Topic: Trade and Immigration

Hot Off the Press: May 2014 “Cato Trade” Newsletter

If you don’t get inboxed with Cato Trade, the monthly newsletter of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, you can find the current installment here.  In this month’s release, you can learn about Cato Trade on Campus; read about our efforts to dispel pervasive myths about trade; get the details of our upcoming half-day conference on the increasingly controversial investor-state dispute settlement rules; see what we’ve been thinking and writing about, and; get a sense of what may be in the pipeline.

Here are links to the current and previous releases:

Here is more information about Cato’s trade scholars and our areas of focus:

If you’d like to receive our newsletter at the beginning of every month, please send your name and email to Inu Barbee at ibarbee [at] cato [dot] org.

National Sovereignty and Free Immigration Are Compatible

A common argument against returning to the immigration policy of 1790-1875, where virtually anybody in the world could immigrate to the United States, is that such a policy would diminish America’s national sovereignty.  By not exercising “control” over borders through actively blocking immigrants, as the argument goes, the United States government would surrender a supposedly vital component of its national sovereignty.  But that argument is mistaken as there is no inherent conflict between free immigration and national sovereignty.

The standard Weberian definition of a government is an institution that has a monopoly (or near monopoly) on the legitimate use of violence within a certain geographical area.  The way it achieves this monopoly is by keeping out other competing sovereigns (aka nations) that would be that monopoly of legitimate coercion.  The two main ways our government does that is by keeping the militaries of other nations out of the United States and by stopping insurgents or potential insurgents from seizing power through violence and supplanting the U.S. government. 

U.S. immigration laws are not primarily designed or intended to keep out foreign armies, spies, or insurgents.  The main effect of our immigration laws is to keep out willing foreign workers from selling their labor to willing American purchasers.  Such economic controls do not aid in the maintenance of national sovereignty and relaxing or removing them would not infringe upon the government’s national sovereignty any more than a policy of unilateral free trade would.  If the United States would return to its 1790-1875 immigration policy, foreign militaries crossing U.S. borders would be countered by the U.S. military.  Allowing the free flow of non-violent and healthy foreign nationals does nothing to diminish the U.S. government’s legitimate monopoly of force. 

U.S. Touts Ineffectiveness of Tobacco Control to Defend Cigarette Ban

The 2009 Family Smoking Prevention and Tobacco Control Act banned the sale of all flavored cigarettes, except menthols, in the United States. Indonesia successfully challenged that part of the law at the World Trade Organization as disguised protectionism—the banned products were clove cigarettes from Indonesia and the exempted menthols are made in the United States. The U.S. government tried to claim that the distinction was justified because kids like smoking cloves more than menthols. They failed to convince the trade court, because that’s ridiculous. 

The time given the United States to bring its measure into compliance with WTO law has now elapsed. Instead of changing the law to allow cloves or to ban menthols, however, the United States has claimed that issuing a report and thinking about what to do about menthol cigarettes is enough to bring it into compliance. Indonesia understandably disagrees and is seeking permission to retaliate against U.S. imports.

To stave off retaliation, the U.S. government has now decided to defend the clove cigarette ban by arguing that it was completely ineffective. As reported by Inside U.S. Trade ($)(emphasis added):

The U.S. is … claiming that, even if it is found not to have complied with the ruling, Indonesia is not entitled to retaliation because the country’s exports have not been nullified or impaired by the U.S. ban on clove cigarettes….

Specifically, the U.S. points out that the Indonesian industry has repackaged clove cigarettes into clove cigars, which unlike their counterparts are not banned. Therefore, the U.S. maintains, Indonesia’s clove exports have not suffered as a result of the ban.

E-Verify Strikes Again: Worcester Wreath Co. Edition

Whenever the government magnanimously “offers” its assistance, all Americans should be skeptical. Recent confirmation of this fact has come from Harrington, Maine, where the federal government’s helpful assistance—via the employment verification system, E-Verify—has cost one small business thousands in fines.

Worcester Wreath Co. hires around 500 seasonal employees annually to help fill orders for handcrafted holiday wreaths and centerpieces. The majority of the wreaths are sold, while others go to the company’s Wreaths Across America program, which places free wreaths on headstones at Arlington National Cemetery. In short, this is an American company that supplies holiday goods and helps to honor deceased American veterans at no cost to the taxpayer.

Worcester Wreath, however, made the mistake of voluntarily using the Fed’s E-Verify system. E-Verify is an electronic employment eligibility verification system run by the federal government that is intended to weed unauthorized immigrants out of the labor force by allowing employers to check their eligibility against a government database. The employer enters the job applicant’s Social Security number and information into E-Verify which then checks it against a government database. 

Any potential issues are flagged with a tentative non-confirmation (TNC). Employers and employees have an opportunity to appeal the TNC, but a failed appeal (or failure to appeal) will result in a final non-confirmation (FNC) and the applicant being ruled as not work-authorized for legal employment in the United States.

Some 101 of Worcester Wreath’s seasonal employees were found by E-Verify to have employment-authorization issues. Six were retained by the company despite the issues and another six were fired and then rehired at a later date.

For the sin of employing 12 willing workers with statuses marked as questionable (not clear from the article whether a TNC or an FNC was issued) by the voluntarily used, notoriously unreliable, and largely ineffective E-Verify, the company was fined $25,000 ($2,083.33 per worker).

Worchester Wreath’s participation in E-Verify was voluntary but the fines were heavy. Fines like these on businesses of all sizes who employ seasonal workers will only get worse if E-Verify becomes mandatory. Instead of punishing businesses who supply free holiday decorations to the world’s most famous veterans’ cemetery, the Feds should attack the root problem and fix our legal immigration system.  

Scott Platton assisted in the writing of this piece.

What’s Really Impeding Progress in the TPP?

Japan and the United States have undertaken a series of high-level negotiations over the past several weeks in an effort to reach a bilateral agreement that could lead to completion of the 12-country Trans-Pacific Partnership (TPP). Japanese Minister of State for Economic and Fiscal Policy, Akira Amari, has met with U.S. Trade Representative Michael Froman both in Tokyo and Washington in an effort to resolve differences prior to President Obama’s visit to Japan this week. Reports indicate that the talks have made some progress.  However, large gaps remain that are expected to preclude any breakthrough announcement when the president meets on April 24 with Japanese Prime Minister Shinzo Abe.

The stated obstacles to concluding the talks have been Japanese reluctance to eliminate tariffs on sensitive agricultural products – beef, dairy, pork, rice, sugar and wheat – and U.S. reluctance to eliminate the 2.5 percent tariff on automobile imports and the 25 percent tariff on light trucks. Each side is very much in the right to ask the other to change these protectionist policies. They have the effect of stifling comparative advantage. They reduce economic welfare by raising consumer costs while curtailing opportunities for efficient producers to make export sales. Ending these trade restrictions would not only help the country requesting the changes, but would also help the economy of the country making the change. What’s not to like about this deal?

Stepping back from the details of the requests and offers, the real problems facing each country are the underlying political realities. Japanese farmers strongly resist reductions in the level of support they receive from tariff protection, and have done so consistently for decades. Those farmers also have been consistent and dedicated supporters of Prime Minister Abe’s Liberal Democratic Party (LDP). If Japan’s agricultural community becomes sufficiently unhappy with the Abe administration, it is entirely possible that his government could fall. Nonetheless, Prime Minister Abe seems willing to push agricultural policy in the direction of reform. He knows that updating Japan’s agricultural policies is an essential condition for becoming a member of the TPP.

Political considerations in the United States are somewhat different. Yes, the automobile industry would give up tariff protection on imports from Japan. But the reality is that a 2.5 percent duty isn’t all that high in the first place, and the protective effect of the 25-percent duty on light trucks has been undermined significantly by Japanese firms’ investments in U.S. manufacturing facilities. A whole lot of “Japanese” vehicles already are built in the United States. Nonetheless, the U.S. auto industry and its workers are not enamored of tariff reductions, and the Obama administration no doubt keeps this in mind.

Removing the 3/10 Year Bars Is Not Amnesty

It’s no secret that the Senate’s proposed legalization for some unauthorized immigrants was a deal breaker in 2013. Detractors labelled such a legalization “amnesty” even though it is anything but that – and that label has stuck. That, at minimum, some unauthorized immigrants become legalized is economically and ethically imperative, so it’s time to consider less-than-comprehensive, keyhole solutions that will fix at least some of the problems with our immigration system.

One such solution, which even many of those opposed to immigration reform have endorsed, is a small legislative reform to the 3/10 year bars that will allow some unauthorized immigrants to depart and apply for reentry under the legal system without special treatment. This reform would avoid the so-called amnesty objection to immigration reform.

 

Removing the Bars

The 3/10 year bars require any immigrant who stays in the United States illegally for more than six months but less than one year may not leave, reenter, or apply for a green card for three years. Any immigrant who illegally stays for more than a year may not leave, reenter, or apply for a green card for 10 years. Any immigrant who violates it triggers a twenty-year ban from reentering the United States for any reason. That’s a problem because almost all applicants for a green card or visa have to visit a U.S. embassy or consulate abroad to apply which, in the case of unauthorized immigrants, requires them to leave the Untied States thus triggering the bars. The 3/10 year bars prevent any unauthorized immigrant from using the legal immigration system. 

Counting the Wrong Winners and Losers

Debates about trade liberalization often focus on identifying the winners and losers of increased openness to foreign competition.  Protectionists regale us with sad stories of closed factories, and free traders point to lower prices for consumers and the broad benefits of economic growth.  But this whole exercise is completely backwards.  We should instead be talking about the winners and losers of protectionism.

Free trade is not a trade policy.  Trade policies—such as tariffs, quotas, restrictions on foreign service providers, and protectionist regulations—exist to divert the benefits of free exchange toward politically powerful special interests.  Free trade is merely the absence of those policies. 

By demanding an explanation for increased openness, the trade debate implicitly legitimizes the protectionist status quo.  As a consequence, the news media often accept the argument that opening the U.S. market to foreign competition should be accompanied by programs that alleviate the suffering of the losers of increased trade.  But why is anyone entitled to the current arrangement?  Perhaps the winners of protectionism owe reparations to those of us who had to suffer the consequences of their rent-seeking. 

Who wins and who loses from policies that increase the price of food?  Who wins and who loses from regressive taxes on shoes and clothes?  Who wins and who loses from shipping restrictions?  Who wins and who loses from protectionist overregulation?  I could go on.

Last Sunday’s New York Times included an editorial calling on the Obama administration to “Get Global Trade Right” by adding a handful of protectionists’ pet issues to the Trans-Pacific Partnership. Threatening our trade partners with sanctions if they don’t adopt specific labor, environment, or monetary policies is not going help the United States get trade right, but it will make us a bully and reduce our ability to make real progress tearing down genuine barriers. 

After (wrongly) blaming increased economic openness for the loss of millions of manufacturing jobs and growing income inequality, the Times—without a hint of irony—says that President Obama needs “to make a strong case for why these new agreements will be good for the American economy and workers.”  Well, that is certainly true.

Let me offer some humble advice to the president then on how he might take on that task: Stop selling trade agreements as a way to grow export markets for goods produced in the United States, and start extolling the virtues of agreements as a way to fight cronyism and to tear down bad policies. Thinking about trade agreements this way will not only help you sell the agreement, it could actually make the agreements better.