The Custom-House

Scary campfire tales for economic policy analysts

Joseph Francois, The Random Economist and a trade expert, has spent a lot of time in government and academics. 

He may be the coauthor of "the only economic model that has been banned in proposed legislation...": Illegal models (The Random Economist, Dec 16, 2006):

I have been been banned by the US Congress! Well, not quite, but one can always hope. I am coauthor of what I believe is the only economic model that has been banned in proposed legislation -- COMPAS. Many professional incarnations ago, I coauthored a set of rather simple calibrated trade models meant to help in the assessment of economic factors relevant in fair trade litigation and safeguard cases. The goal, naively, was to make the process more transparent vis-à-vis the winners and losers. Economic guidelines and indicators have been used for decades in antitrust litigation, and our intention was to introduce the same dose of scientific reason to trade litigation. Of course, this was before the surge in research on politics of trade policy, and before I had read Michael Finger's delightful JPE piece "Policy Research." Since trade litigation has less to do with scientific rationality and national interest than it does with lobbying by competing special interests (including efforts to obfuscate the impact on losers), the effort was not appreciated. Recently, it keeps surfacing in legislation. One example of the draft legislation is linked here (the proposed law) -- see pages 71 & 72. The current tone of proposed legislation is not really targeted at our simple models. Rather is it prohibit the Executive Branch from using economic analysis when formualting economic policy. Does this make sense? Of course it does. Just read Finger's article.

Here's a piece of the text from the draft legislation:

The following factors may not be used as the basis of a recommendation by the Trade Representative to recommend denying relief under this section... Any results of the econometric model known as the Commercial Policy Analysis System (COMPAS) or equivalent model.

The COMPAS model is a widely used partial equilibrium model originating in the U.S. International Trade Commission.  Here's an Excel version: COMPAS.  Here's a recent article about a modifed Canadian version: Adapting the COMPAS model for Foreign Affairs and International Trade Canada

The Finger piece is worthwhile and won't take you long.

Lay the groundwork for your CFIUS filing carefully!

Edward Rubinoff and Henry Terhune of Akin Gump Strauss Hauer & Feld LLP, weigh in on the impacts of the new CFIUS legislation: New CFIUS Reform Act Presents Challenges To Foreign Investment In The United States (The Metropolitan Corporate Counsel, Sept 2007). 

CFIUS, of course, stands for the Committee on Foreign Investment in the United States.  This is the process by which foreign direct investment (FDI) is vetted for security concerns.

This note has a very short and frank explanation of the ways firms can exploit CFIUS to avoid unwanted competition - highlighted in the excerpt below.  These authors fully expect that the new law will expand the opportunities for people interested in issues other than national security to exploit the CFIUS process to derail FDI they don't like:

Trade in Congress this fall

Ian Swanson surveys the trade scene in Congress as the August recess ends: Free-trade deals face rocky path (The Hill, Sep 4).

The Panamanian National Assembly's selection of a leader the U.S. believes was involved in the murder of a U.S. serviceman is probably not going to help the Panamanian FTA in Congress: Panama elects wanted man (Financial Times, Sep 4).

Panama’s pending free-trade agreement with the US could be endangered by the election as head of the country’s National Assembly of a man who Washington believes is responsible for the murder of a US soldier in Panama in 1992, according to one of the country’s leading opposition politicians.

In an interview with the Financial Times, Mireya Moscoso, the former Panamanian president who started the free-trade initiative between the two countries when she was in office, said she feared that the election of Pedro Miguel González, a member of the ruling PRD party, could bring grave economic consequences for the Central American nation.

“The mistake they made is going to be very expensive for the country,” she said, referring to PRD legislators’ decision to appoint Mr González. “The free trade agreement is going to be in danger when senators in Washington find out that the person presiding [over] an organism of the state...is the person [wanted] in the US for murder.”...

How is the U.S. doing in WTO litigation?

The U.S. has been doing pretty well in the WTO's dispute resolution system (measuring success by simple win-loss counts). 

The U.S. Trade Representative maintains a more or less up-to-date scorecard: Snapshot of WTO Cases Involving the United States (update July 31, 2007). 

Here's a pie-chart summarizing the USTR's score-keeping.  The chart shows cases in which decisions have been reached, or the parties have come to an agreement that short-circuited the ongoing settlement process (resolved).  There are many cases still in the pipeline.  Blue cases were resolved through negotiation, green cases were won by the U.S. on USTR-identified core issues, and red cases are those the U.S. lost.

   

On balance, the U.S. seems to be doing fairly well.  In the overwhelming number of cases in which we are complaining we have won on the core issues, or have obtained a resolution through negotiation.  We're not doing so well when we're the defendent.  We've lost about half on the core issues, and won or negotiated solutions to about half.  This is a crude measure of success and failure; it doesn't address the relative importance of the different cases, or the nature of the negotiated solutions. 

On the other hand, Brandon Wu, at Public Citizen's "Eyes on Trade," thinks the U.S. is a big loser in WTO dispute settlement outcomes: We are the "world's biggest loser" (August 27):