Tag: $100 bill

Dirty Deal Done Not So Dirt Cheap

Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee,  Rep. Dave Camp (R-MI)*, chairman of the House Ways and Means Committee, and the White House have just announced that they have made a deal to extend Trade Adjustment Assistance (TAA, the program that extends extra unemployment and health care benefits to workers who lose their jobs because of globalization) until 2013, as part of a broader deal that would see passage of the three outstanding preferential trade agreements with Korea, Colombia, and Panama. The extension of TAA would be included in the legislation to implement the US-Korea Free Trade Agreement, “improved” (i.e., made less liberalizing) by the administration in December.

Interestingly and alarmingly, because implementing the FTAs (which will lower tariff revenue) and paying for the billion-dollar-plus TAA extension “requires” offsets, the draft language specifies in Sec. 601 that revenue should be raised by increasing customs user fees.  This solution was first aired publicly last week, and my friend, trade lawyer (and former Cato-ite) Scott Lincicome pointed out then that raising customs user fees is probably against WTO rules (not to mention counterproductive to the goal of liberalizing trade):

“[C]ustoms fees” are simply hidden taxes on import consumers.  A quick review of the US Customs website on “customs users fees” makes this clear.  They’re paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation.  And those higher costs, of course, are eventually passed on to American consumers through higher import prices.

Thus, pursuant to the bi-partisan deal outlined above, the FTAs’ great import liberalization benefits will be immediately and tangibly undermined by new taxes on those very same imports (and others)!

…[I]t would [also] probably violate GATT Article VIII, which governs WTO Members’ imposition of “Fees and Formalities connected with Importation and Exportation” (in other words, customs fees).  The key provision of Article VIII reads:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.

WTO panels have interpreted this provision narrowly, and an old GATT panel has actually looked into the US system of customs users fees.  In these cases, the panels have ruled that Article VIII’s requirement that a customs fee be “limited in amount to the approximate cost of services rendered” is actually a “dual requirement,” because the charge in question must first involve a “service” rendered, and then the level of the charge must not exceed the approximate cost of that “service.”  They’ve also found that the term “services rendered” means “services rendered to the individual importer in question,” and that the fees cannot be imposed to raise revenue (i.e., for “fiscal purposes”).[emphasis in original]

Raising customs user fees for fiscal purposes may even go against U.S. law (subparagraph 9B of 19 U.S.C. chapter 1 ss58c).

It’s unclear how far this draft will advance at the “mock mark-up,” scheduled for Thursday afternoon in the Senate Finance Committee, as the ranking member of that committee, Sen. Orrin Hatch (R-UT), is one of the leading critics of trade adjustment assistance.  Senator Hatch has already sent out a press release opposing the inclusion of the TAA renewal in the Korea FTA implementing bill:

This highly-partisan decision to include TAA in the South Korean FTA implementing bill risks support for this critical job-creating trade pact in the name of a welfare program of questionable benefit at a time when our nation is broke. This is a clear breach of Trade Promotion Authority and threatens the ability of American exporters and job creators who stand to benefit from the largest bilateral trade agreement in more than a decade.  TAA should move through the Congress on its own merit and should stand up to rigorous Senate debate. President Obama should send up our pending trade agreements with Colombia, Panama, and Korea and allow for a clean vote.

Senate Minority Leader Mitch McConnell (R-KY) is also apparently critical of the decision to include the TAA renewal in the Korea legislation, preferring instead to consider it only in exchange for something new, i.e.,  a deal on fast track (or trade promotion) authority for further trade deals. As the American Enterprise Institute’s Phil Levy points out, “It is problematic to “buy” the [existing] FTAs with an expanded version of TAA, since those were already “purchased” as part of a May 10, 2007 deal.” [link added] The Republican House leadership is also keen to separate TAA from the FTA implementing bills, in contrast to the opinion and efforts of their colleague Representative Camp.  So the fight is far from over.

If you are interested in hearing more about the trade deals, and how TAA renewal fits in with their passage, Senator Hatch will be speaking at an event at the American Enterprise Institute on Thursday (just hours before the mock mark-up is scheduled to begin). Howard Rosen of the Peterson Institute for International Economics and yours truly will be debating the merits of TAA after Senator Hatch has spoken. More information on the event, including access to the streaming video, here.

*UPDATE: Contrary to what I suggested in my orginal post, Chairman Camp did not in fact join an announcement with the White House and Chairman Baucus about the trade deal Tuesday. He did issue a statement Tuesday evening indicating that although he finds it “regrettable that the White House has insisted on Trade Adjustment Assistance in return for passage of these job-creating agreements,” he has “been willing to work with the White House to find a bipartisan path forward on TAA in order to secure passage of the trade agreements.” So it appears he has agreed to the deal broadly, even if he was not formally part of the announcement, and is still reviewing the details. Chairman Camp’s full statement is available here.

Unintended Consequences of Money-Laundering Laws, Cont’d

As Dan Mitchell pointed out this morning, proposals to abolish the $100 bill, on the grounds that it’s too easily used in underground-economy activities such as tax evasion and drug dealing, are another instance in which ordinary citizens are called on to sacrifice convenience and privacy to help in the ever-expanding federal fight against “money laundering.” I’ve long been fascinated by the unintended consequences that arise from these laws, especially from the federal “know your customer” rules under which banks (and increasingly other businesses) are required to pry into their customers’ earnings sources, family relationships, overseas ties and other sensitive matters. Those who cannot furnish satisfactory answers – such as Americans who lack a suitable recent domestic credit record because they have long lived as dependents, overseas, or even as nuns in convents – may find that banks turn them away as customers or even freeze their existing accounts. The same is true of established customers who cannot explain a large or irregular series of cash deposits or remittances from abroad to a bank officer’s satisfaction.

A new example of this has emerged this fall, and it’s embarrassing even by the standards of federal government foul-ups. According to a Foreign Policy report last month, no fewer than 37 foreign governments with embassies in the United States are on the brink of losing, or have already lost, access to the routine banking services they need to pay their staff salaries and keep the lights and heat on in their consulates. The reason? These governments cannot prove to the satisfaction of U.S. banks that their accounts are not potentially open to use for illicit money transfers. From the banks’ point of view, there is no particular benefit to be had from an account which is relatively small in the first place – the countries involved are mostly poorer nations, many in Africa, with small embassy staffs – when these are dwarfed by the paperwork costs and potential legal exposures from a misstep.

The consequences for American foreign interests have already been unpleasant, and will become more so if the problem isn’t fixed. Angola, which saw its accounts closed down by Bank of America, has already had to cancel planned national independence day celebrations and has hinted at retaliation against unrelated U.S. companies that happen to do business in Angola. Extend that sort of anger to 37 countries, and some significant international frictions could result.

Now, I have no doubt that some embassy bank accounts, of smaller and bigger countries alike, are pressed into service for improper or even criminal money transfers. (I always assumed the whole point of “diplomatic pouches” was to transfer things back and forth that the host country would have preferred to stop and inspect). But the odds are near zero, I think, that the latest wave of bank refusals-to-deal was somehow a planned or intended consequence of the original federal calls for wide-ranging bank regulation in the name of money-laundering prevention. How many such unintended consequences will the new Dodd-Frank law turn out to have?