Topic: International Economics and Development

President Bush Answers Critics on Trade

President Bush has gone on the offensive this week, touting the generally solid performance of the U.S. economy and the danger posed to our market-driven prosperity by rising protectionist sentiments in Congress.

In a speech yesterday in the historic Federal Hall in New York City, the President sounded a clear trumpet in defense of free trade. In a rarity for politicians of any stripe, he not only extolled the virtues of exports but also of imports, and bluntly warned against “walling off America from world trade.”

Here are a few highlights from the speech:

“As we improve free trade, consumers get lower prices.” 

“Since World War II, the opening of global trade and investment has resulted in income gains of about $9,000 a year for the average American household.” 

“The Doha Round … is a great opportunity to lift millions of people out of poverty around the world.” 

“I know there’s going to be a vigorous debate on trade, and bashing trade can make for good sound bites on the evening news. But walling off America from world trade would be a disaster for our economy. Congress needs to reject protectionism, and to keep this economy open to the tremendous opportunities that the world has to offer.” 

Of course, the President will need to work with skeptical Democrats in Congress to pass pro-trade legislation and stop any anti-trade measures.

In the meantime, the President can put his pro-trade words into action unilaterally. A recent article in The Weekly Standard cites several good ideas from your favorite libertarian think tank on actions President Bush could take independently of Congress to expand the freedom of Americans to trade in the global economy.

Doha, TPA Extension, and the Farm Bill: the Axis of Frustration

President Bush went to Illinois yesterday, asking for Congressional renewal of his authority (called “Trade Promotion Authority”) to negotiate trade agreements and send them to Congress for an up-or-down vote without amendment. The present TPA expires at the end of June 2007. For those of us who have strong doubts about the ability of members of Congress to take the broad view when considering trade agreements, TPA is a necessary–but not sufficient–condition for the United States to pursue trade liberalization in partnership with other nations, including the ailing Doha round of world trade negotiations and other preferential trade agreements like those underway with South Korea and Malaysia. (This Washington Post article has a good overview of the stakes and politics behind the battle for TPA.)

(Side Note: it was surely no accident that President Bush chose to make his case at the headquarters of a successful exporter [a sterling company Caterpillar may be] rather than, as Grant Aldonas suggests in the Post article, a company that delivers cheap imports to consumers. Mercantalism is alive and well, in case there were any doubts.)

Basically, the bind is this: without TPA, Doha is dead. But many are suggesting that lawmakers will be reluctant to extend TPA if no Doha deal is imminent. Similarly, the new Farm Bill, due for enactment in September, may be an extension of the unsatisfactory 2002 Farm Bill if the Doha round does not exert significant pressure to reform, even though reform of U.S. agricultural policy would go a long way to helping the round succeed.

Don’t look to key members of Congress for their support in unraveling this knot, though. An article at the Delta Farm Press website contains some worrying statements from the new House Agriculture Committee Chair Colin Peterson. The money quote:

There’s pressure on us to change the farm bill because “that’s the only way we can get a trade deal,” said Peterson, a Minnesota Democrat. “Now, I’m sorry, but I’ve had enough of these trade deals. And unless we can get something good out of, I don’t give a darn if we get one.”

Something tells me that Chairman Peterson’s statement was not meant to be a be read as an endorsement of unilateral trade liberalization.

The Global Market for Kannadian Call Centers

“How can I help you, today, eh?” 

No, not that Canada. Kannada: the native language of 70 percent of Karnatakans.

Karnataka is the Indian state whose capital city, Bangalore, has been described as “the back office of the world.” Bangalore is awash in call centers, boasts over 200 high tech companies, and is reported to have the highest number of engineering colleges of any city in the world. Bill Gates has made a promotional and recruiting trip to the city.

Bangalore’s economic success rests not simply on its wealth of skilled technicians, but on their ability to work in English. There is no global market for Kannadian call centers. There is a global market for English ones.

And that’s where two visions of India’s educational future collide. On the one hand, we have the School Choice India campaign of the New Delhi-based Centre for Civil Society. This campaign would like to see independent schooling brought within reach of every family in India, and the overwhelming majority of non-government schools in that country teach all their classes (other than, of course, native language classes) in English. They do so because that is what their customers demand.

On the other hand we have the government of Karnataka, and the highly influential linguistic nationalists who wish to promote the use of Kannada and who see English as tainted by its association with India’s colonial past. Back in 1994, the Karnatakan government passed a law – not initially enforced – banning English-medium schools. According to recent reports, it plans to start enforcing that ban in April of this year, under pressure from Kannadian activists, shuttering any schools that refuse to comply.

If the ban goes ahead, it will undoubtedly be short-lived, as Bangalore’s businesses start making plans to relocate to other Indian cities and the full economic ramifications are more widely grasped. The fact that it is even being contemplated is just one more excellent example of why centralized control over the curriculum is a bad idea, eh.

Please Help This Young Man

This case is extremely important.  The fates of a young man and of freedom of speech are at stake.  Abdelkareem Nabil Soliman will be sentenced on Thursday for alleged crimes in Egypt, including insulting the president.  Please read about his case at http://www.freekareem.org/.

Please send a respectful letter by fax or email to the Egyptian Embassy requesting that the Egyptian government correct the error of arresting him and allow him his freedom.

Competition among Cantons Boosting Swiss Competitiveness

Federalism is a marvelous structure, both because it allows preferences for different policies to be satisfied and because it creates competition among units of government. While federalism has been somewhat eroded in the United States, it still exists and presumably is one of the reasons why America is relatively prosperous (thanks to a less oppressive level of government). Switzerland is an even bigger success story. The central government represents less than one-third of total government (as compared to two-thirds in the US), and the concomitant competition between cantons has helped control the size of government. And as a Swiss news report indicates, this has generated big benefits for the Swiss economy:

Zurich is poised for a further influx of foreign firms and workers after the relocation of Kraft Foods’ European headquarters and the expansion of Google this year. The moves earlier this month from the two United States giants offer further evidence that the region offers prime conditions for companies, according to the Greater Zurich Area relocation service. …”The relocation of headquarters and the nice growth of Google that we have seen in the last couple of months shows that we have very good basic conditions in the region,” commented Greater Zurich Area chief executive Willi Meier. …A more controversial lure for foreign companies is the low corporate tax rates offered by many cantons in Switzerland. …The competition among cantons to set the lowest business tax was intensified at the beginning of last year when Obwalden slashed its rates to a Swiss low of just 6.6 per cent. Obwalden attracted 376 new firms in the first 11 months of 2006, three times more than in the previous year. But Meier insists the Zurich region is not afraid of the increased competition. “The tax competition among Swiss cantons makes Switzerland as a whole more competitive on an international basis. Kraft has chosen Zurich despite the fact that we don’t have the lowest tax rate in Switzerland, but on an international scale its still a very competitive rate,” he said. 

NZ’s Richest Woman Escapes High Taxes

Tax competition is a marvelous liberalizing force. Every time a taxpayer leaves a high-tax jurisdiction for a low-tax jurisdiction, bad policy is punished and good policy is rewarded.

New Zealand’s richest woman is the latest tax expatriate, as reported by The Press:

Reclusive Kathmandu founder Jan Cameron has moved to Tasmania after spending more than 30 years in Christchurch, where she built a $275 million business fortune. Starting with a small shop in Linwood, Cameron turned her outdoor-clothing and equipment venture into one of the country’s best-known brands, with outlets in New Zealand, Australia and Britain.

The Press understands Cameron had looked at staying in New Zealand after selling Kathmandu last year and planned to donate a portion of her annual income from her investments to charities. But under the New Zealand tax regime, all the money she gave away over an $1800 threshold would be taxed, so she opted to move to Australia, where there is no limit.

…PricewaterhouseCoopers tax specialist John Shewan said he was not surprised by Cameron’s decision. “It does underline how careful we need to be if we want to retain high-net-worth individuals,” he said. “We need to have a tax-friendly environment. Sadly, we don’t have that at the moment.”

Shewan said Cameron would pay no tax on her overseas investments under new Australian tax rules. ”Australia has stolen a march on us in terms of attracting high-net-worth individuals,” he said.

Czech Tax Reform

Because of the tenuous nature of the current government, plans for a flat tax may be postponed. But as the Prague Post explains, the government’s fall-back position is big, pro-growth tax cuts and expenditure limitations — so taxpayers will win regardless of the outcome:

Prime Minister Mirek Topolánek’s Cabinet, which won a slim vote of confidence Jan. 19, was voted into office thanks to an ambitious plan centered on economic reforms. …[T]he government plans to pursue canceling taxes on dividends and capital gains, as well as inheritance and gift taxes and the property transfer tax. …The Cabinet plans to reduce the share of mandatory expenditures on the overall state budget from its current 70 percent to below 50 percent by 2010. …The Cabinet’s weak support in the Parliament also makes it unlikely that the flat tax will be put in effect anytime soon.