Tag: protectionism

No Time for Mercantilist Posturing in Transatlantic Trade Talks

By
Daniel J. Ikenson

Pitched as a cure for Europe’s woes, salvation for the multilateral trading system, and the last best chance to restrain the Chinese juggernaut, the stakes are high for the upcoming Transatlantic Trade and Investment Partnership (TTIP) negotiations. Of course the primary objective of the TTIP is to reduce nagging impediments to commerce between the United States and the European Union. But success is far from a sure bet.

Given the numerous bilateral trade frictions that have eluded resolution for many years, the goal of a “comprehensive” agreement by the end of 2014 – the current target – is simply not credible. Success would require negotiators to lay down their calculators and spreadsheets, disavow the “exports good, imports bad” mantra of mercantilist doctrine on which they were raised, and act on behalf of their citizens instead of their domestic producer lobbies.

That outcome would be too good to be true, but there may be a certain genius to the tight timeframe: it will demand that negotiators forego excessive posturing and will limit the potential for ever-shifting political calculations to subvert progress. Regardless, success can only take the form of a less comprehensive agreement or, perhaps, a two-phased agreement where the first phase meets the 2014 deadline by achieving accord on relatively agreeable matters, while the tougher issues are relegated to a later train.

A recent paper co-published by the Atlantic Council and the Bertelsmann Foundation presented the results of a survey of American and European trade policy experts about the prospects for a successful TTIP agreement. More than half thought the negotiations would produce a “moderate agreement,” and most thought the agreement would take effect by the end of 2015 or 2016.

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Topics: 
Trade and Immigration

Big Sugar Tries to Protect Its Sweet Deal from “Big Candy”

By
David Boaz

We’ve written about the outrageous sugar import quotas here many times. And Chris Edwards wrote in March about the American Sugar Alliance’s ad in the Washington Post titled “Big Candy’s Greed.” But we couldn’t link to the ad because for some reason the American Sugar Alliance has not chosen to put a version of the ad on its website. But the Alliance ran its expensive quarter-page ad in the Post last week, so we’re now able to provide the public service of making it available online.

Note that what candy producers and other sugar users want is to be allowed to buy sugar from the world’s most efficient producers at world market prices—just like every company in a free market. This protectionist nonsense “Big Candy” is fighting has been going on for decades. In 1985, the Wall Street Journal and then the New York Times reported that the Reagan administration had slapped emergency quotas on “edible preparations” such as jams, candies, and glazes—and even imported frozen pizzas from Israel—lest American companies import such products for the purpose of extracting the sugar from them. Apparently it might have been cheaper to import pizzas, squeeze the tiny amount of sugar out of them, and throw away the rest of the pizza than to buy sugar at U.S. producers’ protected prices.

As Chris Edwards noted, a critic of Big Sugar quoted in this article summarized the sad reality of sugar growers: “They are unlike any other industry in Florida in that they aren’t in the agricultural business, they are in the corporate welfare business.” 

Please enjoy “Big Candy’s Greed,” brought to you by the coddled, protected, price-supported, politically active U.S. sugar industry:

Big Sugar Ad

Topics: 
Government and Politics, Trade and Immigration

Do New Cybersecurity Restrictions Amount to Regulatory Protectionism?

By
Daniel J. Ikenson

Protectionism masquerading as regulation in the public interest is the subject of an excellent new paper by my colleagues Bill Watson and Sallie James.  As tariffs and other border barriers to trade have declined, rent-seeking domestic interests have turned increasingly to regulations with noble sounding purposes – protecting Flipper from the indiscriminating nets of tuna fishermen, fighting the tobacco industry’s efforts to entice children with grape-flavored cigarettes, keeping U.S. highways safe from recklessly-driven, dilapidated, smoke-emitting Mexican trucks, and so on – in order to reduce competition and secure artificial market advantages over you, the consumer.

The paper documents numerous examples of this “bootleggers and Baptists” phenomenon, where the causes of perhaps well-intentioned advocates of health and safety regulation were infiltrated or commandeered by domestic producer interests with more nefarious, protectionist motives, and advises policymakers to:

be skeptical of regulatory proposals backed by the target domestic industry and of proposals that lack a plausible theory of market failure. These are red flags that the proposal is the product of privilege-seeking special interests disguised as altruistic consumer advocates.

After reading this incisive paper, you might consider whether a new law restricting U.S. government purchases of Chinese-produced information technology systems in the name of cybersecurity fits the profile of regulatory protectionism.  A two paragraph section of the 574-page “Consolidated and Further Continuing Appropriations Act of 2013,” signed into law last week, prohibits federal agency purchases of IT equipment “produced, manufactured or assembled” by entities “owned, directed, or subsidized by the People’s Republic of China” unless the head of the purchasing agency consults with the FBI and determines that the purchase is “in the national interest of the United States” and then conveys that determination in writing to the House and Senate Appropriations Committees.

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Topics: 
Regulatory Studies, Telecom, Internet & Information Policy, Trade and Immigration

New Cato Policy Analysis on Regulatory Protectionism

By
Sallie James

Just in time for today’s release of my and Bill Watson’s new PA, “Regulatory Protectionism: A Hidden Threat to Free Trade” comes a feature article [$] in the specialist trade (in both senses of the word) publication, Inside U.S. Trade on the likely obstacles to a U.S-EU preferential trade agreement (a recent Cato event also hosted a discussion on this topic). And, in an inadvertent PR coup for us, it focusses almost entirely on how regulations and other non-tariff barriers (NTBs) in each economy might inhibit a successful result to negotiations:  

The shifting nature of domestic policies and agricultural trade between the United States and the European Union over the last several decades means that while some traditional trade irritants are no longer present, others have been introduced that will likely prove difficult to unravel in the context of trans-Atlantic bilateral negotiations. Whereas bilateral trade irritants previously centered on export subsidies and competition in third markets for commodities like wheat, now the disagreements primarily relate to non-tariff barriers (NTBs), including divergent scientific standards, food safety regulations and other issues that are hindrances to bilateral trade… But the difficulty in negotiating these issues is that, because they ostensibly relate to consumer health and safety, governments cannot easily make “trade-offs,” as they can with tariffs. Observers believe that this is the chief reason that the talks over agriculture promise to be so difficult.

Indeed. As we discuss in our paper, tariffs and other conventional trade barriers have fallen over the years, so the barriers that remain are more regulatory in nature, and more sensitive to negotiate. What we’re essentially left with is the difficult issues. They get to the heart of national sovereignty and, on a practical level, require the participation of regulatory administrators who may have very little or no trade negotiation knowledge or experience. They also have little incentive to concede their power. Whereas trade negotiators are paid to, well, negotiate, regulators are paid to inhibit commerce. They face asymmetric rewards: a huge fuss if something goes wrong, not many kudos if they remove the reins and let commerce thrive. Under those conditions, it should be no surprise that they are risk-averse. So this trade agreement will not be easy to complete. In the meantime, though, there is much the United States can do to limit the ability of regulators to shackle the economy with burdensome—and potentially illegal—requirements that limit choice and expose American businesses to retaliatory sanctions. For example, ensure WTO obligations are taken seriously and adhered to. From our paper:  

Prior to implementing a new regulation, federal agencies should be required to evaluate the possibility that less trade-restrictive alternatives could meet regulatory goals as effectively as their preferred proposal. Also, the U.S. government should not dilute or bypass the multilateral rules of the WTO through bilateral or regional negotiations that accept managed protectionism. This paper uses a number of recent examples of protectionist regulations to show that the enemies of regulatory protectionism are transparency and vigilance. Policymakers should be skeptical of regulatory proposals backed by the target domestic industry and of proposals that lack a plausible theory of market failure.

Read the whole thing here. And if you are in D.C. or near a computer next Thursday, watch our event to launch the paper.

Topics: 
International Economics and Development, Regulatory Studies, Trade and Immigration

Washington Post Sees Solar Panel Duties for What They Are: Self-Flagellation

By
Daniel J. Ikenson

The Washington Post was channeling the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies in this morning’s succinct and insightful editorial about the foolishness of taxing imports of Chinese solar panels.

The editorial picks up a few of the themes and draws very similar policy conclusions to those we have been advocating for many years and, without stating it explicitly, presents a compelling case for major reform, if not repeal, of the trade remedies laws.

For context, last week the U.S. Commerce Department published the final rates of duty calculated in both antidumping and countervailing duty (anti-subsidy) investigations of imports of Chinese solar panels, which were initiated in October 2011. (Here are some earlier thoughts on the matter.)

Formal antidumping and countervailing duty orders will take effect, probably, next month following a final determination by the U.S. International Trade Commission that the U.S. solar panel industry has been materially injured by these Chinese imports.

The thrust of the editorial is that the antidumping and countervailing duties, which are “calculated” by Commerce using an absurdly inaccurate, punitive methodology, will hurt other U.S. companies that are downstream and upstream of the solar panel producers in the production supply chain.

Noting the transnational nature of solar panel production, the editorial states:

U.S. firms that export polysilicon, a key material in the panels’ manufacture, or machinery to Chinese solar-panel makers could lose – if not because of the direct influence of the tariffs themselves, then because of the Chinese government’s likely reaction. Analysts worry that the Chinese will retaliate by slapping duties on U.S. polysilicon. Also at risk is the U.S. solar installation business, which has thrived during this period of low-cost panels.

This is one of the critical defects of the AD/CVD regime. It focuses like a laser on assisting industries seeking protection from competition while systematically—indeed statutorily—ignoring the adverse impacts of that “assistance” on downstream U.S. industries. (Bastiat points out that people tend to err by focusing on what is immediately seen, while failing to consider the ripple effects of actions that are less readily observed; U.S. trade remedy law demands that we commit that error!)

Much more often than not (80% of AD measures in the last decade), the foreign product subject to duties is an intermediate good required by downstream U.S. industries. And these downstream firms—the overwhelming victims of AD/CVD duties—have no legal standing in the proceedings that lead to the imposition of duties that raise their costs of production and drive them offshore or out of business. Under the statutes, the U.S. International Trade Commission is forbidden from considering the likely impact on downstream firms. In this age of globalized production and transnational supply chains, nothing could be more absurd.

About the so-called non-market economy methodology used to calculate margins of dumping and, ultimately, duty rates in Chinese (and Vietnamese) antidumping cases, the editorial asks:

But how much should a Chinese-made solar panel cost? The answer isn’t obvious. Commerce’s estimating methods—using Thailand’s economy as a surrogate for China’s—don’t inspire confidence.

These Cato papers (here and here) provide the dirty details of the capriciousness inherent in NME antidumping methodology. This brand new Cato analysis from Scott Lincicome, which documents—among other things—the global green energy subsidies race, explains how the U.S. countervailing duty law does not redress foreign subsidization, but rather punishes U.S. consuming industries and end-users. Getting tough on China means America’s wealth and jobs creators take it on the chin.

In closing, the editorial states:

And if the Chinese want to subsidize U.S. solar-panel buyers for the time being, there’s a good case to let them.

This is just another example of the administration’s policies working at cross purposes. To the fanfare of the Sierra Club and other environmental groups, President Obama has rhetorically championed the idea of greening our energy consumption profile. Of course, one of the biggest obstacles to that goal has been that the costs don’t justify the benefits. Hasn’t Chinese dumping and subsidization helped to reduce that obstacle? And aren’t duties on Chinese solar panels anathema to that goal?

Duties on solar panels, wind towers, and presidential interventions to block foreign investments in U.S. wind farms suggest that industrial policy—and not environmental policy—explains the president’s interest in green energy.

Recognizing in an editorial that duties imposed to benefit one industry or one firm (as is often the case with trade remedies measures) cause collateral damage to other industries is a laudable development for the Washington Post.  We look forward to the follow-up editorial calling for explicit repeal of the self-flagellating U.S. antidumping law.

Topics: 
Energy and Environment, Trade and Immigration

Romney’s Misplaced Obsession with Chinese Currency Manipulation

By
Daniel J. Ikenson

More than anything else, Mitt Romney’s zealous determination to pin a scarlett “CM” on the Chinese government’s lapel has defined his trade platform.  And that draws an unfavorable contrast for Romney, since President Obama’s repeated decisions not to label China a currency manipulator make him look the more cautious, circumspect, risk-averse business executive that Romney portrays himself to be.

In any event, the currency issue is very much last decade’s battle.  By continuously harping about it, Governor Romney evokes tales of old Japanese soldiers, left behind on South Pacific islands, still fighting WWII well into the 1960s.

As I noted in this piece on Forbes yesterday, if Romney is elected he will  have to renege on this silly commitment (substantively, at least), and change focus:

If Mitt Romney believes in “free trade,” his focus with respect to China should be on correcting that government’s failures to honor all of its commitments to liberalize and on the misguided efforts by U.S. policymakers to thwart legitimate commerce between Chinese exporters and American consumers.

Topics: 
Finance, Banking & Monetary Policy, International Economics and Development, Trade and Immigration

Huawei, ZTE, and the Slippery Slope of Excusing Protectionism on National Security Grounds

By
Daniel J. Ikenson

Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.　—Benjamin Franklin

Chinese telecommunications companies Huawei and ZTE long have been in the crosshairs of U.S. policymakers. Rumors that the telecoms are or could become conduits for Chinese government-sponsored cyber espionage or cyber attacks on so-called critical infrastructure in the United States have been swirling around Washington for a few years. Concerns about Huawei’s alleged ties to the People’s Liberation Army were plausible enough to cause the U.S. Committee on Foreign Investment in the United States (CFIUS) to recommend that President Bush block a proposed acquisition by Huawei of 3Com in 2008. Subsequent attempts by Huawei to expand in the United States have also failed for similar reasons, and because of Huawei’s ham-fisted, amateurish public relations efforts.

So it’s not at all surprising that yesterday the House Permanent Select Committee on Intelligence, yesterday, following a nearly year-long investigation, issued its “Investigative Report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE,” along with recommendations that U.S. companies avoid doing business with these firms.

But there is no smoking gun in the report, only innuendo sold as something more definitive. The most damning evidence against Huawei and ZTE is that the companies were evasive or incomplete when it came to providing answers to questions that would have revealed strategic information that the companies understandably might not want to share with U.S. policymakers, who may have the interests of their own favored U.S. telecoms in mind.

Again, what I see revealed here is inexperience and lack of political sophistication on the part of the Chinese telecoms. It was Huawei—seeking to repair its sullied name and overcome the numerous obstacles it continues to face in its efforts to expand its business in the United States—that requested the full investigation of its operations and ties, not anticipating adequately that the inquiries would put them on the spot. What they got from the investigation was an ultimatum: share strategic information about the company and its plans with U.S. policymakers or be deemed a threat to U.S. national security.

Now we have the House report—publicly fortified by a severely unbalanced 60 Minutes segment this past Sunday—to ratchet up the pressure for a more comprehensive solution. We’ve seen this pattern before: zealous lawmakers identifying imminent threats or gathering storms and then convincing the public that there are no alternatives to their excessive solutions. The public should note that fear imperils our freedoms and bestows greater powers on policymakers with their own agendas.

Granted, I’m no expert in cyber espionage or cyber security and one or both of these Chinese companies may be bad actors. But the House report falls well short of convincing me that either possesses or will deploy cyber weapons of mass destruction against critical U.S. infrastructure or that they are any more hazardous than Western companies utilizing the same or similar supply chains that traverse China or any other country for that matter. And the previous CFIUS recommendtions to the president to block Huawei acquisitions are classified.

Vulnerabilities in communications networks are ever-present and susceptible to insidious code, back doors, and malicious spyware regardless of where the components are manufactured. At best, shunning these two companies will provide a false sense of security.

What should raise red flags is that none of the findings in the House report have anything to do with specific cyber threats or cyber security, but merely reinforce what we already know about China: that its economy operates under a system of state-sponsored capitalism and that intellectual property theft is a larger problem there than it is in the United States.

And the report’s recommendations reveal more of a trade protectionist agenda than a critical infrastructure protection agenda. It states that CFIUS “must block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to U.S. national security interests.” (Emphasis added.) What threat? It is not documented in the report.

The report recommends that government contractors “exclude ZTE or Huawei equipment in their systems.” U.S. network providers and systems developers are “strongly encouraged to seek other vendors for their projects.” And it recommends that Congress and the executive branch enforcement agencies “investigate the unfair trade practices of the Chinese telecommunications sector, paying particular attention to China’s continued financial support for key companies.” (Emphasis added.) Talk about the pot calling the kettle black!

Though not made explicit in the report, some U.S. telecom carriers allegedly were warned by U.S. policymakers that purchasing routers and other equipment for their networks from Huawei or ZTE would disqualify them from participating in the massive U.S. government procurement market for telecom services. If true, that is not only heavy-handed, but seemingly strong grounds for a Chinese WTO challenge on the grounds of discriminatory treatment.

Before taking protectionist, WTO-illegal actions—such as banning transactions with certain foreign companies or even “recommending” forgoing such transactions—that would likely cause U.S. companies to lose business in China, the onus is on policymakers, the intelligence committees, and those otherwise in the know to demonstrate that there is a real threat from these companies and that they—U.S. policymakers—are not simply trying to advance the fortunes of their own constituent companies through a particularly insidious brand of industrial policy.

Topics: 
Telecom, Internet & Information Policy, Trade and Immigration

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