Tag: USTR

Trump Advisers Are All Wrong about South Korea Trade Deal

The Wall Street Journal reports: “Mr. Trump’s nominee for U.S. Trade Representative singled out Mexico and South Korea during his Senate confirmation hearing as sparking American trade deficits. ‘In some cases, the rules don’t seem to be working as well as others,’ Robert Lighthizer said. Critics say the deal has led to a flood of South Korean cars, auto parts, memory chips, motors and pumps into the U.S., weighing on American competitors and jobs. A U.S. Trade Representative report this month said the pact… doubled the U.S. trade deficit in goods with South Korea.”

National Trade Council boss Peter Navarro has likewise claimed “We lost 100,000 jobs because of that South Korean deal. Our trade deficit has doubled, and, more importantly, 75 percent of the damage that has been caused by that deal has been to the auto industry itself, which, of course, is based in Michigan.”

Navarro, Lighthizer and the Journal’s unnamed critics are entirely wrong about the March 15, 2012 Korea/U.S. Free Trade Agreement (KORUS).  

KORUS could not possibly have “led to a flood of South Korean… memory chips, motors and pumps into the U.S.” because memory chips were already duty-free before that FTA, and so were motors (HS code 8501) and pumps (8413).

KORUS could not possibly explain the post-recession 2010-2015 rise in U.S. imports from South Korea because most U.S. tariffs were scheduled to be reduced from 2016 to 2021not from 2010 to 2015. 

KORUS had precisely zero effect on U.S. imports of Hyundai and Kia vehicles before 2016 because the U.S. tariff on Korean cars (HS code 8703) was 2.5% before KORUS and remained at 2.5% through 2015.  Ironically, when U.S. tariffs on autos and other products finally did come down in 2016, total U.S. imports from South Korea fell 2.6% (by $1.9 billion).

 The Korean tariff on imports of U.S. cars was cut from 8% in 2012 to 4% in 2015 and zero in 2016 and a 10% Korean tariff on U.S. trucks was eliminated.  Even before Korea cut its tariff on U.S. cars to zero in 2016, U.S. exports of cars to So. Korea tripled from $418 million in 2011 to $1.3 billion in 2015, according to the USTR.  Incidentally the USTR also notes that “Korea is currently our fifth-largest market for agricultural exports thanks to KORUS,” with farm exports up 208% from 2011 to 2015.

Clayton Yeutter, RIP

After a long battle with cancer, Ambassador Clayton Yeutter passed away on Saturday at the age of 86 at his home in Potomac, Maryland. With his passing, the world parts not only with a brilliant, effective, accomplished leader, but an extraordinarily generous, decent man whose enduring kindness and humble demeanor made politics and policymaking in Washington more tolerable for all involved.

Clayton Yeutter had a long an illustrious career spent in both the private and public sectors, as well as in academia, but he is probably best known for his service during the Ronald Reagan and George H.W. Bush administrations.

As Reagan’s U.S. Trade Representative from 1985 to 1989, Ambassador Yeutter presided over implementation of the very first U.S. bilateral free trade agreement (with Israel) and he launched and oversaw negotiation of the U.S.-Canada Free Trade Agreement, which evolved into the North American Free Trade Agreement, to include Mexico, in 1994.

As USTR, Ambassador Yeutter also launched and advanced the “Uruguay Round” of multilateral trade negotiations in 1986, under the auspices of the General Agreement on Tariffs and Trade, which resulted in broader and deeper reductions in global barriers to trade than had previously been achieved, and it established the World Trade Organization in 1995.

During the first two years of the George H.W. Bush administration (1989-91), Yeutter served as Secretary of Agriculture, where he was instrumental in steering U.S. agricultural policy back to a more market orientation, from which it had deviated in the mid-1980s. The 1990 farm bill (The Food, Agriculture, Conservation, and Trade Act of 1990) included reductions in agricultural subsidies that were negotiated during the Uruguay Round.

Yeutter held other high-profile positions, including an eight-year stint as President and CEO of the Chicago Mercantile Exchange—a period during which the volume of trade in agricultural, currency, and interest rate futures more than tripled. He served as Republican National Committee Chairman for two years, following the death of Lee Atwater.

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Lighthizer Completes Trump’s Protectionist Triumvirate

Former Reagan administration deputy U.S. trade representative and longtime trade-remedies attorney, Robert Lighthizer, is President-elect Trump’s choice for United States Trade Representative. Considered in conjunction with the appointments of Peter Navarro to head the newly-created National Trade Council at the White House (my take) and Wilbur Ross at the Commerce Department (my take), Lighthizer’s selection seems to confirm fears that U.S. trade policy is descending into darkness.  At the very least, it is reasonable to assume that for the foreseeable future trade policy will be overwhelmingly enforcement-oriented, while trade agreements and other forms of liberalization will be relegated to the doghouse.

For many years, Lighthizer has represented U.S. steel companies, America’s most trade-litigious industry, filing dozens of antidumping and countervailing duty petitions to keep foreign steel out of the United States. Some of the cases in which he was involved were brought before WTO dispute settlement, where the panels and Appellate Body ruled that the United States was administering its antidumping law in ways that violated U.S. commitments under the WTO Antidumping Agreement.

Perhaps, as a result of those experiences, Lighthizer has been a strident critic of the WTO’s dispute settlement body, which he accuses of overreach and usurpation of U.S. sovereignty. (Here is a debate from 10 years ago between Lighthizer and me on the merits of the WTO.) The fact is that there may be somewhat of a pro-complainant “bias” at the WTO because governments don’t bring cases to dispute settlement unless they are reasonably certain of victory.  There is a selection bias.  When the United States is the complainant, it wins most of the issues in most of the cases.  When the United States is the defendant, it loses most of the issues in most of the cases. It just so happens that the United States has had to defend its indefensible antidumping regime many times at the WTO, and in most cases it has lost.  Antidumping litigation is Lighthizer’s bread and butter.

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Protectionist Steel Interests Given Keys to Trump’s Trade Policy Kingdom

“Well we’re living here in Allentown
And they’re closing all the factories down
Out in Bethlehem they’re killing time
Filling out forms
Standing in line
Well our fathers fought the Second World War
Spent their weekends on the Jersey Shore
Met our mothers in the USO
Asked them to dance
Danced with them slow
And we’re living here in Allentown.”

– Billy Joel, “Allentown,” 1982

Nearly 35 years after the release of Billy Joel’s wistful lament about the decline of iconic Bethlehem Steel and the selfless virtues of America’s “Greatest Generation” along with it – the U.S. steel industry may be getting the last laugh. Yesterday, former Nucor Steel CEO Dan DiMicco and longtime Washington trade attorney Robert Lighthizer, who has devoted much of his professional career to building walls between foreign steel and the U.S. companies that want to buy it, were appointed heads of President-elect Trump’s “Landing Team” at the Office of the United States Trade Representative.

To those who have been holding out hope that Trump’s anti-trade campaign bluster would moderate before it could be converted to policy, the selection of DiMicco and Lighthizer is pretty devastating news. Neither has met a tariff he didn’t like or a trade agreement he did. To the non-political staff at USTR, the DiMicco/Lighthizer duo must feel like a real poke in the eye. After all, the mission of the agency is “to work toward opening markets throughout the world to create new opportunities and higher living standards.” The staff is generally committed to trade liberalism and good will among nations and their sensibilities are informed by foreign service backgrounds.  DiMicco and Lighthizer bring an enforcement and prosecution ethos to the USTR, which will send a lot of the existing staff to the exits, while ensuring that the agency’s budget is devoted primarily to bringing complaints against our trade partners, rather than negotiating new and better deals.

Of course, Trump mistakenly cites the U.S. trade deficit as evidence that the United States is losing at trade.  We are losing, he bellows, because our trade agreements are disastrous. And, they are disastrous, he reasons, because U.S. negotiators always get outsmarted by their crafty foreign counterparts. What better way not to get outsmarted than to appoint people who would take a wrecking ball to existing agreements instead of crafting new ones?

For reasons unsupported by facts, DiMicco abhors the North American Free Trade Agreement and wants it shredded.  He also wants the United States to withdraw from the Trans-Pacific Partnership – which, yesterday, became one of Trump’s Day One priorities. Trump has been outspoken about his intentions to declare China a currency manipulator and to respond with punitive unilateral measures. To the extent that Trump’s actions are constrained by U.S. treaty commitments under the World Trade Organization, Lighthizer has a long history of challenging the veracity of the WTO dispute settlement system, which he claims embodies an anti-American bias. He has long advocated for closer scrutiny and, if warranted, U.S. withdrawal from the WTO.

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RIP, TTIP?

U.S. Trade Representative Michael Froman is having a bad week.  First, Senate Majority Leader Mitch McConnell put the kibosh on lingering prospects that his chamber would consider ratification of the Trans-Pacific Partnership deal this year.  Then Germany’s economy minister proclaimed the 3-year-old Transatlantic Trade and Investment Partnership negotiations had “de facto” failed, with the French trade minister promising to pursue formal termination of the talks – adding that “the Americans give nothing or just crumbs” (which puts the USTR beneath Marie Antoinette, who at least offered cake). 
 
Whether McConnell is being coy in hopes of extracting concessions from the administration on TPP is unclear, but either way the likelihood is approaching certainty that ratification of the Pacific trade deal will become the responsibility of the next president and Congress.  For reasons given here and here, I’m bullish on that outcome within two years.
 
But the TTIP is a different story.  Although the negotiations are not officially dead, they might as well be. Talks were doomed from the outset, laden with too many intractable issues, too many red lines, a thorough lack of realism concerning the time and effort required for success, and a profound asymmetry in the desire to get a deal done. With U.S. negotiators focused on completing the TPP, the EU’s embrace and commitment to the TTIP became a case of unrequited love.  With each EU overture, the U.S. negotiators could play hard to get.  And they did.
 
Now, the United Kingdom’s likely departure from the EU complicates matters further, with uncertainty about the future composition of the EU impeding proper evaluation of the expected tradeoffs from a prospective TTIP. So, while the prevailing uncertainty likely means TTIP stasis for the next couple of years, Brexit would give U.S. negotiators even more leverage in TTIP than they already have. The possibility of a US-UK free trade agreement or a UK accession to the TPP would undoubtedly shift TTIP dynamics further in favor of U.S. negotiators – and give the UK added leverage in negotiating its own post-Brexit relationship with the EU.
 
TTIP isn’t dead. It’s in a coma. For it to have any hope of recovery and real success – an outcome with real liberalization that is – a restoration of some semblance of symmetry in demand for that outcome is necessary. With the existing imbalance, it’s better to have no deal at all because the misguided objectives of negotiators are to open foreign markets as much as possible, while keeping their own as closed as possible. Negotiators with leverage are more likely to succeed at keeping their own markets closed, depriving their fellow citizens of the real benefits of trade. For Americans to realize the most important benefits of trade liberalization, its negotiators must be matched up against foreign negotiators with approximately the same strength (or leverage). When the foreign trade negotiators don’t have enough leverage, U.S. consumers and import-consuming industries lose.
 
For any TTIP outcome to be considered successful, the deal must tackle U.S. restrictions on competition in shipping (repealing the Jones Act), commercial air services, and government procurement projects. Trillions of dollars of annual economic activity in the United States is provided by domestic suppliers facing no foreign competition, which represents an enormous drag on U.S. growth.  In the TTIP negotiations to date, the United States hasn’t budged an inch to accommodate any liberalization in those areas.  Until that is no longer the case, the TTIP should be considered a failure.
 
When the TTIP negotiations were launched in 2013, I warned in this paper that the talks included the seeds of its own destruction and that a successful outcome would require a new approach:

As great as the benefits may be, the TTIP was not borne of any genuine enthusiasm for the enterprise. In Europe, it was seen as a last resort. Frustrated by the failures of monetary policy and restricted by the imperative of fiscal austerity, policymakers were looking for something—anything—to embrace as a potential economic tonic. Whether they actually thought TTIP likely to bear fruit is an entirely different matter. They wanted something to behold as evidence that Greece did not represent Europe’s fate. Potential voter wrath, political backlash, and stalemate–historically effective deterrents to initiating transatlantic trade talks–took a back seat to the affirmative optics of embracing some plausible initiative that might steer Europe from the abyss.

For U.S. policymakers, the main motivation for launching TTIP was to assuage EU concerns that the United States had written her off in its “pivot” to Asia.
 
Other rationales for pursuing TTIP include the argument that the world needs the United States and European Union to reassert global economic leadership at a time when no other country or group of countries is willing or able to do so. Another is that there is a race to establish global production standards and TTIP, representing half the world’s output, presents an opportunity to establish them here and now. A third ex-post rationale is that by establishing disciplines on issues where other trade agreements are silent—issues like currency manipulation, the operations of state-owned enterprises, local content rules, and others—the United States and EU could establish rules that China and others would eventually have to heed.
 
It is within this context that TTIP emerged. But none of those rationales–pursuing TTIP as a last resort, assuaging hurt feelings, establishing standards, disciplining China and others–seem likely to provide the motivation for negotiators and governments to dig deep and remain committed enough to make difficult choices that may carry political consequences. As the talks drag, will governments remain committed to the goals? Will governments motivated by the “last resort” rationale continue to invest seriously in the negotiations if their economies experience growth and the political costs of TTIP no longer look so necessary to incur? Already there have been signs of retreat from the ambitious goals articulated at the outset.
 
From the outset, negotiators erred by setting a 2014 completion date for the negotiations. There is absolutely no plausibility to that deadline and, frankly, failure to amend the timetable with realistic deadlines will only undermine the credibility of the undertaking with a public already skeptical of trade negotiations.

There are dozens of issues on the table of varying complexity that will likely take several years to resolve. Rather than have a single deadline for a single undertaking, the negotiators should announce that their intention is to achieve a multi-tiered agreement that yields multiple harvests at established time intervals. Some analysts have referred to the TTIP as a “living agreement,” although a common understanding of that concept is not evident nor, to my knowledge, have the governments or their negotiators used this characterization in any official context. They should. And it should work something like this.

Negotiators would take stock of the issues on the table and rank them in order of importance to a successful TTIP conclusion. They would then rank those same issues in terms of order of difficulty to resolve. Based on averaging and some agreed upon weighting of those two sets of rankings, negotiators would identify what they and their counterparts see as the most important and least important issues, as well as the most difficult and least difficult issues to resolve. That exercise would produce a road map for how to proceed.

When the dust settles and greater certainty emerges, the United States and EU (and UK) might consider relaunching the TTIP negotiations along these lines. But the parties should come to the table with a genuine willingness to liberalize everything (including sacred cows) because that is what will generate the interest, excitement, and leverage to achieve a really successful outcome.

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Cato Trade Scholars Endorse the Trans-Pacific Partnership

On June 30, U.S. Trade Representative Michael Froman, former U.S. Trade Representative Clayton Yeutter, and other trade policy experts joined Cato’s trade scholars in the Hayek Auditorium for an event titled: ”Should Free Traders Support the Trans-Pacific Partnership?” The main purpose of the event was to reveal the findings of a forthcoming paper by my trade center colleagues and me, in which we provide a chapter-by-chapter assessment of the 30-chapter, 5,500-page trade deal and reach the conclusion that, yes, free traders should support the TPP.

In our assessment, we make the distinction between free trade and free trade agreements:

For free traders, the ideal is free trade: No border barriers; no domestic regulations or policies that have protectionist intent or effects or that otherwise bestow relative privileges on domestic companies or their products; no superfluous rules that are merely tangentially related to trade, but violations of which can be invoked to erect new impediments to trade. Measured against those standards, the TPP – with its 5,500 pages of explicit rules and exemptions – would not pass the free trade test. The TPP is not free trade. Like all other U.S. trade agreements, the TPP is a managed trade agreement, with provisions that both liberalize and restrict trade and investment. Some free traders would reject the TPP out of hand for its failure to eliminate all restrictions.

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U.S.-EU Free Trade Agreement? A Pep Talk or Overhaul at USTR Is the Place to Start

In its first 49 months, the Obama adminstration has paid lip service to trade liberalization. There have been the announcements, the platitudes, the initiatives, the task forces, and the interminable negotiations, but no new trade agreements. Not one. Still, in his State of the Union speech tonight, the president will offer assurances that his rhetorical commitment to trade liberalization remains steadfast, when he announces grand plans to pursue a trans-Atlantic free trade deal. Of course, rhetorical commitments and pursuing free trade don’t exactly get the job done.

Whether anything comes of prospective U.S.-EU trade negotiations or the still-brewing Trans-Pacific Partnership negotiations depends, more than anything else, on whether President Obama believes his own rhetoric. Of course, actions speak louder than words and on that score things don’t look especially promising.

Exhibit A is the Office of the U.S. Trade Representative, where employee morale has gone from bad to worse. In a 2012 OPM survey of 29 small federal agencies published in a report titled “Best Places to Work in the Federal Government,” USTR ranked dead last. The results showed employee dissatisfaction with their jobs, their organization, and their senior leadership.

The overall weighted index score of 32.7 (out of a possible 100) in 2012 is the latest point in a continuous and steep decline in satisfaction, which was 74.2 in 2009, 57.4 in 2010, and 47.7 in 2011. The sub-index for “Effective Leadership - Senior Leaders” declined from 71.2 to 49.7 to 37.5 to 18.6 over those same four years. Only 17.7 percent of the 101 USTR respondents said they had a high level of respect for their organization’s senior leaders, while 62.1 dissented from that view. Only 12.8 percent of 102 USTR respondents said their organization’s leaders generate high levels of motivation and commitment in the workforce, while 67.3 dissented.

These are some profound rebukes of U.S. Trade Representative Ron Kirk, and by extension, President Obama.

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