Topic: International Economics and Development

Harsh Criticism for the Re-Packaged EU Constitution from a British Newspaper

The EU Constitution is being resuscitated by Europe’s political elites, and those elites are doing their best to figure out ways to bypass voters. British voters are the best chance of saving Europe from further centralization, but Tony Blair is maneuvering to avoid a referendum. An editorial from the Sun strongly denounces the EU Constitution and hopes that Gordon Brown will protect British interests:

Tony Blair faces a stark choice at his last EU summit. He can stand up for the country that trusted him with power in three general elections. Or he can sell us down the river to the faceless EU politicians and bureaucrats who run Europe … Mr. Blair’s vaunted “red lines” won’t protect the United Kingdom from the relentless erosion of power by our EU masters. Whatever written guarantees are offered in the coming days, Britain would be folding its hand into a European superstate … Gordon Brown may not be in Brussels — but he will have the final say on how the result is sold at home. We have been promised a referendum. The incoming Prime Minister cannot allow this deal to go through without one.

A columnist in the same paper outlines the many ways in which the EU Constitution gives more power to Brussels and threatens the UK’s more open economy:

…the Reform Treaty, is virtually the same as the rejected EU Constitution. It will rob us of powers to set our own laws and put industry back 30 years … Early drafts of the document show Britain will surrender 30 per cent of its voting power in EU meetings. This will make it far harder to stop barmy EU diktats becoming UK law.

Britain’s vetoes will be axed in as many as 51 areas … The power to set tax and spend policy could also be stripped away. The Commission also wants to rob us of our right to set social security payments. Experts say the draft Treaty would mean huge changes to British law. They say a Charter of Fundamental Rights would become more legally-binding than UK law. The Charter will also lumber Britain’s economy with job-destroying EU laws.

How Not To Rear Pigs (And Receive Money For Not Doing So)

I have only so much contempt to go around, and my job calls me to expend most of it on U.S. government policies. But I have of late been so immersed in criticizing U.S. farm programs (and rightly so) that I have to remind myself of the insanity across the pond.

Or my friends remind me. My mate Ken sent me this letter from a would-be non-pig-farmer from the U.K., anxious to feed at the European Union’s trough.

My favorite excerpt:

“In your opinion what is the best kind of farm not to rear pigs on, and which is the best breed of pigs not to rear? I want to be sure I approach this endeavour in keeping with all government policies, as dictated by the EU under the Common Agricultural Policy. I would prefer not to rear bacon pigs. But if this is not the type you want not rearing, I will just as gladly not rear porkers.”

Read the rest, though. It’s worth the time.

Antigua and Barbuda Raises the Stakes

$3.4 billion. That’s the price tag Antigua and Barbuda, the island nation which successfully argued that the United States was violating its obligations to open its market to foreign online gambling providers, puts on its lost revenues as a result of the U.S. ban on some internet gambling. (More here and here.)

They are seeking to recover the money by withdrawing the protection they provide for American intellectual property (see here). The idea behind this sort of action is to harness the power of a powerful lobby group (in this case, Hollywood and the software industry) to counteract the influence of anti-internet gambling groups: If intellectual property owners are caught in the cross-fire of the dispute, maybe the United States government would feel more pressure to comply with the series of rulings against current U.S. regulations.

The push to seek compensation through the World Trade Organization comes just one day after the European Union has indicated it wants compensation for the loss of market access, but through further opening of other sectors in lieu of lifting the ban. When the United States announced last month that it was responding to their loss at the WTO by seeking to “clarify” its commitments, they indicated that they would not provide compensation to Members harmed by the ban, as is called for by WTO rules. The USTR had reasoned that since they never intended to allow internet gambling in the first place (suggesting that their commitment to do just that was an “oversight”), then Members could not expect to receive any sort of compensation in return for solidifying the ban.

We’re planning to hold a forum on this topic on 25th July. Stay tuned for details.

More Farcical Trade Remedies Cases at the ITC

The menacing trade remedies laws have done their share to breed cynicism about U.S. free trade rhetoric. But this greeting on the website of the most recent U.S. petitioner is apropos of the tone conveyed by those laws.

Pretty scary, huh? Not as scary as being an importer of Chinese-manufactured, off-road tires, nowadays.

Having been acquainted with that grizzly, you shouldn’t be surprised to learn that Titan Tires, one of the biggest American manufacturers of tires for agricultural machines, went on the offensive Monday, when it (along with several labor unions) filed petitions with the U.S. International Trade Commission and the Commerce Department for relief from allegedly subsidized and dumped import competition from China.

To win trade relief, Titan et. al. will need to demonstrate that the domestic industry is materially injured or threatened with material injury by reason of subsidized or dumped imports. It’s generally not very hard to satisfy the meager statutory thresholds for demonstrating injury, but what is so absolutely stunning to those naïve enough to expect a modicum of justice from the process is how petitioners can distort the truth with impunity before the ITC.

Although most of the crucial economic facts are redacted from the public version of this latest petition (which is accessible on the ITC’s website), here is a sample of the injury argument presented therein. From page 18:

As the table below shows, Titan’s domestic production, capacity utilization, shipments and employment data all demonstrate current material injury.

Then there is a table with the relevant data for the periods 2004-2006 redacted. Then, on page 19:

Titan’s financial data regarding its certain OTR tire operations also indicate the company is experiencing material injury.

 Then there is another table with the financial data redacted.

So how can one know, without seeing those numbers, that petitioners are taking liberties with the truth? Well, beyond the grizzly on Titan’s website is a list of SEC filings, in which the company presents an entirely different assessment of its performance and prospects. Here’s the annual report from 2006, and here are some excerpts:

The Company recorded sales of $679.5 million for 2006, which were 45% higher than 2005 sales of $470.1 million. The significantly higher sales level was attributed to the expanded agricultural product offering of Goodyear branded farm tires and the expanded earthmoving, construction and mining product offering of Continental & General branded off-the-road (OTR) tires… Income from operations was $22.0 million for 2006 as compared to $12.0 million in 2005.

So the company’s sales were 45 percent higher in 2006, and its operating profits were 83 percent higher. The company’s first quarter 2007 10-Q filing reveals continued revenue and operating profit growth in 2007.

Titan is also having difficulty keeping up with growing U.S. demand:

Due to capacity constraints at Titan’s Bryan, Ohio, OTR tire facility, the Company is adding OTR tire capacity at its Freeport, Illinois, and Des Moines, Iowa, facilities.

Capital expenditures for 2006, 2005 and 2004 were $8.3 million, $6.8 million and $4.3 million, respectively. Capital expenditures in 2006 were used primarily for updating manufacturing equipment, expanding manufacturing capacity and for further automation at the Company’s facilities. Capital expenditures for 2007 are forecasted to be approximately $16 million to $18 million and will be used to enhance the Company’s existing facilities and manufacturing capabilities including additional capacity for OTR tire production.

Adding production capacity is not typical behavior for a company that is under assault by injurious imports. Adding capacity to the tune of more than doubling the previous year’s capital investment reflects confidence in the company’s future prospects. And confident, Titan should be:

As of January 31, 2007, Titan estimates $171 million in firm orders compared to $122 million at January 31, 2006, for the Company’s operations.

Titan’s 2006 Annual Report also boasts that $100 invested in Titan in 2001 would have been worth $436.47 at the end of 2006, whereas the same investment in the S&P 500 index would have been worth $135.03. That is some very impressive performance.

Of course, contrasting the dire self-assessments of industries petitioning for trade relief with the upbeat assessments of industries seeking to attract investors has been a favorite pastime of trade remedies’ observers. It’s been a running joke within the international trade bar that lying to the SEC lands you in jail, while lying to the ITC lands you protection from foreign competition.

Farm Subsidies: All You Need to Know

As Congress considers a new farm bill in coming weeks, Cato has launched a web resource, Downsizing the U.S. Department of Agriculture, which offers a menu of cuts to shrink the department’s $89 billion budget by 90 percent.

A nice complement to the Cato pages is an updated farm subsidy database from the Environmental Working Group.

Go to Cato to understand why farm subsidies are bad economics. Go to EWG to find out exactly how much millionaire “farmers” such as Edgar Bronfman and David Rockefeller are receiving.

In winning the House last year, the Democrats portrayed themselves as reformers willing to take on wealthy special interests for the benefit of average families. With the farm bill, they have a chance to prove it by making cuts to subsidies that are strongly supported by both liberal and conservative policy experts. 

Socialists in Bulgaria Pondering Flat Tax or Tax Rate Reductions

American politicians, even supposed conservatives, are timid about embracing tax reform, yet left-wing parties in Eastern Europe are slashing tax rates and adopting simple and fair flat taxes. The latest example comes from Bulgaria, where the Socialist Party is trying to decide between across-the-board tax cuts and a 10 percent flat tax:

Bulgarian socialists will discuss plans to impose a flat tax rate at the party congress that starts on Saturday, the event’s agenda shows. …The Socialists are the senior partner in the three-way ruling coalition and hold half of the 16 ministerial portfolios. The party has singled out lowering the individual tax burden as one of its main priorities and will consider two proposals to achieve that goal. The first option is to lower the tax brackets to 10%, 16% and 24%, respectively. The second is to impose the 10% flat tax for all income above a certain tax-exempt amount.

The United Kingdom Now Has a Bigger Government than Germany

The Financial Times reports that the German Finance Ministry has produced a study showing that the burden of government spending in Germany is on track to fall below the level in the United Kingdom. Indeed, if OECD data is reliable, the UK became a bigger welfare state this year.

This is mostly a poor reflection on British PMs Tony Blair and Gordon Brown, who have presided over an explosion in the size of the state sector. But German politicians deserve a small pat on the back for imposing at least a modest bit of discipline on the growth of government spending:

Public spending in Germany, as a percentage of total economic output, has fallen sharply in the past three years and is fast approaching British levels, according to a finance ministry study. The report, obtained by the Financial Times, shows state expenditures reached 45.6 per cent of gross domestic product last year, compared with 44.1 per cent in the UK, which is generally thought of as a low-tax, low-spending economy.

…Instead of focusing on the fiscal deficit — the difference between state expenditures and revenues — the report concentrates solely on spending. The [German] spending-to-GDP ratio fell from 47.1 to 45.6 per cent between 2004 and 2006, making Germany the fourth-smallest spender in the eurozone. The same ratio rose from 42.7 to 44.1 in the UK over the same period.

…”Good progress has been made in the recent past, mainly in cutting public sector headcounts,” said Winfried Fuest, economist at the business-funded IW economic institute. But he expressed worries about government being tempted “to spend more now that the economy is doing better”.