Sunday, February 28, 2010

A Little MSM Sanity on China for a Change

Today's Washington Post has a must-read op-ed on China by Post reporters Steven Mufson and John Pomfret.  In the piece, the authors ably demonstrate why so much of the China hype is overblown (and who's overblowing it):
This new Red Scare says a lot about America's collective psyche at this moment. A nation with a per capita income of $6,546 -- ensconced above Ukraine and below Namibia, according to the International Monetary Fund -- is putting the fear of God, or Mao, into our hearts....

"We have completely lost perspective on what constitutes reality in China today," said Elizabeth Economy, the director for Asia studies at the Council on Foreign Relations. "There is a lot that is incredible about China's economic story, but there is as much that is not working well on both the political and economic fronts. We need to understand the nuances of this story -- on China's innovation, renewables, economic growth, etc. -- to ensure that all the hype from Beijing, and from our own media and politicians, doesn't lead us to skew our own policy."

Having lived in China during the past two decades, we have witnessed and chronicled its remarkable economic and social transformation. But the notion that China poses an imminent threat to all aspects of American life reveals more about us than it does about China and its capabilities. The enthusiasm with which our politicians and pundits manufacture Chinese straw men points more to unease at home than to success inside the Great Wall.

This is not to say that China isn't doing many things right or that we couldn't learn a thing or two from our Chinese friends. But in large part, politicians, activists and commentators push the new Red Scare to advance particular agendas in Washington. If you want to promote clean energy and get the government to invest in this sector, what better way to frame the issue than as a contest against the Chinese and call it the "new Sputnik"? Want to resuscitate the F-22 fighter jet? No better country than China to invoke as the menace of the future.

Take green technology. China does make huge numbers of solar devices, but the most common are low-tech rooftop water-heaters or cheap, low-efficiency photovoltaic panels. For its new showcase of high-tech renewable energy in the western town of Ordos, China is planning to import photovoltaic panels made by U.S.-based First Solar and is hoping the company will set up manufacturing in China. Even if government subsidies allow China to more than triple its photovoltaic installations this year, it will still trail Germany, Italy, the United States and Japan, according to iSuppli, a market research firm.

China does have dozens of wind-turbine manufacturers, but their quality lags far behind that of General Electric, not to mention Europe's Vestas and Siemens. And although a Chinese power company has some technology that might be useful for carbon capture and storage, which many companies see as the key to cutting greenhouse gas emissions from coal plants, it has built only a tiny version to capture carbon dioxide for making soda, rather than exploring needed innovations in storage....

Recent reports about how China is threatening to take the lead in scientific research seem to ignore the serious problems it is facing with plagiarism and faked results. Projections of China's economic growth seem to shortchange the country's looming demographic crisis: It is going to be the first nation in the world to grow old before it gets rich. By the middle of this century the percentage of its population above age 60 will be higher than in the United States, and more than 100 million Chinese will be older than 80. China also faces serious water shortages that could hurt enterprises from wheat farms to power plants to microchip manufacturers.

And about all those engineers? In 2006, the New York Times reported that China graduates 600,000 a year compared with 70,000 in the United States. The Times report was quoted on the House floor. Just one problem: China's statisticians count car mechanics and refrigerator repairmen as "engineers."

We've seen this movie before, and it didn't end in disaster for the United States. Some decades ago, Americans were obsessed with another emerging Asian giant: Japan. People were so overwrought about the "threat" that autoworkers smashed imported Japanese cars. On June 19, 1982, a Chrysler supervisor and his stepson, who had been laid off from a Michigan auto plant, killed a Chinese American man they apparently thought was Japanese. Author Michael Crichton's 1992 potboiler "Rising Sun" summed up the nation's fears. In 1991, 60 percent of Americans in an ABC News/NHK poll said they viewed Japan's economic strength as a threat to the United States.

But then something happened. Japan's economy lost its game....

As N. Gregory Mankiw, a former chairman of President George W. Bush's Council of Economic Advisers, writes in his popular textbook: Trade "is not like a sports contest, where one side wins and the other side loses. In fact, the opposite is true. Trade between two countries can make each country better off."

And yet a sports contest -- or worse -- is exactly what the U.S.-Chinese relationship sounds like these days. In discussing energy at the Feb. 3 meeting with governors, Obama warned: "We can't afford to spin our wheels while the rest of the world speeds ahead."

Speeding ahead is a worthy goal, but the United States does not need a bogeyman on its tail to get moving. What may seem like a throwaway line here could damage U.S. relations there, and there are enough reasons for tension with China without manufacturing new ones. As the Chinese strategist Sun Tzu said: "If ignorant both of your enemy and yourself, you are certain to be in peril."

China is no enemy, but inflating the challenge from China could be just as dangerous as underestimating it.
For readers of this blog, a lot of this sounds familiar - I've written for months about how so much of the current China commentary was baseless nonsense and/or cheap fodder for political fearmongering, and I used a lot of the same examples cited above.  Nevertheless, it's fantastic to see calm, well-reasoned China analysis in the mainstream press.  Hopefully Mufson and Pomfret's great contribution will lead to other sane MSM stories about China, and hopefully such work can put the hypesters on the run before the US government follows their misguided lead and does something really stupid or, even worse, really damaging.

Will ObamaCare's Failure Doom America's Global Economic Influence?

Over at RealClearWorld's blog, the Compass, Kevin Sullivan questions two recent articles - one by the Times' Anatole Kaletsky and the other on recent statements by Sec. Hillary Clinton - that boldly argue that the death of current US healthcare legislation will mean the death of America's influence around the world.

Clinton's argument is that ObamaCare's failure will signal to the rest of the world that American government is broken, and that this perception will adversely affect foreign countries' views on whether America still has the capacity to "move forward" and lead on international issues.  Money quote: "Their view does color whether the United States — not just the president, but our country — is in a position going forward to demonstrate the kind of unity and strength and effectiveness that I think we have to in this very complex and dangerous world."

Kaletsky takes an even harsher line and argues that the demise of ObamaCare will dismantle the American economy, and by extension, America's influence in the world.  He says:
If nothing is done to change the US healthcare system, it can be stated with mathematical certainty that the US Government and many leading US companies will be driven into bankruptcy, a fate that befell General Motors and Chrysler largely because of their inability to meet retired workers’ contractually guaranteed medical costs....

Gridlock over healthcare would imply similar stalemates on taxes, public spending, the budget, macroeconomic stimulus and financial reform.  As a result, an active response to any future financial crisis might become impossible.  Even worse, any important action to control US government borrowing could be ruled out.
Alrighty then.  Kevin does a great job dismantling these arguments from the foreign policy angle by providing some excellent historical perspective on the issue, so I'm just going to weigh in from the international trade and economics angle.

My conclusion in short: Clinton's and Kaletsky's arguments are nonsense.  In particular, I see three major problems with them:

(1) Basic factual errors.  Kaletsky argues that a failure to enact ObamaCare will lead to a rash of domestic bankruptcies like those of GM and Chrysler because of companies' failure to meet rising health and pension costs.  This is dead wrong for two reasons.  First, the idea that GM and Chrysler are the paradigms for the modern American company is silly.  Those companies died because they (i) made crappy cars for decades and (ii) long ago ceded control of their economic fates to their unions (through insane labor contracts which guaranteed pay and benefits far above what the market could bear).  These bad labor deals disadvantaged Big-3 automakers vis-a-vis their US-based foreign competitors by about $2000/car - a recipe for immediate economic oblivion.  Kaletsky mentions such suicidal deals ("inability to meet retired workers’ contractually guaranteed medical costs") but bizarrely assumes that most US companies have them.  They don't.  Indeed, only 7% of the private workforce in America is unionized.  Thus, the idea that "many leading US companies" will succumb to the same union-caused fate as GM and Chrysler defies reality.

Second, for those few US companies that do have serious problems with union labor contracts, bankruptcy (i.e., Chapter 11 reorganization), merger or acquisition will be a blessing, not the deathknell for the American economy.  Reorganization will allow these companies to dump their loser labor contracts, ditch inefficient capacity and again become globally competitive.  Indeed, this is precisely how the US Steel Industry became healthy again in the 2000s - bankruptcies, mergers and streamlining of their workforce and production. This process turned a moribund industry of almost 50 inefficient players into an efficient and profitable sector with under 10 major producers.  As such, the "bankruptcies" that Kaletsky describes would actually allow the US economy to become stronger and more efficient. (Assuming that the US government didn't stupidly bail-out every sector like it did with GM and Chrysler, natch.)

(2) A disconnect between the current healthcare "solutions" and the "crises" described.  Just as importantly, Kaletsky's and Clinton's statements suffer a tragic disconnect between the problems they describe and their only solution - passing ObamaCare.  Kaletsky first claims that the Democrat healthcare bills (or some mythical other version of healthcare reform supported by the President) must be passed because a failure to reform the healthcare system would cause the bankruptcy of the American government and many leading companies.  While it is certainly true that America's current healthcare entitlement programs are crippling state and federal budgets, and that rising healthcare costs are harming American businesses, none of the President's current healthcare plans would actually do anything to solve these problems.  On the budget, the bold claims that any of the Democrat health plans actually decrease the budget deficit rely on the smarmiest of budget trickery.  And while rising healthcare costs are indeed an issue for US businesses, the latest estimates show that ObamaCare will increase burdens on US employers, not reduce them - hence why both the US Chamber of Commerce and National Federation of Independent Business vehemently oppose the current bills (and why Wal-mart sneakily supports them). 

Clinton, on the other hand, seems to believe that the success of her Party's healthcare dreams will somehow end the gridlock that pervades America's political system (or at least the world's perceptions of that gridlock).  Leaving aside the fundamental question about whether political immobility is actually good or bad for the US economy, anyone who has spent more than a few years in Washington knows full well that partisan gridlock isn't going anywhere, regardless of what happens with healthcare (or which Party is in power).  And as Kevin ably pointed out last week, "little-d" democrats in most other countries, not just Iran and Russia, would "love to have our tedious deliberation and onerous amounts of free speech in their respective countries." So it's quite doubtful that foreign perceptions of American governance will be greatly harmed by the current health care morass.

(3) The mistaken belief that only ObamaCare's passage will enable the United States to advance international economic policy.  It is certainly true that foreign countries are watching the United States, and that they do care about the US healthcare drama.  But it's wrong to assume that just because foreign countries are paying attention, they'll react differently based on whether ObamaCare succeeds or fails.  In fact, most foreign countries couldn't care less whether the drama ends with success or failure.  They care only that it ends, and thus that the Obama administration will finally cease subordinating international economic matters to securing passage of health care legislation.  This is especially true on trade, where the White House has refused to engage in any major trade liberalization efforts out of fear of angering congressional protectionists and their anti-trade supporters (domestic labor unions, environmentalists, etc.).   This disangagement has led to complete paralysis - pending US FTAs with Colombia, Panama and Korea remain untouched, the WTO's Doha Round negotiations remain comatose, and bilateral trade conflicts (like the US ban on Mexican Trucks) remain unresolved - despite our trading partners' loudly pleading for the United States to get back in the game.

Given this reality, ObamaCare's failure would not, as Kaletsky and Clinton claim, lead to stagnation and impotence on trade and other international economic matters.  Indeed, failure would actually liberate US policymakers to once again act beyond the narrow interests of securing a few rust-belt votes.  As such, failure would mean exactly the same thing to America's trading partners as would passage - that the paralysis caused by the US healthcare debate would finally end.  America's trading partners are dreaming for that day, and when it finally comes, they'll welcome us back with open arms.

Saturday, February 27, 2010

Protectionist Campaigning for Dummies

National Journal's CongressDaily reports that Congressman Gene Taylor (D-MS) will be sponsoring legislation to withdraw the United States from NAFTA:
Populist sentiment in the House against free trade is about to reach a boiling point, as Rep. Gene Taylor, D-Miss., readies a bill to withdraw the United States from the North American Free Trade Agreement.

The measure would be the first of its kind since the mid-1990s, just after President Bill Clinton pushed NAFTA through a reluctant House. Many Democrats blame Clinton and NAFTA for their loss of control of Congress the following year in 1994. And while it has no chance of becoming law, Taylor's bill is a clear shot across President Obama's bow as the White House attempts to figure out its overseas economic engagement strategy....

Taylor said members need to ask themselves two questions: How many jobs have been gained in their districts as a result of NAFTA, and how many have been lost. Asked why he's introducing the bill now, Taylor replied: "There's never a right time for anything. It's like asking a girl to marry you."

Taylor is planning to formally introduce the bill after getting a few more signatures. He is circulating a "Dear Colleague" with original co-sponsors, Reps. Walter Jones, R-N.C., and Peter DeFazio, D-Ore., and Bart Stupak, D-Mich. He's snagged 14 co-sponsors so far, including a second Republican, Rep. Roscoe Bartlett of Maryland.

Taylor's letter shows a graph demonstrating a 29 percent decline in U.S. manufacturing employment since 1993, or a loss of nearly 5 million jobs. "NAFTA discourages investment in U.S. manufacturing facilities and accelerates the erosion of our industrial base," the letter states.

"Thousands of people in my district have lost their jobs because of trade," Taylor said in an interview. "I didn't vote for it; we tried it; it didn't work, and now it's time to admit that."...

A Blue Dog Coalition member from the reddest of districts, Taylor is conservative on social issues but very much an economic liberal. He has voted against every free trade deal since arriving in Congress in 1990, which is rare for a member from a coastal district, let alone one with three ports, at Gulfport, Biloxi and Pascagoula.

Sen. John McCain, R-Ariz., took 67 percent of his district's vote in 2008, but Taylor has never been in trouble: his lowest percentage of the vote was 60 percent, in the 1994 GOP landslide.

Earlier this week, Taylor became the latest House member to sign onto a bill from Rep. Michael Michaud, D-Maine, that calls for a new trade policy including a lengthy list of labor, environment, investment and consumer protection standards for trade deals. Several major pacts, including NAFTA, would face renegotiation under that bill, although it would not go so far as Taylor's two-page bill to simply scrap NAFTA. In fact, Taylor's aggressive approach surprised some in the trade community who had been focused on Michaud's milder effort. Michaud nonetheless is among Taylor's early co-sponsors.
Cato's Dan Griswold ably dismantled Taylor's nonsensical assertions that NAFTA is responsible for US economic woes, including manufacturing job losses, and I've already debunked the classic protectionist myth about trade and manufacturing many times.  So there's no need to rehash any of that today.  And, as the CongressDaily article makes clear, this legislation has absolutely "no chance of becoming law." 

Nevertheless, Taylor's anti-NAFTA legislation remains noteworthy because it provides us with a perfect example of the cynical politics of protectionism.  Although Taylor comes from a very red district in Mississippi, he doesn't appear to be facing a serious challenge in 2010.  Yet his anti-NAFTA legislation provides him with an easy way to widely promote - without spending a dime of campaign cash - his anti-trade stance and its false "support" about manufacturing job losses.  And because free trade and NAFTA don't poll well, the free press that Taylor will get from the legislation will probably shore up some support in his district, completely free of charge.  Nevermind that Taylor comes from a Mississippi port district that contains several multinational corporations (who fund his campaign, by the way), and it's therefore certain that many of his constituents' jobs completely depend on trade.  I mean, why let reality get in the way of scoring free and easy political points, right?  And who cares if the "stats" that Taylor's peddling are complete BS, and that his anti-trade demagoguery could, if ever enacted, seriously hurt the people he represents.  We're talking free campaign advertising, baby!  Let 'er rip!

Awful.

Meanwhile, other politicians who face tougher campaign battles in 2010 can sign onto Taylor's legislation and use it as a simple soundbite once election season starts.  The commercial practically writes itself: "I've co-sponsored legislation to get us out of NAFTA, while my opponent supports free trade policies that have destroyed millions of good paying American jobs.  Oh, and he hates puppies, babies and apple pie."  Ok, maybe that last part won't be in there, but you can bet the house that the rest will be.  And as we've already seen from two recent special elections (NY-23 and the Mass. Senate election), trade demagoguery, including a reliance on standard protectionist myths about manufacturing, jobs, enforcement and the trade deficit, is a central part of the Democratic Party's basic campaign strategy.  And why not?  Protectionism ensures the strong support of domestic labor unions and other anti-trade groups, and (again) free trade isn't a big winner in the polls.  Truth be damned, folks.  This is a political no-brainer.

Cynical?  Sure.  Probable?  You bet.  Pathetic?  Undoubtedly.

Given these clear political dynamics, and the fact that Democrats figure to get absolutely pummeled in November's elections, we all should expect a lot more congressional anti-trade foolishness, replete with protectionist myth-mongering, in the coming weeks and months.  Congressman Taylor's just a little ahead of the curve.

Friday, February 26, 2010

Finally, A Trade Dispute I Fully Support

WorldTradeLaw.net is hosting a great online debate on Free Trade vs. Protectionism between the Cato Institute's Dan Griswold and Ian Fletcher of the US Business and Industry Council.  Griswold is the author of Mad About Trade: Why Main Street America Should Embrace Globalization, and Fletcher is the author of Free Trade Doesn't Work: What Should Replace it and Why.  Safe to say that it's pretty obvious who will be arguing what in this debate (and which side I intensely favor).

The guys' opening statements have been posted today.  Griswold's is here, and Fletcher's is here.  Unsurprisingly, I already have a few comments on each post, but I'll save them to the end.  (Wouldn't want to influence your reading!)

Do enjoy.

Attorney General Files Petition To Have Christian County Assessor Removed From Office:


Attorney General Chris Koster has filed a petition known as a quo warranto to remove Christian County Assessor Sandra Bryant-Littles from her elected position.

Last October Bryant-Littles was arrested at her office after a grand jury returned a sealed indictment alleging that she had committed 4 counts of mail fraud and failed to accurately assess she and her husband's personal property.

Since Christian County Associate Circuit Judge Mark Orr has recused himself from the case the state Supreme Court will have to appoint a special judge to rule on the petition.

The spokeswoman for the AG's office Nanci Gonder says that judge will then decide if Bryant-Littles should immediately be removed from office or if it would be in a determined amount of day-- usually 10 days or less after rulings.

Gonder said Koster decided to proceed with the petition because evidence indicates that Bryant-Littles violated her oath of office to assess all personal property by failing to assess her own.

The attorney general’s petition states that “During an investigation, (Bryant-Littles) admitted she was aware of these inaccuracies and discrepancies and knowingly submitted assessment lists that she knew to be false and incomplete.”

For that reason, the petition reads, the Bryant-Littles’ “violation of her oath of office and known duties results in the ‘automatic forfeiture of (her) office,’” and her “misconduct in the instant case mandates her removal from office.”

Bryant-Littles and her husband, Lonnie Utah Littles, own Poco Cala Ranch in Clever. Lonnie Littles and a ranch hand of the couples, Jesse Rice were indicted by a federal grand jury for conspiracy to commit bank fraud for an allegedly scheme to bilk the Little's insurance company for a bogus cattle theft in February of 2009.

Lonnie Littles is also facing two federal charges of bank fraud.

Jesse Rice pleaded guilty to one count of bank fraud on February 11, 2010. He is currently awaiting sentencing.

Bryant-Littles and Lonnie Littles pleaded not guilty to the charges filed against them in November. Their trials are scheduled for late April.

Thursday, February 25, 2010

BREAKING~~DEVELOPING~~NIXA MAYOR IMPEACHED:

Brian Hayes

By a vote of 4 to 2 the mayor of Nixa was impeached tonight, a direct result of him pleading guilty to drunk driving last week.

Ward 1 Alderman Michael Durbin initially called for the removal of mayor Brian Hayes last June after Christian County prosecutor Ron Cleek charged him with misdemeanor driving while intoxicated.

Hayes was driving home from an outing on the lake when he was pulled over by a city policeman on suspicion of DWI. Once the cop realized whom he had pulled over, and because Hayes as mayor is his direct supervisor, he immediately asked that the Highway Patrol take over the investigation.

Following Hayes' guilty plea last week, Durbin renewed his effort to see that the mayor was removed from office "for specifically violating three of six provisions in the city ordinances which outline the grounds for removal from office . Durbin says the mayor was guilty of culpable negligence or dereliction of duty, willful misconduct in office, and an act inconsistent with official duty or character.

Michael Durbin

Supporting Durbin in the impeachment of Hayes were Ward 3 alderman Kevin Elmer; Ward 2 alderman Steve Tallaksen and Ward 2 alderwoman Barb Stillings. The dissenting votes came from Ward 1 alderman Kyle Vogel and Ward 3 alderman Charles McCorkle.

Durbin says, "Brian devoted a lot of time to our community-- this is not a performance review....it's a reflection of what he did."

Barb Stillings, asthe mayor pro tem, will serve out the last remaining 5 weeks of Hayes' term.

Hayes is running for reelection on April 6, 2010, and will face several challengers in the mayoral race. One of those challengers is Steve Tallaksen, one of the alderman that voted to impeach Hayes.

The Awful (and Utterly Predictable) Results of an Exports-only Approach to Selling Trade

A recurring theme of this blog is my repeated attempts to convince free traders (all five who read this blog) that the current mainstream approach to selling free trade is a dead loser, despite the overwhelming economic support for the good guys' side of the debate.  This approach - championed by Republican and Democrat administrations alike - is one that focuses almost entirely on expanding US exports, while completely ignoring the proven benefits of imports and foreign investment for US businesses and consumers.  And it is manifest in America's insistence on "reciprocal" trade negotiations with other countries - a decades-old system in which the United States only agrees to open its markets if our trading partners open theirs too.  Of course, this outdated system (and the United States' blind commitment to it) reinforces the idea that exports are good, and imports are the bad things that we must reluctantly accept in order to gain new export markets.

The reality, of course, is that both exports AND imports are good, and there are mountains of empirical and anecdotal evidence supporting this central truth - especially in this modern era of global supply chains and multinational investment.  But when our leaders' attempts to sell trade focus only on exports, and when "reciprocity" becomes the central tenet of national trade policy, the obvious, yet completely wrong, implication is that the trade balance (exports minus imports) is a "scorecard," and that a trade deficit (more imports than exports) means that we are "losing" at trade.  And, sadly, this false implication is readily manipulated by protectionists seeking to restrict global trade (and, by extension, individuals' right to voluntarily engage in, and benefit from, it).

This overly long introduction leads us to the dreadful CNN piece below, which first aired this morning.  The segment - part of CNN's "broken government" series - highlights the critical and fundamental flaws with the conventional attempts to sell trade by focusing on exports and ignoring import benefits.



There is so much wrong with this piece that it's difficult to find where to begin, and I probably could write a novel critiquing it (pathetic, I know).  But for now, I'm just going to focus on the "assumptive close" that provides the basis for the entire CNN piece: the trade deficit is an awful thing, so what can government do to stop it?  As I've discussed repeatedly, this "fact" is patently false, but the folks in the piece who are supposedly there to "defend" free trade - USTR Ron Kirk and a Maryland small businessman - speak only of boosting exports and never of imports' value to the US economy.  As such, they utterly fail to refute host Carol Costello's incorrect introductory assumptions about the US trade deficit.  Instead, their "solution" to the trade deficit "problem" is just more exports.  This, of course, will lead most viewers to simply conclude that as long as we have a trade deficit, US trade policy and free trade more generally are bad for the United States.  And since that deficit isn't going anywhere anytime soon, public support for free trade (and politicians' willingness to resist protectionist lobbying) will never improve - especially when the "bad guys" are out there preying on the trade deficit and misleading the public about its allegedly deleterious effects.

But don't just take my word for it.  Here's part of an email that I received today from the anti-trade group Public Citizen's Global Trade Watch, one that's just chock-full of protectionist myths (internal links are mine and will debunk each myth highlighted):
The USTR website lists official sources and then only the Chamber as authorities for trade data - no universities, no unions -- just the country's main corporate lobby!

And the Chamber's website is just wrong. It covers only the impact of exports on jobs. Totally missing from the Chamber's site is any mention of the harmful effects of the massive trade deficit that has accrued since its beloved NAFTA, WTO and similar trade deals went into effect. (That would be a trade deficit going from $25 billion in 1993 to $263 billion in 2009 with NAFTA countries alone).

Government data show we have lost one out of every four manufacturing jobs since NAFTA and the WTO. These are not contested numbers. But the Chamber of Commerce's site makes no mention of the over 5 million manufacturing jobs that we've lost out on due to our deficit-inducing trade policy.
Now, I've gone over all of the myths that GTW is pushing here (and the links will do it again), so there's no need to re-cover that ground here.  Instead, I just ask one simple question that I think proves my point: how can a free trade policy that focuses only on exports ever refute such deficit-driven myths and recapture American support for trade?

The quick answer: it can't.  And until US trade policy and free traders' arguments change, GTW will keep lying, CNN will keep getting away with lazy, wrongheaded "journalism" like the segment above, and the American public will keep worrying about free trade.

I think it's time for a change, don't you?

Vendor Allegedly Stole $500,000 From Bass Pro Shops(P/C Included):


The Springfield police department and Greene County prosecutors are investigating the alleged embezzlement of nearly a half-million dollars from Bass Pro Shops in Springfield.

Lt. David Millsap says the owner of The Little Glass Shack inside the sporting goods giants flagship store allegedly doctored receipts that he said the company owed him.

As part of the deal to have the shop inside the store, the owner, Eugene Lee Black, agreed that Bass Pro was entitled to 20% of the sales. Over the last seven years Black allegedly inflated the amount of sales that were reported.

Millsap says that an internal audit was conducted and the misappropriation uncovered. Black was charged this afternoon (02-25-10) with felony theft of $25,000 or more.

According to Millsap, "Say the actual sales might be $395, he'd tell Bass Pro he made $1,395--Bass Pro would take their 20% out of the $1,395 and he would pocket the rest."

The company spokesman for Bass Pro Shops, Larry Whiteley, says "it is an ongoing investigation, and we don't comment on ongoing investigations."

Elementary School Janitor In Webster County Charged With Child Molestation:


Phillip Lawson Ingalsbe

A school janitor at Shook Elementary in Marshfield has been charged with molesting a 10 year-old female student.

Webster County Prosecutor Danette Padgett charged Phillip Lawson Ingalsbe, 51, of Niangua, today with felony child molestation.

According to the probable cause statement, last December a teacher reported to the school principal that she observed one of her students leave the janitor's room from which the door had been closed. The little girl told staff members that Ingalsbe took her to the janitor's room and closed the door. She said that while they were inside Ingalsbe allegedly put his hand inside her shirt and touched her chest, kissed her on the lips and neck, hugged her and slipped his hand inside the back of her pants.

The principal called the superintendent of the district and the districts maintenance director who called Ingalsbe into the Principal's office where the man admitted that he had inappropriately touched the little girl.
Attorney Joe Passanise

Online court records show Ingalsbe was formally arraigned today in Webster County. Prosecutors had asked that his bond be set at $100,000, but Ingalsbe’s attorney, Joe Passanise, made a motion for a bond reduction. Judge Kenneth Thompson granted the motion and set Ingalsbe's bond at $50,000, with stipulations that he have no contact with the alleged victim or other children and stay away from all school property.

Ingalsbe was released from the Webster County jail after posting $50,000 bond and is scheduled to appear in court on April 5, 2010.

If he's convicted, Ingalsbe could face between 5 to 15 years in prison.


10WE-CR00158 - ST V PHILIP LAWSON INGALSBE

Wednesday, February 24, 2010

New Briefer re: Impending Brazilian Retaliation Against US Exports

As I recently mentioned here, Brazil is preparing to impose about $300 million in retaliatory sanctions on US exports because the US government refuses to comply with multiple WTO rulings against American cotton subsidies.  I've teamed with Daniella Markheim of the Heritage Foundation to write a web memo on the longstanding dispute and the implications of US recalcitrance at the WTO.  We outline the dispute and the repeated US attempts to shirk its WTO obligations, and conclude that, while $300 million in retaliation hurts American exports and White House efforts to boost them, US non-compliance in this case and others is very problematic even if Brazil ultimately decides not to impose the sanctions:
The U.S. has brought 94 trade disputes to the WTO in the trade body's 15-year history. When the WTO has ruled in America's favor, the U.S. government is quick to laud the decision and demand that the offending party immediately comply. Yet when the WTO rules against the U.S., as it did in Upland Cotton, American officials denounce the ruling, question the WTO's authority, and make every effort to delay or skirt required reforms.

Such hypocrisy undermines U.S. credibility and the WTO's efficacy.
To find out why, read the whole thing here.

Shocker: $24 Billion of ObamaCare Revenue Is Fake?

There have been plenty (and I mean plenty) of stories documenting the budgetary shenanigans in the various Democrat health care bills that are roaming, zombie-like, the halls of Capitol Hill.

But this one might take the cake.

From the paper industry blog Dead Tree Edition comes pretty shocking news that President Obama's latest health care "reform" proposal expressly relies on $24 billion in "subsidy cuts" that literally do not exist.  And just so we're clear here, when I say that they "don't exist," I'm not talking about the standard timing tricks, the unrealistic assumptions, or any of the other budgeting tricks that have become commonplace in this ridiculous healthcare debate.  No, I'm talking about silicone-fake, bright-orange monopoly money.  Here are all the gory details (emphasis mine):
The Obama Administration announced today that it wants to close the non-existent "Son of Black Liquor" loophole to help "pay" for new healthcare legislation.

A few hours later, Senate Democrats won a key vote on jobs legislation that, in some versions, would be paid for partly with the "savings" from closing the same mythical loophole.

Meanwhile, the watchdogs of the news media acted more like lapdogs, taking Administration and Congressional statements at face value without bothering to check the facts...

"Current law provides a tax credit for the production of cellulosic biofuels," notes the Obama Administration's summary of its new healthcare bill. "The credit was designed to promote the production and use of renewable fuels. Certain liquid byproducts derived from processing paper or pulp (known as 'black liquor' when derived from the kraft process) were not intended to be covered by this credit.  The President’s Proposal adopts the House bill’s policy to clarify that they are not eligible for the tax credit."

As Dead Tree Edition has explained previously, black liquor is already ineligible for the Cellulosic Biofuel Producer Credit program, so there is no loophole to close. No money has been budgeted to provide such credits for black liquor, so there is no savings to be budgeted for healthcare, creating jobs, or anything else.

Only in Washington would people try to use the same fake money to pay for two different programs. 
Read the whole thing here (cross-posted on a reputable industry website here).  The author goes on to provide oodles of evidence (including original source documents) demonstrating that the mythical "black liquor loophole" was actually closed on December 31, 2009, and thus any 2010 legislation relying on that "revenue raiser" is not just misleading, but intentionally and patently false.  He also documents how the original, now-closed loophole was used to "knowingly allow[] pulp and paper companies to receive billions of dollars in original black liquor credits, apparently to help get a healthcare bill out of committee."

Pathetic.

Tuesday, February 23, 2010

Green Subsidies: India's Unfortunate Lesson

One of the focal points of the President's plan for reviving the US economy is federal subsidies for "green manufacturing" and "clean energy." Now, I've already laid out a lot of serious problems with such plans - the most important of which is America's unblemished record of utter incompetence when it comes to subsidizing products and companies to further vague environmental objectives. But another serious problem with green (and, well, pretty much all other) subsidies is the fact that they almost always lead to lots of harmful unintended consequences.

From today's Wall Street Journal comes an absolutely perfect (and sad) example in India of just how bad the unintended consequences of "green subsidies" can get:
India has been providing farmers with heavily subsidized fertilizer for more than three decades. The overuse of one type—urea—is so degrading the soil that yields on some crops are falling and import levels are rising. So are food prices, which jumped 19% last year. The country now produces less rice per hectare than its far poorer neighbors: Pakistan, Sri Lanka and Bangladesh.

Agriculture's decline is emerging as one of the hottest political issues in the world's biggest democracy.

On Thursday, Prime Minister Manmohan Singh's cabinet announced that India would adopt a new subsidy program in April, hoping to replenish the soil by giving farmers incentives to use a better mix of nutrients. But in a major compromise, the government left in place the old subsidy on urea—meaning farmers will still have a big incentive to use too much of it....

Agriculture has lagged behind other industries such as manufacturing and services, posting less than 2% growth in the latest reports on gross domestic product. And double-digit food inflation and declining yields spell less money in the pockets of rural Indians.

India spends almost twice as much on food imports today as it did in 2002, according to the Ministry of Agriculture. Wheat imports hit 1.7 million tons in 2008, up from about 1,300 tons in 2002. Food prices rose 19% last year....

Behind the worsening picture is the government's agricultural policy. In an effort to boost food production, win farmer votes and encourage the domestic fertilizer industry, the government has increased its subsidy of urea over the years, and now pays about half of the domestic industry's cost of production.

Mr. Singh's government, recognizing the policy failure, announced a year ago that it intended to drop the existing subsidy system in favor of a new plan. But allowing urea's price to increase significantly would almost certainly trigger protests in rural India, which contains 70% of the electorate, political observers say.

The ministers of fertilizers and agriculture each declined requests for interviews....

Farmers spread the rice-size urea granules by hand or from tractors. They pay so little for it that in some areas they use many times the amount recommended by scientists, throwing off the chemistry of the soil, according to multiple studies by Indian agricultural experts.

Like humans, plants need balanced diets to thrive. Too much urea oversaturates plants with nitrogen without replenishing other nutrients that are vitally important, including phosphorus, potassium, sulfur, magnesium and calcium.

The government has subsidized other fertilizers besides urea. In budget crunches, subsidies on those fertilizers have been reduced or cut, but urea's subsidy has survived. That's because urea manufacturers form a powerful lobby, and farmers are most heavily reliant on this fertilizer, making it a political hot potato to raise the price.

As the soil's fertility has declined, farmers under pressure to increase output have spread even more urea on their land....
Yikes. Be sure to read the whole thing here.  What's most interesting is the vicious cycle that developed in India because of the original, and relatively small, fertilizer subsidy program that started over 40 years ago.  The first fertilizer subsidies produced a powerful and bloated industry and millions of dependent farmers.  With all those new companies and farmers, more subsidies followed, and the cost of the subsidy program exploded - it was about $640 million in 1976 but $20 billion last year.  When the government sought to reduce or eliminate the subsidy, the industry and farmers fiercely protested and, with the help of their favorite legislators, forced the government to "compromise" in the early 1990s and only subsidize one kind of fertilizer - urea.  That decision led to even more urea production and use, and not only started harming crop yields, but also destroyed domestic manufacturers of competitive fertilizers like phosphorous.  So the government decided to subsidize those fertilizers, but the subsidy, bound by budget constraints, was too small and failed to jumpstart production of urea alternatives, thus wasting millions of taxpayer dollars and doing nothing to solve the government-caused problem.  In the end, the urea subsidy remains (mostly) in place, state budgets are buckling, crops are suffering immensely, and both the domestic fertilizer and agriculture industries are proving increasingly unprofitable (thus, imports are increasing rapidly to fill the void).  Oh, and all that fertilizer overuse has severely tainted the local water supply around many farming communities.

All in all, it's an abject disaster bordering on national tragedy.  All because of a few million dollars in "green" government fertilizer subsidies.

But I'm sure that the billions and billions of dollars that President Obama wants to provide to his favorite "green" companies won't have any of these nasty unintended consequences.  I mean, all of our other forays into the environmental market have worked out so gosh darn well, right?

Riiiiiiiight.

Monday, February 22, 2010

Mexican Trucking Retaliation To Continue... Indefinitely

The last time we checked in on the US-Mexico trucking dispute, it appeared that the countries were inching closer to resolving the illegal ban on Mexican trucks that was costing American exporters $2.4 billion in retaliatory tariffs per year.  However, at the time I cautioned that "the near-term resolution of this boondoggle remains far from certain."  Now comes news from Inside US Trade (subscription) that my hunch might actually have been too optimistic:
In an interview with Inside U.S. Trade, a top Mexican trade official said late last week that Mexico will continue to impose retaliatory duties on U.S. exports to its market until a dispute over access for Mexican trucking services to the U.S. market is resolved. The official added that a resolution likely must do more than reinstate a limited pilot program that was gutted by the U.S. Congress last year....

“The [Mexican retaliatory] measures are there, and they will be there until this [trucking dispute] is resolved,” [Mexican Under Secretary for Trade Beatriz Leycegui] said in the interview.

She signaled that a resolution has to do more than simply revive the trucking pilot program, which provided for only limited access for Mexican trucks. The two sides “have to work on something that provides us greater certainty than what we had in the past,” she added, referring to the pilot program....

Leycegui declined to comment directly on whether Mexico could lift its retaliation even if the U.S. offers something less than the full market access for trucking services to which the U.S. agreed under the North American Free Trade Agreement (NAFTA).

According to Leycegui, U.S. Trade Representative Ron Kirk did not provide any proposal for a negotiated solution during his visit to Mexico last week, nor did he offer a concrete date by which the U.S. would get back to Mexico with a proposal, she said.

However, the U.S. will start consultations with Congress and private-sector stakeholders to discuss possible options “very soon,” and Mexico expects to have news from the U.S. government very soon as well, she said....

While Mexico retains the right to modify its retaliation list, Leycegui signaled that Mexico is not currently focused on this possibility. At this point, “we think it is prudent to wait until we see some sign from the U.S. in the following days and weeks,” she said....

Jim Hoffa, general president of the International Brotherhood of Teamsters union, on Feb. 16 said that his organization would work to keep the U.S. border closed to Mexican trucks. “We got the border closed to unsafe Mexican trucks and we’re keeping it closed. The Teamsters did that, nobody else did that -- the Teamsters did that,” he said in a speech to local unions, according to a Feb. 16 press release issued by the Teamsters.
It's hardly big news that the process is moving slowly or that the Teamsters are fighting hard to keep the illegal trucking ban in place.  (Indeed, those two things are closely related!)  Instead, the big news here is the fact that the simple restoration of the status quo ante will probably not be sufficient to end Mexico's massive retaliation against US exports.

If that's really the case and Mexico's not just bluffing, those brutal tariffs aren't going anywhere in 2010.  And US exporters will continue to unfairly suffer so that the White House and congressional Democrats can ensure the election-year support of their powerful supporters, the US Teamsters.

So much for that White House plan to dramatically expand American exports, huh?

The False Altruism of Trade Deals' Labor Protections

Jagdish Bhagwati and Arvind Panagariya have an excellent op-ed in today's Times of India on the disingenuousness of US and EU labor unions' vocal demands that free trade agreements contain enforceable labor standards.  The crux of the piece is here:
When the unions in the US and the EU insist on a set of labour standards in the developing countries with which they compete for markets at home and abroad, they take an altruistic line: we are doing this out of solidarity; we are doing it for your workers. But when you push them hard, they always say: it is "unfair" to have to compete with others who do not have our standards. Now, the latter is an argument about competition; it is about losing out in trade. So it is an argument motivated by self-interest, not altruism.

The traditional demand by the American unions has been that others should have the same standards as the US does. But this argument is comic, were it not tragic. Is the US a paragon of virtue on labour standards? After all, less than 10 per cent of its private workforce is now unionised. And this is because the main weapon that unions have, the right to strike, has been crippled by the Taft-Hartley legislation of over 50 years ago. Even liberal universities have refused to let their administrative employees organise. In consequence, Human Rights Watch, which has investigated the right to unionise, a central feature of the ILO principles, has found that this is far from being guaranteed in the US.

So, US unions have shifted to asking for ILO "core standards" instead. But this will not wash either. The US has not even ratified many of these core conventions. So, in effect, this version is also to be aimed at others, not themselves.

The truth of the matter is that, frightened by competition from our exports, the American and European unions seek relief. This can be obtained by conventional import protectionism. But, if this is constrained by WTO obligations, then it can be obtained by raising the cost of production of the foreign rivals. Raising their labour obligations is one way of doing this. Therefore, we have called it a form of "export protectionism", like the Voluntary Export Restraints, where the exporting country restrains its exports.
As good as the authors' explanation is, none of it is novel: developed country labor unions have been shrouding their vicious protectionism in false altruism for decades.  What is novel, however, is this disconcerting bit of news that has been relatively unreported here in the United States (emphasis mine):
Lagging employment recovery and continuing high levels of unemployment have marked the macroeconomic scenario in the United States. So, it is natural that the United States, which chaired the G-20 meeting in Pittsburgh, would use its privileged position as the host to invite the US secretary of labour, a well-known union activist, to convene a meeting of the employment and labour ministers on the jobs situation prior to the next G-20 heads of state meeting in Canada.

The macroeconomic aspects of the labour situation are indeed a proper focus of such a meeting. But the Pittsburgh declaration goes further and urges the G-20 countries not to "disregard or weaken internationally recognised labour standards" and to "implement policies consistent with ILO fundamental principles and rights at work".

Led by their federation, the AFL-CIO, the US labour unions have had a long history of pushing for a "social clause" into trade treaties at every forum. For international economists familiar with this history and the stranglehold the unions exercise on the Democratic Party and Congress today, the G-20 declaration constitutes a carefully designed trap. It is drafted in a way in which the US and the European Union can get developing-country employment and labour ministers unfamiliar with the agenda and influence of developed-country unions, to endorse measures that have a "feel good" fagade but are, in fact, a protectionist dagger aimed at our jugulars. Indeed, the US undersecretary of labour, Sandra Polanski, who has been put in charge of the meeting, is well known to us as a long-standing proponent of such measures and a relentless activist on their behalf.
In other words, the White House has put a labor union champion (Ms. Polanski) - one who has long advocated "feel good protectionism" in trade agreements - in charge of an under-the-radar meeting of the G-20 countries' labor ministers prior to the June 26-27, 2010 G-20 Summit in Toronto.  (Polanski bio here.)

What could possibly go wrong?

Sunday, February 21, 2010

Becker, Posner Diss the National Export Initiative

Posner: "Of all the 'job programs' undertaken or contemplated by our government, the President’s plan to double exports in five years seems to me the most fatuous."

Burn.

Becker: "Posner shows, among other things, the basic impossibility of doubling US exports during the next five years. I consider whether such a policy makes sense, even if it could be achieved. My short answer is that it does not."

Double-burn.

Be sure to read both posts in full.  There's lots of good, thought-provoking stuff in there on the NEI and other aspects of US trade and economic policy, as well as China's much-debated currency policy.

Saturday, February 20, 2010

Chart of the Day: Import Truths

To understand just how valuable imports are to US businesses - especially manufacturers - one need only look at the following chart, courtesy of Economist Mark Perry.

Perry uses this chart to help explain why cheap Chinese imports actually strengthen US businesses and, by extension, increase American jobs: "As the chart above shows, almost 60% of imported goods are: a) industrial supplies (chemicals, commodities, raw materials, etc.) and b) capital goods (machinery, equipment, parts, tools, etc.) which are mostly purchased by AMERICAN COMPANIES as inputs for production in the United States.  Being able to purchase Chinese and other foreign inputs at the lowest possible price makes American companies MORE competitive, sell MORE of their products, and hire MORE American workers."  Indeed.

The chart also clearly demonstrates why improved access to imported goods (and services) must be a critical component of any national policies geared at increasing US exports.  As I recently wrote, "[A] strong, positive correlation exists between import growth and export growth—a statistic that makes perfect sense when one realizes that over half of all U.S. imports are capital goods and equipment used by American manufacturers to produce globally-competitive products. Such data are helpful signals of imports’ vital role in the U.S. economy, and they undermine a [mercantilist] U.S. export policy that ignores access to foreign goods." 

Unfortunately, our current export policies do just that.

UK to US: Your Mercantilist Trade Policy Is Bollocks

I stumbled across a recent blog entry by British Trade Policy Adviser Patrick Thomas that lauds recent US efforts to expand trade but, in typical British fashion, politely explains why the UK's new trade policies are far better (emphasis mine, silly UK spelling his):
[I]t is encouraging that here in Washington, policymakers are talking seriously about engaging with the world through trade. After a year in which trade policy did not feature prominently, President Obama used his State of the Union Address to announce an ambitious plan to double US exports in five years. His Commerce Secretary, Gary Locke, claims that the plan would also support two million jobs in the United States.

Expanding trade is a way to boost economic growth and create jobs, and one that I recommended in my last blog. And in fact, the UK has a comprehensive strategy called 'New Industries, New Jobs', which sees an important role for exports as a driver of growth. What's interesting about the strategy is that it emphasises that exports are only one piece of the puzzle. It recognises that the UK cannot efficiently produce everything by itself. What's key is preparing workers for the high-paying jobs in the industries of tomorrow. To pursue this agenda, it is necessary to recognise that both inward and outward trade flows figure in greater prosperity.

Indeed, modern trade theory tells us that imports are just as important as exports...

The UK has long embraced open trade as a policy, which has played a key role in making Britain a wealthier, more dynamic and more diverse society. So let's promote exports, but let's not forget the benefits of imports as well....
The loud *thud* sound you hear is me falling our of my chair.  Thomas even cited the iPod as an example of how nations benefit from, and thus should embrace, specialization and modern global supply chains.  Good for him.  And great for the UK for adopting a commonsense, 21st century trade policy and (again, politely) calling attention to the asininity of American mercantilism.

If only the White House were listening.

Friday, February 19, 2010

Time to Stop Paying Those KORUS Lobbyists

The US-Korea FTA is the most economically significant US trade agreement since NAFTA. The Agreement would help the United States pull out of the Great Recession by expanding American firms' access to the Korean market and making high quality Korean goods (think Samsung, Kia, Hyundai, LG, etc.) cheaper here at home. It also would cement ties with a powerful, longstanding ally in the Asian region.

And it's dead as a doornail for the foreseeable future.

The reasons for my broad proclamation have been pretty evident for a while now, and I (and many others) long ago predicted that KORUS wasn't going anywhere in 2010. Yet some optimists - including the good folks in the US business community and the Korean government - have still been lobbying hard for the agreement's near-term passage, particularly after the EU announced its own FTA with South Korea and President Obama announced his new National Export Initiative. Unfortunately, two recent events involving the United States Trade Representative should finally kill any remaining optimism about KORUS.

Before I get to the events themselves, some perspective is necessary: USTR Kirk is not some random congressman from Detroit or some silly Senator from Ohio.  He also is not charged with ensuring passage of domestic health care, energy or tax legislation.  He is the the chief international trade negotiator (and cheerleader) for the United States of America - the world's largest economy and (well, at one time) the global gold-standard of free trade and free markets.  Now, with that in mind, on to the show.

First, we have Kirk's utterly depressing statements about why the brand new Trans-Pacific Partnership (TPP) Agreement is an administration priority:
Speaking at the USDA Annual Outlook Forum, Kirk said members of Congress “are more open and receptive” to the idea of creating a trans-Pacific agreement because it could be written from scratch.

The Trans-Pacific Partnership comes “without any of the biases of the three [agreements] under consideration,” he said. Kirk added members of Congress also like it because it would take 18 to 24 months to develop and would not come up for approval until after the 2010 elections.
Feel the excitement!  As Cato's Dan Ikenson (who found the quote above) aptly notes, "Kirk's planning to hang his trade expansion hat on some future trade agreement that’s still in the conception phase and years away from a shot at reality, while giving up on the already-signed agreements with Korea, Colombia and Panama because those agreements are too much of a burden politically for Congress, who would prefer to start from scratch. That’s trade leadership from the Obama administration!"  Indeed.  I'd only add that when the USTR's top FTA selling point is that it'll take forever to complete and thus is politically convenient, you know you're screwed.  Royally.

Second, there's news today of Kirk's speech on KORUS to the American automobile industry.  Although I'm unsure why, given taxpayers' stake in two of the Big Three, he didn't just head to the Treasury Department, Kirk instead went to Detroit to plead his case, and boy, did he ever play nice.  Here's Reuters with the news:

President Barack Obama will not submit a free trade agreement with South Korea to Congress for a vote until Seoul does more to open its auto market, the top U.S. trade official said on Friday.

"I know there is concern, especially in this part of the country, about the U.S.-Korea FTA," U.S. Trade Representative Ron Kirk said in a speech to the Detroit Economic Club.

"We have let Korea know that we will have to work together so we can show the American people that U.S. cars will be able to compete on a level playing field in Korea," Kirk said.

The speech showed how little progress the administration has made toward resolving differences with South Korea since Obama took office over one year ago.

"Given the history of Korean protectionism in the auto sector, there are questions about whether the FTA will establish a level playing field for U.S. automakers and automotive workers," Kirk said....

He extolled the overall benefits of the trade deal, but said his office still had no plan for fixing concerns that have blocked approval of the deal for nearly three years.

"We at USTR are hard at work to develop ideas for addressing these concerns, and we will be consulting closely with members of Congress and other American stakeholders as we move down this path," Kirk told the group....

In other words, the Obama administration's litmus test for passage of KORUS will be the express approval of the agreement's chief opposition, and USTR hasn't even begun to develop a way to pass that test.  Kirk might as well have said, "Don't worry, carmakers (and unions), the FTA ain't going anywhere until you say the word."  And that approval is never, ever going to happen.  Why, you ask?   Well, Ford and Chrysler are probably the biggest KORUS opponents, not because of Korean market access (despite their claims), but really because the FTA would eliminate the 25% US tariff on Korean imports of light trucks and SUVs (i.e., Kias and Hyundais that are already dominating the US market).  And because the FTA provision that would eliminate the US truck tariff isn't going anywhere (it is a "free trade" agreement, afterall), neither is KORUS.  It's that simple.

So, KORUS supporters, it's time to shelve the public optimism and start looking elsewhere.  This deal is dead... well, at least until the federal government gets out of the car business, or the GOP regains some power in Washington.

Thursday, February 18, 2010

India Talking Tough on Carbon Tariffs, But Why Now?

Interesting news out of New Delhi today on carbon tariffs:
The [Indian] commerce department has begun mobilising opinion on the proposed carbon tax that developed countries, especially the European Union, are looking to impose on imports from advanced developing countries like India and China.

The Centre for WTO studies, a research body under the department, has come up with a report on WTO compatibility of border trade measures for environmental protection that also delves into the possible effects of such a tax on India’s exports.

The idea is to be prepared to fight the issue once the need arises, commerce secretary Rahul Khullar said.

The products that could be immediately hit by a carbon tax include iron & steel, aluminium, pulp & paper products, cement, glass and chemicals, the report said.

While the EU justifies the proposed tax as a measure to create a level playing field between polluting developing countries and countries that have agreed to cut emissions under the Kyoto protocol, the feeling in India is that it may be yet another step to render exports from certain countries uncompetitive.

“It is not possible to pretend any longer that this (imposition of carbon taxes and related measures) is not going to happen,” Mr Khullar said, adding that in two-three years time this would be a reality and it made sense to prepare for it. The commerce secretary, however, stressed that India was not in favour of including environment in the trade liberalisation negotiations taking place at the WTO. “There are other forums for framing global environmental laws,” he said, releasing the report on Thursday.

The report, which describes the various forms under which environmental taxes can be levied and the various methods under which they could be challenged at the WTO, is a first in a series of other such reports. “The idea is to make everybody understand what the issues are in simple terms and generate a debate,” Khullar added.

With environmental issues capturing global imagination, especially after the Copenhagen Climate Conference last December, India feels that there is not much time to waste as developed countries could impose a slew of related restrictions on its imports....
The full text of the new Indian report is here (PDF), and (while admittedly only skimming so far) it appears to be a serious work of scholarship.  It contains sections, each drafted in a handy Q&A format on:  (i) Trade and the Environment; (ii) Carbon Taxation Systems; (iii) so-called "Carbon Leakage"; (iv) Border Trade Measures (aka "Carbon Tariffs") and their WTO Compatibility; (v) Border Trade Measures, the UNFCCC and the Kyoto Protocol; and (vi) the subtly titled "Impending Trade War."  The sixth section provides the conclusions and, as the title suggests, they're quite serious:
[U]nilateral trade measures, taken in a protectionist manner, are likely to be held incompatible with the WTO rules. Unilateral trade-restrictive measures are also prohibited by the UNFCCC and the Kyoto Protocol. Some of the implications of bringing such measures into force would be as under.

(i) Such measures imposing restrictions on imports on the grounds of providing a “level playing field”, or maintaining the “competitiveness” of the domestic industry, etc are likely to be viewed as mere protectionist measures by the developed world to block the exports of the poorer nations. This is because, there is little empirical evidence that companies relocate to take advantage of lax pollution controls.

(ii) Efforts to address climate change through unilateral trade measures will lead to tit-for-tat trade restrictions. This will spark trade war and will lead to massive, justified, WTO-legal retaliation by the affected countries. In turn, this will generate a plethora of trade disputes. It is doubtful whether the current Dispute Settlement Mechanism of WTO can handle this load. Such actions do not auger well for free and fair trade which the entire international community, as a matter of conscious choice, has strived to promote all along.

(iii) Use of WTO-incompatible trade measures diminishes the prospects for development of the developing countries. Trade generates wealth and offers the possibility to developing countries of investing this wealth in renewable energy and energy conservation measures. This will not happen if they are made poorer by the unilateral trade restrictive measures of developed countries.  Thus such measures may prove to be counter-productive.

(iv) Unilateral trade actions may simply lead to a change in trading patterns with no significant reduction in emissions.
Like I said, subtle.  That said, the Report's main conclusions are hardly surprising.  Most obviously, the Indian Government has long opposed carbon tariffs and thus wouldn't loudly trumpet a new report showing their benign legality under global trade rules and the Kyoto Protocol.  Second, and as readers of this blog already know, there is now plenty of good, solid scholarship out there - despite what Paul Krugman might have you believe - which supports the Report's main findings, including the likelihood of WTO problems and threat of major trade conflicts caused by countries unilateral imposition of border measures (all available here).

What is surprising, however, is the timing of India's big news.  The carbon tariff debate has died down quite a bit since last fall, when the US Cap-and-Trade legislation (which included carbon tariffs) still had a pulse, the Europeans were seriously contemplating carbon tariffs as part of their revised Emissions Trading Scheme (ETS), and lots of nations were fiercely debating unilateral trade measures in the run-up to December's big climate change summit in Copenhagen.  Since that time, the US climate change legislation has been put on ice, the Europeans - minus France (of course) - have cooled to the idea, and past momentum for dramatic climate change action has been frozen by Copenhagen's inaction, as well as the recent Climategate scandal and its offspring.  (Please hold your groans to the end.)

So why is India flexing now?  I have two guesses: (1) Bad timing - India's report just happened to be completed in the midst of this recent climate change pullback; or (2) Serious concern about rogue EU action - the Indian Government thinks that the global pullback might cause true believers in the EU to just say damn the torpedoes and do something rash.  Sarkozy's certainly pushing the idea; the post-Copenhagen angst among some EU officals was palpable; and some analysts do think that carbon tariffs are inevitable in the EU, given that it has already enacted (and plans to increase) stringent, industry-killing climate regulations.  Even the head of the European Commission, Jose Manuel Barroso, is calling for a "rethink" on European climate policy in the wake of the Copenhagen debacle.

Personally, I'm inclined to side with the former reason (bad timing) - beyond some tough talk from a few random officials and committed enviros, momentum for dramatic action on climate change seems unlikely - even in the EU.  But you can't really blame the Indians if they're choosing the latter, considering Barroso's rather, umm, committed words today: "[T]his is not the time for the EU to start doubting its commitments.... We need to show that we have not given up on our ambitions, even if many of our partners found it easier to limit themselves to the lowest common denominator. Our core goal must be to bring all partners closer to our own ambitions and to our commitment to a multilateral agreement..."

Hmm.  Then again, maybe India should be worried.

Wednesday, February 17, 2010

Japan Regains Title as "America's Top Banker"; America Shrugs

The Wall Street Journal and other news outlets reported yesterday that China, after selling off significant US Treasury holdings at the end of last year, is no longer the biggest holder of US debt:
China sold a record amount of its U.S. Treasury holdings in December, ceding its place as the world's biggest foreign holder of U.S. debt to Japan.

The move triggered concerns about China's continuing appetite to loan money to the U.S. amid a mounting budget deficit here and tensions between Washington and Beijing.

China pared its Treasury holdings by $34 billion to $755.4 billion in December, placing it second behind Japan, with $768.8 billion, according to U.S. Treasury estimates. For the first time since August 2008, Tokyo took over the top spot after steadily increasing its purchases of Treasury debt over the past several years....

Chinese officials have begun expressing "worries" over its significant holdings of U.S. government bonds and concern about the U.S. budget deficit, which is expected to hit $1.6 trillion....

However, China's sales of Treasurys don't necessarily translate into a loss of confidence in the U.S., many analysts said, noting that Beijing's moves in December could simply indicate steps toward diversification. Market observers said the Chinese may simply have moved their money into other dollar-denominated assets, such as corporate debt or private equity.

The increase for Japan appears to have come from private financial institutions shifting investments out of risky, high-yielding foreign financial products into safer assets such as U.S. Treasurys, analysts say....

The Japanese government itself hasn't acquired Treasurys in recent years. However, it may soon ramp up purchases, as officials at the huge government-run postal-savings system have said they are looking to diversify assets away from Japanese government debt and into U.S. government debt.

"The U.S. is having difficulty due to a lack of funds," Shizuka Kamei, the cabinet minister overseeing Japan Post, told reporters recently. "It's only natural that we should support the U.S. when it is weak."...
The rest of the article is well worth reading, and I'll leave the serious monetary analysis to the experts.  But two rather noteworthy things struck a layman like me about this big news.  First, other reports confirm that China's not really backing out of the United States - it's simply diversifying from short-term Treasury debt into long-term debt and other US assets (and also masking short-term purchases through offshore buyers).  So if this move is a Chinese "message" on US fiscal policy to President Obama, it's a subtle one, and one that's only targeted at the United States' (read: the White House's) short-term economic policies.  The Chinese still seem quite bullish about the US economy long-term.  Now, whether that commitment is by choice or necessity remains to be seen.

Second, I'm left wondering where's the public hysteria about Japan dramatically ramping up its purchases of US debt over the last few months to once again hold the title of "America's Top Banker."  As you may recall, when China took over the number one spot in the Fall of 2008, commentators on the right and the left were beside themselves with the news.  And the media reports were even more breathless.  For example, when the news was announced in 2008 the Washington Post wrote (emphasis mine):
China passed Japan to become the U.S. government's largest foreign creditor in September, the Treasury Department announced yesterday, reflecting the dramatic expansion of Beijing's economic influence over the American economy.

China's new status -- it now owns nearly $1 out of every $10 in U.S. public debt -- means Washington will be increasingly forced to rely on Beijing as it seeks to raise money to cover the cost of a $700 billion bailout....

The growing dependence on Chinese cash is granting Beijing extraordinary sway over the U.S. economy. Analysts say a decision by China to move out of U.S. government bonds, for economic or political reasons, could lead a herd of other investors to follow suit.  That would drive up the cost of U.S. borrowing, jeopardizing Washington's ability to fund, among other things, a stimulus package to jump-start the economy.  If China were to stop buying or, worse, start selling U.S. debt, it would also quickly raise interest rates on a variety of loans in the United States, analysts say.

Ominous!  On the other hand, a quick bit of Googling shows that yesterday's big announcement prompted zero commentary about "growing dependence on Japanese cash" or a future "decision by Tokyo to move out of US bonds."  The answer for this difference is simple: China is today's economic bogeyman, and thus everything it does is blown way, way, WAY out of proportion.  Thus, China's commercial decisions to buy US debt in 2008 were met with dramatic wailing and gnashing, while Japan's purchases of the same type of debt in 2009 (also for commercial reasons) receive none of the attendant commentariat angst.  News about China's economic moves elicits ridiculous reactions/predictions like those of the Post only 18 months ago (Beijing's "sway" over the U.S. economy over since 2008 hasn't been "extraordinary," and none of those scary things - "spiking" interest rates and fleeing "herds" of investors - has happened as China's debt purchases have stalled.)  Yet when Japan regains the "number one spot," the only commentary is about whether the Japanese government will invest in more US debt. 

Shocking, I know.

What I find most interesting about US journalists' and politicians' disparate treatment of China and Japan today is that Japan - today's economic pussycat - was America's big bogeyman only 25 years ago.  For example, here's the Amazon summary of a typical Japan-hysteria book from the 80s:
A Washington business consultant and former government trade negotiator, [Clyde] Prestowitz here analyzes economic and cultural differences underlying our trade deficit with Japan and the U.S. decline in international markets. He also examines efforts to resolve our free-trade dilemma.  Japan is a close-knit, exclusionary society, notes Prestowitz, with no room for U.S.-style individualism and little understanding of "fair" competition. Highly personalized Japanese companies with lifetime-employment policies cooperate as cross-shareowning groups to common advantage. By contrast, argues the author, when rival giants IBM and AT&T cautiously held back, independent young physicists and engineers "the small and the swift" created a spectacular global electronic industry, which Japan's government and industry, acting in concert, proceeded to preempt through investment, imitation and intense product development. Near-dominance in the American market ensued. What to do?
Yes, whatever shall we do?!  The Japanese government, with its complicit, productive and innovative  corporate conglomerates and its omnipresent trade surpluses just dominated us!  Damn that "free trade dilemma!"

Oh, wait.  (Sounds familiar, no?)

It's perspective like this that is utterly lacking from today's journalism and a key reason why all of the current hype and hysteria surrounding China's trade and monetary policies should be treated with serious skepticism. 

Despite what all of those "experts," "consultants," "officials" and "analysts" are telling us.

Tuesday, February 16, 2010

Would Doha's Demise Take the Whole WTO With It?

India's Business Standard reports on something that most of us have known for months now - the WTO's Doha Round of multilateral trade negotiations isn't getting completed in 2010:
Indian trade negotiators are of the view that the failure to close gaps in trade talks, coupled with minimal participation from the US, has killed the prospects of meeting the 2010 deadline for closing the Doha round. Analysts and trade experts said the failure to meet the deadline would put a question mark on the relevance of the World Trade Organisation (WTO) as a global trade body....

According to trade analysts and think tanks, the 2010 deadline is not achievable mainly because the US has not been engaged and there is insufficient political will on trade issues. “The main argument advanced by the US is that it needs real new effective market access for its exporters in order to win the support of the Congress for the trade deal and this could be delivered only by the sectoral agreements. Developing countries have resisted the proposal on the ground that the understanding from the outset has been that, as in the past, members would have the option to join sectoral agreements on a voluntary basis,” said Anwarul Hoda of Indian Council for Research on International Economic Relations (ICRIER).
For readers of this blog and most other people paying attention to the Doha Round, the missed 2010 deadline is hardly news.  The Business Standard article also rightly demonstrates how, without serous changes from the US and other WTO Members (but especially the US), Doha's long-term prospects are equally bleak (something that I've been saying for a while now).

On the other hand, one must really question whether, as the unnamed "analysts and trade experts" say, the collapse of the Doha Round would really mean the end of the WTO.  In fact, there are several reasons to doubt this conventional wisdom.  First, existing WTO rules are deeply ingrained in Members' domestic laws and would be difficult, if not impossible, to undo.  In the United States, for example, implementation of the WTO's Uruguay Round in 1994 required massive changes to domestic law through the Uruguay Round Agreements Act (something critics bemoan, by the way).  The US tariff schedule was changed.  Domestic trade remedies laws were overhauled.  Copyright laws were amended.  (And so on and so on and....)  Moreover, 15+ years of agency regulations and procedures, domestic court cases and international arbitration proceedings, bilateral trade agreements and investment treaties, and private commercial practices have evolved from the WTO Agreements, as well as the URAA and its counterparts.  Thus, it seems highly unlikely that the Doha Round's collapse would unravel all of that.

Second, the economic crisis of 2008-2009 has clearly demonstrated Members' commitment to the international trading system and, by extension, existing WTO rules (even as many have distanced themselves from Doha).  Sure, nations haven't been perfect (far from it), but dramatic backsliding into a tit-for-tat protectionist abyss simply hasn't occurred over the last two years.  And WTO disciplines have certainly played a part in that.  For example, even though I'm hardly a fan of the Stimulus* Bill's Buy American provisions, they were most likely enacted - at least by the letter of the law - consistently with WTO rules (after a lot of domestic and global kvetching about America's "international obligations").  And as I've noted several times, countries' resistance to (or hesitance to impose) carbon tariffs has stemmed, at least in part, from concerns that such measures would violate WTO rules.  These cases - and many, many others like them - make clear that existing WTO rules discipline nations' actions in even the darkest economic times.  Yet during the same period, the Doha Round's conclusion was never in sight.

Third, the WTO has become an indispensable adjudicating body for international trade disputes.  Since the multilateral trade body's founding in 1995, there have been over 400 disputes brought to the WTO, involving billions and billions of dollars in total trade.  A vast majority of those cases were resolved through either consultations or Members' implementation of WTO panel or Appellate Body rulings.  Admittedly, some of those rulings have been ignored, but so far, such non-compliance is rare - a particularly impressive thing when one considers that the WTO has no formal enforcement authority.  Furthermore, dispute settlement activity has remained steady over the last several years, even as the Doha Round itself has sputtered.  Since the end of 2005 (when the last serious, formal negotiating proposals were circulated by WTO Members) there have been almost 70 disputes filed at the WTO, and there have been 25 new cases since the Round's near-collapse in July 2008.  Clearly, nations' lack of confidence in Doha hasn't led them to abandon the WTO's dispute settlement body.

Finally, the Doha Round itself might be unnecessary as a necessary trade liberalization tool.  As Cato's Dan Ikenson pointed out several times, countries are liberalizing unilaterally as the benefits of doing so - particularly in today's world of multinational supply chains and globalized investment flows - have become readily apparent.  Indeed, the even the breathlessly pessimistic article quoted above notes that "In India, peak industrial tariffs have been brought down from 35 to 10 per cent ever since the beginning of the talks in Doha in 2001."  Moreover, even if unilateral liberalization (while ideal) is beyond the political pale for some countries, the huge proliferation of bilateral and regional trade agreements (while far from ideal) demonstrates that nations simply aren't waiting around for over 150 other countries to get their collective act together and conclude a final Doha Round Agreement.

All of these instances provide a clear picture of a Doha-less world with a robust WTO - one in which (i) WTO rules establish a baseline of global trade liberalization, (ii) nations pursue "WTO plus" commitments through unilateral liberalization (best route) or bilateral/regional trade agreements with other willing partners (meh route), and (iii) many large trade disputes are adjudicated through the WTO's dispute settlement body.

Indeed, it's not really a bad future when you think about it, nor is it too difficult a scenario to imagine considering that it's exactly what's happening right now - but for occasional, fruitless meetings of distraught WTO negotiators and endlessly-delayed "final" Doha deadlines, of course.

Then again, all of this talk of the "end of the WTO" does make sense from one perspective: without the Doha Round negotiations, a few hundred international bureaucrats would be out of a job.  But while it would certainly stink for these folks to have to give up their posh Geneva apartments and expansive, taxpayer-funded travel stipends, that's hardly the "end of the WTO," now is it?

Well, at least for the rest of us.

[Final note: although I don't think that the WTO's fate rests in Doha's hands, I do see a much more significant threat to the global trading system: countries' refusal to implement adverse dispute settlement rulings.  More on that here.]