Topic: Trade and Immigration

All Pretenses Abandoned

Welfare enthusiasts have always used pushes for free trade as leverage for increased support for laid-off workers. The logic was that because free trade brings myriad benefits to society, society could give just a little spare change to those who no longer can shelter behind consumer-funded protectionist walls.

That is not exactly a principled position, of course (as I have asserted here before) but a new, ”improved” proposal this time appears to have the support of business groups. They have been convinced that the possible backlash against globalization is worth a massive expansion of the welfare state, and are backing a new wage insurance scheme that would cost $22 billion, funded through payroll (i.e., employment) taxes.

But wait, there’s more. The new program would be available for all displaced workers, not solely for those who lost their jobs because of import competition. While I have always resisted that distinction because it demonized trade unfairly (see here), a trade-linked scheme at least was less costly (less than $1 billion currently) and, up until recently, kept the trade ball rolling well enough.

In light of the collapse of the Doha round, the stalling of the bilateral trade agreement with Colombia, and increased protectionist sentiment at home and abroad, it is clear that negotiated trade liberalization efforts are in peril. What is not clear is whether an expansion of the welfare state would appease trade skeptics, including a certain front-running presidential candidate, and revive the decades long bipartisan support for trade. So what exactly are we buying here?

The Still-Frozen Dohapsicle Round

After nine days of trying to reanimate the cryogenically preserved Doha Round, negotiators are calling it quits again.

I have sympathy for the well-intentioned, hard-working members of those trade delegations who hoped to finally nail down the structure of a Doha Round agreement in Geneva this week. Unfortunately for them, their counterparts included too many pretenders who were more interested in using the stage provided by the negotiations to make political statements for the crowds back home.

The fact that after several days of progress the talks broke down over failure to bridge gaps on what should have been a small caveat provision proves that the political costs of a successful outcome overshadowed the political benefits for some countries.

But there are some silver linings. International trade flows continue to grow faster than the global economy, which has been moving forward at a decent clip this decade. Cross-border investment, too, continues to increase. All of those trends have been facilitated by reforms undertaken unilaterally by countries around the world. And there is every reason to believe that those trends will continue, and perhaps even accelerate while Doha sleeps.

Reauthorization Of E-Verify In Doubt

Had you asked anyone knowledgeable in the area a year ago, they would have told you that Congress was going to make “E-Verify,” the federal government’s immigration background check system, mandatory for all employers by the end of 2008.

Well, a headline in National Journal’s Congress Daily yesterday tells quite a different story (paylink): “Reauthorization Of E-Verify Immigration Program In Doubt.”

“House lawmakers and aides are locked in an impasse over legislation that would renew a program employers can use to verify the legal status of their workers,” the story says, “mainly over language that some worry might ultimately kill this means of enforcing immigration laws.”

E-Verify has gone from “greased” to “on-the-chopping-block” in just one short year.

Irony of ironies, it’s the bureaucracy that may kill it. The main holdup is a dispute over how the system would be paid for. The Department of Homeland Security has apparently been sticking the Social Security Administration with the bill for operating the system, and Social Security hasn’t got any spare funds.

This brings together threads from a couple recent posts of mine on E-Verify. I wrote in April about the inability of the Social Security Administration to provide the services it is currently called on to perform. New responsibilities placed on SSA wouldn’t just magically get done.

From a representative of a Social Security workers’ union, I had learned the following about what people could expect when they went to straighten out their E-Verify paperwork with SSA:

What would the process be like? Well, try calling your local SSA field office to find out. The SSA worker rep reported that 50% of those calls aren’t answered because field offices are too busy. Calls to the SSA’s national 800-number don’t go through 25% of the time. It’s not just a phone problem. The agency currently has a backlog of 752,000 on disability rulings. That’s three quarters of a million people who aren’t getting an answer from SSA. It takes 530 days – a little under a year and a half – to get a disability ruling out of SSA.

And I speculated the other day that Stewart Baker’s recent rant against the Society for Human Resource Management might be motivated by bureaucratic jealousy. Now we see that there’s plenty of it to go around. E-Verify isn’t important enough to get federal agencies to play well together.

In truth, I don’t think E-Verify will go under because of this dust-up, but I don’t think it’s going to be the mandatory, nationwide program so many thought either. (I described many ills of such a policy in my paper, “Franz Kafka’s Solution to Illegal Immigration.”)

There are lessons here for Republicans (and some conservatives) who dreamed that they would solve illegal immigration with a big, national, background-checking enforcement system: Bureaucrats own the bureaucracy. You do what they let you do; they do not do what you think they should do. You can’t turn big government to your ends. It only works for its own ends.

Stewart Baker Crosses a Line - What’s the Strategy?

I’ve been nothing if not dogged about responding to DHS’ advocacy for REAL ID and E-Verify. I’ve had fun responding to post after DHS post on the “Leadership Journal” blog promoting E-Verify. But I let one recent post from DHS Assistant Secretary for Policy Stewart Baker go by. Enough people have pointed me to it and asked me what I thought that I’m finally drawn to comment.

Baker’s post, “Exactly What Do They Want?,” addressed none of the substance of the E-Verify program, but simply attacked a group called the Society for Human Resource Management (SHRM).

 Here’s a taste:

SHRM lobbies for the HR execs who do corporate hiring. It also opposes E-Verify. I suppose corporate hiring is easier if you can hire illegal workers, so perhaps I shouldn’t be surprised that SHRM wants to kill a program that makes it harder to hire illegal workers.

But SHRM has taken Washington arts to a new level. SHRM says it doesn’t want to kill E-Verify. SHRM says it wants to replace E-Verify with a new, better program to prevent illegal hiring. A closer look shows that the SHRM alternative is doomed to fail – and will take years to do so. So for a decade, while the SHRM alternative is failing, no one will have a good tool to actually prevent illegal hires. Which may be precisely what SHRM wants.

Politics can be ugly. And attacking the motives of your opponents is ugly politics. But what matters in the first instance is that it’s politics at all. Stewart Baker is an executive branch official who was appointed to his office, not elected. His role is to administer the laws, not to participate in the political processes that decide what the laws are. He crossed a crucial line by becoming a critic - and a harsh critic at that - of a private association because of its public policy stance.

It’s interesting to speculate about what caused Baker’s fit of pique. A theme in his post is the potential transfer of responsibilities for verification of workers from the Department of Homeland Security to other agencies like SSA and HHS. Job #1 for government ministers is to build their fiefdoms, and the SHRM’s preferred employment verification vehicle, the New Employee Verification Act, would be a DHS bureaucrat’s biggest outrage.

But everyone who knows him knows that Stewart Baker is savvy and cool. It’s not like him to lose his temper - especially not in such a public way. So I expect that this is part of some clever strategy, but I just don’t know what it is. Baker’s vitriol has drawn justified indignation from the folks at SHRM. The comments on Baker’s post have lots of interesting tidbits, including allegations that Baker consistently declined to meet with SHRM. He got written up in Politico for starting this public imbroglio. And the human resources blogosphere is popping with discussion of Baker’s explosion.

So, does Stewart Baker surprise us all and pull a rabbit out of a hat? Or has he really lost his cool? It could be frustrating, as he winds down his stint at DHS, to look down the road behind him at his key issues: the E-Verify program limping along, and the REAL ID Act in full collapse.

India’s Doha Obstructionism

I was on the floor of the Cancun Convention Center when the September 2003 WTO ministerial conference officially ended in failure.  What struck me the most about the abrupt termination of the conference was the absolute jubilation with which the Indian trade delegation and its posse of reporters and NGO cheerleaders greeted the news.  There were high fives and hugs and ear-to-ear smiles.

At the time, I thought it odd that the Indians should be so gleeful about the failure of the conference, when, after all, India and other developing countries had so much to gain from a Doha agreement.  True, the U.S.-European agricultural proposal at Cancun was a farce, and developing countries were right to object.  But the negotiations were in tatters on that day and it was highly questionable that they would ever resume – hardly a reason for celebration.

Technically, the negotiations resumed the following summer.  But the Doha Round has never fully recovered from the Cancun meltdown.  The same divisions exist.  The same sense of victimization persists.  The same issues remain unresolved. The same preposterous mercantilist arguments endure.  And the same outcome should be expected from this week’s “do-or-die” ministerial meeting in Geneva.

Though the stasis has been attributed to United States and European stinginess on agricultural liberalization, there is plenty of blame to go around for Doha’s failure. It occurred to me sometime soon after witnessing the Cancun jubilation that a meaningful Doha deal would remain elusive because too many developing country trade ministers get too much political mileage back home when they are seen standing up to the U.S. and Europe.  Kamal Nath, India’s commerce minister, revels in his role as David to the Western Goliath. (Although his portrayal of David as an arrogant, condescending Narcissus makes you want to cheer for the Philistine giant.)

It’s always all about politics, and if the politics of denying progress on trade negotiations pays higher dividends to the participating politicians than the politics of bringing home a deal, then no deal will happen.  With each criticism or rejection of a U.S. or European offer, Nath’s political standing at home moves up a notch. He’s tapped into a post-colonial nationalism (southism, really) that has gained confidence with the emergence of his and other developing-country economies, and is energized by the thrill of seeing the West get its comeuppance.

Nath will continue to play this card because he doesn’t believe that India needs a Doha deal. Or, more aptly, he knows there is greater opposition (political cost) to securing a comprehensive Doha deal (which would require India to “lock in” the tariff liberalization it has undertaken unilaterally over the past several years) than there is demand in India (political benefit) for liberalization abroad. The Indian economy has grown handsomely this decade, which is reflected in the prideful attitudes of its political leaders (nevermind the fact that 300 million Indians still live on less then $1 per day).

To compound the problem this has created for the negotiations (which requires consensus from 153 members to reach agreement), since Cancun India has been speaking for most developing countries (and certainly the least developed countries). Thus, Nath’s hard line has become the hard line of 80 percent of the WTO delegations.

The belief that rich-country trade barriers are a primary cause of poor-country poverty, and that poor-country barriers are needed to overcome poverty, remains prominent in developing countries. But what would happen if there were no rich-country barriers, yet poverty remained? How would the politicians explain continued poverty in the absence of repressive rich-country barriers?

Losing the capacity to scapegoat external forces would be another big cost to developing country politicians, like Nath.

What’s Charlie Rangel Hiding?

A man who is willing to show how clean he is by initiating an ethics probe into his own fundraising activities surely wouldn’t mind explaining his motivation for terminating a study on Chinese trade practices that he himself commissioned to great fanfare. Until he does give this explanation, we can only speculate.

On May 23, 2007, House Ways and Means Committee Chairman Charles Rangel (D-NY) asked the U.S. International Trade Commission to undertake a comprehensive study of interventionist Chinese government policies and the role those policies play in exacerbating the U.S.-China trade imbalance. A three-part study was requested, whereby the first part would describe the role and policies of the Chinese government concerning all aspect of the economy. Seven months were afforded to the ITC to complete the first phase, and a 272-page study was published in December 2007.

The second phase was to focus on sectors and policies “which are the primary drivers of the U.S.-China trade deficit” to determine how much of that deficit can be attributed to interventionist Chinese policies like subsidization, currency manipulation, and export promotion. Phase two was to be published by today (no later than 14 months after the May 23, 2007 letter). But it wasn’t.

In a letter to then-ITC chairman Dan Pearson dated April 1, 2008, Rangel expressed his disappointment with the ITC’s report so far, but took care to place the blame for the report’s faulty conclusions on the absence of transparency on the part of the Chinese government:

The inability to access within the time agreed upon key information, and to analyze this information thoroughly and rigorously, has led to numerous inadvertent mischaracterization in the draft. These mischaracterizations are understandable given several characteristics of the Chinese economy and Chinese society, including the lack of transparency in Chinese policymaking, the absence of a clear demarcation between central and provincial government responsibilities, the pace at which laws and regulations are being written and re-written, and the incomplete development of the rule of law in China. Similarly, the breadth of the Committee’s request may have been too great, given the limitations on the Commission’s time, resources and lack of experience to date in investigating, identifying, obtaining and analyzing the kinds of information critical to the analysis sought in the Committee’s request.

Rangel went on to express confidence that the ITC would “develop the capacity to address the central and critical issues identified in the study,” but that he was suspending the work of the ITC on this matter, while his staff “work[ed] with the Commission staff to ensure that the Commission has the resources, time, and guidance it needs.”

I guess the ITC didn’t take the hint, so on June 25, 2008, Rangel terminated the study altogether. 

Why did Rangel pull the plug? At a minimum, the move to terminate the study raises suspicions that the ITC’s conclusions were not in line with the hopes or expectations of Rangel, the Committee, or the Democratic majority in Congress. The Dems have been hard-peddling the line that unfair trade explains the trade deficit, the “decline” in U.S. manufacturing, and the growing aversion of Americans to trade and globalization. 

The ITC’s conclusions were probably more in line with the views of those of us who acknowledge that the Chinese government continues to play an oversized role in the Chinese economy, but who also believe those interventions have only a marginal impact on the trade balance. 

Allowing those conclusions to come out in the midst of an election campaign that features clear distinctions on trade policy between the political parties, and which would clearly undermine the Democratic Party line, could be uncomfortable for Chairman Rangel and his fellow Democrats. 

At this point, the ITC economists and researchers who spent a minimum of six months on this study are probably more than a bit frustrated. And taxpayers have been forced to subsidize yet another wasteful government effort. 

At the very least, then, the ITC should publish its results, since it has already come this far. It would be interesting to see exactly what scared Chairman Rangel. And I suspect the results would be vindicating for those of us who know that the trade deficit has nothing to do with trade policy and everything to do with providing a fig leaf for the protectionist agenda of some of Chairman Rangel’s party’s biggest benefactors.

Mandelson Does His Bit for Doha

Much has been made (including by me) of French President Nicolas Sarkozy’s feud-by-press-release with Peter Mandelson, European Commissioner for Trade, over the EU’s offers in the World Trade Organization’s Doha round of trade talks. And a statement delivered yesterday by Mr. Mandelson clarifies why President Sarkozy feels he can get political mileage out of criticising the EU’s negotiating tactics.

Speaking to the main negotiating group of the WTO at the start of a week of intense negotiations (in the hope of putting this seven-years-old and four-years-overdue round to bed), Mr. Mandelson delivered the EU’s opening statement. The trade press went a bit wild (by trade press standards) when Mr. Mandelson appeards to increase the EUs market access offer in agriculture from an average 54 percent tariff cut to an average 60 percent tariff cut. Other WTO members suggested, and Mr. Mandelson seemed to confirm, that the “improved offer” was really just a recalculation using the type of convoluted accounting tricks favoured by Social Security administration officials. But in amongst Mr. Mandelson’s statement was this gem:

“On agriculture, the EU will be the major net loser in any deal.” (italics in original)

With statements like that from the EU’s chief negotiator and major promoter of the WTO trade talks, is it no wonder that mercantalism is rife in the EU? Mr. Mandelson is (unwittingly?) playing right into the hands of President Sarkozy and other critics of open markets in agriculture.

Farm subsidies in Europe currently account for about 40% of the EU budget, and Europeans currently pay high prices for, among other goods, dairy, sugar, bananas and beef. They deserve a break. While the farmers may fume, the EU would be a net gainer from the Doha Round overall. That’s the message Mr. Mandelson should be delivering to the WTO members and the world at large.

The raison d’etre of the WTO (and the GATT before it) was to allow countries to take politically difficult steps away from serving special interests, like farmers, under cover of promoting exports for other sectors. While I may lament this mercantalist mindset, it has achieved liberalization and avoided a repeat of the tariff wars of the 1930s. But maybe this whole idea has served its purpose. Maybe Brink was on to something.