International Economic Law and Policy Blog

Beggar-Thy-Neighbor vs. Protectionism as Frameworks for the Trading System

In a recent piece, Dani Rodrik argues that current global trading rules interfere too much with domestic regulation and that "the world economy desperately needs a clear normative framework to determine the rules of the road." In this regard, he distinguishes between two options: (1) "policies with adverse cross-border spillovers"; and (2) "policies that truly are beggar-thy-neighbor." He says that "[i]t would indeed be hopeless – and counterproductive – to try to discipline all policies of the former type," and argues for establishing disciplines that focus on "beggar-thy-neighbor" policies.

I agree with him that "policies with adverse cross-border spillovers" is very broad and wouldn't work well as the basis for the trading system. It's worth noting here that, for the most part, this is not, in fact, the current basis for the system, although I do think there are interest groups who try to push the existing rules in this direction: If a foreign regulation hurts their business, they try to convince their government to challenge it as a "trade barrier," even if the regulation has a similar impact on their foreign competitors.

But I don't think "beggar-thy-neighbor" is the best alternative. "Beggar-thy-neighbor" is a well-known term from economics, but what exactly does he mean by it? He illustrates the concept as follows:

Consider two policies in particular. First, when the Chinese government subsidizes research and development that enhances the country’s competitiveness in high-tech products and lowers their prices on global markets, the US and other advanced economies are hurt, because these are the areas of their comparative advantage. Despite the harm, however, we would not consider it proper to ask China to remove such subsidies, because our intuition tells us that supporting R&D is a legitimate tool to promote economic growth, even if others incur losses.

The second policy is an export ban on rare earths or other critical minerals for which China is the principal global supplier. China benefits by increasing prices on world markets and making its exporters more competitive, owing to their access to cheaper inputs. But this is a clear instance of a beggar-thy-neighbor policy. China’s gains are the result of an exercise of global monopoly power that forces losses onto foreign producers.

A policy is beggar-thy-neighbor when the benefit provided to the domestic economy is made possible only by the harm that it generates for others. Joan Robinson coined the term in the 1930s to describe policies such as competitive devaluation, which, in a situation of generalized unemployment, shifts employment from foreign countries to the domestic economy. Beggar-thy-neighbor policies are generally negative-sum for the world overall.

I see what he is getting at, but speaking as a lawyer, I don't think the concept works very well as a basis for disciplining domestic policies. I'm not sure how you would write a rule that looks at "when the benefit provided to the domestic economy is made possible only by the harm that it generates for others." How would you determine whether there is a "benefit" here? Does this mean an overall benefit, or just a benefit to a particular interest group? And how would you demonstrate the connection between that benefit and the "harm that it generates for others"? What exactly is "made possible by" here?

Fortunately, we do not need to agonize over crafting such a rule, because we have existing concepts that work better. Rather than try to make "beggar-thy-neighbor" happen, we can rely instead on the concept of "protectionism," which I think of as a policy that has the objective of giving an advantage to domestic firms over their foreign competitors. GATT Article III:1 captures this idea pretty well:

The Members recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.

There are some nuances to deal with here, including situations where the advantage being given relates to competition in a foreign market. But the general principles are well understood, and can be applied fairly easily by trade adjudicators. Of course, in practice we have debates about burdens of proof,  "aims and effects" tests, and the meaning of "necessary" in the exceptions. And there are carveouts from the principle for ordinary tariffs, trade remedies, and public policy and security exceptions (all of which make it clear that protectionism is not prohibited, but rather the system simply sets out mutually agreed constraints on it). But the debated issues are fairly clear and we just have to pick an approach. With "beggar-thy-neighbor," by contrast, we would be starting from scratch, and I'm not even sure where exactly we would be starting.

Dani Rodrik's Latest

For almost as long as I've been working in trade policy, Dani Rodrik has been pushing for more protectionism and industrial policy, less trade and globalization, and weaker international trade institutions. He calls his latest argument for this approach "productivism," and he recently wrote a short piece called "The New Productivism Paradigm?" in which he explains it as follows:

... a new bipartisan consensus may be emerging around “productivism,” which emphasizes the dissemination of productive economic opportunities throughout all regions and all segments of the labor force. Unlike neoliberalism, productivism gives governments and civil society a significant role in achieving that goal. It puts less faith in markets, is suspicious of large corporations, and emphasizes production and investment over finance, and revitalizing local communities over globalization.

Here are a few criticisms of, and questions about, this perceived paradigm shift.

First, as with many people who don't like "neoliberalism," he is sure that neoliberalism is ending: "Today we are in the midst of a transition away from neoliberalism ... ." During neoliberalism, he explains, political leaders "pushed for deregulation, financialization, and hyper-globalization, while paying lip service to ameliorating the consequent rise in inequality and economic insecurity." I'll get back to the future of neoliberalism later, but for now let me just respond to two of these points:

1) "hyper-globalization": It's difficult to understand how the current international economic regime could be referred to as "hyper-globalization," given that protectionism has remained a constant around the world over the period in question and that international trade institutions have fairly weak enforcement mechanisms. It's true that there has been globalization in the sense of reduced trade barriers, but I would say it's "modest" rather than "hyper."

2) "economic insecurity": When exactly was "economic insecurity" less of a problem? The 1950s? Some other period? Whatever period people have in mind when they say things like this, I think they should look more closely at the realities of the period, as it was a lot less secure for most people than they are imagining. That includes people in the West, but applies even more clearly to people in developing countries.

Second, he says he wants fewer technocrats: "productivism diverges from both of its antecedents by reflecting greater skepticism toward technocrats." But he also wants "industrial policies to facilitate the green transition, rebuild domestic supply chains, and stimulate good jobs." Who will be running these programs if not technocrats? The reality is that Rodrik's preferred policies are likely to be, if I could borrow a term from above, "hyper"-technocratic.

Third, he seems to think "friend-shoring" is a new invention: "When the administration’s most senior economist, Secretary of the Treasury Janet Yellen, extols the virtues of “friend-shoring” – sourcing supplies from US allies – over the World Trade Organization, we know the times are changing." But haven't we been "friend-shoring" for quite a while now, since the beginning of the GATT even? Isn't that what all those regional trade agreements and bilateral FTAs are? To a great extent, these are trade agreements that governments sign with their friends to increase bilateral trade and investment with them.

Fourth, he wants more suspicion of big corporations, noting that the Biden administration is "blaming large corporate profits as a culprit behind inflation." And yet he also notes that "Republicans have made common cause with Democrats in pushing for investment and innovation policies to bolster US manufacturing." But what exactly will this "bolstering" look like? From what we have seen so far, a big part of it appears to be giving subsidies to big corporations in key sectors (such as semiconductors).

Fifth, it's not clear what he means by "localism": "there are signs of a major reorientation toward an economic-policy framework that is rooted in production, work, and localism instead of finance, consumerism, and globalism." With respect to the U.S., does that mean each state (or even city) will have its own industrial policy? And if not, isn't "nationalism" a better term? 

And sixth, how do his ideas apply outside the U.S.? For example, is every country around the world supposed to use industrial policy to develop its own semiconductor industry? Or is the U.S. supposed to be the only producer and then supply everyone else?

I understand why people try to come up with a take on current events in which their preferred policies are suddenly about to sweep into power. We all want to believe that our views are catching on, and there may be a feeling that we can talk that outcome into existence. But if you look at the history of U.S. trade policy (Doug Irwin is always a good place to start!), it is clear that protectionism and industrial policy have always been there, and that recent calls for more protectionism and industrial policy are not that out of the ordinary. Back during the heart of "neoliberalism" in the 1980s and 1990s (as I accept the critics' paradigm for the sake of argument), people were writing things like "Trading Places: How We Are Giving Our Future To Japan & How To Reclaim It"; Pat Buchanan got a lot of mileage out of his version of America First; Ira Magaziner was pushing industrial policy in the Clinton administration; Ross Perot did surprisingly well as a third party presidential candidate talking about the "giant sucking sound" of jobs going to Mexico; and what was the TRIPS Agreement if not industrial policy?

So is there a big new era of economic policy coming, either in a new marketing package or just the old one? I'm skeptical, and I think the mostly likely future involves basically the same mix of markets and government intervention we have had for a while, with a few tweaks around the edges.

Globalization Is Not "Hyper" and There Was Never a "Neoliberal Market Fundamentalist Consensus"

Anthea Roberts and Nicolas Lamp are working on a book about "narratives" in international economic law, and Nicolas has written about this on his own already, so I've been thinking a bit about the role and value of narratives. Generally speaking, I'm suspicious of them, because they often end up being catchy slogans that do not fully capture the nuances of the debate. At the same time, I recognize the reality that catchy slogans are a good way to get people to pay attention to what you are saying, so perhaps I better come up with some of my own! Even before all this talk of narratives, there were certain terms that I tried to play up (e.g. "protectionism") and others I tried to cast aside ("market access"). I did this because I felt that some terms were clearer than others and could better focus everyone on the issues being debated.

However, there are some terms, and resulting narratives, that are misleading and I wish people would stop using them because they make important policy debates less productive. Dani Rodrik used a couple of them in a recent op-ed:

The relationship between markets and the state will be rebalanced, in favor of the latter. This will be accompanied by a rebalancing between hyper-globalization and national autonomy, also in favor of the latter. 

...

The neoliberal market fundamentalist consensus has been in retreat for some time now.

First up, let me talk about "hyper-globalization." I'm not sure what the relationship of the market and the state will be going forward (although if I had to guess I would say it will be roughly the same as it is today, with some fluctuations back and forth), but I am fairly confident that there is nothing "hyper" about today's globalization as it relates to international trade agreements and national autonomy. If you look at the various multilateral, regional, and bilateral trade agreements that are out there, the vast majority promote only modest economic integration and leave nations with their autonomy intact. Tariffs have come down, but they are still permitted, and special trade remedy tariffs can and are used regularly by most major trading countries. There are rules on regulatory trade barriers, but there are also exceptions, and only a tiny percentage of national regulations are actually challenged under trade agreements. And services trade has seen only a small amount of liberalization. On top of that, the enforcement mechanisms in these agreements are pretty flexible.

Summing up: Globalization through international trade agreements is far from "hyper," and "national autonomy" is safe. That doesn't mean the current crop of trade agreements is perfect, and I have plenty of objections to specific aspects (many of the IP provisions for a start!). But the narrative of "hyper-globalization" is just plain wrong. It may be a catchy slogan, but we should strive for more nuance here.

Second, there is the alleged "neoliberal market fundamentalist consensus." In general, I have been surprised in recent years at how the term "neoliberal" is thrown around as a general insult towards people who support some degree of markets, and I've been intrigued by people who want to reclaim it and turn it into a positive. (To make it great again, you might say.) I'm not sure this is worth the effort either side is putting into it, but it is interesting to watch.

Then there is "market fundamentalist," which implies that the people in question are not using reason but rather are slavishly attached to markets for the sake of markets. I don't think I've ever come across anyone with this view, but I see why the people who use it think it's a good stereotype to play up as an insult. It reminds me of conservatives who call Obama or the Clintons "socialists." It's a silly exaggeration, but a little hyperbole can be emotionally satisfying. (Amusingly, some of the market skeptics also call Obama and the Clintons "neoliberals"! Can you be a "neoliberal socialist"?) 

But putting that aside for a moment, what surprises me even more is the idea that there was a "neoliberal market fundamentalist consensus." Does anyone actually believe that there was a period in recent history where "market fundamentalism" had a consensus behind it? Let's just stipulate that we have had periods of privatization, deregulation, liberalization, and reductions in the social safety net. But in all those periods, the state's role in the economy remained significant. We are so far from laissez-faire that I don't see how anyone can proclaim a "market fundamentalist consensus" with a straight face. When you look at major institutions such as the U.S. government, the World Bank, or the IMF, what percentage of the people there could credibly be called "market fundamentalists"? 1% at most I would think, and probably far less. Just about everyone in the establishment wants a mix of the state and markets, with plenty of the state thrown in there.

I understand that people want to use catchy slogans to support their narrative. But some of these attempts seem completely over the top. We all want to bring attention to our ideas, but we should try to keep the sloganeering within reason.

Two Points About Dani Rodrik's Latest Piece

Dani Rodrik has a new paper up at NBER, entitled "Putting Global Governance In Its Place." Two things jumped out at me.

First, it surprised me that in discussing when regulatory standards are protectionist, he seems unaware of the national treatment principle:

Unlike in the case of tariffs and quotas, there is no natural benchmark that readily allows us to judge whether a regulatory standard is excessive or protectionist. Different national assessments of risk – safety, environmental, health -- and varying conceptions of how business should relate to its stakeholders – employees, suppliers, consumers, local communities – produce different standards, none obviously superior to others. In other words, regulatory standards are public goods over which different nations have different preferences. An optimal global governance scheme would trade off the benefits of expanding market integration (by reducing regulatory diversity) against the costs of excessive harmonization. But it is difficult to know where that optimal point may lie. Asking trade negotiators do perform this task adequately across a wide variety of policy domains seems unrealistic.

In reality, we have decades of experience with examining whether regulatory standards are protectionist ("excessive" is more difficult to judge, but we do that as well, as shown in the second point below). Among others, we have GATT Article III:4, TBT Agreement Article 2.1, and various SPS Agreement provisions. There is extensive jurisprudence on these provisions and plenty of "benchmarks," which feel pretty "natural" to me. There is no consensus, of course, but it's law so there will never be a consensus. Personally, I still like "design, structure, and architecture" as the standard, but there are a number of options, most of which get you to roughly the same point.

Second, based on the title and some of his criticisms, I thought his main argument would be that global governance has gone too far and needs to be reined in. But then he says this:

We can usefully distinguish DEGG [Democracy-enhancing global economic governance] from “globalization-enhancing global governance” (GEGG), which comes closer to the spirit of prevailing practice in the world economy today. Under GEGG we can justify any and all external rules that restrict domestic policy autonomy if the result is to minimize transactions costs associated with national borders. Under DEGG we would imposes only those, mostly procedural, obligations that enhance domestic deliberation or are consistent with democratic delegation.

I have in mind procedural requirements designed to enhance the quality of domestic policy making. Examples of such requirements would be global disciplines pertaining to transparency, broad representation of stakeholders, accountability, and use of scientific/economic evidence in domestic proceedings. These procedural requirements would not prejudge what the end result might be – whether a country might impose a tariff, subsidy or any other “beggar thyself” policy. 

On its face, "global disciplines pertaining to transparency, broad representation of stakeholders, accountability, and use of scientific/economic evidence in domestic proceedings" seems very intrusive into domestic policy-making, which is something I thought he was concerned with. I'd want to hear some clarification from him about what exactly he has in mind here, but I can see how it could lead to a wide range of new legal claims against domestic policies. (And it also seems like this proposal contradicts his earlier critique: One way to determine if standards are "excessive" is to review whether they are based on scientific evidence.)

Dani Rodrik on China and the Role of the WTO

This is from Dani Rodrik in the FT:

How will the world trade regime handle a large, increasingly powerful country such as China that apparently plays globalisation by different rules? This is the question that keeps US and European policymakers awake at night. The fever runs highest in the US, where the Trump administration has blamed China for engaging in economic aggression and has declared trade war in response. The US president’s methods may be frowned upon, but the view that something has to be done about China’s trade and industrial practices is widespread among mainstream policy elites.

The tone is softer in Europe, but the concern is shared. EU trade commissioner Cecilia Malmström, writing in the Financial Times, asks how we can reconcile China’s state-owned enterprises model with a global level playing field?

But US and European policymakers are asking the wrong question. The problem is not with China’s policies as much as it is with the world trading regime. The World Trade Organization — as well as every trade agreement since — has been predicated on the idea that economic practices in different nations would eventually converge. This has not happened, as China’s example amply indicates. More importantly, there is no good reason for national economic models to converge in the first place. World trade rules need to change, regardless of what China does, to accommodate economic diversity.

The trade agreements concluded in the early postwar period left plenty of space for countries to pursue their own paths. The various trade rounds under the old General Agreement on Tariffs and Trade system covered only explicit barriers to manufactured goods at the border, mainly import tariffs and quotas. Services and agriculture were excluded. Developing countries could do almost as they pleased. When an import surge in garments threatened economic dislocation in developed countries in the early 1970s, a special regime was established that enabled these countries to re-impose quantitative restrictions.

The WTO changed all that. Negotiated at a time of neoliberal triumphalism, it reached inside the border to constrain domestic policies in subsidies, health and safety and intellectual property. Any domestic regulation with an adverse impact on imports could now be treated as a trade restriction. Subsequent trade agreements went further, prioritising trade and foreign investment over domestic concerns. 

 

[The US and Europe] forget that China’s heterodox policies have generated not only significant domestic economic growth and poverty reduction, they have also created a huge market for western exports and investment — a market that surely would not have been as large if China had been hemmed in by western textbook economic policies.

...

If the WTO has become dysfunctional, it is because our trade rules have over-reached. A fair world trade regime would recognise the value of diversity in economic models. It should seek a modus vivendi among these models, rather than tighter rules.

As I read it, Rodrik is arguing, on the one hand, that China's "heterodox policies" have been successfully implemented during the time that China has been a Member of the WTO and its policies have not "converged" with those of the West; but on the other hand, the WTO intrudes too far into domestic policy-making and does not allow a "diversity" of economic models. Obviously, there is some tension between these two arguments.

I've read a fair amount of Dani Rodrik's work, although not all of it (I reviewed one of his books here). My sense is that what motivates him is a belief in traditional industrial policy, and he would like governments to have as much discretion as possible to pursue that, including the use of protectionism at times. However, he recognizes that protectionism is not well thought of among economists, and so he tries hard not to sound too much like a protectionist. 

The result is a critique of the existing system that is hard to follow at times. If he would focus on ISDS and IP (which he wants to characterize as "neoliberal," but I've never understood how they are and the free market folks I know are mostly skeptical of both), his critique would be stronger. Instead, he says things like this: "The various trade rounds under the old General Agreement on Tariffs and Trade system covered only explicit barriers to manufactured goods at the border, mainly import tariffs and quotas." For anyone vaguely familiar with the system, that's pretty obviously a misleading picture of the GATT. Regardless of what the "various trade rounds" covered, GATT Article III prohibits discriminatory taxes and regulations, so GATT was about a lot more than tariffs and quotas and went well beyond just border measures. It's possible Rodrik believes that domestic content requirements were allowed under the GATT (and that they should be allowed now), but they were not. (And it's unclear why he prefers non-transparent domestic content requirements to more transparent protectionist measures such as tariffs.)

At the same time, it is true that the behind the borders rules in trade agreements have expanded since the time of the GATT, and there is a critique to be made of the more intrusive SPS/TBT rules. And yet Rodrik never makes that critique. To take one example, what exactly does he think of trade agreement rules on food safety that require domestic regulations to be based on scientific evidence? Reasonable people can disagree on this issue, but I'm not sure what his view is beyond the vague skepticism he expresses. There are people out there (Cass Sunstein comes to mind) who think that guidelines for regulation of this sort can make regulation better and more widely accepted. How does Rodrik see this issue? There is a lack of clarity in his views here.

Along the same lines, Rodrik seems to approve of China's economic policies, but how far would he take this? Given the wide range of Chinese policies related to the manufacturing sector, it may be worth specifying which ones you approve of and which ones you don't. I'm assuming he doesn't want to copy the whole model. And as much as he likes (some of) China's policies, and wants to make sure WTO rules allow them, what is his view of "trade remedy" responses such as countervailing duties? Does his ideal world involve both industrial policy subsidies AND countervailing duties in response?

A few years ago, I discussed some of these issues briefly with him on his blog, but I didn't get many answers. He has written a number of books and articles on the subject, but I still can't figure out his vision for domestic trade policy and international trade rules.

Book Review of Dani Rodrik's "The Globalization Paradox"

Sometimes I write things longer than a blog post.  I've talked about Dani Rodrik's views on trade a number of times (see, e.g., here, here, here and here).  Now I've gone a little further, and written a book review of his latest book, The Globalization Paradox: Democracy and the Future of the World Economy.  The book review is in the latest issue of the World Trade Review; the SSRN version is here.  Here's an excerpt:

Another way to think about the "policy space" that governments have is to talk about the scope of the trade regime and how trade rules affect domestic policy-making. The scope will affect how much policy space there is. Arguably, Rodrik identifies a fundamental problem with trade rules when he says: "the absence of a clear and bright line between where domestic prerogatives end and external obligations begin creates substantial friction. In fact, the trade regime's growing legitimacy crisis can be traced back to this fundamental ambiguity" (p. 81). But it is not clear that his proposals help the matter. As discussed below, even if the principles he would use to define the scope of the trade regime do establish clear boundaries, and it is not clear that they do, his specific proposals may not achieve his goals as well as some possible alternatives might.

Debating Industrial Policy

The Economist has been debating industrial policy.  Well, sort of.  They were debating the proposition, "This house believes that industrial policy always fails."  I'm not sure that's how opponents of industrial policy would put it.  It would be something more like, "On balance, industrial policy is a bad idea."

But anyway, Dani Rodrik took the pro-industrial policy position, and Josh Lerner of Harvard Business School opposed it.

I thought this point by Rodrik was interesting:

... Governments engage in industrial policy all the time even when they do not call it such. A pernicious side effect of economists' knee-jerk opposition to industrial policy is that governments do not get the benefit of what economists have to contribute to the design of such policies.

Today America is engaged in what is perhaps the largest industrial policy effort in history, spending tens of billions of dollars to stimulate innovative green technologies—without the benefit of our hypothetical debate. Yet because "industrial policy" is such a taboo in polite economic discourse in America, this is done surreptitiously and with little contribution from economists. The programmes end up being designed and run by lawyers and engineers.

It has always struck me that while there is a good deal of rhetoric in the public sphere about how industrial policy is bad, governments do all kinds of things that look a lot like industrial policy.  With regard to the "green technologies" that Rodrik refers to, isn't every major government providing high levels of support?  It seems to me that the theoretical discussions of whether industrial policy is a good idea don't match up very well with the reality of its use. 

Along these same lines, Robert Wade recently wrote that "the mainstream view among western (particularly American and British) economists" is that there is a "need for limited government in all economies, including low-income countries seeking to rise up the world income scale."  Two points occur to me.  First, maybe the frustration of people like Rodrik and Wade is not that industrial policy is not being used, but rather that is not widely accepted by their economist peers.  And second, part of their concern may be about the way industrial policy is carried out, with half-measures and without their participation.

Trade Liberalization that Dani Rodrik Can Get Behind

I am often left wondering what Dani Rodrik thinks of trade.  I try to parse his various criticisms of the current trade regime, but I still can't figure out where exactly he stands on core issues such as, "Is protectionism a good policy?"  Most likely, his answer would be, sometimes yes and sometimes no.  But the specifics of his views on this are a bit unclear to me.

So, I was excited to read that Rodrik does support at least some forms of trade liberalization:

I can think of two areas of liberalization where existing barriers are high and do not face the objections that I have considered so far.

First, agriculture.  Subsidies and other trade-distorting measures are rampant in agriculture, especially in crops like cotton and sugar.  It is hard to argue that these activities generate externalities or that their contraction would be bad for income distribution as a whole.  So this is clearly an area of priority.  (Note that I am not considering the impacts on other countries, which is not my focus here.  The positive impacts abroad are typically vastly exaggerated, but the domestic benefits are not in question.)

Second, visa restrictions on highly-skilled foreign workers.  The barriers here are large, since we know the visa quotas bind severely.  Allowing more foreign scientists and engineers in will reduce incentives to outsource technologically-advanced operations abroad, and will help expand sectors that are likely to generate positive spillovers.  The distributional effects are unlikely to be adverse, as it is the top of the labor market that will be affected.

To clarify, he is making these statements in the context of U.S. policies.  He may (and probably does) take a different view for developing countries.  But regardless, I was pleased to see him come out publicly in favor of some trade liberalization.

On the other hand, he loses me with his conclusion:

Note that the U.S. can do both of these on its own, and does not need Doha or action on the part of the rest of the world to reap the gains from these reforms.    

I suppose it is true that the U.S. "can" do these on its own, without Doha.  However, the U.S. may be much more likely to do them, agriculture liberalization in particular, in the context of Doha, and very unlikely to do them on its own.  Which leads me to ask two questions:  Why is he so anti-Doha?  And, if he could be convinced that Doha would achieve these goals, whereas they would not happen unilaterally, would he change his mind about the benefits of Doha?

Dani Rodrik Prefers the GATT to the WTO

In the context of writing about what is needed in the field of financial regulation, Dani Rodrik says:

In short, global financial regulation is neither feasible, nor prudent, nor desirable. What finance needs instead are some sensible traffic rules that will allow nations (and in some cases regions) to implement their own regulations while preventing adverse spillovers. If you want an analogy, think of a General Agreement on Tariffs and Trade for world finance rather than a World Trade Organisation. The genius of the GATT regime was that it left room for governments to craft their own social and economic policies as long as they did not follow blatantly protectionist policies and did not discriminate among their trade partners.

I wish I understood a little better what he meant.  I've read some of his work, but I don't think I've ever seen a full explanation.  Based on the limited statement here, I think it's safe to assume that he does not like the TRIPS Agreement.  But the rest is harder to figure out.  He identifies protectionism and discrimination as subjects that should be part of the trade regime.  It could be argued that this covers everything outside the TRIPS Agreement, which would mean that there is not much about the WTO he does not like.  On the other hand, there are a number of areas that could, depending on how they are interpreted, fall outside his discrimination framework, for example:  GATS market access rules, some of the SPS/TBT rules, perhaps some subsidies rules, and maybe some specific dispute settlement rulings.  If anyone has seen a detailed explanation by Rodrik of what he has in mind, I'd love to hear about it.

 

Dani Rodrik on Policy Space

Dani Rodrik argues:

Developing nations also need to enshrine the notion of "policy space" in the World Trade Organization. The goal would be to ensure that developing countries can employ the kind of trade and industrial policies needed to restructure and diversify their economies and set the stage for economic growth. All countries that have successfully globalized have used such policies, many of which (e.g., subsidies, domestic-content rules, reverse engineering of patented products) are currently not allowed under WTO rules.

Here are some questions that occur to me:

1.  Why does he consider domestic content rules so important?  Why not just use tariffs to favor domestic industries?

2.  Are subsidies really that important for development?  Many developing countries, especially the poorest ones, don't have that much money to give.

And one final note:  I don't think it's correct to say that subsidies "are currently not allowed under WTO rules."  There are constraints, but there is also a good deal of scope for using them, especially for developing countries.

Dani Rodrik Rejects Protection (at Least in Today's Economic Climate)

It has never been very clear to me what Dani Rodrik thinks of protection, so I was excited to hear him say this:

At a time when the world is digging deeper into recession, exporting your problems through trade protection is the last thing that any responsible country should be doing.

The context of his post was the Ha-Joon Chang op-ed discussed earlier and two recent economics articles about the efficacy of tariff protection.

Sweatshops: "One of the Trickiest Issues in International Trade"

That is what Dani Rodrik calls them.  His post is commenting on a NY Times article describing how a NY utility company and government agency recently became aware of the conditions under which their manhole covers were made:

Seemingly impervious to the heat from the metal, the workers at one of West Bengal’s many foundries relied on strength and bare hands rather than machinery. Safety precautions were barely in evidence; just a few pairs of eye goggles were seen in use on a recent visit.

Rodrik then notes the company's response:

An embarrassed Con Edison says that it is now rewriting its international contracts to include safety requirements.

But the issue may not be that easy to solve, Rodrik points out:

Fine, but what if these requirements now raise the cost sufficiently for the utility to want to switch its supplies to another source? And what if these West Bengali workers now find themselves out of a job, or earning less in even worse working environments?  Would we have we done them any favors by becoming outraged at their condition?

I've always thought this was one of the most powerful arguments against decisions not to trade with countries that have less stringent domestic regulations (labor, health, etc.) than ours:  Are the workers really better off without their current job?  Presumably they took the job because it put them in a better position than whatever they were doing previously.

On the other hand, perhaps it is possible that such actions will induce governments of these countries to take action on behalf of the workers who might lose their jobs due to a boycott, by passing laws that improve their working conditions.

Rodrik also mentions this solution:

Libertarians and fair-traders, which make an odd couple, do have a solution: they would say let consumers have information about the full hedonics--all the characteristics of a good, including the manner in which they are manufactured--and then let markets take care of it.  So if Con Edison believes its customers value the welfare of West Bengali workers, it ought to be willing to pay for the extra costs its suppliers incur for running safe factories. No regulation is required; just better information.

It seems to me this is kind of a middle ground solution.  We're not going to go for full out coercion to get you to change your laws through a government-led boycott, but we will provide information to the public to allow them to conduct individual boycotts, which will have a lesser, but perhaps still significant, impact.

More Dani Rodrik

So far, Dani Rodrik's blog has been extremely interesting.  In a post today, he says that the issue of "whether we should increase trade restrictions or lower them" is part of the "old debate," and then suggests that today's questions are different:

Should the U.S. negotiate more bilateral free trade agreements, or fewer? Should we consider a “strategic pause” in trade negotiations to improve the functioning of the WTO or push hard on the existing Doha agenda? Should core labor standards and environmental safeguards be negotiated jointly with trade agreements? How much “policy space” should the WTO allow for? Should labor mobility be part of international trade agreements? How much quid pro quo should the developing countries offer “in return” for agricultural liberalization in the North? Does competition policy and investment belong in the WTO? Should intellectual property rights protection rules be different for developing nations?  None of these questions maps neatly into the more-versus-less restriction dichotomy.

I definitely agree with him that these questions are important.  I'm not so sure that high versus low trade restrictions is part of the "old debate," though.  Whether to raise or lower trade barriers is still a hotly contested issue.

The key, I think, is that when discussing these issues, it is important to distinguish between the traditional free trade versus protectionism argument and the new issues he points to.  For example, you can be for lower tariffs but against international intellectual property protection through the WTO, or vice versa.  Or you can be for both or against both.  When the issues get blurred together, however, the discussion sometimes loses its clarity.