Topic: Trade and Immigration

Peter Mandelson Still Wants to Date Us, He Was Just Washing His Hair

The Cairns Group is a group of 18 major agricultural exporting nations. This week they held their 20th anniversary meeting in Cairns, Australia (the site of their first meeting, hence the name of the group). Unfortunately, but perhaps predictably, they were able to make little headway in moving the struggling Doha round of trade talks forward. (The special importance to agriculture in the Doha talks was presumed to give the Cairns Group a strong voice.)

There are a few reasons for this:

First, the Cairns Group has lost some of its gravitas now that the G-20 (a developing country block of WTO members that was formed and at least partly responsible for the disastrous end to the 2003 WTO meeting in Cancun) has entered the fray. The G-20 (which has some overlap in membership with the Cairns Group) is less inclined toward liberalization in general, unless it is liberalization in other countries.

Second, and more importantly, the EU’s trade commissioner, Peter Mandelson, refused to attend the Cairns meetings because of a “prior commitment.” I’ve used that excuse to get out of an unappetizing social engagement, too, Mr. Mandelson, and I’m almost always telling a white lie. In this case, however, the refusal to attend is not so “white.”

Mr. Mandelson’s job, and inclination if we are to believe his press statements, is to do all he can to revive these talks. Mandelson is visiting the United States for talks with U.S. trade representative Susan Schwab, agriculture secretary Mike Johanns, and congressional leaders next week so he’s not completely disengaged. But sending Smithers EU Ambassador to the WTO, Carlos Trojan, to Cairns in his place was not appropriate.

The upshot of having a conspicuously empty seat in Cairns: yet more sniping. The EU (through Ambassador Trojan and comments from his Brussels master) and the United States both dismissed the Australian compromise of lowering EU tariffs by a further 5 percent and U.S. farm support by an extra $5 billion. Then, both members said that the other needs to move first. 

The best, possibly only, chance for a Doha result is between November (i.e., post mid-term elections in the United States) and March, when the U.S. administration’s fast-track authority deadline really starts to pinch. A small window indeed.

Getting Better All the Time (Generally)

A few weeks ago, Don Boudreaux (on Cafe Hayek) and Will (here at Cato@Liberty) offered a thought experiment challenging the claim that American middle class living standards have been stagnant since the 1970s.

The stagnancy claim is rooted in federal statistics indicating that middle class wages have barely kept pace with inflation. Since childhood, I’ve heard many sober-faced adults (including some of my political science and econ professors in undergrad) voice this claim by saying that my generations would “be the first to have lower living standards than its parents.”

Don and Will respond to this claim by pointing out that the quality of “stuff” that a person can purchase with those wages has increased dramatically over that time. Federal statistics may see no difference between X real dollars spent on an 8-track player in 1970 and the same X real dollars spent on an iPod today, but consumers certainly do (especially joggers who don’t have to lug 8-track players and extension cords on their evening runs).

This response is the thesis of today’s New York Times “Economix” column by David Leonhardt. Leonhardt opens the article describing Chicagoan (and Northwestern economist) Robert J. Gordon and his snowblower:

“People can die from shoveling snow,” Mr. Gordon said. “I bet a lot of lives have been saved by snow blowers.”

Yet the benefits of the snow blower, namely more free time and less health risk, are largely missing from the government’s attempts to determine Americans’ economic well-being. The same goes for dozens of other inventions, be they air-conditioners, cellphones or medical devices. The reasons are a little technical — they involve the measurement of inflation — but they’re important to understand, because the implications are so large.

Gordon has worked on quantifying those benefits. The Times nicely captures the contrast between his research and the “stagnancy” federal data in this graphic on the median earnings for men, and notes that women do even better:

Two Views of Pay

This leads to two important conclusions:

  1. Living standards have improved markedly since the early 1980s.
  2. There has been a decline since about 2002.

Cato@Liberty readers may grumble about Leonhardt’s final graf, but the article is a great read.

As for my former profs, instead of their sobering worries, perhaps they should drop some Jiffy-pop in the microwave, turn on their plasma-screen TV, plop a Netflix in the DVD player or flip on the TiVo, and relax.

The United States of Agriculture?

Every year, Congress spends nearly $20 billion and maintains steep trade barriers to benefit a small group of farmers growing one of about half a dozen “program crops.” A hearing on U.S. farm policy before the full House Agricultural Committee today illustrates the problem beautifully.

All farmers together make up less than 2 percent of the U.S. population, and those receiving federal production subsidies or trade protection are less than 1 percent of the population. Yet our farm programs are designed not to serve the interests of the 99+ percent of us who pay the taxes and consume the food, but the small fraction who grow certain favored crops. In fact, U.S. farm programs benefit a small number of producers at the expense the majority and the nation as a whole.

[In a major Cato study last year, we documented six ways that current U.S. farm programs hurt the average American—through higher food prices, lost jobs, more government spending, environmental damage, stifling of rural development, and the undermining of America’s image abroad. We also hosted a policy forum last month featuring the pro-reform Secretary of Agriculture Michael Johanns.]

So why do these programs persist despite their cost to the general public? Classic interest group politics. Agricultural producers, although small in number, are concentrated, well organized, and highly motivated to save programs that can mean big bucks to their bottom line. Meanwhile the mass of consumers and taxpayers, although an overwhelming majority, are diffused, disorganized and mostly unaware of the cost they pay as individuals for those same programs.

Which brings us to today’s hearing in the House. Who do you think Congress will be hearing from as it begins to rewrite the farm bill? Of the 17 witnesses, not a single one will represent taxpayers, consumers, or non-farm businesses that use those commodities to make their final products. Every witness represents a sector of farm producers. No wonder Congress routinely ignores the interest of the vast majority of its constituents when it writes farm legislation.

Here is the witness list:

Bob Stallman - president, American Farm Bureau Federation

Tom Buis - president, National Farmers Union

Allen B. Helms Jr. - chairman, National Cotton Council, Clarkedale, Ark.

Paul T. Combs - chairman, USA Rice Producers’ Group, Kennett, Mo.

Dale Schuler - president, National Association of Wheat Growers, Carter, Mont.

Gerald Tumbleson - president, National Corn Growers Association, Sherburn, Minn.

John R. Hoffman - first vice president, American Soybean Association, Waterloo, Iowa, also representing National Sunflower Association and U.S. Canola Association

Greg Shelo - president, National Grain Sorghum Producers Association, Minneola, Kan.

Jim Wysocki - president, National Potato Council, Bandcroft, Wis., representing Specialty Crop Farm Bill Alliance and National Potato Council

Jack Roney - director of economics and policy analysis, American Sugar Alliance

Mark Kaiser - board member, Alabama Peanut Producers Association, Seminole, Ala., representing Alabama Peanut Producers Association, Florida Peanut Producers Association, Georgia Peanut Commission and Mississippi Peanut Growers Association

Richard Groven - vice president, National Barley Growers Association, Northwood, N.D.

Jim Evans - chairman, USA Dry Pea and Lentil Council Inc., Genesee, Idaho

Mike John - president, National Cattlemen’s Beef Association, Huntsville, Mo.

Joy Philippi - president, National Pork Producers Council, Bruning, Neb.

Ron Truex - president and general manager, Creighton Brothers, Atwood, Ind., representing United Egg Producers

Paul R. Frischknecht - president, American Sheep Industry, Manti, Utah.

Speak with Forked Tongue; Carry Large 2x4

The next time you meet a Canadian at a cocktail party and consider invoking fuzzy feelings of fraternity by toasting our countries’ recent softwood lumber accord, better to just smile, nod your head, and stare intently at your shoes.  Calling the U.S.-Canada Softwood Lumber Agreement (2006) an “agreement” mocks the fact that the Canadians had no viable alternative but to sign on the dotted line.

One option was to endure the cost and uncertainty of continuous litigation, continued restrictions on their lumber exports, and the specter of never again seeing the $5.3 billion in duties collected illegally by U.S. Customs on previous exports.  The other option was for Canadians to agree to impose export restraints (in the form of export taxes or quotas) on their lumber and see the return of about 80 percent of that $5.3 billion.

The U.S.-Canada softwood lumber dispute dates back many decades, but the most recent spate of protection, rulings, and edicts relates to litigation that began in the early 1980s, evolved into the Softwood Lumber Agreement of 1996, and then produced new trade remedy cases and a string of litigation beginning in 2001, when SLA 1996 expired.  (This paper attempts to present a chronology of events—but the most recent events are not documented therein.)

Make no mistake: the United States is the villain in the lumber dispute. 

Its agencies administered the trade remedy laws illegally and when they were required to make amends, pursuant to the terms of the North American Free Trade Agreement, they refused.

In short, antidumping duties can be imposed if the petitioning industry is materially injured by reason of dumped imports; countervailing duties can be imposed if the petitioning industry is materially injured by reason of subsidized imports.  In 2002, the United States imposed both antidumping and countervailing duties on Canadian softwood, which prompted Canada to challenge those findings under NAFTA’s dispute settlement procedures.  The NAFTA panel found that the U.S. International Trade Commission failed to meet the legal threshold for finding injury, and that the Commerce Department failed to find, legally, dumping or countervailable subsidization.

Second, third, and fourth attempts by those agencies to render affirmative findings within the law were also found wanting by the NAFTA panel, which eventually ordered the agencies to revoke the measures.  The United States refused, and instead insisted that an agreement to limit Canadian lumber sales was the only way to resolve the issue.  By that point, U.S. Customs had collected about $5 billion on softwood imported from Canada pursuant to those illegal antidumping and countervailing duty measures.  The U.S. industry was insistent that those monies be distributed to them, as beneficiaries of the now-repealed Byrd Amendment.  The importers (and the Canadian producers to whom many were related) demanded that those duties be refunded promptly.

Well, an ugly compromise was struck in the form of the Softwood Lumber Agreement (2006).  Under its terms, the importers/producers will be refunded about 80 percent of their rightful $5.3 billion, and despite the illegality of the measures and the fact that the United States completely disregarded its NAFTA obligations, the domestic petitioners will keep about $500 million and the U.S. government (actually, the Bush administration—these funds will be outside the domain of congressional appropriators) will keep about $450 million to be used for “meritorious initiatives.”  Such initiatives will include low-income housing projects, disaster relief, and various other vote-purchasing endeavors.

Meanwhile, the days when you could just pick up the phone, dial your favorite Canadian lumber producer, and place an order for 100 pallets of 2x4s at $344 per thousand board feet are over.  No longer will the purchasing agents at Home Depot, True Value Hardware, Ryan Homes, and elsewhere be able to negotiate lumber volumes and prices based on quaint considerations like supply and demand.  Canadian lumber will be required to sell for a minimum of $345 per thousand board feet.  If prices dip below that level, Canadian exports will be subject to a combination of export taxes (ranging from 5 to 15 percent) and volume restrictions.  So yes, the agreement does allow freedom of lumber trade to reign, as long as the prices are high enough.  Once the benefits of trade go too far and actually provide cost savings for consumers, freedom will be reined in.

On so many different levels, U.S. actions and attitudes in the lumber dispute–and the interventionist outcome it produced–betray an administration that is only rhetorically commited to free trade.  And that can’t possibly ignite the embers of global trade liberalization.

A New Solution to the Trade Deficit ‘Problem’

I’ll be honest with you folks — in Australia we have an expression, “Only in America!” It is used whenever outlandish, seemingly crazy, or especially unusual ideas or events occur over here. It is frequently used by news-readers. Please don’t be offended.

Anyway, I am proposing a new expression, “Only from Congress.” It could be used to describe, well, whenever an outlandish, seemingly crazy, or especially unusual idea is announced by members of Congress. And to kick things off, I would like to introduce the first item for your consideration.

Two Democratic senators, Byron Dorgan of North Dakota and Russ Feingold of Wisconsin, have proposed that any company wishing to import goods into America would need a government-issued certificate. The senators, according to this New York Times article (link requires subscription), view this as a “market-based system to cut the trade deficit to zero within 10 years.”

It would work thus: Any company that exports goods would be issued an import certificate that would allow it to import goods. The “exchange rate” would fall from $1.40 in the first year (i.e., $1 worth of exports would earn $1.40 worth of imports), to $1.30 in the second year, and so on until we achieve “balance.” If a company does not wish to import anything, it can sell the import certificate to someone who does. I guess that’s the “market-based” part.

Sherman Katz of the Carnegie Endowment for International Peace was quoted in the article as saying that “’it looks on the face of it to represent an enormous intrusion of government activity into business totaling trillions of dollars each year.”

“Enormous” doesn’t seem to quite capture it though, does it? How about “insane”?

Can you imagine the type of federal oversight this would require? And how would our trade partners react to the U.S. market being restricted in this way?

And what about oil? Ah, the wise senators have already thought of that. Oil would be given a 10-year phase-in, to allow the economy “time to find and develop alternative energy supplies.”

Imports of goods keep inflation in check and imports of capital keep interest rates down and help finance economic growth. Restricting imports would necessarily restrict capital flows into the economy because of the necessary balance between the current and capital accounts. To bring investment in line with savings, domestic interest rates would need to rise, reducing investment and economic growth. (More here.)

Question for the senators: What sort of certificate would you issue to cope with those sorts of macroeconomic effects?

I’m guessing we can expect lots of “Only from Congress” ideas in the coming campaign season. I’m excited.

Don’t Count on China

Following on from the visit last month of United States Trade Representative Susan Schwab, the Director-General of the World Trade Organization, Pascal Lamy, is visiting China this week to drum up Chinese support for reviving the Doha round of multilateral trade negotiations. He appears to have been given the same non-response as the USTR.

The Chinese have put the ball squarely back in the court of the EU and the United States, saying it was up to the major developed countries to take the lead in reviving the talks. (full story here).

China has so far kept very quiet in the trade talks, limiting their participation to argue for a ‘time out’ from trade liberalization for newly-acceded members. Having given major “concessions” to join the club, they figure they’ve paid their dues and should be given time to soak up the atmosphere. And given the often poisonous rhetoric surrounding China’s role in the world economy (not least from certain U.S. Congressmen), one can hardly blame them from keeping their heads below the parapet in the negotiations proper.

It is true, as Ambassador Schwab and DG Lamy have argued, that China has gained a lot from joining the WTO (although many of those gains would have been realized anyway as a result of unilaterally liberalizing their economy) and would stand to lose from a failed WTO. Similarly, China should be held to account for the commitments it made upon joining the WTO. But expecting China to take a more active role in the negotiations, and reverse their stance of the past five or so years, is a bit much. And, as they have proved on the currency issue, the Chinese won’t be bullied.

The “quiet diplomacy” to revive the round will likely continue, including at the IMF and World Bank shindigs later this month. But if a miracle occurs and the Doha round is concluded, it won’t be because of China’s efforts.

Rural Newspaper Calls for the President and the Senate to “Mind Their Business”

The Enid News and Eagle posted an opinion article last week on the new farm bill. Admittedly, it is a rural paper (based in Enid, Oklahoma) catering to a rural readership. Most of you will probably not have seen it. But I was struck by a number of passages.

Take this one, for starters:

“It seems the 2002 farm bill was one of the more popular farm bills to come out in the history of farm bills, according to Frank Lucas. The Third District representative has been traveling the state getting input from agricultural officials and farmers on what should be included in the 2007 version of the farm bill.”

Of course the 2002 Farm Bill was popular, Congressman, at least with the “agricultural officials and farmers” you are talking to. A significant backtrack from previous farm bills, payments to farmers under the 2002 Farm Bill are projected to average over US$20 billion per year from 2005 to 2007. Agriculture officials are hardly going to support huge cuts to the agriculture budget, either.

Or consider this gem:

“…the House committee knows the most about agriculture and has the most contact with the people it will affect…”

The Enid News and Eagle is suggesting that the “people it will affect” are farmers and ranchers. This is undeniably true. But this farm bill, like all the others before it, will also affect every taxpayer and consumer of food in the country, not to mention commodity producers abroad. (more here)

On the one hand, it seems fairly reasonable that as part of the 2007 Farm Bill preparations, the administration and House and Senate Committee Members are holding a series of hearings all over the country. But on the other, who shows up to those hearings? Is it the consumers and taxpayers who, while collectively shelling out billions of dollars every year to agricultural subsidies and paying over-market prices, shoulder relatively little burden as individuals? No. Most of them have jobs to go to and little incentive to harangue Congressmen and officials. Farmers, on the other hand, are relatively well organized and have large incentive to ask for more money (or, in their more modest moments, ‘just’ the status quo).

Finally, for good measure, the Enid News and Eagle proposes letting the House agriculture committee and the farmers have full and exclusive rights over the farm bill:

“While we encourage input from farmers and ranchers, we discourage a lot of input in the bill from the president and the Senate.”

I’m new to this country, but isn’t there supposed to be a system of checks and balances here? Why do these opinion writers assert that there is no role for the administration or the Senate in crafting a new farm bill? While I, too, think there should be “little input” from government in farm policy, I don’t restrict my skepticism to only one chamber and the president.

If you missed our forum today on the farm bill, you can watch it here within the next 24 to 48 hours.

Hat-tip to Keith Good for the tip on the Enid News and Eagle.