Tag: trade

Hyperbole Aside, Elizabeth Warren Is Right About the Risk of Investor-State

Sen. Elizabeth Warren takes to the Washington Post op-ed pages today to warn about the dangers of the so-called Investor-State Dispute Mechanism, which is likely to be a part of the emerging Trans-Pacific Partnership deal.  In substance, if not style, Sen. Warren’s perspective on ISDS is one that libertarians and other free market advocates should share. At least, my colleague Simon Lester and I do

ISDS grants foreign investors the right to sue host governments in third-party arbitration tribunals for treatment that allegedly fails to meet certain standards, such as new laws, regulations, or policies that might have a discriminatory effect on foreign investors that reduces the value of their assets. Certainly, investors – and in this context we’re talking mostly about multinational corporations (MNCs) – should have recourse to justice when these situations arise. But under ISDS, U.S. investors abroad and foreign investors in the United States can collect damages from the treasuries of their host governments by virtue of the judgments of arbitration panels that are entirely outside of the legal structure of the respective countries. This all raises serious questions about democratic accountability, sovereignty, checks and balances, and the separation of power.

An important pillar of trade agreements is the concept of “national treatment,” which says that imports and foreign companies will be afforded treatment no different from that afforded domestic products and companies. The principle is a commitment to nondiscrimination. But ISDS turns national treatment on its head, giving privileges to foreign companies that are not available to domestic companies. If a U.S. natural gas company believes that the value of its assets has suffered on account of a new subsidy for solar panel producers, judicial recourse is available in the U.S. court system only. But for foreign companies, ISDS provides an additional adjudicatory option.

Congress Should Decide Whether Trade Agreements Abide the Terms of Trade Promotion Authority

Trade Promotion Authority (TPA or Fast-Track Negotiating Authority) is not an executive power grab.  It is a compact between the legislative and executive branches, which each have distinct authorities under the Constitution when it comes to conducting trade policy. The purpose of forging such a compact is that negotiations would be impracticable – and likely interminable – if each provision were subject to the whims of 535 legislators.

Opponents of trade liberalization have smeared TPA as a wholesale capitulation to the president, who allegedly is freed of any congressional oversight and given a blank check to negotiate unamendable trade deals in secret without any input from Congress – only the capacity to vote up or down on the final deal. In reality, though, TPA is the vehicle through which Congress conveys its trade policy objectives, conditions, and demands to the president, who negotiates with those parameters in mind. Provided the president concludes a negotiation that abides those congressional parameters, the deal is given fast track consideration, which means essentially that legislative procedures are streamlined and expedited.

The trade committees are reportedly close to introducing trade promotion authority legislation, although there remains some debate about what it should include. Enforceable provisions to discipline currency manipulation would be a bad idea, as would be including provisions to reauthorize the ineffective and misguided Trade Adjustment Assistance program (which is widely acknowledged to be a payoff to organized labor).

But one important provision (or set of provisions) that has created a bit of an impasse between Senate Finance Committee Chairman Orrin Hatch (R-UT) and its Ranking Member Sen. Ron Wyden (D-OR) concerns certification that an agreement abides the requisite congressional conditions to be afforded fast track treatment. Those of us who argue that TPA is not an executive power grab, but a practical, constitutional solution to a policymaking quandary must acknowledge the propriety of such a provision – or a provision that accomplishes as much. There must be a mechanism through which the president is held to account – that the deal reflects the broad wishes of Congress.

Selling Trade Liberalization Like the Measles Vaccine

President Obama is presiding over what may prove to be the most significant round of trade liberalization in American history, yet he has never once made an affirmative case for that outcome. Despite various reports of intensifying outreach to members of Congress, the president’s “advocacy” is couched in enough skepticism to create and reinforce fears about trade and globalization.

Politico reports:

On Tuesday, Obama sent a letter directly to Rep. Ruben Gallego (D-Ariz.), arguing that reaching new trade agreements is the only way to stop China from dominating the global markets and letting its lax standards run the world.

“If they succeed, our competitors would be free to ignore basic environmental and labor standards, giving them an unfair advantage against American workers,” Obama wrote Gallego in a letter obtained by POLITICO. “We can’t let that happen. We should write the rules, and level the playing field for the middle class.”

Certainly, playing the China card could help win support for Trade Promotion Authority and, eventually, the Trans-Pacific Partnership, but it needn’t be the first selling point.  Pitching trade agreements as though they were innoculations from an otherwise imminent disease betrays a profound lack of understanding of the benefits of trade. With TPP near completion and the Transatlantic Trade and Investment Partnership talks expected to accelerate, the president’s stubborn refusal to make an affirmative case for his trade initiatives to the public and the skeptics in his party is disconcerting. Bill Watson was troubled by the president’s feeble advocacy of trade liberalization in his SOTU address.

Trade Promotion Authority Is not an Executive Power Grab

With the Trans-Pacific Partnership (TPP) negotiations reported to be nearing completion and the Transatlantic Trade and Investment Partnership (TTIP) talks kicking into higher gear, Congress is expected to turn its attention to Trade Promotion Authority (TPA) legislation in the weeks ahead.

That’s where opponents of trade – mostly from the Left, but some from the Right – have decided to wage the next battle in their war against trade liberalization. Tactically, that makes some sense because, if they succeed, the TPP and the TTIP will be sidelined indefinitely. But, as observed by the Greek Tragedians and countless times in the millennia since, truth is the first casualty of war.

Trade opponents characterize TPA as an executive power-grab, a legislative capitulation, and a blank check from Congress that entitles the president to negotiate trade deals in secret without any congressional input except the right to vote “yea” or “nay” on an unalterable, unamendable, completed and signed agreement. But the truth is that TPA does not cede any authority from one branch to the other, but makes exercise of that authority more practicable for both branches.

Under the Constitution, Article I, Section 8, Congress is given the authority to “regulate commerce with foreign nations” and to “lay and collect taxes, duties, imposts, and excises.” While the president has no specific constitutional authority over trade, Article II grants the president power to make treaties with the advice and consent of the Senate. Accordingly, the formulation, negotiation, and implementation of trade agreements require the involvement and cooperation of both branches.

Industrial Policy Courtesy of the Cromnibus…Because No More Inferior Potassium

Though a monument to the ravages of Soviet central planning, the barren Magnitogorsk steel works complex still inspires America’s industrial policy proponents.  “Failure to plan is a plan for failure,” said comrade Rep. Dan Lipinski (D-IL), as he described the “pro-manufacturing” legislation he helped slip into the mammoth Cromnibus bill, which became law this month.

The Revitalize American Manufacturing and Innovation Act directs the Secretary of Commerce to establish a “Network for Manufacturing Innovation” to:

  • improve the competitiveness of U.S. manufacturing and increase production of goods manufactured predominately within the United States;
  • stimulate U.S. leadership in advanced manufacturing research, innovation, and technology;
  • accelerate the development of an advanced manufacturing workforce; and
  • create and preserve jobs

Of course, the verbs “revitalize,” “improve,” “stimulate,” “accelerate,” “create,” and “preserve” are euphemisms for protect, subsidize, regulate, and intervene.

Enduring Myths that Obscure the Case for Free Trade

Most economists agree that free trade works better than restricted trade to increase the size of the economic pie. By enlarging markets to span national borders, free trade increases the pool of potential producers, consumers, partners, and investors, which permits greater specialization and economies of scale – both essential ingredients of per capita economic growth.

But, in practice, free trade remains elusive. It is the exception, not the rule. Sure, many tariffs and other border barriers have been reduced in the United States (and elsewhere) over the years, but protectionism persists in various guises. There are “Buy American” rules limiting government procurement spending to local firms and US-made products; heavily protected services industries; seemingly endless incarnations of agriculture subsidies; import quotas on sugar; green-energy and other industrial subsidies; shipbuilding and shipping restrictions; the Export-Import bank; antidumping duties; and, regulatory protectionism masquerading as public health and safety regulations, to list some. Ironically, protectionism is baked into our so-called free trade agreements. It takes the form of rules of origin requirements, local content mandates, intellectual property and investor protections, enforceable labor and environmental standards, and special carve-outs that shield entire products and industries from international competition.

Trade agreements may be the primary vehicle through which U.S. trade barriers are reduced, but they are predicated on the fallacy that protectionism is an asset to be dispensed with only if reciprocated, in roughly equal measure, by negotiators on the other side of the table. If the free trade consensus were meaningful outside of economics circles, trade negotiations would be unnecessary. They would have no purpose. If free trade were the rule, trade policy would have a purely domestic orientation and U.S. barriers would be removed without any need for negotiation because they would be recognized for what they are: taxes on domestic consumers and businesses.

India Tosses out the WTO’s Agricultural Subsidy Disciplines

The World Trade Organization (WTO) seems on the verge of approving an agreement with India to allow the Trade Facilitation Agreement (TFA) to move forward.  The TFA is to be applauded.  It will make a useful contribution toward helping goods move across borders more efficiently, which will tend to increase trade and promote economic growth.

The problem is not with the TFA, but rather with the high price that the global community seems ready to pay for it.  India has asked that it be allowed to exceed the level of domestic agricultural subsidies to which it agreed twenty years ago in the Uruguay Round negotiations.  For the first time in history, those talks led to limits on the ability of countries to use trade distorting agricultural supports.  Those subsidies had been rampant, often leading to surplus production that depressed crop prices in global markets.  Farmers who were being subsidized generally were happy enough with that arrangement, but it was a very different story for unprotected farmers in other countries.  Many of the world’s farmers are quite poor to start with.  Government-driven decreases in commodity prices make them even poorer.

A teachable moment is slipping away because no WTO member has been willing to stand up and explain what’s going on.  India sanctimoniously declares that it needs to promote food security through use of a robust public stockholding program, and would like the world to believe that existing WTO rules prohibit them from doing so.  This is simply not correct.  The Uruguay Round includes specific provisions detailing how public stockholding may be used for food security purposes.  A great deal of time, effort and tough negotiating went into developing those provisions.  There is no limit on government expenditures to provide food – including free or reduced-price food – to low-income people.  However, there is a clear requirement that purchases of commodities for public stocks must be made at open-market prices.  It is not allowable to purchase commodities at above-market prices in order to provide a subsidy to farmers. 

Pages