Topic: Trade and Immigration

Economists Weigh-in on the TPP

In recent weeks, a number of prominent economists have expressed views on the Trans Pacific Partnership (TPP).  David AutorDavid Dorn, and Gordon Hanson are for itTyler Cowen is for it, mainly for foreign policy reasons; Noah Smith is for it; Larry Summers is a maybe; Paul Krugman thinks it’s not a big deal and questions whether Obama should spend “political capital” pushing it; Brad DeLong is more positive than Krugman; Dean Baker is skepticaland Matt Yglesias is skeptical, noting that “[t]he political economy and public choice issues around what’s become of the mutlilateral trade process stink.”

Before jumping to any conclusons, though, I think DeLong makes an important point here: 

“It is foolish to debate whether a trade agreement that has not yet been negotiated is a good idea and should be ratified. Such a debate should properly begin only once there is something to analyze.”

That’s very true: We don’t have a negotiated agreement yet, so it’s difficult to judge its content.  If this were an old-school trade agreement whose main function was to get rid of tariffs, it would be easier to make an assessment in advance.  If we knew all or most tariffs would be brought to zero, and that’s all that would happen in the agreement, we would know just about everything we needed to know.   However, today’s trade agreements have lots of substantive policymaking in them, and the details are important.  

Immigration and Equality

Now that a federal judge has enjoined President Obama’s unilateral amnesty, immigration reform will have to be achieved the old-fashioned – and constitutional – way: by compromise with Congress. A grand bargain is not impossible, but it will require a broad re-framing of the issues and a clear sense of what is at stake. For one thing, any such bargain should end, once and for all, governmental discrimination on the basis of race.

Affirmative action and immigration might, at first glance, appear unrelated; in fact, they are profoundly and perversely intertwined. It is often said that anti-immigration sentiment is driven by a fear of competition; Americans are said to fear competing against new immigrants for jobs, for contracts, for educational opportunities. This account leaves out a crucial part of the story: Americans have never lacked competitive spirit or feared a fair fight. What many Americans fear is that these competitions will, in fact, be rigged from the outset. The sad fact is that they are right.

Hot Off the Press: April 2015 “Cato Trade” Newsletter

If you don’t yet subscribe to Cato Trade, the monthly newsletter of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, you can find the current edition here.  Highlighted in this month’s release is Simon Lester’s new paper, Expanding Trade in Medical Care through Telemedicine.  Additionally, you will find Cato trade scholars’ commentaries on the Export-Import Bank; the Trans-Pacific Partnership talks; Investor-State Dispute Settlement (ISDS); Trade Promotion Authority (TPA); and, other important matters of U.S. trade policy.

And here are the links to all previous monthly newsletters:

How Will the TPP Impact Vietnam’s “Nonmarket Economy” Designation?

When deciding whether to impose antidumping duties on imports from Vietnam, the United States uses what’s known as nonmarket economy (NME) methodology.  That is, instead of comparing a product’s U.S. price with the price for the same or similar product in Vietnam, U.S. authorities compare it with a fictitious price constructed using surrogate values from third countries.

The use of NME methodology is prohibited under the rules of the World Trade Organization.  But when Vietnam and China joined the WTO, they each agreed that the use of NME methodology would be permitted against them for an additional 15 years.  For China that’s until the end of 2016, and for Vietnam it’s until the end of 2018.

Vietnam, however, is also a negotiating party to the Trans-Pacific Partnership, a 12-member free trade agreement that may be concluded this year.  Last week, Vietnam’s Ambassador to the United States implied that Vietnam was seeking to have its NME status revoked as part of those negotiations.  As reported at Inside U.S. Trade ($):

“I think on the question of the market economy status, we can do it together. Vietnam has been doing it with other countries and I think about three dozen or something countries have recognized that,” said Pham Quang Vinh, Vietnam’s ambassador in Washington. Vinh added that he hopes “when we reach a conclusion of the TPP, then everything [with regard to this issue will] be resolved.”

It certainly makes sense that Vietnam would hope to negotiate the end of NME treatment.  As the Ambassador explained, they’ve already secured market economy status in other countries.  The TPP is a natural vehicle for getting a similar commitment from the United States .  But there’s no guarantee they’re going to get it:

But his counterpart, U.S. Ambassador to Vietnam Ted Osius, seem to tamp down those expectations. Speaking at the same event, Osius indicated that while TPP might put Hanoi on strong footing to make the economic reforms necessary to become a market economy, a change in its status would be likely be further down the road. Both officials spoke at March 24 event at the Center for Strategic and International Studies (CSIS).

Osius said that the U.S. Commerce Department process to determine a country’s market economy status is non-political, and that Vietnam still needs to fulfill certain requirements, such as having a convertible currency.

The U.S. official’s characterization is telling.  The U.S. government has consistently argued that NME status is a factual question.  That is, if Vietnam or China meets the criteria under U.S. law for market economy treatment, their NME status will be revoked accordingly. 

Schumer Vs. Reid on Trade Policy

Senate Democratic Leader Harry Reid (NV) has announced that he will not seek reelection in 2016, and his most likely successor is Chuck Schumer (D-NY). No doubt a lot will be said by journalists and commentators about what this transition means for policy and politics.

If you want to get an idea of what that change might mean for U.S. trade policy in the long run, you should take a look at Cato’s congressional trade votes database—Free Trade, Free Markets: Rating the Congress.

Throughout his career, Reid has been a staunch opponent of trade liberalization. He has voted in favor of market-distorting subsidies and tariffs at almost every opportunity:

 

For instance, Reid thwarted President Obama’s attempt to secure trade promotion authority last year when Reid was still majority leader.

Will the TPP Strengthen U.S. Foreign Relations?

The Obama administration wants us to believe that even while the Trans-Pacific Partnership is shaping the global economy in favor of U.S. interests, it is also furthering U.S. foreign policy by strengthening alliances and containing China’s influence in the Asia-Pacific region. 

Alan Beattie of the Financial Times has written a scathing rebuttal to this line of argument:

This is an appealing fall-back for those who don’t like the deal’s content, but is at best one of the weaker arguments in favour. Whether or not agreements help strategic alliances, the intrusive and one-sided nature of pacts negotiated with the US can arouse resentment as well as cooperation.

The participation of countries in the TPP has less to do with enthusiasm for importing the US economic model than a grudging acceptance that yet more tribute has to be paid in order to retain access to the US market. Negotiating a trade deal with the US is not a particularly pleasant business, and nor is it becoming happier over time. You are essentially presented with a US model agreement that contains a decreasing proportion of actual free trade and an increasing proportion of intellectual property protection, and invited to sign.

It’s not clear that a country’s affection for the US will increase after being required to rewrite its patent and copyright law every few years on a model dictated by, respectively, the Pharmaceutical Research and Manufacturers of America and the Recording Industry Association of America. The US itself does not offer much liberalisation. It is highly unlikely to substantially dismantle its agricultural subsidy and protection regime to allow Australian and New Zealand farmers abundant access to its dairy market or stop its rice subsidies disadvantaging Vietnamese rice exports in world markets. America’s trading partners are thus on a permanent treadmill of enforced policy change in order to keep their trade access to the US.

Don’t Envy Senator Wyden

Being a U.S. senator can be fun. The position brings with it a certain amount of influence, fame, and stature. However, serving in the Senate also is fraught with challenges. Much time must be spent away from family. Flying back and forth between home and Washington can wear a person out. And some voters always are unhappy with you, sometimes really unhappy.

This is a complicated moment for Sen. Ron Wyden (D-OR). He has paid his dues in the Senate since 1997 and now is one of its more senior members. That seniority has brought him to the position of ranking Democrat on the Senate Finance Committee, which has the responsibility (among others) for establishing policies pertaining to international trade.

Congress is trying to decide whether to grant President Obama Trade Promotion Authority (TPA), formerly known as “fast track” authority. TPA commits Congress to an up-or-down vote (no amendments) on a trade agreement presented to it by the White House.  This procedure provides foreign negotiating partners with assurance that Congress will consider any agreement as a complete package, thus avoiding the risk that it might be amended in response to pressure from groups that are unhappy with one or more of its provisions. 

Such pressure dissuaded Congress from approving provisions that had been agreed to by the administration in the 1967 Kennedy Round of negotiations, which were conducted under the auspices of the General Agreement on Tariffs and Trade (GATT). Other countries were not amused when the United States didn’t live up to its Kennedy Round commitments. To rebuild its negotiating credibility, the United States needed to find a way to bridge the Constitution’s clear delineation of powers: the president has the right to negotiate with other countries, but Congress has authority to regulate foreign commerce. 

The response was the Trade Act of 1974, which developed the basic formula for approving trade agreements that has been used ever since. Congress granted the president five years of negotiating authority that covered both tariffs and non-tariff measures.

The most recent version of TPA expired in 2007. President Obama currently is seeking a new grant of negotiating authority in order to conclude the Trans-Pacific Partnership (TPP) with 11 other nations, and possibly also the Transatlantic Trade and Investment Partnership (TTIP) with the 28 members of the European Union. 

Senator Wyden will play a crucial role in determining whether or not TPA is approved. Sen. Orrin Hatch (R-UT), chairman of the Finance Committee, and Rep. Paul Ryan (R-WI), chairman of the House Ways and Means Committee, would like to introduce TPA legislation. However, they don’t want to do so without bipartisan support. There is a long tradition of Democrats and Republicans working together on behalf of trade liberalization. 

Rep. Sandy Levin (D-MI), the ranking Democrat on the Ways and Means Committee, generally opposes trade reforms that could lead to a greater selection of affordable automobiles for consumers. In other words, he’s a lost cause when it comes to sponsoring a version of TPA that the White House might approve. This is why all eyes are on Senator Wyden.