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A battle between pro-trade and protectionist factions

Kitty Miv, Editor
03 April, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

One swallow doesn't make a summer, but two are a bit more promising, and that's what we are seeing in the EU/China tradasphere, with harmony breaking out on the oenophile and polysilicon fronts. In a parallel WTO case, over China's rare earth export policies, the country is left looking rather battered after an investigation, and said mildly only that it "regretted" the decision against it. The US, on the other hand, continues to present a hard front towards China over its trading policies for solar energy exports.

What's really going on here is a battle between pro-trade and protectionist factions in the various regions involved. Any given short description of the batteground is going to be over-simplistic, but with that in mind, let's try to disentangle some of the threads of these ongoing trade wars.

In each of the three countries (we'll allow the EU to be a country for today) there is a governmental organization which is responsible for the conduct of international trade affairs.

The situation is simplest in China, where the Ministry of Commerce has the conduct of trade spats, and fairly and squarely represents the interests of China's business sector. In China there is very little in the way of producer-capture, because there is apparently little if any divergence of interest between political and business bosses. This may have unfortunate conequences in terms of corruption, but at least as regards trade it has the beneficial result that there is an identity of interest between the two factions, ensuring that the government behaves in a pragmatic way towards its international trading partners.

Next least complicated, perhaps, is the EU, where responsibility for international trade negotiations is vested with the European Commission's Trade Commissioner, Karel de Grucht. As it chances, he seems to be in favor of trade (it wouldn't necessarily have been so - imagine if he had been French) and he can directly control and influence international discussions in the context of WTO trade spats. He has achieved a number of successful resolutions by brokering direct discussions between EU and Chinese producers; and agreements of this type seem to bypass neatly both the EU Council (Heads of Government) and the EU Parliament (Heads Of Doctrinal Economic Insanity).

When we come to the US, the situation becomes much more complicated. Congress is sovereign, of course, but by tradition the President has the conduct of international trade affairs (subject to ratification by Congress, at least as regards international treaties). Over time, the Administration has acquired what appear to be some quite direct powers over trade matters, including the ability to implement "dumping" and "countervailing" duties against imports that allegedly breach WTO guidelines. These are implemented, under the President's authority, of course, via the United States International Trade Commission (USITC) and the Commerce Department. As a very broad generalization, the USITC has attempted to follow an internationalist path, although obviously much depends on the nature of its head, the USIT Representative (USITR); and there have been some very good ones. But nothing nice can be said about the Commerce Department, which was comprehensively captured by industry (and the Unions) long ago, and operates 100 percent as a protectionist force against free trade. Right-wing presidents have tried to counter the baneful influence of Commerce by appointing free-traders to the USITC, but when President Obama came to power, he was largely anti-trade, and initially failed to understand the need to support the USITC or to take a pro-trade stance with the Congress. Although, and to his credit, he is now a reformed character as regards trade, and may even have moments at which he half-believes in free trade, the country is now reaping the harvest of his initial scepticism, through a series of disastrous WTO encounters with China and other nations which have left the USA on the wrong side of trade history.

The President hopes that the prospective overarching EU trade deal (the TTIP) and the Asia Pacific equivalent (the TPP) will redeem his trade reputation and force the US back into the center of world trading advancement; but his continuing lack of success in managing the Congress successfully makes this a vain hope. He is not going to get the TPA (Trade Promotion Authority) which he would need even in order to present such deals to Congress; and without it neither the TTIP nor the TPP stands a cat's chance in Hell of passing Congress before the mid-terms. After that, who knows?

Looking forward, the picture is of course complex. If there is a bi-cameral Republican Congress after the mid-terms, then there is hope for the TTIP and the TPP (as long as Japan is excluded from the process); otherwise, forget it. On balance, and even if Hilary wins the presidency in 2016, US trade policy is likely to swing back to a more internationalist stance, while EU trade policy is likely to go into reverse, due to the gradually increasing powers of the deadly Parliament, which is institutionally anti-business and anti-trade, and the abject failure of the EU to tackle its long-term economic problems of excessive debt and domination by the "social partners" heresy. David Cameron's valiant attempts to reform the EU are of course futile and irrelevant. Whatever the future for the UK, he cannot stand in the way of history. 500 years of authoritarian bloodshed still cast a shadow into the future, and their republican consequences have yet to be fully worked out.

I could go on, but you would probably rather I didn't. So to close, let's try to understand the trading rights and wrongs of the Great Indian Bicyle Story. Well, actually, I can't. There are a lot of figures provided by ASSOCHAM in that story, and none of them are supported by believable statistics. It comes across as a compilation of protectionist statements by a domestic lobbying pressure group, and is certainly no basis on which to reach any conclusions. India doesn't have any effective equivalent to the USITC, and most of the time its behaviour in the trading sphere appears incoherent, driven by this or that internal government faction in a way that is indecipherable to outside observers; and all the more so at present as politicians are focused on the upcoming election, which is quite likely to herald a major power shift with an unpredictable impact on international trading policies. So for those whose interests are affected by trading rules, it's down to lobbying the Government as best you can. Maybe then I shouldn't complain so much about the countries which do have official pro- or anti-trade organizations. At least there you know who to shoot at!


Kitty's Encomiums and Execrations

Methodology: each week (this is the 98th) two or three countries are given encomiums and two or three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at neutral, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc and now it's on plus 1 again.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

China edges towards believing in trade

European Union more pro-trade than against it

And Kitty's Execrations:

India vacillates

USA more against trade than for it




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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