Topic: Trade and Immigration

Goliath vs. Goliath?

A further development in the cross-border supply of gambling and betting services broke today when the European Union announced they would launch a formal investigation into the selective (and retroactive) prosecution of European gaming interests by US authorities.

This is yet another twist in the saga first brought to light by Antigua’s case against the United States in the WTO. That case (summarized here and updated here, here, here, and here) sparked a slew of indirectly related skirmishes, a plethora of “David vs. Goliath” headlines, and an unprecedented reaction from the United States to pick up their ball and go home. The various twists and turns of the dispute have provided ample fodder for trade junkies in the form of commercial and systemic issues: Does the WTO dispute settlement mechanism provide effective recourse for big as well as small members? How should WTO members respond when one of their cohorts wants to change the nature of the contracts between the parties? How do members balance their rights and obligations in the context of issues of public morals?

The questions look far from answered because if the EUs investigation proceeds, a new WTO case could be on the horizon. Although the EU and the United States came to a settlement in December over the United States’ wish to withdraw its commitment to open its market to the cross-border supply of gambling and betting services, the details of that settlement are sketchy. And the December deal pertains to compensation for the withdrawal of market access going forward: unless and until that deal is ratified by all WTO members (including those who are asking for compensation of their own), the U.S. obligations stand and so does the ruling that found the United States was in breach of those obligations.

In other words, while the United States might eventually be able to get away with changing its obligations to provide WTO members access to the lucrative U.S. gambling market, in the meantime their (discriminatory?) prosecution of offshore interests leaves them vulnerable.

New Paper on Electronic Employment Eligibility Verification

For all its wonders, technology is not something policymakers can sprinkle on deep-seated economic and social problems to make them go away. Electronic employment eligibility verification - the idea of automated immigration-background checks on all newly hired workers - illustrates this well.

A national EEV program would immerse America’s workers and businesses in Kafkaesque bureaucracy and erode the freedoms of American citizens, even as it failed to stem illegal immigration.

Ultimately, there is no alternative but for Congress to repair the broken immigration system by aligning legal immigration with our nation’s economic demand for labor.

Read about it in my new paper, “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration.”

Conservatives and Free Trade

Robert Lighthizer tries to make the case in this morning’s New York Times that conservative Republicans should all be pragmatic protectionists.

It’s telling that the op-ed column does not present one bit of evidence that trade barriers have actually made America a more free and prosperous country. His argument, rather, is one of name dropping: Many liberals, including Ted Kennedy, have “supported the advance of free trade” while many conservatives, including Ronald Reagan, have prudently deviated from “free-trade dogma.”

Lighthizer paints a misleading caricature of Ronald Reagan’s trade legacy. It’s true that Reagan bowed to protectionist pressure more often than he should have, but in his words and most of his deeds, he came down squarely in favor of free trade. As I noted in an op-ed published shortly after Reagan’s death in June 2004:

Reagan’s heart and head were clearly on the side of free trade. While president, he declared in 1986: “Our trade policy rests firmly on the foundation of free and open markets. I recognize … the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations.’

It was the Reagan administration that launched the Uruguay Round of multilateral trade negotiations in 1986 that lowered global tariffs and created the World Trade Organization. It was his administration that won approval of the U.S.-Canada Free Trade Agreement in 1988. That agreement soon expanded to include Mexico in what became the North American Free Trade Agreement, realizing a vision that Reagan first articulated in the 1980 campaign. It was Reagan who vetoed protectionist textile quota bills in 1985 and 1988.

And Ted Kennedy as a free trader? His trade record is mixed, but on most votes in recent years, he has come down against trade liberalization. According to our new trade vote web feature, “Free Trade, Free Markets,” Kennedy voted against the Central American Free Trade Agreement, the Chile and Singapore FTAs, presidential trade promotion authority, and the 2000 African trade bill. He voted in favor of China currency sanctions, exempting anti-dumping laws from WTO negotiations and the trade-distorting farm bill now making its way through Congress. If that’s the record of a free-trader, then the term has lost any meaning.

Whether a conservative should support free trade ultimately turns on what THAT label means. If conservative means one who opposes change and wants to preserve the status quo, then free trade is probably not the right policy. But if conservative means one who favors individual liberty, free markets, limited government, and a more peaceful world, free trade is a grand slam.

Senators Suddenly Pro-Trade

Four influential senators have written [$] to the French Ambassador to express their displeasure at France’s ongoing restrictions on genetically modified (GM) corn, warning that the issue could spark litigation.

America and the European Union have been at loggerheads over GM foods for years now, culminating in a dragged-out WTO dispute (summary available here) that was resolved with a partial-loss for the EU because they took too long to make a decision on allowing certain products into the european market, and because the EU didn’t base some of their restrictions on scientific evidence, as required under WTO rules. Now the victorious parties, including the United States, Canada and Argentina, are waiting for practical resolution and for trade to start flowing.

The French, however, are continuing to resist approving products made from agricultural biotechnology, ostensibly in the face of public opposition to the foods. French President Nicolas Sarkozy has spoken publicly in support of a ban on growing GM crops in France, and the French yesterday proposed scrapping the current EU approval process for genetically modified organisms in favour of tougher standards.

Enter the senators, who see what tougher restrictions would mean for GM-happy American farmers and are incensed at what they see as a flouting of trade rules. Ironically, among them is Saxby Chambliss (R-GA) who favors the continuing support of American cotton growers, even in the face of WTO rebukes for the manner in which that support is delivered. Similarly, Senate Finance Committee Chair Max Baucus (D-MT) has refused to countenance passing any trade deals unless and until he gets his way on trade adjustment assistance (you can see what I think of his ideas for TAA here).

Senator Obama isn’t the only member of that august chamber with two faces on trade.

(D) All of the Above

As an advocate of free trade, I feel slightly vindicated by reports that the Obama campaign quietly assured the Canadian government that the Senator’s strident words about NAFTA in last week’s debate were merely political rhetoric. We’ve long been saying that opposition to trade is mostly an artifice of politics. But the story begs the question: Is Obama (a) economically illiterate; (b) dishonest, or; (c) naïve. The answer is (d), all of the above.

Obama blames faulty trade agreements, like NAFTA, for the loss of 3 million manufacturing jobs since 2000. But one can check that claim easily by turning to page 280 (Table B-46) of the Economic Report of the President, 2008 [.pdf]. There one will find that in the 14 years since NAFTA took effect, the number of U.S. manufacturing jobs declined by 2.7 million. In the 14 years prior to NAFTA (between 1979 and 1993) the number of manufacturing jobs declined by 2.7 million. No difference at all. In both periods, there was a decline of 193,000 net manufacturing jobs per year.

Although U.S. manufacturing employment peaked in 1979 and has been trending downward since, there was an uptick in employment in the first few years after NAFTA took effect. Between 1993 and 1998, 500,000 net jobs were created in manufacturing. Did NAFTA create those jobs? I wouldn’t make that claim, but it certainly has more empirical support than the opposite claim—that NAFTA cost jobs.

Three million jobs lost since 2000? Look again [.pdf]. During the pronounced manufacturing recession of 2000-2003, there was a precipitous drop of 2.8 million manufacturing jobs, but it’s hard to blame NAFTA for that. Manufactured imports from NAFTA countries were flat during that period: imports in 2000 were higher than the average for 2001 through 2003. Again, if you must blame NAFTA, look to the export side of the equation. U.S. exports dropped 11 percent from 2000 to 2003.

And for the record, since 2004, there has been a decline of 300,000 manufacturing jobs nationwide. That rate of 100,000 per year (vs. the rate of 193,000 per year during the entire post-peak period of 1979-2007) suggests that even the basis for the political rhetoric is about five years too stale.

That Obama asserted he would take a “sledgehammer” to NAFTA because it is broken and then say just kidding to the Canadians is dishonest. Some are cynical enough to excuse that as par-for-the-course pandering, but I don’t. The reason that there is a backlash against trade – that there is even a debate – in this country is that lies like those are uttered with such frequency that they are believed. Those myths are all the more reinforced when spoken by someone as apparently likeable and charismatic as Senator Obama.

Finally, the attempt to smooth things over with the Canadian government raises questions about the candidate’s naïvete. Did it not occur to him that a conservative Canadian government might favor a McCain presidency and might make political hay out of the “disregard-the-NAFTA-belligerence” comments?

At least Senator Clinton knows enough to wait until after Ohioans vote before winking at our NAFTA neighbors.

Washington Post Takes Even-handed Look at “Middle Class Squeeze’

If you believe Lou Dobbs and most politicians on the campaign trail, you would think the great American middle class has basically vanished—squeezed to death by falling home values, rising medical and tuition bills, and competition from low-wage workers in Mexico and China.

Today’s Washington Post business section provides a valuable reality check. In a story headlined, “An Upside for the Middle Class: Lost Amid the Stresses Are Gains in Standard of Living,” reporter Michael A. Fletcher provides an even-handed assessment of just where the American middle class stands today.

The article reports what the doomsayers have been saying about rising levels of consumer debt, “flattening wages” and rising income inequality. But it also quotes from a range of experts that trade, technology and economic growth have raised the standard of living for most Americans.

Here are a few facts from the Post article that you won’t learn from CNN’s Lou Dobbs Tonight:

Items once considered luxuries—dishwashers, central air conditioning, video cameras—are now common. The average size of new homes has increased 40 percent in the past generation. And as many consumer items cost less, Americans are shopping more. In 1991 the average American bought 33.7 pieces of apparel; by 2002 he or she bought 48 items, according to Boston College sociologist Juliet Schor. In 2005, she said, Americans were projected to discard more than 63 million computers.

Americans are twice as likely to travel overseas than they were in 1980, and overall they spend more than ever for other recreation, including sporting events, movies and plays—the mark of an ever-improving quality of life, some researchers say.

Of course, supporting a middle class family can be and often is hard work. But we shouldn’t allow ourselves to be panicked into grasping for big-government solutions to an economic crisis that does not exist.

For a more in-depth look at how most Americans are faring in this era of expanding trade and globalization, you can check out my recent Cato study, “Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers.”

Blinded by Ideology

Given the outspoken, anti-trade views of thrice-elected Senator Byron Dorgan (D-ND), you might think that North Dakotans have no stake in the global economy.  After all, if you’re comfortable voting for a candidate who disparages NAFTA and other trade agreements, certainly your livelihood wouldn’t depend on, say, exports to Canada.

Carter Wood over at the National Association of Manufacturers posted this gem (“Leading the Nation in Exports…and Protectionism?”) earlier today.

North Dakota’s exports grew faster than any other state’s in 2007, and the primary destination for its mostly agricultural output was Canada.  If I were a North Dakota farmer, I’d be a bit wary of my senator, whose rationale for endorsing Barack Obama is that he (Obama) “has always opposed Nafta.”

Good grief.