Topic: Trade and Immigration

Senate Moving Forward with Immigration Reform Bill

By
Alex Nowrasteh

Yesterday, senators voted to proceed with debating the immigration reform bill on the floor of the Senate. The Gang of Eight’s bill was amended numerous times in the Judiciary Committee but now it will face input and criticism from the rest of the Senate. There are four big areas of the legislation to watch for amendments and criticisms:

Welfare

Numerous amendments will be introduced to further block non-citizen access to the welfare state. Cato colleagues and I have done a lot of work on this issue, including a forthcoming policy analysis, that has provided some of the intellectual ammunition demonstrating the viability of building a wall around the welfare state while increasing lawful immigration.

Border Security

Senators like John Cornyn (R-TX) are deeply worried that the current bill does not provide enough border security. The current bill adds billions of dollars to an enforcement system that has grown along with the rest of the government over the last few decades. The best way to limit unlawful immigration is to increase legal immigration opportunities, such as temporary guest worker visas and other broader measures. Senator Cornyn’s border security amendment will be crucial for the bill’s political success but will not much affect the policy outcome of the legislation—except to make it more expensive.

E-Verify

With scandals about government invasions of privacy, one would think a national electronic employment eligibility system like E-Verify would raise opposition.  Designed to weed unlawful immigrants out of the work force, the system is fraught with problems and raises numerous privacy concerns that my colleague Jim Harper has explored here.  Given how internal enforcement has almost zero deterrent effect on unlawful immigration, it’s a mystery why so many so-called limited government conservatives support it in the first place.

Legal Immigration 

The guest worker provisions of the bill are too regulated, too restricted, and too limited for workers of every skill category.  Applied retroactively, the proposed guest worker visa system would not be big enough to channel most unlawful workers who came in previous years into the legal market.  Regardless, the immigration reform bill is a step in the right direction for guest workers—albeit a small one.

There are other important policy and political issues going forward, from controversy over the net fiscal cost of immigration reform to the tremendous economic benefits of increasing the number of productive people, but these are the big ones to follow for libertarians and fellow travelers.

Topics: 
Trade and Immigration

Thank You, Canadians—We’re With You

By
K. William Watson

The Department of Agriculture has refused to comply with World Trade Organization rules even after U.S. country-of-origin labeling (COOL) regulations were conclusively determined to be incompatible with international trade obligations. In short, the U.S. law imposes dramatic and unwarranted costs on any American meat processors who buy foreign cattle. This is harmful to Canadian cattle raisers in a way that does not serve any public interest in the United States. 

In preparation for possible retaliation to continued U.S. refusal to abide by the WTO decision, the Canadian government released today a list of U.S. goods for which it is considering raising tariffs in accordance with WTO rules. The goal of the tariffs would be to incentivize American industries that export to Canada to lobby Congress or the administration to remove the offending COOL regulations. This interplay is one of the clever ways that WTO dispute settlement furthers trade liberalization—by pitting competing special interests against each other.

Unfortunately, the retaliation will prove costly to the Canadian people. Here are some of the goods that Canadians will now have to pay higher prices, so that some American bureaucrats can force other Americans to pay for useless information:

  • cheese, not including the following: fresh (unripened or uncured) cheese, whey cheese, or curd; grated or powdered; processed cheese; blue-veined cheese or cheese containing veins produced by Penicillium roqueforti
  • apples, fresh
  • corn (maize)
  • Semi-milled or wholly milled rice, whether or not polished or glazed
  • maple sugar and maple syrup
  • chocolate and other food preparations containing cocoa-preparations in blocks, slabs, or bars weighing more than 2 kg or in liquid, paste, powder, granular, or other bulk form in containers or immediate packings, of a content exceeding 2 kg
  • pasta, whether or not cooked or stuffed (with meat or other substances) or otherwise prepared, such as spaghetti, macaroni, noodles, lasagna, gnocchi, ravioli, cannelloni; couscous, whether or not prepared
  • bread, pastry, cakes, biscuits and other bakers’ wares, whether or not containing cocoa; communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products
  • certain potatoes, prepared or preserved otherwise than by vinegar or acetic acid, frozen
  • frozen orange juice
  • tomato ketchup and other tomato sauces
  • wine of fresh grapes, including fortified wines; certain grape must
  • articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal
  • wooden furniture of a kind used in offices
  • mattresses of materials other than cellular rubber or plastics, whether or not covered

Hopefully these tariffs won’t ever go into effect because the U.S. Congress will intervene and end mandatory COOL labeling. If the tariffs do go into effect before Congress acts, I would like to offer sincere and heartfelt condolences to Canadian consumers. When all of this is over, we should not so easily forget your involuntary sacrifice.

Topics: 
Trade and Immigration

U.S. Trade Agency Bans iPhones

By
K. William Watson

Well, some of them anyway. The U.S. International Trade Commission has found that Apple infringed one of Samsung’s patents related to 3G technology and issued an injunction against the importation and sale of the iPhone 3GS, iPhone 4, iPad 3G, and iPad 2 3G.  These are not the latest models, but neither are they obsolete. (For a very helpful and thorough explanation of the issues in the case, check out Florian Mueller’s FOSS Patents blog.)

The outcome in this case offers an excellent example of why having a redundant patent litigation venue at the ITC with slightly different laws and procedures is bad public policy. If this patent had been litigated in federal district court, where the vast majority of patent litigation takes place, the judge would have refused to issue an injunction as contrary to the public interest—even if Apple egregiously and remorselessly infringed Samsung’s patent.

The patent at issue in the ITC investigation is what’s known as a standard-essential patent. This is a term for technology that’s so ubiquitous as to be necessary for interoperability within the industry (like 3G) and that the patent owner has agreed to license to anyone who makes a reasonable royalty offer (thus promoting it to become the industry standard). It is highly unlikely that a federal district court would issue an injunction against any product based on infringement of such a patent, because doing so would be excessively disruptive and unfair. In fact, the Justice Department and other antitrust agencies have argued that merely seeking an injunction based on one of these patents might violate antitrust law.

None of this matters at the ITC, where injunctive relief is the only remedy available. In 2006, the U.S. Supreme Court held that courts should award only monetary damages in patent cases unless there are special circumstances necessitating an injunction and doing so would not harm the public interest. The purpose and consequence of the Supreme Court’s decision was to prevent patent trolls from using small patents to get large settlements. But monetary damages are unavailable at the ITC, and the agency decided the Supreme Court’s ruling didn’t apply to them.

In the Apple-Samsung case, Apple claimed that Samsung’s request for royalties of 2.4 percent was unreasonably high. If the patent is worth less than 2.4 percent of the product’s value, an injunction against selling the entire phone is excessive. This is especially true when the technology is virtually impossible to design around. Rather than simply deciding who pays what to whom in a dispute that is mostly about licensing fees, a sales ban deprives consumers of choice in the market.

The good news is that efforts are underway in Washington to fix the problem of excessive remedies at the ITC. The White House released a proposal for patent reform this week that included a call “to enhance consistency in the standards applied at the ITC and district courts.” Specifically, they want the ITC to use the same public interest test that courts use before issuing an injunction (Rep. Devin Nunes made a very similar proposal last year). This is a good plan. It would likely have prevented the new iPhone ban and will do a lot to make the ITC less attractive to patent trolls.

Fixing problems at the ITC by making it more like district court litigation, however, shows very clearly how redundant and unnecessary it is to have two venues for patent litigation. Why should we have the ITC hearing patent cases in the first place?  There is no satisfactory answer to that question. As I argued in a Policy Analysis last year, the ITC’s power to investigate and exclude imports for patent infringement not only disrupts the proper functioning of the U.S. patent system, it also violates international trade rules. We could save ourselves a lot of trouble down the line by shutting the whole thing down.

Topics: 
Telecom, Internet & Information Policy, Trade and Immigration

Trade-Skeptical Harold Meyerson Makes One Valid Point

By
Daniel J. Ikenson

Harold Meyerson, with whom I’ve rarely found occasion to agree, makes one point in today’s column (“Go Slower on Free Trade”) that didn’t cause my eyes to roll: that the Obama administration has been relentlessly secretive about the goings-on in the Trans-Pacific Partnership trade negotiations.

I cannot corroborate Meyerson’s claim that the administration has granted access to the negotiators and the negotiating text to “roughly 600 trade ‘advisers’ from big businesses,” but has excluded everyone else, including Congress. It may be true, but then again… Certainly, Congress (by which I mean Congress, and not just a few Senate Democrats) is very much in the dark about the details of these negotiations, and that presents an enormous logistical problem.

Article I, Section 8 of the Constitution vests power in the Congress “To regulate Commerce with foreign Nations,” which covers trade agreements. Traditionally, Congress has temporarily extended that authority to the executive branch, given the impracticability of having 535 trade representatives with 535 different agendas negotiating with foreign governments. That temporary grant of “fast track” or “trade promotion” authority is not a blank check. It comes with a list of congressional demands – items that can, cannot, must, and must not be included in the agreement. It is like doing the legislative process in reverse in the sense that amendments are articulated as conditions BEFORE the agreement is reached. Ideally, those congressional demands would be formalized before the negotiations BEGIN so that there are no false starts.

But with the administration still aiming to conclude negotiations in October, no fast track legislation in sight, and anti-trade legislation metastasizing in a Congress that has largely been excluded from shaping the deal’s terms, there are long battles ahead.  Meyerson’s counsel that we “go slower on free trade” is probably already a done deal.

As to the rest of Meyerson’s claims that trade is a boon for big business, which comes at the expense of workers and consumers, we have harvested countless forests here at Cato explaining why that is just false. The most persistent U.S. trade barriers are imposed on food (tariffs and tariff-rate quotas), clothing (tariffs), and shelter (trade remedies restrictions on lumber, steel, cement, paint, nails, appliances, flooring, furniture, etc.), making them the most regressive taxes in the U.S. system.  Lower-income Americans (those for whom Meyerson claims to speak) devote larger shares of their budgets to these basic necessities than do white-collar fat cats.

I’ll leave you with these three charts, which demonstrate positive relationships between import and jobs, price decreases over time for heavily traded items, and price increases over time for less frequently traded services, all exposing the errors of Meyerson’s claims.

Topics: 
Trade and Immigration

Congratulations to the Free Traders of the 112th Congress

By
K. William Watson

Do you remember the 112th Congress—the one that repeatedly almost shut down the government while still managing to raise taxes and spending? It turns out they did some interesting things with trade policy. The votes recorded in Cato’s congressional trade votes database have been counted, tabulated, and analyzed, and the results are mixed. The predictable legislative outcome was that with a Republican House and Democratic Senate, the 112th Congress furthered the bipartisan establishment trade policy of reciprocal tariff reduction and unilateral subsidy expansion.

The more interesting revelations come from looking at the voting records of individual members. Rather than simply noting whether a policy would promote or diminish free trade or would increase or decrease America’s engagement in the global economy, Cato’s Free Trade, Free Markets methodology distinguishes between barriers (like tariffs and quotas) and subsidies (like loan guarantees, tax credits, and price supports). This distinction enables us to place members within a two-dimensional matrix.

Free traders are those that oppose both barriers and subsidies. Interventionists are those that support both barriers and subsidies. Isolationists are those that support barriers but oppose subsidies. Internationalists are those that oppose barriers but support subsidies. 

The release of this report offers a wonderful opportunity to name names. First I’d like to point out that last term, three Republican representatives voted consistently to support trade barriers. Just to be clear, these barriers are taxes expressly intended to prevent you from buying things you want. The representatives are Walter Jones of North Carolina, Frank LoBiondo of New Jersey, and Steve LaTourette of Ohio. While Walter Jones consistently opposed subsidies (making him the House’s only isolationist last term), Messrs. LoBiondo and LaTourette joined 115 Democrats as interventionists.

With that unpleasantness out of the way, I would like to offer my congratulations and gratitude to the 112th Congress’s free traders. There were 19 in the Senate and 85 in the House. The high number of free traders in the House last term is due mostly to the fact that there was only one trade subsidy vote; if there were more, I’m sure many of these names would disappear from the list, but many would not and they all deserve credit nonetheless.

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Topics: 
Trade and Immigration

Why Are There So Few Unlawful Immigrants?

By
Alex Nowrasteh

Labor markets are heavily distorted by immigration restrictions, producing wide and persistent wage differences for observably identical workers in developed and developing nations. Income for low skilled American workers is 16 times as high as Haitians in Haiti, about 7 times as high as Indians in India, and about 4 times as high as Mexicans in Mexico—all adjusted for purchasing power parity. Just by moving here immigrants can largely close that wage gap. 

There are very limited avenues for low skilled immigrants to immigrate legally, which raises an important question: if the economic benefits of immigrating are so high, why are there only 11 to 12 million unlawful immigrants here?  

Below are the two broad reasons: 

First, the benefits of immigrating are not as high as they seem. The probability of being employed in the destination country is a vital variable because unemployment does not confer any benefits on the immigrant. The skill level of prospective unlawful immigrants restricts job opportunities to certain occupations. If the sectors where low skilled immigrants work have high unemployment rates, as many do now, the chances of earning higher wages here is lower so the economic benefits of immigration are lower. Downward wage bargaining by immigrants is limited but unlawful immigrants do take a wage cut, all else being equal, of about 20 percent to compensate their employers for the legal risk of hiring them and other reasons. Growing economies in places like Mexico, China, and elsewhere might partially offset the benefits of immigrating by promising higher incomes in the near future.   

Second, the cost of unlawfully immigrating is very high. Opportunity costs, search costs (including language barriers), transportation costs, legal costs, the probability of dying en route, the probability of being sold into slavery, and the probability of not making it to the United States despite paying the smuggling fee are all high and increase risk. Immigration enforcement is very effective at deterring most would-be unlawful immigrants. High smuggling fees are a high up front cost. 

Immigration can be understood as an investment over a period of years.  The length of time the immigrant spends here employed at higher wages increases the economic benefits of immigrating. The costs of immigrating, like paying for a smuggler, are fixed while there seems to be a low marginal cost for staying here to avoid immigration enforcement. The psychic costs could shift with time.

Here is an example:

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Topics: 
Trade and Immigration

Five Reasons to Repeal Farm Subsidies

By
Chris Edwards

Cato held a packed forum on Capitol Hill yesterday examining major farm legislation that is moving through Congress. Our panelists included Andrew Moylan of R Street, Josh Sewell of Taxpayers for Common Sense, and Scott Faber of the Environmental Working Group.

I discussed five reasons why farm subsidies make no sense.

1. Unfair Redistribution. Farm programs take from average taxpayers and give to higher-income farm households, which is a reverse Robin Hood scheme. In 2011 average incomes of farm households was $87,289, or 25 percent higher than the $69,677 average of all U.S. households.

2. Economic Distortions. Farm subsidies can induce excess production, an overuse of marginal farmland, and land price inflation. Subsidies can cause less efficient planting, induce excess borrowing by farmers, and cause insufficient attention to cost control. Farm businesses have less incentive to innovate and control their costs because they know that the government will always bail them out.

3. Environmental Damage. Farm subsidies tend to draw marginal farmland into production, lands that might otherwise be used for forests or wetlands. Subsidies can also induce excess use of fertilizers and pesticides in farm production.

4. Farming Not Unique. Why is farming so coddled by the government? It’s a risky business, but not uniquely so. Industries such as high technology, newspapers, and restaurants are very risky, yet they don’t rely on government handouts. Farming faces certain risks such as adverse weather. But high-tech companies are vulnerable to rapid innovations by competitors, and restaurants are vulnerable to changing consumer tastes and intense competition.

Farmers are supposed to be rugged individualists, so is it strange that they don’t feel more guilt and embarrassment about sponging off taxpayers decade after decade. Instead, farm organizations intensely lobby to keep and expand their welfare handouts from the government.

5. Farming Would Thrive Without Subsidies. If farm subsidies were ended, farming would go through a transition period, which would be tough on some farmers. But farmers would adjust by changing their mix of crops, altering their land use, cutting costs, innovating with new crops and new technologies. Some farms would go bankrupt. But a stronger and more innovative agriculture industry would emerge that would be more productive and more resilient in the long run.

Consider New Zealand’s reforms in the 1980s. That country eliminated nearly all its agriculture subsidies, which created challenges for the nation’s farmers. But New Zealand farmers turned out to be great entrepreneurs, and they made impressive changes to survive and thrive in the new free market environment. Today, New Zealand farmers generally don’t want subsidies, and they argue that we would be all better off without them.

More

Photo credit: Sarah Gormley, Cato

Topics: 
Tax and Budget Policy, Trade and Immigration

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