Does the EU Kick Out Ireland If It Votes No?

♠ Posted by Emmanuel in at 10/01/2009 05:12:00 PM
The answer is obviously no, but I'd like it to if it turns down the Lisbon Treaty yet again. The road to implementing the Lisbon Treaty passes through Ireland. As you probably know, the country once called the "Celtic Tiger" has fallen on very hard times in a remarkable application of my rule of thumb to the original Asian tiger economies--the more they export, the harder they fall. However, as bad things are now, there is worse possible if Ireland votes "No" yet again to the Lisbon Treaty. First up is a recent WSJ article discussing how business interests do not want to be ostracized from the EU, even the EU hating Ryanair chief Michael O'Leary:
Major companies, including Intel Corp. and budget airline Ryanair Holdings PLC, are putting their clout and cash behind a campaign to persuade Irish voters to approve a European Union treaty that Ireland rejected just a year ago—giving a fresh boost to the "yes" side in opinion polls.

The businesses' message: Ireland's economy is too damaged for it to shun Europe by vetoing the so-called Lisbon Treaty again...Jim O'Hara, Intel's top executive in Ireland, says he asked himself what business leaders—the bulk of whom favored Lisbon—did during last year's failed referendum campaign. "The answer was, we didn't do a whole lot," he says...

This time, big business is getting its feet wet. Even Michael O'Leary, the Ryanair chief executive who in kinder moments refers to EU leaders as "idiot Brussels bureaucrats," says his company will spend 500,000 euros ($717,000) on a "yes" campaign; a Ryanair plane will be painted with the slogan "Vote Yes to Europe..."
The expected result for tomorrow should be positive for simple, understandable reasons as Ireland's Eurosnobbery has taken a hit:
At the time of the failed referendum last June, unemployment stood at a manageable 5.9%. Talk was of a soft landing for the once-roaring Celtic Tiger economy. Instead, it has been brutally hard. Unemployment has passed 12%. Real-estate prices have tumbled by a third or more. One major bank has been nationalized, and the government is proposing to spend 90 billion euros—half a year's gross domestic product—to buy the toxic property loans of others.

At the time of the first referendum, voters said, "We're well off, aren't we, the richest little country in Europe," says Michael Marsh, a political scientist at Trinity College Dublin. "Now we're the worst economic collapse in the developed world. It would be a brave people who would vote 'No' now."
The FT has a preview of tomorrow's voting and predicts a similar result of yes to Lisbon. The only thing left in the way of Lisbon if the Irish come to their senses is the Euroskeptic Czech President Vaclav Klaus--also a noted global warming doubter. Alas, these prehistoric tendencies tend to go together.

Europe can be more of a welcome counterweight to the US if it gets its political act together by vesting more diplomatic leverage into the EC. Contrary to constant Euroskeptic blathering, there are many areas where EU diplomacy can be enhanced. Rumsfeld's "old Europe" is, for instance, far more advanced on climate change unlike the still-villainous US. Godspeed Ireland, and may it see the light instead of pondering the imponderable of leaving the Eurozone and getting walloped much, much harder.
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Litigation Land: China's Key WTO Cases

♠ Posted by Emmanuel in , at 10/01/2009 04:34:00 PM
I found this helpful recap from Reuters of the cases involving China at the WTO as both a complainant ("plaintiff") and a respondent ("defendant"). You can of course visit the WTO site and plunge into the minutiae if you're so inclined, but it's easier to view this summary -
China has appealed against a World Trade Organisation ruling upholding parts of a U.S. complaint about Chinese restrictions on imports of films, books and other audio-visual material. The appeal was launched shortly after the U.S. decided to impose additional duties on imports of Chinese-made tyres, invoking for the first time a "safeguard" clause China agreed to when it joined the WTO.

China hotly protested the tyre duties and launched its own anti-dumping investigation of automotive and chicken parts imports from the U.S., whose combined value is roughly equivalent to the value of the contested tyre shipments.

At first worried that WTO entry could jeopardise Chinese jobs and businesses as foreign competitors crowded in, China is now an enthusiastic participant. It has launched several complaints to keep other markets open to the exports that drive its economy.

Since it joined the global trade body in 2001, China has brought five complaints to the WTO, and has been a defendant in 16 cases. Below are some current or recent cases at the WTO:

CASES IN WHICH CHINA IS COMPLAINANT

STEEL

China is challenging U.S. anti-dumping duties on steel products before the WTO. It is also unhappy with a series of other U.S. actions against its imports, including the safeguard duties imposed on tyres and anti-dumping duties on steel pipe used to transport oil.

China in July requested consultations on anti-dumping duties imposed by the European Union against imports of Chinese steel screws and fasteners. The EU exempted two European joint ventures that manufacture fasteners in China.

COOKED POULTRY

China launched a WTO case in April over U.S. legislation that forbids the government from beginning the process of certifying Chinese cooked poultry exporters. The House of Representatives appropriations bill extends the measure for a fourth year, while the Senate version orders the government to begin the certifying process.

CASES IN WHICH CHINA IS DEFENDANT

RAW MATERIALS

The EU and the United States argue that Chinese export restrictions, including taxes and quotas, on several raw materials unfairly elevate the international price, while keeping input prices cheaper for manufacturers in China.

DISTRIBUTION SERVICES AND INTELLECTUAL PROPERTY RIGHTS

On Aug 12, a WTO panel found in favour of a U.S. complaint that Chinese curbs on importing and distributing foreign publications and audiovisual products violated WTO commitments. China appealed on Sept. 22.

Both the U.S. and China claimed victory earlier this year when a WTO panel found that China had failed to protect and enforce intellectual property rights, but rejected the U.S. contention that China sets the threshold for prosecuting piracy so high that it is ineffective. China noted the findings did not challenge its right to censor content.

GRANTS, LOANS AND OTHER INCENTIVES

The United States, Mexico and Guatemala requested consultations regarding certain grants, loans and other incentives to encourage exports of Chinese brands.

FINANCIAL INFORMATION

China in November settled on a complaint by the EU, the United States and Canada against China's requirement that foreign financial information suppliers, including Thomson Reuters, must operate through an entity designated by the Xinhua news agency, rather than dealing directly with subscribers
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Fighting Protectionism? EU Sees PRC Dumping

♠ Posted by Emmanuel in ,, at 9/26/2009 01:59:00 PM
Just to illustrate the difficulties in turning rhetoric into action, here's a case of the EU officially placing anti-dumping duties on Chinese wares while world leaders were vowing to fight protectionism at the G-20. From Chinese official broadcaster CCTV:
The European Union on Thursday decided to impose a five-year official anti-dumping duty on seamless steel pipes and aluminum foil from China. The tax rates are 39.2 percent and 30 percent, respectively.

The Ministry of Commerce has been opposed to the new tarrifs since April, when the EU publicized its intent to impose a provisional anti-dumping duty on Chinese seamless steel pipes. The official anti-dumping fees will be implemented by October 8th.
There's also an accompanying video clip. The FT claims this episode is novel as the EU imposed these duties in the absence of demonstrable damage done to European producers:
The European Union on Friday imposed anti-dumping duties of nearly 40 per cent on imports of steel pipe from China. The decision, which followed a preliminary ruling earlier in the year, broke ground by imposing tariffs based only on the threat of damage to European groups from low-priced imports rather than requiring them to show actual lost sales.

Georg Berrisch of Covington & Burling, the law firm that represented the European steel pipe producers, said: “The case shows that industries must not necessarily wait for injury to occur ... to take measures against an onslaught of dumped Chinese imports.”
This action is very much in line with China complaining about the plethora of anti-dumping cases the EU has initiated against China. While US-China trade squabbles attract the lion's share of attention in the rather Amerocentric blogosphere, don't assume that Sino-European trade relations are necessarily better.
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G-20 Communique: Fine Words, Now for Action

♠ Posted by Emmanuel in ,,, at 9/26/2009 12:18:00 PM
I have gradually been warming to these G-20 summits given that the process has become more inclusive of LDCs in rhetoric. However, it remains to be seen if there is indeed a substantive change in the way global governance is handled in these meetings' aftermath as per talk of a new world order and so on and so forth.

You can read the massive communique from the Pittsburgh G-20 site. Given the varying interests of the parties involved, it's unsurprising that it's something of a laundry list of wishes. These wishes, of course, need coordination in order to be fulfilled. Some passages that have struck me follow:

First, the much-ballyhooed redistribution of shares in the IMF amounts to shuffling "at least 5%" around. The FT's Alan Beattie has a good backgrounder on the issues at stake here. Meanwhile, here is the relevant portion:
20. We are committed to a shift in International Monetary Fund (IMF) quota share to dynamic emerging markets and developing countries of at least 5% from over-represented countries to under-represented countries using the current quota formula as the basis to work from. Today we have delivered on our promise to contribute over $500 billion to a renewed and expanded IMF New Arrangements to Borrow (NAB).
There is also mention of the IMF's sister institution, the World Bank. However, there are no numerical commitments given here:
21. We stressed the importance of adopting a dynamic formula at the World Bank which primarily reflects countries’ evolving economic weight and the World Bank’s development mission, and that generates an increase of at least 3% of voting power for developing and transition countries, to the benefit of under-represented countries. While recognizing that over-represented countries will make a contribution, it will be important to protect the voting power of the smallest poor countries. We called on the World Bank to play a leading role in responding to problems whose nature requires globally coordinated action, such as climate change and food security, and agreed that the World Bank and the regional development banks should have sufficient resources to address these challenges and fulfill their mandates.
There are also statements about environmental matters in the run-up to the Copenhagen climate change discussions, although the latter event is evidently seen as more of the ideal venue:
32. As leaders of the world’s major economies, we are working for a resilient, sustainable, and green recovery. We underscore anew our resolve to take strong action to address the threat of dangerous climate change. We reaffirm the objective, provisions, and principles of the United Nations Framework Convention on Climate Change (UNFCCC), including common but differentiated responsibilities. We note the principles endorsed by Leaders at the Major Economies Forum in L’Aquila, Italy. We will intensify our efforts, in cooperation with other parties, to reach agreement in Copenhagen through the UNFCCC negotiation. An agreement must include mitigation, adaptation, technology, and financing.
Also reiterated was the call for "fighting protectionism" without reference to recent blow-ups between the US and China as well as other trade partners. Doha? Done by 2010, they say. I particularly look forward to WTO discussion of the services agenda--temporary migration, especially:
49. We remain committed to further trade liberalization. We are determined to seek an ambitious and balanced conclusion to the Doha Development Round in 2010, consistent with its mandate, based on the progress already made, including with regard to modalities. We understand the need for countries to directly engage with each other, within the WTO bearing in mind the centrality of the multilateral process, in order to evaluate and close the remaining gaps. We note that in order to conclude the negotiations in 2010, closing those gaps should proceed as quickly as possible. We ask our ministers to take stock of the situation no later than early 2010, taking into account the results of the work program agreed to in Geneva following the Delhi Ministerial, and seek progress on Agriculture, Non-Agricultural Market Access, as well as Services, Rules, Trade Facilitation and all other remaining issues. We will remain engaged and review the progress of the negotiations at our next meeting.
And here's something bound to please the French and others who rail against undeserved bonuses:
Reforming compensation practices to support financial stability: Excessive compensation in the financial sector has both reflected and encouraged excessive risk taking. Reforming compensation policies and practices is an essential part of our effort to increase financial stability. We fully endorse the implementation standards of the FSB aimed at aligning compensation with long-term value creation, not excessive risk-taking, including by (i) avoiding multi-year guaranteed bonuses; (ii) requiring a significant portion of variable compensation to be deferred, tied to performance and subject to appropriate clawback and to be vested in the form of stock or stock-like instruments, as long as these create incentives aligned with long-term value creation and the time horizon of risk; (iii) ensuring that compensation for senior executives and other employees having a material impact on the firm’s risk exposure align with performance and risk; (iv) making firms’ compensation policies and structures transparent through disclosure requirements; (v) limiting variable compensation as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base; and (vi) ensuring that compensation committees overseeing compensation policies are able to act independently.
And don't forget those tax havens which will be patrolled more heavily and sanctioned accordingly if caught bending the rules too far:
15. Our commitment to fight non-cooperative jurisdictions (NCJs) has produced impressive results. We are committed to maintain the momentum in dealing with tax havens, money laundering, proceeds of corruption, terrorist financing, and prudential standards. We welcome the expansion of the Global Forum on Transparency and Exchange of Information, including the participation of developing countries, and welcome the agreement to deliver an effective program of peer review. The main focus of the Forum’s work will be to improve tax transparency and exchange of information so that countries can fully enforce their tax laws to protect their tax base. We stand ready to use countermeasures against tax havens from March 2010. We welcome the progress made by the Financial Action Task Force (FATF) in the fight against money laundering and terrorist financing and call upon the FATF to issue a public list of high risk jurisdictions by February 2010. We call on the FSB to report progress to address NCJs with regards to international cooperation and information exchange in November 2009 and to initiate a peer review process by February 2010.
There's still a lot that I've omitted here. Overall, though, I am rather surprised with how extensive the conversation has become. These cross-cutting issues are vast and a real change in the world order will require shifts in global governance mechanisms towards LDCs taking on a more active role. Certainly, there are some changes now under substantive discussion that they've asked for inclusion here. Now it's their turn to make the best of it by grasping these opportunities lest they remain buried in soon-forgotten communiques.
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Three China Features From the Far Side

♠ Posted by Emmanuel in ,, at 9/25/2009 10:00:00 AM
All things China are the rage nowadays. Accordingly, I have a few very interesting stories about the Middle Kingdom that I wanted to put out before turning to non-PRC stories since this place threatens to turn into the China Political Economy Zone--now there's a free idea for anyone although there are jillions of China blogs already. Today, however, we feature gambling apparatchiks, unemployed Yanks searching for PRC jobs, and the PBoC floating ideas for a supra sovereign wealth fund.

First up is news about the revival of Macau as a gambling destination. After overtaking Las Vegas in terms of gaming revenues a few years back, this town fell on hard times as the PRC imposed limits on the number and frequency of mainland visitors coming to Macau. Most prominent among the PRC's stated concerns were local government officials siphoning off the people's money to let the wheels of fortune spin. Now, it appears that the Communist leadership is taking a more relaxed attitude to ensure the continued prosperity of the erstwhile Portugese colony. Via Reuters:
China has quietly eased restrictions on its citizens traveling from Guangdong province to Macau, sending casino stocks soaring on Monday as industry executives bet on record October earnings in the world's hottest gambling market...Alarmed that some Guangdong residents were gambling too much in neighboring Macau, China last year imposed new rules limiting them to two trips a year to the former Portuguese enclave. But the authorities began easing up on the rule as early as two months ago, and noticeably loosened the restriction at the start of this month, said top executives at two of Macau's six casino licensees, speaking on condition of anonymity due to the sensitivity of the situation.

"The latest version is (they can travel to Macau) once a month out of Guangdong," said one of the executives. "Gaming revenues for the first two weeks of the month have been good..."

Macau generated HK$105.6 billion ($13.5 billion) in gross gaming revenues in 2008, more than double the HK$46.7 billion generated by the Las Vegas Strip during the same period, according to a prospectus from Wynn Macau, the Macau assets of Wynn Resorts, which is preparing an IPO in Hong Kong. But Beijing clamped down on mainland visitors to Macau in the middle of last year amid a proliferation of stories of officials illegally gambling away millions of dollars in government funds.

That clampdown, combined with the global financial crisis, sent a chill through Macau, with gaming revenue down 12.5 percent in the first half of the year. The return of Chinese tourists and an improving economy helped Macau post record casino revenue in August.
Next up is a silly feature, really, that's very much in line with Hugo Chavez scoring propaganda points by offering gas at subsidized rates to poor American communities. The message there was, "Hugo cares more about the welfare of working Americans than Bush does." Similarly, our favorite official publication China Daily is portraying the PRC as a work destination for jobless gweilo--particularly those of the Yanqui variety, hence the made up caption above. The message is clear: "Obama can't find you jobs--but Chairman Hu can." So Hu's your poppa now?
When the best job Mikala Reasbeck could find after college in Boston was counting pills part-time in a drugstore for $7 an hour, she took the drastic step of jumping on a plane to Beijing in February to look for work. A week after she started looking, the 23-year-old from Wheeling, West Virginia, had a full-time job teaching English. "I applied for jobs all over the US. There just weren't any," said Reasbeck, who speaks no Chinese but volunteered at the 2008 Beijing Olympics. In China, she said: "The jobs are so easy to find. And there are so many."

Young foreigners like Reasbeck are coming to China to look for work in its unfamiliar but less bleak economy, driven by the worst job markets in decades in the United States, Europe and some Asian countries. Many do basic work such as teaching English, a service in demand from Chinese businesspeople and students. But a growing number are arriving with skills in computers, finance and other fields.

"China is really the land of opportunity now, compared to their home countries," said Chris Watkins, manager for China and Hong Kong of MRI China Group, a headhunting firm. "This includes college graduates as well as maybe more established businesspeople, entrepreneurs and executives from companies around the world." Watkins said the number of resumes his company receives from abroad has tripled over the past 18 months.
And last but not least is another wacked out story about China wanting to set up a "supra-sovereign" fund that would help LDCs funnel investment which helps their fellow countries' development instead of channeling them into Uncle Sam's wasteful spending or overall US superconsumption. This isn't the first time this idea has been bandied about at the PBoC's deputy guv'nor, Hu Xiaolian, contributed an earlier paper to a G-20 workshop on the causes of crisis. The main point being, of course, that it has little to do with imbalances or currency issues. From Hu's piece on pp. 81-88 (warning: huge 4GB file):
It is noteworthy that, in time horizon the high surplus in southeastern Asia and the low savings rate in the U.S. were not synchronized, and there is no causal relationship between the two. It is illogical to attribute the ongoing financial crisis and the growth model featuring excessive overdraft of some developed countries to exchange rate issues of the developing countries.
Yes, yes, whatever that means. Try selling it to Obama's union buddies. Nearer to the conclusion, we get the suggestion of creating a supra-SWF to get around the usual, vague insinuation that China has "no choice" but to pile on more dollar assets given the current system. (Wouldn't this alternative system also mean that other LDCs pile up external deficits instead of the West?)
Secondly, the role of special drawing rights (SDR) should be enhanced. In the long run, efforts are needed to promote diversification of the international monetary system. Moreover, since the developing countries lack the necessary fund to increase investment and consumption, considerations can be to setting up a “supra-sovereign wealth investment fund” to help channel capital inflow into developing world so that these countries can serve as new engines in global recovery and growth.
Now, Bloomberg has a write-up citing Hu Xiaolian bandying the ideas expressed above in the run-up to the Pittsburgh G-20:
China’s central bank deputy governor, Hu Xiaolian, proposed setting up a multinational sovereign wealth fund to invest in developing nations and help reduce the danger of another financial crisis. “Considerations can be to setting up a ‘supra-sovereign wealth investment fund’ to help channel capital inflow” into developing nations to help them become engines of global growth, Hu said in a paper posted on a Group of 20 Web site maintained by the U.K. Treasury. Hu reiterated Chinese calls for greater use of special drawing rights, the International Monetary Fund’s unit of account, instead of the dollar.
A commentator usefully points out that operationalizing such a system is difficult:
“Operationally, it may not be easy” to set up the fund suggested by Hu, said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. “Who is going to run the show? How to control the risks of investing in emerging-market economies?”... Hu’s proposal “will give countries with excess foreign- exchange holdings more options to invest in the emerging world rather than in the U.S.,” Deutsche’s Ma said.
For many reasons, the IMF is not usually perceived as an impartial overseer of international financial arrangements. Despite China's obviously self-serving "blame the US, and if not, the US-designed international system" arguments, the supra-SWF idea is certainly not an idea to be dismissed outright. However, there is much work to do to make it a reality, especially China being more proactive in international economic diplomacy. Can the Chinese replace the Americans as the movers and shakers in LDCs? They certainly have the cash; whether they have the will is another matter entirely.
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Pre-G-20 Fun: US, China Exchange Trade Blows

♠ Posted by Emmanuel in ,,, at 9/24/2009 08:00:00 AM
And so we are receiving more reports that the days of China Chump Syndrome are probably numbered. What is China Chump Syndrome, you ask? Well, it's the PRC buying dollar-denominated assets at any price to help buoy a currency whose exchange rate would be a helluva lot less against the Chinese yuan in an effort to boost exports to America. It's a familiar story; a recent Bloomberg headline says "China Can't Buy Enough Bonds as Dollar No Deterrent." Ditto, says a WSJ blog. IOUs printed at an unprecedented pace, extraordinarily low yields, and a currency depreciating against several currencies not heavily intervened at the current time have not really discouraged the Chinese from buying even more Treasuries. If that's not a description of a chump--buying even more garbage as the product gets worse--you tell me.

The best hope of ending this farce is for bilateral trade to take a hit (a point of "punctuated equilibrium" for you economistas), thus obviating China's need to pile on so many Treasuries in a process that I've argued is of now negligible benefit to both parties or the world economy overall; it's time subprime globalization took it on the chin. Recently, we've focused on President Obama slapping tariffs on Chinese tires and the PRC's pushbacks [1, 2, 3]. Lest you think this one-upmanship is over, I have two more recent tit-for-tat retributions that suggest we're just warming up for some really brutal exchanges.

First up is news that China will appeal the WTO ruling that limiting the quantity and distribution of motion pictures and other media to official channels was not allowed. As usual, China claims the ever-popular excuse of protecting public morals. The LA Times suggests reasons for this appeal despite the chances of the decision being overturned being rather low as Hollywood sees a potential goldmine in cracking the China market via broader distribution:
By appealing the WTO ruling, China is showing it is still deeply upset about tariffs on Chinese tires, said Liu Baocheng, a professor at the University of International Business and Economics in Beijing. "They must show the government is not soft in the knees," Liu said. He added that Beijing also fears that the upholding of the WTO ruling will set an unwelcome precedent to open China's market for entertainment -- one that would test the limits of the state's censorship apparatus. "They see a danger of ideological confusion," Liu said, "and more cost in supervising the behavior of foreign publishers."
Meanwhile, their compatriots in the United States selling coated paper have taken umbrage to a marked recent increase in the importation of such goods. This is not the first time we've seen US complaints over coated paper as the Department of Commerce previously applied countervailing duties to offset perceived state supports. Note though that these duties were subsequently withdrawn via a further, negative US International Trade Commission ruling. The WSJ now reports that the aggrieved parties were not particularly pleased with the latter decision and are now aiming to take up their case yet again. This time around, the complainants are joined by the United Steelworkers--the same folks who brought forth the China tires case:
Three paper companies and the United Steelworkers filed an antidumping case Wednesday against China and Indonesia, making good on the union's threat to protect other U.S. industries after winning a recent trade decision against China.

The petitioners said the timing of their complaint, on the eve of the G-20 economic summit here, was coincidental [Pittsburgh, steelworkers, G-20, Hu Jintao in town with Obama...purely coincidental]...The complaint alleges China and Indonesia have been dumping tons of shiny, coated paper used, for example, in car brochures and annual reports. The case is being pursued through a different legal avenue than the one that yielded the tire tariffs and doesn't require approval by Mr. Obama.

But it nonetheless puts the White House in a delicate position, especially since Chinese delegates are expected to confront the administration with allegations of protectionist moves by Washington. Leaders of the G-20 have pledged to resist efforts to curb job losses in their countries by restricting access to their markets. A White House spokesman declined to comment...

The companies need to prove to the Commerce Department that the governments of China and Indonesia provided subsidies to coated-paper producers, and that imports were sold in the U.S. at prices below the home-market price or the cost of production. The petitioners also need to show the U.S. International Trade Commission that the paper imports caused material injury to the U.S. market or threaten to. "We have very strong evidence on all the factors which are necessary to prove this case," Mr. Kaplan said...

A spokesman at the Chinese Ministry of Commerce said: "The rising trade protectionism is worrying. The U.S. should be aware that trade protectionism is a double-edged sword and will do no good to either side." The tire case was brought under a special [safeguard] provision for countries to temporarily shield their markets from disruptions caused by China's entry into the global trading system. The paper case, by contrast, is a more conventional trade dispute.

The case highlights the growing role of labor unions in U.S. trade issues. During last year's election, Mr. Obama promised to get tougher on trade -- a pledge that won him union votes. Unions now want him to make good on his promise and viewed the tire tariffs as a crucial step. "Neither the companies nor the union will tolerate being obliterated without asking our government to investigate and enforce the rules of fair trade," said Leo Gerard, president of the Steelworkers union...[they] represent about 6,000 hourly workers at paper mills in nine states operated by the three companies that joined in the complaint. The filings claim that imports of coated paper grew nearly 40% in the first six months of 2009 -- to 185,422 tons -- compared with the same period last year; shipments by domestic producers, at the same time, were estimated to have fallen by about 38%...

This isn't the first time the U.S. has wrangled with China over coated paper. In 2007, the Commerce Department slapped temporary tariffs on coated paper from China, Indonesia and South Korea, after U.S. producers made similar claims. The decision was later reversed by the International Trade Commission. Mark Suwyn, executive chairman of NewPage Corp., one of the paper companies that filed the petitions, said the trade conditions of 2007 have grown more severe. He estimated that three-quarters of coated-paper imports are from China, which has invested in factories capable of producing far more paper than the country can use.

The U.S. companies allege China is unfairly granting subsidies to its domestic paper producers in for the form of low-interest loans, tax subsidies and grants. Similarly, they allege that Indonesian paper companies are benefiting from government loans, as well as timber from government-owned land that is sold at below-market prices.
Also see the news release on the NewPage website excerpted below. The United Steelworkers blurb is worth reading too if it's a bit obvious. Rulings should come in fairly short order. What is interesting to me is that the complainants are invoking both anti-dumping (selling below market value) and countervailing duties (to offset government support). Talk about the kitchen sink:
Under the antidumping and countervailing duty statutes, the International Trade Commission is expected to make a preliminary injury determination in November 2009 and the Department of Commerce is expected to issue preliminary determinations in the countervailing duty and antidumping duty cases in December 2009 and March 2010, respectively.

The petitions estimate that total imports of covered coated paper have jumped from 131,687 short tons in the first six months of 2008 to 185,422 short tons in the first six months of 2009 -- an increase of nearly 40 percent. During the same period, covered coated paper shipments by domestic manufacturers are estimated to have declined by approximately 38 percent. China and Indonesia together are believed to account for nearly 30 percent of the U.S. market for the coated paper covered by the petitions in the first six months of this year, almost double the share they had at the same time last year.
Forbes correctly notes that these folks have been told to beg off before, so the onus of providing better evidence is on them in the new anti-dumping case. China Daily meanwhile is running a kumbaya-style article which fails to mention both the motion picture and coated paper disputes. While the potential sums involved in the movie case are far more than in the coated paper one, the latter shows how Obama's erstwhile organized labor allies are becoming more emboldened in seeking official redress. Don't be surprised to see more of the US president's supporters coming home to roost soon in a wide range of industries. After all, they're counting on the pied piper himself, "China Currency Coalition" Obama. Stand up to those PRC bullies.
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Deciphering China's Climate Change Strategery

♠ Posted by Emmanuel in ,, at 9/23/2009 08:50:00 AM
Nobody was particularly surprised when Hu Jintao, leader of the country which now holds the dubious distinction of being the world's largest carbon emitter, offered no concrete commitments while addressing the United Nations on climate change:
China plans a “notable” cutback in the level of carbon dioxide its industries emit as part of international efforts to combat climate change, Hu Jintao, Chinese president, told a UN climate summit on Tuesday.

Despite raised expectations ahead of the summit, Mr Hu put no specific target on the reduction – which would be based on cutting carbon dioxide emissions per unit of gross domestic product - but said the policy would figure in his country’s next five-year plan. “We will endeavour to cut carbon dioxide emissions per unit of GDP by a notable margin by 2020 from the 2005 level,” Mr Hu said.
It would be unfair to say that China doesn't care about climate change. At the same time, it is not giving any signals that it will be offering major concessions it can be held accountable to at the international level in terms of energy efficiency targets or the ever-contentious emissions caps. Like its fellow large LDC India, China would largely prefer it if it could go about improving this carbon emission business alone. Notably, a China Daily article reporting on Hu at the UN quotes a World Wildlife Fund (WWF) climate change representative saying Hu will give a specific number to "a notable margin" for the global public before the Copenhagen summit begins. It is an official publication's duty to make its overseers look good. Hopefully, it is also doubtful it would make suggestions that would make the leadership look bad if unfulfilled:
Yang Fuqiang, director of the global climate change solutions program at WWF, said China will intensify its domestic efforts to ensure it meets President Hu’s promise to cut carbon intensity by 2020. And Yang said the carbon intensity target is likely to be "quantified" before the Copenhagen climate summit. "To fulfill this commitment, the country will include the carbon intensity targets ... in its 12th and 13th Five-Year Plans (between 2010 and 2020)," said Yang.
Fortunately, there a number of documents that can help us with the task of determining China's climate change stance aside from public pronouncements such as Hu Jintao appearing before the UN. First is China's National Climate Change Programme by the National Development and Reform Commission (NDRC). This selfsame body has also put out a more recent primer on China's Position on the Copenhagen Climate Change Conference dated 20 May 2009. While I cannot say I am overjoyed with the PRC's overall stance, I must concede that it is cannily crafted. Aside from being superficially plausible despite its evasiveness, it also ties climate change to other issues China is seeking to make headway on. Without further ado:

I. Portraying itself as a climate change victim, not an aggressor - there are echoes of China washing away its guilt over the global economic crisis by underplaying imbalances and citing lax US regulation in the subprime debacle. Here, the Chinese continually bring up this notion of what I have called "historical justice" or "intergenerational justice" for lack of a better term. The NDRC report on p. 58 states: "Climate change, the impacts of which have been felt all over the world, was mainly caused by the massive emissions of CO2 and other greenhouse gases originated from developed countries since industrial revolution."

I have always viewed this argument with suspicion. Not only do we know better now about the hazards of uncontrolled carbon emissions, but we also have more efficient production technologies now. China's reasoning is akin to arguing for the continued use of child labor as developed countries did so in the past. There is little point for China to behave as if not much social or technological progress has occurred since the dawn of the Industrial Revolution. It is thus something of a non-sequitur for China to claim that its per capita carbon emissions are low compared to that of developed countries when the PRC approaching such figures would spell catastrophe. That is, there would be a lot fewer of us around to debate about climate change.

II. Hoping for technology transfer currently prohibited by "dual-use" concerns - the above discussion on technology brings us to a recurring favorite theme of China. The US has famously barred exports of technologies to China that it sees as being "dual-use" for both civilian and military purposes. In China's version of events, developed countries should not just drop these restrictions but provide developing countries with them for free or something close to it: "Developed countries providing measurable, reportable and verifiable technology, financing and capacity building support through technology transfer and financial mechanisms."

Accordingly, China is calling for a percentage of developed countries' GDPs to be devoted to technology transfer for pollution abatement. Given how little progress aid fundamentalists like Jeffrey Sachs have made on getting rich countries to loosen the purse strings, it is doubly unlikely that they would provide potentially sensitive technologies gratis and at a significant cost to them: "The developed country Parties shall make assessed contributions with a certain percentage of their annual GDP, e.g. 0.5-1%, to the above-mentioned Funds." These are unrealistic proposals, but more importantly, China knows they are unrealistic. Nevertheless, it is conceivable that China can wangle at least some concessions on technology transfer from starting with a purposefully outlandish demand.

III. Courting LDC support - in painting developed countries as the main contributors to global warming, the Chinese portray this as a North-South conflict wherein the former are answerable for a lot more than the latter. It is almost comical how night-and-day the differences are in the way China wants these countries to be treated. First comes a laundry list of obligations for developed countries:
Developed countries shall undertake measurable, reportable and verifiable legally-binding deeper quantified emission reduction commitments...Given their historical responsibility and development level and based on the principle of equality, developed countries shall reduce their GHG emissions in aggregate by at least 40% below their 1990 levels by 2020 and take corresponding policies, measures and actions.
Next come the LDCs who, like China, get away pretty much scot-free:
Nationally Appropriate Mitigation Actions (NAMAs) by developing countries shall be taken in the context of sustainable development and in line with the legitimate priority needs of developing countries for development and the eradication of poverty...

NAMAs by developing countries are distinct in nature from quantified emission reduction commitments by developed countries...NAMAs by developing countries are initiated by themselves, distinct from international legally-binding commitments of developed countries...NAMAs by developing countries are concrete mitigation policies, actions and projects, distinct from the quantified emission reduction commitments and targets by developed countries.
The Chinese have already begun decrying climate change penalties as protectionism; this is where the idea stems from as the PRC attempts to drum up sympathy from other LDCs.

IV. Killing off any multilaterally determined emissions limits for China - if true, China setting targets prior to Copenhagen for GDP per unit of energy use is welcome. Then again, the base from which China will set off from is very, very low. In a recent ADB report, it is even outdone on this measure by economic powerhouses Afghanistan and Pakistan. By disallowing others from giving input on China's climate change targets, it is more probable that cosmetic changes will occur rather than the more substantial ones we would like to come from the world's worst offender. Despite its many excuses, that is remains and will likely remain for a long, long time.
>>>>>>>>>>>>>>>>>>

I am quite interested in climate change since I generally like the idea of actual humans living on a habitable planet. It is notable that even China recognizes climate change is occurring, though you'd like to see something more in the way of concerted action with other countries. That said, climate change is an even more complicated multilateral issue than others this blog more commonly covers such as trade, migration, and finance. Not only are the payoffs not likely to occur in the near future, but there are also substantial costs to be incurred in the meantime if measurable progress it to be made.
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G-20: Differing US, China Rhetoric on Imbalances

♠ Posted by Emmanuel in , at 9/22/2009 11:38:00 AM
Watch what we do, not what we say - John N. Mitchell

The late John N. Mitchell, Richard Nixon's first attorney-general, said something that pretty much sums up how we should approach political pronouncements on contentious issues. Some statements are for dramatic effect to please domestic audiences; some are to appease international ones; some aim to deceive; and, of course, some actually bear some semblance to actual policy stances. Subsequently thrown in jail for his role in the Watergate scandal, few mistake Mitchell's lack of scruples for lack of ability.

And so we now have pronouncements from two of the lead protagonists in the saga of global economic imbalances. Up first is the United States with its unique excuse for its massive budget deficit which goes, "we need to run massive deficits now so we can resume economic growth sooner that will help keep get our financial house under control." Their president, "China Currency Coalition" Obama, is certainly making the right noises again in asking for global demand growth to come from elsewhere as he has in the past:
A document outlining the U.S. position ahead of the September 24-25 Group of 20 summit in Pittsburgh said exporters, which include China, Germany and Japan, should consume more, while debtors like the United States ought to boost savings. "The world will face anemic growth if adjustments in one part of the global economy are not matched by offsetting adjustments in other parts," said the document, which was obtained by Reuters on Monday.

The framework drafted by U.S. policy makers foresaw analysis of G20 members' economic policies by the International Monetary Fund to figure out if they were consistent with better balanced growth. "We call on our finance ministers to launch the new framework by November," the document said, signaling a determined effort to maintain momentum for change created by last year's global financial crisis.

The United States envisages the IMF playing a central role in a process of "mutual assessment" by making policy recommendations to the G20 every six months.
Therein lies the rub: the IMF is obligated to perform Article IV surveillance on each member country on a regular basis. Among other things, these meetings should help head off financial and monetary instability. However, these surveillance reports have often produced less-than-decisive commentary, especially with regard to China. As with other countries that aren't encountering balance-of-payments shortfalls and are instead running healthy surpluses, it's hard for the IMF to get traction on them. The last we heard from the IMF, there was serious infighting going on there as to what they should do with America's wishes to label China's currency "fundamentally misaligned" as it hasn't performed Article IV surveillance on China for the longest time. Aside from once again showing a Western bias, doing so could lead to a full-scale North-South punch out.

=================
China's position of global economic imbalances is precisely along these lines. For the PRC, addressing them are code words for bashing China's currency regime as well as its export-led growth. In other words, they will have no part of it:
China expressed scepticism on Thursday about a US and European push to launch an effort to tackle global economic imbalances at next week’s G20 summit in Pittsburgh. Zhou Wenzhong, China’s ambassador in Washington, said: “People should not focus on only one thing, that is balancing the economy.” The International Monetary Fund should concentrate on doing a better job of monitoring the build-up of financial risks...

While China is committed to shifting its growth model over time so it is less reliant on exports and more based on domestic demand, it is wary of a global push on imbalances, apparently due to fears it could become a way of bashing Beijing over its trade surplus.

Imbalances were “certainly not the root cause of the problem”, Mr Zhou said. “The root cause of the crisis is the lack of supervision and abuse of the openness of the market, very risky levels of leverage and too much speculation.” He said China wanted to see moves to improve global financial supervision, strengthen bank capital and create global early warning systems to identify threats. “China intends to play an active role in international efforts to revive the global economy but the responsibility for causing the crisis is not ours,” said a senior official in Beijing on Thursday.

China is likely to argue that it is already doing a substantial amount to rebalance its economy. Although imports and exports have both slumped this year, imports have fared less badly as a result of demand for commodities created by the government’s fiscal stimulus programme. China’s current account surplus, which reached nearly 10 per cent of gross domestic product last year, is forecast to fall to about 5 per cent of GDP this year.
In other words, "it's not our fault that you misspent the billions and billions we've lent you" for China. The PRC misses the point that all that borrowed money to fool around with had to come from somewhere first. Clearly, I am more on board with the US on this matter though it has a host of other agendas for promoting consumer demand in China such as offering retail banking services. Nothing wrong there, I think. Instead of funding ever-riskier ventures with massive leverage Stateside, why not help funnel massive Chinese savings into Chinese and not American consumption? As I've often said, both sides veer into wildly opposite directions with regard to market financialization. There are opportunities here if only both parties would recognize them.

And, solutions here will not likely involve the IMF--a highly controversial player LDCs do not usually consider as impartial.
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Does Russian Appeasement Include Joining WTO?

♠ Posted by Emmanuel in , at 9/20/2009 03:14:00 PM
The neoconservative set is up in arms over Barack Obama's decision to scrap a missile defense system that was to be put in place in Poland together with the Czech Republic. Emboldened by this decision, Russia Premier Vladimir Putin is asking for yet more concessions, this time on the trade front.

In a recent post, I covered the many about-faces Russia has done concerning its WTO accession in recent years. Things took an interesting turn with Putin proposing that Russia, Belarus, and Kazakhstan put in a joint bid for WTO membership as a customs inion--something that hasn't been done before. However, Russian Premier Dmitry Medvedev was apparently keener on Russia maintaining a unilateral bid and made little of the idea.

We now have a potentially unique situation in which there is a substantive difference of opinion between Putin and his political protege, often derided as a puppet. For, here Putin goes again bandying a tripartite accession process for his pals in Belarus and Kazakhstan--two central Asian republics that have kept relatively cordial relations with their erstwhile overseers in Moscow. In any event, Putin is taking Obama's goodwill gesture as one to be built upon by making way at the WTO table.

From our other favorite official news agency, RIA-Novosti:
Russia's prime minister said on Friday he expects the United States to back a joint bid by Russia, Belarus and Kazakhstan to join the WTO after its "brave" decision to scrap missile defense plans for Europe.

U.S. President Barack Obama announced on Thursday it was dropping plans to deploy elements of a missile shield in the Czech Republic and Poland as Iran is perceived a lesser threat.

Moscow, which fiercely opposed the plans as a security threat, welcomed the move as part of efforts to "reset" ties strained by a host of issues under the Bush administration. "I expect that this correct and brave decision will be followed by others, including the complete removal of all restrictions of high technology transfers to Russia and more active efforts to enlarge the World Trade Organization to include Russia, Kazakhstan and Belarus," Vladimir Putin said at an investment forum in the Black Sea city of Sochi.

Russia has for years been trying to have the United States lift Cold War-era restrictions on technology exports to the Soviet Union and other Communist-bloc countries. The restrictions have been a major irritant in relations with the United States.

Russia is also the world's only major economy still outside the WTO. President Dmitry Medvedev earlier blamed Washington for blocking its accession in the trade body. Ex-Soviet allies Russia, Belarus and Kazakhstan agreed in early June to form a customs bloc and seek joint accession to the WTO.
Is it more posturing or an actual wish that the Yanks will actually consider working towards? I may be mistaken but I really think it's more of the former as the other two countries haven't really shown much engagement with the idea being bandied by Putin. Plus, Russia itself has not really withdrawn its bid. It may even be a coordinated good cop (Putin), bad cop (Medvedev) routine to make Medvedev look better.
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USTR Begs Brazil's Mercy on WTO Cotton Sanctions

♠ Posted by Emmanuel in ,, at 9/18/2009 08:42:00 AM
After years and years of legal wrangling, we are finally getting to the point where the rubber meets the road. I've made a series of posts [1, 2, 3] practically spanning the existence of this blog describing how the United States' agricultural subsidies have made it (rightly) vulnerable to trade partners' complaints. Here we have case DS267. These have come in the form of export credit guarantees, marketing loans, and counter-cyclical payments (see this backgrounder if you're new to these terms). Brazil has for a while taken exception to these supports granted to US farmers, something which still bedevils the completion of the long-running Doha Development Agenda. The pattern went like this: Brazil sued over these subsidies at the WTO, subsequently won, was then faced with US appeals that it was complying, and lastly the US was still found to be in violation.

What is notable here is how Brazil has been cleared to use cross-retaliation given that it was not practicable to apply offsetting sanctions of US agricultural products. Brazil originally requested that about $2.5 billion of US exports be subject to cross-retaliation, although the WTO has allowed a lesser amount of $800 million. Still, what is in question are arguably the creme de la creme of US export wares in our IP conscious age--information technology and pharmaceutical products--stuff that make up a considerable part of America's "competitive advantage" broadly construed. These include products whose patents have been in the crosshairs of LDCs for understandable reasons. Here's a recent WSJ write-up after Brazil was entitled to use cross-retaliation on Sept. 1:
...the ruling opened an important door to retaliatory measures that, under certain circumstances, could punish American pharmaceuticals companies and other owners of intellectual property.

The WTO panel said Brazil could target other American goods for retaliation if U.S. cotton supports rise significantly beyond current levels for its 25,000 farmers. Brazil, which has a robust pharmaceuticals and generic-drug industry, has targeted patented U.S. drugs for potential retaliation. That means the country could allow domestic drug makers to manufacture copies of U.S. pharmaceuticals that are still under patent protection.

The issue of "cross retaliation" in global trade disputes is contentious. Many smaller countries need U.S. capital goods in order to grow, leaving them without effective tools to fight back with when the WTO finds that U.S. trade policy has injured the smaller nations.

The WTO cotton ruling for Brazil is, therefore, "the big banana in terms of smaller countries having effective means of retaliation," said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics in Washington. "This will cause the intellectual-property community a few shakes and quivers"...Some experts said the possibility of retaliating against the U.S. by flouting U.S. patents on medicines, films and other intellectual property gives Brazil an important new weapon.
Hit 'em where it hurts is the operating principle here. For, not only is the offending agricultural lobby but also the IT and pharma sectors. In classic divide and conquer fashion, LDCs can use cross-retaliation to leverage other US interests to basically act on their behalf since they too have sizable lobbying machineries. From the ICTSD:
By lifting patent and trademark protection on pharmaceutical products and software - rather than simply raising tariffs on imported goods - Brazil could spur US domestic interests to pressure Washington to comply with the original ruling.

Cross-retaliation under TRIPS can be a very powerful tool, especially for developing countries, as it does not trigger some of the adverse effects such as increased consumer prices caused by higher tariffs or greater costs for domestic producers who may be obliged to switch to other suppliers. Such retaliatory measures allow smaller WTO member states to create pressure against economically powerful trading partners that would most likely be unharmed by the suspension of concessions in goods alone. Brazil constitutes a relatively small market for the US, accounting for less than three percent of total US exports.

Based on the recent reports, Brazil might set a precedent for the suspension of IPRs. Cross-retaliation under TRIPS has been authorised in only two previous cases: Ecuador was granted permission to do so in a dispute with the EU over banana tariffs, and Antigua was allowed to do the same in a dispute with the US over its internet gambling laws. However the developing country complainants in both instances have not imposed such retaliation measures, despite strong urging from some of their domestic interests. Thus, the current case could be a crucial test of how cross-retaliation in IP could work in practice...

Brazil’s Foreign Minister Celso Amorim said that Brazil would carefully examine how to impose the maximum leverage with its sanctions. “We’ll be having meetings all along next week and hopefully in ten, 15 days we can have a list,” he told Reuters. ”We are going to choose the sectors that least affect us and most affect the US,”[my emphasis] Amorim added, according to the Estado news agency.
The USTR spokesperson had the following to say in anticipation of Brazil hitting back:
"While we remain disappointed with the outcome of this dispute, we are pleased that the Arbitrators awarded Brazil far below the amount of countermeasures it asked for. In its first requests for countermeasures in the Cotton dispute, Brazil asked for more than $4 billion in annual countermeasures. During the arbitration proceedings, Brazil argued for more than $2 billion annually. Further, we are grateful that the Arbitrators denied Brazil's request for unlimited ability to suspend concessions on intellectual property or services. And we are pleased that the Arbitrators denied Brazil's request for an additional one-time $350 million in countermeasures in connection with the repealed Step 2 payment program for cotton.

"At this time, we do not know when or if Brazil will move to obtain final authorization to suspend concessions or when or if Brazil would act on any such authorization. The [Obama] Administration will be actively consulting within the U.S. Government and with stakeholders on how to move forward."
As a last ditch effort, US Trade Representative Ron ("Cap'n") Kirk is in Brazil begging for mercy as the title of this post suggests. The important thing to remember is that Brazil hasn't announced which American exports will be subject to cross-retaliation yet. You can bet your bottom dollar that Kirk is keen on meeting up with the boys from Brazil to suggest which ones not to cross-retaliate against such as via the suspension of drug patents. (The course I'd think inflicts maximum US damage while limiting that to Brasilia as it develops its homegrown generic-making industry; we'll wait and see.) From Agence-France Presse:
The top US trade official urged Brazil Wednesday to go easy on up to 800 million dollars in trade reprisals it can impose on the United States under a WTO ruling on US cotton subsidies. US Trade Representative Ron Kirk, speaking to Brazilian businessmen ahead of a meeting on Thursday with Brazilian Foreign Minister Celso Amorim, said he hoped Brazil's permitted retaliation would be "deliberate and thoughtful."

The top US trade official urged Brazil Wednesday to go easy on up to 800 million dollars in trade reprisals it can impose on the United States under a WTO ruling on US cotton subsidies. US Trade Representative Ron Kirk, speaking to Brazilian businessmen ahead of a meeting on Thursday with Brazilian Foreign Minister Celso Amorim, said he hoped Brazil's permitted retaliation would be "deliberate and thoughtful."

He declined to go into detail about his talks with Amorim, saying he did not want to "constrain" the discussions. "I don't want to prejudge anything," he said. Brazil has yet to announce what US products, services and intellectual properties it will hit under the authorization from the World Trade Organization delivered August 31.
Charm offensive and all, this story is not yet over. Aside from the determination of sectors for cross-retaliation, the 2008 US farm bill still has healthy supports LDCs may find objectionable, leaving possible room for further action on US agriculture. As for the Doha Round, I somehow don't think this continuing row bodes well. Rest assured that there are many unhappy campers with US trade policy the world over.
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