It's the question of national interest again...

Krugman recently wrote about the TPP being no big deal in the NYT. An interesting aspect of that piece was relating to what constitutes "national interest" that I allude to in this blog. Talking about intellectual property rights rules in the trade agreement, it said:

"Now, the corporations benefiting from enhanced control over intellectual property would often be American. But this doesn’t mean that the T.P.P. is in our national interest. What’s good for Big Pharma is by no means always good for America."

What is "national interest" then? What is good for business can sometimes be not good for the country of the business corporation. National interest could well be larger public interest? Consumer interest? Or just plain "public interest"?

Countering Krugman's analysis generally and also specifically on the "national interest" plank, a VoxEU piece argues:

"After dismissing the case for stronger intellectual property protection in the TPP, Krugman writes with a flourish, “What’s good for Big Pharma is by no means always good for America.” Not even the Pharmaceutical Manufacturers Association would claim that its interests always coincide with US interests. 

But what about the general coincidence of interests? America’s competitive strength resides in innovation. Innovation costs lots of money; not surprisingly, some 60% of the value of US shares – or about $14 trillion in 2013 – represents the capital value of ideas, not tangible property.¹ With this amount at stake, protection of intellectual property is clearly in the US national interest. From a global perspective, it’s worth asking how future innovation will be financed if good ideas – embodied in software, entertainment, electronics, and yes, pharmaceuticals – can be freely appropriated by rival firms based in foreign countries?"

An interesting debate on what constitutes "national interest" - what constitutes it, who are it's recipients and how should it be protected? I guess all trade deals will face this question. The issue is how the interests are balanced, who balances them and whose interests ultimately prevail. 

Unprecedented or myth of globalisation?

Krugman recently in his NYT blog had commented on the unprecedented globalization that has taken place since the 1970s. The percentage of world trade to world manufactures and increased continuously during the last two-three decades.

"You see the interwar trade decline; the growth in world trade after World War II didn’t return to 1913 levels of globalization until around 1970. But since then, trade has grown incredibly. Interestingly, the big tariff cuts in GATT rounds had already happened; what we’re looking at here is trade liberalization in developing countries plus containerization, and the emergence of massive vertical specialization (iWhatevers being made in many stages in different countries)."

Thus, is the world getting more interconnected? As per traditional international trade theory is mercantilism or free trade fuelling this unprecedented globalization? Some still argue that there is a myth of globalization and there is a trend towards creating more jobs domestically than manufacturing outside. Nevertheless, whether goods are being manufactured outside or locally, more trade is definitely happening. What about services trade? Is that becoming increasingly globalized or is it still largely confined to domestic borders. In many countries services is the major component of the country's GDP - Is it also a major proportion of the country's trade?

Krugman on protectionism

While there are allegations that the protectionist trend across the world is increasing due to sluggish global economy recovery, Paul Krugman believes that as compared to the Great Depression in 1929 countries have not shown a protectionist surge this time around. The chief reason for this, he opines in his NYT op-ed, is the fact that an institutional framework perhaps exists to deal with protectionism:

"So why, exactly, aren’t we seeing more protection? Why aren’t politicians — even conservative politicians — looking at the situation and saying, hmm, a tariff won’t increase the deficit, it won’t involve debasing the currency, but it could clearly help create jobs? 

One answer might be the “Smoot-Hawley caused the Depression” thing; this isn’t true at all, but it might be serving the purpose of a noble lie. 

Or maybe it’s the structure of trade agreements. The countries that arguably could really, really use some protection right now are inside the European Union, so no go. Countries outside still know that any protection they impose will lead to big problems at the WTO; the United States has to know that a protectionist response would break up the whole world trading system we’ve spent almost 80 years building."

I am not so sure that the protectionist trend has subsided. A look at the WTO disputes and proceedings of the various Committee meetings, especially the ASCM, at the WTO indicate that countries continue to impose tariff and non-tariff barriers as well as prohibited subsidies, inconsistent with WTO rules, to protect domestic industry. Perhaps the extent and scope of these measures have lessened over the years.It may be a matter of degree rather than fact.It also depends on what you define "protectionism" as.

Global Supply chains and an international agreement

I have blogged about global supply chains here and here. Richard Baldwin has argued that the present multilateral trade arrangement or WTO 1.0 is incapable of addressing the reality of international supply chains and a need for WTO 2.0 is evident. He has recently written about it in EastAsiaForum here.

In a recent piece in the NYT Paul Krugman referred to the USITC report on the economic effects of significant import restraints. The USITC report explained the nature of global supply chains:

"The Apple iPod is a prominent example of a good produced via a global supply chain. Apple is headquartered in the United States and most of its R&D, marketing, top management, and corporate functions are located in the United States. The iPod’s hard drive, however, was designed in Japan by Toshiba and built in factories in China and the Philippines. The controller chip was designed by the U.S. firm Portal Player, but is produced by firms in either Taiwan or the United States. Other parts are manufactured in Japan, Thailand, Taiwan, Korea, and Singapore. Finally, the iPod is assembled by Taiwanese manufacturing firms in China."

To what extent are global supply chains impacting world trade? Is a large proportion of world trade a result of international supply chains or is it an insignificant percentage? Which are the countries involved in this supply chain? What is the developed-developing country dynamic here? Will it lead to the enhancement of the industrial base of a developing country? What would the nature of an international agreement covering supply chains be? How different would it be from an existing multilateral trade agreement?