International Political Economy Zone

Finally, an Answer for "Who Speaks for Europe"?

♠ Posted by Emmanuel in Europe,Security at 7/12/2010 12:01:00 AM

Her ad lib lines were well-rehearsed
But my heart cried out for you

About two months ago, Baroness Catherine Ashton, Baroness of Upholland, came to speak here at the LSE on "Economics and Politics post-Lisbon." I must sheepishly admit to dubbing her the "EuroPalin" after replacing the much-vaunted Peter Mandelson as EU trade commissioner after he was recalled home to shore up support during Gordon Brown's dying days as prime minister. Whereas Mandelson and Brown certainly need no introduction on the world stage as the architects of New Labour [RIP], Ashton was largely unknown outside of Labour ranks. Hence my initial reaction of a lady being picked from obscurity and with little experience for her role alike the aforementioned Palin.

Nearly two years have passed since she replaced Mandelson at the EU. In the meantime, she has also become the very first High Representative of the European Union for Foreign Affairs and Security Policy. In the post-Lisbon scheme of things, she is second only to Herman von Rompuy who is President of the European Council. Still, I cannot honestly say that she's left her mark as either the trade commissioner or, subsequently, the foreign affairs chief.

Perhaps it's Eurosclerosis still at work since her office is very new and she has yet to find her wings. There's also the considerable financial turmoil that's roiled the EU--much ado about nothing, I believe--leaving matters unsettled. However, it's with some interest that I note Ashton is a pretty good public speaker. Alike with the Rod Stewart lyrics quoted above, I must admit she comes across well despite deploying what are by now well-worn lines about herself and her job. I should know--she used them in her LSE presentation, and also in this latest "Lunch with the FT" entry.

My favourite is the question of whether she can finally speak for the entire Europe as per former US Secretary of State Henry Kissinger asking, "Who speaks for Europe?" Apparently, things are not quite yet as clear cut as she jokingly notes...

Expectations, she says wryly, are what she would change about the job, which was created more than eight years ago when the EU’s member states were high on prosperity and keen to tackle the long-term confusions and failures of EU foreign and security policy. They wanted a heavyweight figurehead, backed by a strong diplomatic corps, so that the EU, an economic superpower expanded to 27 nations, could speak with a coherent and unified voice. The question supposedly asked by US secretary of state Henry Kissinger, “If I want to speak to Europe, who do I call?” would finally be answered with a single name and number...

This easy break into humour proves typical of Ashton’s informal manner. Her own favourite joke about the Kissinger question is meant to hammer home a warning. She says the Americans do now have a number to call for Europe, but that they will hear Ashton’s voice (a soft Lancashire accent) asking them to “press one for the French position, two for the German position, three for the UK, etc.” She is at the beginning of a process of creating an effective voice for Europe, she explains, and that will take time to achieve. “For now we are building the foundations.”

I suppose it's only fair--she's still pretty new to the job, having just taken it near the end of last year. I also like this one about her response to being named a baroness:

As she points out herself, Ashton’s main problem in her current role is that she does not meet people’s preconceptions of a foreign affairs supremo. She likens it to a film audience’s shock at seeing an unconventional actor cast as their favourite character in a novel. High representative is a grand role but grandeur is not her style – she also plays down her peerage, quoting how one of her daughters had once explained to a teacher that her mother’s title meant “something between a politician and a princess”.

Also note her perception that China does want a single European voice representing the EU-27 to talk to as well as the EU's more impartial stance in Palestine. Indeed, she even hints at--who would've guessed--international political economy in the process:

So, I ask, did the EU really miss out when it didn’t have one person and one institution to talk to? “China particularly has made it clear to me that they are keen on having an interlocutor that is European with whom they can talk about things that affect all 27 countries. I have been at great pains to say it is not instead of bilateral relationships, but there are things that we do together where we are stronger, and the obvious example is trade.” She is proud of being one of the first politicians allowed into Gaza since the building of the wall, and frank that the “clout” she enjoys there is because of €1bn in aid spent in the Palestinian territories. “I call this job, ‘Where politics meets economics’, and it’s important that we bring the two together,” she says.

A person ends up in a position to do great things often not by accident but by making their own luck. For Europe, I certainly hope her affable character can be used to create recognizable and coherent EU foreign policy.

Can World Cup Victory Save Spain from Recession?

♠ Posted by Emmanuel in Europe,Sports at 7/09/2010 12:33:00 AM

Okay, I'll bite: journalists often have novelty articles right about this time about how the World Cup spurs the economic performance of victorious countries. Nowhere does there appear more of a need of such a victory than the two finalists, the Netherlands and Spain. The Netherlands has won every match it's played in the tournament so far. Meanwhile, I honestly believed Spain were going through after "Paul the Psychic Octopus"--who correctly predicted all German fixtures coming into the semifinal match against Spain--decided in the favour of the Iberians. (Some disgruntled Germans are calling for Paul to be barbecued in public! Talk about shooting the messenger.) And, it must be said, the Spanish side did a lot to keep possession away from the explosive young German team.

At any rate, Bloomberg has a timely piece on what that slight economic boost may mean. Spain has one of the highest unemployment rates in the developed world, hovering at 20%. Meanwhile, the Dutch are still on the ropes after rounds of bailouts for troubled financial firms (yawn) in recent years. Who wins, who loses? The economic fate of the two protagonists may hinge on the result; a 0.25% boost seems to be conventional wisdom among the economist class. How they arrive at such a figure I'd like to know. In particular, the hope is that Dutch consumers won't be "going Dutch" in the event of victory...

The real winner after this weekend’s World Cup final may be the economy of the champion, as either Spain or the Netherlands will get a boost from victory in the world’s most-watched soccer match, economists say. Triumph in the final at Johannesburg’s Soccer City on July 11 could add as much as 0.25 percentage point to annual economic growth for the winning team’s country from increased consumer spending, according to ABN Amro Bank NV [one of the big bailout beneficiaries, it must be noted] economist Hein Schotsman in Amsterdam. For Spain, that could mean expansion this year instead of a projected contraction.

The all-European final is giving people something to cheer about in the middle of the sovereign-debt crisis that’s rocking the continent. Both the finalists could use it. The Dutch, still wrestling with the bailouts of the nation’s biggest financial- services companies, saw their government fall in February, while one in five Spaniards is out of work, the highest jobless rate in Europe...

Neither country has won the quadrennial tournament before, and both already are benefiting from increased exposure internationally. Spain is making its first appearance in a World Cup final after beating three-time champion Germany in their semi-final on July 7. The Dutch have been runner-up twice, the last time in 1978 against Argentina. “We should be proud, such a small country!” coach Bert van Marwijk told Dutch television NOS after his team won their semi-final by beating Uruguay.

A World Cup victory may boost Dutch consumer spending this year by 700 million euros ($887 million), or 0.25 percent, said Charles Kalshoven, an economist at ING Groep NV in Amsterdam. “The economic recovery still leans on restocking and exports, with domestic demand lagging, so increased consumer spending would be very welcome now,” Kalshoven said.

The Dutch economy, the fifth-largest in the euro zone, is set to expand 1.25 percent this year, the government forecasts, while Spain, whose gross domestic product is twice as big, projects a 0.3 percent contraction. The European Union in May estimated Spanish GDP will fall 0.4 percent this year, while the Netherlands will see 1.3 percent growth.

Italy’s triumph over France in the 2006 World Cup led ABN Amro to raise its forecast for growth in the Italian economy that year by 0.2 percentage point to 1.7 percent, saying “happier consumers spend more.” In the end, GDP expanded 2 percent in 2006, a six-year high, according to EU data. [So there is some recent precedent behind these calls in Europe.]

“Dutch consumers, traditionally conservative spenders, will become euphoric if the country wins the World Cup, boosting economic growth as they step up spending,” said Schotsman. On the other hand, “Spain could prevent full-year economic contraction by winning,” said Schotsman, the author of an April report titled “Soccernomics 2010” that predicted a Spanish triumph this year...

Spanish Industry Minister Miguel Sebastian said economists may raise their GDP forecasts for his country if its soccer team triumphs. Victory would improve Spain’s image internationally and boost the prospects for domestic spending, he said yesterday, according to Efe newswire.

Companies already are benefiting. Madrid-based broadcaster Gestevision Telecinco SA, which holds the Spanish rights to the main World Cup games, climbed 5.4 percent yesterday after Spain secured its place in the final. Holland Screen Video, based in Roosendaal, the Netherlands, yesterday rented out the last of its 12 big screens for 21,000 euros. The 84-square-meter display is headed to Barcelona where as many as 40,000 fans will be able to watch the game on it. “The boom came after the semi-final against Uruguay,” said Holland Screen Director Marcel Jooren.

Amsterdam-based Heineken NV, the biggest Dutch brewer by volume, said yesterday that “the World Cup success and the beautiful weather in the Netherlands” are lifting beer sales. Bavaria NV, the Netherlands’ second-largest brewer, won attention from a widely reported row with World Cup organizers over fans wearing orange dresses, which are distributed free with its beer, during the Netherlands’ game against Denmark on June 14. Orange is the official color of the Dutch team.

To my mind, both these teams represent the good guys. Having never won the World Cup, it will be nice to have a new champion. With Spain on the knife's edge between slim growth, no growth, and negative GDP, a win should certainly benefit the nation's psyche. However, I also feel for the Netherlands making it to the finals in 1974 and 1978 only to be defeated by respective hosts Germany and Argentina. Let's watch and see!

11/7 UPDATE: Congratulations are due to Spain for winning the World Cup finals in extra time. I suppose congratulations are also due to Paul the Psychic Octopus who had a perfect record predicting the winner of all 2010 World Cup fixtures involving Germany as well as the finals. Now, let's see if a victory does indeed power the Spanish economy forward. I certainly am pulling for them!

China-Taiwan Free Trade Deal in Regional Context

♠ Posted by Emmanuel in China,Southeast Asia,Trade at 7/08/2010 12:38:00 AM

Given all the bilateral deals being signed in Southeast Asia as well as a plethora of free-trade agreements on the drawing board, you'd be forgiven for asking, "But what about Taiwan?" The main intuition is that the rest of us in Asia are not eager to cross China given its growing influence in the region. Thus, most other East and Southeast Asian nations have been wary of even contemplating trade deals with Taiwan as doing so will offend the PRC (the big dog). Remember that the mainland treats Taiwan as a (renegade) province and not a country in its own right.

Thus, balancing commercial interests with political ones has been a tricky act for the rest. While the relationship of China with Taiwan remains unsettled, there are spillover effects to the rest of the region. A few months ago, Taiwan expressed alarm with all the preferential agreements being signed. The Taiwanese do fear that they will eventually lose out as all other nations in the region grant each other lower tariffs--but not Taiwan--to appease China. From Taiwan's official Central News Agency:

Taiwan is pushing for bilateral free trade agreements with individual Association of Southeast Asian Nations (ASEAN) members as a more feasible way for the country to participate in regional economic integration, a Ministry of Foreign Affairs (MOFA) official said Tuesday.

Because Taiwan is neither an ASEAN dialogue or development partner, it will be more difficult for the country to forge a free trade pact with the association as a whole than taking a bilateral approach, said Frances Lee, deputy director-general of MOFA's Department of East Asian and Pacific Affairs, in a press briefing.

With ASEAN countries looking to set up a free trade zone with China, Japan and South Korea as early as 2010, Taiwan is afraid of being economically marginalized in the region. If it is left behind in the integration process, its goods sold to countries in the region will face higher duties than those offered by its main competitors.

Taiwan is currently focusing its efforts on negotiating with ASEAN countries that have greater trade ties with Taiwan, including Singapore, Malaysia and Thailand, as bilateral free trade deals with those countries would be mutually beneficial, Lee said. Taiwan may also try to work out special arrangements with individual ASEAN nations to lower tariffs in specific industries, which would have a similar impact as a free trade deal, she said.

Lee stressed that Taiwan already has close economic ties with ASEAN states, as overall trade with the association's 10 members totaled US$63 billion last year. Taiwan is also among the top three sources of foreign investment in Thailand, Malaysia, Vietnam and Cambodia.

However, do note that China and Taiwan have recently agreed to an Economic Cooperation Framework Agreement (ECFA) that may partly help alleviate Taiwanese isolation. It is similar to agreements China already has in place with Hong Kong and Macau. Xinhua provides a backgrounder of what this free trade deal involves:

The Chinese mainland, the world's third largest economy, has been Taiwan's largest trading partner and export market since 2007, according to statistics released by both sides. Taiwan has been the sixth largest trading partner of the mainland, with an accumulated cross-Strait trading volume reaching 960 billion U.S. dollars by the end of 2009. The agreement also provides protection for cross-Strait investments to boost two-way capital flows.

A list of items and services to benefit from the pact first with preferential duty cuts and treatment, dubbed the "early harvest program," was agreed on by both sides. The "early harvest program" will launch within six months of the ECFA taking effect, the agreement said. The two sides will reach their zero-tariff goal on commodities as outlined in the "early harvest program" within two years after implementation of the program.

Under the agreement, the two sides will continue discussing agreements for commodity trade, service trade and investment for six months after the ECFA takes effect. Further discussions on commodity trade agreement will include: tariff reduction and removal; rules of origin; customs procedures; and trade remedies.

Discussions on service trade agreement will focus on cutting and removing restrictive measures gradually, enlarging the service sectors covered, and enhancing cross-Strait cooperation. Meanwhile, discussions concerning cross-Strait investment aim to establish an investment protection mechanism, enhance transparency of relevant regulations, reduce restrictions on investment, and facilitate unhindered investment.

Meanwhile, here is The Economist on what it may spell for the political economy in the region:

The ECFA is indeed a welcome development, though it guarantees neither peace nor China’s ultimate goal, the “reunification” of Taiwan with the mainland. It should be taken for what it is: a trade deal that should help Taiwan both economically and politically...[T]here are still at least three good reasons why Taiwan (and the West) should welcome the deal.

First, it is, as befits a sop to public opinion, a good one for Taiwan’s export-oriented economy. It not only opens up the Chinese market further; it also reduces the risk that Taiwan, the world’s 17th-biggest exporter, will be left isolated, by the “noodle-bowl” of bilateral trade agreements, in which its regional competitors are entangling their economies.

Second, its impact on Taiwan’s domestic politics will be limited. [S]ince a declaration of independence might provoke a Chinese invasion, the vast majority would like to prolong Taiwan’s current, peculiar status of de facto independence. Politics in Taiwan looks like a battle between pro-independence and pro-unification camps. In fact it is about how best to preserve the status quo.

Since the alternative might mean a war, possibly even with America, Chinese moderates also have an interest in that status quo. That is the third advantage of the ECFA. In China it can be used to show hardliners that, slowly, progress is being made towards unification.

So the Economist believes the most important aspect of ECFA is political in making the chances of a China-Taiwan military conflict less likely. Returning to the realm of purer political economy, however, you do have to wonder if Taiwan will have more room to manoeuvre in terms of striking trade deals, either in conjunction with China or on its own with ASEAN members and the like. That is, has ECFA affected the dynamics of China effectively freezing Taiwan out of the system of bilateral deals emerging in the region, or will other countries perceive more room to make a deal with Taiwan?

The opposition, pro-independence Democratic Progressive Party (DPP) already points out the answer may be in the negative, but it may just be positioning:

The DPP gained some ammunition in early June when a Chinese spokesman gave a seemingly negative response to [Taiwanese President Ma Ying-jeou's] oft-stated hope that the ECFA might encourage other countries to sign FTAs with Taiwan. They [Taiwan] have hitherto held back so as not to upset China. The Chinese spokesman’s remarks, though not explicitly ruling out such FTAs, drew a rare rebuke from Mr Ma’s government.

With $63 billion worth of Taiwan-ASEAN trade under consideration, it will be interesting to watch!

Just Shoot It: Cambodia's Military-Business Tie-Ins

♠ Posted by Emmanuel in CSR,Security,Southeast Asia at 7/07/2010 12:49:00 AM

This may be the most ingenious or noxious thing you've ever heard--or even both at the same time. Coming from Southeast Asia, I get to study all sorts of unusual goings-on that would shock the rest of the world. However, I must admit that this incident takes the cake if you think in terms of "conflicts of interest" and "principal-agent problems" (to say the least).

Through the initiative of Prime Minister Hun Sen, the Cambodian military is exploring the use of corporate sponsorship of the armed forces [!] as a means of raising revenue. As you might expect, this is raising all sorts of issues about the military serving public, not private interests. From TIME:

At the end of February, Cambodian Prime Minister Hun Sen kicked off a program creating partnerships in which businesses would provide donations for particular units of the Royal Cambodian Armed Forces. The government has framed the initiative, which involves some 60 pairings, as facilitating the magnanimous inclination of corporations operating in Cambodia to support the welfare of the country's troops. Observers, however, caution that the program will ultimately serve to further enmesh the country's powerbrokers — political, military and business — into a network to serve their mutual interests and ensure everyone's allegiance to the ruling party.

The Cambodian military regularly guards large-scale private land concessions across the country, according to rights groups, and has been used to evict the rural poor for business developments. Hun Sen's new policy, says U.S.-based watchdog group Global Witness, is a step toward formalizing that process. "Global Witness has documented links between Cambodia's military and powerful business tycoons for many years now, so the relationships are not new," says Eleanor Nichol, a campaigner with the group, which was expelled from Cambodia in 2007 after publishing a report, fervently refuted by the government, that linked prominent officials in the government, military and business community with the illegal logging trade. "This latest move ... to officially sanction these partnerships is particularly shocking because it legitimizes a guns-for-hire scenario."

The government and companies participating in the new patronage program reject claims that the partnerships could lead to improprieties. Ly Yong Phat says his involvement in the program is to compensate for the military's lack of funding for troops' basic needs. Corporate support, according to a government memo, will "solve the dire situation of the armed forces, police, military police and their families through a culture of sharing." The government has responded to criticisms by specifying that donations would likely come in the form of food and shelter.

If this ain't the mother of corporate social responsibility issues, I don't know what is. Nike, eat your heart out. It's the return to the shilling fields.

Thank Serbia for Its Best Export: Football Coaches

♠ Posted by Emmanuel in Africa,Migration,Sports at 7/06/2010 01:39:00 AM

With apologies to ABBA:

I'm nothing special, in fact I'm a bit of a Bora
If I show a formation, you've probably seen it before
But I have a talent; a wonderful thing
Cause everyone listens when I start coaching
I'm so grateful and proud
All I want is to manage it now...

It is with great sadness that we must lament the ouster of the brave Ghanian team at the hands of Uruguay under dubious circumstances. In the closing minutes of the game, the latter's scoring machine Luis Suarez who tallied 35 goals in 33 matches [!] for Dutch powerhouse Ajax handballed a surefire goal by Ghana. While rightly red carded, the subsequent missed penalty by Asamoah Gyan that hit the crossbar eventually set the stage for Uruguay triumphing on penalties. Such gamesmanship is unbecoming despite the favourable result, no?

Somewhat overlooked, however, was the role played by Ghana's Serbian coach Milovan Rajevac. When it comes to coaches plying their trade internationally, few compare to the Serbians' drive for adventure. There is something innately curious at work here, so much so that I must say Serbia's best-known exports are football coaches. Some greats ply their trade mostly at home like Ljupko Petrovic who led then-Yugoslavian side Red Star Belgrade to victory in the European Cup--today's Champion's League--in 1991.

However, there is a peripatetic legend who stands above them all: Bora Milutinovic. Our man Bora is justly famous for his international exploits. Together with the Brazilian Carlos Alberto Parreira, he is one of only two persons to coach five different teams at the World Cup: Mexico (1986), Costa Rica (1990), the United States (1994), Nigeria (1998), and China (2002). While he can't boast of winning a title like Parreira did in 1994 with Brazil, nobody has equalled his record of taking four different national sides past the group stage until he was unable to do so with China in 2006.

Now, some African players have expressed caution over the continued influx of Serbian coaches as they have made their way to Africa alike other parts of the world. A few months ago, this story made waves in the sporting media:

Rwandan star striker Jimmy Gatete has challenged the Tanzania Football Federation (TFF) to be careful in appointing the national team Taifa Stars coach and he expressed his reservations against Serbian tacticians. He said the TFF must avoid Serbian coaches at all coast for what he said they are not good enough.

Paradoxically, Gatete who features for St. George of Ethiopia is under the Serbian coach Milutin Sredojevic Micho. "I'm telling you this from experience. Serbian coaches are not good, they talk a lot but they hardly deliver," he said. "Tanzania should not hire coaches from Serbia. They are noise makers. They are not good enough; they do not live to their billing," he said.

Yes, whatever. Speak for yourself, pal. It turns out that Ghana's coach Milovan Rajevac--who led Ghana to victory over Serbia in the World Cup if you remember--worked under Bora himself prior to striking out on his own. What's more, he's taken some time to win over Ghanians, and, indeed the whole of Africa. Although Ghana was the youngest side in the competition, (Germany is second youngest--there's a lesson here), they almost made their way to the semis but for some crafty foul play. Here is the key bit from his FIFA profile:

Qualifying two unheralded Serbian clubs, FC Vojvodina and FK Borak, to the UEFA Cup were the achievements that earned him the notoriety to seek a national team job and when Ghana were looking for a replacement for Claude le Roy before the start of the 2010 FIFA World Cup qualifying campaign, Rajevac proved their choice, even though the public had never heard of him before and were somewhat sceptical. Rajevac signed a two-year contract and immediately set about taking the Black Stars to their second successive FIFA World Cup finals appearance. Ghana had some tough games in their first round group [of qualifying] but were surprisingly ruthless against much tougher opposition in their final group phase, thereby enhancing the reputation of the 56-year-old coach.

It is only fair to infer two things. First, Serbian coaches are pretty damn good at cross-cultural communication to be able to work in so many international contexts. Second, they obviously know a thing or two about coaching the sport. Unsurprisingly, previously obscure Coach Rajevac is now hot property after taking Ghana so far in the competition when much more fancied African sides fell by the wayside and did not even make it past the group stage. Remember, too, that Ghana didn't even have the talent of Michael Essien to call upon this time around and was bested by mighty Germany by only a goal.

Remember too that Ghana's 2006 squad was coached by another Serbian, Ratomir Dujkovic. Yes he had stars playing in top European competition like Sammy Kuffour, Stephen Appiah, and Michael Essien, but it takes some talent to make them gel with their countrymen. Ask France or Italy, for instance. That 2006 squad made it past the group stage, too, but Rajevac did them one better. To me, it's these stories of previously obscure talent unbeknownst to most fans making the most of their opportunities on the biggest stage that make the World Cup something special.

Before ending, then, here's a salute to Serbia for its best export--football coaches. Teaching the game across the globe, their work exemplifies cross-cultural communication at its finest. To paraphrase ABBA...

So I say thank you for Milutinovic
The plays they're making
Thanks for all the goals they're bringing
Who can live without them?
I ask in all honesty
What'd football be?
Without a free kick or penalty?
So I say thank you for Milutinovic
For bringing football to TV!

It's Easy to Explain Italy's Early World Cup Exit

♠ Posted by Emmanuel in Europe,Sports at 7/06/2010 01:03:00 AM

I again forgot to write about this immediately after it happened: In a somewhat lengthy post I made sometime ago, I mentioned that Italy's reluctance or inability to stock its top club sides with domestic talent was a liability. Aside from the commonsense one of Italian club champions (and indeed, of Europe) Inter Milan having no Italian starters and thus violating the notion of truth in advertising, there's also the matter of arrested player development.

And so it has come to pass: the squad Marcello Lippi took to South Africa for a slaughter had, get this, zero players from "Italian" champions Inter Milan. (Not even Marco Materazzi to rile his opponents into headbutting him to get them sent off--but to be honest, he wasn't even starting for Inter anymore.) Meanwhile, only one came from second place finisher AS Roma, midfielder Daniele De Rossi. Italy, then, represents the counterexample to Germany which fields the best young players in many of its top teams to further nurture their talents. Many, of course, are now shining with the Mannschaft as the most dominant side so far in World Cup 2010.

There is a large difference between funnelling top players regardless of their heritage into the national team and stocking top club sides with foreign guns for hire who block the participation of promising young players wishing to gain experience at the top level.

Many commentators liken freedom of movement for footballers as a migration matter on par with free trade. However, my argument is that football is sui generis for (a) nations have their distinct styles of play; (b) clubs claim to represent the nations in whose leagues they compete; and (c) the national team is an important part of football that partially lessens the commercially ordained inequities of sport, thus garnering fan interest at local and international levels.

There are certainly Italian efforts to improve player performance by applying systematic evaluation like Milan Lab which is maintained by AC Milan, but it is a far cry from Germany investing in youth leagues throughout the nation and not just one major city to eventually funnel top talent into the Bundesliga and also the national team. Should Italy wish to remedy the malaise it now finds itself in, Germany's example looks like a good place to start.

Like England, Italy's penchant for relying too much on foreign players has caught up with it. At the end of the day, it is less expensive and more equitable to cultivate your own players than to hire them away after they've demonstrated their worth elsewhere. If more countries had followed the example of canny Germany instead of the dissipated United States, you would think this world would be in much better shape, whether in football or economics.

Whatever Happened to the US-Korea FTA?

♠ Posted by Emmanuel in Trade at 7/05/2010 12:02:00 AM

I almost forgot about this one. As you probably know, any number of bilateral free trade agreements have been held up under the Obama administration that were in various stages of completion during the second term of his predecessor. Bad economic times have soured the people's representatives on passing such agreements in fear that they may be perceived as "exporting US jobs" or suchlike neo-protectionist sentiments. Although the Democrats have tried to improve their populist credentials by saying labour and environmental standards will be considered with new trade deals, no one is quite sure of whether such standards merely represent backdoor protectionism.

In addition to pending FTAs with Colombia and Peru, the United States has another with South Korea under the wraps. Early last year, Korean legislators thought it contentious enough to engage in fisticuffs over. However, the Obama administration entering office has seen a cooling down period on both sides. Now, though, the Obamanites indicate that they want to move on KORUSFTA (Korea-US Free Trade Agreement) before November when the G20 meets in Seoul, South Korea. Remember, South Korea is the current chair of the G20. However, it remains to be seen how contentious issues can be resolved without renegotiating the pact:

The US said at the weekend it will seek to complete a long-stalled trade deal with South Korea...The White House said the revised pact would be agreed before the next G20 meeting, in South Korea in November, and submitted to Congress in the following months. The drive to revise and ratify the Korea "free trade agreement" has faced determined opposition in Seoul and within Barack Obama's Democratic party in Congress.

The US insisted the move would not involve renegotiating the draft agreement, which was finalised in 2007 during the administration of George W. Bush. The pact has languished amid complaints from US beef and vehicle producers that they are kept out of the Korean market, and a suspicion of trade deals among congressional Democrats.

But officials could not say how they would resolve the outstanding issues without reopening the pact. Renegotiation would be strongly opposed in South Korea and could jeopardise the White House's ability to push the deal through Congress using so-called "trade promotion authority".

Sander Levin, chairman of the House of Representatives ways and means committee and congressman from the carmaking state of Michigan, gave the announcement a highly qualified welcome. "Congress expects to be consulted actively in these negotiations, and the date targeted by Mr Obama can be met only if the outstanding issues are fully addressed with enforceable commitments," he said.

Among those keen on completing KORUSFTA are delivery giant the United Parcel Service, which sees opportunities plying more of its services between the two countries:

UPS applauded the Obama administration for its move to re-engage with the government of South Korea to overcome remaining obstacles and finalize a bilateral free trade agreement. The administration announced over the weekend that it had made new progress on the free trade pact and that it had agreed with Seoul to finalize outstanding issues by November. The President is attempting to end a three-year impasse on a trade agreement reached with Korea in 2007 as another step in his initiative to double American exports over the next five years.

"South Korea has the 14th largest economy in the world and the increase in trade that will come from this agreement means more jobs and more global competitiveness for the two countries," said Scott Davis, chairman and CEO of UPS. "South Korea is our seventh largest trading partner and we need to protect and expand that relationship."

However, the US automotive industry (or better yet, what's left of it) remains cautious. FoMoCo says KORUSFTA ought to be renegotiated given its unfairness to American automakers. You've got to hand it to these guys for cheek. If you will recall, Japan was the target throughout the 80s and 90s of complaints that very few US-made cars were sold there. However, the problems with American cars were that--in addition to being left-hand drive--they were too big, too thirsty, and let's face it, too poorly made to be competitive. So many years on and you can't exactly say that American automakers have addressed these concerns as they have all had near-death experiences on their home turf. If you can't even sell these clunkers in America, what more abroad? But I digress. Maybe Koreans can love monster SUVs as an acquired taste...

Ford Motor Co. today praised the White House's decision to work toward improving U.S. automakers' access to the South Korean market. "Ford Motor Co. looks forward to working with the administration and Congress on an agreement that provides meaningful market access for our manufacturers, that shows rapid growth of American-made automobiles sold in Korea, and that is enforceable," Ford said in a statement.

The Dearborn automaker said it is "pleased that the Obama administration has committed to negotiate improved auto provisions to ensure that the U.S.-Korea trade agreement will actually help open one of the most closed markets in the world to automotive imports."

Ford said the South Korean government "has a long history of actively intervening in the market to exclude imports. "A well-negotiated U.S.-Korea Free Trade agreement," it said, "represents the last, best chance to open the Korean market to imported automobiles." Most U.S. automakers have opposed the agreement negotiated under the Bush administration because it did little to open the closed auto market. General Motors Co. has stayed neutral, because of its South Korean unit GM Daewoo, which is the fourth-largest automaker there.

125K Lost US Jobs? Bring on $7.87T Stimulus!

♠ Posted by Emmanuel in Cheneynomics at 7/03/2010 12:09:00 AM

Not that even $7.87 trillion will probably do much for it: America is so washed up that even I have to feel sorry for it despite its leaders' wrongheaded jihad on fiscal sanity. So here we are, so many months and so many trillions after in US IOUs and America has next to nothing to show for sinking itself further into the fiscal abyss. The unemployment rate is "falling" because so many are becoming disillusioned are joining the ranks of the permanent leisure class. Factory orders are tanking. Consumer confidence is dropping. Absent government taking billion dollar hits propping the housing sector, pending home sales are drawing flies. Are there any lessons here?

It was thus with great incredulity that I read (left-leaning) WSJ writer Thomas Frank's latest missive on why "We Should Avoid the Austerity Trap." This is my favourite part, though there are more, ah, entertaining bits to be found in the rest of the article:

Solve the recession and we'll eventually bring the deficit back down, too. The real danger is that instead we will decide to regard the deficit as a problem entirely unto itself—a quasi-moral issue that needs to be addressed independently of the larger economy—and that we will proceed to budget-balance ourselves right back into the economic ditch.

Here are a few things I'd like to ask of red ink fetishists like Frank in light of recent economic data:

Where are all the returns from stimulus, particularly in the form of wages? If possible, show me "multiplier effects" and that economistic jazz;
How is this (wasted) stimulus to be paid for?;
Why should we believe that hundreds of billions more worth of stimulus will work when it has so far yielded next to nothing?

...and over the long term,

4. How will the continuing growth of government at the expense of the private sector go towards creating a sustainable recovery when the former doesn't create a source of revenues to compensate America's towering obligations?

It's simple, really. If the economic news is uniformly bad, then what you're doing isn't quite good. Unlike with the deficit lovers' promises about stimulus, the numbers indicate an entirely different story. To be fair, the only ones dumber than America spending on things with no apparent gain are those lending to it. That, my friends, is the epitome of subprime globalization.

UPDATE: Also catch General Electric CEO Jeffrey Immelt giving the US a verbal shellacking...

“People are in a really bad mood [in the US],” Mr Immelt said. “We [the US] are a pathetic exporter...we have to become an industrial powerhouse again but you don’t do this when government and entrepreneurs are not in synch.”

Mentioning a meeting with Jean-Claude Trichet, he said the president of the European Central Bank “worries about inflation every day”, in contrast to Ben Bernanke, chairman of the Federal Reserve, who will keep interest rates “at zero” as long as necessary.

(Failed) White Man's Burden, Madagascar Edition

♠ Posted by Emmanuel in Africa,Development at 7/02/2010 12:19:00 PM

There's an interesting article in the Atlantic about the hubris of yet another American would-be social engineer, economist Paul Romer of New Growth Theory fame. In a very politically incorrect manner, he set out to demonstrate the theory that establishing rules of the game or institutions along Western standards is a key foundation for economic growth. In this respect he cites the well-known example of Hong Kong as a British colony.

As you will read below, he tried to apply his ideas in Madagascar, but political realities your typical economists fail to deal with eventually overwhelmed this would-be whiteocracy. Not only was Madagascar's then-ruler deposed, but the whole project fell into disrepair and, needless to say, disrepute.

Given the chance, there are a number of things I'd like to ask Romer about this White Man's Burden-ish enterprise:

Yes Hong Kong was a British colony, but is that the main contributing factor to its success? Were the other Asian Tigers Singapore, South Korea, and Taiwan still benefiting from the fruits of colonization?
Several generations of developing country elites who have studied economics at the most prestigious Western institutions--Stanford, Oxford, and what else have you--have failed to promote meaningful development in their home countries. What reason is there to believe that bringing over rich, white people to run poor peoples' countries will succeed where trying to transplant technoratic ideas drawn from the selfsame experts to the Third World have failed?
Given their current state of economic malaise, why would the UK and US be shining examples of progress and enlightenment for the developing world?

Contrary to Romer and similar to William Easterly, my inclination is to believe that other nations work things out for themselves and should not wait for manna from heaven to trickle down, whether it be from ostensibly well-meaning economists, multilateral institutions, or aid agencies. Anyway, to the key snippets of the article:

In the 1990s, Paul Romer revolutionized economics. In the aughts, he became rich as a software entrepreneur. Now he’s trying to help the poorest countries grow rich—by convincing them to establish foreign-run “charter cities” within their borders. Romer’s idea is unconventional, even neo-colonial—the best analogy is Britain’s historic lease of Hong Kong. And against all odds, he just might make it happen...

Fast-forward several centuries, and Henry the Lion’s would-be heir is Paul Romer, a gentle economist at Stanford University. Elegant, bespectacled, geekishly curious in a boyish way, Romer is not the kind of person you might picture armed with a two-handed flanged mace, cutting down Slavic marauders. But he is bent on cutting down an adversary almost as resistant: the conventional approach to development in poor countries. Rather than betting that aid dollars can beat poverty, Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules—Lübeck-style centers of progress that Romer calls “charter cities.”

By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. And since Henry the Lion is not on hand to establish these new cities, Romer looks to the chief source of legitimate coercion that exists today—the governments that preside over the world’s more successful countries. To launch new charter cities, he says, poor countries should lease chunks of territory to enlightened foreign powers, which would take charge as though presiding over some imperial protectorate. Romer’s prescription is not merely neo-medieval, in other words. It is also neo-colonial...Romer’s New Growth Theory opened the window onto a sunnier worldview: a larger number of affluent people means more ideas, so prosperity and population expansion might cause growth to speed up.

So that's the theory. How did it work out in practice?

In July 2008, Romer made his first trip to Madagascar’s bustling capital, Antananarivo. Madagascar’s government was anxious to attract foreign investment, and it understood that a credibility deficit held it back. In an earlier bout of openness, the island had lured in foreign garment firms, but then the political climate turned hostile and the firms fled; now the government was having trouble enticing them to come back. Faced with this obstacle, the Malagasy authorities were open to unconventional arrangements. To boost investment in agriculture, they were ready to lease a Connecticut-size tract of land to Daewoo, a South Korean corporation, for 99 years...

Even as Romer was meeting with Ravalomanana, the president’s main political opponent was sniping at the proposed lease of farmland to Daewoo, and the idea of giving up vast swaths of territory to foreigners was growing increasingly unpopular. The arrangement was denounced as treason, and public protests gathered momentum, eventually turning violent. In late January 2009, protesters tossed homemade grenades at radio and TV stations that Ravalomanana owned; looters ransacked his chain of supermarkets. In February, guards opened fire on marchers in front of the presidential palace, killing 28 civilians. At this, units of the army mutinied. Soon, Ravalomanana was forced out of office.

The first action of the new government was to cancel the Daewoo project, and Romer’s plans in Madagascar were put on hold indefinitely. But the larger question was what, if anything, this disappointment signified for Romer’s whole approach. The riots appeared to demonstrate the explosive sensitivities surrounding sovereignty and land—sensitivities that are not confined to Madagascar. Indeed, versions of the Daewoo story have played out elsewhere. In the late 1990s, for example, Fiji’s government decided to bring in a British nonprofit to manage its mahogany forests, and an indigenous leader launched a revolt under the slogan “Fiji for the Fijians.” The rebellion was hypocritical: as the Oxford economist Paul Collier recounts in his book The Bottom Billion, the indigenous leader had himself backed a rival foreign bid to manage the mahogany. But the venality of the rebels’ motivation didn’t change the fact that a demagogue could easily attract support by railing against territorial concessions to foreigners.

It would be funny if it weren't for the highly deleterious consequences. What did they say was paved with good intentions?

At Long Last, WTO Faults EU Launch Aid for Airbus

♠ Posted by Emmanuel in Litigation,Trade at 7/01/2010 12:30:00 AM

These aircraft cases have set new benchmarks for duration and cost to prosecute. However, we finally get the report from the WTO dispute settlement mechanism (DSM) on the Boeing versus Airbus side of their respective countersuits (DS 316). In essence, it finds that Airbus received illegal government subsidies for the A300, A310, A320, A330, A340 and A380 models. Since the case was filed in 2004, the decision doesn't cover development of the upcoming A350 model meant to compete with Boeing's 787 Dreamliner.

Despite Boeing's "victory," note that details of the Airbus versus Boeing countersuit
will arrive on the 16th of July (DS 317). EC Trade Commissioner Karel de Gucht is already signalling that commentators should await the release of that decision's details before forming an opinion of where both the US and EU stand in relation to Boeing and Airbus. As the texts have been circulated to some extent among the litigants, I (again) fully expect matters to come out as more or less a wash. That is, settlement of these countersuits after years of costly and protracted litigation in Geneva will most likely result in Phyrric victories for both sides as each others' faults cancel each other out:

The World Trade Organization found Airbus SAS benefited from illegal European government subsidies, with money for the A380 jumbo topping the list of violations. The panel opinion, made public today in Geneva after a confidential ruling nine months ago, supports U.S. arguments that loans by European governments constituted unfair aid. In the case of the A380, the panel ruled the aid constituted the strongest violation, because interest rates on loans were too low and the support was linked to export performance.

The ruling raises the prospect of Airbus having to repay a portion of the aid provided by the governments. European governments paid out about $4 billion in so-called launch loans for the A380, the world’s largest passenger plane. The WTO didn’t specify what portion of that figure broke the rules and would require payback. It also said France’s loans for the A380 weren’t considered prohibited.

Boeing, which lost its industry lead to Airbus in 2003, called the WTO ruling a “sweeping legal victory,” saying the verdict called for Airbus to repay $4 billion in illegal launch aid for the A380, a statement that Airbus said is “deliberately misleading” and “wrong”...

About a third of Airbus’s development costs come from European governments in the form of loans that are repaid with interest only if the aircraft is a commercial success. The A380, launched in 2000, is a 550-seat plane that began service in 2007. Airbus has said the program is years from breaking even.

The ruling comes six years after the U.S. abandoned a transatlantic accord on aircraft aid over European Union objections and filed a case against the EU, alleging that aircraft development loans awarded by France, Germany, the U.K. and Spain constituted illegal support that helped Airbus develop new models to Boeing’s detriment.

The EU filed a counter-case, alleging that Boeing received illegal aid. A preliminary judgment on that case is scheduled for July 16. “This final report needs to be read together with the forthcoming interim report on subsidies provided in the U.S. to Boeing,” said EU Trade Commissioner Karel De Gucht in a statement provided upon release of the document. “The EU remains committed to a negotiated outcome to the dispute with no pre-conditions on either side.”

And the EU, cannily enough, hay have learned from these proceedings to administer aid in a manner which doesn't run afoul of WTO strictures:

The French government will continue to give development loans to Airbus, the transport ministry said in an e-mailed statement after the ruling. The U.K. also said its plan to offer launch loans for the A350 wouldn’t be affected by today’s ruling...“As the EU has reiterated in the past, support to the A350 is not within the scope of the proceedings,” an official for the U.K. Business Dept. said today. The official called government loans for aircraft development “a perfectly legal market based instrument.”

For those into trade minutiae, the IELP has a detailed breakdown of the ruling's text as well as a copy of the full ruling. Remember, both Airbus and Boeing can still enter the appeals process, adding further time and complexity to these already protracted affairs. The dogfight continues...