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This blog is part of a special series celebrating CGD’s 15th anniversary in 2016. All year, CGD experts will look back at work we’ve done that has had real-world impact, and forward to future research that we hope will help increase global prosperity.
In India, the price of onions is an election issue, so ubiquitous are they in the nation’s cooking. Regularly, around the world, poor consumers face extra hardship as the prices of basic foodstuffs seesaw. Global food security is an area CGD has worked on for many years, and back in mid-2008, we tried to help figure out a solution to the skyrocketing price of a major staple.
Rice prices had spiked fourfold since the start of the year, and poor people in many parts of the world were facing extreme hardship. Yet Japan held 1.5 million tons of rice imported from the United States sitting in storage that it could not re-export without US permission. This serious global problem offered a policy window and CGD scholars used blogs, media, congressional testimony, and other tools to quickly win Washington’s assent for Japan to sell or donate the stocks. With news of the approval, the bubble popped and global rice prices fell by 25 percent in just two weeks.
At a Senate Foreign Relations Committee hearing in May 2008, Sen. Robert Menendez asked the two government witnesses, Henrietta Fore, head of the US Agency for International Development (USAID), and Ed Lazear, chairman of the President’s Council of Economic Advisors, a pointed question about our proposal:
According to the research of the Center for Global Development, the release of rice stocks being held by Japan and China can bring prices down now, possibly cutting them in half by the end of June. But this can only happen if our government lifts its objections to the re-export of rice previously imported from the United States. I see the specter of rice that could be used to help the world's hungry being used for feed and livestock in Japan... versus being used to feed human beings. And so what's our view of that?
As Peter Timmer wrote on our blog in 2008, the answers weren’t very satisfactory but the mere mention of Japan exporting its stocks led some speculators to dump their contracts on the Chicago commodity exchange. Futures contracts for July rice fell sharply and Thai wholesale prices, which had been rising, fell by $16 to $841-843 per ton.
In the end, the Japanese government refused to re-export or donate to the World Food Programme the more than 1.5 million tons of imported rice in its warehouses. But the sudden and unexpected release of information through our blog posts, notes, and interviews in the Japanese and Western media did have some effect. As detailed by Tom Slayton in a post-mortem analysis for CGD, much of the rice price spike in spring 2008 was the result of panicky hoarding by importers and exporters alike. When markets learned about the Japanese rice stocks, the price of rice fell quickly—a decrease of 25 percent in just two weeks (Figure 1). For millions of people in Asia, Africa and elsewhere, this was a welcome relief.
Source: World Bank Commodity Price Data, accessed June 2016.
In the months and years following this episode, CGD has continued to work on agricultural policy and food security issues. Kim has written papers on the role of biofuel policies in the food price spikes of 2007-08 that she is incorporating into a book on US agricultural policy. In addition to the negative spillovers from US (and European) biofuel policies, the book will also analyze how government support for American farmers distorts markets for developing country farmers and how the failure to regulate livestock producers' use of antibiotics contributes to drug-resistant bacteria that can threaten human health. A CGD working group also provided recommendations on how to strengthen the role of the Food and Agricultural Organization of the United Nations in promoting agricultural development and food security.
Helping to prick the rice price bubble is just one of the examples of how CGD has used rigorous research and nimble public outreach to improve policy for the poor in developing countries in its first 15 years. You can read about others here and here.
The release of leaked documents from negotiations of the Transatlantic Trade and Investment Partnership (TTIP) captured news headlines last week, but the materials tell us little that we didn’t already know. The documents mainly confirmed that scant progress has been made. I’ve already gone on record as skeptical that negotiators will secure a TTIP deal, even in principle, this year. So instead I want to offer two suggestions as talks move forward.
1) Boost Transparency
One of the reasons the content of the leaked documents fell short of novel was because European negotiators already release the texts of their own proposals along with summaries of what is discussed in each negotiating round. And we pretty much know what US negotiators are seeking because it will be similar to what they sought in the Trans-Pacific Partnership agreement. Still, I am grateful to the Dutch chapter of Greenpeace for releasing the documents.
Even though we know quite a bit about the negotiations, I wish the US Trade Representative’s (USTR) office would be as forthcoming as their EU counterparts. Doing so would allow developing countries to better understand what is being negotiated and how it might affect their interests. That, in turn, would allow them to raise any concerns before the negotiations are completed. It could also help the United States ward off accusations of negotiating secret backroom deals. Fundamentally, however, progress on regulatory cooperation, which primarily involves domestic regulation that just happens to affect trade, is going to require far more openness and transparency to find acceptance with the voting public.
2) Shift Efforts to a Global Deal on Nuisance Tariffs
While I haven’t found any shocking revelations about plans to dilute food safety regulations or allow corporations to run amok in the documents that I’ve read, their content reveals just how far apart the two parties remain. And if the negotiations will produce little more than tariff elimination, why not try to do something similar at the global level and get rid of all the really low tariffs that create red tape and opportunities for corruption?
It’s a long shot, but I would suggest shifting some of the energy and resources behind the current TTIP talks to refocus on achieving a global agreement to eliminate “nuisance tariffs,” those below 2-3 percent that cost more to collect than they generate in revenue. That would create gains for everyone, including developing countries, as well as give a boost to the multilateral trading system.
The United States and European Union have been trying to negotiate regulatory cooperation agreements for more than two decades with limited success (see slide two of this presentation). What the EU tactical summary makes clear is that this latest attempt isn’t looking very different—just as I expected when I wrote my recent paper asking “how much 'mega' in the mega-regional” trade agreements. So if there ever is a TTIP, despite what the negotiators claim, it is likely to be TTIP-light. While Cato’s Dan Ikenson explains here why a scaled back agreement would be worthwhile, maybe it’s also time to think about some alternatives.
The world will struggle to achieve the goals of ending extreme poverty and hunger by 2030 unless there is a sharp increase in agricultural productivity in Africa. Across sub-Saharan Africa, most people live in rural areas and rely on agriculture for their livelihoods; most of them are poor and many are hungry. Could genetically modified organisms (GMOs) help to address some of the causes contributing to Africa’s lagging agricultural productivity? Our answer is a qualified maybe.
There is no question that the “mega-regional” trade deals in the Pacific and across the Atlantic are big. If completed and implemented, they will cover a large portion of global trade and investment. This paper examines the TPP text to identify provisions that are more or less development-friendly, especially for Vietnam, which is the poorest signatory to the deal by far. It concludes with with recommendations for US and EU policymakers that would mitigate potential negative effects for developing countries and for the multilateral trading system, including rules of origin that minimize trade diversion.
The problem is not that the United States doesn’t “win” when it negotiates trade deals. Take the Trans-Pacific Partnership (TPP): US negotiators generally got what they wanted out of the deal and gave up little. That’s because, outside a handful of sensitive sectors, US tariffs are already low.
But policies aimed at protecting sensitive sectors do have an impact. One clear example of how US trade policy pits the poor at home against the poor in other countries is in the clothing sector. Vietnam is the poorest of the 12 TPP signatories, by far, and it is a major clothing exporter. Clothing is a labor-intensive industry in which developing countries often have a comparative advantage. It is also an important avenue for women to enter the formal labor market, which can bring a range of social and development benefits. Clothing is also a necessity, and lower prices due to trade help poor consumers as well.
As I discuss in a new paper, however, Vietnam will gain very little new market access in this key sector for at least several years. Even after US tariffs disappear, Vietnam may not be able to take advantage unless the country is able to adjust to the very restrictive rule of origin for clothing that US negotiators insisted on including in the TPP.
While US tariffs overall are in the low single digits, the average tariff on clothing imports from Vietnam is 18 percent. In 2014, US Customs and Border Protection collected $2.4 billion in duties on imports from Vietnam, more than any other country in the world except China. While US negotiators agreed to lower the high tariffs for most of Vietnam’s major clothing exports by one-third when the TPP enters into force, the remaining tariffs will remain in place for 10 to 12 years.
Table: US Import Duties by Source Country* in 2014 (million dollars)
Other top ten
* Excludes countries with which the United States had a trade agreement before TPP.** This figure understates the degree of US protection against New Zealand exports because the tariffs on over-quota imports of dairy products are so high that they prevent additional imports, while the tariffs on in-quota imports are relatively low.
Reducing and eventually eliminating tariffs will lower the cost of importing clothing from Vietnam. Even then, rules of origin, which determine the eligibility of goods for TPP benefits, will at least partially offset that gain. As I explain in the new paper, the TPP rule for clothing, as in other US trade agreements, requires that all of the major inputs, from the “yarn forward,” must originate from one or more of the TPP parties. Currently Vietnamese producers import most of the textile inputs they use in clothing from outside the TPP region. If shifting those sources raises costs enough, exporters may have to forego the TPP tariff benefit, and along with it the potential to create more jobs.
Trade is not costless, but the gains are generally larger than the losses, both domestically and internationally. Rather than pitting “us” against “them,” I hope the next president will do what desperately needs to be done to improve American competitiveness and ensure that the gains from trade are broadly shared—at home and abroad.
The Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership, if completed and implemented, will cover a large portion of global trade and investment, but they will exclude the majority of developing countries. American and European negotiators also want these deals to be “gold standard” agreements that establish the new rules of trade for a new century. The biggest concern arising from these mega-regional agreements is that they will undermine the rules-based multilateral trading system.