Posts Tagged ‘subsidies’

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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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Steelworkers FTW WTF

October 14, 2010

I was in the middle of a busy period of life when a month ago, the Steelworkers submitted a 5,800-page petition urging the Obama administration to file a WTO case again Chinese subsidies for green technologies. I just found out about it today. I got really pissed off.

The way USW is going about this is completely backwards. They’re accusing China of engaging in “illegal practices that stimulate and protect its domestic producers of green technology, ranging from wind and solar energy products to advanced batteries and energy-efficient vehicles.” This is a double whammy. Not only does it reinforce the frame that domestic industrial policy is bad and legitimizes the use of the WTO to attack such policy (and why the hell would USW want to advance that frame?!), it also is a slap in the face for climate activists who would probably like nothing more than to see China, the world’s leading greenhouse gas emitter, invest in developing cleaner technologies.

To add insult to injury, this is all also completely hypocritical, since USW, as a founding member of the Blue-Green Alliance, would love to see massive U.S. investment in the domestic green economy. It’s a classic case of kicking away the ladder: denying developing countries the policy tools we want to be able to use ourselves.

What’s interesting is the Blue-Green Alliance statement on the USW petition. It’s decidedly lukewarm and avoids condemning China as an enemy engaging in “unfair practices.” I wonder what the politics behind the scenes here must have been like. In any case, I suspect this is a more useful position for progressives to adopt:

Today’s Section 301 petition filed by the United Steelworkers underscores the importance that the United States act quickly to take advantage of the job-creating opportunities of the clean energy economy. Every day America delays action is another day that China capitalizes on jobs created in the production of clean energy technologies that could and should be developed, manufactured, and installed in the United States.

This looks pretty different from USW’s condemnation of China using legitimate policy tools to promote their industries. There’s still the requisite vaguely nativist language, but instead of blaming China for doing what we should be doing, it puts the onus on U.S. policymakers to create our own industrial policy for the green economy – WTO legality be damned. This is a useful frame that USW has undermined: instead of thinking about what is and isn’t legal under the messed up WTO rules, we should be thinking about what policy goals we want to work towards, and if the WTO rules need to be changed to allow them, we should campaign for WTO reform.

(As an aside, interestingly, this week the Brookings/AEI green economy proposal came out, and even if it’s not something progressives can get behind, as Dani Rodrik pointed out, if this isn’t an industrial policy proposal, nothing is. And this coming from AEI!)

USW’s is exactly the kind of stance organized labor needs to not be taking in a modern world characterized by increasing interconnectedness and potentially imminent environmental catastrophe. We need a less provincial labor movement and more of a global working class consciousness in order to get anything done. Somewhere, Frances Fox Piven is saying, “I told you so.”

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Addendum from Daryll Ray

October 13, 2010

A couple years ago I saw a panel on which Daryll Ray, one of the co-authors of the report I cited in my last post, elaborated on his thoughts on ag subsidies. These are among the most interesting points in my notes, and in Econ 101 lingo to boot:

We have been subsidizing agriculture since the very beginning, as a society. We’ve always had specific agriculture programs – land distribution, land grant universities, extension services, all designed for agriculture to shift the supply curve to the right. Generally we shift it faster than the demand curve, and prices go down. In other industries, consumers buy more or producers produce less and prices go back up. In agriculture it doesn’t work that way. Consumers buy the same, prices stay low, producers produce more (farmers don’t produce enough to have an influence on the market; the only thing they can do is produce more), and prices get lower. We “fix” by direct payment to producers. This is not a real adjustment.

He concluded: “It is unrealistic to assume that just because we don’t like the program we have right now, that we don’t need a program. We need a program that keeps prices more consistent and at higher levels… if we don’t do that, it’s naive to think our farmers will reduce production and prices will rise globally. It doesn’t work that way.”

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The demonization of agricultural subsidies

October 13, 2010

I am currently in a development class in which it has become very fashionable to bash rich-country agricultural subsidies as a major cause of developing-country poverty. While I don’t think this anger is misplaced, I do think there is some unacknowledged complexity here, and that simply getting rid of all rich-country subsidies is a dangerous thing to wish for. Today I spoke up to briefly highlight that I don’t think we should be saying all rich-country subsidies should be completely eliminated. It was not a popular thing to say. I wrote a follow-up to clarify my point and I thought it might be instructive to cross-post it here. So, here goes:

I wanted to clarify what I said about agricultural subsidies today, which was perhaps a bit too controversial to present in a 15-second soundbite at the end of class. I was not in any way trying to defend U.S. ag subsidies as they exist today, nor the U.S. farm lobby, nor the various methods the North has used to keep the global South from implementing their own subsidies or tariffs. We tend to demonize subsidies, but I don’t think the problem is that they are inherently bad, but instead that they’ve been implemented poorly, in ways that are hugely harmful. Even worse, the global North has prevented the global South from using many of these kinds of subsidies. But implemented properly, subsidies can and should be useful policy tools – just like tariffs and industrial policy.

I think the extended argument about just how subsidies should be used (which I was foolishly trying to make in two sentences earlier today) is summed up best in this paper: Rethinking U.S. Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide. The basic problem statement here is that low ag commodity prices are currently benefiting agribusiness but hurting farmers everywhere. U.S. direct-payment subsidies are an attempt to make up for these depressed prices (a misguided and harmful attempt, since they are a reinforcing mechanism that keeps prices artificially low), but the global South either cannot afford such subsidies or are inhibited from implementing them. So low ag prices are trouble for farmers in the North but a matter of life and death for those in the South.

But the solution isn’t to get rid of all ag subsidies in the North – this is a fundamentally free-market approach that will not actually significantly increase prices, because many agricultural commodities don’t respond to market signals in a traditional way. (Farmers don’t quickly respond to a drop in price by producing less; instead, they often produce more to try to make up for lost income.) By this logic, getting rid of subsidies wouldn’t help those in the South, it would seriously hurt those in the North, and it would turn the entire ag sector over to the mercy of free-market forces, which we know don’t work particularly well for either the global South or for farmers anywhere. The paper goes on to outline alternative subsidy programs (not direct payments to farmers) which would manage production and return ag prices to a more reasonable level.

I’d encourage anyone interested in the issue to take a look at that paper, which is pretty unique in that it not only provides a diagnosis of the problem but also gives concrete policy recommendations. It’s been a major force in shaping how progressive activists think about agricultural trade in the neoliberal era.