Monday, 14 July 2014


Components of job costing

  1. Track the costs involved in the job
  2. Make sure all of the costs are invoiced to the customer
  3. Produce reports showing details of costs and revenues by job
  4. Quotes – also known as estimates, bids, or proposals
  5. Fixed fee jobs
  6. Time and materials jobs
  7. Revenues
  8. Items
  9. Direct costs
  10. Standard costs

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Monday, 23 June 2014

Wall Street Seems Bullish

“The punchbowl remains on the table, the record player keeps spinning tunes — and the party’s still lively.”

That’s from John Stoltzfus, the Chief Market Strategist at Oppenheimer, summing up the state of the market.

It really doesn’t get any simpler than that. In the view of market participants, nothing has changed to derail the bull market. The economic data is decent, but not so hot that the Fed has to tighten. And the Fed has given no indication that it plans to remove the punchbowl (raise rates). And so the music spins, and the party is lively.

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Friday, 20 June 2014


You may have seen my other post on the AusIMM International Uranium Mining Conference in Perth 2014. I had the opportunity to attend, I have to admit I did not know a great deal about the industry and had my preconceptions before I attended but tried to go with an open mind. Needless to say there were protestors at the door to welcome me on the first day. If there ever was a subject outside of religion which would enrage unite people then Nuclear energy is it.

245932-3x2-340x227As it stands, the uranium market is still a young one whose “laws” have yet to become entirely clear. This tends to disorient observers and decision-makers who are anxious to predict its development. It has a number of characteristics which are sharply differentiated from those of other minerals, including other energy commodities. The commodity has only really been in use for 50 years and has had a couple of issues during that time. Many environmental groups are united against its use. So why are ethical funds investing in the commodity and its industry
A recent Corporate Watch Australia survey reveals that many so-called ethical investment funds invest in uranium mining. Ethical investment itself is booming: from its origins in 1984 with a fund nicknamed ‘Brazil’, because you’d have to be nuts to invest in it, the sector is now worth $2 trillion worldwide. According to the Responsible Investment Association of Australasia, Australian responsible investment portfolios grew from $4.5 billion to $17.1 billion from 2004 to 2007.
Many ethical investment funds use an approach known as ‘best of sector’. This means they do not rule out investing in any legal industry, but instead seek investment in companies that claim to be trying to improve their ethical practices. A sector cannot be ruled out on the grounds that it is simply wrong – if a company can show that it is making some gesture, however tokenistic, to improve its practices, it can be included in an ethical portfolio.
In the words of Yvonne Margarula, Mirarr senior traditional owner in the Northern Territory: “Uranium mining has … taken our country away from us and destroyed it … Mining and the millions of dollars in royalties have not improved our quality of life.” This is a common cry about any form of mining or resources think FMG and the Solomon hub or Tom Price. However, we still fly/drive/cycle and continue to buy the new phones as they hit the market. So how can this be balanced.
I think the stand out “take away” for me was the environmental slant on the discussion. This need for balance came through loud and clear. I have to credit Ben Heard of Think Climate Consulting for this bit of information. Not only does your Iphone require charging daily, it also remains connected to the internet through communication towers and internet substations/routers. The total consumption of your Iphone is around that of a common household fridge. So in short that is a lot of energy required to run your home right now along with your phone or the internet your computer is connected to. The next concept from that is the requirements of a emerging economy. What do they want when they get some spare cash? What is the main device for the majority of internet traffic in Bangladesh?
BP World Energy Report 2013
BP World Energy Report 2013
Pollutants from burning fossil fuels can create health hazards (illness and death). The most common of such emissions from electricity generation are small particulates sulphur dioxide (SO2) and nitrogen oxides (NOX). For an example of this think about Beijing.
What are our other power alternatives? Besides nuclear power the one providing 5.7% of total global energy demand right now. I challenge you to find a alternative which has the capability to replace coal or gas. I’m still looking, and yes the jury is out but I haven’t found one yet. Just imagine how much simpler and more optimised Australia would be, with plunging greenhouse gas emissions and better protection for all of us from escalating power prices if:

  • Nuclear power was considered a “viable thermal power alternative” in Government modelling
  • The assumed emissions intensity limit for new plant was 0t CO2-e because climate change is actually urgent, it demands an urgent response, nuclear can deliver exactly that service and any new plant other than zero-carbon plant, with all we know in 2012 and beyond, is virtual insanity
If I could send you to a couple of links:
Energy as it stands
Energy as it stands

Now Pandoras Promise gave a clear argument. In that America is aimed at an “energy cliff” with economic threats worse than the Great Recession, says Danny Roderick, CEO of Westinghouse. We can’t avoid that, he says, without a readily available supply of clean energy. The film “Pandora’s Promise,” “correctly suggests that nuclear power is the safest, most stable and most secure option for achieving that goal.”
Nuclear is clearly not perfect. I need to take some more time to look into the whole economical and environmental impacts. But just for a second open your mind to the idea that there is a better solution out there, however not complete it could change things over night if it was adopted.
I have not made up my mind but I understand we can not except the need for energy and development. I can not cover the whole topic here in one post. However, I have tried to touch on some common issues, others I have missed altogether. So I am emphasising the conversation; I am happy to hear from all new comers to nuclear power. Challenge your thought and mine. Tell me what you thought of the post and the videos, and what else you would like to know.

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Wednesday, 4 June 2014

AusIMM International Uranium Conference 2014

I will have the pleasure of attending and reviewing the AusIMM International Uranium Conference 2014 next week, with a big thanks to AusIMM.

Australia currently provides about 12% of the worlds Uranium. The first mine was built in 1906 at Uranium Hill, and then Mount Painter in South Australia in the 1930s. Following the Japanese Fukushima nuclear disaster in early 2011, many countries are scaling back their nuclear power production, with some setting deadlines for a complete shutdown of all nuclear power reactors. It is expected that this may impact on demand for Australian Uranium. State governments have now approved mine development in Western Australia and Queensland.

Despite the clear environmental benefits Uranium mining and its use has remained a point of controversy. China has new energy targets in place which will require clean fuel. Wether or not Australia is a player in that game will depend on how the industry progresses in the next few years. Even Hawke has been weighing in on the debate. 

We heard recently that the Japanese confirm that not one death has been caused by radiation from Fukushima. There may be some longer-term issues coming, but lets not forget the level of smog in China at present. 

How are we to venture forward in this world? 

The two day packed technical program will shed some light on the industry at the moment. The event boasts some very interesting keynote presentations by renowned Australian speakers, a variety of networking functions, a trade exhibition and more.

The speakers include:

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More points on the Pikkety Book

  1. Jim Hamilton
  2. Per Krusell and Tony Smith
  3. James Galbraith
  4. Update: Debraj Ray
  5. Update: Larry Kotlikoff
  6. Update: Jason Furman

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Monday, 2 June 2014

Deregulation of University Fees "a dirty word"

Illustration: John Spooner AAP

Currently, domestic undergraduate students in Commonwealth supported places at public Australian universities, pay a contribution of their tuition fees and the Australian Government subsidises the rest. The student contribution is set by the government and varies according to discipline category of the courses studied, with the top band including law, accounting, economics and commerce charging $10,085 student contribution per year.

Earlier in 2013 the Grattan Institute published Graduate Winners, a report which suggested that government subsidies for tertiary education should be cut, given the already strong incentives to pursue higher education, and the low net public benefits that students of certain disciplines accord to society.

The acceptance in the G08 university community of the need for reform is at a level rarely seen on any issue. The directions for reform are similarly clear. As Melbourne University vice-chancellor Glyn Davis has pointed out, while universities have been hoping and lobbying for years for more government money, the decline in funding per student seems inexorable. There is therefore now a broader acceptance of the need for fee deregulation, particularly with the opening of university education to thousands more students, and the increasing private benefit to those who complete university studies.

The Kemp-Norton recommendation seeks to level this playing field.

The recommendation suggests that it would have a number of benefits:

First, it would reduce the cost to students of studying for higher education qualifications outside the university system. At present, most of these students have to cover the full cost of their course through the fees they pay, which usually means that they pay more than their university-enrolled counterparts. It’s hard to see the logic of this, given that these students are more likely to come from disadvantaged backgrounds. This is a great way of promoting access to higher education.

Second, the proposal would introduce more competition into the higher education market. The Kemp-Norton review itself celebrates the effect that increased market forces have already on the sector, especially in lifting quality and encouraging innovation. But the impact of the market is highly constrained at present — by the near-monopoly given to universities over government-funded places, and by the controls imposed on universities in setting student charges. The Kemp-Norton recommendation removes the first these constraints and paves the way for removal of the second.

Third, greater competition will bring with it greater diversity of institutions. For example, it would allow some institutions to focus entirely on teaching, unlike universities, which have dual missions of teaching and research. This would allow more specialised institutions to develop, addressing particular skills needs or student cohorts. Universities would have even greater incentive to play to their strengths, to improve quality and to articulate more clearly the benefits they offer compared to other types of provider — such as access to the country’s leading researchers in the classroom, opportunities to study in great universities around the world and qualifications that are highly sought after by employers.

Applying some basic economics of commercial business some of the deregulation issues will be addressed. Generally speaking public investment and subsidies are typically inefficient but in some cases such as education they are seen as essential to growth (Espinoza, 2012). Some subsidies however create perverse mechanisms in dynamic contexts.

The political economy of subsidies deals with the central question of how the political process interacts with the heterogeneity of interests in society to allocate subsidies and determine the pace of their removal. More specifically, do the decisions of elective officials always lead to the socially optimal use of subsidies in the manner described earlier?

The conclusions of a number of studies (e.g. see Gardner, 1996) are that subsidisation is correlated with the political influence of the beneficiaries (e.g. retirees and the elderly in the case of social security or middle and upper class groups in the case of educational subsidies). Or in other terms the class of the graduates and the class of the university.

A hierarchy of institutions results from their ‘donative-commercial’ revenue sources and from the radical differences among them in their successes -- past and present in raising and accumulating donative resources. These differences in donative wealth, in turn, strongly influence their current commercial circumstances. Schools that get a lot of donated money from endowments and legislatures and gifts can and do sell, in their commercial role, at a lower price or higher quality. “The market” for higher education is very different, then, from commercial markets and competitive market forces play out in much different environment. They may still work, perhaps, but they do so on a strikingly tilted playing field.

Subsidies have wide ranging effects, for example mortgage subsidies and high wages in the public sector have created “queues‟: the benefits of landing a public sector job (or getting a subsidised mortgages) may be so high that some would rather wait and stay unemployed (or rent an apartment) in the hope of obtaining the coveted benefit later in time rather than going for an alternative (private sector job; commercial bank mortgage).  Is it really that bad that there is an increase in university attendance due to low fees? Can we afford not to be competitive on a global scale in terms of education as wealth?

Distortions are highly inefficient and may be worsened by further government intervention: for instance, a wave of hiring in the public sector may decrease labor supply to the private sector (or increase unemployment) since job seekers understand that the probability of landing a government job has increased. Therefore, the distributive policies in the case of education should be evaluated carefully, taking into account both theory and experience with specific government programs, so that this kind of egregious distortions be removed. So can this be done with higher education? Can the market stabilise itself with the help of the government or does it require intervention?

Perfect competition – competition is affected between firms if they function in this kind of hierarchical market.

Two things, I think, can safely be said: that competition will take place largely within segments or ‘bands’ or ‘packs’ of similar schools within the hierarchy and that it will have a very different character within differently positioned bands. For those market segments toward the bottom, competition takes rather conventional economic forms – a competition for customers of ordinary input quality that focuses therefore on numbers, on quantity of sales, on filling seats. It emphasises price, convenience, and quality for a customer of modest aims and it is most regionally or ideologically limited. For market segments at the top of the hierarchy, donative resources are great, student quality is important and amplified, competition is national, and it focuses largely on position and maintaining or improving student quality (Clotfelter, 1992).

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Sunday, 1 June 2014

Wednesday, 28 May 2014

Top 10 Economics Books - Head over to for more

My previous posts have identified the best economics podcasts, and the best eye-opening books for the entrepreneur. Here's a list of books to help you get yourself educated in the science of economics. These would be my top ten in order of preference.

Number 1: Freakonomics Levitt & Dubner

This book gives you a really different view of economics but helps lay down the basics of thinking economically. The collaboration between young economist Steven D. Levitt and journalist Stephen J. Dubner, quickly became an economic phenomenon in itself, shooting up to the top of many bestseller lists on publication and hovering nearby for much of the rest of 2005.

Number 2: Choice and Consequence by Thomas C. Schelling

Thomas Schelling is a political economist conspicuous for wandering an errant economist. In Choice and Consequence, he ventures into the area where rationality is ambiguous in order to look at the tricks people use to try to quit smoking or lose weight.

Number 3: The Economics of Life by Gary and Guity Becker

Becker made some radical changes to economics and the thinking process. His writing spawned the above books and made room for many other strands of economic thinking. My recent post on Becker is here.

Number 4: The Wealth of Nations by Adam Smith

Writing in a very different age when shipping was the main source of trade Adam Smith was the original liberalist. He criticised the mercantile system and suggested more free trade. This alternative view is akin to Smith's view, in that it makes a sharp distinction between productive and unproductive labor, but it provides a far narrower definition of productive labor than does Smith. In his time productive labor is limited to agricultural production, now the system has changed but the theory is based on some fundamental assumptions Smith coined.

Number 5: When Genius Failed by Lowenstein

This writer gives an introduction into the failures of the financial markets and indicate how so much hinges on them running. It is a classic. Lowenstein captures the gripping roller-coaster ride of Long-Term Capital Management. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein explains not just how the fund made and lost its money but also how they got there.

Number 6: The Evolution of Cooperation by Robert Axelrod

A fascinating book that shows how game theory really works, with an extremely surprising insight into which simple strategy is most successful.

Number 7: Das Kapital by Marx

Although Marx does not give any other suggestions to how the system can work, he does provide a scathing review of how it is.

Number 8: Basic Economics, by Sowell

Economics may appear to be the study of complicated tables and charts, statistics and numbers, but, more specifically, it is the study of what constitutes rational human behavior in the endeavor to fulfill needs and wants.
To study these things, economics makes the assumption that human beings will aim to fulfill their self-interests. It also assumes that individuals are rational in their efforts to fulfill their unlimited wants and needs. Economics, therefore, is a social science, which examines people behaving according to their self-interests. The definition set out at the turn of the twentieth century by Alfred Marshall, author of "The Principles Of Economics" (1890), reflects the complexity underlying economics: "Thus it is on one side the study of wealth; and on the other, and more important side, a part of the study of man."

Number 9: The Economics Book, DK

Perhaps a some what controversial suggestion as this one seems a little like a kids book this book packs quite a large amount of content in an easy to understand manner. The Economics Book is the essential reference for students and anyone else with an interest in how economies work.

Number 10: Keynes Hayek, The Clash that Defined Modern Economics, Nicholas Wapshott

The age old battle of the economics titans is well summed up in this book. “Nicholas Wapshott’s new book, Keynes Hayek, does an excellent job of setting out the broader history behind this revival of the old debates. Wapshott brings the personalities to life, provides more useful information on the debates than any other source, and miraculously manages to write for both the lay reader and the expert at the same time. Virtually every page is gripping, and yet even the professional economist will glean some insight...” (Tyler Cowen - National Review)

If you think I have missed anything or you feel that these books deserve a different review, I welcome your comments below.

Wednesday, 21 May 2014

Top value investing resources for 2014

The backyard economist team is always looking for investing insights and ideas from a wide variety of sources. Below is a list of some of my most used links for investing ideas and news. 
As always, if there are any other online sources, articles, discussion groups or Twitter accounts you find useful then please feel free to drop the details in the comments section at the bottom of the page.
Australian business news sources
International news sources
Prominent value investors
Investing newsletters (subscription services)
Investing podcasts/vodcasts
Favourite Twitter accounts
Wondering who to ‘follow’ on Twitter? Here’s a few of our favourites.
  • @WarrenBuffett – Sure he’s only sent out a few tweets, but how can you be a value investor and not follow Mr Buffett?
  • @ConversationEDU – Academics often write stuffy, excessively complicated papers that no layman can understand. The Conversation seeks to change that, with shorter more ‘journalistic’ articles from our country’s brightest.   
  • @ABSStats – Wondering what’s happening in Australia? The ABS is a wonderful (free) source of stats about our country, plus the guys who run the twitter account are hilarious.
  • @ValueIdeasLIVE – Value Conferences runs regular online value investing conferences. Their first few outings have gathered some of the best investors in the game. The online format means tickets are far cheaper than a regular conference.
  • @John_Hempton – John runs Bronte Capital, where he specialises in accounting frauds, one of the sharpest minds in the game.
  • @jasonzweigwsj – Jason Zweig is a columnist with the WSJ and is best known for his annotated version of value investing bible The Intelligent Investor.
  • @TEDchris – Chris Anderson is Curator at TED an organisation that holds annual idea sharing conferences.
  • @ValueInvesting_ – Garry Cole is a value investor based in NY, we love his feed for the regular and useful articles he shares.
  • @HarvardBiz – Harvard Business Review shares the latest blog posts, management tips and stats.
  • @danariely – Dan Ariely is Professor of Psychology and Behavioural Economics at Duke University. He also writes an interesting and entertaining blog here.
  • @BusinessChannel – Sky Business News’ twitter feed.
  • @DanielPink – Dan Pink is a US based author and public speaker. He’s written extensively on behavioural science and how incentives should be applied in the workplace.
  • @mungerisms – Excellent quotes, facts and links on value investing.
We hope you find the list useful. Enjoy.

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Summary on Piketty’s tour de force

experiment is nothing else than a mode of cooking the facts for the sake of exemplifying the law."

What Piketty had undertaken was exemplifying an already known old fact, now supported with huge data of evidence. The final solution advised by him is sensible governmental action. How could modern democracies that depend exclusively on capitalists for country 'development', undertake actions to tame the very capital?

A brilliant book review over here:

Trade in the backyard

The Russian Federation has traditionally been Ukraine's largest trading partner. The free market has been emerging but with it a drastic fall in the GDP in the first 10 years of its independence from the Soviet Union, then experienced rapid growth from 2000 until 2008. However Ukraine was greatly affected by the economic crisis of 2008 and as a result a 15.1% decrease in Ukraine's GDP took place over 2008 and 2009.

Ukraine is relatively rich in natural resources, particularly in mineral deposits. Although oil and natural gas reserves in the country are largely exhausted, it has other important energy sources, such as coal, hydroelectricity and nuclear fuel raw materials.

According to the Global Competitiveness Report 2012-2013 "the country’s most important challenge is the needed overhaul of its institutional framework, which cannot be relied on because it suffers from red tape, lack of transparency, and favoritism"

Although the majority of trade come from Russia, they are not keen to allow the Ukraine to slip too far towards european free trade. Russia has deep cultural and political ties with the Ukraine, and to allow unfettered free trade will Europe will see a drift into the West’s sphere of influence.

Russia joined the World Trade Organisation in 2012, but it is less interested in strengthening the multilateral trading system than in building its own regional trade block. Fyodor Lukyanov, editor of Russia in Global Affairs, a foreign-policy journal, notes that with America trying to conclude sweeping trade agreements with its neighbours in the Pacific Rim and with Europe, “the whole structure of world trade is changing towards a more fragmented system. That’s why Russia is trying to build something of its own.”

What Russia is truing to do, either through force or might is set up its own regional trade agreements (RTA). One of the more recent ones being gas with China. Arvind Subramanian of the Peterson Institute for International Economics calls the rise of ever larger RTAs an “existential threat” and gives warning that “multilateral trade as we have known it will progressively become history.”

The debate about whether RTAs help or hurt the multilateral trading system has gone on for decades. Supporters argued that wherever two countries entered into an RTA, they would create incentives for others to join or to negotiate their own RTA. Trade barriers around the world would fall, one by one, and political support for multilateral deals would increase. Detractors claimed that once inside an RTA, countries would discriminate against outsiders and lose interest in multilateral liberalisation, undermining the authority of the WTO. They would divert as much trade as they created and introduce big distortions.

With the balance of trade comes the balance of political power. Brazil, Russia, India and China (the BRICs) see themselves as countries still poor enough to need protection for their industries while the rich ones lower their own barriers, especially to agriculture. But the rich world increasingly views the BRICs as full-fledged economic competitors whose state capitalism is incompatible with a free and open global economy.

“For too long, much of the economic force and sacrifice in Geneva to produce global trade agreements has come at the expense of the US and EU,” says Ron Kirk, who was Mr Obama’s first trade negotiator. “We have been lectured over and over by our colleagues from the emerging markets that they have the economic heft and prestige to demand a seat at the table. And we agree.” But that, he says, means they too need to make sacrifices by opening up further to America and Europe.

Emerging markets often want protection not just from rich countries but from each other, particularly from China. The battle for the South China sea at the moment is a shining example of this. Roberto Giannetti da Fonseca, an official with FIESP, Brazil’s largest industrial association, ran a trading company in the 1980s that sold Brazilian manufactured products to China. He struggled to find anything worth buying from China, often settling for arts and crafts. “I could not imagine that 20 years later they’d be invading Brazil with hundreds of products and we’d be crying that we cannot compete.” His organisation is a vocal critic of China’s mercantilist practices and has urged the Brazilian government to negotiate free-trade agreements with North America and Europe.

The Trans-Pacific Partnership is a proposed expansion of the 2005 Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4), a trade agreement among Brunei, Chile, New Zealand, and Singapore. It seeks to manage trade, promote growth, and regionally integrate the economies of the Asia-Pacific region.The Transatlantic Trade and Investment Partnership (TTIP) is a trade agreement that is presently being negotiated between the European Union and the United States. According to the ECU it aims at removing trade barriers in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the US.

Trade liberalisation is now proceeding along two different tracks. One, preferred by America, goes “behind the border”, focusing on things such as harmonising safety, health and technical standards, currencies, national treatment of foreign investors, the protection of intellectual property, services such as telecommunications, and enforcement of labour and environmental protection. The other, preferred by China, concentrates on reducing tariffs—outside sensitive sectors.

In practice, this means America is most likely to strike deals with countries at a similar stage of economic development, such as the European Union and Japan, or with developing countries willing to meet rich-world standards in exchange for market access, such as Mexico and Chile. America’s comprehensive free-trade deal with South Korea is the model for the TPP.

China, by contrast, has pursued a variety of bilateral deals with its neighbours, mostly in the hope of persuading them “that it sought a peaceful rise as an emerging superpower”, says Chin Leng Lim, a trade-law expert at Hong Kong University. China’s free-trade agreements are numerous but shallow, often leaving out sensitive sectors and subjects. Its agreement with the Association of South-East Asian Nations, for example, allows signatories to classify 400-500 tariff categories as sensitive and thus eligible for slower tariff reduction.

Regional trade liberalisation is better than no liberalisation at all, yet it interferes with globalisation in several damaging ways. By excluding sensitive sectors or imposing onerous rules of origin, it complicates life for multinational companies whose supply chains cross multiple borders.

FTAs by status: Total Asia (cumulative), selected years ( 

Trade pacts are frequently politically contentious since they may change economic customs and deepen interdependence with trade partners. Increasing efficiency through "free trade" is a common goal. For the most part, governments are supportive of further trade agreements.

There have been however some concerns expressed by the WTO. According to Pascal Lamy, Director-General of the WTO, the proliferation of RTA “ breeding concern — concern about incoherence, confusion, exponential increase of costs for business, unpredictability and even unfairness in trade relations.” The position of the WTO is that while the typical trade agreements are useful to a degree, it is much more beneficial to focus on global agreements in the WTO framework such as the negotiations of the current Doha round.

The anti-globalization movement opposes such agreements almost by definition, but some groups normally allied within that movement, e.g. green parties, seek fair trade or safe trade provisions that moderate what they perceive to be the ill effects of globalization.

The Uruguay round in the 1990s is thought to have produced a gain of 0.5-1.3%. Even the TPP will boost participants’ output by only 0.5%, much the same as Doha would, reckons one study by Peter Petri of Brandeis University and Michael Plummer of Johns Hopkins.

In theory, a successful TPP or TTIP could become a magnet for other countries, eventually achieving multilateral trade liberalisation by default. In practice that seems unlikely. China’s and Russia’s interventionism and attachment to state capitalism are difficult to reconcile with the “behind-the-border” liberalisation America and Europe are seeking. And having had no say in designing the pacts, China and Russia may be reluctant to join later.

The decline of multilateralism may not make much difference to big countries able to negotiate regional agreements on their own terms. Small countries without such leverage may be harder hit. But the marginalisation of the WTO as a deterrent to protectionism would hurt everyone. And increasingly such protectionism is taking on new forms that are hard to deal with.

TPP Counties Status and Date

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