Ben Muse

Making cars in China

It costs more than you'd think to make a car in China.  Geoff Dyer and James Mackintosh report in the May 31 Financial Times: "Next for the west are cars ‘Made in China’ " (subscription required)

Nor is it yet much cheaper to produce cars in China. Although assembly line workers at Daimler- Chrysler's Chinese factories earn $1.95 an hour, compared with $49.50 at its German plants and $36.50 in the US, labour is only a small part of the overall cost. Many components have to be imported, the factories are sub-scale and logistics can be inefficient in China. "Even today, many of the components used in passenger cars are priced above world market levels," says Jack Perkowski, the American founder and chief executive of Asimco, a Chinese parts maker.  As factories grow and local parts prices drop, the cost of Chinese vehicles will also fall, but this will take time.

...But as costs in China fall as a result of rising volumes and economies of scale, the other companies will begin to think much harder about using China...

...to make cars for export

The Chinese want an auto industry.  They initially hoped to build one through joint ventures with foreign countries, but this hasn't gone as well as they'd hoped.  "...their partners let them go only so far.  They learnt about manufacturing but they were shut out of the design and research needed to create their own brands."  They apparently are still lagging at technology and brand development, and marketing.

The domestic market is potentially enormous:

The Chinese economy is growing at around 9 per cent a year and is not expected to slow sharply for a number of years. Every year, hundreds of thousands of people in China begin earning enough money to make them potential car buyers - and barely 1 per cent of the population have one. The expected growth rate of demand, with estimates of 10-15 per cent a year, is well above any other significant market in the world.

But it is competitive:

The Chinese companies are trying to introduce their models into a domestic market that will soon be populated by every big multinational carmaker and that the former head of Volkswagen in China recently called "the most competitive market in the world".

The makeup of the customers is changing:

According to Clint Laurent, chief executive of Asian Demographics in Hong Kong, many of the initial customers were government and company bosses or “petrol-heads”, people prepared to spend a large sum for a fancy vehicle. The new generation of customers wants practical, smaller cars and is more cost-conscious.

There are plenty of cars to be sold, but profits may not be fat:

Kate Zhu, an analyst at Morgan Stanley in Hong Kong, summarises the outlook as: “Worsening overcapacity, rising costs, tight industry financing, sluggish demand and ongoing price wars.” The long-term prospects remain more buoyant than almost anywhere else but the fat profits of the last few years are past.

Will the Chinese and Japanese grow closer together, or further apart?

Far Outliers links to two, very different, opinions: "Politics vs. Economics of China, Japan, U.S.".

They put their pants on one leg at a time, same as everybody else.

I'm with Robert Samuelson:  Sputnik Scare, Updated (Washington Post, May 26).

Samuelson reminds us about the sputnik scare of the late 50s and concerns over Japanese competition from the late 1980s, providing a context for current concerns over Chinese growth.

He closes:   

...Do China and India threaten us economically? Possibly, though not in the usually imagined way. Their low wages and rising skills will continue to cost us some jobs, especially in an easily interconnected world. But if global trade were reasonably balanced, we should roughly gain what we lose. Countries that export would spend their earnings on imports.

Unfortunately, trade isn't well balanced. China and many Asian countries (though not India) run huge surpluses; they sell more than they buy. That's why the Bush administration is rightly pressuring China to revalue its currency, which would make Chinese exports more expensive and its imports less expensive. The danger is that the China bloc destabilizes the world economy -- not that it soon overtakes us.

On being overtaken, history teaches another lesson. America's economic strengths lie in qualities that are hard to distill into simple statistics or trends. We've maintained beliefs and practices that compensate for our weaknesses, including ambitiousness; openness to change (even unpleasant change); competition; hard work; and a willingness to take and reward risks. If we lose this magic combination, it won't be China's fault.

Thanks to Craig Newmark for letting me know about this column.

(By the way, I was curious about the origin of the "pants" expression I used for the title.  I found it at this Ohio State University football web site: "The inaugural season [1934 - Ben] for coach Francis Schmidt is one that sparked a couple of great OSU traditions.  OSU's teams had been losing to Michigan regularly, and Schmidt made his famous quote “They put their pants on one leg at a time same as everybody else" to indicate that UM was human and could be beaten.")

High-tech inhibiting politics

George Gilboy explains why China's "...high-return high-tech industries are dominated by foreign companies. And Chinese firms will not displace them any time soon..."

There is a conflict between its political system, and the ability of its firms to exploit technology ("The Myth Behind China's Miracle"  (Foreign Affairs, July/August, 2004):

Developing technology is a difficult and uncertain process. Neither large capital investments nor a significant stock of existing science and engineering capability can guarantee success.  To create commercially viable products and services, firms must monitor and access new forms of knowledge, understand evolving market trends, and respond rapidly to changing customer demand.  Firms that can develop strong links to research institutions, financiers, partners, suppliers, and customers have an advantage in acquiring, modifying, and then commercializing new technology.  Such horizontal networks are essential conduits for knowledge, capital, products, and talent.

Yet China's unreformed political system suppresses such independent social organization and horizontal networking and instead reinforces vertical relationships.  China remains a fragmented federal system, its fractious regions unified by a single political party.  The CCP controls all aspects of organized life, including industry associations, leaving few avenues for firms to work together for legitimate common interests.  This structure drives business leaders to focus on building relationships through CCP officials and the bureaucracy.  Although market reforms have brought more rules to the Chinese economy, without institutional checks and balances or direct supervision, CCP officials still exercise wide discretion in defining and implementing those rules, especially at the local level.  They can, and often do, manipulate economic policies to pursue particular local goals.  Some engage in this "particularism" because they are corrupt, others because they directly own or operate firms.  Most, however, do it because the political elite encourages them to: understanding that local economic growth promotes social and political order, the CCP tolerates, and even rewards, officials who use any means to produce local investment and employment. But this often results in fragmented national industries and wasteful overlapping investment.

Chinese business leaders at both public and private firms recognize that an economy dominated by particularism is a risky business environment.  Markets are fragmented; rules constantly shift under manipulation by government officials; and political obstacles prevent firms from associating, sharing risk, and taking collective action.  To cope with these uncertainties, Chinese business has developed a distinctive industrial strategic culture over the past two decades -- a set of values or guidelines about what strategies "work" in this environment.  First, in response to the "particular" application of policy, Chinese firms routinely focus on obtaining "exceptional" treatment from key officials: special access to markets or resources, exemptions from rules and regulations, or protection against predation by other officials.  Second, to maximize these exceptional benefits, as well as to avoid entanglements with other firms and their patrons, many Chinese companies shun collaboration within their industry, especially if such collaboration crosses regional or bureaucratic boundaries.  Third, they generally favor short-term gains over long-term investments.  Finally, Chinese firms tend to engage in excessive diversification in order to mitigate the potential damage of fratricidal price competition created by excess production capacity and overlapping investments.

The French Referendum and the Doha Round

Peter Gallagher explores the links between this week's French referendum on the E.U. and the Doha Round negotiations: French referendum makes WTO reforms more difficult.

Geitner Simmons has a nice piece as well: " France votes 'non'".

Revised May 31.

Now it is official, Lamy selected

The WTO General Council officially selected Pascal Lamy of France as the next Director-General of the WTO, effective September 1.

Thomas Kohlmann reports: "Europe's Lamy Named New WTO Leader". (Deutsche-Welle, May 26)

Another Interview with Mankiw

Russell Roberts interviewed Gregory Mankiw, former Chair of the Bush Administration Council of Economic Advisors (CEA): here's a link An Interview with N. Gregory Mankiw: Library of Economics and Liberty. 

Russell and Mankiw cover a lot of ground - here are some of the bits on the organization of economic policy making in this administration.

How is economic policy decision-making organized in the Bush White House:

If you've watched the TV show the "West Wing" you get the sense that all important decisions are made as you're walking from one meeting to another. The truth of it is that the White House has a very structured policy apparatus where staff meets and discusses issues and they report to their principals and then the principals meet and discuss issues. I was the principal for the Council of Economic Advisers. I would meet with John Snow, Secretary of Treasury and Steve Friedman, head of National Economic Council and the other economic principal, Josh Bolton of the Office of Management and Budget. We would discuss the issues and try to reach a consensus or at least sketch out the list of options. Then we'd have meetings with the President. We'd say "Mr. President, we have this consensus recommendation." Or, "we don't have a consensus recommendation, here are the options and the pros and cons as we see them and here are our personal opinions." Ultimately, the President would make the call. So getting to participate in those discussions and see how the process worked and see how the economic and non-economic issues came into play was truly fascinating.

Friedman, as the head of the National Economic Council, would be responsible for coordinating this process.  The NEC was set up at the start of the Clinton Administration to perform a coordinating function: acting as an honest broker among different interests and perspectives within the administration, and making sure the President was presented with a full suite of options.  Mankiw's description sounds like an idealized version of the process; I imagine that in practice it runs a lot rougher, and that there is a lot of maneuvering to circumvent the process.

How does the President approach economic issues?

I think he's got a great intuition for economics—he doesn't think like an economist in the sense of thinking in terms of equations and graphs. He was an undergraduate history major and that's a pretty good description of how he thinks about things. He thinks about things more intuitively, more verbally. But he also has an MBA and so he thinks about things very much from the standpoint of what institutional framework is going to allow businesses to flourish and allow markets to work.

Former Treasury Secretary Paul O'Neill provides a very different picture of the process in his memoir The Price of Loyalty.

The Chair of the CEA is acts as a conduit for economic information and analysis to the president.  He's not the coordinator, and not the public face of the administration. At one point, Mankiw made some controversial remarks about trade...

Roberts: Did you get any internal political heat in that fight?

Mankiw: None. Obviously, it's not the job of an economic advisor to make headlines and I deeply regret that...

See also Mankiw's interview with Peronet Despeignes in Fortune: "Economist Greg Mankiw Sounds Off on Karl Rove, Paul Krugman, and More".

Tomorrow's the big day

Tomorrow, the WTO General Council will almost certainly select Pascal Lamy to be its new Director-General, with a contract beginning on September 1.

Richard Waddington reports for Reuters: "New WTO chief Lamy will face daunting challenges" (May 25).

John Palmer drops his guard, and shows his sensitive side

"Who Says Romance Is Dead?  The Economics of Love and Marriage"   (May 18).

Greg Mankiw on economic policymaking in the Bush Administration

Former Chair of the Bush Administration Council of Economic Advisors (CEA), Gregory Mankiw, now back at Harvard, talks about economics and economic policy making in this Fortune interview: "Economist Greg Mankiw Sounds Off on Karl Rove, Paul Krugman, and More".

On who does what in the White House, and clear lines of authority:

Q: Have you had any substantive conversations with Democrats about any of this [about Social Security issues - Ben]?

A: No.

Q: Did you offer to talk to them when you were at CEA—make it clear to them that you're available?

A: I'm personally happy to talk to anybody, but in the White House there is a division of labor. CEA does economic analysis. The primary point of contact between the White House and the Hill is legislative affairs. What the President doesn't want or need is different parts of the White House negotiating on a freelance basis. Any White House needs clear lines of communication with the Congress.

Coordination and the atmosphere at the CEA:

Q: What did you like and hate about the policymaking process in Washington.

A: What I liked most was being part of a team united by common purpose. Every morning, I had the 7:30 am meeting with [White House chief of staff] Andy Card, [former senior adviser and current White House deputy chief of staff] Karl Rove, [former National Economics Council chair] Steve Friedman, and the rest of the White House senior staff. What I liked was being the coach of 35 economists, assistants and other staff at the CEA—a really good group of people. I didn't think I would like having such a big staff. I never had that as a professor—just teaching assistants. They were incredibly hardworking and pleasant people. I liked the back and forth of ideas. It was a really close-knit group. I'll miss my staff.

Q: The challenges?

A: Waking up every day to get to a 7:30 am meeting.

How is economic policy coordinated with the different departments?

The policy process worked extremely well. It's not like one person sits there—like Karl Rove sits off all by himself making economic policy, or Dick Cheney sits all by himself making economic policy. It's a very formal process where deputies meet, talk to their principals, then principals meet, everyone from [former U.S. Trade Representative and current deputy Secretary of State Bob] Zoellick to [Labor Secretary Elaine] Chao to [former Commerce Secretary Don] Evans, when I was there. Then meetings with the president. We all give different points of view, and the president makes a call. It's a well-run decision making process—the way it should work.

Q: You felt there was a healthy exchange of ideas and perspectives?

A: Yes. Absolutely.

Does the political, or the legislative, staff have more influence on policy?

Q: It was a collaborative process?

A: It [economic policymaking - Ben] was very collaborative. Look, Karl Rove is a very reasonable guy. I was absolutely delighted that he got the job as deputy chief of staff. He knows his stuff. Some political folks see policy as a way of getting political things accomplished. That's not Karl Rove. He's motivated a lot by good policy. He has a vision of what the party should be doing. He was one of my favorite people in the White House. I didn't come in expecting to think that. I thought he'd be a political guy who'd push policy in a bad direction for political reasons. I left the White House having great respect for Karl.

As far as influencing policy is concerned, a much bigger influence than the political group was the legislative affairs shop. The legislative affairs people would often come in telling us, we know that this is good policy, but you'll never get that through Congress. So the constraint, to the extent there was a political constraint, it wasn't from Karl's shop, it was from Congress.

Was the President engaged in policy making?

Q: What about this characterization that the president is passive in these policy deliberations, like the claims in Ron Suskind's book The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill? (the book's website is here: "The Bush Files: Economy ").

A: I've never met [former Treasury Secretary] O'Neill. I arrived after he left, so we never attended any of the same meetings. But in the meetings I attended, the President was always very engaged. When I had briefings with the President, I wasn't worried the President was going to sit there stone-faced. I was worried about the President interrupting me before I got to the points I wanted to make. He's very involved. He asks lots of questions. One of my staffers who briefed him on an issue came out saying he's just like a CEO. He asks, what's the issue here, what are the decision points, what are the constraints? It's not at all like the descriptions you hear from the O'Neill book. And, at the other extreme, it's not like the Clinton Administration, where they'd discuss one issue for hours, have a kind of seminar; this is more like a company.

Another bump in the road

Tim Groser has been New Zealand's Ambassador to the WTO, and the chair of the WTO committee within which the important agricultural negotiations are taking place.   

Now this long-time civil servant has decided to resign his position as Ambassador and enter politics, running against the current government.

The position as chair of the agricultural committee apparently doesn't  require an Ambassador, and is selected by the WTO membership, not the New Zealand government.  However, the New Zealand governing party was, not unnaturally, not happy about Groser's decision. 

It's reaction over has been to suggest that it would oppose Groser's continued employment with the agriculture committee.  Audrey Young reports for the New Zealand Herald: "Government wants diplomat out of job". (May 24)

The Government will tell the World Trade Organisation it has no confidence in former trade ambassador Tim Groser and does not want him to keep his job as chairman of the agriculture negotiations committee after he quit his diplomat's post to seek election as a National Party MP.

"In the end it's up to the WTO who it appoints to certain positions," Prime Minister Helen Clark told a post-Cabinet press conference.

"But whether the WTO would want to go down the track of employing someone who can't enjoy the confidence of a member state and has resigned as ambassador is something the WTO would need to consider."

Here is a similar story from the National Business Review: "PM signals complete exit for Groser" (May 24).

Later stories indicate that the New Zealand government intends to support Groser's tenure at the committee through July. Here Martin Kay reports: "PM backs down on National's WTO man " (May 25).

Tim Groser looks set to stay in Geneva to shepherd talks worth billions of dollars to New Zealand, after the Government backed away from calls to dump him.

In a letter to the World Trade Organisation's general council, New Zealand representative Tony Lynch says the Government accepts there is a case for Mr Groser to remain as chairman of agriculture negotiations while moves to end subsidies and tariffs approach their climax.

The letter offers to pay for Mr Groser to stay in Geneva till a crucial meeting on the Doha round in July.

At this point, Groser's departure would not be good for the agriculture negotiations.  These are extremely difficult because of the range and complexity of the issues, and the varied interests of the participants.  They are also at a crucial point.  The Committee is working towards a first cut at an agreement by late July - important to keep the overall negotiations on track for the meeting of WTO member trade ministers at the end of the year.  The New Zealand government's agreement to support Groser for a while recognizes this.

Nikki Mandow profiles Groser here: "Our man in Geneva" (Unlimited Magazine, Sept. 1, 2004)

Here's what he's been doing for a living:

Groser was not in the chair in Mexico [for the Cancun meetings - Ben]. In fact, when he took over the job in February this year [Feb 2004 - Ben] negotiations had been going on for two-and-a-half years, without a single point of agreement.

Believing it was impossible to negotiate with 148 countries in a room, Groser spent four months after taking office hunting out trade ministers around the world, and pulling people into what he calls “nodal points of agreement” — groups of countries with largely the same view on a particular topic. By finding one person to negotiate for each node, he could get much smaller negotiating groups and start building consensus. By the time of the Geneva talks in July, Groser had a key group of five countries he believed could be broad representatives for the other 143 nations. If these countries could nut out a deal, he believed unanimity might be possible. The five: the big boys (the US and Europe); Brazil and India (representatives of the increasingly powerful G20 group of developing nations); and Australia, chair of the Cairns Group of largely agricultural exporting nations (including New Zealand) looking to reduce trade barriers.

By June Groser reckoned he had enough agreement to put out an 11-page personally-drafted document as a basis for discussion. More intense negotiations followed (including talks with the African cotton exporters), and two weeks later he put out a second paper, which became the basis for the Geneva negotiations from July 27.

However, by the final day there was still no agreement. So, around 9pm that night Groser pulled 18 Ministers (including our own Jim Sutton) into a negotiating chamber and told them to come up with a deal. At 4am there was no deal, and even Groser was getting concerned.

“Tim kept us in that room and forced us to keep negotiating paragraph by paragraph,” says Verheul. By 7am the deal was done.

Negotiators say Groser’s style is a mixture of almost obsessive determination, single-minded effort, a sense of drama and huge good humour. “He’s easy to get along with, outgoing, gregarious,” says Verheul. “He’s good at judging the mood, changing direction if the process is stuck, or using a humorous story about a previous negotiating experience to break the tension.”

Here's another profile by Fran O'Sullivan of the New Zealand Herald : "Groser seeking a stage much closer to home".  O'Sullivan reviews the Groser episode here: "Labour’s tribalism far from rational".  Audrey Young reports on the the NZ government's evolution on this issue on Monday, May 23: "Industry lobby backed Groser" (NZ Herald, May 26).

Peter Gallagher considers the pros and cons of keeping him on as chair: "'Lame duck' chairman of WTO agriculture talks digs in".

Revised and updated late on May 24, 25.

What are the Chinese up to?

Are the new Chinese taxes on their own clothing and textile exports an attempt to stave off U.S. and E.U. import restrictions - or are they an attempt to exploit those restrictions, and benefit from them?

Alexandra Harney in Hong Kong, Alan Beattie in London and, Raphael Minder report on the tax increase for the Financial Times: "Beijing raises taxes on textile exports to head off import curbs".  As noted in the headline, Harney and her co-authors present the action as an attempt by the Chinese to head off U.S. and E.U. restrictions on their textile exports.

Peter Gallagher doesn't see the Chinese has trying to head off the restrictions, he thinks its more likey they're trying to exploit them for their own benefit: "US and EU quotas to force up world clothing price".

Steven Suranovic explains the economic theory of export taxes, here: "Welfare Effects of an Export Tax: Large Country".

What do developed and developing countries have to offer each other?

Aaditya Mattoo and Arvind Subramanian are not optimistic about the potential for success in the Doha Round: "Why Prospects for Trade Talks Are Not Bright", (Finance & Development, March 2005) - summarized in the post: "Why is it so hard to reduce trade barriers?".

But William Cline thinks "Doha Can Achieve Much More than Skeptics Expect" (Finance & Development, March 2005).

Mattoo and Subramanian don't think there are strong incentives for the business interests in the developed countries to pursue trade barrier reduction through the WTO process.  But Cline thinks developed and developing countries each have something worthwhile to offer the other :

...plenty of protection remains to be negotiated downward through the traditional dynamics of reciprocity.  Despite their new recognition of the merits of open trade, developing countries continue to have relatively high protection in manufactures—albeit far lower than during the 1970s peak of import-substituting industrialization. Manufacturing tariff rates actually applied by developing countries average about 15 percent (weighted by trade and GDP), and “bound” rates ["bound" rates are maximum rates agreed to in trade agreements, often larger than the rates actually applied - Ben] (to which protection could legally revert) are even higher. Industrial country tariffs average only 3 percent on manufactures outside textiles and apparel (for which the average is 12 percent). So industrial country manufacturers have a strong interest in successfully negotiating a further reduction in global protection. To mobilize this kind of pressure for reciprocal reduction of industrial country protection (including in agriculture), the major developing countries should be prepared to negotiate cuts in their bound rates that leave bound tariffs well below current applied rates.  Seeking merely to cut “water in the tariff”—very high rates that provide excessive protection of domestic production—by reducing bound rates but leaving them above applied levels will fail to spur major breakthroughs.

For their part, developing countries have a strong interest in obtaining reductions in industrial country protection in agriculture and in peak tariffs in industry (including textiles and apparel). I have estimated that when both tariffs and the tariff-equivalent of domestic subsidies are taken into account, agricultural protection amounts to about 20 percent in the United States, 50 percent in Canada and the EU, and 80 percent in Japan. Other parts of a reciprocal deal involve further opening in a range of services, possibly including some progress in temporary labor market access...

Martin Khor, of the Third World Network, doesn't want developed countries to give away too much in the part of the Doha process concerned with tariffs on manufactured goods (the negotiating group on "Non-agricultural market access" or NAMA).  He'd like to see developing countries retain what he sees as the opportunity to use tariff walls to protect the growth of domestic manufacturing industries. 

Here he discusses the tariff issue, and the state of play in the negotiations (as of late March), from this point of view: "Our industrial future hinges on WTO talks".

U.S. international adoptions up

The Progressive Policy Institute (PPI) Trade Fact of the Week bulletin reports that: "Americans' International Adoptions Have Tripled Since 1992".

U.S. international adoptions per year have grown from about 6,500 in 1994, to about 22,900 in 2004.

...By country, the largest single number of international adoptees come from China. (Last year's total was 7,053, and over the past decade American families have adopted just over 46,000 Chinese babies. Russia ranks second, with 5,209 arrivals last year and 37,000 over 10 years.) Together, China and Russia account for almost exactly half of all American international adoptions in the last 10 years. Other countries include: Guatemala, which was third last year with 3,264 adoptees, followed by South Korea, Kazakstan, Ukraine, India, Haiti, and Ethiopia...

Lamy's supporters in the third round

The International Centre for Trade and Sustainable Development (ICTSD) weekly newsletter Bridges has a report on the end of the third round of the WTO Director-General selection process (Vol 9, #17, May 18).

The story isn't posted to the ICTSD web site yet.  Here is a selection from the email version of the newsletter. (The Subscription to this very helpful weekly newsletter on trade issues is free: "Bridges Weekly Trade Digest").

Lamy apparently had overwhelming support - in numbers, geographic representation, and among countries at different levels of development - in this third round:

...Lamy was the favourite of almost four-fifths of the WTO's 148 Member delegations, attracting support from not only the EU's 25 constituent Members, but also from many African, Caribbean, and Pacific (ACP) country Members, several of which receive trade preferences from the EU.  The latter group had initially backed the candidacy of Mauritian Foreign Affairs and Trade Minister Jaya Krishna Cuttaree, who withdrew from the DG race in April (see BRIDGES Weekly, 4 May 2005, http://www.ictsd.org/weekly/05-05-04/story3.htm).  Some prominent developing country Members including India, South Africa, and Thailand also chose Lamy over the representative from their G-20 counterpart, Uruguay...

...Costa Rica was the only country to express qualms at the 13 May meeting.  The head of the country's delegation said that some Members had reservations about Lamy's candidacy, and that these dissenting views had not been reflected in Mohamed's statement. Sources report that these countries are primarily Latin American banana producers that had opposed Lamy's efforts to replace the EU's banana import quotas with what they saw as an overly high specific 'per tonne' tariff. Nonetheless, facing pressure from other Members to join the consensus, Costa Rica said that it would not veto his appointment.

What can the US and EU ask China to do about textiles?

What can the U.S. and E.U. ask China to do (under the WTO agreements) to limit its textile exports?

This Agence France Presse story explains: Outline of WTO agreements covering Chinese textiles, clothing exports (via  Channel NewsAsia , May 18).

Chinese textile and clothing exports can be restricted to 7.5% growth each year through 2008.  After that, the authority to impose the growth restrictions expires.

These quotas are a bad idea.  They'll impose costs on U.S. consumers out of proportion to the benefits they'll provide to the industry groups they benefit.  The cost of the quotas will fall relatively more heavily on poor and lower income U.S. citizens.  The quotas will increase the costs, and reduce the competitiveness of U.S. industries using textiles as inputs (furniture making, for instance).

The U.S. had ten years to gradually dismantle its clothing and textile import quotas.  Dismantling gradually would have moderated the impact on the domestic textile and clothing industries.  Instead it gamed the rules so that almost all of the impact of the  end of the quotas was delayed until this past January.

Irritating and costly as the quotas are : (a) Chinese clothing and textile exports to the U.S. would still be allowed to grow; (b) the limit on the growth has a definite expiration date; (c) the Administration may be able to trade off the imposition of the quotas for textile industry concessions on other trade issues (see below); (d) the pre-existing system of quotas on other clothing and textile exporters is not being reimposed - since January these countries can increase their exports to the U.S., and may, to some extent, offset the cost to U.S. consumers and producers of the delay in the lifting of the Chinese quotas.

With respect to the tradeoffs, Elizabeth Becker reported:

"...The fast action to reimpose quotas by the Bush administration today has saved thousands of textile jobs in this country and we are extremely grateful," said Cass Johnson, president of the National Council of Textile Organizations, a trade association.

The announcement came one day after President Bush met with the leaders of five Central American countries and the Dominican Republic to promote a trade pact with these nations that has stalled in Congress.

The textile industry has opposed the pact, the Central American Free Trade Agreement, as another threat to the American industry, but Mr. Johnson's organization broke with the other trade associations and endorsed the pact, known as Cafta, this week.

Kimberly Elliott, a trade specialist at the Institute for International Economics, said that the administration undoubtedly reached a quick decision in favor of the American textile industry in part to win more support for Cafta.

"The administration has been working the link between the safeguards and Cafta for some time, but I think they would have done this eventually even if Cafta didn't exist," Ms. Elliott said.

"If the administration is going to take a hit from China for this," she said, "it might as well get some benefit for Cafta."

via theledger.com, "U.S. Moves to Limit Imports From China ", May 14

"Not with a bang but a whimper"

Aaditya Mattoo and Arvind Subramanian are not very optimistic about the prospects for the Doha Round of trade negotiations.  Mattoo and Subramanian are World Bank and IMF economists.

I posted on their recent article in the IMF magazine Finance & Development here: "Why is it so hard to reduce trade barriers?".

If things go wrong, they don't expect a spectacular meltdown.  They expect negotiators to cobble together a weak agreement and claim success:

If our analysis here is correct, the prospects for a meaningful Doha Round may not be too bright. We fear a scenario in which a limited set of concessions is agreed to, based largely on what has already been done—subsidy reduction in agriculture in the EU and locking in (“binding”) the already undertaken services reform in developing countries—and this package is trumpeted as a successful Doha Round.

After all, that's what happened last time:

...Ten years ago, a “successful” Uruguay Round was concluded, leading to estimates of large global welfare gains. But liberalization assumptions built into the models were disconnected from what the Round actually achieved. The models assumed substantial liberalization in agriculture and manufacturing by developed and developing countries. For many developing countries, however, “liberalization” attributed to the Round was notional, even illusory.Very little incremental liberalization took place: in both agriculture and manufacturing, developing countries agreed to bind tariffs at levels that often were higher than prevailing levels.

For industrial countries, meaningful liberalization took the form of quota dismantling, but apart from that very little was achieved. In agriculture, countries set tariffs at very high levels to offset the elimination of quotas (“dirty tariffication”).  Cuts in tariffs were rendered notional by an arcane process of choosing a base year well before unilateral reductions had been made. Furthermore, the model estimates conveniently ignored the impact of the intellectual property agreement, which would have reduced welfare gains, especially for developing countries.

We are not saying that there was no liberalization during the 1990s. Nor are we claiming that there is no value in locking in reforms that have already occurred. What we are saying is that the benefits of the Round were exaggerated and its costs were underplayed. Cutting through all the hype, the Uruguay Round was all about industrial countries eliminating clothing quotas in return for which developing countries increased their intellectual property protection  [And recall that the developed countries exploited the rules to delay most of the impact of the quota reductions for almost 10 years - Ben]. The rest did not amount to much. While framework agreements in services and tariffication in agriculture set the stage for future liberalization, much greater claims were made on their behalf...

CAFTA in trouble

Steve Pearlstein looked at the prospects for the Central American Free Trade Agreement (CAFTA) recently: CAFTA Could Fall to Big Sugar (Washington Post, May 11).

The treaty is in trouble in Congress.  The main problem may be that it lacks a powerful, motivated, domestic constituency:

The problem for the Bush administration is that CAFTA doesn't offer enough benefits to exporting industries to get them juiced up about this fight. Even supporters of CAFTA estimate that it will boost exports by $3 billion a year, a rounding error in an economy that is running a $600 billion annual trade deficit...

But the opposition of the powerful sugar industry doesn't help:

... the sugar lobby, which for decades has lavished money on politicians of both parties to preserve prohibitive tariffs and restrictive import quotas that cost Americans at least $1 billion a year in subsidies and artificially high sugar prices. During the most recent political cycle, sugar interests contributed $22 million to federal candidates, exceeding the generosity of other, much larger farm interests.

How powerful is the sugar industry?

It should tell you everything that Bill Clinton interrupted one of his late-night assignations with Monica Lewinsky to take a call from Alfonso Fanjul Jr., Florida's top sugar baron...

What's at stake?

... a defeat for CAFTA will signal to the world that the United States can't walk the walk when it comes to curbing farm subsidies, thereby killing any prospect for the trade talks that really do matter -- those in Geneva aimed at a global trade treaty [the WTO Doha Round - Ben]. To avert that defeat, a desperate White House might try to pick off enough sugar-state votes by promising not to include sugar in any future deals. But either way, the effect will be the same: Hundreds of thousands of high-paying export jobs in growing service and technology sectors will be sacrificed to preserve the livelihood of 10,000 subsidy-addicted farmers and agri-millionaires.

US Supreme Court Defends Interstate Trade

The Supreme Court ruled in favor of interstate wine shippers (and wine consumers) today.

Charles Lane reports: "Justices Reject Curbs on Wine Sales" (Washington Post, May 16).

Stephen Bainbridge explains: "Supreme Court strikes down discriminatory bans on interstate wine shipment" (ProfessorBainbridge.com, May 16)

...and provides some useful links: "Background on the Supreme Court Wine Shipment Decision" (ProfessorBainbridge.com, May 16).

What's wrong with the quotas on Chinese textiles?

Last Friday the Administration announced that it was going to pursue quotas to limit Chinese textile imports.  Elizabeth Becker reports: U.S. Moves to Limit Imports From China (via The Ledger of Florida, May 14).

The Bush administration, reacting to a flood of Chinese clothing imports since January, announced on Friday that it would impose new quotas on cotton shirts, trousers and underwear from that country...

Ironically, overall textile imports to the US haven't risen all that much. Alexandra Harney, Geoff Dyer, and Alan Beattie report: Beijing may raise textile tariffs to curb exports

...Analysis of data by trade economists reveals that the rise in Chinese textile and clothing exports to the US in the first two months of this year has mainly come at the expense of other exporters.

In January and February, US textile imports rose 14 per cent, and clothing imports 15 per cent, from a year earlier.

But that compared with total imports rising by 17 per cent. While US textile imports from China increased by 40 per cent and garment imports by 70 per cent, the increase in imports from elsewhere slowed sharply to compensate.

John Palmer, over at the Eclectic Economist, describes some of the problems with this quota program: U.S. Trade Policy: Tax Consumers and Give the Proceeds to China?

In the end, U.S. consumers will pay higher prices for their clothing. And, most likely, quotas on imported clothing from China will hurt poor consumers in the U.S. more than they will hurt rich folk.

Palmer has some useful links to other news stories and blog postings.

What now?

Carlos Perez del Castillo has withdrawn from the WTO Director-General selection process, leaving Pascal Lamy of France as the only one of the four candidates nominated in December (in accordance with the WTO's selection guidelines) still under consideration. 

The WTO's General Council will meet on May 26 to make its formal choice - by consensus.  If he's chosen, as he is likely to be, Lamy will take office on September 1.

Assuming Lamy is selected later this month, he and the WTO are entering a transition period:

• Between now and December, Doha Round negotiations will be intense. In December the member nation trade ministers meet in Hong Kong. They need to have substantial agreement on the general principles of the agreement by that point.  The negotiations that must take place between now and December are difficult.
• To keep on track, member states need a first cut of the agreement by this July.
• Lamy's contract won't begin until September 1. By then, the July target will be a month in the past, and the negotiations for December should be substantially advanced.
• The WTO Director-General does supervise the WTO secretariat, but otherwise he has mostly a moral authority. He has limited formal authority for the negotiations.
• Lamy must choose four Deputy Directors-General.
• For over half the time between now and the early December Hong Kong meetings, Dr. Supachai Panitchpakdi, of Thailand, will remain the WTO Director-General. Will Lamy have a significant role between now and September? How will he interact with Panitchpakdi? Will Panitchpakdi find a way to use Lamy's talents to advance the Doha Round negotiations?

The selection committee of three ambassadors was technically just facilitating a decision; only the member nations can make the decision, and they can be sensitive about this.  Although likely, Lamy's selection is not certain, as Peter Gallagher reminds us: "A crafted consensus on WTO leadership". 

Recognizing these sensitivities and uncertainties, Lamy declined to make statements in advance of his formal selection by the WTO General Council, at a meeting on May 26. As Bradley Klapper reported for the AP:

Elisabeth Perennou, his assistant at the Our Europe think tank, said Lamy told her Friday that he will only comment after the General Council makes its formal decision May 26.

"He wants to respect the procedures," she said by telephone. "He will not be making any declarations."

"Pascal Lamy Wins Race to Lead the WTO" (via Forbes, May 13).

Lamy was the EU's trade negotiator for five years. Will he be able to move beyond his former role as an advocate, shake off his former positions, and be an honest broker? He was a little coy about his thinking in these comments in Georgetown, Guyana: "Lamy cautious on EU agricultural subsidies " (Bangkok Post, May 16).

Pascal Lamy defended his support for agricultural subsidies for European farmers but said the post he won on Friday to head the World Trade Organisation will force him to think differently.

Mr Lamy, who is French, said his track record of defending EU farm subsidies during his five years as European Union trade commissioner is on record for all to see.

``That was in my past. At this time I move to a different position,'' he said in brief remarks to reporters after meeting with Caribbean trade and agriculture ministers in Georgetown, Guyana.

``How much of myself I leave in the previous position and how much of myself I take to the new position is a sort of kitchen secret which I am not ready to disclose totally,'' he said.

The Times reports on the Georgetown comments as well: "Lamy takes charge at 'medieval' WTO", adding, among other things:

M Lamy appeared ready to seek a consensus. "The question is whether agriculture has to be treated in the same way as shirts, shoes, tyres or coal remains open," M Lamy said.

"If you put to the membership of the WTO this question, you will have different answers. Some will say it has to be run exactly the same way. Others will say agriculture has its specificities and this has to be taken into account in the way you frame the rules of world trade.

"I have my own views, but what I will have to do when confirmed is to respect the diversity of members' views and try to broker this into some kind of consensus. What the US and the EU did last year in accepting zeroing of export support is something they had to do and the rest of the members were asking from them and this I believe is going in the right direction."

It's note clear to me if these Georgetown comments were made just before, or just after, Friday's announcement by the selection committee.

What does it take to make $230 million in 15 minutes?

Brad DeLong explains Alamedia of "Unfogged" Is Puzzled by Investment Banker Compensation Levels .

Looks Like it's Lamy

Bradley Klapper reports for the AP, that: "Pascal Lamy Wins Race to Lead the WTO" (via Washington Post, May 13). 

Pascal Lamy of France has won the race to lead the World Trade Organization and should be appointed later this month, the head of the selection panel said Friday.

Kenyan Ambassador Amina C. Mohamed told delegations at the 148-member WTO that she would recommend the governing General Council appoint Lamy as director-general starting Sept. 1...

"The preferences and the breadth of support provided a very clear picture of the will of the members in this final round of the selection process," Mohamed said, adding that Lamy is the candidate most likely to attract consensus...

Elisabeth Perennou, his assistant at the Our Europe think tank, said Lamy told her Friday that he will only comment after the General Council makes its formal decision May 26.

In an earlier story today, Klapper reported that Carlos Perez del Castillo had withdrawn from the WTO Director-General race, after a briefing (before the news was released to the WTO membership later in the day) on the results of the consultation from the head of the selection committee.

He said he had learned from Guillermo Valles Galmez, the Uruguayan ambassador to the Geneva-based WTO, that Lamy had the strongest support among the 148 members of the body that supervises global trade.

Valles Galmez had just met Kenyan Ambassador Amina C. Mohamed to learn the results of the polling she has been conducting as head of a three-member panel at the center of the selection process.

"Uruguayan Candidate Yields to Lamy on WTO", (via Washington Post, May 13.)

A Klapper story on Saturday quoted former WTO Director-General candidate Jaya Krishna Cuttaree of Mauritius, raising concerns about the lack of information provided during the selection process.  Klapper reports that (among other comments) "...Cuttaree criticized the selection process that chose Lamy because the panel keeps its criteria secret." ("Pascal Lamy Wins Race to Lead the WTO" (May 14).   

Note that no tabulations of survey information on national preferences is released during the selection process. While the selection committee polled the member nations to learn their preferences, they don't use a known formula for aggregating the information, and they do not release information about the numbers of countries supporting the candidates. The Brazilians raised concerns about this after the first round.

Richard Waddington reports for Reuters: "Lamy set for top WTO job, rival pulls out" (via Washington Post, May 13).  Waddington noted that this is, technically, not the end of the selection process:

"The recommendation of the three-person panel, led by Kenya's ambassador Amina Mohamed, will be announced to trade ambassadors at 1500 GMT. But a formal decision on whether to give the job to Lamy will only be taken on May 26...

Although theoretically some states could attempt to block a consensus decision to support Lamy at the council meeting in two weeks' time, diplomats said this was unlikely."

Elizabeth Becker reports for the New York Times: "Europe's Ex-Trade Commissioner Is Picked to Lead W.T.O.".

Alan Beattie and Frances Williams reported in the Financial Times: "Lamy's last rival for WTO post withdraws" (May 13).

Mr Lamy's strongest opponents - Latin American banana-growing countries such as Costa Rica, which suspect he favours their Caribbean competitors - signalled they would drop their objections. Barring a last-minute hitch, Mr Lamy will be confirmed within two weeks and will replace Supachai Panitchpakdi, the incumbent, in September.

Why did India back Lamy? India's Financial Express explains: "Not India’s first choice".

India supported Pascal Lamy in the last round of the race as opposed to Uruguay’s candidate Perez Del Castillo. However, New Delhi would have been much more comfortable with either Jaya Krishna Cuttaree from Mauritius or Luiz Felipe de Seixas Correa from Brazil at the DG’s post. India supported Mauritius in the first round, but shifted support shifted to Brazil in the second round when Mauritius got eliminated.

Government managers here say that the decision to support Lamy was taken because with the exit of Cuttaree and Correa, the fight ceased to be between developed and developing countries. Castillo’s strong right-wing credentials, seen in Cancun ministerial, also weighed on India.

A DG from a developing country that is sensitive to the needs of India would have been particularly helpful especially when members are trying their best to conclude the on-going Doha development round by the end of 2006.

India’s slight discomfort with Lamy as the future WTO DG is due to the fact that India was engaged in a number of bitter trade disputes with EU during Lamy’s tenure as the EU trade commissioner...

Here are some more stories about Lamy:  Paul Blustein "Frenchman Set to Assume WTO Leadership " (Washington Post, May 14); Alan Beattie, Raphael Minder, and Frances Williams report for the: "Lamy to head WTO as rival withdraws" ( Financial Times, May 14);  Ambrose Evans-Pritchard : "Champion of EU superstate nears finish line for world trade job" (Telegraph, May 14); Evelyn Iritani "European Chosen to Head WTO"

Revised during the course of May 13, 14, 16.

WTO Race Winds Down

The third and final round of WTO Director-General consultations ends today (May 12).

The three news stories that I've seen point to a Lamy victory.

India's Financial Express reports "Lamy hot favourite for WTO post " (May 13). The Express reports that both India and China have chosen to back Lamy rather than his opponent, Carlos Perez del Castillo (who is from a developing country).

Former EU Trade Commissioner Pascal Lamy is emerging as a favourite for the post of the director general (DG) of the World Trade Organisation (WTO) with both India and China backing him instead of the developing country candidate Perez Del Castillo from Uruguay.

Speaking to FE, commerce ministry officials said that with India’s favourites Jaya Krishna Cuttaree from Mauritius and Luiz Felipe de Seixas Correa from Brazil dropping out of the race, the contest for the DG’s post had ceased to be one between developed and developing countries. "Uruguay is not the kind of developing country which can relate to the concerns of developing countries and LDCs in other parts of the world. So, it makes no sense for us to back it just because it is a developing country," an official said.

This is a short, but interesting story.

Australia's Melbourne Herald Sun reports that "Lamy leads WTO race".

Richard Waddington reports for Reuters that "Lamy battles to retain lead as WTO race nears end". Waddington points out that this decision is not made by a majority vote, but by consensus:

Lamy, a French socialist, took first place in both of the first two rounds of soundings. But despite this advantage, some developing state diplomats said the battle was far from over.

The successful candidate had to be the one most likely to get "consensus," meaning objections also had to be taken into account, they said.

"It will not be a simple decision; there are objections to one of the candidates," said a diplomat from a developing country opposed to Lamy. "It is not just a matter of who has most votes. There are members that will have very serious difficulties in joining a consensus (on Lamy)," he added.

Alan Beattie points out that although the consultation is ending, "The result...may still not be conclusive if there are strong objections from countries to one candidate...: "Fresh Doha debate looms for new WTO head" (Financial Times, May 13).

Zee News: " End in sight for WTO leadership duel " (India, May 13)

Why is it so hard to reduce trade barriers?

If reducing barriers to trade is such a good thing, why are the members of the WTO having such a hard time doing it?

Aaditya Mattoo and Arvind Subramanian explain, in "Why Prospects for Trade Talks are Not Bright" (March 2005 issue of the IMF magazine, Finance & Development).

In the past, "multilateral trade liberalization has been driven by corporate interests..."  However, these interests have not been energized for the current round. Part of the reason is that they have weak incentives to pursue market openings in other countries.

• Many developing countries have been reducing trade barriers unilaterally under the influence of the "Washington Consensus", and of World Bank and IMF prodding. Barriers have also been dropping because of regional and bilateral trade agreements. With trade barriers in developing countries dropping as for these reasons, corporations in developed countries have less incentive to pursue agreements through the WTO.
• Barriers have also been dropping because of regional and bilateral trade agreements.
• Developed countries have a lot to gain by reductions in barriers to trade in services.  However, countries are often reluctant to make the "deep [domestic - Ben] legislative and regulatory changes needed to open services markets"  "More importantly, scope for reciprocity within service sectors has been drastically curtailed by industrial countries’ unwillingness to consider greater openness where developing countries have a comparative advantage—notably, in the supply of services through the movement of persons."
• Corporate interests find the multilateral approach slow compared to alternative approaches ("Nongovernmental routes to securing market access and standard setting - as well as the call of regional intergovernmental sirens...")
• Many corporate goals with respect to intellectual property were accomplished in the Uruguay Round, or are being obtained through regional or bilateral agreements.

On the other hand, were the corporate interests fully engaged, they would have little to offer in exchange for concessions by developing countries.  The developing countries would like "market access in four areas: agriculture, textiles, labor mobility, and cross-border supply of services.", but

• Vested developed country agriculture and textile interests are politically powerful, and won't give up their trade privileges easily.
• "In negotiations on services, labor mobility has always been a difficult issue... Notwithstanding the large mutual gains that would be derived from allowing greater labor mobility, immigration policy has yielded only grudging concessions so far. And with traditional political difficulties compounded by a new fear of terrorism, greater openness seems elusive."
• "Industrial countries account for over three-fourths of all cross-border trade in services. But Brazil, Costa Rica, India, and Israel are among the 20 developing countries whose exports of business services have grown by more than 15 percent annually in the last decade. This growth and the outsourcing of service jobs have provoked deep concerns in many industrial countries—obscuring their own comparative advantage in services. A fuller reckoning of the forgone benefits by the United States and other countries might still occur in the future, leading to a more enlightened strategy. But for the moment, industrial countries, far from seeking greater openness abroad, seem reluctant to lock in current openness of cross-border trade."

Progress

The weary old world makes progress, maybe slowly.  Case in point: U.S. tariffs on magic tricks and practical joke articles have fallen from 70% in 1930, to zero today. 

The Progressive Policy Institute (PPI) reports in its "Trade Fact of the Week": "Tariffs on Cars Are 2.5 Percent, But on Pickup Trucks 25 Percent"

Seventy years later, almost all American tariffs are lower than the ones Roosevelt inherited. The Hoover-era tariff on karate uniforms, for example, was 90 percent and the modern karate-uniform tariff is 9 percent. Tariffs on crabmeat have also fallen (though not as steeply) from 15 percent to 7.5 percent. Other examples: beach umbrella tariffs are down from 60 percent to 12 percent; howitzers and grenade launchers, from 27.5 percent to zero; Mother's Day roses, from 40 percent to 7.5 percent (and zero if they are from Colombia, Ecuador, Kenya, or other flower-growing beneficiaries of special duty-free programs); on helicopters from 30 percent to nothing; and on joy buzzers, exploding cigars, marked cards, and other "magic tricks and practical joke articles" from 70 percent to zero.

This PPI product looks interesting as well:

PPI explains America's odd tariff system, how it works, and why it is toughest on single mothers and least-developed countries in Asia: http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=108 &subsecid=900010&contentid=253112

Waiting, waiting....

While we're waiting for the WTO facilitators to finish the third round of Director-General consultations:

EUbusiness provides a short story on the status of the race: "EU's WTO candidate Lamy puts Doha talks as top priority: interview" (May 11).

At a summit in Brasilia, 34 Arab and South American countries endorse Carlos Perez del Castillo: Invertia " South America, Arabs, back Uruguayan WTO candidate " (May 11).

The Thai Commerce Minister announced that Thailand supports Pascal Lamy of France for Director-General of the WTO. The AP reports via Business Week: "Thailand supports Lamy for WTO chief".

Mercosur says "Uruguayan feels he may have the edge".

"Canada picks its choice for WTO Directorship". They just won't say who yet.

The facilitators should finish the consultations on Thursday, May 12, and announce the results shortly after.

A step forward on Doha Round agriculture negotiations

Last week trade ministers for WTO member nations reached an important compromise on a technical issue that had held up the agricultural negotiations.

The Economist reports here: "Progress at last".

...On May 4th, negotiators from America, the European Union, Brazil, India and Australia hammered out a formula for converting specific tariffs on agricultural goods, such as 10 cents per pound in weight, into percentage (or so-called ad valorem) tariffs.

Measuring all tariffs as a percentage of the goods’ value is a prerequisite for further progress in talks about reducing trade barriers for agricultural goods. Under the broad outline for the farm-trade talks agreed last summer, countries pledged to divide their tariff barriers into different tiers. Higher tariffs will be cut more than lower ones. Not surprisingly, those countries that protect their farmers most wanted a conversion formula that translated specific tariffs into lower percentages, as that would imply smaller cuts down the road. In the end, the deal was based on a compromise proposal made by the European Union...

EUbusiness describes the negotiations leading to the compromise, here: "WTO makes progress in agriculture talks".

Bridges Weekly Trade Digest has the story here: "Agriculture: Key Trade Ministers Strike AVE Deal In Paris". This negotiation took place in the course of a "mini-ministerial" meeting of some 30 WTO member trade ministers in Paris. Bridges has the story on the overall mini-ministerial here: "Paris Mini-Ministerial Revives Optimism About July 'Approximations'". (both stories from the May 11 issue).

Peter Gallagher provides a very helpful explanation of the details: The breakthrough on agriculture. 

Revised May 12

Should we be worried about Chinese economic competition?

George Gilboy thinks not: The Myth Behind China's Miracle (Foreign Affairs, July/August, 2004).

In summary:

Washington need not worry about China's economic boom, much less respond with protectionism. Although China controls more of the world's exports than ever before, its high-return high-tech industries are dominated by foreign companies. And Chinese firms will not displace them any time soon: Beijing's one-party politics have bred a timid business culture that prevents domestic firms from developing key technologies and keeps them dependent on the West.

Who is Gilboy?

George J. Gilboy is a senior manager at a major multinational firm in Beijing, where he has been working since 1995, and a research affiliate at the Center for International Studies at the Massachusetts Institute of Technology.

The last round of the WTO DG race starts today

The third and final round of the WTO Director-General selection process began today. The last round pits Pascal Lamy of France against Carlos Perez del Castillo of Uruguay.

The consultations should end this coming Thursday (May 12), with the results announced in the next few days. The Associated Press reports ("WTO Chief Negotiations Said to End Soon ") via Forbes.

See also this report from Agence France-Presse via EUbusiness: "World trade body leadership contest enters final round"

Lamy, of France, formally has the support of the 25 EU member states.

Paris has pressed francophone African countries to swing behind him, according to diplomats, and he is set to tour the continent this week.

Perez del Castillo is formally backed by most Latin American countries and members of the Cairns Group of major farm exporters, including Australia and New.

Richard Waddington reports for Reuters (via Toronto Metronews): "Race for top WTO job enters last lap".

Poor management in the Roman Catholic Church

The "feudal" management structure of the Roman Catholic Church doesn't meet its needs, says Frederick Gluck in the "Weekend" section of the Financial Times: "God’s line manager" (May 6).

Gluck "...is a former managing director of McKinsey Co and former vice-chairman and director at Bechtel, the worldwide construction group. He is a founding member of the National Leadership Roundtable on Church Management in the US."

The church's management structure is feudal:

The Catholic Church operates as a feudal system with specific geographic areas under the control of a lord (the bishop), who serves at the pleasure of the king (the Pope) and is responsible and accountable only to him. Once appointed, each bishop has nearly absolute power over the operations of the Church in his bailiwick (diocese), subject only to the lightest of oversight from the Pope, unless he attempts to depart dramatically from Church teachings>>.

But this structure is not adequate to the needs of this large organization:

This feudal approach fails to recognise the massive benefits of scale and scope available to a trillion-dollar enterprise, not only financially but in the way it attracts, deploys, evaluates, motivates and rewards the millions of people who serve it every day. A modern management system would bring many benefits to the Church.

Better management could help the Church accomplish its mission more effectively in the face of rising costs and declining revenues:

...in the US alone, the Church controls financial resources comparable with the largest American corporations, all of which are managed by about 200 independently operating bishops. There is a co-ordinating body, the National Conference of Catholic Bishops, but it has no authority or responsibility for supervision. This means the Church’s resources are managed by very small, highly autonomous units with very little transparency. No modern American enterprise of this size could hope to succeed without strong financial management at all levels of the organisation, under the overall direction of a chief financial officer...

The Church in the US could save billions or even tens of billions of dollars, for example, by using centralised purchasing techniques for such things as transport, telephones, the internet, accounting, computers, stationery, medical supplies, insurance and pension benefits.

...the Church’s annual operating expenses of $100bn (including all parishes, diocese schools, hospitals and related services and administration). If we assume that between 20 per cent and 40 per cent of that $100bn is to purchase goods and services, and that a concerted effort to professionalise purchasing at all levels in the organisation could achieve a 15 per cent overall saving (a number frequently used in making such estimates for well managed companies), the Church could save $3bn to $6bn a year.

Human resources management is also inadequate. This may have contributed to the Bishops' failure to address the sexual abuse of children by many priests.

...With more than one million employees, it [the Church - Ben] is comparable to Wal-Mart, yet few of its employees are professionally managed. For example, there is no effective performance measurement system at any level...

The ability to deal with problems before they get out of control also depends on a clearly defined decision-making process, as well as on effective leaders who are willing to make tough decisions. More often than not, these problems are personnel decisions that can be made only by a responsible general manager. Unfortunately, very little of this kind of process or leadership exists either within the dioceses, at the national level, or in Rome.

There is no systematic review of clergy performance and probably very little review of lay people involved in the ministry or administration of the Church. (Two important exceptions in the US are Church hospitals and colleges, which have independent boards and must compete with secular institutions for patients, students and staff.)

The shortcomings of the Church leadership’s approach to handling personnel problems were highlighted by the painful consequences of the failure in the US to deal with the sexual misconduct allegations quickly and decisively...

With no established guidelines for behaviour or rigorously enforced sanctions for misbehaviour, the Church’s problems festered over many years, damaged many innocents, ruined untold lives and led to the disgrace and downfall of many well intentioned people. These people were asked to handle situations for which they were untrained and where sensible procedures to deal with personnel problems had not been developed or promulgated. If there had been a nationwide professional personnel function in place, with regular performance reviews, good reporting and record-keeping at both diocesan and national level, decisive action could have been taken much sooner.

Gluck has a number of suggestions for the new Pope, including:

He can begin thinking with his colleagues and others about some of the more difficult organisational issues, such as how to professionalise the management of the Church and capitalise on its economies of scale - without undermining the autonomy of his bishops.

Doctors slow on IT uptake

The Economist reports that the medical services industry has been way behind other industries in adopting new information technologies: "IT in the health-care industry. The no-computer virus" (April 28; subscription required).

According to David Bates, the head of general medicine at Boston's Brigham and Women's Hospital and an expert on the use of IT in health care, the industry invests only about 2% of its revenues in IT, compared with 10% for other information-intensive industries. Superficially, there are big differences between countries. In Britain, 98% of general practitioners have computers somewhere in their offices, and 30% claim to be “paperless”, whereas in America 95% of small practices use only pen and paper. But, says Mr Bates, this obscures the larger point, which is that even the IT systems that do exist cannot talk to those of other providers, and so are not all that useful.

There are potentially big benefits from increased IT usage:

Improving computer systems, of course, would not eliminate all medical errors. But most researchers believe that they would reduce them dramatically. One study in America estimates that IT could prevent 2m adverse drug interactions and 190,000 hospitalisations a year. Another study reckons that electronic ordering of drugs can reduce medication errors by 86%. By contrast, research published in March in the Journal of the American Medical Association warns that IT, if the software is badly designed, could actually increase errors. But almost everybody agrees that well-designed IT is essential to improving quality in health care...

...Estimating how much IT could save, after taking account of the considerable cost of applying it widely, is not easy. Writing in Health Affairs, an American journal, in January, Jan Walker and five colleagues (including Mr Bates) at the Centre for Information Technology Leadership in Boston concluded that a fully interoperable network of electronic health records would yield $77.8 billion a year in net benefits, or 5% of America's annual health-care spending. This includes savings from faster referrals between doctors, fewer delays in ordering tests and getting results, fewer errors in oral or hand-written reporting, fewer redundant tests, and automatic ordering and re-fills of drugs. It does not include, however, perhaps the biggest potential benefit: better statistics that would allow faster recognition of disease outbreaks (such as SARS or avian flu).

Its important that the IT system of the future be "interoperable". This means

"...electronic databases that—and this is the crucial point—can connect to one another so that any doctor can access all the information that he needs to help any given patient at any time in any place. In other words, the solution is not merely to use computers, but to link the systems of doctors, hospitals, laboratories, pharmacies and insurers, thus making them, in the jargon, “interoperable”...wherever possible, the data is entered in a structured and formatted form. Test results are in neat rows and columns and tagged in a way that every other computer can recognise and compare against other appropriate numbers."

This is how the IT system might work:

...It would start, says Intel's Mr Blatt, with wireless data entry by nurses and doctors. Practices and clinics would have secure “Wi-Fi hotspots”...and staff would walk around with small handheld devices that transmit all inputs to the database in the back office. Another source of input might be tiny radio-frequency identification (RFID) chips that are attached to patie