Farmers Must Sell Quinoa

I am always amazed at the one-sided analysis that some journalists adopt in the discussion of trade in goods and especially in agricultural and food items. Joanna Blythman of the Guardian wrote a story on the fact that the global demand for a Peruvian crop known as quinoa is raising prices for the product worldwide. A a supporter of enterprise and trade, I think that this is an unequivocally good thing. However,  the journalist, without stating any other numbers, simply states that the price of quinoa has led to a threefold increase in its price and thereby affected its affordability for Peru's poor people. She attributes the rise in price to the expansion in demand in Europe among health conscious people.

That some households may face difficulty and hunger because the prices of quinoa have risen is not to be taken lightly. However, it is clear that other farmers have gained substantially due to the rise in demand for this crop. Any analysis that fails to account for both the effect on sellers and buyers tells on a part of the story and looks suspiciously reductionist. This blogger would state without equivocation that a big part of the solution in world hunger is not about who consumes what but rather that poorer farmers are affected by inadequate demand for the products that they produce. Peru's quinoa farmers should not have to accept the perverse option of low prices just so that everybody can afford that grain. Indeed, the conclusion fro Joanna that the solution to undernourishment is for all food to be grown a home has little connection to the solution for hunger. Do not blame vegetarians for higher preference for quinoa.

Lamy Muses on Free Trade and Food Security

Observers of the goings-on in the arena for international trade sometimes carry different views about the reason for the failure to complete the Doha Round. To my mind though, it is clear that one of the reasons that I discount is the claim that the WTO has not had truly capable leadership. In many respects, Pascal Lamy and his colleagues in Geneva are faced with the political problems that depress the possibility for substantial freeing of trade. 

One sees further evidence of the thought leadership and clear understanding of the fine but clear distinctions between the political and economic barriers to liberalization among countries. Addressing a policy audience during the Economist Conference early this month, Pascal Lamy ably dissects the issue of food security and the potential of trade to ease price shocks and shortages. The most poignant points in my mind is that very little food is traded across borders to begin with and further that governments are wont to respond to shocks by cutting off the movement of food across borders and thereby exacerbating that problem of supply and prices. Having observed that most food exports come from a ridiculously small number of countries, he unequivocally states that international trade in food is necessary to diversify sources by increasing competition and ensuring that supply comes from the most efficient producers. 

This is a very succinct summary of the state of agriculture products in world trade and good primer for introducing thinking around the benefits of trade. There is an obvious paradox that while the vast majority of the world's households derive livelihoods from agriculture, the proportion of their production that is traded stands at 7%. It cannot be difficult to figure out that the reason is the absence of free trade around agriculture. An old profession that is yet to be substantially freed from political encumbrances. 

Burying Doha Development Agenda

I must admit that for a long time, I have wondered whether the World Trade Organization's Doha Development Agenda wold yield its expected fruit. Reading a number of articles by those in the know, it appears that the Doha Round was all along set for massive disappointment and failure. Jean-Pierre Lehmann writes in the FT (gated) and openly calls for an end to the pretense to end and for Doha to be buried because its long been dead.

I have closely examined and participated in a couple of mMinisterial conferences but I was not always sure that the outcome would be such a mess. With the benefit of hindsight, it is clear that this Trade rRound was bound to be long and difficult on account of the different expectations between member states. I am sometimes left aghast when I hear that there is a developing country and developed country divide with China, iIndia and Brazil being the torch bearers for the developing nations. The poor definition of sides is part of the problem because it encourages the argument of victimhood into debates with expectations of market opening by the "northern" countries.

Jean-Pierre Lehmann's assessment is plausible but I disagree with the claim that fact that Pascal Lamy's exit would in itself render the WTO's future as safe. As a custodian of the affairs of the WTO round on behalf of the member states, Lamy's demeanour has been exemplary and the problem here is with the intransigence of the members as opposed to the secretariat of the WTO. I am not sure that the WTO can be saved if the Doha Round fails completely especially since the piecemeal approach to trade reforms is the "modus operandi" for many of its members. As a system of exchanging concessions, the WTO seems to be reaching its limits and there's nobody to blame but is members. 

Trade Diversification for Africa

The countries of sub-Saharan Africa have shows comparatively higher growth in GDP in the last few years in spite of the effects of the financial crisis. Understandably, this has created a lot of confidence in the overall managers and governments of the countries in the continent. As it is, the view is that growth of 5% annually shows that the countries are doing something well and have managed to overcome the effects of the financial crisis which has crystallized into a general economic crisis in Europe and the US. 

Due to the state of affairs in Africa, nobody would envy the continent of this new growth momentum but still be cautious about its prospects in the medium term. African countries in the early 1960s experienced growth rates akin to what is seen today and failed to maintain that for the medium term. Writing in The Root, Njaramba Gikunju addresses the background issues while covering the later realization by sub-Saharan African governments that they would suffer secondary effects of the crisis. What is less convincing and demonstrably false in that article is that trade with China as replacement for European export markets would be Africa's main avenue for maintaining growth and escape from poverty. 

To my mind, the continent of Africa gets lots of inappropriate advise but it is inconceivable that Chinese investments and trade opportunities alone would lift the continent's people out of poverty. Africa's main problem in trade is that it has a small portfolio of products to ship out and that these are primarily commodities. Trading the same with China, Brazil or India does not in guarantee faster growth in itself. trade diversification goes both in terms of new destinations for imports and exports in addition to diversification of products. It is not one or the other.  

Pascal Lamy on Protectionism

Pascal Lamy, the Director General of the WTO gave this lecture at the Peterson Institute in Washington DC late last week. Knowing that it was probably delivered as as well as it is written, I am struck by the defence to open international trade that it advances. Granted that most of the arguments deployed are pretty standard for a student of economics, it is essential that there is a proper and lucid defence of the value of open markets at this time. It states that trade is essential but is not sufficient unless supported by a compatible domestic policy.

But more important in Pascal Lamy's lecture is the fact that he plainly attacks the popular fallacy that protectionism during a recession is sound economic policy. Speaking with concern for low-income countries, he states that higher income countries may be able to afford protectionism as they can more easily absorb the costs. This is a poignant point for the reason that beggar thy policies are comparatively less damaging to higher income countries that the rest. So while it may be politically profitable to respond to domestic pressure and hike tariffs, lower income countries should be most reluctant to be populist at this time.

That the economic crisis facing the world today will come to an end is without doubt. Hence the injunction from Pascal Lamy that policy with adverse effects would be especially costly when the recovery arrives. In the spirit of not wasting a crisis, astute governors should take the opportunity to prepare for the recovery since openness will be valuable at that time. Economies that are more open will be ahead when the recovery comes.

Being that the Doha Agenda has long been on the table for the World Trade organization, Pascal Lamy reiterates its relevance by responding to skeptics who have made comments suggesting that the promise of its conclusion is substantially eroded. In spite of the good defence, it is the on the status of Doha that I am least inclined to agree with Lamy's assessment. Indeed, I consider that the promise of Doha is less worthy of debate than the realism of its conclusion.

ECIPE's Blog

There are thousands of blogs that discuss issues of economic theory, policy and public policy. It would seem as if the blogs that should be established are already established. However, this is an area where in spite of the existence of mediocre blogs, there's no loss from the establishment of one that stands above the rest. The blog roll here is representative of some of the best and most popular blogs that i know of too.

European Centre for International Political Economy (ECIPE) has established a new blog on which there will be regular posting from Razeen Sally and Frederik Erixon. So I am glad that there a new blog out there that's worth reading and which I will shortly add to the blog roll for bookish posts. Judging from its name, Trade Matters, one can tell that it is primarily concerned with trade policy and other matters of international goods and services exchange. having encountered Razeen Sally's writings on the WTO and international trade architecture, i am sure that this is one that is worthy of regular reading. the blog is also established at the right time because of the apparent push back in reforms coming from the misinformed view that the financial crisis and subsequent recession is a manifestation of the failure of open markets and liberalized economy.

In my view, the blog is very aptly named for trade really matters and I find it curious that the phrase has two possible meanings. the first is the sense that the subject matter will be trade while the alternative is that trade is essential. Both are true and that's all that matters.

India a Leader in Trading Medical Services

I encountered the table above while going through this piece on India's Igovernment site.

This blog has mentioned here and here about the ability of dental surgeons and professionals in regulated industries to exercise market power by restricting entry into the profession. As stated, these professional associations extend the training periods and place arbitrary barriers to entry by other professionals in respect to providing less technical procedures such as extractions and basic dental care. Often this is compounded by resorting to scare stories about the mishaps that may occur even where the data shows that the probability of such mishaps is very low or non-existent.

The table illustrates one of the reasons India's success in the area of medical tourism. Comparing the prices for the treatment of various surgical conditions confirms the financial prudence in opting to undergo the medical procedures for patients from the UK and the US. Granted that the cost is not the only consideration but given the material costs advantage for India on most of these four procedures.

For the presidential candidates in the US, the cost of medical care is a primary campaign issue and it may be of assistance for their advisers to review these figures keenly. Knowing the serious impediments that come with providing the level of care that Us citizens demand, India appears to provide an alternative for insurers to consider. Its just a pity that tooth extraction is not easily traded across borders because the savings are not sufficiently large. In the areas of the more delicate and expensive medical procedures, the table tells the story lucidly: outsourcing in medical care is an option. Indeed, this may just provide the market pressure to reduce the high rents that regulated medical professionals extract.

Hugo Chavez's Dangerous Bluff

Hugo Chavez is reported here to have sent out a threat lacking subtlety about cutting off the US from supply of crude petroleum. One wonders whether he understands what the real effects of this would be. The US is still the major buyer of crude petroleum and it is a sensible argument that any real conservation efforts from the US would be critical for prices to fall internationally. Taking account of the unintended effects, US consumers may simply purchase petroleum from an alternative source or start on a long overdue conservation effort through improvements on engine standards and an alternative energy source.

Once the SUV drivers are compelled to demand cheaper fuel and labs set to provide an alternative source, it would be a matter of time before crude petroleum producers have more petroleum than they can sell. Mr. Chavez ought to be careful what he wishes for because he may just have it. He may be a brilliant polemicist but he should review this threat.

The Lessons of High Commodity Prices

Part of the argument regarding global trading has been the uninformed view that commodities from low-income countries are available at low prices hence the poverty of farmers and the citizens of commodity exporters. Less informed commentators even suggests that there is a widespread conspiracy to keep citizens of low-income countries poor by depressing the prices of these commodities. Prices of agricultural and other commodities have risen substantially in the last three years and this has been a boom for the citizens of these countries who grow these commodities.

One of the commodities that has seen a rise in prices internationally is palm oil from which is produced most edible vegetable oils. This story shows that the price hike has led to rising incomes but the more important factor driving that trend is the rise in demand for the product. Indeed, the increased demand is a boon but it has had several unintended consequences. One of these is that fact that food prices are trending upwards too with serious consequences on the ability of low-income people to purchase sufficient amounts. Equally interesting is the smuggling and movement of the product to markets where the subsidy levels are lower such as Singapore. The differences in policy are creating real opportunities for arbitrage and more market distortion.

As the high prices provide incentives for growing more crops both for bio-fuels and for food, the products will find use in the industries that will ensure higher returns for the producers. The lesson is that the clamour for higher prices for commodities is fine but efficient markets should be the better choice. As is expected with commodities, the real prices will come down over time even if it looks extremely idiotic to mention that in January 2008.

Trade Between the UK and China to Expand

Gordon Brown is on a visit to China and part of the news coverage from BBC news captured the discussion of the expected expansion of trade between the UK and China over the medium term. However, I am inclined to believe that neither the British Prime Minister nor premier Wen Jiabao are sure that trade between the two countries would expand 50% by 2010. How could they be so specific?

Surely, the two must be aware that there's no way that international trade is bound by a linear formula that would tell about the amount of future trade flows with that degree of accuracy. Indeed, through trade agreements and mutual cooperation agreements, the trade would expand. Still, the idea about pinning a specific number is meant to impress the press and the businessmen in the audience.

What is required is an unequivocal undertaking towards unilateral trade liberalization which would expand trade between the two nations and other nations too. There's no need to pluck from a magic hat to illustrate the importance of trade between the two nations. impressive part about the event is the confidence that Gordon Brown exhibits that Chinese manufacturing could be gelled with the UK's service industry advantage for the mutual benefit of both.

Wrong Advise for Africa

Advise to developing countries in particular and to Africans in generall comes at the rate of a dime for a a dozen. In this piece from a South African newspaper is a rather curious set of prescriptions that show only that there's a correct appreciation of the problems of poverty but hardly an understanding of the proper approach to creating growth. Among these is the the obsession with self reliance and the big role for agriculture and use of tariffs for protecting industries.

While I must be cautious because the story may have reported carefully, I can wager that this approach is bound to lead to failure. Given the large informal sector there, it is evident that deliberate effort to increase informality in the economy is just poorly informed. Structural reform of African economies is an imperative and it must lead away from the distorted informal economies towards freer trade. As John Kay states, the insistence on regional and decoupling from the world is equally wrong-headed. Africa's citizens must not miss the glaring lessons of history. Slogan alone do not a high income create.

Pascal Lamy Speaks for Liberalization of Services

Depending on who one hears from, the story circulating in low income countries is that the Doha Round of trade negotiations is registering zero progress is because the EU and to a lesser extent the US are unwilling to abolish trade-distorting subsidies to their farmers. As a result, the collection of lower income countries are in turn reluctant to proceed with negotiations in areas such as physical goods and services.

Apart from the fact that this piecemeal approach to trade liberalization is altogether wrong-headed, this approach by the lower income countries is bereft of much logic. It is often fed by the assumption that their is a hierarchy of industries and sectors that are more important than others and that liberalization of agriculture in the Eu and US would be most beneficial.Following this logic, the liberalization of goods and services trade would be concession in exchange.

In this speech, Pascal Lamy states the clear point that the gains from liberalization of international trade in services would far exceed equivalent liberalization in goods. One could not agree more but sensible application of trade theory is not the one thing that most nations are known for. If only they understood and practised the logic of unilateral liberalization!

India Enters into Semiconductor Manufacturing

It is not to be debated that India's economic growth figures have been impressive in recent years. Most therefore assume that absent a major hiccup, this nation is destined to maintain its growth and become an even greater economy. Growth and success are indeed important but they often brew hubris and bad thinking by governments. An example of this is found in this news piece reporting that India's government is about to publish a semi-conductor policy as part of industrial policy.

It is a shame that government's just do not learn about the limits of directed or central planning and the success in one industry such as software and Business Process Outsourcing (BPO) is generating hubris among bureaucrats in India. They appear to be ignoring enormous amounts of literature on the one side and empirical evidence that weighs against designing industrial policy around subsidies under the guise of tax incentives to attract semiconductor manufacturing into India.

Based on my reading of this book by William Lewis, I would bet against the success of most of these firms that intend to start investments in the industry merely to ride on those subsidies. Careful reading of this book would show that the semiconductor industry is not only very highly competitive but that it exhibits the characteristics of common commodities. Further investments in producing semiconductors through subsidies or protection would only transfer public resources to those investors without generating much new value. If the guidelines remain as suggested in the piece, then this would simply be about putting corporations on welfare. the unintended consequence would probably be a glut in chips in the world market. India's Industrial policy planners would be well advised to review the chapter on South Korea.

Dispute Shows Limits of WTO Remedies

Settling trade disputes within the World Trade Organization is not an easy matter largely because of the convoluted rules. However, the most amazing thing is the agreed process for enforcement which requires retaliatory protection. Essentially therefore, a nation that has been harmed is allowed to institute trade penalties that reduce the imports of the violating WTO member. Now, this rule is puzzling for it is the result of a political agreement which reflects a very poor understanding of international trade theory. A country that imposes high tariffs or restricts trade with another definitely harms itself because it constrains its own firms from importing products or services. Impliedly therefore, it shows that optimal trade strategy should tend towards free trade hence measures that restrict further trade should not be part of the judgment.

The absurdity of the retaliatory protectionism is impressively in show because of an obscure trade dispute between the US and the Caribbean nations of Antigua and Barbuda. It claims that US restrictions of online gambling by its citizens is effectively an anti-trade measure that harms the complainants where some of the online casinos are based. Gary Rivlin reports here for the NYT on the dispute whose hearings have been concluded with the exception of the award. Compensation for the complainants would involve instituting retaliatory measures in the form of commensurate trade barriers against the US. Now, Antigua does not have the ability to raise trade barriers to the extent of the damages estimated US$ 3.4 billion not only because this would hardly harm the US but also because instituting such measures would be idiotic in the sense that it would harm itself. Mr. Mark Mendel, representing the plaintiff is therefore proposing the equally odd measure of being authorized to violate intellectual property laws with the expectation that the intellectual property producers would nudge the US administration to compensate Antigua and Barbuda.

This is a nice ring of the WTO instituting absurd enforcement measures on the one side together with the US unwisely banning gambling which a small nation is eager to provide to US citizens.