Topic: International Economics and Development

Vegemitegate: the Saga Continues

An update from my post yesterday on the supposed ban on Vegemite: its not true. According to this article, it is all just a misunderstanding between friends:

Under US regulations, folate can be added only to breads and cereals. One of the Vitamin B components (in Vegemite) is folate,’ [FDA spokesman] Herndon explained. ‘In and of itself, it’s not a violation. If they’re adding folate to it, boosting it up, technically it would be a violation. But the FDA has not targeted it and I don’t think we intend to target Vegemite simply because of that.’

OK, Mr. FDA. I’ll call off the hounds. But I will be testing your system in January when I return from Australia with a year’s worth of Vegemite in my suitcase.

Carrying Liberalization Further

I’m in Tbilisi for our conference on “Freedom, Commerce, and Peace: A Regional Agenda.”  It starts tomorrow evening, but many of the participants are arriving tonight (Tbilisi is a great place, but not the easiest to reach, especially after the Russian government banned all travel between the Russian Federation and Georgia).  What was originally planned for 100 participants has grown to at least 180 (and maybe more).  It’s great to talk to libertarians from so many countries (28 in all) and to feel the excitement for the advancement of freedom.

The keynote speaker tomorrow night will be Nobel Laureate Vernon Smith, who will speak on a topic that has gained greater significance since the Russian blockade on trade and travel with Georgia: “Globalization and Liberty.”  The speakers were chosen for their ability to inspire, as well as for their practical knowledge.  The other banquet speakers will be Georgian Prime Minister Zurab Nogaideli and former Estonian Prime Minister Mart Laar (winner of the Cato Institute’s 2006 Milton Friedman Prize for Advancing Liberty).  I’ll be posting occasionally from the conference.

With Allies Like These…

Close readers of my blog entries will have detected an increasingly irritated tone of late. What with farm subsidies, Doha doldrums, idiotic “solutions” to the trade deficit “problem” and a campaign season upon us, my long-suffering colleagues have become used to my cries of despair.

And now this, through a tip from my colleague and next-door-office-mate, Brink Lindsey (who has no doubt tired of my “You’ve got to be kidding me” exclaims as I read the headlines every morning). The United States has banned Vegemite, that staple food of Aussies everywhere and an emotionally crucial link to the motherland for all us expatriates living in the United States.

According to this article, the FDA allows folate (or folic acid, which has been added to Vegemite) to be added only to breads and cereals (never mind that Vegemite was practically invented for nutritional purposes, to stave off Vitamin B deficiencies).  From a 1996 news release from the FDA:

specified grain products will be required to be fortified with folic acid at levels ranging from 0.43 milligrams to 1.4 mg per pound of product. These amounts are designed to keep daily intake of folic acid below 1mg, because intakes above that amount may mask symptoms of pernicious anemia, a form of vitamin B12 deficiency which primarily affects older people.

Heaven forbid that the flood of Vegemite pouring into the United States should upset the delicately balanced just-enough-but-not-too-much-folic-acid directive from the FDA.

Australia is an ally of the United States. A small ally, yes, but loyal. Our troops have served side by side in World War II, Korea, Vietnam and the Gulf wars. Australian troops are in Afghanistan and Iraq. And, more to the point, our countries have signed a free-trade agreement

Part of me is taking comfort that this truly is a non-tariff barrier implemented to protect consumer health (misguided though that aim may be), rather than an act of disguised protectionism designed to shield the politically powerful import-competing domestic Vegemite industry located in electorally important swing-states. But it’s unfair all the same. And I’m angry.

Thank goodness my parents smuggled contraband Vegemite through customs when they visited me in July, but I think not of my own well-stocked shelves, but the growling bellies of my compatriots. I plan to share this story with my Australian friends. Expect outrage.

(Please note I am filing this under Civil Liberties, as well as Trade).

I Hear Voices

I don’t want to tempt fate by declaring that the tide is turning against the costly and interventionist federal agriculture programs, but there have been several critical (in both senses of the word) editorials and investigative series this year on farm subsidies. The voices protesting about farm programs seem to be getting louder.

For a recent example, bravo to the Washington Post, for its editorial on Saturday denouncing the crop insurance boondoggle – yet another agricultural policy fleecing consumers and taxpayers in order to make farming a risk-free enterprise. The editorial follows a series earlier this year from the Post, entitled ’Harvesting Cash’ (you can view that series here).

The insurance program works thus: the government pays 60 percent of the premiums for crop insurance ($2.3 billion last year), and also pays a fee to insurance companies for administering the program (over $800 million). All this for crop failure losses of $752 million (yes, that’s right, the losses cost less than the administrative fees). The insurance does not, however, remove the “need” for disaster payments – over $6 billion worth since 2000, according to the Roanoke Times.

Taxpayers can sleep well at night, however, knowing they are funding “something good, the rural life”, in the words of a farmer quoted by the Post. (I wonder how much money would flow to farmers if the charity was voluntary?)

Kudos also to the Boston Herald, for their Sunday editorial on the subject (view here) and the Roanoke Times (here) for their own version. The latter editorial could be especially influential since Bob Goodlatte is the representative for Roanoke County and Chairman of the House Agriculture Committee.

It is encouraging to note the number and breadth of newspapers covering this subject. The LA Times, the Minneapolis Star-Tribune, the Des Moines Register, the Denver Post, the Chicago Tribune and the Orlando Sentinel have all run editorials on farm programs this year. Let’s hope that the voices are heard, and that voters and their representatives start to demand change.

Lemon Lawsuits

Sunkist Growers, the wholesome name you probably associate with that morning swig of orange juice, has stolen a page from the playbooks of its more traditionally protectionist agricultural brethren. 

Last month Sunkist filed an anti-dumping petition alleging that Argentine and Mexican producers are selling lemon juice in the U.S. market at “unfairly low prices.”  Heavens!  The petition alleges dumping margins in excess of 100 percent, which means that Sunkist believes the U.S. prices of lemon juice from Argentina and Mexico should be more than double what they are today. (Maybe the U.S. prices of U.S. lemon producers would be half as much if our restrictive immigration policies didn’t drive up the cost of labor at harvest time.)

In a carefully crafted petition designed to minimize damage to Sunkist’s public image, only lemon juice used as an ingredient in the production of other products (i.e., not concentrated lemon juice or lemonade purchased directly by consumers) is subject to the anti-dumping investigation. 

Sunkist notes in a press release that: “The anti-dumping duty, if assessed, will not result in increased prices to consumers.”  Obviously, that’s a lie.  What Sunkist really means is that consumers won’t be able to attribute to Sunkist’s litigation the higher prices they will have to pay for the dozens of everyday food items that contain lemon juice.  The prices of soda, fruit juice, ice cream, cake mix, seasonings, salad dressings, microwave dinners, frozen vegetables, hair coloring, candy, chewing gum, cough syrup, and many other items will be affected by any prospective anti-dumping duties. 

And, as has been the case in the sugar-using industries, lemon juice-consuming industries will have greater incentive to move their operations to Canada or Mexico or any number of other countries where the price of lemon juice is market-based.  Whenever the supply of upstream products is choked off by protectionist measures, jobs, revenues, and profits in downstream industries suffer.  And contrary to Sunkist’s feeble rationalization, consumers flip the bill.

Does Big Steel Still Dominate U.S. Trade Policy?

The chart above depicts the operating performance of the industry that is most protected by U.S. antidumping and countervailing duty restraints. As that chart demonstrates, the U.S. steel industry is in robust health–well outperforming overall manufacturing (i.e., its customers) for the past few years.

Should one conclude that that performance is a reflection of the insulation from competition it has been afforded? That’s likely to be one of the steel industry’s arguments before the U.S. International Trade Commission, which is holding a hearing tomorrow concerning the question of whether 13-year old antidumping and countervailing duty restrictions against imported corrosion-resistant steel from six countries should be continued for at least five more years. (This paper explains why revocation in these so-called Sunset Reviews is rare).

But those restrictions, as well as the 160 other trade remedy restraints currently in place to protect the steel industry, date back to the 1990s and earlier, when the industry’s performance was much closer to the first four bars than the last three. If anything, longstanding trade protection delayed the day of reckoning for many inefficient mills by discouraging them from exiting the market and encouraging continued inefficient operation.

From an operating perspective, the year 2004 stands out as a clear dividing line between the steel industry of old, and the new, revitalized industry of today. But the dramatic industry renaissance that has bestowed market power, record profitability, and insulation from any significantly adverse effects of foreign competition on U.S. steel producers began in 2002, after the government assumed $9 billion in the industry’s unfunded pension and health care obligations.

By wiping those liabilities off of the books of several major bankrupt steel producers, that intervention paved the way for mergers and acquisitions and new labor agreements that have enabled the industry to retire inefficient capacity, cut its fixed costs, and consolidate production decisions. In 2003, the top three producers of flat-rolled steel (the steel used in autos, appliances, and construction) controlled 25 percent of flat-rolled steel production capacity. Today, the top three control 70 percent.

That concentration has given the domestic industry a high degree of market power, which enables it to prop up prices and weather downturns in demand by curtailing output. There’s nothing objectionable about that (with the exception of the government-assisted jumpstart) unless, of course, steel is a major component of the products you manufacture. What is objectionable, then, is buttressing this emerging oligopoly with continued trade restraints. Consumers of steel should be expected to adapt to the effects of greater concentration of steel production, but that adaptation requires having access to imported substitutes and supplements.

Taxpayers, steel-using industries, and consumers have subsidized this industry for too long.

The ITC’s decision, expected in December, will speak volumes to the question of whether that agency continues to be a rubber stamp for the steel lobby’s protectionist agenda.

School Vouchers on the Way in India?

According to an article in The Hindu, an education planning commission in India has recommended the creation of pilot voucher programs in its final “Approach Paper.”

I have no doubt that the impetus for this recommendation comes at least in part from James Tooley’s work in India and Africa over the past decade, including his most recent study showing the effectiveness and efficiency of private schools serving the poor in the city of Hyderabad.

A particularly interesting aspect of the article is the extent to which the Union Human Resource Development Ministry (in charge of education) misrepresented the facts in its statements to the reporter, Anita Joshua. I just fired off an e-mail to Ms. Joshua, setting the record straight. Some highlights below the fold…

Most notably, the Ministry claims that “the average cost of schooling in private unaided schools [in India] is much higher than in government schools.” The converse is true. I summarize the evidence from a variety of public/private sector comparisons of Indian schools in pages 6–10 of a book chapter that is available online here: http://www.schoolchoices.org/roo/How_Markets_Affect_Quality.pdf

In one of those studies (of Uttar Pradesh), for example, Oxford University professor Geeta Gandhi Kingdon found that unaided schools spend roughly half of what is spent by government schools, per pupil. (Geeta Gandhi Kingdon, “The Quality and Efficiency of Private and Public Education: A Case-Study of Urban India,” Oxford Bulletin of Economics and Statistics, Vol. 58, No. 1 (1996), pp. 55–80.) Interestingly, the same is largely true in the United states, where the average private school tuition fee is about half the total public school per-pupil expenditure. 

Also, a recent study published by the Cato Institute, conducted by University of Newcastle professors James Tooley and Pauline Dixon, found that personnel costs in Hyderabad’s unaided slum schools were a small fraction of those in nearby government schools — and personnel costs represent the lion’s share of school expenditures. Furthermore, Tooley and Dixon found that students in the private slum schools significantly outperform their peers in the more expensive public schools. 

Nor is there any validity to the Ministry’s claim that private schools are unavailable in rural areas. An extensive 1999 report found private schools in many rural areas across northern India, and also reported that they were providing better facilities and more actual teaching than their public counterparts. (Anuradha De, Jean Drèze, Shiva Kumar, Claire Noronha, Pushpendra, Anita Rampal, Meera Samsom, and Amarjeet Sinha, Public Report on Basic Education in India. New Delhi: Oxford University Press, 1999.)

Let’s hope Ms. Joshua brings this ammunition to her next interview with the Ministry.