RIP, TTIP?

U.S. Trade Representative Michael Froman is having a bad week.  First, Senate Majority Leader Mitch McConnell put the kibosh on lingering prospects that his chamber would consider ratification of the Trans-Pacific Partnership deal this year.  Then Germany’s economy minister proclaimed the 3-year-old Transatlantic Trade and Investment Partnership negotiations had “de facto” failed, with the French trade minister promising to pursue formal termination of the talks – adding that “the Americans give nothing or just crumbs” (which puts the USTR beneath Marie Antoinette, who at least offered cake). 
 
Whether McConnell is being coy in hopes of extracting concessions from the administration on TPP is unclear, but either way the likelihood is approaching certainty that ratification of the Pacific trade deal will become the responsibility of the next president and Congress.  For reasons given here and here, I’m bullish on that outcome within two years.
 
But the TTIP is a different story.  Although the negotiations are not officially dead, they might as well be. Talks were doomed from the outset, laden with too many intractable issues, too many red lines, a thorough lack of realism concerning the time and effort required for success, and a profound asymmetry in the desire to get a deal done. With U.S. negotiators focused on completing the TPP, the EU’s embrace and commitment to the TTIP became a case of unrequited love.  With each EU overture, the U.S. negotiators could play hard to get.  And they did.
 
Now, the United Kingdom’s likely departure from the EU complicates matters further, with uncertainty about the future composition of the EU impeding proper evaluation of the expected tradeoffs from a prospective TTIP. So, while the prevailing uncertainty likely means TTIP stasis for the next couple of years, Brexit would give U.S. negotiators even more leverage in TTIP than they already have. The possibility of a US-UK free trade agreement or a UK accession to the TPP would undoubtedly shift TTIP dynamics further in favor of U.S. negotiators – and give the UK added leverage in negotiating its own post-Brexit relationship with the EU.
 
TTIP isn’t dead. It’s in a coma. For it to have any hope of recovery and real success – an outcome with real liberalization that is – a restoration of some semblance of symmetry in demand for that outcome is necessary. With the existing imbalance, it’s better to have no deal at all because the misguided objectives of negotiators are to open foreign markets as much as possible, while keeping their own as closed as possible. Negotiators with leverage are more likely to succeed at keeping their own markets closed, depriving their fellow citizens of the real benefits of trade. For Americans to realize the most important benefits of trade liberalization, its negotiators must be matched up against foreign negotiators with approximately the same strength (or leverage). When the foreign trade negotiators don’t have enough leverage, U.S. consumers and import-consuming industries lose.
 
For any TTIP outcome to be considered successful, the deal must tackle U.S. restrictions on competition in shipping (repealing the Jones Act), commercial air services, and government procurement projects. Trillions of dollars of annual economic activity in the United States is provided by domestic suppliers facing no foreign competition, which represents an enormous drag on U.S. growth.  In the TTIP negotiations to date, the United States hasn’t budged an inch to accommodate any liberalization in those areas.  Until that is no longer the case, the TTIP should be considered a failure.
 
When the TTIP negotiations were launched in 2013, I warned in this paper that the talks included the seeds of its own destruction and that a successful outcome would require a new approach:

As great as the benefits may be, the TTIP was not borne of any genuine enthusiasm for the enterprise. In Europe, it was seen as a last resort. Frustrated by the failures of monetary policy and restricted by the imperative of fiscal austerity, policymakers were looking for something—anything—to embrace as a potential economic tonic. Whether they actually thought TTIP likely to bear fruit is an entirely different matter. They wanted something to behold as evidence that Greece did not represent Europe’s fate. Potential voter wrath, political backlash, and stalemate–historically effective deterrents to initiating transatlantic trade talks–took a back seat to the affirmative optics of embracing some plausible initiative that might steer Europe from the abyss.

For U.S. policymakers, the main motivation for launching TTIP was to assuage EU concerns that the United States had written her off in its “pivot” to Asia.
 
Other rationales for pursuing TTIP include the argument that the world needs the United States and European Union to reassert global economic leadership at a time when no other country or group of countries is willing or able to do so. Another is that there is a race to establish global production standards and TTIP, representing half the world’s output, presents an opportunity to establish them here and now. A third ex-post rationale is that by establishing disciplines on issues where other trade agreements are silent—issues like currency manipulation, the operations of state-owned enterprises, local content rules, and others—the United States and EU could establish rules that China and others would eventually have to heed.
 
It is within this context that TTIP emerged. But none of those rationales–pursuing TTIP as a last resort, assuaging hurt feelings, establishing standards, disciplining China and others–seem likely to provide the motivation for negotiators and governments to dig deep and remain committed enough to make difficult choices that may carry political consequences. As the talks drag, will governments remain committed to the goals? Will governments motivated by the “last resort” rationale continue to invest seriously in the negotiations if their economies experience growth and the political costs of TTIP no longer look so necessary to incur? Already there have been signs of retreat from the ambitious goals articulated at the outset.
 
From the outset, negotiators erred by setting a 2014 completion date for the negotiations. There is absolutely no plausibility to that deadline and, frankly, failure to amend the timetable with realistic deadlines will only undermine the credibility of the undertaking with a public already skeptical of trade negotiations.

There are dozens of issues on the table of varying complexity that will likely take several years to resolve. Rather than have a single deadline for a single undertaking, the negotiators should announce that their intention is to achieve a multi-tiered agreement that yields multiple harvests at established time intervals. Some analysts have referred to the TTIP as a “living agreement,” although a common understanding of that concept is not evident nor, to my knowledge, have the governments or their negotiators used this characterization in any official context. They should. And it should work something like this.

Negotiators would take stock of the issues on the table and rank them in order of importance to a successful TTIP conclusion. They would then rank those same issues in terms of order of difficulty to resolve. Based on averaging and some agreed upon weighting of those two sets of rankings, negotiators would identify what they and their counterparts see as the most important and least important issues, as well as the most difficult and least difficult issues to resolve. That exercise would produce a road map for how to proceed.

When the dust settles and greater certainty emerges, the United States and EU (and UK) might consider relaunching the TTIP negotiations along these lines. But the parties should come to the table with a genuine willingness to liberalize everything (including sacred cows) because that is what will generate the interest, excitement, and leverage to achieve a really successful outcome.

Topics:

New Support for a European Union Army

While the American news media were preoccupied with Donald Trump’s latest tweet or Hillary’s Clinton’s latest explanation for a scandal that barely passed the straight face test, a more important development took place in Europe that received scant attention.  The prime ministers of both Hungary and the Czech Republic urged the European Union to build its own army.  That is a very significant shift in attitude.  Until now, The European countries had been content to channel security matters through NATO and to focus the EU’s attention on economic issues. 

The insistence on NATO’s primacy also reflected Washington’s wishes, since it guaranteed U.S. control of transatlantic security decisions.  That control came at a high cost, however, since it enabled the European allies to free ride on Washington’s security exertions.

U.S. leaders have repeatedly discouraged independent security initiatives on the part of the European nations.  There was a tremendous opportunity to change policy and off load security burdens with the end of the Cold War.  Perhaps the clearest opportunity was when Yugoslavia began to disintegrate in the early 1990s.  When the initial European diplomatic and peacekeeping efforts faltered and, predictably, the allies then sought U.S. “leadership,” the Clinton administration’s response should have been a firm rejection. 

U.S. officials should have told their European counterparts that the turmoil in the Balkans was a regional matter that had little impact on the United States.  And just as we would have no right to expect them to take a leading role in resolving a similar parochial bout of disorder in Central America or the Caribbean, they had no right to expect U.S. military involvement in the Balkans. Such a stance would have pressured the Europeans to address security issues in their region as competent adults instead of hapless dependents.

Instead, Washington continued to play a dominant role in the Balkans through NATO, first with the Bosnia intervention in 1995 and then with the Kosovo intervention in 1999.  Democratic Europe’s security dependence continued unabated.  Indeed, NATO’s prominence and Washington’s risk exposure increased steadily as the alliance expanded first into Central Europe and then into Eastern Europe.  As defense analyst Nikolas K. Gvosdev laments, the U.S. Senate, in a monumental dereliction of its constitutional duty, failed to ask the hard questions that needed to be asked as Washington undertook increasingly far-flung, questionable security obligations.  With a few exceptions, that was also true of the broader foreign policy community.

The Weird World of Data (and Your Privacy)

In 2007, Judge Richard Posner found it “untenable” that attaching a tracking device to a car is a seizure. But the Supreme Court struck down warrantless attachment of a GPS device to a car on that basis in 2012. Putting a tracking device on a car makes use of it without the owner’s permission, and it deprives the owner of the right to exclude others from the car.

The weird world of data requires us to recognize seizures when government agents take any of our property rights, including the right to use and the right to exclude others. There’s more to property than the right to possession.

In an amicus brief filed with the U.S. Court of Appeals for the D.C. Circuit last week, we argued for Fourth Amendment protection of property rights in data. Recognition of such rights is essential if the protections of the Fourth Amendment are going to make it into the Information Age.

The case arises because the government seized data about the movements of a criminal suspect from his cell phone provider. The government argues that it can do so under the Stored Communications Act, which requires the government to provide “specific and articulable facts showing that there are reasonable grounds to believe that [data] are relevant and material to an ongoing criminal investigation.” That’s a lower standard than the probable cause standard of the Fourth Amendment.

As we all do, the defendant had a contract with his cell phone provider that required it to share data with others only based on “lawful” or “valid” legal processes. The better reading of that industry-standard contract language is that it gives telecom customers their full right to exclude others from data about them. If you want to take data about us that telecom companies hold for us under contract, you have to get a warrant.

Libertarian Candidate Gary Johnson’s Proposal Would End Illegal Immigration

Libertarian presidential candidate Gary Johnson, the former-governor of New Mexico, wrote a remarkable op-ed for CNN yesterday detailing his views on immigration reform. The piece included the following:

Our politicians, both right and left, have created a system for legal immigration that simply doesn’t work. We have artificial quotas. We have “caps” on certain categories of workers that have no real relationship to the realities of the free market. It’s no coincidence that recent history shows the only successful way to reduce illegal immigration is to have a recession. Over the past 10 years, both illegal entries and the number of undocumented immigrants in the country have declined. That’s not because the government did anything right. ….

Try this, instead: No caps. No categories. No quotas. Just a straightforward background check, the proper paperwork to obtain a real Social Security number and work legally or prove legitimate family ties, and a reliable system to know who is coming and who is going.

Gov. Johnson is correct to reject government-mandated immigration quotas. As I argued in a recent blog post, quotas are the definition of an unreasonable immigration policy—they literally have no reason behind them. They are no different than Soviet manufacturing quotas, and they have the exact same effect: discord in the free market—surpluses where workers are unneeded, shortages where they are needed, and black markets that inevitably results when government makes movement illegal.

Not to quibble, but Gov. Johnson shouldn’t give the poor economy all of the credit for declining illegal immigration in recent years. In fact, a significant portion of the credit can be attributed to doing what he says—granting more work visas. As the figure below shows, the number of work visas is inversely correlated to the number of illegal entries. During the 1950s and 1960s, illegal immigration almost disappeared during the Bracero guest worker program. Then, in recent years, less strict visa rules have resulted in more legal immigration and less illegal immigration.

7 Reasons Why Hitting 2016’s Refugee Goal Would Be a Major Achievement

Responding to the worldwide refugee crisis—which the United Nations has called “the biggest humanitarian emergency of our era”—President Obama vowed last September that the United States would accept 10,000 Syrian refugees and 85,000 refugees total over the following 12 months. With much fanfare, the State Department hit its Syrian refugee quota this week. But with just one month left, it is still 15,000 short of its overall target, and if it continues at its current pace, it will come up 3,000 short.

But here are seven reasons why hitting the target would be a major accomplishment.

1) A slow start: The biggest reason that the State Department is cutting it close is that it suffered one of its slowest starts in recent years.  In the prior three fiscal years (FYs), the refugee target was 70,000, and yet even with a higher goal this year, the United States had accepted fewer refugees at the midpoint of this year than at the same time in any of those years (the purple bolded line in the chart below). While the United States has usually ramped up slightly during the second half of prior years, it has taken an historic effort to catch up this year.

Figure: Monthly Refugee Admissions to the United States (FY 2013-FY 2016)

 

Source: State Department

2) Most refugees in a month ever: If the United States is to reach its goal this year, it will need to accept nearly 15,000 refugees in September. This is more than any month that the State Department has made available since 2001 and possibly the most ever. Although month-by-month statistics are unavailable for the record year of FY 1992 when the United States admitted 132,000 refugees, the average monthly intake was only 11,000, making it possible that this September will be the most ambitious month in history.

3) Late planning: A major reason for the slow start is that the agencies had planned throughout FY 2015 to accept only 75,000 in FY 2016. It was not until two weeks before the start of the year that Secretary of State John Kerry changed course and decided to increase the number by 10,000. The agencies scrambled to adjust, but it took time to ramp up. “As an operational person and for planning purposes, I had anticipated an increase from 70,000 to 75,000,” Barbara Strack, Refugee Affairs Division Chief of U.S. Citizenship and Immigration Services (USCIS), told Congress on October 1st last year. In order to meet the goal, the agency needed to “surge” hundreds of refugee officers into Jordan from February to April to conduct enough interviews to meet the goal.

In East Asia, August was a Busy Month for Burden Sharing

East Asia is a rough neighborhood. Chinese activities in the East and South China Seas stoke tensions and raise questions about Beijing’s plans for regional or global dominance. North Korea’s latest contribution to regional instability came in the form of a submarine-launched ballistic missile test on August 24, during a large annual U.S.-South Korean military exercise. Initial analysis suggests that the missile could have a range of 1,000 km or more, which would give Pyongyang the ability to place all U.S. military bases in South Korea and the main Japanese islands at risk.

America’s allies and partners in East Asia have not stood idly by while Beijing and Pyongyang acted aggressively. Rather, they have taken relatively small but still meaningful measures to improve their defenses and, thus, their ability to resist coercion.

Tokyo announced that it would develop new anti-ship missiles and deploy them to islands near the disputed Senkaku/Diaoyu Islands in the East China Sea after multiple Chinese Coast Guard and fishing vessels began operating in the area in early August. During the annual Han Kuang military exercises, Taiwan’s president Tsai Ing-wen announced that the Ministry of National Defense will devise a new strategy by January 2017. U.S. allies and partners also worked with one another. For example, on August 18, Japan delivered the first of ten coast guard vessels to the Philippines.

In the near term, the United States will likely retain its status as the ultimate guarantor of security for its East Asian allies and partners, but these efforts to take on a greater burden for self-defense should be praised. Eventually these states may take up the mantle of security guarantor, but such a transformation will take time. Additionally, the next president of the United States should encourage further burden sharing. Allies that are capable of deterring coercion or responding to security threats on their own enable a more restrained U.S. grand strategy by reducing the range of incidents or crises that require U.S. intervention. 

A Left-Wing Tax Victory that Is Actually a Triumph for Supply-Side Economics

Our statist friends like high taxes for many reasons. They want to finance bigger government, and they also seem to resent successful people, so high tax rates are a win-win policy from their perspective.

They also like high tax rates to micromanage people’s behavior. They urge higher taxes on tobacco because they don’t like smoking. They want higher taxes on sugary products because they don’t like overweight people. They impose higher taxes on “adult entertainment” because…umm…let’s simply say they don’t like capitalist acts between consenting adults. And they impose higher taxes on tanning beds because…well, I’m not sure. Maybe they don’t like artificial sun.

Give their compulsion to control other people’s behavior, these leftists are very happy about what’s happened in Berkeley, California. According to a study published in the American Journal of Public Health, a new tax on sugary beverages has led to a significant reduction in consumption.

Here are some excerpts from a release issued by the press shop at the University of California Berkeley.

…a new UC Berkeley study shows a 21 percent drop in the drinking of soda and other sugary beverages in Berkeley’s low-income neighborhoods after the city levied a penny-per-ounce tax on sugar-sweetened beverages. …The “Berkeley vs. Big Soda” campaign, also known as Measure D, won in 2014 by a landslide 76 percent, and was implemented in March 2015. …The excise tax is paid by distributors of sugary beverages and is reflected in shelf prices, as a previous UC Berkeley study showed, which can influence consumers’ decisions. …Berkeley’s 21 percent decrease in sugary beverage consumption compares favorably to that of Mexico, which saw a 17 percent decline among low-income households after the first year of its one-peso-per-liter soda tax that its congress passed in 2013.

I’m a wee bit suspicious that we’re only getting data on consumption by poor people.

Why aren’t we seeing data on overall soda purchases?

Pages