Friday, October 28, 2011

How to do a trade deal

The 10/24 issue of Business Week has a great article on the behind the scenes negotiating on the Colombia, South Korea and Panama trade deals that were recently approved.  As much as we emphasize the role of tariffs and quotas as trade barriers, it turns out that a country truly committed to keeping out imports can do so through other ways, such as South Korea's constantly changing safety and fuel economy standards. 

The best story is about how U.S. sugar producers took pains to make sure imported sugar was not included in exports: 
In the end, the negotiators devised a compromise: At least 65 percent of the sugar in products containing cocoa powder must be from U.S. growers to be considered American-made. Otherwise tariffs will apply, which could make the product prohibitively expensive. But no such restrictions apply on sugar that’s used to make candy bars. In other words, a packet of instant hot chocolate that contains 64 percent U.S.-grown sugar is not considered American under the deal. But a chocolate bar made with 100 percent foreign sugar is.

Literally thousands of such details in each agreement.  Not much value being created, is there?

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