WTO Welcomes Its 160th Member, Yemen

Yemen, there's no need to feel down
I said Yemen, pick yourself off the ground...

A little neglected in the hullabaloo surrounding the conclusion of the "Bali package" at WTO negotiations in the eponymous Indonesian resort location has been the organization's acceptance of its 160th member. A stop on the Silk Route of centuries past, to say Yemen has fallen under hard times due to religious extremists and assorted nutcases taking up their various dubious causes is an understatement. However, it now joins the growing ranks of least-developed country members:

Immediately after the heads of delegations’ meeting, members formally accepted Yemen as a new WTO member — its “accession” to the WTO. At a ceremony to celebrate the decision, Mr Azevêdo congratulated the Yemen government for the domestic reforms it is undertaking after 13 years to finally become a WTO member. “We celebrate accessions both because of what it means for the individual country, but also because of what it means for this organization,” he said

The Republic of Yemen will be the 35th least developed country in the WTO. “This group makes up a fifth of the whole WTO membership. It is an important constituency — and, as we have seen in recent days, it is one that is increasingly making its voice heard,” said the Director-General. Yemen’s Industry and Trade Minister Sa’aduddin Bin Taleb expressed his country’s gratitude and excitement at finally becoming a WTO member.

“Sometimes things change for countries and fortunes change. But the very essence of a country and the history and the civilisation remains. Ours has been trading for the last at least five or six hundred years, in fact, since the spice route," he told the assembled ministers from the WTO’s current membership.“We aim to take back that road again and to connect with everybody in the world. ... I hope that after a few months, we will have a new Yemen born." The Yemeni Parliament will have six months, until 2 June 2014, to ratify its accession package. It will then inform the WTO and 30 days later it will officially become a member.

What can I say? Yemen's membership comes just in time to enjoy duty-free, quota-free access by least-developed countries to richer ones as well as preferential rules of origin. Meanwhile, the domestic debate is awfully similar to what countries considering joining the WTO have--we will be inundated with imports, our domestic industries will be wiped out as a consequence, domestic firms are not yet ready, etcIts :

Sana’a University economics professor Salah Al-Maqtari said the move was a bad one for Yemen. “Yemen already has no customs restraints, and international products have invaded its markets, even before accession to the WTO,” he said. Al-Maqtari said Yemen imports 85 percent of its food commodities from abroad and does not produce many goods for export.

“Yemen is on the losing side because its consumption [of imports] is higher than its production [of goods for export],” he said. Car importer Sami Sabiha said the Yemeni government has not made any preparations to help industries or the economy deal with the difficulties they will face as a result of joining the organization. 

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Last Chance Saloon: WTO's Fate & This Week's Bali Meet

I just wanted to share the ICTSD's useful primer on the upcoming WTO meetings in Bali, Indonesia where the organization's fate as a credible negotiating forum hangs in the balance. The full report is available as a PDF file; below is the introduction to this crucial event:

Trade ministers are set to meet in the Indonesian island province of Bali from 3-6 December for the WTO’s Ninth Ministerial Conference, in a meeting that has been touted - for better or worse - as a turning point for the 159-member organisation. Yet on the eve of the conference, what will actually be on the agenda in Bali remains fluid.

Geneva-based negotiators have spent the last several months feverishly negotiating a small package of concessions [see my earlier post on it meager contents] that, if achieved, would mark the first multilateral trade deal since the WTO was formed in 1995. A deal in Bali, officials and observers alike had said throughout the year, would provide a major boost to the organisation’s credibility at what many have deemed to be a critical moment in its history. 

Days before the ministerial, however, WTO Director-General Roberto Azevêdo confirmed that, despite a “tremendous effort” on behalf of the membership and some significant advances, they had not yet agreed on a deal to present to their ministers - leaving the fate of the Bali conference hanging in the balance.

Alike five years ago, India may play the spoiler by sinking the entire deal through kowtowing to its domestic agricultural lobbies:

Chief among those is India’s demand – affirmed at a cabinet meeting in New Delhi on Thursday – for a “peace clause”, intended to give another four years to negotiators to come up with new WTO rules for farm subsidies and the prices paid for staples bought as part of government programmes to supply food to the poor.

Other participants have accused India of backing down from an agreement struck earlier in November over that peace clause and thereby putting at risk a broader deal that would set about removing red tape at borders around the world and, advocates claim, add as must as $1tn to international trade. 

Cautious optimism holds going into next week; no outcome would result in outright despair, while an outcome would result in a welcome development. Still, prospects for a wider Doha deal are remote twelve years after it began.

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Trade Deals: Ukraine Jilts EU, Returns to Russian Fold

When we last talked about Ukraine, it had elected a pro-Russian leader in Viktor Yanukovych--the same Russia-aligned "bad guy" the so-called Orange Revolution supposedly got rid of. Hard economic times (brought on by the global financial crisis) soured the partnership of his opponents Yulia Tymoshenko and Viktor Yushchenko. in their place he offered, well, "change." Ukraine is a rather divided nation with its Eastern Russian-speaking portion favoring closer ties with Russia (and thus Yanukovych) and its Western portion which is warier of the giant neighbor's residual influence post-Soviet Union.

It was thus interesting to note that Yanukovych remained keen on concluding a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU that his ostensibly more Western-leaning predecessors had initiated negotiations on. In recent weeks, the EU had been pressing Ukraine to finally get this FTA done, but it wanted Yulia Tymoshenko released from prison. Jailed over corruption charges, many (especially Europeans) believe she is a political prisoner of the incumbent.

And so things came to a head at the Ukranian legislature. Yanukovych's allies would not let Tymoshenko go for medical treatment in Germany lest she mount a comeback in time for the elections in 2015. Unable to stomach her release, Ukraine has now gone a step further by not only ditching the FTA with the EU but signaling its intentions to revive economic links with Russia:

Ukraine abruptly abandoned a historic new alliance with its western neighbours on Thursday, halting plans for an imminent trade pact with the European Union and saying it would instead revive talks with Russia. EU officials, who had been preparing to sign the long-negotiated deal at the end of next week, said President Viktor Yanukovich cited fears of losing massive trade with Russia when he told an EU envoy this week that he could not agree terms.

Yanukovich's prime minister issued the dramatic order to suspend the process in the interests of "national security" and renew "active dialogue" with Moscow. EU officials, who had hoped the president's complaints in recent days were a last-minute bargaining tactic, saw little chance of saving the deal...

Ukraine's parliament, dominated by Yanukovich's allies, rejected a series of bills earlier on Thursday that would have satisfied the EU by letting opposition leader Yulia Tymoshenko out of prison to travel to Germany for medical treatment [for a back problem]. Shortly afterwards Prime Minister Mykola Azarov issued the order on suspending the EU process and reviving talks with Russia, other members of a Moscow-led customs union and the former Soviet Commonwealth of Independent States.

Is the power of their neighbors such that Ukraine would so feebly accede to Russian pressure? Perhaps it was just Yanukovych playing Russia off with the EU in seeing who would give it more economic concessions. In the end, however, the Russians seemingly offered a better deal--at least to Yanukovych who was always inclined towards Russia to begin with. It was a feint that EU officialdom perhaps bought too eagerly.

However, this story is not yet finished since another Ukranian leader less receptive to its eastern neighbors may yet ink the DCFTA since s/he will have little at stake with regard to releasing Tymoshenko.

Meanwhile, we can pass time figuring out how to get Tymoshenko's famous braided hairstyle...

UPDATE: Yulia Tymoshenko has now declared a hunger strike until her country signs the EU FTA.

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After 12 Long Years, a WTO Deal in Bali?

For obvious reasons--nothing much happening in Geneva--I have devoted very little attention to the conclusion of the WTO Doha Round, having given it up for lost. For all intents and purposes, the Doha Development Agenda as it is officially referred to is still on the back burner. But, there was activity stirring a week ago causing its new Brazilian Director-General Roberto Azevedo to remark "We are too close to success to accept failure but it is all or nothing now." Latin brio aside, they have taken some more "salable" items on the negotiating table to hopefully use in demonstrating that WTO negotiations are not yet dead by concluding a smaller multilateral deal during end-of-year gatherings of its members in Bali (3-6 December). 

What exactly is inside this "Bali package," then? Supposedly there are three pillars: (1) trade facilitation to reduce red tape among international customs authorities; (2) development in better operationalizing what kinds of special and differential treatment [SDT] are afforded developing countries; and (3) agriculture permitting developing countries more leeway in doing things such as helping feed their destitute members:

WTO ambassadors resumed consultations on Section II of a draft agreement on trade facilitation. This section provides the basis for special and differential treatment and for technical assistance and capacity building needed for the implementation of the agreement.

In agriculture, members are focusing on proposals about reducing export subsidies and related policies known collectively as “export competition”, reducing the chances that the methods used to share out a particular type of quota among traders become trade barriers in their own right, on how to deal with developing countries’ food stockholding for food security when the purchases could distort trade, on adding a number of environmental and development services to the list of programmes considered not to distort trade and therefore allowed without limit, and on cotton produced by least-developed countries (LDCs).

On development, members have agreed proposals by LDCs on preferential rules of origin and on operationalization of the services waiver for them. Work continues on duty-free, quota free treatment for LDCs. Members are also consulting on a monitoring mechanism for special and differential treatment for developing countries under WTO agreements. 

From my perspective, it's a bunch of giveaways from industrialized for developing countries which do not require substantial concessions from the former that the latter find reasonably attractive. They do not move the game on a whole lot. Still, the hope is that this "Bali package" is useful for demonstration purposes in showing the world that the WTO still matters. Yes, it's akin to shooting fish in a barrel, but the prospects are at least better than Doha. Ladies and gentlemen, a deal is now imminent...

Roberto Azevêdo, the recently appointed head of the WTO, is expected to present a finished draft of the agreement to the body’s highest organ, the general council, in a meeting as soon as Sunday or Monday.

Barring any unforeseen problems – and negotiators gave warning on Thursday that they could still emerge – the agreement would be signed by trade ministers from the WTO’s 159 member countries in Bali next month. “They have crossed over the threshold,” said a senior trade official in Geneva. Sealed, the deal would be a victory for Mr Azevêdo, who warned that the WTO risked irrelevancy if it did not deliver something substantive in Bali when took over in September.

For a guy who just came into office in September, it's certainly an auspicious beginning. And all it took was for a D-G from a developing country to do it?! We could have had something much earlier if so, but I think there's also an air of desperation that crept in which is making this deal more palatable all around. Believe it or not, trade negotiators probably got tired of attending these shindigs just to twiddle their thumbs year in and year out.

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Make a Killing? US FTAs and Big Tobacco

There is a debate surrounding the pending Trans-Pacific Partnership expansion about whether participants' policies aimed at curbing tobacco use will be dismantled in the name of free trade. Large American tobacco companies--collectively known as "Big Tobacco"--have certainly not shied away from using texts of trade liberalization measures in faulting curbs to their unfettered access to emerging markets.  Outgoing New York Mayor Michael Bloomberg has been especially vocal about what he believes is a major assault on global health led by the United States.

As per current TPP drafts, some argue that negotiating LDCs will be made to relent on the sorts of public policies that have proven effective Stateside in reducing smoking:

The proposal put forward by the US Trade Representative (USTR) last week in Brunei would reduce prices for US tobacco in low- and middle-income countries and make it more difficult for these countries to enforce anti-tobacco policies like package warnings and advertising and marketing restrictions.   This proposal would impact the nine TPP countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States -- six of these fall into the World Health Organization’s Western Pacific Region, which had the highest smoking rate among men in 2009. 

To put the implications of this proposal into perspective, consider these two points: Tobacco use caused 100 million deaths in the 20^th century.  If current trends persist, it is projected to cause 1 billion deaths in the 21^st century.  More than 80% of those future tobacco-related deaths will occur in low- and middle-income countries (LMICs). Tobacco use in the United States is steadily declining, due largely to widespread anti-tobacco campaigns and stringent anti-smoking policies – the same kinds of policies that the TPP will make difficult to enforce in developing countries.

So, why is the US effectively hindering the export of its good anti-tobacco policies to the LMICs that need them most?  A few key issues have risen to the surface during this debate. A “carve-out” for tobacco – where tobacco would simply be excluded from the terms of the TPP agreement – was proposed by Malaysia and makes sense. But the USTR worries that a carve-out would set a precedent that could be used to block a variety of other US exports on health grounds.

In other words, how exceptional is tobacco based on health grounds? The fear is that all sorts of products would be excluded by other countries and dilute the FTA. Left unresolved, the tobacco issue may even spoil TPP negotiations altogether:

The White House has tried to finesse the issue, recently proposing that the TPP agreement acknowledge tobacco as a health concern but otherwise treat it no differently from other products. That compromise has satisfied no one. Health advocates are furious that the White House dropped its previous proposal for a stronger tobacco control exception in the TPP agreement. The business community opposes any special treatment for tobacco. With that controversy spilling into the press and threatening the conclusion of the TPP talks—the Obama administration's signature international economic initiative [...]

As the tobacco industry's tactics on trade shifted, the controversy reignited. Tobacco companies began using trade and investment agreements to file legal challenges to block new cigarette labeling and advertising restrictions. Australia is fighting four different trade and investment cases against its cigarette packaging law. Similar cases have been filed against Norway and Uruguay and threatened against Togo. Investment disputes are expensive and the outcomes can be unpredictable. Many developing countries do not have the expertise or resources to fight. Even New Zealand and Canada backed away from planned tobacco regulations in the face of litigation threats.

 Thomas Bollyky of the CFR's suggestions in making a limited exception seem to make sense:

• This exception must explicitly encompass the full range of tobacco control measures addressed under the Framework Convention on Tobacco Control and permitted under U.S. laws.
• This exception should be limited to nondiscriminatory tobacco control measures. An exemption from legal challenge cannot serve as a pretext for TPP countries to favor domestic cigarette producers. This condition is consistent with overall U.S. trade policy and the terms of the 2001 U.S. executive order on tobacco and trade.
• This exception must not include the cross-reference that exists in most U.S. trade agreements to the health exceptions in World Trade Organization agreements. Such references might inappropriately interfere with tobacco litigation already filed under those other agreements against Australia and other TPP countries.

My take is that fair warning is appropriate concerning the possible effects of cigarette smoking and ought not to be sacrificed to a distortion of the term "liberalization." Consumer interests are not well-served by hiding the facts about the health consequences of cigarette smoking and arguing otherwise is a sham. Smoke if you must, but do so while knowing the possible consequences.

Add this to the already lengthy list of obstacles to TPP. 

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Will France's "Culture" Concerns Delay US-EU FTA?

I have already dubbed the proposed " Transatlantic Trade and Investment Partnership" AKA the US-EU FTA a non-event on the grounds that (a) the counterparties are slow-growing economies (b) which already have few barriers on each other's products [around 2% tariff rates on average]. Also, (c) they face several obstacles to further liberalization on products with tariff peaks that will at best result in a watered-down agreement --especially in agriculture. While this FTA bores me already, I have nonetheless found France's intransigence somewhat intriguing given the run-ins they've had with the United States over various issues. Remember those "freedom fries"? I surely do.

A few weeks ago I discussed how the French were likely to raise a stink about "cultural imperialism" insofar as their "superior" culture was to be overwhelmed by Hollywood's brand of lowbrow tinselled trash. Call it the cultural special safeguard mechanism. While agreeing that much US video entertainment is garbage, it is not my place or that of anyone else's to question the questionable taste of French consumers. That is, if they prefer Hollywood fare to France's own productions, well, tough. Obstinate French officials are pressing this point, though. They will surely ask for exceptions in agriculture--just you wait since they will come just as night follows day--but possibly delaying the start of FTA negotiations over exceptions to entertainment is exceptional:

France is "extremely determined" to keep movies and digital media out of free trade talks between the EU and the United States, a government minister said on Wednesday, a stance that could block the start of negotiations. Two days before EU countries are supposed to give the go-ahead for negotiations, the EU is struggling to find a compromise that satisfies France's "cultural" concerns without exempting the audiovisual sector from the wide-reaching talks.

"France defends and will defend the cultural exception to the end - that's a red line," French Culture Minister Aurelie Filippetti told Reuters TV, referring to current EU rules that allow governments to preserve "cultural diversity" by setting subsidies and quotas that might otherwise be considered contrary to free trade. Asked if Paris would go as far as blocking the opening of talks on what would be the world's largest free-trade agreement, she replied: "France is extremely determined."

The first round of talks has been tentatively scheduled for July, but both sides must first agree the scope of the negotiations, something EU trade ministers should finalize at talks on Friday.

Later today the eurocrats will discuss the coverage of FTA negotiations. Expect more drama from the French. Mas oui!

UPDATE 1: The French will not block the start of the negotiations after winning an exemption on media products after hours and hours of negotiations (albeit with some qualifiers):

Paris had refused to join the 26 other EU governments unless television, movies and developing online media were left out.

The final mandate given to EU trade chief Karel De Gucht, who will lead negotiations, does not include the audiovisual sector. However, it does give the Commission the right to ask member states for a broader mandate at a later stage. "I can live with this," De Gucht told a news conference.

French Trade Minister Nicole Bricq said it was "written clearly in black and white" that culture was excluded.

UPDATE 2: A number of top European directors are elated about "victory" in a culture trade war.  

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Huawei to Hell: PRC Threatens Trade Spat w/ EU

There's so much controversy over Chinese-made and -designed telecommunications gear: While the American solution to denying market access to budding Chinese telecoms giants / national champions Huawei and ZTE is to treat them as security threats--their investment is not welcome in the "Land of the Free"--Europeans have another tack. Namely, these PRC champions have been styled by EU trade authorities as heavily subsidized competitors. Nobody doubts the EU's penchant for raising a ruckus over competition law or unfair trade--go ask Microsoft, Google, Boeing and so on. It was thus probably only a matter of time before the Europeans got around to Huawei and ZTE. Ironically, the Chinese trade threats were made at a meeting meant to relax trade tensions:

Beijing has threatened swift retaliation against a range of European Union industries if Brussels presses ahead with an investigation into government subsidies granted to two Chinese telecoms equipment companies. The Chinese threat was delivered at a meeting with EU trade officials in Beijing late last month that was arranged at the behest of Chen Deming, China’s commerce minister, to try to defuse a brewing trade dispute that is straining commercial relations between the two sides.

Instead, it collapsed into acrimony, with the Chinese warning their EU visitors that they would respond to any investigation of Huawei and ZTE Corp by probing subsidies granted to European agriculture, automotive, renewable energy and telecoms companies.

Alike US quarrels with Huawei and ZTE, the interesting thing is that the most vocal parties are not Western telecoms gear manufacturers but rather the politicos. They probably are more keen on "setting an example" for China lest such practices continue or even expand in other industries. Yet, as a demonstration of emerging Chinese market power, European manufacturers are actually pressuring the European Commission not to go forward with, say, a WTO case against Huawei and ZTE:

Nonetheless, concerns about the Chinese reaction – and pressure from worried member states – appear to have put on ice a case that once seemed imminent, according to several EU diplomats. They said it was now unlikely that Mr De Gucht would act before September...

Combating Chinese government subsidies has been one of Mr De Gucht’s top priorities. The cutting-edge telecoms equipment industry, in which Huawei and ZTE have quickly gained market share, would be a signature case. The European Commission was poised to open its investigation after informing member states at a closed-door meeting in June that it had “very solid evidence” that both companies had benefited from illegal subsidies to develop their fast-growing businesses.

The case, which could result in steep tariffs, is believed to centre on export credits supplied by the Chinese governments to facilitate overseas sales. Huawei and ZTE have denied receiving improper subsidies. Chinese officials have also denied the EU allegations. Mr De Gucht’s case has been undermined by a lack of support from European telecoms companies – Ericsson, Siemens-Nokia, and Alcatel-Lucent – which fear that any action from Brussels could harm their own business interests in China’s fast-growing market. 

It looks to me like the Chinese have the Dutchman De Gucht by the balls here if industry bigwigs and various EU nations are wary of annoying the dragon. Who exactly will he draw support from for trade litigation? China many not be playing fair as he says, but he has few backers for demonstrating that such is the case.

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TPP is Ludicrous: US Auto, Canadian Agri Edition

Here are two more examples of the rather enormous roadblocks to the US government attempting to expand an APEC PTA to counterbalance growing Chinese trade dominance in the region. In their own ways, they are rather ludicrous examples of how Trans-Pacific Partnership (TPP) enlargement is infeasible at the current time given the policies of certain aspirant nations:

(1) Having largely survived via government bailouts, American automakers are now encouraging the US government not to let Japan join TPP enlargement negotiations for the reason that the Japanese supposedly throw up "non-tariff barriers." Having tried to pry open the Japanese market before via the blunt route of trade negotiations, it seems these automakers haven't yet learned their lesson. That is, selling big, gas-guzzling left-hand drive cars in a market where almost all cars are small, frugal and right-hand drive doesn't work. Quoting from a Japanese official on these alleged NTBs:

A Japanese government source in Tokyo rejected Detroit's contention that regulatory and other hidden or structural barriers keep U.S. cars out of the Japanese market. "Japan has no tariffs on cars and our acknowledgment is Japan has no non-tariff barriers either," said the government source, speaking on condition of anonymity.

"U.S. cars do not fit Japan's market or Japanese consumers' requirements because of size, high fuel consumption and higher prices. They need to have a line-up that suits Japanese consumers' preferences," the source added.

American consumers may have an enduring appetite for crapmobiles from Government Motors, but that does not necessarily mean that Japanese consumers are similarly gullible. I will not even get into the matter of agriculture where the TPP will supposedly offer no opt-outs.

(2) It appears that Canada in the TPP too looks like a long shot given its liberal use of agricultural supports. Canadian Trade Minister Ed Fast is looking to gain the approval of ANZ countries in particular of this matter while in Singapore:

A tariff structure that supports domestic farmers should not be a barrier to Canada's entry to a pan-Pacific trade pact, although all issues are up for negotiation, Canada's trade minister said on Wednesday. Ed Fast, interviewed in Singapore at the end of a tour of Southeast Asia, said most of the nine countries working toward the conclusion of a Trans-Pacific Partnership (TPP) deal supported Canada's entry into the negotiations.

He declined to say which countries did not back the plans. News reports have suggested Australia and New Zealand are unhappy about Canada's supply management support program for poultry and egg producers, a network of marketing boards and quotas intended to keep markets stable and ensure farm incomes.

It may be the case that TPP will be shot through with opt-outs if the likes of Canada and Japan come on board without significant changes in agricultural policy, negating the American assertion that it is a "high standard" FTA in the process. (See a recent post on Japan in the TPP.)

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Revisiting WWII, or When Adidas Made Bazookas

This coming week I am going to discuss European economic integration in class. As most of you can recite from memory, the European Union got its start as the European Coal and Steel Community (ECSC) back in 1952. However, the political logic of the ECSC is a bit more obscure. While you will appreciate the necessity of rebuilding an industrial base in Europe post-WWII, the political story is a bit more involved.

You see, the French had a recurring fear of postwar German reconstruction coming in the form of re-industrialization. A number of conditions laid down on Germany after WWI concerned limiting its re-industrialization to prevent its re-militarization. Looking back, the French were to their dismay proven correct when the Nationalist Socialist party came into power and sped up the reformation of the German industrial machine. So, after WWII, the French had similar apprehensions about German re-industrialization. The solution, of course, was jointly administering the system by which key inputs--coking coal and iron ore--were distributed at the heart of Europe. That is, in exchange for Germany being allowed to (peacefully) re-industrialize, the erstwhile victor, France, would gain a veto power over resources if they perceived they were being requisitioned for military purposes.

Which brings me to the history of famous German brands. While they are today among the most coveted and recognizable in the world, their Nazi-era past is often forgotten (and thankfully so). Hugo Boss wasn't making designer duds but Nazi uniforms. BMW was building aeroplane engines for Luftwaffe bombers and fighters--hence the propeller logo. Hitler initiated the people's car project that is today's largest auto empire. Ferdinand Porsche helped design Panzer and Tiger tanks that dominated land-based conflict in the early going. And so on and so forth.

As WWII dragged on, many other manufacturers in unrelated lines of business started contributing to the war machine. While looking around, I came across a Der Spiegel article that explains how the brothers Dassler--Adi Dassler (Adidas) and Rudolf Dassler (Puma) were made to make highly effective anti-tank bazookas [!] The same factory that made the shoes Jesse Owens wore at the 1936 Munich Olympics to wide acclaim was making anti-tank weapons by 1944:

But the history of the Dasslers -- who both joined the Nazi Party in 1933 -- wouldn't be complete without one chapter from World War II: In 1944, there was suddenly a spike in the number of Allied tanks being blown apart by German fire. The culprit was the latest anti-tank rocket launcher, nicknamed the "Panzerschreck" ("Tank Terror"). This extremely effective weapon petrified Allied tank crews -- and it was manufactured in the same factory that had developed Owens' shoes only eight years earlier.

With Germany well on the losing side already, a crude yet effective weapon was made:

The German army fashioned the Dasslers' Panzerschreck after the American bazooka: a shoulder-fired steel tube; weight 9.3 kilograms (20.5 lbs); length 164 centimeters (5.4 feet); with a range of up to 180 meters (590 feet). A rocket fired from the Panzerschreck could penetrate steel armor 20 centimeters (8 inches) thick...

Inside the plant, shoe seamstresses -- who had quickly been given makeshift training to work in the armaments industry -- welded sights and blast shields onto the pipes. French forced laborers were also on the production line. "The construction of the Panzerschreck was so simple that, given a little practice, even unskilled workers had hardly any problems manufacturing it," one former employee told local historian Manfred Welker. But even with the simple design, German army inspectors still found themselves discarding many of the weapons made by Herzogenaurach's amateurs on account of their flaws. The complicated and dangerous production of the rockets, though, continued to be handled by the professionals in Vach.

Fortunately for the Allies, the effective tank killer from the shoe factory came too little, too late:

Wherever the specially trained "tank-destroying detachments" made an appearance, there was a significant increase in the number of enemy tanks knocked out. In March 1945, there were some 92,000 Panzerschrecks being used on the crumbling fronts. But the weapons had arrived too late to have a major influence on the war's outcome. It wasn't until 1944 that Panzerschrecks and Panzerfausts could be deployed on a large scale, but by then the military's initial good fortune had long since run out. "If large numbers of Panzerschrecks could have been deployed during the Russian campaign in 1941, Moscow would have probably fallen."

It's doubly good fortune for the brothers Dassler that the Yanks who went to the factory were duped into believing that they didn't contribute to the war effort but had in fact made Owens' shoes:

The Dasslers' brief career as weapons manufacturers nearly proved their undoing. In April 1945, when the Americans marched into Herzogenaurach, US tanks pulled up in front of the factory. The soldiers were still debating whether they should destroy the building when Adi's wife, Käthe, walked out and charmingly convinced the GIs that the company and its employees were only interested in manufacturing sports shoes.

What's more, after the factory was saved, the occupying forces turned out to be a blessing for the two shoemakers. The US Air Force set up its own operations at the former military air base in Herzogenaurach. When the sports-crazy Americans got wind of the fact that the Dassler brothers had produced the shoes that Jesse Owens had run in, they started buying all the products the company could produce. Large orders for footwear for basketball and baseball (and hockey) soon rolled in and gave the company its first boost on the road to becoming a worldwide success story.

It's very interesting stuff, and certainly worth more than a footnote to European history. Indeed, similar concerns would reappear about German dominance leading to military adventurism in the aftermath of German reunification post-1989. How did they deal with that possibility? For better or worse, the Maastricht Treaty is offered up as an even more elaborate mechanism to bind German interests to those of Europe in general.

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Garrett: US 'All In' On Right Side of History vs China

The framing is not one which I would use, but it's an increasingly familiar trope nonetheless: Is the United States' model of capitalist liberal democracy becoming obsolete vis-a-vis the "developmental authoritarianism" of China? The litmus test in Asia in this regard may be coming fast as the US appears to be nearing its neo-Bushian "you're either with us or against us" moment in the preferential trade agreement realm. Hillary Clinton recently suggested as much. However, I seem to have missed political economy stalwart Geoffrey Garrett's take on Obama going "all in" or betting everything regarding the Asia-Pacific via the much-ballyhooed Trans-Pacific Partnership (TPP) expansion bid. (When we last saw Garrett in these parts, he was talking about a G-2 US-China compact emerging in global governance.)

It's curious as to why Garrett penned write this article for probably the most bellicose of China's state-supported publications, the Global Times, when it suggests Chinese not American overreach. For what it's worth, though...

[T]he US is insisting that this will only be possible if China is willing to play by what Obama called "the rules" set by the US, which he claims are widely accepted in the region. As every poker player knows, going "all in" is the ultimate high risk and high reward gambit. You can win big, in this case having China accede to the US demands regarding opening its economy, giving larger political freedom to its people, and ending its territorial disputes in the region.

But you can also lose everything. Here Obama's gambit risks not only alienating China but also increasing the chances of conflict with China. Only the confident risk going all in. Obama's confidence stems from his belief that "history is on the side of the free - free societies, free governments, free economies, free people."

So far so grandiloquent. Which is par for the course for US officialdom almost by definition. But, the reasoning offered is that while China's trade ties with others in the region are growing and in many cases now outstripping their ties with the US, uncertainty about China's territorial designs gives the US a benefit of the doubt that it's using advantageously:

This statement is more than blind faith. Obama reasons that the trajectory of change is on the US side. While China has booming trade relationships with many countries in the Asia Pacific, including longstanding US allies led by Australia, Japan and Korea, there is still widespread unease in the region about China's ultimate intentions and ambitions.

In contrast, despite the big hits the US brand has taken, most Asian nations seem interested in even tighter ties with the US. This includes not only traditional allies but also new friends like India, Indonesia and Vietnam. The US calculation is that its coalition in the Asia Pacific is not only invulnerable to China's rise, but that it is so powerfully magnetic that bit by bit it will socialize China into joining, and changing itself in the process.

Add in the obligatory self-serving contrast between the US and China:

This socialization strategy is most obvious regarding economics and the TPP. Obama told his audience in Canberra "we need growth that is fair, where every nation plays by the rules; where workers rights are respected and our businesses can compete on a level playing field; where the intellectual property and new technologies that fuel innovation are protected; and where currencies are market-driven, so no nation has an unfair advantage." Although he didn't mention it by name, the specific issues Obama raised were no doubt directed at China.

Obama also went out of his way to talk up the importance of domestic political freedoms, claiming that "certain rights are universal, among them freedom of speech, freedom of the press, freedom of assembly, freedom of religion, and the freedom of citizens to choose their own leaders." And in an even more direct challenge to China, Obama asserted that "prosperity without freedom is just another form of poverty."

We then return to the commingling of security and economic concerns that I'm not so fond of...

Obama has laid down the gauntlet to China, saying that its booming trade ties must be underpinned by its acceptance of the values he believes the rest of the region holds dear. And he thinks, over time, China will agree.

Obama probably thinks this is a smart bet for three reasons. The US debt-induced military spending cuts won't curtail its capacity in Asia. China is unlikely to respond decisively until its new leadership team is firmly in place. And most importantly, it is in China's interests to move in the direction Obama wants. Time will tell if he is right.

For a different point of view, see Jagdish Bhagwati. To him, TPP is not a virtuous call for a level playing field but the ultimate trade diversion. Not only does it isolate China, but it also largely rules out the PRC ever joining according to the Columbia professor. While my thinking is more in line with that of Garrett--the US hopes to create sufficient bandwagon effects that China will want to come on board and play by the (American) rules--my belief is that Garrett far overestimates America's residual influence in the region. Witness, for instance, Japan signalling that it will join TPP negotiations--to appease the Americans--while knowing that little is likely to come out of them given the strength of its domestic agricultural lobby. That bit of Yank appeasing done, their leader then inks a deal to cement the use of RMB in regional transactions and for Japan to purchase RMB bonds to boot over Christmas. Note that these are not mere discussions alike TPP expansion but concluded agreements. Money talks.

Just as North Korea makes displays of bellicosity when in times of trouble to attract attention, American sound and fury is unarguably becoming a more common sight and sound these days. If that doesn't signal terminal decline, you tell me.

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Multilateralism Ain't Dead: A Climate Deal in Durban

Well here's a pleasant surprise: while the fine print remains to be hammered out and non-ratification by the countries concerned remains a distinct possibility, the broad outlines of a multilateral climate deal are in place. While many economics and even IPE blogs do not cover climate change, it is obviously an important and relevant topic since efforts to combat it (a) indirectly place limits on economic activity, (b) shift the relative attractiveness of more- and less-carbon intensive industries and (c) implicate North-South technology transfer in reducing LDC emissions. As my post title intones, there's also the matter of it (d) indicating appetite for multilateral negotiations in general.

Of particular interest it that the world's worst climate offenders, China and the US, have both (tentatively?) assented to having their carbon emissions bound by international law. This result gets around the "if [China; the US] refuses to be involved despite being a major emitter, then why should we?" sort of weaselling out prevalent in the past.

The four elements of the deal are (1) an extension of the Kyoto Protocol, (2) the enabling of a $100B Green Climate Fund to give LDCs technical assistance in reducing GHG emissions, (3) an agreement to make all countries involved sign a deal in 2015 to cut emissions by 2020, and (4) a plan for next year. The first thus concerns Kyoto:

Sunday's deal extends Kyoto, whose first phase of emissions cuts run from 2008 to the end of 2012. The second commitment period will run from January 1 2013 until the end of 2017.

The next one deals with funding and operationalizing the Green Climate Fund I discussed in an earlier post. (However, a proposed tax on trade to contribute to this fund proved unworkable.) Still, you have to wonder if hard-hit industrialized countries are excited about funding it:

Poor nations are most in need of finance to help pay for adapting to global warming and introducing low emission energy and industrial processes. Against the backdrop of a sovereign debt crisis, developed nations are also ill-placed to commit money beyond short-term financing that runs out at the end of next year.

The Durban talks made headway on agreeing the design of Green Climate Fund to channel up to $100 billion a year by 2020 to poorer nations, but achieved little on establishing where the money will come from to fill it. A proposal last week to generate cash from charging international shipping for the carbon emissions it generates faced such opposition it did not survive in the final text [my emphasis].

Then we get to the heart of the matter in the form of a legally binding treaty:

Delegates agreed to start negotiations for a new legally binding treaty to be decided by 2015 and to come into force by 2020. The process for doing so, called the Durban Platform for Enhanced Action, would "develop a new protocol, another legal instrument or agreed outcome with legal force that will be applicable to all Parties to the UN climate convention," under a working group.

The exact nature of what "legal instrument" or "agreed outcome" has not yet been decided. Delegates decided the process towards developing a new legal instrument would "raise levels of ambition" in reducing greenhouse gas emissions.

Lastly, there's ongoing work towards making a "single market" in carbon credits that avoids splintering of the trading activity that could result in "carbon diversion" effects to borrow a phrase from international trade:

Talks agreed to define new market mechanisms under a successor treaty to the Kyoto Protocol, but pushed forward a decision to develop rules for them until next year. Delegates decided the mechanisms would operate under the UNFCCC Conference of the Parties and "bear in mind different circumstances of developed and developing countries."

The EU wants any new market mechanisms to cut greenhouse gas emissions outside of Kyoto anchored in international law, in order to avoid fragmentation of the international carbon market. Parties will now work on developing a framework for new mechanisms over the next 12 months with a view to making recommendations at a summit in Qatar at the end of 2012. The rules must ensure environmental integrity of new markets, seek to avoid double counting and ensure that a net decrease in CO2 emissions is achieved.

What would I prefer, completing the Doha Round or this? I much prefer the latter outcome given the potential consequences of irrevocable climate change as most studies on the subject suggest. It is perhaps with a touch of irony that the next climate shindig (COP 18) will occur in Doha at the end of next year--the tenth anniversary of the launching of the WTO Doha Round.

At the very least, though, it does show that multilateralism is not entirely dead and that there is a growing consensus about the magnitude of the climate problem. While some may quibble with the magnitude of the emissions cuts on the table, the alternative--no deal--would have left us with a greater distance to a meaningful bargain.

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US & Roping Japan Into Trans-Pacific Partnership

There's a new article in Foreign Affairs by Bernard K. Gordon on further broadening the mooted expansion of the Trans-Pacific Partnership (TPP) to include Japan. Right now, the existing hole-hearted TPP includes trade-deal hungry countries Brunei, Chile, New Zealand and Singapore. The US is in a group of countries including Australia, Malaysia, Peru and Vietnam that is currently negotiating to join the TPP. A large part of TPP's appeal to America is that it includes many issues near and dear to the US alike intellectual property and services trade.

By contrast, I've been quite sceptical of this grouping from the get-go. The latest US tack is expanding a pre-existing Asia-Pacific "coalition of the willing" to ensure that it remains deeply involved in this fast-growing region. As I've mentioned though with regard to Hillary Clinton's recent and rather hackneyed speech on why the US should remain involved in this region, it's yet another in a long line of failed American initiatives to launch a broad FTA among APEC members. The latter have indicated time and again that they are more interested in capacity-building. Which, to me, makes perfect sense insofar as LDCs need to have the infrastructure to handle trade liberalization before actually undergoing it.

At any rate, Gordon now sees the inclusion of Japan as crucial to ensuring that TPP encourages bandwagon effects and produces tangible gains for the US:

1. First is the fear generated by the U.S. free trade agreement with South Korea. [For instance, having the tariff applied in America to Korean automobile imports reduced from 2.5% to nothing.] Japan’s export industry has long been worried about near-identical Korean products in foreign markets, and Seoul’s access to U.S. consumers will only grow once the pact is implemented.
2. The second element is the declining political clout of Japanese agricultural interests. This group was long opposed to a free trade agreement with the United States because it feared that Japan’s small-scale and highly protected farmers would be overrun by lower-priced imports. But agriculture now accounts for less than 1.5 percent of Japan’s GDP, which has also meant a sharp decline in farm-related employment. The need to rebuild the economy in the wake of the March disasters amplified calls for reform of Japan’s outdated farming sector. This has eased the way for Japan’s exporters, led by the business federation Keidanren, to step up their pro-trade agenda.
3. The final factor is China’s new foreign policy assertiveness. An early sign was Beijing’s revival, in 2010, of claims to islands in the South China Sea, an issue that has roiled relations between China and its neighbors since the mid-1990s. In 2002, China and its neighbors in the Association of Southeast Asian Nations agreed to resolve the claims multilaterally, but China later insisted on dealing bilaterally with each neighbor. China’s foreign minister argued at the time, “China is a big country and other countries are small countries, and that’s just a fact.”

While I acknowledge Gordon's Sinophobia in particular, is TPP expansion really a trade counterbalance to China in the region? In previous discussions, I certainly got the feeling that all APEC members were being welcomed to maximize America's bang for the buck in promoting its very expansion. Why is Gordon keen on antagonizing China where US previous efforts regarding TPP do not?

At any rate, the APEC leaders' meetings over the weekend will tell us more about the state of TPP. There already are signs that Japan may not be anxious to be involved as evidenced by its recent delay of an announcement to join TPP negotiations:

Japanese Prime Minister Yoshihiko Noda abruptly postponed a news conference Thursday at which he had been expected to announce that his government will join negotiations on a trans-Pacific free trade pact.

Japanese news reports say the prime minister planned to announce the decision to the Japanese people Thursday and personally notify U.S. President Barack Obama when the two meet in Hawaii on Saturday. But officials announced late Thursday that the Tokyo press conference has been pushed back to Friday.

Participation in the talks is highly controversial in Japan, where thousands of farmers and fishermen marched late last week to oppose membership in the Trans-Pacific Partnership . Politically powerful rice farmers, who have been excluded from previous Japanese free trade deals, are adamantly opposed.

Watch this space.

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