Topic: Trade and Immigration

So Begins the Contest to Blame China the Most

Some things are an inevitable part of every election season.  Without a doubt, every candidate running for President in 2016 will, for example, make unrealistic promises and pander to special interests.  They will also just as surely try to blame America’s perceived problems on a foreign menace.  For economic issues, China has become the overwhelming favorite as a target for these attacks now that blaming Japan and Mexico has gone out of style. 

In the 2012 election, the chief China-basher was Mitt Romney, who transformed himself into a mercantilist and promised to be tough on Chinese currency manipulation.  Republicans running for Congress that year had a similar predisposition, and Pete Hoekstra certainly deserves an award for running the most tasteless anti-China ad.  In 2014, it was the Democrats’ turn to blame China on the campaign trail for stealing American jobs.

Now we’re getting a taste of how China bashing will play out in the 2016 election.  According to Politico, Mike Huckabee has started talking about the Chinese menace in Iowa.

He complained that American wages have been stagnant since Chinese trade agreements went into effect over the past few decades.

“People are working hard, and they have less to show for it,” he said. “We need to quit apologizing for being America, and we need to start making it so that Americans can prosper and not just so that the Chinese can buy Louis Vuitton and Gucci bags.”

The comments came in response to questions about why the government has kept the embargo in place against Cuba, even as trade barriers with China have been lifted.

“We have basically surrendered to the Chinese market,” Huckabee said. “We’ve not put the pressure on them.”

Aside from pandering to xenophobia, these kinds of comments are distressing because they demonstrate a willingness to vilify normal economic activity.  Huckabee describes trade as “the Chinese” fighting a battle against the U.S. economy in pursuit of frivolous luxury.

I suppose some rhetorical license should be granted to candidates who need to package their policies in a way that appeals to the most people.  So maybe instead of “surrendered to the Chinese market,” Gov. Huckabee meant to say that the United States government has lowered taxes on American consumers and businesses.  And maybe instead of “Louis Vuitton and Gucci bags,” he meant clothes, food, and medicine.

And maybe, just maybe, when he says “we need to start making it so that Americans can prosper,” he means the government should stay out of the way of mutually beneficial commercial activity and stop protecting politically powerful industries from consumer demand for innovative and affordable products and services.

Maybe Mike Huckabee or some of the other candidates will even remember that a majority of Americans in both major parties think that trade is good for the United States.

Will the TPP Promote Minimum Wage Laws?

This is from the White House blog, explaining that the Trans Pacific Partnership (TPP) will be “the most progressive trade agreement in history”:

They further explain:

If we don’t secure this trade agreement, Americans will be forced to accept the status quo – which is bad for small businesses, bad for American workers, and bad for our future leadership. 

Here’s why: 

We would fail to secure strong labor and environmental standards for trade in the world’s fastest-growing region: 

  • There’d be no enforceable rules ensuring countries set a minimum wage, end child labor, or enforce workplace safety.

So should those of us who are skeptical about the benefits of a minimum wage law panic here?  Will the TPP spread and promote minimum wage laws around the world?

My sense is that the answer is no (although no one has seen the full text of the TPP yet, so I suppose there could be some surprises). Instead, I think the TPP will say that countries have to enforce their own labor laws.  Thus, if you have a minimum wage law on your books, you have to enforce it (with credit to my colleague Bill Watson for this explanation).  That’s a lot less scary (but still a little scary).

At the same time, the whole idea of marketing trade agreements as “progressive” and making reference to minimum wage laws seems like an attempt to garner support from liberals (unlikely) that will quite possibly scare off free market conservatives.  I’m not sure exactly what the White House has in mind; this may very well backfire on them.

U.S. Trying (and Failing) to Contain the Spread of European ‘Geographical Indications’

One of the European Union’s highest priorities in trade negotiations is to globalize its restrictions on the use of place names as generic product descriptions. When they negotiate a trade agreement, they insist that the other country adopt regulations requiring that, for example, all champagne come from Champagne and all parmesan cheese come from Parma. The United States, worried that these rules limit access for U.S. products, is trying to use its own trade agreements to contain the effects of Europe’s push to protect “geographical indications” (GIs) in countries around the world.

Europe’s GI protections restrict the flow of accurate information while reducing competition and innovation. GI protection is not about preventing consumer confusion or false advertising; European rules forbid the use of place names even when phrases like “style” or “type” are added. 

One often overlooked but essential aspect of GI regulation is that use of a protected name requires not only physical location in that place but also adherence to government-mandated production practices.  “Authentic” champagne is therefore not only made in Champagne, but made a specific way required by law. 

By operating this way, the system functions not only to capitalize on a collective brand but also to reduce competition among producers. Once all the producers in a particular country (say, France) are divided by region and style, the industry starts looking a lot like a cartel. There may be multiple producers, but they all agree to keep making the same thing in the same place forever. They no longer have to compete on product quality.

U.S. trade negotiators are rightly resisting efforts to spread this anticompetitive regulatory scheme to other countries. As it stands, there is almost no chance that the United States could convince the EU or its member states to drop their GI regulations. But it is also unlikely that the United States will acquiesce to European demands to adopt such a system here, especially for meats and cheeses.

The battle over GIs is therefore being waged in other countries as the EU and the United States both use trade agreements to influence how GIs are protected in foreign markets. Commercially, the question is whether U.S. companies can continue to sell their generic brands abroad.

Responding to the White House Response on ISDS

Yesterday, my colleague Dan Ikenson blogged here about an op-ed by Sen. Elizabeth Warren (D-MA) in which she was critical of investor-state dispute settlement (ISDS) provisions in trade agreements.

Jeff Zients, director of the National Economic Council, posted a response to Warren on the White House website.  In this post, I’m going to comment briefly on his response, going through item by item. His statements are in bold; my comments follow in bullet points. 

Zients: “The purpose of investment provisions in our trade agreements is to provide American individuals and businesses who do business abroad with the same protections we provide to domestic and foreign investors alike in the United States.”

• It’s important to be clear that these protections go both ways. Under ISDS, foreign investors can also sue the U.S. government. Of course, they could already sue under U.S. domestic law. In effect, ISDS means that foreign investors in America have two avenues for a lawsuit, while U.S. investors in America only have one.

• With regard to protections abroad, the result of ISDS is that American investors have protections in foreign countries, but non-Americans do not have protections in those countries. That seems like a bad signal to send: American investors get good treatment, but non-Americans do not. If the concern is expanding protections, there is a better way to do it: encourage these protections to be incorporated into domestic law, so that everyone gets them.

Hyperbole Aside, Elizabeth Warren Is Right About the Risk of Investor-State

Sen. Elizabeth Warren takes to the Washington Post op-ed pages today to warn about the dangers of the so-called Investor-State Dispute Mechanism, which is likely to be a part of the emerging Trans-Pacific Partnership deal.  In substance, if not style, Sen. Warren’s perspective on ISDS is one that libertarians and other free market advocates should share. At least, my colleague Simon Lester and I do

ISDS grants foreign investors the right to sue host governments in third-party arbitration tribunals for treatment that allegedly fails to meet certain standards, such as new laws, regulations, or policies that might have a discriminatory effect on foreign investors that reduces the value of their assets. Certainly, investors – and in this context we’re talking mostly about multinational corporations (MNCs) – should have recourse to justice when these situations arise. But under ISDS, U.S. investors abroad and foreign investors in the United States can collect damages from the treasuries of their host governments by virtue of the judgments of arbitration panels that are entirely outside of the legal structure of the respective countries. This all raises serious questions about democratic accountability, sovereignty, checks and balances, and the separation of power.

An important pillar of trade agreements is the concept of “national treatment,” which says that imports and foreign companies will be afforded treatment no different from that afforded domestic products and companies. The principle is a commitment to nondiscrimination. But ISDS turns national treatment on its head, giving privileges to foreign companies that are not available to domestic companies. If a U.S. natural gas company believes that the value of its assets has suffered on account of a new subsidy for solar panel producers, judicial recourse is available in the U.S. court system only. But for foreign companies, ISDS provides an additional adjudicatory option.

Congress Should Decide Whether Trade Agreements Abide the Terms of Trade Promotion Authority

Trade Promotion Authority (TPA or Fast-Track Negotiating Authority) is not an executive power grab.  It is a compact between the legislative and executive branches, which each have distinct authorities under the Constitution when it comes to conducting trade policy. The purpose of forging such a compact is that negotiations would be impracticable – and likely interminable – if each provision were subject to the whims of 535 legislators.

Opponents of trade liberalization have smeared TPA as a wholesale capitulation to the president, who allegedly is freed of any congressional oversight and given a blank check to negotiate unamendable trade deals in secret without any input from Congress – only the capacity to vote up or down on the final deal. In reality, though, TPA is the vehicle through which Congress conveys its trade policy objectives, conditions, and demands to the president, who negotiates with those parameters in mind. Provided the president concludes a negotiation that abides those congressional parameters, the deal is given fast track consideration, which means essentially that legislative procedures are streamlined and expedited.

The trade committees are reportedly close to introducing trade promotion authority legislation, although there remains some debate about what it should include. Enforceable provisions to discipline currency manipulation would be a bad idea, as would be including provisions to reauthorize the ineffective and misguided Trade Adjustment Assistance program (which is widely acknowledged to be a payoff to organized labor).

But one important provision (or set of provisions) that has created a bit of an impasse between Senate Finance Committee Chairman Orrin Hatch (R-UT) and its Ranking Member Sen. Ron Wyden (D-OR) concerns certification that an agreement abides the requisite congressional conditions to be afforded fast track treatment. Those of us who argue that TPA is not an executive power grab, but a practical, constitutional solution to a policymaking quandary must acknowledge the propriety of such a provision – or a provision that accomplishes as much. There must be a mechanism through which the president is held to account – that the deal reflects the broad wishes of Congress.

Suing Governments for their Environmental Policy under International Law

Some folks over at Heritage have a new Issues Brief in which they argue for including an Investor State Dispute Settlement (ISDS) mechanism in the U.S.-EU trade deal being negotiated right now.  In a nutshell, ISDS lets foreign investors sue host country governments in an international tribunal when they feel certain of their rights have been infringed.

I’ve been critical of ISDS.  I do see the potential that such international rules have for protecting property rights, but I worry about other aspects of the rules.  One issue is that these rules protect the rights only of foreign investors.  Using Venezuela as an example, there’s an assumption that the courts there can’t help much with protecting rights. To some extent, ISDS is a response to that. So, if Exxon feels its operations there have been badly treated by the Venezuelan government, it can use the ISDS mechanism to have recourse to an international tribunal.  However, if a small Venezuelan dry cleaner is being subject to governmental abuse, it’s just out of luck.  To me, that seems problematic.  Focusing on the wealthy seems like a fundamentally unbalanced way to protect property rights.