Topic: Trade and Immigration

Happy Birthday, America—and Thanks for Having Me

This will be my first July 4th holiday in Washington, DC. Last year I was in New York City with my family, celebrating my 30th birthday (yes, I’m a bicentennial baby). So I am looking forward to seeing how the nation’s capital celebrates Independence Day.

As a recent arrival, I know that my experience of Independence Day is necessarily limited. But the ideals upon which America was based and which we celebrate tomorrow are common to many around the world, no matter where they call home. The American dream–to make a better life for yourself and to pursue whatever brand of happiness to which you aspire–is the human dream. As David Boaz notes in his podcast (mp3) today, the line of people at the immigration centers of American embassies is larger than the line of picketers outside, no matter how harsh the criticisms of the rest of the world can seem.

The government and the country are not the same thing. So for all those who have taken offense at a foreigner criticising U.S. farm and trade policy over the last year, please know that I will be celebrating a wonderful country tomorrow, along with all of you.

Last Wishes for Trade Policy

With 19 months left in the Bush presidency, June 30 marks the unceremonious end of his trade policy. Though things haven’t looked bright on the trade liberalization front for quite a while, there was a time when the agenda had promise and its keepers had enthusiasm. Tomorrow’s expiration of the president’s trade promotion authority, thus, accentuates the sadness of promise unfilled. On top of that, responsibility for trade policy is returning to a Congress that is, perhaps, more skeptical of trade than any Congress since the days of Smoot and Hawley.

The main goal of the administration’s trade policy was a multilateral trade agreement. That proved elusive, and now the Doha Round lies in a cryogenic state. The administration did bring home some bilateral and regional deals that are important, but relative to what could have and should have been accomplished, it ain’t much.

As we enter the post-TPA period, there are four trade agreements that have been signed, but not yet approved by Congress. The congressional leadership today finally came out and said they will not support the deals with Korea or Colombia (as expected). They offered support for Peru and Panama, but we’ll see whether the rank and file goes along. I’m skeptical.

Regrettably, we may have to endure a dark period on trade policy as members of Congress work to outdo each other with ridiculous, self-defeating legislation. The last responsibility of the Bush administration on trade policy, then, is to hold the line against the onslaught of anti-trade, anti-China legislation and make sure none of those bills becomes law.

At Least Somebody’s Listening (If Only It Were U.S. Policymakers)

Today’s Wall Street Journal reports (sub. req.) that the European Union is considering implementing a change that I have long advocated the United States implement: graduating China to market economy status for purposes of antidumping proceedings.  Among the reasons given in the article for the prospective change is that doing so might make it easier for Europe to “extract a range of concessions” from the Chinese on other issues deemed crucial to the trade relationship.

Though they have been stubbornly resistant, U.S. policymakers should be doing the same thing for the same reasons.  When we hear about the issues that define the U.S.-China trade relationship, those issues read like a litany of U.S. gripes.  The Chinese should: stop subsidizing industry; stop manipulating the currency; stop engaging in unfair labor practices; stop dumping; stop stealing intellectual property; stop imposing behind-the-border barriers; start opening services markets; start allowing uninhibited foreign ownership, start being a responsible stakeholder, and on and on.  (The presumption being that fulfillment of American objectives is the chief aim of Chinese policy.)

Can you name a single Chinese demand of the United States?  Well, there are several, but none of them are really “demands.”  They are requests, pursued diplomatically through ongoing dialogue and without a lot of political grandstanding. The single most important wish of the Chinese on the trade front is that they be given market economy status.  More than anything else, I believe, China’s interest in achieving that status is driven by a desire to be treated respectfully by the international community.  The non-market economy label carries a Cold War stigma and, in any event, is misapplied in the case of China, where the economy is increasingly market-oriented, if not market-based, by most metrics.

Under current European and American antidumping practices, China’s NME status means its rates of duty are not based on a comparison of prices.  Instead, they are based on a comparison of the Chinese company’s export prices to a fictitious guestimate of what the price would be in China if prices were in fact determined by market forces.  Got it?  Right!  NME rates tend to be higher than ME rates, but in any event are totally divorced from commercial reality.

Graduating China to ME status does not mean that Chinese exporters would be immune from antidumping allegations and actions by U.S. industries.  No, they would still be subject to a law that routinely produces high, and sometime prohibitive, tariffs.  But graduating China to that more respectable status would engender much good will and would likely inspire greater willingness among the Chinese to work with U.S. negotiators to resolve outstanding differences.

Ironically, the U.S. interests that are opposed to changing China’s status are the same interests that endorse the litany of gripes against China.  Eventually, they may smarten up like their European brethren and do the right thing.

Labor Union Members Protest against Pro-Growth Reforms in Czech Republic

Even though neighboring flat tax nations such as Slovakia are growing faster and creating more jobs, the labor movement in Prague is protesting reforms that would improve the Czech Republic’s competitiveness. The International Herald Tribune reports on this self-destructive impulse:

Around 15,000 labor union members protested in downtown Prague Saturday against the government’s proposed tax reforms and cuts in welfare spending. …If approved, a 15-percent flat tax on personal income would be introduced in 2008. Currently, the personal tax rate ranges from 12 percent to 32 percent, depending on income. The corporate tax rate would be cut from 24 percent to 19 percent by 2010. The draft also includes cuts in social benefits, unemployment benefits, maternity leave payments and health care spending. The labor unions claimed that only the wealthy would benefit from the proposed changes.

How Not To Rear Pigs (And Receive Money For Not Doing So)

I have only so much contempt to go around, and my job calls me to expend most of it on U.S. government policies. But I have of late been so immersed in criticizing U.S. farm programs (and rightly so) that I have to remind myself of the insanity across the pond.

Or my friends remind me. My mate Ken sent me this letter from a would-be non-pig-farmer from the U.K., anxious to feed at the European Union’s trough.

My favorite excerpt:

“In your opinion what is the best kind of farm not to rear pigs on, and which is the best breed of pigs not to rear? I want to be sure I approach this endeavour in keeping with all government policies, as dictated by the EU under the Common Agricultural Policy. I would prefer not to rear bacon pigs. But if this is not the type you want not rearing, I will just as gladly not rear porkers.”

Read the rest, though. It’s worth the time.

Antigua and Barbuda Raises the Stakes

$3.4 billion. That’s the price tag Antigua and Barbuda, the island nation which successfully argued that the United States was violating its obligations to open its market to foreign online gambling providers, puts on its lost revenues as a result of the U.S. ban on some internet gambling. (More here and here.)

They are seeking to recover the money by withdrawing the protection they provide for American intellectual property (see here). The idea behind this sort of action is to harness the power of a powerful lobby group (in this case, Hollywood and the software industry) to counteract the influence of anti-internet gambling groups: If intellectual property owners are caught in the cross-fire of the dispute, maybe the United States government would feel more pressure to comply with the series of rulings against current U.S. regulations.

The push to seek compensation through the World Trade Organization comes just one day after the European Union has indicated it wants compensation for the loss of market access, but through further opening of other sectors in lieu of lifting the ban. When the United States announced last month that it was responding to their loss at the WTO by seeking to “clarify” its commitments, they indicated that they would not provide compensation to Members harmed by the ban, as is called for by WTO rules. The USTR had reasoned that since they never intended to allow internet gambling in the first place (suggesting that their commitment to do just that was an “oversight”), then Members could not expect to receive any sort of compensation in return for solidifying the ban.

We’re planning to hold a forum on this topic on 25th July. Stay tuned for details.

More Farcical Trade Remedies Cases at the ITC

The menacing trade remedies laws have done their share to breed cynicism about U.S. free trade rhetoric. But this greeting on the website of the most recent U.S. petitioner is apropos of the tone conveyed by those laws.

Pretty scary, huh? Not as scary as being an importer of Chinese-manufactured, off-road tires, nowadays.

Having been acquainted with that grizzly, you shouldn’t be surprised to learn that Titan Tires, one of the biggest American manufacturers of tires for agricultural machines, went on the offensive Monday, when it (along with several labor unions) filed petitions with the U.S. International Trade Commission and the Commerce Department for relief from allegedly subsidized and dumped import competition from China.

To win trade relief, Titan et. al. will need to demonstrate that the domestic industry is materially injured or threatened with material injury by reason of subsidized or dumped imports. It’s generally not very hard to satisfy the meager statutory thresholds for demonstrating injury, but what is so absolutely stunning to those naïve enough to expect a modicum of justice from the process is how petitioners can distort the truth with impunity before the ITC.

Although most of the crucial economic facts are redacted from the public version of this latest petition (which is accessible on the ITC’s website), here is a sample of the injury argument presented therein. From page 18:

As the table below shows, Titan’s domestic production, capacity utilization, shipments and employment data all demonstrate current material injury.

Then there is a table with the relevant data for the periods 2004-2006 redacted. Then, on page 19:

Titan’s financial data regarding its certain OTR tire operations also indicate the company is experiencing material injury.

 Then there is another table with the financial data redacted.

So how can one know, without seeing those numbers, that petitioners are taking liberties with the truth? Well, beyond the grizzly on Titan’s website is a list of SEC filings, in which the company presents an entirely different assessment of its performance and prospects. Here’s the annual report from 2006, and here are some excerpts:

The Company recorded sales of $679.5 million for 2006, which were 45% higher than 2005 sales of $470.1 million. The significantly higher sales level was attributed to the expanded agricultural product offering of Goodyear branded farm tires and the expanded earthmoving, construction and mining product offering of Continental & General branded off-the-road (OTR) tires… Income from operations was $22.0 million for 2006 as compared to $12.0 million in 2005.

So the company’s sales were 45 percent higher in 2006, and its operating profits were 83 percent higher. The company’s first quarter 2007 10-Q filing reveals continued revenue and operating profit growth in 2007.

Titan is also having difficulty keeping up with growing U.S. demand:

Due to capacity constraints at Titan’s Bryan, Ohio, OTR tire facility, the Company is adding OTR tire capacity at its Freeport, Illinois, and Des Moines, Iowa, facilities.

Capital expenditures for 2006, 2005 and 2004 were $8.3 million, $6.8 million and $4.3 million, respectively. Capital expenditures in 2006 were used primarily for updating manufacturing equipment, expanding manufacturing capacity and for further automation at the Company’s facilities. Capital expenditures for 2007 are forecasted to be approximately $16 million to $18 million and will be used to enhance the Company’s existing facilities and manufacturing capabilities including additional capacity for OTR tire production.

Adding production capacity is not typical behavior for a company that is under assault by injurious imports. Adding capacity to the tune of more than doubling the previous year’s capital investment reflects confidence in the company’s future prospects. And confident, Titan should be:

As of January 31, 2007, Titan estimates $171 million in firm orders compared to $122 million at January 31, 2006, for the Company’s operations.

Titan’s 2006 Annual Report also boasts that $100 invested in Titan in 2001 would have been worth $436.47 at the end of 2006, whereas the same investment in the S&P 500 index would have been worth $135.03. That is some very impressive performance.

Of course, contrasting the dire self-assessments of industries petitioning for trade relief with the upbeat assessments of industries seeking to attract investors has been a favorite pastime of trade remedies’ observers. It’s been a running joke within the international trade bar that lying to the SEC lands you in jail, while lying to the ITC lands you protection from foreign competition.