Topic: Trade and Immigration

With Advocates Like These…

By
Sallie James

A story in Reuters today offers a good reminder of why the focus of trade negotiators is so often at odds with what really matters when it comes to opening markets at home and abroad.

The proposed U.S.-EU preferential trade agreement (called the Trans Atlantic Trade and Investment Partnership) is being subject to two days of hearings from various groups with an interest in the negotiations. The article implies that most of the witnesses (at least, those who have testified so far) are wary of the deal, on the grounds that various “protections” offered to consumers will be undermined by opening markets to trade and investment:

Since tariffs between the United States and the EU are relatively low, the most difficult part of the upcoming talks will be reducing regulatory and other “behind-the-border” barriers that impede trade in sectors ranging from agriculture to chemicals to autos to finance.

That worries consumer groups such as Public Citizen, which says the United States and the EU have different regulations because the concerns of their citizens are not the same. For example, EU consumers have voiced stronger objections to genetically modified food than their U.S. counterparts.

“Trying to eliminate a big swath of regulatory differences via a trade deal would have a democratic cost because you’re taking away a power from the electorate,” said Ben Beachy, research director at Public Citizen’s Global Trade Watch.

The reason why we have protectionism, when the case for free trade is clear and relatively uncontroversial among economists, is that the powers who gain from closed markets are organised and those, like consumers, who would gain from open markets are diffuse, hard to organise, and have little individual incentive to lobby.

But this article shows us that even those who think of themselves as consumers’ advocates, and are organized ostensibly to argue their case, often agitate against freer trade. Rarely do I hear of a “consumer group” giving support to the lower prices and greater variety that international trade brings; they’re too busy fighting the agreements based on some warped sense of “democracy” or because they want to limit consumers’ choices. It’s no wonder that trade liberalization is such a hard slog.

Speaking of consumer protections, and how they can be abused by more self-interested lobby groups, a reminder to read the paper written by Bill Watson and me on the rise of regulatory protectionism.

Topics: 
Government and Politics, Trade and Immigration

Farm Bill Would Increase Spending 47%

By
Chris Edwards

House and Senate farm subsidy supporters are pushing to enact the first big farm bill since 2008. Democratic and Republican supporters say that this year’s legislation will be a reform bill that cuts spending. Hogwash.

Last year, House farm subsidy supporters proposed a bill that would spend $950 billion over the next 10 years, while the Senate proposed a bill that would spend $963 billion. By contrast, when the 2008 farm bill passed, it was projected to spend $640 billion over 10 years. Thus, the proposed House bill would represent a 48 percent spending increase over the last farm bill, while the Senate bill would represent a 50 percent increase.

A new estimate of the House bill finds that it would spend $940 billion over 10 years, which would be a 47 percent increase over the 2008 farm bill. This new estimate is shown in the chart alongside the estimate of the 2008 farm bill.

The CBO score of the 2008 farm bill is here. Scores for the 2012 farm bill proposals are reported in this CRS report. And the new score of the House bill is here.

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Topics: 
Government and Politics, Trade and Immigration

About Farm Bill “Reform”

By
Sallie James

I have a new Free Trade Bulletin out today that pours all manner of scorn on the notion that the farm bills passed out of the House and Senate agriculture committees last week in any way represent decent reform. The FTB comes just in time for a farm-bill-themed Hill Briefing tomorrow. I cannot attend the briefing, unfortunately, but my colleague Chris Edwards will be there to give ‘em hell, as will our friends from the Environmental Working Group, Taxpayers for Common Sense, and the R Street Institute. Sterling fellows all. 

Congress still – despite record deficits, high commodity and farmland prices, and a growing sense that the country is headed in the wrong direction – refuses to have a fundamental debate about the appropriate role of the federal government in farm and rural affairs (my two cents: none). They’re too busy squabbling about how to divide the spoils between North/Midwest and South, and rural vs. urban interests. America deserves better.

Topics: 
Tax and Budget Policy, Trade and Immigration

Trade Agreements Can’t Do Everything

By
Simon Lester

Last week, I expressed some skepticism about whether trade negotiations could help convince the EU not to be so cautious about approving genetically modified foods. Along the same lines, I came across the following Bloomberg article:

Wall Street Seeks to Change Dodd-Frank Rules Via Trade Deals

U.S. bankers and insurers are trying to use trade deals, which can trump existing legislation, to weaken parts of the Dodd-Frank Act designed to prevent a repeat of the 2008 financial crisis.

So the first thing to point out is that it’s not really accurate to say that trade deals “trump existing legislation.”  But yes, you could negotiate a trade deal that created an international legal obligation that would have some impact on domestic policy.

Let me put the nuances of the interntional law-domestic law relationship aside, though, and say something about the focus of trade agreements.  As noted in the GM foods post, I think trade agreements are most useful when they focus on protectionism.  So, if the goal with regard to financial regulation is to prevent discrimination against foreign providers of financial services, trade agreements could help with that.

By contrast, if the objective is to remove the burden of financial regulations more generally (and the article is a bit vague on the substance of what’s at issue), I’m not sure trade agreements are the place to go.  There seems to be a tendency in recent years to have trade agreements take on any issue that has even a tenuous relationship to trade.  In my view, if we go that route, we are unlikely to have any trade agreements at all.

Instead, for domestic regulatory issues, I would rely on the domestic policymaking process, and the arguments of people like my colleague Mark Calabria.  Problems with Dodd-Frank are not going to be solved in the backroom by trade negotiators.  They are only going to be solved by a vigorous public debate over what constitutes sensible policy.

Topics: 
Regulatory Studies, Trade and Immigration

Genetically Modified Foods and the Limits of Trade Agreements

By
Simon Lester

Last week-end, the Washington Post had a good article about how difficult it will be for the upcoming U.S.-European Union trade talks to deal with the issue of genetically modified foods. In the Huffington Post, I have a short piece in which I explain why, in my view, trade talks can’t solve this issue.

Here’s my conclusion: 

However, asking trade negotiations to solve the issue in the next year and a half–the projected time-frame for the talks–may doom the whole process of US-EU trade negotiations. Let’s not risk killing a possible free trade deal on a quixotic quest to improve the EU regulatory process. Instead, put the EU arguments to the test: If protectionism is not the reason for the reluctance to approve genetically modified foods, the EU should have no objection to lowering tariffs and removing quotas for U.S. food products that are not genetically modified. Let’s push the EU on that issue instead, moving us towards free trade in the most simple and direct way we can.

My point here is that in order for international trade negotiations to work, we have to focus on what is actually achievable. Tariffs, quotas, and other explicit forms of discrimination are the core of protectionism, and there are plenty of those left. I’m happy to focus on those issues for now. It’s hard enough convincing the U.S. government not to regulate too much; using trade talks to rein in other governments’ regulation is asking a lot.

Topics: 
Trade and Immigration

Toward Managed Trade in Solar Panels

By
K. William Watson

Rumor has it that the United States, European Union and China are looking to negotiate a deal that would settle a developing trade dispute over solar panels. According to the New York Times, the deal would require China to limit its exports of solar panels to the U.S. and Europe and would impose a minimum price for those panels. In exchange, the U.S. and EU would drop existing antidumping duties (of around 30 and 50 percent, respectively). 

You might call this an “un-trade” agreement. Rather than agreeing to lower their own barriers to trade, the U.S. and EU are convincing China to acquiesce to those barriers by altering their form. The purpose of tariffs is to impose an additional cost on foreign manufacturers that limits competition and keeps prices high. The new model also keeps prices high and limits foreign competition, but unlike tariffs, a mandated minimum price enables the foreign manufacturers to benefit from those high prices. 

The agreement would be beneficial for existing U.S. and Chinese manufacturers, but not for U.S. consumers. For consumers, the effect of this agreement would be the same as if U.S. and Chinese solar panel makers agreed to divide up the market and not to compete on price. Actually making such an agreement between themselves would, incidentally, be highly illegal. So their governments are going to arrange it for them.  

The bizarrest aspect of this new development, and indeed the entire dispute, is that the market for solar panels would hardly exist if not for government subsidies. Increasing the cost of solar panels is completely at odds with any environmental policy to decrease emission of greenhouse gases. Even if you support the creation of “green jobs”, restricting trade in panels is counterproductive because it reduces employment in downstream businesses like solar panel installation. That our government would impose artificial barriers to direct artificial demand toward favored companies highlights the follies of green industrial policy, not just as a mind-boggling waste of taxpayer money, but as an impediment to the success of the broader green energy agenda.

Topics: 
Trade and Immigration

Is the TPP a Waste of Time and Energy?

By
Sallie James

I hate to say “I told you so” but, well, “I told you so.”

Back in March 2010, I warned that the Trans-Pacific Partnership (TPP) agreement, a preferential trade agreement between the United States and then seven– and now 11, with the subsequent addition of Canada, Malaysia, Mexico and almost-officially Japan– other Asia-Pacific economies would be a hard slog, and that the signs towards a significant degree of liberalization were not promising. I followed that up with news about what then-United States Trade Representative Ron Kirk told a closed-door meeting with dairy lobbyists, and what it said more broadly about the administration’s commitment to free trade.

Today comes news from the latest round of TPP negotiations in Lima, Peru that industry groups have raised concerns about the way that the United States and Peru are approaching the negotiations: i.e, by negotiating with individual countries bilaterally rather than offering the same market access to all of the TPP members at once, a concept trade wonks call a “plurilateralism.” In addition, the United States is not re-negotiating market access with any of the TPP countries with which it already has an agreement (that’s six of the eleven other members).

Pluralizing the deal would be more fitting for an agreement that the Obama administration touted as being a “21st Century” agreement to reflect new world trade realities, like global supply chains. It would lessen the potential for an unholy mess that businesses find unworkable. A Wal-Mart representative said at the meeting “it’s a little hard to see how you have this very comprehensive agreement if we have bilateral market access negotiations that everybody doesn’t necessarily understand, and how you essentially plurilateralize those with common sets of rules of origin.” (Rules-of Origin are the methods by which customs officials determine the origin of a product, and thus which tariff rate should apply. They can get really messy when supply chains are complex).

So what did the U.S. and Peruvian chief negotiators say when they were called out on the self-defeating bilateral approach? They gave answers which do not pass the laugh test (the following quotes come from the same article linked to above, all emphases my added):

In response to [a] question, Weisel and Peruvian chief negotiator Edgar Vasquez both defended the bilateral approach to negotiating goods market access. Weisel argued that it makes more sense to import zero tariff rates that the U.S. already has with various TPP countries into the new agreement, rather than conducting a new market access negotiation with those countries.

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Topics: 
Trade and Immigration

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