Trade Expert Criticizes Obama & Blue Party's Prescription for Economic Change: Adoption of the European Trade Strategy Known as 'Export-Protectionism'

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The selfish hegemon must offer a New Deal on trade


By Jagdish Bhagwati


Financial Times


August 19, 2008


In the 1980s, Japan was feared in the US to be a lethal combination of Superman and the evil genius Lex Luthor in a classic case of what I have called the Diminished Giant Syndrome.


Members of Congress famously smashed a Toshiba radio cassette recorder on the steps of Capitol Hill in protest in 1987. Great Britain at the turn of the 19th century had been marked by similar diffidence, despair and recrimination when Germany and the US were emerging on the world scene. There, Sir Howard Vincent entered parliament festooned with mops, pails and brushes marked “Made in Germany”.


US hegemony survived the exaggerated threat from Japan. But the US is now once again a fearful giant. Many Americans see trade as a peril rather than an opportunity. This has turned the US from what the economist Charles Kindleberger famously called an “altruistic” hegemon into a “selfish” hegemon.


On the back of economic anxiety in the country, many in both political parties (although far more among Democrats) see freer trade now as a costly giveaway to others at the expense of the US. They ask: “What is in it for me?” Only an agenda for institutional change, one that addresses the true causes of the anxiety in the US today, has a chance of returning trade policy to sanity.


The US role in the failed Doha trade talks illustrates the collapse of American leadership. Here, the US has been the central spoiler, refusing to cut its trade-distorting subsidies significantly even though they are universally recognised as intolerable. Its latest offer was to cap them at $14.5bn (€9.84bn, £7.76bn) but that well exceeded current payouts, estimated at $9bn. With only 2m farmers in the country, the US still attacked India for asking for an enhanced “special safeguard mechanism” to be used in case of an import surge, when India has far smaller, often subsistence, farms and nearly two-thirds of its population in rural employment.


While making negligible concessions itself, the US was insisting on difficult concessions from India, made even more troublesome politically because of the insubstantial offer on US subsidies. Besides, when the Doha talks started, the developing countries were not even supposed to be making concessions in agriculture. Throughout the Doha negotiations, the office of the US trade representative and US Congress pointed a finger at others – at Brazil, then at India and then also China – but have never considered their own roles.

The US has also muscled in to its bilateral preferential trade agreements (nearly all with small, developing nations) conditions unrelated to trade at the expense of their partner nations.


[THE EUROPEAN UNION INNOCENTLY REFERS TO SUCH CONDITIONS AS 'CULTURAL PREFERENCES']


Thus a country [the US] that is hardly an exemplar on labour rights, where the right to strike has been severely restrained since the Taft-Hartley legislation more than half a century ago, where union membership in the private sector has declined to less than 10 per cent of the labour force, and which has not ratified all the International Labour Organisation’s core conventions, has had the effrontery to impose standards on others in these PTAs. Why?


It is evidently not because it practises what it preaches and demands. Rather, it is because the labour lobbies believe, without any compelling evidence, that American wages have been stagnant because of competition from the developing nations. Further, they believe that if one could only stand Thomas Friedman of “flat earth” fame on his head and flatten the earth by raising these countries’ labour costs up to US levels, that would help reduce competition. In short, this is what economists call “export protectionism”.


What is doubly offensive about this exercise of political muscle is that it is advanced in the language of altruism: not by saying frankly that it is because “our unions are worried about competition” but by pretending that it is “in your workers’ interests”. An altruistic hegemon would not be playing these games; a selfish hegemon will do little else.

Senator Barack Obama does not quite get this. By asking, as part of his agenda for change, that the US should now impose even more draconian labour requirements in future PTAs, and that the North American Free Trade Agreement should be revised to incorporate yet tougher labour requirements, he is making export protectionism, and the reputation of the US as a selfish hegemon, worse, not better. Some change.


Change is indeed in order, although along totally different lines. It must reflect a holistic view of the new reality that the US confronts. In particular, the economic anxiety that overwhelms US workers today stems from the increased fragility of their jobs.


First, as with Japan in the 1930s, when one-dollar blouses flooded the world, India and China today are growing and exporting rapidly. They are like Gullivers in a Lilliputian world economy. They create tsunamis for specific industries where their exports concentrate.


Second, competition has intensified. As exemplified by the Boeing-Airbus saga, the margins of competitive advantage have shrunk. No chief executive or any of his workers in tradable industries leads a happy life any more as there is always someone, from somewhere, breathing down his neck. I call this new phenomenon “kaleidoscopic comparative advantage”. It leads to volatility of jobs, as you have an advantage today and can lose it tomorrow.


Third, labour-saving technical change continuously threatens assembly-line jobs for the unskilled. The assembly lines continue but increasingly do not have workers on them; they are managed from a glass cage by skilled operators whose jobs increase instead.


The agenda for institutional change has to address this fragility of jobs, enabling unskilled and skilled workers to face the new uncertainties. To illustrate: higher education will have to be recast to reduce the proportion of time spent on specialisation: this would enable an easier response to shifting skill requirements as the kaleidoscope turns. Unskilled workers will have to be helped and encouraged to acquire skills and therefore increase their ability to shift to other jobs, even as they continue to work.


Senator Obama promises change but he needs a deeper understanding of the anxiety-causing “new epoch” to define his new agenda shorn of protectionism. John McCain, the Republican presidential candidate, admirably stands for free trade but shows no evidence whatsoever of comprehending that this needs to be situated in an institutional context that requires a serious overhaul. Who will ultimately offer us the right New Deal?


The writer, university professor, economics and law, at Columbia University and senior fellow in International Economics at the Council on Foreign Relations, has just published ‘Termites in the Trading System: How Preferential Agreements Undermine Free Trade’. His next book on US trade policy, ‘Terrified by Trade: Institutional Change to Address Anxiety and Contain Protectionism’ (Oxford) is to be published in spring 2009

Africa Suffers From European Protectionism Yet Again: Is This What EURObama's Embedded Carbon/ Carbon Tariff-Focused US Trade Policies Would Achieve?

http://www.ippmedia.com/ipp/guardian/2008/08/23/121114.html

Africa to Pay for Europe's Green Policies


UK Guardian Reporter


2008-08-23


In efforts to make quick and symbolic gains in Europe`s otherwise failed policies to curb climate gas emissions, environmental and anti-globalisation politicians are aiming at Africa`s few economic success stories.


Campaigns to buy locally produced food and travel to local destinations particularly hit out against African products.


Consumers in Europe are again growing more environmentally conscious and are willing to use their purchasing power to assist in what is widely seen as their era`s most pressing problems.


Problems include overspending of energy and global warming. Meanwhile, European politicians have been those pressuring strongest to gain support for the Kyoto Protocol while having totally failed to lower emissions of climate gases in their own countries. In every country, emissions have steadily increased.


Populist solutions that are to satisfy costumers, politicians and the European industry alike are therefore surfacing all over Africa`s neighbour continent and the main market of its products.


And the solutions seem neat and nice - easy to understand and with the potential of creating more work locally. Even the industry starts propagating these solutions.


The victim mainly is Africa, because the message is that, as longer as a product or person is transported, the more energy is wasted unnecessarily.


Worst of all is airborne transport, having the highest emissions of climate gases such as CO2.


Unluckily, Africa is far away from European markets and poor transcontinental infrastructure puts most products and travellers on an airplane.


All over Europe, therefore, home-grown campaigns are being promoted, attacking Africa's newest and most successful export products.


Anti-globalisation activists, ``green`` politicians, local industry and even occasional experts and scientists head these ``buy local`` campaigns.


One of the latest campaigns is being launched in Germany, Europe`s most populous state and biggest single market. The campaign goes ``Sylt instead of Seychelles``, referring to a fragile German North Sea island with an overstretched and environmentally damaging tourism industry.


Tourism and climate expert Dr Manfred Stock developed the slogan and told the daily newspaper `Berliner Zeitung` that consumers worrying about global warming should avoid intercontinental flights and rather take the train to a German or European destination.


The much-quoted researcher is in line with policies promoted by Germany's Federal Environment Agency (UBA).


UBA President Dr Andreas Troge has made the climate change issue his agency`s foremost focus, and one of the ways consumers could ``do something on your own`` is by changing their travel behaviour, UBA says.


A single traveller flying to an intercontinental destination produces more than five tonnes of CO2, he told the German press, while someone travelling by train within Germany only had the emission of ten of kilograms of CO2 to account for.


Some even go further and have started penalising air travellers. In Norway, flyers have started paying for their CO2 emissions.


So far, only domestic flights are penalised to make sure Norwegian airliners are not losing out in competition with other companies on international flights.


But Norway is among many countries working for a CO2 tax on world-wide flights, which of course in particular would make long distance flights much more expensive.


This comes as most African states are investing massively in their nascent tourism industry and as Africa is surfacing as a modern and exciting travel destination in most Western markets.


Some sub-Saharan states, in particular Seychelles, Mauritius, Cape Verde and The Gambia, already see tourism as their greatest foreign exchange earners.


In Kenya, Tanzania, Senegal, Namibia, Botswana and South Africa, the travel industry by now is a vibrant success, while newcomers as Mozambique, Ethiopia, Gabon and Burkina Faso pin great investments and development hopes to the industry.


Ironically, much of Africa's new tourist destinations are focusing on eco-tourism, searching for modes that can guarantee the protection and good management of wildlife and habitats and local community development based on the new tourism revenues.


In Gabon and Madagascar, vast landscapes have been protected to be able to promote eco-tourism.


No measure in African history has proven so successful in stopping tree cutting and forest conservation than prospects of tourism revenues.


Mature markets like Seychelles, Mauritius and South Africa are already world leaders when it comes to conservation and management, knowing that their tourism industry depends on a sound nature.


At the same time, African destinations like Seychelles are demonised as anti-environmental by European ``experts``.


If successful, these campaigns could have a severe effect on the European market, which for the first time is experiencing a positive image of Africa as a must-see travel destination.


But also other African success stories are threatened by this new ``stay local`` trend. During the last decade, African agricultural products are increasingly admitted into the protectionist European market, even when also produced in Europe.


This includes beef from Namibia and Botswana, fresh flowers, fruit and vegetables from Kenya and even processed food products from South Africa and Ghana.


None of the few African countries that have managed to enter European markets with agricultural products that compete with local producers have had an easy path reaching their position.


Food quality and hygiene standards in Europe are extremely rigid and to a large degree designed to exclude foreign competition.


To be able to reach sceptical European consumers, African producers mostly also have been obliged to follow strict environmental and social guidelines.


Also, African food products for years had to fight against false prototypes promoted by seemingly well-meaning anti-globalisation activists that to a great degree were funded by local farmer organisations.


Development specialists - who do not get much air-time in European media - had to explain on and on again that European consumers were not ``stealing food from starving Africans`` when buying their products, but that these imports indeed would promote wealth and empowerment in rural Africa.


But in country after country, also these hard-bought gains are now under attack.


Britain is the country where consumers so far have had the strongest focus on how far the food basket has travelled before reaching supermarkets.


``Fresh vegetables from Africa" have for several years been one of the main focuses of environmental and anti-globalisation activists. They have even produced research claiming that the further foods have travelled, ``the more their vitamin and mineral content deteriorates.``


Already in 2003, airlifted baby carrots and garden peas from South Africa were highlighted in energy budgets of imported foods. For carrots, ``it will have taken 68 calories of energy in the form of fuel to air freight each calorie of carrot energy,`` while ``fresh peas require approximately two and half times the energy to produce, package and distribute as those sourced locally,`` the British daily `Guardian` reported.


South African wine, which is mostly shipped, however was praised for its ``tiny`` CO2 emissions. Of all the African products scrutinised, only wine is not produced Britain.


Years of campaigning against African agricultural products in the UK - whose funding has yet to be revealed - has already left its mark on British consumers.


The easy-selling ``fact`` that locally produced vegetables, meat, flowers and fruits are more environmentally fit than African imports has made many consumers look for ``low emission products``.


That this trend is significant was demonstrated by a surprise marketing campaign by Britain's largest supermarket chain, Tesco, in February 2007. The retailer was to introduce ``carbon counting`` labelling to let consumers see for themselves how far their food basket had travelled and how much CO2 emissions had been needed.


Tesco is one of the main channels for Kenyan products to European consumers - indeed half of Kenya's agricultural exports go to Britain.


Naturally, the surprise marketing stunt caused frustrations at the Fresh Produce Exporters Association of Kenya (FPEAK), which had not been consulted on the move.


While Tesco promised to keep on importing Kenyan products, ``carbon counting`` labels on these goods from 2008 will tell a one-sided story to British consumers.


From Britain, this trend is spreading to all over Western Europe.


In Sweden, the leading daily `Aftonbladet` attacked local supermarkets for not following Tesco\'s example ``despite the fact that one fourth of climate gases emitted by Swedes originate from our food.``


Ecologist Annika Carlsson-Kanyama enthusiastically helped the Swedish daily to make a parallel guide for consumers, where ``airborne tropical fruits`` were labelled as no-goes for conscious consumers.


In other countries, old arguments against food imports from Africa are resurfacing.


In the programme of Nature and Youth, one of the environment groups gaining most media attention in Norway, new and old ``facts`` are mixed: ``Locally produced food is more environmental, safe and solidary,`` it says, claiming solidarity with African producers ``for not spending the resources of others.`` Norway is a main importer of Namibian beef.


While the great focus on ``environmentally damaging`` food imports from Africa and flights to Africa is even increasing, less and less attention is given to the positive environmental balance of this trade.


Forgotten is the fact that almost 100 percent of input factors in African agriculture are locally made and almost no machinery is used in production, while European farmers import fertilisers, pesticides, seeds, seasonal workers and oil-consuming machineries from all over the world.


Forgotten is also the fact that food exports and tourist destination developments empower Africans to protect and manage their environment and even reduce African-induced CO2 emissions.


Eco-tourism has greatly promoted the protection of forests, mangroves, savannas and coral reefs in Africa - which also are key environs when it comes to storing CO2. A larger and more diversified food production in Africa also reduces the dependence on imports to supply African consumers.


And the greatest irony [HYPOCRISY] of all is that, while imports from Africa again are demonised, exports from Europe to Africa causing the same CO2 emissions are promoted as ever before.


Subsidies are paid to promote the consumption of Spanish biscuits, French dairy products, European wheat instead of local staple foods, European tropical fruit juices, trawler caught fish dishes and, of course, all kind of industrial products.


Even Tesco, being concerned about CO2 emissions of transported foods, shows its real face when it comes to exporting from Europe.


Only two weeks before its much-publicised marketing campaign on ``carbon counting`` labels, the UK retailer issued a less-publicised statement.


It announced the opening of ten supermarkets in China, where it will be selling popular European grocery products.


Political support in Beijing was bought by promising to buy Chinese products worth euro 3.3 billion annually for exports.


In China, Tesco meets competition from the giant chains Carrefour of France and Metro of Germany, already assuring a European export of products and lifestyle to the world`s fastest growing market.


Who would come up with a silly idea of starting to count CO2 emissions when Europe`s super retailers are taking up competition with America`s Wal-Mart, thus promoting French, German and British products among China`s 1.3 billion inhabitants?