April 22, 2006

The local angle...

This one's fun: The Sofia News Agency is covering Teo's campaign launch under the headline Son of Bulgarian Emigrant Runs for Venezuela President. Way to do them proud in the old country!

April 21, 2006

The publicity effect of primaries

Katy says: Gerardo Blyde is a keen analyst and one of the finest minds in Venezuelan politics. In an article published in today's El Universal, Blyde makes the case for primaries, among other things he touches upon. In it, he says that primaries "with a simple, manual voting procedure and a transparent count of all the ballots, will be a clear signal to the world of just how democratic the Venezuelan opposition is, and that when it trusts the referee and the rules are clear and applied to all, it is capable of mobilizing and voting."

A neat idea: primaries to gain legitimacy, so that if and when push comes to shove and we have to take a more radical position, the image of the non-chavista camp voting in a clear election is still fresh on people's minds. Whether you are an abstentionist or not, it is hard to argue that it is better for the world to have this image of what the opposition is about than this other one.

April 20, 2006

Teodoro Petkoff, presidential candidate

Katy says: Quico is off on vacation, but I'm sure if he were online he would have translated Petkoff's entire speech tonight announcing his run for the Presidency. So being the good baby-sitter that I am, and in spite of being pro-Borges, I am translating it: (besides, it helps turn the page on the awful comments thread from the previous post - you should all be ashamed of yourselves)

"Cordial greetings. My name is Teodoro Petkoff and I will only take a minute of your time. I have decided to run for President. This cannot go on. The anguish, the division and the fear cannot go on. We cannot go on living in a permanent state of conflict. We cannot have progress and move forward if part of our population is discriminated against thanks to the Tascón and Maisanta lists. Who gave them the right to deny people their work and their bread, solely for political reasons? In spite of the loads of money the government spends, people are not moving up, jobs are not being created and no one is safe, whether it be in the streets or in their own homes.

I invite you to help build a country where we can all live in peace, personal safety and with good jobs. Where our differences are solved without violence. I demand clean elections, so they can give us an honest and capable government that represents everyone, including those who oppose it. We Venezuelans deserve to live better. I invite you to help me build a Venezuela that knows no fear. Thank you very much."

April 19, 2006

Goodbye Cúcuta, Hello Boa Vista

Katy says: If this breaking news is true, Chávez has just announced that Venezuela is leaving the Andean Community, a reversal of a decades-long policy of the Venezuelan state. No word yet on what private companies think, specially those with heavy investments in Colombia. They are probably as surprised by this move as everyone else.

One is left wondering whether the flourishing drug trade between Chávez's Venezuela and Colombia's Farc will be affected.

April 18, 2006

Lies my newspaper told me: preference erosion

One thing I've discovered is that it's useless trying to get a handle on the WTO negotiations from what you read in the press. The subject is too technical, the journalists too harried and clueless, and so the inaccurate cliches flow thick and fast. It's not surprising that the quality of public debate on trade is so low: the media really fall down when it comes to covering this stuff.

One particularly pervasive and pernicious lazy-journalist ruse is the tendency to portray the negotiations - and especially the agricultural negotiations as a contest between rich and poor countries. The story-line goes something like this: the poorest farmers in poorest countries get systematically screwed by rich-country agricultural policies. The EU and the US spend tens of billions of dollars subsidizing their fat-cat food industries, unfairly pricing African farmers out of the market. The WTO agriculture negotiations are basically about getting the rich countries to give up unfair farm subsidies so that the poorest countries can compete.

It's not exactly surprising that this story line has taken hold. It's a clear, compelling narrative, and do-gooder NGOs (as well as negotiators themselves) often portray the negotiations in these terms. Trouble is, it's deeply misleading...to the point of mischaracterizing the fundamental dynamic at play.

This lazy-journalist-version leaves out two closely-related facts that undermine it fatally:
  1. Subsidies as such account for only a small part of rich country farmers' effective protection - the bulk of their policy-generated edge (as much as 90% according to some studies) comes from high tariffs on farm imports, and
  2. Most of the very poorest countries already have preferential, tariff-free access to rich country markets, through things like the European Everything-but-Arms agreement (EBA) and the US African Growth and Opportunities Act (AGOA).

In fact, the poorest countries not only get a pass on the biggest trade barrier protecting rich country markets (tariffs), but once their products reach rich country markets, they sell at the higher, articially inflated prices produced by those high tariffs.

Effectively shut out of this deal are poor (but not very-poor) country farmers, who don't get preferential access. The reality is that doing away with rich country subsidies and tariffs would tend to hurt the poorest countries by eroding the value of their trade preferences. The more overall tariff levels fall, the less things like EBA and AGOA are worth to the poorest countries. The main beneficiaries from liberalization would be still-poor-but-not-quite-destitute countries which would see their farm exports suddenly becoming competitive. In other words, this is not about Mali vs. France; this is about Mali vs. Brazil.

This problem, known as "preference erosion," is now at the center of the talks.

Obviously, this story line is wayyyy too complicated (and morally unappealing) for lazy journos to pick up, so you'll struggle to find it in the press. But the main fault line in the WTO's agricultural negotiations is not poor countries vs. rich countries. It's a coalition of the poorest countries' farmers and the richest countries' farmers against a coalition of somewhat-less-poor countries' farmers and rich country consumers!

April 16, 2006

The upside-down of WTO negotiations...

The WTO is one of those things that only get weirder the more you learn about them. One baffling fact - the one my dissertation is centered on - is that the negotiating positions are backwards: the countries pushing hardest for an agreement are the ones that, on the whole, stand to lose the most from an agreement. The countries resisting a deal, meanwhile, are the ones that would benefit most from one.

That Carnegie Endowment paper is pretty explicit on this point: it's the EU and Japan that stand to gain most from a Doha Agreement. Thing is, those are the negotiating partners pushing hardest to stop a deal. Even more strange is the fact that, against conventional wisdom, developed countries would be big winners from an agriculture agreement, while developing countries would lose, in the aggregate, from a farm deal.

Welcome to the upside-down world of WTO negotiations!

The reason this happens is that what's good for the EU on aggregate is not what's good for politically influential constituencies in the EU.

In fact, the main source of gains for the EU from an aggricultural deal comes not from gaining access to foreign markets, but merely from being freed from the deadweight of the wasteful tariffs and subsidies to farmers that now weigh down the EU budget. The EU's $90 billion a year common agricultural policy and high tariffs on imported food hurts, first and foremost, EU citizens, who end up paying more in taxes (to pay for subsidies) and more on food (which sells at inflated prices.) By agreeing to withdraw those tariffs and subsidies, the EU could lessen its tax burden, make food cheaper for consumers, and improve the prospects of agricultural exporters in the rest of the world. Everybody wins, right?

Well, no. Not quite. EU farmers definitely lose in such a scenario, and lose big, since they currently get almost half of their revenue from Brussels handouts. It's those farmers who are mobilized against a deal. They're 2% of the EU's population, but they're organized, mobilized, savvy, and have the best lobbyists money can buy. At this point, they more or less own Brussels' trade policy - and they've worked hard to make sure the European Commission adopts a negotiating stance so rigid that no agreement is really possible in the next two weeks. (The same story, more or less, goes for farmers in Japan, South Korea, Norway and Switzerland.)

The other point is that the main gains to be had from a WTO deal are nothing to do with trade negotiations, as such. The developed countries could achieve most of these gains on their own, without having to negotiate with anyone, by just dropping their counterproductive tariffs and subsidies on their own.

Is this screwed up? Well, from an economic point of view, it certainly is. From a political point of view, though, it's perfectly understandable.

Trade reform spreads gains and losses unevenly. If the EU cuts farm tariffs and subsidies, the benefits are evenly spread out between 400 million consumer. But the costs are concentrated among just 8 million farmers. Numerically, the gains to the 400 million consumer are far larger than the losses to the 8 million farmers. But for any individual European consumer the gains are too small to really make a dent, whereas for any individual European farmer the losses are large enough to put them out of business.

Is it surprising that European farmers organize and lobby hard to prevent reform? Not really. Is it really surprising that European consumers can't be bothered? Not really.

Still, the end result is this bizarre state of affairs where EU negotiator work feverishly to stop a deal that would benefit the EU the most, and developing country ministers maneouver feverishly to clinch an agreement that would, on the whole, hurt them.

A WTO Update

You can always tell when I'm spending less time obsessing about Venezuela and more time working on my dissertation by the volume of posts here. I'm preparing for a conference next months so I've been more or less immersed in WTO land...so this may be as good a time as any to vent on my other topic...

A better time, in fact, since the latest self-imposed WTO deadline is just two weeks away. April 30th is the latest, no joking, this-time-we-mean-it "deadline" to agree a detailed outline for a Doha Round deal. Of course, you could fill a barrel with no joking, this-time-we-mean-it deadlines the WTO has set itself and then missed - but there are good reasons to think the April 30th deadline is more real than most.

President Bush's "fast-track authority" is set to expire in June 2007 and there's no prospect of renewal. The conventional wisdom is that if the April 30th deadline slips, there will be no time to work out a complete deal by summer 2007, which would send the whole negotiating round into a kind of limbo until less protectionist winds start blowing in Washington.

At the moment, there's no sign of a last minute breakthrough...which suits me just fine, last thing I need is these jokesters throwing my research into chaos by signing a deal while I'm spell-checking my final draft.

This latest deadlock is not particularly new. The last round of negotiations went through two near-death experiences very much like this one (one in 1989, then again in 1991) before finally emerging in 1994 - nine years after negotiations had been launched. The current round, which was launched in 2001, looks to take at least as long, if not longer.

It's an odd place to hang out, WTO land. The thing that really strikes me, as I go about my research, is the huge gap between how important people generally assume the WTO to be and how important it actually is. Frankly, if I chose to do a dissertation about it it's because I also figured the WTO was a big deal, but the deeper you get into the numbers, the more you wonder what the immense fuss is about.

Exhibit A is this increasingly infamous paper by Berkeley economist Andrew Rose. The guy ran an immense trade data set through a standard Gravity Model and found, to the embarrassment of trade diplomats near and far, that the WTO and its predecessor, the GATT, have made no difference at all in expanding trade. Published in the most prestigious Economics journal there is - the American Economic Review - and therefore checked, re-checked, peer-reviewed, and re-peer-reviewed to within an inch of its life - it can hardly be dismissed as shoddy scholarship.

Actually, a bit of a cottage industry seems to be springing up around Rose's paper, as economists try to poke holes in it and salvage the notion that, y'know, the WTO isn't just a colossal waste of everyone's time. As far as I know, Rose's findings have yet to be disproved.

Exhibit B is this report by the Carnegie Endowment for International Peace, and more broadly, the family of Applied General Equilibrium (AGE) models economists use to simulate the likely impact of a trade agreement. These are, basically, fantastically complicated systems of equations meant to approximate the operation of the world economy based on standard, neoclassical assumptions of perfect competition and constant returns to scale. The Carnegie research suggests that a successful Doha Round deal would expand worldwide economic welfare by $40 to $60 billion per year.

That sounds like a lot of money, but when you figure it in relative terms, you realize we're talking about 0.15-0.20% of world income. That's a fifth of a penny on the dollar! Even in the (totally unrealistic) scenario of full trade liberalization (i.e. zero tariffs and quotas for all products in all markets) we're still talking about just a 0.53% boost in world GDP. The World Bank's model, which seeks to capture dynamic efficiency gains as well as static gains, puts the income boost from full liberalization at just under 1% of world GDP, and gains from a plausible Doha deal at about 0.35%. However you tweak the model, these are not large numbers.

Surely, it's possible to pick nits with these models - which don't consider service liberalization or intra-industry trade arising from imperfect competition and increasing returns to scale. But then, nobody can figure out a way to put numbers to those things. For all their faults, the AGE models are the best models we have, and together with Rose's historical research they tell a fairly convincing and consistent story: you can credit the WTO for preventing the sort of cataclysmic collapse in world trade flows we saw in the 1930s, you can credit it for bringing a measure of institutional predictability to world trade, but you can't argue it has made (or is likely to make) a big difference in the world economy, whether for better or for worse.

Which, of course, brings us back to the start of the post...if a Doha Round agreement is likely to make little if any difference to the world economy, why do soooo many people get so fantastically hot-under-the-collar about the WTO? I think the answer hinges on two facts: first, while on aggregate the WTO doesn't make much difference, for a few specific people working in a few specific industries in a few specific countries it does make a big difference, and second, those people have strong incentives to try to persuade the rest of us that the sky will cave in if the WTO does (or doesn't) reach a new agreement.

At the same time, the WTO's grandiloquent title tends to make it sound far weightier than it really is - would there really be massive street protests if the organization had been named more descriptively? Would Seattle had been trashed to protest a meeting of the International Standing Committee for the Partial Harmonization of Tariffs and Other Trade Practices? I doubt it.

(But then, would I have chosen to write a dissertation on such a body??...hmmmm...better not go there...)