Topic: Trade and Immigration

The Farm Bill Came Surprisingly Close to Fixing Some Protectionist Regulations

There’s plenty of criticism flying around about the new farm bill. It spends unprecedented amounts of money to prop up one of the most successful industries in the country. It uses Soviet-style central planning to maintain food prices and make rich farmers richer. Its commodity programs distort trade in violation of global trade rules. 

But this year’s the farm bill had the potential to mitigate some these sins by repealing a number of high-profile protectionist regulations. Despite a few close calls, however, the final version of the bill kept these programs in place, exposing the United States to possible retaliation.

COOL

One of those programs is the mandatory country-of-origin labeling (COOL) law. This requirement was first imposed by the 2002 farm bill. Ostensibly designed to increase consumer awareness, the true impact of the program is to push foreign-born cattle out of the market. The law requires meat packers to keep track of, and process separately, cattle that was born and/or raised for some time in Canada. The added expense benefits a portion of U.S. cattle ranchers at the expense of meat industry as a whole.

The negative impact on the Canadian and Mexican cattle industries was enough to prompt a complaint at the WTO. After the United States lost that case, the administration amended the regulation. But the new regulation, rather than bringing the United States into compliance, actually makes the law even more protectionist. Canada has made clear its intention to impose barriers on a wide range of U.S. products in retaliation.

Repealing this disastrous regulation through the farm bill was discussed during numerous stages of the legislative process, but no language on COOL was ever added to the bill.

Catfish

Another program that could have been fixed by the farm bill was a bizarrely redundant and purely unnecessary catfish inspection regime. The new system would cost an estimated $14 million per year to administer and (by the USDA’s own admission) do nothing to improve the safety of catfish. However, the new institutional requirements imposed on catfish farmers to comply with the new regime would all but eliminate Vietnamese competitors from the market. The U.S. catfish industry and their allies in Congress are all for it.

Even though both house of Congress had at one point or another passed bills that repealed the new catfish regime, the final bill that came out of conference kept the redundant system in place.

The inspection issue has complicated negotiation of the Trans-Pacific Partnership, of which Vietnam will be a member, and could become the basis of a complaint at the World Trade Organization. 

In the words of Sen. Mike Lee, the farm bill is “a monument to Washington dysfunction, and an insult to taxpayers, consumers, and citizens.”  It is also the most popular vehicle for imposing protectionist regulations that serve a small set of businesses at the expense of the national economy. 

There was hope that this bill could roll back some of the damage done in the past, at least for a handful of odious regulations. That hope was sorely misplaced.

Globalizing the Airline Business

From the NY Times:

Flying doesn’t come cheaply these days, particularly on long-haul flights across the Atlantic. But Norwegian Air Shuttle, which specializes in low-cost flights within Europe, plans to bring its pared-down model to the United States and Asia.

Its strategy, however, comes with a few twists: Norwegian is moving its long-haul operations from Norway to Ireland, basing some of its pilots and crew in Bangkok, hiring flight attendants in the United States, and flying the most advanced jetliner in service—the Boeing 787 Dreamliner. In the process, it has infuriated established carriers and pilots.

… Norwegian started flying between Oslo and Kennedy Airport in New York in May and has round-trip fares starting at $509. The second-lowest price found recently was $895 on United Airlines flying out of Newark Liberty International Airport. Norwegian plans to add more than a dozen new routes this year, including direct service from London to New York and Copenhagen to Fort Lauderdale, Fla., once regulators approve its new registration in Dublin.

Not surprisingly, there is resistance:

But Norwegian’s novel model has raised stiff opposition from American labor groups, airlines and pilots who see it as a backhanded attempt to outsource cheaper labor and undercut competition. Norwegian, these critics argue, is unfairly taking advantage of an open-skies agreement between the United States and Europe even though Norway is not a member of the European Union.

I’m always shocked by the price of flights to Europe, so best of luck to Norwegian as it tries to navigate this regulatory process and bring lower fares to consumers.

When the Levee Breaks: How the SAFE Act Could Unconstitutionally Strip States of FEMA Funding

The Strengthen and Fortify Enforcement (SAFE) Act (HB 2278) is part of the House’s attempt to split up comprehensive immigration reform into individual bills. The Act suffers from the fundamentally misguided belief of many Republicans that enforcement has to come before any attempt to rationalize our broken immigration system. Of course, if we fix our Kafka-esque immigration system, then many of the problems with unauthorized immigrants will greatly diminish, if not disappear. Focusing on enforcement is like someone saying during prohibition, “before we can talk about legalizing alcohol we first need to stop all these bootleggers and gangsters.”

The SAFE Act is also a constitutional boondoggle with many dangerous and suspect provisions that guarantee the act will be tied up in court battles, not to mention to litany of expected civil liberties abuses that will arise if the Act is ever enforced. The ACLU and the Center for American Progress have already pointed out many of the civil liberties concerns, as well as the bad policies that animate the Act.

Gone unnoticed is a large and consequential problem that has constitutional ramifications: the Act denies law enforcement and Department of Homeland Security funding to states or municipalities that have policies or practices that “prohibit law enforcement officers of a state…from assisting or cooperating with Federal immigration law enforcement[.]” If a state or municipality has such a policy then they “shall not be eligible to receive…any…law enforcement or Department of Homeland Security grant.” (Section 114).

California has just such a law. The TRUST Act, signed by Governor Brown in October 2013, prohibits California state officials from detaining people when U.S. Immigration and Customs Enforcement (ICE) issues a “hold” request (in order to transfer them to federal immigration authorities) if they have been convicted of only minor crimes.

“High” vs. “Low” Intellectual Property Protection

One issue that may be controversial in the US-EU trade talks is intellectual property, which has increasingly caused tension in trade negotiations. Many in the U.S. will argue that any such agreement should have “high standards” in this regard. Along these lines, this is from Senator Orrin Hatch:

There also remains some serious question as to whether the administration will even pursue an intellectual property rights chapter in our negotiations with the European Union. 

This is incredible.

The U.S. has the highest intellectual property rights standards in the world. 

Intellectual property is our competitive advantage.

It is our economic future. 

Once you set the precedent of substantively carving out intellectual property rights from a trade agreement, every other country we negotiate with is going to demand the same treatment. 

Now here’s the European Commission on IP issues:

Intellectual Property Rights: Both the EU and the United States are committed to maintaining and promoting a high level of intellectual property protection. Given the efficiency of their respective systems, the intention is not to strive towards harmonisation, but to identify a number of specific issues where divergences will be addressed. For the EU side, Geographical Indications (GIs) are of particular importance in that context. During the negotiations, we therefore intend to present specific ideas for ensuring adequate protection of GIs.

So everyone agrees: The standards should be “high”.

But wait, there’s also this from Senator Hatch:

As the U.S. and EU are the two most innovative economies in the world, any successful agreement between us must promote the highest standards of intellectual property protection. … It is also critical that the United States strongly promote the interests of U.S. businesses, farmers, ranchers, and workers with respect to EU policies, including geographical indications, that impede their ability to compete. (emphasis added)

So, both sides definitely want “high” IP standards in any US-EU trade agreement. But, on the other hand, they disagree on what are the appropriate standards are for geographical indications. The EU says they are important and need protection; Senator Hatch says they “impede the ability” of U.S. business to compete.

What I take from this is that we can’t really use “high” and “low” in the context of IP protection. The real question is, what is the appropriate level of protection for each particular kind of IP? Longer protection doesn’t necessarily mean a better policy, as I think Senator Hatch’s statements about geographical indications acknowledges.

In practice, unfortunately, what the two sides seem to be doing is promoting what they think is in the interests of their producers. Perhaps it would be better if everyone took a step back on IP, and thought about what was in the interest of society more generally.

Offer Free Trade, Not Foreign Aid to Egypt

Egypt is racing toward dictatorship.  But Washington always has been more interested in maintaining influence than encouraging democracy or promoting development in Egypt.  That’s why the U.S. provided more than $75 billion in “aid” over the years. 

In fact, the cash bought little leverage.  Hosni Mubarak spent decades oppressing Egyptian citizens and persecuting Coptic Christians despite Washington’s contrary advice.  Israel’s military superiority, not America’s money, bought peace. 

Unfortunately, as elsewhere in the Third World, foreign “assistance” hindered economic development by effectively subsidizing Cairo’s inefficient dirigiste policies.  A decade ago the government finally decided to open the economy. 

Reforms including lower tariffs, enterprise privatizations, and regulation reductions.  Meredith Broadbent of the Center for Strategic and International Studies also cited corporate tax reductions and insurance regulation modernization. 

However, Egypt soon began to fall behind other reformers.  For instance, Broadbent pointed to the survival of “significant elements of a heavy-handed statist bureaucracy.”  The banking system was opaque, monopolistic, and inaccessible.  A joint report by the Carnegie Endowment and Legatum Institute cited the need to give poor Egyptians clear title to their property, reform the bankruptcy law, and reduce costs of opening, operating, and closing businesses.

Corruption was pervasive, with commerce dominated by cronyism and privilege.  The military controlled anywhere between 15 percent and 40 percent of the economy. 

The most serious economic hindrance was expensive consumer subsidies, particularly for food and fuel.  Most of the benefits did not go to those in most need.  Moreover, the cost today accounts for roughly a third of the government’s budget and 14 percent of Egypt’s GDP. 

Thus, even after the Mubarak reforms unemployment and inflation remained high while Cairo ran large deficits.  The situation worsened after the 2011 revolution.  Uncertainty and insecurity discouraged investment and the public deficit increased to 11 percent of GDP. 

The coup was another step backwards.  The government is focused on suppressing the Muslim Brotherhood and reconstituting old political and economic relationships.  Reported the Washington Post:  “now some businessmen and officials implicated in post-uprising corruption probes are again in positions of power and influence, including in the cabinet appointed last summer by the military.” 

The prime minister said the government plans to “rationalize” the subsidy, but economic reform appears to be a low priority.  In September the regime launched a “$4.2 billion program for “economic development and social justice,” the sort of big spending initiative which has not worked elsewhere.   

As I point out in my new National Interest article:

Military rule could offer a form of stability.  However, Gen. al-Sisi’s brutality, including the slaughter of Brotherhood protesters in Cairo in August, has encouraged increasingly violent opposition.  Policemen are regularly being killed, and both auto and suicide bombings are on the rise.

Such violence could frighten off investors and tourists. 

In this environment American financial assistance would be even more harmful than before.  The massive aid coming from Saudi Arabia and other Gulf states—given purely for the political purpose of combating the Brotherhood—reduces any financial pressure on the regime to streamline economic policy. 

In contrast, freer trade would be a positive good.  Meredith Broadbent proposed negotiating a free trade agreement—previous talks left off in 2005—and updating the bilateral investment treaty.  The Institute for International Economics once projected that an FTA would increase Egypt’s GDP by three percent annually.

A new accord also would benefit U.S. firms which have been left at a disadvantage by the EU-Egyptian FTA.  Such agreements, Broadbent argued, “can serve as systemic tools to help pry open closed government regulatory processes.”

Absent an inclusive political process, Egypt likely faces an unstable and violent future.  However, economic reform also is necessary.  That is unlikely to come from lectures and money from foreign governments.  But the prospect of increased participation in international commerce would offer a far more powerful and direct incentive for action.  Washington should propose that the two governments free up investment and trade.

About That Coke Ad

I was among the many who misted up at the gentle, lyrical “America Is Beautiful” Coca-Cola commercial last night, but it turns out to be controversial in some circles. Former U.S. Representative Allen West called it “truly disturbing” and thinks it indicates the nation is on the “road to perdition” because it shows various participants singing portions of the song in languages other than English. He goes on to quote Theodore Roosevelt – a President closely associated with the Progressive movement, and no hero to me – that “we have room for but one language here” in America.

One irony here is that the cause of English-language assimilation is doing way, way better today than in the days when bossyboots Progressives like Teddy Roosevelt were banging on about it. It used to be that it would take three or more generations to melt away the language isolation of Finns or Norwegians in the upper midwest, Czechs in Nebraska, Quebecois in upper New England, or Deutschlanders in the parts of Pennsylvania and Maryland where German remained the predominant language long into the nineteenth century. Today, modern popular culture being the force it is, the American-born kids of native Bengali or Ukrainian speakers are likely to enjoy perfect fluency in English. 

Meanwhile, a writer at Breitbart is also upset at the ad, which not only uses “several foreign languages” but “also prominently features a gay couple.” Please no one tell him about the 25-year “Boston marriage” of Katharine Lee Bates, author of “America the Beautiful.”

GOP Statement Seeks Reform to Legal Immigration System

A statement of principles was released at today’s Republican members retreat.  Part of it was a brief outline of how the legal immigration system and guest worker visa systems should be reformed.  It reads:

“For far too long, the United States has emphasized extended family members and pure luck over employment-based immigration.  This is inconsistent with nearly every other developed country. Every year thousands of foreign nationals pursue degrees at America’s colleges and universities, particularly in high skilled fields. Many of them want to use their expertise in U.S. industries that will spur economic growth and create jobs for Americans. When visas aren’t available, we end up exporting this labor and ingenuity to other countries. Visa and green card allocations need to reflect the needs of employers and the desire for these exceptional individuals to help grow our economy.

The goal of any temporary worker program should be to address the economic needs of the country and to strengthen our national security by allowing for realistic, enforceable, legal paths for entry into the United States. Of particular concern are the needs of the agricultural industry, among others. It is imperative that these temporary workers are able to meet the economic needs of the country and do not displace or disadvantage American workers.”

One point these principles don’t mention is that a working legal immigration system is essential to resolving unauthorized immigration. The solution to America’s problem with unauthorized immigration does not lie with more restrictions, less lawful immigration, and more restrictions on the freedom of Americans.  The solution lies with deregulating our immigration system, allowing more immigrants to come lawful on green cards and guest worker visas, and minimizing the government’s role in picking immigrant winners and losers.  The market can do that far more effectively than a government agency, regardless of all the shiny new fences, border drones, and invasive government databases they command.   

Some of these ideas are good starts and I would have welcomed them more enthusiastically last year, but better late than never.  One big problem is that they are too negative on family-based immigration, 54 percent of whom work.  Agriculture did not deserve special mention as only about 5 percent of unauthorized immigrants work in agriculture, while many more work in retail or manufacturing.  Here are some moderate and broad libertarian suggestions for marginally improving the current immigration system: