt — might rise, especially if
stronger domestic manufacturers demanded more investment. But there’s
no clear empirical, negative relationship between interest rates and trade
deficits, and in the long run, as Mr. Pettis observes, “Countries with
balanced trade or trade surpluses tend to enjoy lower interest rates on
average than countries with large current account deficits, which are
handicapped by slower growth and higher debt.”
Others worry that higher import prices would increase inflation. But
consider the results when we “pay” to keep price growth so low through
artificially cheap exports and large trade deficits: weakened
manufacturing, wage stagnation (even with low inflation) and deficits and
bubbles to offset the imbalanced trade.
But while more balanced trade might raise prices, there’s no reason it
should persistently increase the inflation rate. We might settle into a norm
of 2 to 3 percent inflation, versus the current 1 to 2 percent. But that’s a
price worth paying for more and higher-quality jobs, more stable
recoveries and a revitalized manufacturing sector. The privilege of having
the world’s reserve currency is one America can no longer afford.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities.
A version of this op-ed appears in print on August 28, 2014, on page A25 of the New York edition