FTA Round-up

With both the House and Senate poised to vote on, and approve, pending US FTAs with Colombia, Korea and Panama tomorrow, it seemed like a good time to provide some recent must-read items to get you caught up to speed:

• The Competitive Enterprise Institute just issued a great new study documenting the Obama administration's failed - and economically harmful - strategy of delaying ratification of our pending FTAs in order to appease US labor unions (through, for example, revised FTA obligations, side agreements and reauthorization of expanded TAA).  CEI provides good support for something that I've been saying here for years: placating anti-traders, especially unions, is a fool's errand.

• Speaking of economically harmful delay of these FTAs, the Korea Herald reports that the recently-ratified EU-Korea FTA (started years after the still-pending US-Korea FTA) is reaping major benefits for European carmakers.  Good for them.

• However, as the FT's Alan Beattie explains in this new op-ed, the economic value of these FTAs shouldn't be oversold, and their final ratification has come at a pretty big price.  He concludes: "The US, along with all countries that trade – poor and middle-income as well as rich – is presented with a complex array of interlocking issues by the operation of globalisation: technological change, migration, exchange rates, capital movements and geopolitical power politics, as well as flows of goods and services.  Reducing the globalisation debate to passing three bilateral trade deals – at the cost of adding momentum to a potentially dangerous currency bill – is a very long way from being a proportionate response. In net terms, this was a bad week in Washington for free trade and real free-traders should recognise it."

• Jagdish Bhagwati takes a different, but kinda similar, angle, lamenting that "Congress and the president apparently have plenty of time to discuss bilateral FTAs with South Korea, Colombia, and Panama, as well as the regional Trans-Pacific Partnership (TPP), but none for negotiating the non-discriminatory Doha Round, which is languishing in its tenth year of talks." 

• Not to be outdone, Australian Marc-William Palen actually goes a bit further than Beattie and Bhagwati and argues that the FTAs' price tag - TAA - shows that the President is, deep-down, a protectionist.

• Speaking of the FTAs' price tag, the CBO released its cost estimates for the Korea, Colombia and Panama implementing legislation.  The Korea report is by far the most interesting, as it shows that the FTA's implementing legislation includes almost $8.5 billion in new customs users fees - $4.1 billion in extensions and, more importantly, $4.3 billion in increased merchandise processing fees because the FTA implementing legislation raises the fee from 0.21% to 0.3464% of a shipment's value.  I've already gone over why raising taxes on American import consumers to fund a free trade agreement is really misguided, but I do think it's very interesting that the revised KORUS legislation includes an exemption from these new fees for imports from Korea.  Colombia and Panama legislation provides for a similar exemption.  So, really, Korean, Colombian and Panamanian imports into the US will get a double benefit from the respective FTAs - lower tariffs and cheaper customs fees.  Unfortunately, US consumers of non-Korean/Panamanian/Colombian imports will be left holding the tab, and the FTAs' overall trade liberalization benefits will be muted.  Sigh.

• Finally, AEI's Phil Levy explains that, although the FTAs should definitely help the US economy, their tortuous path to final implementation is indicative of the sad state of US trade leadership.  Yep.

That's all for now, folks.  

The TAA-FTA "Deal": The Law, Ctd.

On Tuesday, I blogged about whether the Obama administration's brilliant plan to jam through Congress joint legislation containing Trade Adjustment Assistance and the US-Korea FTA would, based on a reasonable reading of the law, qualify for the procedural protections afforded FTA implementing bills under Trade Promotion Authority.  My conclusions were that the White House's legislation shouldn't qualify for TPA, but that the Senate could - and probably would - just ignore the law.

Phil Levy picks up where I left off and opines on the broader implications of a decision by the White House and Senate Majority Leader Harry Reid (D-NV) to ignore the law and go through with their plans to move the TAA-FTA bill using TPA.  His conclusions are as depressing as they are correct (emphasis mine):

This [fast track] process worked until April of 2008, when then-Speaker Nancy Pelosi demonstrated, to widespread surprise, that Congress had not really committed itself at all: When President Bush tried to submit the Colombia FTA under Trade Promotion Authority, she just changed House rules and blocked it. This dealt the first serious blow to the underpinnings of U.S. trade policy.

Last week, the administration dealt the second such blow. By stuffing TAA into the Korea FTA implementing bill - i.e., by protecting it with Trade Promotion Authority that was supposed to be reserved exclusively for these trade agreements -- it may have sounded the death knell for this critical trade procedure.

The maneuver may well work.... But there is a significant future trade agenda now at serious risk. The administration has ambitious negotiations underway for a Trans-Pacific Partnership that could set the rules for trade with Asia. Global leaders have repeatedly called for a conclusion to beleaguered talks under the auspices of the World Trade Organization. For any of these, the White House will need new trade promotion authority. Such authority was hard to come by even in the best of circumstances. What chance would it have now, if it is interpreted as giving any White House the right to attach controversial and unrelated spending measures in a protected way?

The passage of the pending FTAs is long overdue. The compromise on TAA is acceptable, if it paves the way for a necessary reworking of the program. But, as with mishandled fireworks, the administration's narrow and divisive approach to solving the present impasse may prove crippling for U.S. trade policy in years to come.

In short, the Obama administration's attempt to use the KORUS FTA and a dangerously expansive interpretation of TPA as a sketchy vehicle for achieving a narrow political victory on TAA might win the legislative battles over the Korea, Colombia and Panama FTAs, but the plan seriously risks losing the bigger war over the future of American trade policy and potential trade agreements worth far more than the three currently being debated.  So free traders really need to ask themselves the following question:

If the President refuses to yield and a joint TAA-FTA package passed under fast track really ends up being the only way forward, is it worth it?

I think we all know which direction I'm leaning these days.  And that's pretty sad.

Finally, let's also not forget that, considering that all of the troubling TPA chicanery noted above has come from Democratic politicians doing the bidding of anti-trade American labor unions, the big winner from the passage of these FTAs might just be the very folks most opposed to them - the unions.  (No, seriously.)  In the process of "losing" the current FTA battles, their elected minions might just ensure the demise of future trade deals and America's long history of leading global trade liberalization initiatives.  Such a result would be one helluva "win" for them.

And one helluva loss for the American people.

[UPDATE: I somehow forgot to mention that the Obama administration's erosion of TPA's value actually began last December with its steadfast assertions that the Agreement's renegotiated automobile provisions would somehow not remove the deal from TPA's procedural protections.  So, really, the joint TAA-FTA package is the third blow to the longstanding congressional-executive agreement on TPA (and fast track before it).  The third, however, definitely remains the most egregious and problematic for the reasons Phil states.]

The TAA-FTA "Deal": Spending, Ctd.

[UPDATE: The revised merchandise processing fees for the TAA and KORUS legislation are laid out here.]

Since I blogged on Monday about the dubious spending provisions in the White House's proposed joint TAA-FTA legislation, there have been a few noteworthy developments:

First, on the question as to whether the legislation's increase in Customs Users Fees is consistent with WTO rules (first raised by your humble correspondent, btw), it appears that the White House and its supporters are utilizing the vaunted "because I said so" defense that my parents successfully employed throughout the 1970s and 80s.  Reports Inside US Trade [$]:

Supporters of renewing the lapsed Trade Adjustment Assistance (TAA) program are defending the increase of customs user fees to offset its costs as complying with World Trade Organization rules, which stipulate that customs user fees cannot be higher than the cost of the services rendered at the border.

The TAA deal as unveiled this week would increase the merchandise processing fee from 0.21 percent ad valorem to 0.329 ad valorem as one of a variety of funding offsets. 

Congress has not altered merchandise processing fees since 1995. Several sources noted that the cost of processing goods has gone up since that time, and one source said there is currently a "shortfall" between the costs of border services provided and the money collected through customs user fees.

One source also noted that since the terrorist attacks in 2001, the United States has placed a greater emphasis on security, and suggested that this could be one factor why processing costs have gone up.

In its draft Statement of Administrative Action (SAA) accompanying the draft implementing bill for the U.S.-Korea free trade agreement, the White House provides little explanation for how the fee increase would comply with WTO rules. The TAA compromise is included in the Korea FTA implementing bill.

"The change in rate addresses the increased costs Customs and Border Protection has incurred as a result of the increased volume of trade and additional operational initiatives since the last legislative change to the merchandise processing fee in 1995," the SAA states. 

The current merchandise processing fee of 0.21 percent ad valorem is generally assessed on "formal" entries, or those imports that have a commercial value of $2,000 or more. U.S. importers are required to pay this fee to Customs and Border Protection at the time of presenting the entry summary.

According to Article VIII of the General Agreement on Tariffs and Trade (GATT), all fees and charges imposed by WTO members on or in connection with importation "shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes."

That means Congress can determine the level of the merchandise processing fees so long as they are commensurate with the costs of the services rendered.

So to summarize the White House's argument: Legislation that expressly raises revenues by increasing Customs users fees in order to fund TAA expansion doesn't actually raise revenues (and thus violate WTO rules), but instead simply pays for a longstanding "shortfall" in current fee collections (and thus is, like, totally WTO-consistent).   And this "shortfall" has persisted for more than a decade without anyone in the White House or Congress ever proposing to end it in standalone legislation because the US government is apparently so flush with cash that it was simply willing to keep subsidizing US importers to the tune of billions of dollars.  And it was just a coincidence that the big shortfall will be terminated in the joint TAA/KORUS legislation.  Oh, and something about 9/11 and terrorists.

Even shorter: The customs users fees provisions are WTO-consistent because the SAA says they are.  Now what WTO panel could argue with that?  (Rrrriiiiiight.)

Second, and speaking of those billions of dollars, the CBO has released its preliminary estimates of the revenue impact of the joint TAA/KORUS legislation.  You can check out the full score here, but the highlights are as follows:

• Projected amount of import tariffs eliminated (thus saving American consumers) between 2011 and 2016: $2.085 billion.

• Projected cost of TAA expansion over the same period: $1.17 billion.

• Projected increases in customs users fees over the same period (thus costing American consumers): $2.167 billion.

So according to CBO's (admittedly preliminary) projections, in this deal's first five years, American consumers will pay more in new Customs fees than they'll save in reduced or eliminated tariffs on Korean imports, and we'll pay another billion dollars for TAA expansion.

What a bargain!

But, hey, maybe TAA is some super-awesome program that's totally worth this fiscal and political expense.  Wouldn't it be great if some federal government agency released a long-overdue report on that very issue that would settle the TAA debate once and for all?  Umm, well:

As a divided Congress moves closer to a decision on three big international trade pacts, the Labor Department is four years late in delivering a study that is supposed to measure the efficacy of a program to provide extra benefits to workers who lose their jobs through globalization.

The deals with Colombia, South Korea and Panama, which could add billions in exports, are on a knife-edge over disagreements between Republicans and Democrats over Trade Adjustment Assistance, taxpayer funds paid to workers who lose their jobs as a direct result of trade.

The lack of up-to-date government data on how effective the $1 billion-a-year program is at helping the unemployed find well-paying work has hobbled efforts to identify and make improvements....

Labor Department officials say their research on TAA, originally due in 2007, won't be ready until the end of the year. That's likely to be after the fate of the proposed U.S. trade deals has been decided, at least until after the 2012 election. Thus far, the TAA study has cost $8.9 million, the Labor Department estimated.

"The data used for the study is long-term data on individual participants, which was collected over several years; therefore completion of the study is a long process," said Department of Labor spokeswoman Gloria Della.

Howard Rosen, resident visiting fellow at the Peterson Institute for International Economics, helped write 2002 reforms to TAA while he was a congressional aide that also called for a comprehensive evaluation of the program, and he has complained about the Labor Department's failure to deliver it.

"We need to make reforms based on what will work, not what will fly" politically, Mr. Rosen said.

Reports from Labor and the Government Accountability Office have led to changes, for example, in improving worker access to the program. Last year, 235,000 workers—or less than 2% of the nation's 14 million unemployed—were receiving benefits under the TAA program at a cost of $975 million.

In 2009, the program was expanded to include service, not just manufacturing workers, who now make up less than one-fifth of TAA recipients....

According to a Labor-sponsored study of TAA applicants in 2008-09, about one-third of eligible workers belong to a trade union; about half of those in the program are union members.

Gee, I wonder what possibly could be delaying the Labor Department study?  What a shame that it won't be ready in time for the current congressional debate.  Fortunately, IBD today points us to other studies on the TAA program, and let's just say that American taxpayers are definitely not getting their money's worth:

For starters, TAA is wasteful. Sen. Tom Coburn, R-Okla., released a report earlier this year showing that the $18 billion the government already spends on job training programs are full of waste, fraud and abuse.

A 2008 American University study by Kara Reynolds and John Palatucci concluded the same, declaring TAA "of dubious value in terms of helping displaced workers find new, well-paying employment opportunities."

Meanwhile, a 2003 study from the Office of Management and Budget called TAA downright "ineffective."

Also, it duplicates other programs. Trade-blogger David Almasi cites a GAO report earlier this year that shows, as of 2009, there were already 47 different federal jobs programs administered by nine different federal agencies. And 44 of those duplicated other efforts.

Finally, it cheats workers. The GAO study found that workers in the TAA program made less money in their new jobs than workers who hadn't benefited from the 156-week program.

A Heritage Foundation study of academic papers also found that TAA training tends not to boost wages.

On Monday I said of the White House's TAA-FTA proposal, "it's the spending, stupid."  Yet after reading all of these updates, I think I need to issue a slight correction:

It's the stupid spending.

Sunday Quick Hits

Here's a whole lot of links to get your week started off right:

• The Economist asks whether we're seeing the end of China's dominance as the world's low-cost manufacturer of first resort.

• J.E. Dyer absolutely dismantles labor lawyer Thomas Goeghegan's lame defense of NLRB's indefensible attempt to stop Boeing from opening a new manufacturing facility in South Carolina.

• GMU's Russ Roberts beautifully explains why President Obama's silly comments about ATMs taking American jobs are so darn silly.  (And Cato's Andrew Coulson piles on.)

• The AFL-CIO's use of a 13-year old photo in its latest anti-Colombia FTA smear campaign is the perfect metaphor for its trade policy more broadly - stuck in the past.  Meanwhile, Colombia hits yet another labor benchmark that was supposed to ensure passage of its FTA with the United States.  Key words: supposed to.

• AEI's Phil Levy provides a great roadmap showing how we got into the current mess re: Trade Adjustment Assistance and how we can get out of it.

• And while TAA gums up passage of pending US FTAs, our potential FTA partners in South Korea and Colombia are lining up another, rather conspicuous suitor - China.  Awesome.

• And the TAA/FTA impasse also has infected [$] ongoing US trade negotiations under the Trans-Pacific Partnership.  Double-awesome.

• AEI's Mark Perry highlights the amazing gains in US worker productivity in our allegedly struggling manufacturing sector.

• Cato's Dan Griswold shows how IBM's remarkable evolution is a perfect metaphor for the US economy.

• Is America's stupid ethanol policy on the way out the door?  If this recent Senate vote is any indication (and it might not be), yes.

• Cafe Hayek's Don Boudreuax provides some great commentary on the House's vote to cut off those embarrassing US bribes to Brazilian cotton farmers.  John Stossel has more.  (And Brazil unsurprisingly grumbles about it all.)

• Can we please, PLEASE stop labeling free traders who support practical limits on US foreign policy adventurism "isolationists"?

• Mark Perry and Dan Griswold team up to explain how people's blinkered obsession with the US trade deficit misses the other, inevitable side of the coin, our massive foreign investment surplus:

If these don't leave you sufficiently depressed about US trade policy, then nothing will. 

Behold, the Insane (and Possibly Illegal) Bi-partisan FTA Deal!

As you may have heard, the White House and congressional Republicans are currently battling behind closed doors over a way forward for the pending US free trade agreements with Colombia, Panama and South Korea.  National Journal [$] reports on the latest developments (emphasis mine):

House Republicans retreated from their plan to begin preliminary markup on the pending trade agreements with Colombia, Panama, and South Korea, but the public stalling may signal that negotiators are making better progress behind closed doors.

Several people involved in the talks said on Monday that weekend negotiations over Trade Adjustment Assistance moved the parties closer to a deal. The White House has made clear that it wants Congress to reach a deal on TAA before beginning the markup process on the bills.

A House Republican aide said that preliminary hearings, expected to get under way this week, have not been scheduled. The move could pave the way for a deal to be announced before markups begin.

An aide to Rep. Kevin Brady, R-Texas, said in an e-mail: “While no date has been set for the mock-markups, we remain optimistic that a bipartisan solution will soon be reached.”

Some stakeholders said that the biggest sticking point has been finding enough revenue to offset the cost of the program extension. The White House originally pushed for extending a version of the worker retraining funds that was expanded in 2009 to include service employees and health care. But it appears that the deal will be significantly scaled back....

Lawmakers from both chambers have floated a wide range of frameworks in recent weeks. The chief concern has been raising enough revenue to counteract the cost of TAA and tariffs that will expire when the deals come into force.

Several of the parties involved said that a large portion of the pay-fors could come from additional customs fees, although that money would be insufficient to cover the full cost of the package. But the revenue gap may not be insurmountable....

The negotiated agreement on the trade deals may be sufficient to gain the bipartisan support needed to advance a comprehensive package before August, but it may not be enough to win the backing of skeptical Democrats in the House. Once the deals are introduced, they will need only a simple majority to pass in both chambers.

For a moment, let's ignore the fact that these agreements have been completed and signed for about four years, and that the President alone has the power to submit the FTAs for congressional consideration and approval (a simple majority vote in both chambers without amendment and pursuant to strict timelines), and that the three agreements would undoubtedly pass the House and Senate all by themselves.

And let's ignore the fact that the TAA program, in whatever form, has proven itself to be costly, ineffectual (politically and practically) and economically unjustifiable, and that, because he also really wants these FTAs to be implemented, the President is in effect holding a hostage that he's not willing to shoot.

And let's ignore the fact that, even with an eventual deal on the TAA bribe subsidy, most House Democrats (and many Senate Dems too) will never, ever, EVER support these FTAs (as the article makes clear and the Senators themselves have admitted).

Instead, for a moment, let's just focus on the big bi-partisan agreement outlined above.  Why on earth is this "breakthrough deal" even being considered?

First, it's absolutely irrational.  As noted, the parties have reportedly agreed to impose new (or higher) "Customs fees" in order to offset the cost of the TAA subsidy and the lost tariff revenue resulting from the FTAs implementation.  But "customs fees" are simply hidden taxes on import consumers.  A quick review of the US Customs website on "customs users fees" makes this clear.  They're paid (mainly) by commercial transporters bringing goods (imports) into the United States, thus raising the costs of importation.  And those higher costs, of course, are eventually passed on to American consumers through higher import prices.

Thus, pursuant to the bi-partisan deal outlined above, the FTAs' great import liberalization benefits will be immediately and tangibly undermined by new taxes on those very same imports (and others)!  Amazing.  Heaven forbid that Congress fill the tariff gap created by the FTAs and pay for TAA by actually eliminating federal spending on, oh I don't know, one of its absolutely-critical research programs into cow farts or cocaine-using monkeys.  Nope, the Obama administration's (and some congressional Republicans') big plan is to offset the elimination of taxes on import consumers by... wait for it... raising taxes on import consumers.  (It's truly a mercantilist's dream come true!)  Even worse, those new taxes will be necessarily be much larger than the amount of the FTA tax cut because they also have to fund a politically and economically dubious subsidy program that isn't even guaranteed to buy the approval of the FTAs' current congressional opposition!

Only in Washington, folks.  Only in Washington.

Unfortunately, it gets even worse: the big plan might also be illegal under global trade rules.  Granted, the description above is way too ambiguous to make any definitive conclusions about the deal's legality, but assuming that the agreement would raise US customs users fees (or implement new ones) in order to generate revenue for the federal government, it would probably violate GATT Article VIII, which governs WTO Members' imposition of "Fees and Formalities connected with Importation and Exportation" (in other words, customs fees).  The key provision of Article VIII reads:

1.(a) All fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.

WTO panels have interpreted this provision narrowly, and an old GATT panel has actually looked into the US system of customs users fees.  In these cases, the panels have ruled that Article VIII's requirement that a customs fee be "limited in amount to the approximate cost of services rendered" is actually a "dual requirement," because the charge in question must first involve a "service" rendered, and then the level of the charge must not exceed the approximate cost of that "service."  They've also found that the term "services rendered" means "services rendered to the individual importer in question," and that the fees cannot be imposed to raise revenue (i.e., for "fiscal purposes").

Interestingly, a relatively recent Customs Department notice about an increase in the amount of applicable customs users fees makes clear that the US government's customs fees are intended to approximate the costs of customs services (e.g., inspection) actually rendered (emphasis mine):

On October 22, 2004 the President signed the American Jobs Creation Act of 2004 (Pub. L. 108-357). Section 892 of the Act amended Title 19 United States Code 58c to renew the fees provided under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), which would have otherwise expired March 1, 2005, and to allow the Secretary of the Treasury to increase such fees by an amount not to exceed 10 percent in the period beginning fiscal year 2006 through the period for which the fees are authorized by law....

CBP is increasing the fees by the amounts authorized so that they more accurately reflect the actual costs of providing the services for which they are charged. On April 24, 2006, CBP published a Notice of Proposed Rulemaking in the Federal Register (71 FR 20922) proposing to amend the regulations in accordance with the current statutory provisions by increasing the fees for: (1) customs services provided in connection with the arrival of certain commercial vessels, commercial trucks, railroad cars, private aircraft and private vessels, passengers aboard commercial aircraft and commercial vessels, and barges or other bulk carrier arrivals, (2) each item of dutiable mail for which a customs officer prepares documentation, and (3) annual customs brokers permits.

But now, the US government specifically and expressly intends to raise these fees (and/or others) in order to fund TAA and offset lost tariff revenue on imports from Korea, Colombia and Panama - absolutely nothing to do with the "actual costs of providing the services for which they are charged" or, in WTO parlance, the "the approximate cost of services rendered."  So, even assuming that this plan doesn't run afoul of more general WTO non-discrimination provisions by singling out certain countries, how is the deal even remotely WTO-consistent under the most conservative reading of GATT Article VIII?

I honestly have no idea.

But, hey, even assuming the plan isn't illegal, that doesn't change the fact that it's clearly insane.  So it's got that going for it, which is nice.

Could someone again please remind me how we got into this mess?

Short Article, Big Lessons

From Colombia Reports comes a great article that, on its face, seems to be just a short piece about foreign investment, but actually provides several great lessons about the global economy:

Colombia's largest cement company Argos has bought several cement plants in Alabama, Georgia and South Carolina for $760 million, reported local media Thursday.

Argos Cements bought the plants from the French company Lafarge. Argos entered the US market in 2005 and says it plans to become the fourth largest ready mix producer in the U.S.

Chief Executive Jose Velez said in an interview as reported by Dow Jones "We are conservative in our outlook but we do expect more activity in 2010." Velez also said that he is not worried by the weak dollar or the strong peso.

"Because of the weakness of the dollar most of our inputs are cheaper now ... The net impact of the appreciation [of the peso] is zero at this time."

The purchase, which is still subject to approval from U.S. regulators, is part of an long term expansion strategy aimed at consolidating Argos' presence in the U.S. market.

So what kind of lessons can we draw from these few paragraphs?  Here's what I came up with:

• The obvious benefits of foreign investment in the US economy.  But for Argos' investment, these French-owned cement plants in Alabama, Georgia and South Carolina may have gone out of business, eliminating hundreds of American manufacturing jobs in the process.  Now, let's just hope that those "US regulators" don't foul things up.

• Where all that great foreign investment wants to go.  All of Argos' $760 million investment is going to Right to Work States. i.e., states with laws prohibiting compulsory union membership.  Of course, as I've often noted here, foreign investment in these states - particularly those in the South - is part of a growing trend.  In fact, the empirical evidence shows that RTW states attract more FDI than their forced-unionization counterparts.  Of course, the economic dominance of RTW states isn't isolated to attracting foreign investment.  As Steve Moore and Art Laffer recently noted in a great WSJ op-ed: "As of today there are 22 right-to-work states and 28 union-shop states. Over the past decade (2000-09) the right-to-work states grew faster in nearly every respect than their union-shop counterparts: 54.6% versus 41.1% in gross state product, 53.3% versus 40.6% in personal income, 11.9% versus 6.1% in population, and 4.1% versus -0.6% in payrolls."

• How global supply chains erode the conventional wisdom on trade and currency and make import liberalization increasingly important.  Velez states: "Because of the weakness of the dollar most of our inputs are cheaper now ... The net impact of the appreciation [of the peso] is zero at this time."  This means that his company is importing raw materials from the United States or from countries whose currencies are pegged to the dollar.  Either way, it's a great example of how global supply chains have made old school currency dogma irrelevant, and why a strong currency and the elimination of import barriers are important for intermediate/downstream producers like, oh I don't know, the United States.  Now, if only there were a way for the United States and Colombia to instantly lower the vast majority of their bilateral trade barriers.  Oh, wait.

• The origins of that Colombian investment capital - the US-Colombia trade deficit.  One of the constant refrains here is that trade deficits are not "bad things" because, among other things, they necessarily lead to foreign investment in the United States.  As Cafe Hayek's Don Boudreaux put it, "another name for 'U.S. trade deficit' is 'U.S. capital-account surplus' – that is, inflows of investment funds into America that supply (directly or indirectly) financing for more capital creation in America."  (Mark Perry adds more here.)  In 2010, the United States had a $3.6 billion bilateral trade deficit with Colombia, and now $760 million is coming back to the U.S. as investment in domestic cement plants.  In short, Americans gave Argos and other Colombian firms our dollars, and now they're re-investing those dollars in the US economy.  Suddenly, those trade deficits aren't so scary anymore, eh?

I'm sure I missed something.  Feel free to add your lessons in the comments.

(h/t Monica Showalter)

Barfield: The Big Downside of the Colombia FTA [UPDATED]

Claude Barfield's quick take on the big US-Colombia FTA "action plan" is dead-on and worth quoting in full (h/t Ramesh Ponnuru):

I will write more on this subject in the future, but I want to flag a big downside in the just-announced agreement to move forward with the U.S.-Colombia Free Trade Agreement: that is, the highly intrusive and largely ill-advised provisions of the so-called “Action Plan” for Colombian labor laws and regulations. Yes, I know that the Colombians—browbeaten and desperate to assure permanent access to the U.S. market—have agreed to go along. But in many ways these provisions represent a callous trampling on Colombia’s sovereignty and the right to determine for itself specific priorities and obligations in the domestic labor market.

Among the more egregious demands, Colombia has acquiesced to “criminalize” (with prison terms of up to five years) any acts that “undermine the right to organize and bargain collectively.” It must also pass a law dictating prison terms for anyone who “offers a collective pact to non-union workers that is superior to terms for union workers.” No definition of “undermine” or “superior terms,” of course, is set forth. Such vague mandates are an invitation to harassment and extortion. Further, Colombia must assume heavy administrative and enforcement obligations that will stretch resources and constrict the government’s flexibility to adjust as labor (or other) conditions change in the future—including mandates on the number of inspectors, prosecutors, and police labor investigators, a plethora of new legislative actions, programs, analyses, directives, and consultations/meetings in the labor relations area. Some of these ideas have worth, but the attempted straitjacket of mandated priorities will breed endless disputes down the road.

Two closing questions: the first, related to the above, is what will happen when Colombia, through its own democratic process, wants to adjust programs and mandates in the future? Will the United States intervene to stop or control such changes? And second: beyond Colombia, the United States in the future—starting with the TPP—will attempt to conclude more FTAs. Does the Obama administration really think that Australia or Chile (and later possibly Indonesia and India) will stand for this intrusive trampling of sovereignty and democratically established laws and regulations? Good question—with an obvious answer.

I should add that, ironically, even this is not enough for U.S. labor unions, who have unanimously announced their opposition to the Colombia FTA even with the action plan.

On that last point, I'll simply repeat my usual chorus: placating anti-traders is always - ALWAYS - a fool's errand.

On Barfield's main point, however, I'm a little curious: haven't we been doing this type of FTA bullying for a long while now?  The US-Peru FTA immediately comes to mind here:

The U.S. and Peru reached their agreement at the end of 2005, signed it in April 2006, and the Peruvian Congress ratified it a year ago. With changes pushed by Democrats this year before a vote in Congress, Peru was forced to accept tougher environmental and labor rights rules, and its legislators in June approved the agreement a second time.

In recent weeks, Peru’s labor ministry issued a decree limiting the use of non-union contract workers in mines and other unionized industries. That decree and other changes to Peru’s labor regulations address more than 60 percent of the initial concerns by unions, said Douglas Figueroa Silva, president of the Confederation of Workers of Peru.

As you may recall, the Peruvian government was "forced" to accept new labor and environmental standards and re-vote on their FTA because then-Ways & Means Chair Charlie Rangel (D-NY) and his buddy Rep. Sandy Levin (D-MI) literally traveled to Peru to condescendingly judge them demand pledges from the Peruvian government on labor and environmental issues.  And they got them.  (Levin tellingly complained about Peru's failure to implement all of his labor demands in 2009, yet subsequently bragged about his Peru-bullying prowess in 2011.)

The United States also has sought "legislative reforms" from partners of completed FTAs due to their alleged labor infractions, and is already bullying TPP members on dubious environmental provisions related to timber harvesting.

So while I totally agree with Claude that the US-Colombia "action plan" is a slap in the face of the Colombian government (and a blatant affront to their sovereignty), it's not really that surprising, is it?  The detailed plan might beprobably is a more aggressive and blatant than the many other instances of American FTA bullying, but - unless I'm missing something (always a distinct possibility) - it's not breathtakingly novel.  This bad precedent was set years ago.

Of course, Colombia voluntarily agreed to make these legal changes, and there's a very good argument that they're totally cool with doing that.  But still - the fact that we have to publicly emasculate our supposed "ally" in order to pass a totally-lopsided trade agreement is a pretty telling (and depressing) indicator of the current state of American trade policy, now isn't it?

UPDATE: Barfield ably responds to my questions - definitely worth a read.

Great News: US-Colombia FTA "Action Plan" Announced (Whatever That Means) [UPDATED]

Today, the Obama administration boldly announced that, after only 27 months in charge of US trade policy, they'd finally come to terms with the Colombian government on a path forward - or "action plan" - for the US-Colombia FTA, so that the President could eventually deem the completed-and-signed-in-2006 agreement ready to send to Congress for final approval and implementation:

President Obama is committed to pursuing an ambitious trade agenda that will help grow our economy and support good jobs for U.S. workers by opening new markets. To achieve that objective, we seek to provide a level playing field that creates economic opportunities for U.S. workers, companies, farmers, and ranchers, and that ensures our trading partners have acceptable working conditions and respect fundamental labor rights. As part of this broader trade agenda, the Obama Administration has worked closely with the government of Colombia to address serious and immediate labor concerns. The result is an agreed “Action Plan Related to Labor Rights” that will lead to greatly enhanced labor rights in Colombia and clear the way for the U.S.-Colombia Trade Agreement to move forward to Congress. The U.S.-Colombia Trade Agreement will expand U.S. goods exports alone by more than $1.1 billion and give key U.S. goods and services duty free access in sectors from manufacturing to agriculture. It will increase U.S. GDP by $2.5 billion and support thousands of additional U.S. jobs.

USTR's announcement elicited cheers of support from House and Senate leaders, pretty much all of the US business community, and most other free trade advocates out there.  And in one sense, supporters of the FTA are right to be happy: after more than two years of absurd stalling, ridiculous excuses and fake negotiations, this is the first set of concrete timelines and benchmarks to which the Obama administration has been willing to publicly commit itself.  So if/when the Colombian government jumps through all of the administration's hoops, there will be absolutely no excuse to further delay the FTA.  This is good.

But please allow me to be a Debbie Downer for a second and state the blatantly obvious, ahem, not-so-good news here: this "action plan" still leaves us all without a freakin' clue as to when President Obama will actually submit the FTA's implementing legislation for final congressional approval, and it still leaves that decision in the President's hands alone.  As this article in The Hill stated plainly: "U.S. trade officials didn't provide a timeline for ratification of the pending free trade deals, saying they would need to meet with congressional leaders to determine the path."  Yet a simple comparison of the press releases issued today by the Democrat and Republican heads of the Senate Finance Committee makes clear that this "path" is still totally up in the air, and that the folks on the Hill are still waiting for some sort of real timeline from the White House.  Here's Chairman Baucus (D-MT), being painfully vague and nonchalant about when the Agreement might reach Congress (emphasis mine):

The agreement between the Administration and Colombia on an action plan to build on the progress Colombia has made in strengthening labor rights, reducing violence and punishing violent offenders will allow us to move the Free Trade Agreement forward. The Administration should immediately begin working with Congress on the implementing legislation so the President can submit and Congress can approve the agreement in the coming months.

And here's Ranking Member Hatch (R-UT) with a lot more urgency, but still no clue as to timing (again, emphasis mine):

While long overdue and despite unreasonable delay, today’s announcement by the Administration is welcome news.... We must now start the necessary work with the Administration to prepare the U.S.-Colombia trade pact for congressional consideration - in tandem with the pending trade agreements with South Korea and Panama.... Passage of these three trade agreements will yield new economic opportunities for Americans, strengthen our international alliances, and preserve our role as the single greatest economy in the world. They deserve careful and timely consideration by Congress.

So congressional Democrats who support the FTA would be pleased to see it "in the coming months," while congressional Republicans want it "now" and "in tandem with" the Panama and Korea FTAs.  And the same folks who opposed the deal yesterday still oppose it today.

In other words, unless Presidents Obama and Santos announce tomorrow a firm, formal schedule for the submission of the FTA's implementing legislation (e.g., after Colombia has timely met half of the benchmarks listed in the plan), this action plan hasn't really changed anything.  The agreement's fate still depends entirely on the Obama administration's promises and intentions - the only difference is that those promises and intentions now must be couched in the action plan's more formal terms.  That's not really much of a difference: when the White House alone is satisfied with the action plan's implementation, the FTA will move.  If they want it to move quickly, they can move it quickly, and if they want to slow walk the FTA into 2013, they could probably figure out an excuse or ten to make that happen.  Yet with Canada-Colombia FTA on the verge of implementation, and with American exporters continuing to pay millions of dollars worth of needless Colombian tariffs, further delay is simply not an option.

In this light, today's big news is no different from me telling my wife that I have an "action plan" for taking out the garbage, when trash day is tomorrow.  Plan or not, it all comes down to whether I really care about handling my responsibilities and meeting a quickly approaching deadline.  If I don't care, then the garbage man's just going to pass us by (again), and the trash will pile up (again).

So if I'm a GOP congressman or a US business leader, and I really want to see this FTA approved by Congress in 2011, then I'll give today's announcement a polite golf-clap, but I'm certainly not going to cave on Democrat trade priorities (like TAA) or to stop publicly pressuring the President to submit the agreement right now.  Because until the Colombia FTA is actually sent to Congress, then no amount of "action plans," strong commitments or good intentions should be sufficient to get me to call off the dogs.  That approach may have been okay in 2009, but not now.

Now, it's time to take out the damn trash.

UPDATE: The Big Obama-Santos meeting clarified nothing on the FTA's timing.  Nothing.