Topic: Trade and Immigration

Just How Much Is This Online Gambling Ban Costing Us?

My friend Radley Balko has a post over at Reason’s Hit & Run blog about a recent attempt to discover the terms of a trade deal reached in December between the United States and the European Union. The negotiations started because of America’s wish to withdraw its prior commitment to open its market to overseas gambling service providers. (WTO members are within their rights to do that, but they must offer compensatory market openings in other areas). Recall that the details of that deal were, to put it charitably, vague at the time it was announced.

In an effort to shed some light on the agreement, a fellow named Ed Brayton submitted a Freedom of Information Act request to the Office of the United States Trade Representative asking for the details. No joy – the USTR refused his request on the grounds that the “information…is properly classified in the interest of national security pursuant to Executive Order 12958.”

Presumably the USTR would need to publicly disclose the terms of the deal when (if?) it is ratified by the WTO, but in the meantime Mr Brayton is appealing. Also in the meantime, Antigua and Costa Rica have filed (separate) arbitration requests to the WTO over their compensation package (more here, and a warning – some of the ads on this site are possibly not safe for work).

I will be speaking at a panel event at the Institute for Economic Affairs in London on Tuesday on this very subject.

A Clear Division Among Candidates

So much of the presidential nominating process is issue-free posturing, it’s welcome to spot a clear division among candidates on a discrete issue.

Senators Barack Obama (D-IL) and Hillary Clinton (D-NY) disagree quite starkly on whether illegal immigrants should be licensed — or, more accurately, on whether driver licensing and proof of immigration status should be linked.

Senator Obama supports licensing without regard to immigration status, and recently received the endorsement of La Opinion, the nation’s largest Spanish language newspaper, largely for that reason. (His “Yes, we can”/”Si, se puede” rhetoric probably hasn’t hurt.)

On This Week With George Stephanopolous Sunday morning, Senator Clinton said (9:09), “[M]y position has been consistent. I don’t think we should be giving drivers’ licenses to people who are not documented.”

The right answer here isn’t obvious, but it is important.

Many people believe that illegal immigrants shouldn’t be “rewarded” with drivers’ licenses. Fair enough: the rule of law is important. There’s also a theory that denying illegal immigrants “benefits” like driver licensing will make the country inhospitable enough that they will leave. This has not borne out, however. Denying illegal immigrants licenses has merely caused unlicensed and untrained driving, with the hit-and-run accidents and higher insurance rates that flow from that.

The major reason, though, why I agree with Senator Obama is because the linking of driver licensing and immigration status is part of the move to convert the driver’s license into a national ID card. Mission-creep at the country’s DMVs is not just causing growth in one of the least-liked bureaucracies. It’s creating the infrastructure for direct regulatory control of individuals by the federal government.

Were immigration status and driver licensing solidly linked nationwide, the driver’s license would not just be a “benefit” of citizenship. It would then clearly be amenable to use as an immigration-control tool — as has already been proposed. Law-abiding, native-born citizens would more and more often be required to show ID. And it would be converted to additional uses. The federal government could condition our access to goods, services, and infrastructure on carrying and presenting a national ID, possession of which the government could make conditional on every regulatory whim that swept past.

We need to restore the driver’s license to its original role — as a license to drive. American citizens should not have to submit or prove their Social Security numbers in order to get licensed. If illegal immigrants “benefit” from that, so be it. It’s more important to protect U.S. citizens’ liberties now and for the future than to “go after” illegal immigrants while reform of our out-of-whack immigration laws languishes.

Stealth Taxation at the Border

For decades, some of America’s most regressive taxes have lurked in the shadows of
U.S. trade policy.  Now the Bureau of Customs and Border Patrol is proposing to make those taxes an even greater burden on lower-income Americans and workers and farmers in poorer countries.

For over 15 years, CBP has maintained a “first sale” valuation policy that allows imports to be valued on the basis of the price of the first sale between the foreign producer and a middleman in cases where there are multiple, arm’s length transactions in the distribution chain.  The price of the first sale is presumably closer to the value of the cost of goods sold, since at most it would differ by the expenses and markup of only one more entity.  But CBP wants to change its valuation method to a “last sale” basis, which would reflect the price of the last transaction before the merchandise was imported into the United States.  Obviously, the last sale price reflecting the expenses and profits of more entities will, in most cases, be higher than the first sale price.  Thus, valuations, import assessments, and ultimately consumer prices, will likely increase.

CBP claims it wants to align its valuation policy with the policies of most U.S. trade partners, and according to a recent interpretation of the WTO Valuation Agreement, it is a perfectly acceptable—and in fact proper—method of valuation.  But its simply bad policy..  Tariffs are regressive; they are most regressive on necessities, like clothing and food; most clothing on Americans’ backs is imported; first sale valuation methodology is common among importers of clothing, and; consumer prices have already increased significantly over the past year.  Do we need consumers devoting big chunks of their “stimulus rebates” to higher import taxes?

On average, the U.S. tariff system is quite open.  Based on an analysis of U.S. imports in 2005, nearly 70 percent of all merchandise imports entered the United States duty-free and the average rate of duty (calculated as total duties collected over total import value) was around 1.4 percent.  (I cite 2005 because I did a comprehensive analysis of those data for a paper in 2006 that I have not yet repeated for subsequent years. The numbers I cite for 2005 are unlikely to be much different from 2007.)  That rate is pretty modest.  But it’s also misleading.

As is often the case, averages obscure important facts.  In this case the important facts are that most of the $23.2 billion in duties collected by Customs were assessed on imported clothing, shoes, and food products.  In fact, while clothing and footwear comprised 5.1 percent of the total value of imports, duties collected on clothing and footwear accounted for 42.3 percent of all duties collected.  Though the average duty overall was 1.4 percent, it was 7 percent on milk, cheese, eggs and other dairy products.  Have you noticed the huge jump in prices of these products at the grocery store in recent months (Sallie James has)?

Lower-income Americans spend a higher portion of their incomes on these necessities (food and clothing and shelter – don’t forget longstanding restrictions on steel, lumber and cement trade), and many of the products imported are produced in developing countries.  The 1.4 percent average tariff didn’t mean much to exporters in Macau, Cambodia, Bangladesh, Sri Lanka, Pakistan, Uruguay and the other six developing countries with average ad valorem duties in the double digits.  Imports from Cambodia accounted for 0.1 percent of total U.S. import value, but duties on Cambodian imports accounted for 1.2 percent of all duties collected.

U.S. tariff policy is already skewed heavily against lower-income Americans and poor workers around the world.  CBP’s proposal would make matters worse, which hardly seems consistent with the broader objectives of the Department of Homeland Security. 

McCain Scores, Romney Punts on Trade Policy

Free trade has come under withering fire during this election season, with Lou Dobbs–style populism on the rise. The Democratic candidates have fallen over themselves to criticize NAFTA, trade with China, and the alleged harm trade has done to the U.S. economy. So it was refreshing this morning to read an unapologetic endorsement of trade expansion from one of the Republican presidential campaigns.

In an op-ed in today’s Wall Street Journal, one of Sen. John McCain’s senior policy advisers, Douglas Holtz-Eakin, offered this description of what kind of trade policy the Arizona Republican would pursue as president:

Mr. McCain will re-affirm American leadership in global trade. It is essential that American workers have access to the 95% of the world’s customers that are outside our borders. The U.S. should engage in multilateral, regional and bilateral efforts to reduce barriers to trade, level the global playing field and build effective enforcement of global trading rules. Opening new markets for trade in goods and services is an indispensable aspect of economic freedom, for entrepreneurs and workers, and a proven road to greater prosperity.

As a student of history, Mr. McCain rejects those who preach the false virtues of economic isolationism — those who urge the U.S. to bury its head in the sand. The world made the grave error of building walls against trade 75 years ago, which contributed to the Great Depression. Since then, the U.S. has been in the forefront of the fight for reduced barriers to trade. It has reaped the benefits of sustained growth in standards of living, an awesome display of innovation and technical advance, an explosion in the variety, quality and affordability of consumer goods, a rise in home ownership, and ascendancy to the position of world’s greatest economy.

Well said. Note that McCain’s adviser even touts the consumer benefits of import competition through more variety and quality and lower prices. Politicians almost never seem to care about whether consumers benefit from trade policy, preferring to carry water for the noisiest producers complaining about pesky foreign competition.

In contrast, a nearby op-ed by a supporter of Mitt Romney devoted only one sentence to trade, and the line was more ominous than optimistic: “Our jobs are being sought by new competitors from nations like China and India.”

That sentence on trade was sandwiched between a grim warning about “violent, radical jihadists” and our government’s spending binge — as though imported shoes and laptops from China and tech-support call centers in India were “challenges” to our nation on a par with al Qaeda and out-of-control federal spending.

My Cato colleague Mike Tanner has thoughtfully dissected the strengths and weaknesses of both McCain and Romney elsewhere on the Cato blog, but on trade policy, McCain’s team was the clear winner in today’s skirmish.

The New Secretary of Agriculture Plays Lucy

My American friends tell me that there is a recurring scene in the Peanuts comics whereby Lucy says she will hold the football for Charlie Brown to kick before she whips it away.

I was reminded of that yesterday when the new boy in school, newly conferred Secretary of Agriculture Ed Schafer, dashed the hopes of all American consumers, Lucy-style, by implying [$] that the long-awaited open trade in sugar between the United States and Mexico (one of the last NAFTA provisions to come into effect) could be delayed.

Two weeks ago, the Sugar Alliance circulated a proposal to lawmakers that would effectively divide up the United States and Mexico’s (combined) market into a protected cartel. That would significantly impede what was planned to be free trade in sugar between the two countries and downward pressures on the U.S. price of sugar: currently the U.S. price is about double the world price, although it has been up to triple the world price in previous years because of trade barriers to cheaper sugar (see more here).

Sec. Schafer, at least according to the article, was willing to listen to the producers’ plan to manage the sugar trade and was quoted thusly:

If producers in two countries can agree on an approach, that’s better than two governments…trade is all about the producer and providing opportunities and opening markets…

No mention of us consumers paying for it all. And quite why Sec. Schafer believes the market needs managing (either by producers or government) is not made clear.

Less Fuel for the Trade Fire

John Edwards has announced that he is withdrawing his candidacy for the Democratic nomination for president. As I wrote in an op-ed the other week, John Edwards had by far the worst trade policy proposals of the front-running Democrats. It says something good about America that Mr Edwards’ brand of populist nonsense has been rejected by the primary voters.

E-Verify: Slow and Unsteady in Arizona

I’ll soon have a paper out on “electronic employment eligibility verification.” This is the idea of requiring every employer in the country to check the immigration status of employees against Department of Homeland Security and Social Security Administration databases.

A nationwide EEV program, building on the current Basic Pilot/”E-Verify” program, was treated as a matter of near consensus at the beginning of this past summer’s immigration debate, and the Department of Homeland Security continues to promote it.

My paper goes into the practical and technical problems with a full-fledged EEV system, as well as the question whether such a thing is appropriate for a free country. But I’ve already become aware of problems I didn’t think of.

A law went in to effect in Arizona January 1st requiring all employers to use the E-Verify system. The Arizona Republic reports that just 17,000 of the state’s 150,000 businesses have signed up for E-Verify. (January is a slow month for hiring, but employers may be holding off on hiring too. And a lawsuit has been brought challenging the Arizona law.)

Among employers using E-Verify, the question has arisen what to do when an employee has worked for a few days, but then is deemed ineligible by the database. Should the employee who is either an illegal immigrant are a citizen with bad paperwork be paid? “[E]mployers could look for workers who are at risk of failing E-Verify, the online database that checks employment eligibility, and fire those workers without paying them for up to three days of labor,” says the report.

The simple idea of “internal enforcement” of immigration law using employers as Border Patrol agents turns out not to be so simple. E-Verify puts fair-minded employers between a rock and a hard place, while facilitating unscrupulous behavior by others.