Posts Tagged ‘industrial policy’

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Kevin Gallagher gets it right

January 7, 2011

It should be no surprise that I agree with Kevin Gallagher (Boston University/Tufts Global Development and Environment Institute), but it’s nice to see that he basically echoes what I’ve been saying over the past few posts about the China/WTO/green energy issue: “The US should not try to beat China down, but should pursue its own green jobs policy and reform the WTO, so the rules allow countries to combat climate change.”

Gallagher does seem to be a bit more optimistic about the WTO than I generally am, as he sees potential room for allowing green-energy subsidies to be exempt from WTO disciplines:

…there may be a window at the WTO for subsidies for alternative energy. Developed countries saw to it that the subsidies agreement at the WTO left room to support research and development, regional inequality and environmental protection. This window closed in 2000, but is under review in the (stalled) round of WTO talks, and could be expanded.

I didn’t know this particular tidbit about the subsidies agreement – very interesting. That said, I don’t really think the ideal course of action is to add more exceptions to misguided WTO rules, since, as they say, the exceptions prove the rule.

What I find most interesting in Gallagher’s piece, though, is this quote he pulls from Barack Obama’s The Audacity of Hope:

“Indeed, countries that have successfully developed under the current international system have at times ignored Washington’s rigid economic prescriptions by protecting nascent industries and engaging in aggressive industrial policies.”

Too bad this passage doesn’t much fit with what Obama’s apparent international economic policy has been thus far.

Flying Whale

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CGD’s nonsensical response to the China clean-energy subsidy case

January 5, 2011

It’s not entirely surprising that the folks at the Center for Global Development are about as appalled at this WTO case on Chinese clean-energy subsidies as I am. Unfortunately, the apparent logic behind David Wheeler’s indignation doesn’t make a whole lot of sense. He starts off nicely: “…it’s clear what we have to do now: Subsidize clean power, exploiting scale and learning economies to drive it to cost parity with fossil power as quickly as possible.” And then, after contrasting the Obama approach to this proposed solution, Wheeler gets nice and outraged towards the end:

Think about it: The Obama administration, having defined climate change as a global emergency, has responded to a massive Chinese drive toward cheap clean technology by demanding that they retreat! Mr. President, by the logic of your own rhetoric this is insane, because we’re out of time.

But then he reels off this killer concluding sentence:

Anything that makes renewable energy cheaper, anywhere in the world, should be welcomed without reservation. For trade in clean power technology that means no restrictions: no tariffs, no quotas, no sanctions, no limits of any kind, from now on.

It doesn’t take a genius to sort out that the WTO case against China is probably legitimate because the sort of policies that Wheeler is agitating for – the sort of policies that China is trying to implement – are likely WTO-illegal trade-distorting subsidies. (Important aside: the solution to this should not be to change these subsidies to conform to WTO rules; the solution should be to change the WTO rules!) These days, “no restrictions” on trade sure as hell means no industrial policy. So which does Wheeler really want: the smart industrial policy to promote clean energy that he seems to push for most of his article, or the ideological purity of “free trade” that CGD so frequently advocates, implicitly and explicitly? It’s got to be one or the other – it can’t be both.

Flying Whale

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USTR throws a bone to the Steelworkers

January 3, 2011

By petitioning the U.S. government to sue China at the WTO for its “unfair” clean energy subsidies, the Steelworkers gave the Obama administration the perfect opportunity to appear labor-friendly without actually having to be progressive at all, or challenge any entrenched domestic economic interests. I wrote about this impending disaster a few months ago, and late last month it came to fruition.

The United States on Wednesday accused China of illegally subsidizing the production of wind power equipment and asked for talks at the World Trade Organization, the first step in filing a trade case.

“Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules,” Trade Representative Ron Kirk said in a statement. “These subsidies effectively operate as a barrier to U.S. exports to China.”

So not only is this an attack on efforts to move the world towards a greener economy, it’s also a broad attack on industrial policy in general (the sort of broad attack, of course, that is part of what the WTO is designed to do). Even more, it’s a political win for the centrists in the Obama administration, who can now point toward this as a supposedly pro-labor move while they simultaneously push heavy-handedly anti-labor policies like lobbying for the South Korea-U.S. Free Trade Agreement.

Great move, USW!

Flying Whale

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Arvind Subramanian proves the value of industrial policy

August 11, 2009

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Arvind Subramanian writes at the Center for Global Development about “The Uphill Flow of Skill-Intensive Goods and FDI from Developing Countries”:

We tend to think of globalization in the following way: the rich world exports financial capital, technology, sophisticated goods, and entrepreneurial and managerial skills in the form of foreign direct investment (FDI) to developing countries; the latter, in turn, export people, resources, and low-skilled goods to the rich world.

[…] Think of Indian TATA’s takeover of the UK’s Jaguar, China’s Lenovo’s acquisition of IBM, Brazil’s success exporting commercial aircraft to high-income countries, and the growing exports of skilled services from Israel and India to OECD markets, and it’s clear that something significant is happening… What are the consequences for countries that send goods and services uphill? Our preliminary work suggests that such countries experience positive economic growth as a result.

First of all… that first paragraph: well, yes, and is it any surprise that therefore lots of people think the current model of globalization is messed up, if it helps lock in this state of affairs? And, re the second graf, is anyone really surprised that exporting high-value-added, domestically manufactured stuff is good for a country’s economy?

Secondly, left unsaid is the fact that the three companies cited above (Tata Motors in India, Lenovo in China and Embraer in Brazil) are all able to export and compete internationally in part because they are beneficiaries of strong industrial policy – that is, their countries at some key points in time did not follow the prescriptions of the current model of trade and globalization. I don’t necessarily know enough about the specific cases to say this with certainty, but I would imagine that for these companies, the road to international competitiveness would have been blocked long ago had it not been for prudent steps that their respective governments took to (are you ready for this word?) protect their markets.

Here’s what I do know: In India, Tata Motors evolved from a railroad company that itself evolved from an iron and steel company, which benefitted from both government procurement contracts and explicit trade protections (read more here). In China, well, it’s China; China has never really followed neoliberal mandates, for better or worse; and Lenovo’s largest shareholder is the government (note to self: do some research on Lenovo). In Brazil, Embraer started not just as a protected, but as a state-owned enterprise, and cut its teeth making military aircraft for the Brazilian air force (Tata has also made military vehicles).

Point being, these are all companies that probably wouldn’t be where they are today if their governments had followed the free-trade orthodoxy often pushed by folks like, yes, the Center for Global Development.

Subramanian has a whole new paper on this topic, which I haven’t read yet. It’s on my list.

Flying Whale