Topic: Trade and Immigration

This Can’t Be Good

France has reportedly called an extraordinary meeting of European Union trade ministers to discuss EU trade negotiating strategy in the World Trade Organization’s floundering Doha round of trade talks.

France takes over the EU’s rotating presidency on 1st July for six months, inconvenient timing considering that the WTO’s Director-General Pascal Lamy has called a July 21st meeting of around 30 trade ministers from key countries in a last-ditch effort to cobble together a deal. The political calendar (a U.S. presidential election in November 2008, followed by a brand-new European Commission and Indian elections in 2009) means that no deal in July likely means no deal until 2010.

France has been a long-standing irritant to the Doha round and President Sarkozy, despite his sometimes-promising rhetoric, has not been the free-market reformer we might have hoped for. I wrote previously on his hostility towards the Doha round, and he has reportedly seized on Ireland’s rejection of the Lisbon treaty as a signal that Europe’s strategy in the WTO needs to change.

Of course, a liberalizing result in the Doha round is not necessary for lower trade barriers (see here and here, for example), bit it certainly would be welcome.

Has Trade Saved Us from Recession?

Good news on the economy, sort of. The Commerce Department reported this morning that it has revised the economy’s growth rate in the first quarter of 2008 to 1.0 percent. That is slightly higher than the government’s earlier two estimates and it means we have probably dodged a technical recession, at least for the first half of this year.

Politicians on the campaign trail should take note of the report for a couple of reasons. First, let’s not exaggerate the U.S. economy’s current difficulties. Politicians love a full-blown crisis because it can be used to justify all sorts of regulatory and spending programs. This is not a crisis (and government “stimulus” efforts typically have little effect, anyway).

Second, they should give thanks to America’s more globalized economy for smoothing the business cycle and possibly saving us from full-blown recession this time around. Trade is one of the bright spots of the latest report. While the housing sector has contracted by a quarter, shaving more than a percentage point from overall GDP growth, exports have been going gangbusters. Exports rose by more than 5 percent in the first quarter on an annual basis, offsetting about two-thirds of the negative effect of the housing market.

As I wrote in a Cato Free Trade Bulletin earlier this year on the subject:

[E]xpanding trade and globalization have helped to moderate swings in national output by blessing us with a more diversified and flexible economy. Exports can take up slack when domestic demand sags, and imports can satisfy demand when domestic productive capacity is reaching its short-term limits. … A weakening dollar has helped to boost exports and earnings abroad, but the main driver of success overseas has been strong growth and lower trade barriers outside the United States.

Instead of blaming trade for our current economic slowdown, politicians should be thankful that trade has spared us from something worse.

U.S. Sugar Program Costs Another $1.75 Billion

The state of Florida announced yesterday that it will pay $1.75 billion to buy out the nation’s largest sugar producer and 300 square miles of land it owns north of the environmentally sensitive Florida Everglades. Although most news stories ignored the connection, the deal is yet another cost Americans continue to pay for our misguided agricultural programs.

The company selling the land, United States Sugar, has for decades benefited from a federal program that guarantees a minimum price for United States Sugar’s crop through a system of loan guarantees and strict import quotas. This means American families and sugar-consuming industries are typically paying two to three times the world price for sugar.

The sugar program also imposes damage on the environment, which motivated yesterday’s announcement. Like other farm programs, the sugar program encourages over-production. In the case of United States Sugar, that means the extraction of fresh water that would otherwise flow naturally into the Everglades, and the over-application of fertilizers that artificially raise the phosphorous content of the runoff, causing a sharp decline in periphyton, such as algae, that supports bird and other animal life in the Everglades. [For more about the environmental damage caused by U.S. farm programs, see my 2005 article published by the Property and Environment Research Center.]

In large part because of the damage caused by subsidized domestic sugar producers, Congress allocated $8 billion in 2000 for cleaning up the Everglades. Florida’s purchase of United States Sugar was just the latest installment in an ongoing clean-up operation.

Of course, Congress could have avoided much of this mess years ago by repealing the sugar program. If Americans had been free to buy sugar at world prices, our domestic sugar industry would have been smaller and more efficient with a much smaller environmental footprint. Converting the sugar-cane fields to more environmentally friendly uses would have been much less expensive because the annual subsidies would not have been capitalized into the value of the land.

When the Democrats took power in Congress in 2007, they pledged themselves to be in favor of reform, fiscal responsibility, and protection of the environment. Yet the new farm bill that Democrats voting overwhelmingly in favor of last month, and that their likely presidential candidate Barack Obama endorsed, strikes out on all three counts.

The Unmanageability of Managed Trade

Last week the U.S. International Trade Committee gave the green light to impose countervailing (anti-subsidy) and antidumping duties on imports of circular welded carbon steel pipe from China. The decision was noteworthy because it represents the first affirmative finding of injurious subsidization against China since the Bush administration lifted the informal 22-year old moratorium on using the CVD law against China. (The coated paper case last year was the first CVD case against China initiated post-moratorium, but ultimately the ITC did not find the domestic industry to be injured in that case, and thus no duties were imposed).

But the steel pipe case is noteworthy for another reason. It perfectly exemplifies the absurdity of our trade remedy laws. Under the antidumping and countervailing duty laws, consumers of the subject merchandise have no formal standing in the process. Under the statutes, the ITC is not permitted to consider the impact of prospective duties on these interests, nor is it required to even hear arguments from consuming interests.

Now, let’s juxtapose economic and business reality on this trade remedy law setup.

In 2001, the United States imposed antidumping duties on imports from several countries (including China) of hot-rolled carbon steel. (Despite record revenues, profits, and the unprecedented market power of U.S. steel producers, the ITC voted to continue those 2001 antidumping orders for another five years in 2007.)

Hot-rolled steel is a commodity product from which many different kinds of steel products are made, including circular welded carbon steel pipe. Before the 2001 order was imposed, Chinese producers could sell hot-rolled steel to Chinese and American producers of downstream steel products. After the antidumping order was imposed in 2001, the supply of hot-rolled steel for Chinese producers of downstream products – like circular welded carbon steel pipe – increased, and the price declined. Meanwhile, the supply of hot-rolled available to U.S. pipe producers, declined, and the price increased. What to make of all this?

Well for one thing, it’s not only plausible, but probable, that the reason U.S. pipe producers may be struggling is that access to their most important material input is stunted relative to their Chinese competitors’. The price of hot-rolled steel in the United States has been at record highs over the past couple years. And the antidumping order against hot-rolled is a tax on U.S. pipe producers and a subsidy to Chinese pipe producers.

If the antidumping law included a consumer interest provision (see “Mandate a Public Interest Test” on page 33), where the impact of prospective antidumping measures on downstream users and, indeed, on the economy as a whole was considered, there would be less demand for protectionist measures to compensate for the effects of protectionist measures.

E-Verify: What’s Going on with the 5.3%?

In a recent post on E-Verify, the system for conducting federal immigration background checks on American workers hired to new jobs, I criticized an assumption on the part of DHS Assistant Secretary for Policy Stewart Baker that the 5.3% of people who receive “final nonconfirmations” from the system are illegal immigrants:

Baker’s conclusion that the 5.3% of workers finally nonconfirmed are illegal workers is without support. The statistic just as easily could show that the 5.3% of law-abiding American-citizen workers are given tentative nonconfirmations, and they find it impossible to get them resolved. More likely, some were dismissed by employers, never informed that there was a problem with E-Verify; some didn’t have the paperwork, the time, or the skills to navigate the bureaucracy; and some were illegal workers who went in search of work elsewhere, including under the table.

Yesterday at a meeting of the DHS Data Privacy and Integrity Advisory Committee, a new data point opened a small window onto the situation of the 5.3%. To review, 94.2% of the workers submitted to the system are confirmed as eligible for work within 24 hours. Of the 5.8% tentatively nonconfirmed, .5% successfully contest their nonconfirmations, leaving us with 5.3% who receive final nonconfirmations for reasons yet unknown.

Staff of the DHS’ U.S. Citizenship and Immigration Services bureau reported yesterday that they had recently added a “doublecheck” on tentative nonconfirmations, asking employers to review the data they had entered for errors. During the two months this has been in place, it has lowered the tentative nonconfirmation rate by 30%. That’s right - 30% of the tentative nonconfirmations had been caused by employers’ fat fingers. (“Fat fingers” is not a knock on employers’ fitness - it’s a techie term for data entry errors.)

If we assume that the figures recited above are from a period before the new fat-finger doublecheck, the 5.8% tentative nonconfirmation rate should have dropped 1.74% since the double-check was implemented. Next, assume (generously) that all of the .5% successfully contesting their tentative nonconfirmations were part of this cohort - the victims of employers’ fat fingers. This leaves 1.24% of workers submitted to E-Verify during this period who were eligible to work but victims of employers’ data entry errors - and who failed to contest their nonconfirmations.

There is plenty of room for error in this extrapolation, and I’ll happily publish refinements or corrections to what I’ve written here, but it looks like more than 1 in 100 employees are tentatively nonconfirmed by E-Verify and go on to final nonconfirmation even though they are eligible to work under the immigration laws. That’s a huge percentage considering that millions of Americans’ employability is on the line. The burden is on DHS and other proponents of electronic employment eligibility verification to figure out what’s going on and to fix it.

E-Verify is not ready for prime time, and we wouldn’t want it even if it was.

Spending Money to Restrain Economic Growth

Sayeth the GAO:

Although DHS has not prepared official cost figures, USCIS officials estimated that a mandatory E-Verify program could cost a total of about $765 million for fiscal years 2009 through 2012 if only newly hired employees are queried through the program and about $838 million over the same 4-year period if both newly hired and current employees are queried. USCIS has estimated that it would need additional staff for a mandatory E-Verify program, but was not yet able to provide estimates for its staffing needs. SSA has estimated that implementation of a mandatory E-Verify program would cost a total of about $281 million and require hiring 700 new employees for a total of 2,325 additional workyears for fiscal years 2009 through 2013.

No Need for a General Election; Obama Already Has Mandate

An article [$] today in CongressDaily AM outlines the plans of trade-skeptic congressional Democrats wishing to formalize that “time-out” on trade we’ve heard so much about during the Democratic primary campaign.

A bill introduced yesterday (H.R 6180 and its companion S.3083) would slow down the process of approving new trade agreements by requiring the GAO to review existing agreements and judge them not, as logic would seem to dictate, according to the standard of increasing trade, but against the domestic policy standards contained in the bill:

The bill would require GAO to review existing trade deals by June 10, 2010, and an analysis of how the deals stack up against labor, environmental and safety standards enumerated in the bill.

If gaps are found by GAO, the president would be required to submit renegotiation plans for current trade pacts before negotiating new ones and congressional consideration of pending trade pacts. Committees of jurisdiction would then review the renegotiation plans.

According to congressional Democrats, Senator Obama’s win in the Democratic primary is justification enough for introducing a bill that mirrors his plans. Those plans include, yes, loading up trade agreements with possibly deal-killing standards and, at least judging by Senator Obama’s voting record so far, very little new trade liberalization (details here).

If that sounds like a bad idea, it is music to the ears of some members of Congress. Here’s a quote from Rep. Michael Michaud (D, ME):

“I feel very comfortable with Sen. Obama’s position on trade; he understands the devastation that trade has caused to the American people and how flawed these trade deals are.”

We at Cato’s Center for Trade Policy Studies would refute that. Strenuously.