It feels good to know that EMBA students are not alone in doing HW. However, we know to do extensive research before presenting facts or writing a report. It’s disappointing to read that tariffs were being reported to be at a record low, which contradicts information from the Trans-Pacific Partnership (TPP). Although tariff restrictions on agricultural imports are about 2.2%, the non-tariff barriers jumps to 17.0%, and Japan’s all-in tariff equivalent on agricultural imports is 38.3%. South Korea’s is 48.9%, and Australia’s is 29.5%.” I too cannot conclude that tariffs are “universally low”. Read the article below for more interesting facts.
More homework, please (Feb 28th 2014 by R.A. | LONDON)
BACK in December, Paul Krugman promised to provide his opinion of the Trans-Pacific Partnership, writing to readers, “I’ll do some homework and get back to you.” Today, his column provides his opinion of the TPP. It doesn’t provide much evidence that he did his homework. Mr Krugman writes:
The first thing you need to know about trade deals in general is that they aren’t what they used to be. The glory days of trade negotiations — the days of deals like the Kennedy Round of the 1960s, which sharply reduced tariffs around the world — are long behind us.Why? Basically, old-fashioned trade deals are a victim of their own success: there just isn’t much more protectionism to eliminate. Average U.S. tariff rates have fallen by two-thirds since 1960. The most recent report on American import restraints by the International Trade Commission puts their total cost at less than 0.01 percent of G.D.P.Implicit protection of services — rules and regulations that have the effect of, say, blocking foreign competition in insurance — surely impose additional costs. But the fact remains that, these days, “trade agreements” are mainly about other things. What they’re really about, in particular, is property rights — things like the ability to enforce patents on drugs and copyrights on movies. And so it is with T.P.P.
t’s just not clear to me how anyone who had looked at available information on the TPP could have arrived at this conclusion.
It is true that tariff rates on goods have come down enormously over the past half century. In macroeconomic terms, there is very little left to be gained from further reductions (though little is not nothing, of course). But tariff rates are not universally low. On some categories of goods they remain quite high, and while those categories might be too small to make liberalization macro economically important, tariff-reduction might nonetheless be micro economically desirable. Slashing tariffs on equipment used in wind-power installations or solar-energy facilities will not make a dent in GDP growth. But it would still be a really good thing to do. And trade in environmental goods and services is part of the TPP agenda.
Second, one of the stated ambitions of both TPP and the Trans-Atlantic Trade and Investment Partnership is reduction in non-tariff barriers, which in most cases add substantially more to goods costs than tariff barriers. According to estimates by the World Bank, for instance, American tariff restrictions on agricultural imports are relatively low on the whole, at just 2.2%. But the tariff equivalent of an all-in measure of restrictiveness, which takes into account non-tariff barriers, jumps to 17.0%. The all-in rates for many of the partners in TPP negotiations are substantially higher; Japan’s all-in tariff equivalent on agricultural imports is 38.3%. South Korea’s is 48.9%. Australia’s is 29.5%.
Third, “implicit protection of services” does indeed impose additional costs. For instance, the cost to foreign providers of some crucial transport and shipping services within the American market is basically infinite. Services account for four times as much economic output as goods production in America but only around one-fifth of American trade. Many services aren’t tradable, of course; haircut tariffs will not be on the TPP agenda. But a growing array are. And rules on service trade have barely changed at all in two decades. TTIP and TPP (as well as the Trade in Services Agreement) are aimed at updating rules on services trade to make it easier to sell insurance, or financial and consulting services, or IT and environmental services, and so on, across borders. Now maybe these deals are “really about” intellectual property, and all-powerful Hollywood has convinced the government to expend a lot of time and effort setting standards for services trade, the better to provide a smokescreen for its own nefarious activities. But I doubt it.
Investment is another key item on the agenda. At present rules on cross-border investment can be pretty ad hoc; a firm interested in buying shares in a business in another country often needs to be careful not to buy too much or not to invest in politically sensitive industries, lest the investment invite political scrutiny. TPP is working to reduce the scope for ad-hoc interference in investment, which I think we would generally consider to be a good thing. TTIP is as well (that’s what the “I” is all about).
The list goes on. Both TTIP and TPP are taking steps toward regulatory harmonization. It’s a huge problem for firms when they need to get products separately approved by multiple governments. If the governments can all agree to a similar set of standards and then to honor each others’ approvals, then costs to firms and consumers for everything from food products to light bulbs to medical equipment could fall substantially. It’s also important to recognize that a lot of this stuff simply hasn’t been done at scale before, and TPP and TTIP aren’t intended to sweep away whole categories of barriers at a stroke, anymore than goods tariffs were slashed to almost nothing in one round of talks.
They are meant to start a new and important phase of liberalization, however. It would honestly be very difficult to read much at all on the deals and miss that point.
http://www.economist.com/multimedia
excellent note (I wish I knew who wrote it).
I am delighted to witness this critical view, supported by an excellent analysis of material.
Krugman is not correct also on another ground – as we have seen vividly in our last class, it is inappropriate to view protectionism only from the eyes of tariff. and no where is this less appropriate than in relation to agriculture. farm subsidies are by far the major instrument used in this sector, making tariff a no-issue because there is very little that reaches the borders.