Topic: Trade and Immigration

Republicans and Media Confused about Fast Track

No one is surprised that 151 liberal Democrats in the House don’t support granting the president fast track authority to negotiate trade agreements.  But two groups of Republicans have now signed letters to the President this week joining those Democrats in their opposition.  The news media have reported the story as evidence that the tea party opposes President Obama’s trade agenda.

The signatories of the letters are an odd combination of young, party-line Republicans and old-guard isolationists who oppose free trade.  Neither group has anything to do with the tea party and both seem confused about how fast track works.

One of the assertions made in the letters is that establishing fast track authority cedes to the President Congress’s constitutional power to regulate trade.  This is just wrong.  Fast track is not a grant of authority to the President but rather an exercise of authority by Congress.

No one doubts that Congress can pass statutes that regulate trade.  Also clear is that the President can enter into treaties with the advice and consent of the Senate.  Fast track combines those processes by having the President negotiate the terms of an agreement, after which both houses of Congress pass (or not) a statute that ratifies and implements that agreement.

The contentious aspect of fast track authority comes from the fact that Congress agrees to hold an up-or-down vote on any agreement submitted by the president with no opportunity to add amendments.  The good sense of this arrangement is obvious when you consider that a trade agreement is the product of complex and lengthy international negotiations that cannot be adjusted at the last minute just to accommodate each congressman’s pet issue.

But when establishing fast track authority, Congress also imposes restrictions on what must be included (or excluded) from any trade agreement placed on the fast track.  In essence, Congress agrees to adopt practical, streamlined parliamentary procedures as long as the President negotiates agreements it likes.  Fast track allows Congress to exert influence at an earlier, less-disruptive stage in the process.

While the legitimacy of fast track might be an interesting topic for constitutional scholars, the controversy is mostly a proxy for larger policy arguments about the value of trade in general.  Protectionists disapprove of fast track and trade agreements because they want more barriers to trade, regardless of its constitutional status.  Similarly, proponents of increased trade approve of fast track because trade agreements put a check on Congress’s tendency to protect domestic industries.

So why have 27 Republicans come out against fast track?  Cato’s online trade votes database can help us answer the question.

The Sugar Program Is Central Planning

House and Senate negotiators are working out details of a big farm bill that may pass this year. No industry in America is as coddled as farming, and no industry is as centrally planned from Washington. The federal sugar program is perhaps the most Soviet of all. Here’s a sketch of the sugar program, which the supposedly conservative, tea party-dominated lower chamber may soon ratify:

  • Purpose. The federal sugar program is designed to enrich sugar producers, such as the wealthy Fanjuls, and rip off sugar consumers by keeping domestic prices artificially high. In recent decades, U.S. sugar prices have often been two or more times world prices. The federal government achieves that result by price guarantees, trade restrictions, production quotas, and ethanol giveaways.
  • Guaranteed Prices. The Department of Agriculture runs a complex loan program to support sugar prices. Essentially, the government promises to buy sugar from processors at a set price per pound. Processors can sell to the government, or they can sell in the marketplace if the (manipulated) market price is higher.
  • Trade Restrictions. Complex import barriers called “tariff rate quotas” help to maintain high domestic sugar prices. Imports are restricted to about one quarter of the U.S. market, and each foreign country (except Mexico) is allocated a particular share of imports.
  • Production Quotas. The government imposes quotas, or “marketing allotments,” on U.S. producers. The United States Department of Agriculture decides what total U.S. sugar production ought to be and then allots quotas to beet and cane sugar producers. Most sugar beet production is in Minnesota, Idaho, North Dakota, Michigan, and California. Most sugar cane production is in Florida and Louisiana.
  • Ethanol Giveaway. If prices fall below certain levels, the USDA is required to fire up a sugar-for-ethanol program to channel sugar away from the food industry.

The USDA is supposed to run the sugar program at no taxpayer cost, which makes the central planning even trickier. The agency must fiddle to adjust imports, quotas, and the ethanol giveaway to optimally fatten the wallets of sugar producers, while not allowing the domestic (manipulated) market price to fall so low as to impose taxpayer costs.

A possible wrench in the works of the current farm bill is that the sugar program is on track to cost taxpayers perhaps hundreds of millions of dollars this year (see here and here). So if conservatives in Congress vote for an unreformed sugar program this year, they would be not only voting for central planning, corporate welfare, higher consumer prices, harm to U.S. food manufacturers, and environmental damage, they would be voting for higher taxes as well.

The Congressional Research Service gives a brief overview of the central planning here. You can see that sugar beets are allotted exactly 54.35 percent of production (definitely not 54.34 or 54.36), and that federal planners have decreed that the just price (“loan rate”) for sugar cane is 18.75 cents per pound (not 18.74 or 18.76). 

The USDA has more on the program here. This table shows that the Fanjuls’ Florida Crystals company received a quota in 2013 of exactly 910,521 tons. So 910,521 is certainly too little and 910,522 is absolutely too much. Now if only the planners at HHS had used such precision in designing the Obamacare website! 

For more on the sugar racket, see here and here.

Don’t Confuse Immigration “Style” with “Substance”

Some are making a lot of hay over Senator Rubio’s (R-FL) supposed flip-flop on immigration reform whereby he now supports a House strategy of piecemeal bills as opposed to one large comprehensive package that he helped push through the Senate. Rubio has even stated that he opposed going to conference with his Senate immigration reform bill and any individual bill passed by the House. 

Rubio’s statement is not a flip-flop—it is a public acceptance of the way immigration reform will work in the House and not a repudiation of immigration reform. For a long time the word “comprehensive” has been a dirty word among Republicans and this is just a loud public statement by a pro-reform Senator—arguably the leader of immigration reform this year—moving against that word and the strategy it represents. Piecemeal bills were going to be the strategy in the House—as has been known for months. There is no surprise here.    

But his change is purely strategic, and not very substantive. As a spokesman for Senator Rubio stated:

The point is that at this time, the only approach that has a realistic chance of success is to focus on those aspects of reform on which there is consensus through a series of individual bills … Otherwise, this latest effort to make progress on immigration will meet the same fate as previous efforts: failure.

Anti-Patent Troll Bill Must Not Sidestep ITC Reform

A new anti-patent troll bill has been introduced in the House of Representatives. Although it doesn’t really address the major cause of the troll problem—vague and overbroad patents—the bill’s litigation-focused reforms are clever and will likely be effective. Unfortunately, the bill suffers from one glaring omission: it completely ignores well-documented patent litigation problems at the International Trade Commission.

Why isn’t ITC reform included in the bill? In a speech yesterday, House Judiciary Committee chairman Bob Goodlatte (R-VA), directly answered that very question:

We very much agree that the ITC’s involvement in protecting intellectual property needs to be examined.  Unfortunately, it is not primarily [within] the jurisdiction of the House Judiciary Committee…. We’re very open to collaborating with the Ways and Means Committee, and we are very open to ideas that would allow us to address any aspect of that.

First off, I’d like to point out that the congressional committee in charge of overseeing the patent system does not have jurisdiction to initiate legislative oversight of a uniquely independent, specialized patent court. This is just one more sign of how awkward and inappropriate it is to have a trade agency litigating patent disputes. 

More immediately though, I would like to take this opportunity to implore the Republican leadership in the Ways and Means Committee and the Trade Subcommittee to accept Chairman Goodlatte’s invitation, jump heartily onto the patent reform bandwagon, and fix the ITC’s patent mess

The reason patent trolls are a problem at the ITC is because of the agency’s excessive remedies. When the producer’s infringement involves one piece of technology worth a tiny fraction of the value of a high-tech electronic device, total exclusion of the product from the U.S. market is uncalled for. It would not happen in a court, and it should not happen at the ITC. The courts have ways to determine whether an injunction is appropriate, and ITC reform need only align the agency’s practice with the courts. The best way to do that right now is to reshape and strengthen the ITC’s public interest test.

But please, please don’t try to fight patent trolls by making the ITC’s patent procedures more protectionist. We do not need a stricter domestic industry requirement. Foreign trolls are not worse than domestic trolls. For that matter, foreign patent infringers are not worse than domestic patent infringers. There are ways to make the ITC less attractive to patent trolls without making it more attractive to protectionists.

In a perfect world, we would ditch the whole thing. There’s just no need to have a special patent enforcement mechanism for imports. But as long as they do it right—and there’s reason to think they will—Congress can fix some of the problems caused by having a dual-track patent litgation system if ITC reform gets included in the current bill.

Obama’s Immigration Speech Déjà vu

Right after Republican Rep. Darrel Issa (CA) announces that he’s introducing a bill to offer legalization for some unauthorized immigrants, President Obama gave a speech about how immigration reform is now his top priority. The President said: “This is not just an idea whose time has come, this is an idea that’s been around for years now.”

The President then blamed all recent political problems and failures to pass reform on Republicans – ignoring the gargantuan efforts of Republicans in the Senate like Marco Rubio (R-FL), Jeff Flake (R-AZ), and others.

Republican support for immigration reform, especially in the House of Representatives, is vital to it becoming law. By stealing the spot light and making immigration a partisan issue, he is distracting from reform.

Does anybody else have déjà vu? How many times do we have to hear the President give a speech pleading for reform while his administration continues to deport record numbers of people? How many times will the President blame the Republicans for every problem with our immigration system in one sentence and then say we need bipartisanship in the next? How many times will the President blame everybody but his administration for our destructive immigration system?

President Obama is not in a position of moral authority to blame his political opponents for all of the problems with our immigration system, especially considering that sometime in the next few months, this administration will likely have deported its 2 millionth immigrant.

In his speech, the President also pointed to his record as a Senator in working with Republicans to pass immigration reform during the Bush administration. In fact, Obama was instrumental in killing immigration reform in 2007 when he voted for the Dorgan amendment, named after then-Sen. Byron Dorgan (D-N.D), a known poison pill designed to gut the guest worker expansion and scuttle the entire reform along with it. Without a guest worker portion, much of the support from businesses and pro-reform Republicans evaporated – which is why so many anti-immigration reform Republicans voted for the Dorgan amendment too.

It passed 49 to 48 thanks to Obama’s unexpected support.

President Obama does deserve credit for some positive changes to our immigration system. Deferred Action for Childhood Arrivals (DACA) has limited deportation of some Dreamers, at least temporarily. President Obama could have deferred their deportations on his first day in office but instead he waited almost three and a half years – five months before the next Presidential election – to do so.

President Obama’s priorities will probably shift next week toward fixing the atrocious rollout of the website or some other issue, but for this fleeting moment he’s focusing on immigration – because his political opponents are. I suspect that I will write something very similar to this in the next few months while suffering from déjà vu.

Trading Marijuana

I was struck by the following from a recent news article about legalized marijuana in Uruguay:

[Uruguay’s] Marijuana sales should start in the second half of 2014 at a price of about $1 per gram, drug chief Julio Calzada told a local newspaper, El Pais

In the U.S., the states of Washington and Colorado have legalized marijuana and adopted rules governing its sale.

Unlike Uruguay, they will tax pot, seeing it as a revenue source, when it goes on legal sale next year.

In Washington, the state marijuana consultant has projected legal pot might cost between $13 to $17 per gram, though some people suggest that’s high.

Marijuana in the medical dispensaries typically ranges from $8 to $14 per gram in Washington depending on quality.

As with many products, it seems, marijuana will be much cheaper in developing countries than in the United States. This offers up opportunities for trade, as U.S. consumers would benefit from lower priced imports.

But I doubt that this trade will happen soon. I haven’t looked at the proposed Washington and Colorado rules, but I’m guessing that import is prohibited. And the article notes that Uruguay is only selling domestically: “Sales would be restricted to locals, who would be able to buy up to 40 grams per month.”

I can imagine that in the future, if the product becomes more widely accepted, trade between different jurisdictions that allow marijuana will be permitted and U.S. prices will come down. It may be a while, though.

But wait, there is one other problem: Is the price in Uruguay a market price? It may not be:

the idea is not to make money, but to fight petty crime and wrench the market away from illegal dealers.

“The illegal market is very risky and of poor quality,” he said. The State “is going to offer a safe place to buy a quality product and on top of that, it’s going to sell it at the same price.”

In August, he had estimated that the price would be around $2.50 per gram.

It may be that Uruguay is offering not just legal marijuana sales, but subsidized marijuana sales. So, if there is trade at some point, we will have issues about whether below market marijuana is being traded “fairly.” And I can imagine anti-dumping and countervailing duty complaints being filed against marijuana imports to drive those prices back up. This will be annoying if it happens, but at least it will make the cases more interesting than if it’s just another boring steel product.

E-Verify’s Continued Ineffectiveness

Now that the government shutdown is over, Congress’ attention will turn to other issues.  There is a possibility that a series of immigration reform bills will be voted on in the House of Representatives before the end of the year.  One bill will certainly include mandatory E-Verify.

As my colleagues and I have written over the last several years, E-Verify is bad for businesses, taxpayers, the privacy of all Americans and residents, economic growth in general, and it won’t stop unlawful hiring.  Don’t believe me on the last point?  Just look at Arizona.  Here is a table of the number of all new hires in the state and the number of E-Verify queries run per quarter:

Year, Quarter

All New Hires

E-Verify Queries


2008, 1




2008, 2




2008, 3




2008, 4




2009, 1




2009, 2




2009, 3




2009, 4




2010, 1




2010, 2




2010, 3




2010, 4




2011, 1




2011, 2




2011, 3




2011, 4




2012, 1




2012, 2




2012, 3




2012, 4




Source: U.S. Census and Department of Homeland Security

Although all hires in Arizona are supposed to be run through E-Verify, an average of just over 50 percent of hires actually were from 2008 to the end of 2012.  These numbers actually overstate E-Verify’s enforcement record because multiple E-Verify queries could be run on the same hire.  The numerator could be a lot smaller than is reported above.    

If a state like Arizona will not enforce E-Verify, what chance is there that the federal government will do it everywhere?  Thankfully, lax enforcement of E-Verify in Arizona is a good indicator that this harmful system will not get the chance to be as destructive as many of us fear if it is ever mandated nationally.