Topic: Trade and Immigration

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.

Tony Snow’s Sunny Conservatism

Whether you agreed with him or not, former presidential press secretary Tony Snow was a class act. During his time as President Bush’s chief spokesman, from April 2006 to September 2007, Snow sparred with gusto with the White House press corps but always remained cheerful and collegial. News stories about his death over the weekend report that he was unfailingly upbeat even in the final months of his battle with cancer.

I only met Tony Snow once, and that was in June 2007 at a White House briefing on immigration reform. Also speaking at the briefing were two cabinet secretaries, but we all knew who was the star attraction that day. Snow did not bring a particular expertise to the briefing, but he did express a passion for the president’s commitment to expanding opportunities for legal immigration.

In conversation after the meeting, Snow told a small group of us that it was the president’s views on immigration more than anything else that convinced him that he wanted to be part of the administration.

None of this is a big revelation if you read Tony Snow’s pre-White House writings on the subject, but it is worth remembering that this conservatives’ conservative, sometime Bush critic, and former editorial page editor of the Washington Times embraced a pro-immigration view that was at odds with much of the rest of the movement and most Republican members of Congress. One more reason to mourn his passing.

McDonald’s CEO on Globalization and Eating Your Vegetables

In an age when most corporate CEOs shun controversy, it was refreshing to read a recent interview with McDonald’s Corp. CEO Jim Skinner.

In the August 2008 issue of the Wall Street Journal magazine Smart Money [sorry, the interview has yet to be posted online], Skinner was asked what responsibility his fast-food company has for combating the national “obesity epidemic.” Skinner replied: “We are not going to solve society’s problems. People have to do that on their own …[I]f you can’t get your kids to eat vegetables, why is it my job?”

Exactly. Why should parental responsibility be treated as such a radical idea?

Skinner does note that the restaurant chain has expanded its menu to meet demand for healthier foods beyond burgers and fries. For example, McDonald’s now buys 39 million pounds of apples a year, more than any other buyer in the country.

In the same interview, Skinner credited globalization as one of the reasons the company’s stock has roughly doubled in the past three years while the economy and the rest of the stock market have struggled.

You look at the proliferation of restaurants outside the U.S. since the last big recession, in 1990 to 1991. It’s an enormous offset. Half our sales come from abroad. And we are as well positioned today as at any other time in our opportunity to serve customers and not nick their pocketbook.

Which is just the point I made a few months ago in a Cato Free Trade Bulletin on how globalization and free trade have helped U.S. companies and the economy to better weather domestic downturns.

Free Trade Promotes Peace in Colombia

Democratic leaders in the House refuse to allow a vote on the U.S.-Colombia free trade agreement, claiming the government there has not done enough to stem violence against union members. But a story in this morning’s Washington Post helps to expose the hollowness of their objections.

As Juan Carlos Hidalgo and I documented in our study earlier this year, under President Alvaro Uribe, violence in Colombia has dropped dramatically. The general homicide rate has dropped by 40 percent since president Uribe took office in 2002, and killings of trade unionists have dropped by more than 80 percent.

No place symbolizes the transformation of Colombia more than Medellin. A decade ago, the city was a symbol of the violence and chaos spawned by illegal drug trafficking and a 40-year-old civil war with the Marxist guerrilla group known as the FARC.

Today Medellin is a thriving city. Thanks to President Uribe’s crackdown on crime and the FARC, the murder rate in the Medellin metro area has dropped from 174 per 100,000 in 2001 to 26 last year. Progress has also been aided by economic growth fueled by globalization. Colombians are exporting records amounts of textiles, apparel, flowers and other goods to the United States, which creates some of the better paying jobs in that country. As the Post story, summarizes:

Exports surged in the 1990s as the United States granted temporary trade preferences to Colombia, allowing many of its products to enter the world’s largest market duty-free. They really took off after 2002, when Washington expanded that agreement to include Colombia’s all-important textile sector. Humming assembly lines making Ralph Lauren socks and Levi’s jeans sprang up across this picturesque Andean valley, creating tens of thousands of jobs and turning Medellin into a model of the curative power of liberalized trade.

Democratic leaders who oppose the U.S.-Colombia FTA are not only ignoring the real progress that has been made against violence in that country. They are also blocking the very trade expansion that has so visibly helped to make that progress possible.

Dumbing Down Trade to Make it Saleable

There is no doubt that Americans have soured on trade. And I’m willing to concede that trade’s opponents have made good use of anecdotes and symbols and catchphrases to compensate for the scarcity of facts and logic in support of their views. But this report in The Hill is really disappointing to me, and presumably would be to all others who understand trade and its benefits without the efforts to candy coat them.

Reportedly, the Chamber of Commerce commissioned a survey to gauge attitudes and reactions to certain terminology and arguments for and against trade. Surveys were conducted in six cities earlier this year by a company called Presentation Testing. The purpose was, ultimately, to come up with a refined message to improve the appeal of trade advocacy and to determine which words to emphasize and which to avoid. I sincerely hope the Chamber didn’t break the bank on this project because the recommendations are feeble, if not downright laughable. Here are some of the findings.

Instead of referring to “globalization,” it is better to use the term “international trade” because of the pernicious connotations of exploitation and cheap goods associated with the former. (This may be the most useful point from the survey, although I’m not convinced we should just concede the false impressions).

Trade advocates should stress how trade deals “level the playing field.” (Why does that phrase sound familiar, you ask? Because protectionists have already trademarked it. Nary a politician speaks of his support for trade without the disclaimer that it be fair trade and that the playing field be level. When Americans hear “level playing field,” they think lousy, cheating foreigners. This is very bad advice.)

Whoops, I shouldn’t have used the term “protectionists,” above. The survey found that “protecting something sounds positive,” and therefore one should never speak ill of “protectionists.”

“Our trading partners should treat us as fairly as we treat them” was deemed a “home run statement” by the company that took the Chamber’s money. Again, this statement resides on page one of the modern “isolationists’” handbook. (Apparently, isolation is not as warm and fuzzy as protection, according to the survey results.)

“With fears of losing health insurance paramount in workers’ minds, it’s critical that you mention you have a plan for them to hold on to it if they lose their jobs,” the document suggests. What plan? Is there a plan? Should we just lie? Would reassurances that workers can keep their health coverage – while reinforcing fears that they’ll lose their jobs – suddenly attract their support for trade? How about reminding them that trade is way down the list of reasons why people lose jobs, for starters?

Here’s one of my favorite pieces of advice (justifying the price tag of the study all by itself, no doubt): When advocating the U.S.-Korea free trade agreement, “You must distinguish South Korea from North Korea.” Yet, making the argument to a Democrat that a trade agreement with Colombia would show support for a crucial ally in a region prone to anti-Americanism would be ill-advised because Democrats “just don’t believe it – and most people know nothing about [Hugo] Chavez (and therefore don’t care about Venezuela.)” Are the survey consultants pretty sure, then, that Democrats know that South Korea is the good guy and North Korea the bad guy?

Look, my trade center colleagues and I have noted the many occasions in which we marshal the facts, make the arguments, and hope to convince the audience of the propriety of free trade only to have our opponents battle back by telling a emotional story about a worker who lost his job, then his wife got sick, and his dog ran away.

People seem to prefer stories to the facts. As trade advocates, we need to have better anecdotes, pithy catchphrases and resonant symbols to complement our winning facts and logic. Suffice it to say this latest consulting survey won’t end the search.