Topic: Trade and Immigration

Ensuring Safe Food in a Free Market: A Lesson from China

Many Americans view the dissemination and enforcement of food safety standards as a basic function of government, and it’s difficult for them to imagine a world where food is both safe and unregulated. Libertarians can point out that the safety of a product is, just like quality and price, something that consumers directly care about and as such will be most effectively preserved in a competitive free market.  But it’s one thing to make abstract economic arguments and quite another to have real life examples.

Well, here’s an interesting story from China, as reported by Reuters last week:

A Chinese retailer is offering insurance to customers who buy infant milk powder, highlighting the lengths to which companies are going to address concerns about food safety in China.

Suning Commerce Group Ltd, which owns the Redbaby chain of stores, told Reuters it had launched the policy this week, backed by China’s second largest insurer, Ping An Insurance Group.

The policy stipulates that if a brand of milk powder is recalled, customers who bought cans from any Redbaby store or its e-commerce website would be paid up to 2,000 yuan ($325) per can, with payments capped at 100,000 yuan.

“In recent years, the milk powder market in China has been in a mess,” Suning said in an email.

When a Hamburger Becomes a Doughnut and Other Lessons About Tax Inversions and Globalization

So Burger King plans to purchase Canadian doughnut icon Tim Hortons and move company headquarters north of the border, where corporate tax rates are as much as 15 percentage points lower than in the United States.  Expect politicians at both ends of Pennsylvania Avenue to accuse Burger King of treachery, while spewing campaign-season pledges to penalize these greedy, “Benedict Arnold” companies.
 
If the acquisition comes to fruition and ultimately involves a corporate “inversion,” consider it not a problem, but a symptom of a problem. The real problem is that U.S. policymakers inadequately grasp that we live in a globalized economy, where capital is mobile and products and services can be produced and delivered almost anywhere in the world, and where value is created by efficiently combining inputs and processes from multiple countries.  Globalization means that public policies are on trial and that policymakers have to get off their duffs and compete with most every other country in the world to attract investment, which flows to the jurisdictions where it is most productive and, crucially, most welcome to be put to productive use.
 
Too many policymakers still believe that since the United States is the world’s largest market, U.S.-headquartered companies are tethered to the U.S. economy and committed to investing, hiring, and producing in the United States, regardless of the quality of the business and policy environments. They fail to appreciate how quickly the demographics are changing or that a growing number of currently U.S.-based companies do not share their view. Perhaps too many are unaware of how the United States continues to slide in the various global rankings of attributes that attract business and investment. The leverage politicians have over America’s corporate wealth creators has diminished.

The Threat of Poorly Performing Vacuum Cleaners

I don’t follow domestic regulation as closely as many people at Cato, but I keep an eye on it in relation to “regulatory trade barriers” that are being addressed in trade negotiations. In that context, I came accross this EU attempt to crack down on high-wattage vacuum cleaners:

Consumers are being urged to buy powerful vacuum cleaners while they can after it emerged that some of the most powerful models on the market will disappear in September when a new EU rule comes into force.

An EU energy label, to be introduced from 1 September, means manufacturers will not be able to make or import vacuum cleaners with a motor that exceeds 1,600 watts.

European commission spokeswoman for energy Marlene Holzner said in a blog: “As a result of the new EU eco-design and labelling regulations, consumers will also get better vacuum cleaners. In the past, there was no legislation on vacuum cleaners and companies could sell poorly performing vacuum cleaners.”

Oh, the humanity! Companies might sell “poorly performing vacuum cleaners” to an unsuspecting public! And only legislation can save the day!

Or – and I know this might sound crazy to some people – we could just rely on consumers to evaluate the vacuum cleaners, buying the better ones and leaving the “poorly peforming” ones on the shelf.

Free Trade Within Countries

Trade policy people spend most of their time talking about free trade between countries.  But there is still some work to do on free trade within countries.  Some Canadians are making a push right now, as Canadian business groups are calling for Canada’s leaders “to dismantle internal trade barriers and ensure the free movement of goods, services, capital and labour between all parts of the country.”

If that sounds odd, don’t get the wrong idea.  It’s not as though Canadian provinces are imposing tariffs on each other.  Rather, this is part of a more advanced notion of free trade, where you have a “single market” for goods and services.  So for example, these groups complain that:

Different regulations and standards means that manufacturers may need to adapt their machinery in order to produce containers such as dairy creamers, butter and drinkable yogurts for sale nationally across all provincial jurisdictions.

Or:

massage therapy is regulated in some provinces but not all, meaning that a professional would have to become certified in order to be allowed to practice.

These issues are difficult to address between sovereign nations, although people are trying, most notably in the Transatlantic Trade and Investment Partnership negotiations.  But within countries, it seems like this is something that could and should be dealt with.  Here in the U.S., we have the famous problem of not being able to buy health insurance across state lines.  The current effort in Canada seems like a valuable one; it might be useful to have a similar review of internal trade barriers here in the U.S.

Washington Post Half-Heartedly Seeks Clarity About Export-Import Bank Jobs Claims

It was good of the Washington Post Editorial Board to raise questions yesterday about the veracity of the “jobs-created-by-Export-Import-Bank-policies” claims proffered by the Bank’s supporters. I just wonder whether the editorial pulled its punches where a reporter on assignment or a more inquisitive journalist would have delivered an unabashed blow to the credibility of the Bank’s primary reauthorization argument: that its termination will lead to a reduction in U.S. exports and jobs.

Kudos to the Post for raising an eyebrow at the Bank’s claims of “jobs created” or “jobs supported” by Ex-Im financing:  

[W]hen it comes to jobs, well, just how rigorous are [Ex-Im’s] estimates, really? Congress ordered a study of that very question when it last reauthorized Ex-Im in 2012. In May 2013, the Government Accountability Office (GAO) produced its verdict: Meh.”

“GAO noted that Ex-Im must speak vaguely of “jobs supported,” rather than concretely of jobs created, since its methodology cannot really distinguish between new employment and retained employment. To get a number for “jobs supported,” which includes both a given firm and that firm’s suppliers, Ex-Im multiplies the dollar amount of exports it finances in each industry by a “jobs ratio” (calculated by the Bureau of Labor Statistics).

Using that approach, Ex-Im estimates an average of 6,390 jobs are “supported” by every billion dollars of exports financed. The Post is right to note the GAO’s conclusion:

These figures do not differentiate between full-time and part-time work and, crucially, provide no information about what might have happened to employment at the firms in question, or others, if the resources marshaled by Ex-Im had flowed elsewhere in the economy.

Crony Catfish

If you were looking for an example to show just how awful the legislative process is in Washington, the ongoing saga over catfish inspection is just perfect.  On its face, the 2008 law requiring the U.S. Department of Agriculture to inspect catfish facilities seems relatively benign.  Who doesn’t want safer catfish?  In reality, though, the law has nothing to do with food safety and everything to do with supporting the Southern catfish industry at everyone else’s expense.

Switching catfish inspection from the FDA (where it is now) to the USDA won’t make catfish any safer.  This isn’t really a controversial point, either.  The USDA itself has said that catfish is a low risk food and can’t explain how its inspections will reduce that risk in any meaningful way.  The Government Accountability Office has advised Congress to repeal the program.  

The new inspection regime is slated to cost taxpayers $14 million more per year than the current one.  But there’s actually a much greater harm being done here.

Aside from the cost, the main impact of the new inspection regime—and its actual purpose—is that foreign catfish producers will be banned from the U.S. market until they can show equivalence to U.S. production standards.  Regardless of how they produce the catfish, showing equivalence will take years.  In the meantime, U.S. consumers will be left with nothing but domestic catfish at hugely inflated prices.

The good news is that a growing, bipartisan group of legislators has been trying to kill the program since its stealthy insertion into the 2008 farm bill.  Most recently, Rep. Vicky Hartzler (R-MO) announced that she will propose an amendment to the 2015 Agriculture Appropriations Bill to defund the new inspection program.  This may be the last chance to kill the program before it finally goes into effect, exposing the United States to retaliatory action for violating our trade obligations.

The amendment will probably succeed, as similar amendments have in the past, but—just as before—that may not be enough.  The program exists not because half of our illustrious legislators have been fooled into supporting it but because Thad Cochran (R-MS) has seniority on key committees.  He and a handful of other legislators in Mississippi, Louisiana, and Arkansas are the only ones pushing for this program.  

I talk more with Caleb Brown about Thad Cochran’s Crony Catfish in this Cato podcast:

Russia Imposes Embargo on Itself

The American economist Henry George wrote, “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.” In Russia, Vladimir Putin started a war and then, in response to mild American and European sanctions, retaliated by imposing greater sanctions—on his own people.

Even American journalists, whose economic acumen I have been known to question, have noted the likely effects of Putin’s sanctions. See Michael Birnbaum in the Washington Post:

Russia on Thursday banned most imports of Western food products, a sweeping escalation in an economic war that will deal a multibillion-dollar hit to affected nations but will also unreel wide-ranging consequences at home.

The measures were a signal that Russia is not backing down from a confrontation that has sent Western-Russian tensions to heights not seen since the Cold War—and that it is willing to risk barer shelves and higher food prices at home in the name of striking a blow against countries that have tried to punish it over its role in the Ukraine conflict.

Russia has suspended imports of meat, fish, fruit, vegetables and milk products from the United States, the 28-nation European Union, Norway, Canada and Australia for a year. The move came in retaliation for sanctions those countries imposed on Russia….

In Russia, the food measures promised to hit not just city centers, where the urban middle class has grown accustomed to visiting supermarkets overflowing with high-quality imported European cheeses, fish and sausages. Analysts warned that food prices also would increase and that a wide range of Russian industries, including food processing plants, shippers and retailers, would be affected….

“It will be quite sensitive,” said Yevsey Gurvich, the head of the Economic Expert Group. “Not only rich people will feel it, but literally every family will be affected.” He said he estimated that Russian consumer prices would go up 2 percent this year because of the measures.

“Alternatives to imported foods will be more costly, and, anyway, I believe they will be insufficient, and our supplies will diminish. And, hence, prices will go up,” he said.

Americans who wished for more painful sanctions on Russia than President Obama has imposed are getting their wish—thanks to Putin. 

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