On Monday night, I recommended that, given President Obama's depressing timidity on US trade policy, WTO Members should "formulate appropriate contingency plans, such as putting the [Doha] Round on ice until, oh I don't know, 2013 when the White House will (hopefully) be occupied by someone more amenable to free trade." Well, less than a day later, it became crystal clear that pretty much everyone in Geneva, except the Obama administration of course, agrees with me (emphasis mine):
The likelihood of the Doha round of world trade talks being declared dead this year rose on Tuesday when it became clear that even a partial deal would not be possible. The talks, named after the Qatari capital in which they were launched in 2001, have drifted further towards oblivion in advance of a twice-yearly meeting of ministers this December.
Pascal Lamy, the World Trade Organisation’s director-general, told negotiators in Geneva on Tuesday that the WTO’s negotiating function was “in paralysis”. He urged member countries to use the December meeting to have a broad conversation about the future of Doha rather than try to make concrete progress.
Negotiators have tried to rescue a minuscule part of the talks by proposing a stand-alone “early harvest” package to be agreed in December which would extend market access to some of the world’s poorest countries and reduce cotton subsidies – a subject of particular interest to a group of west African nations.
But the US said on Tuesday that such an agreement would not be possible because of the refusal of other governments to accept other elements in the package....
Michael Punke, the US ambassador to the WTO, said on Tuesday that the stand-alone deal was impossible. “It has become clear to us and to many others that a so-called early harvest package is not happening and is not going to happen,” he said. “As we feared, participants have proven much more comfortable in talking about what others can give than in talking about what they can contribute themselves.”
A deal to give the least-developed countries (LDCs) completely free access to rich nations’ markets and reduce cotton subsidies would require difficult commitments by Washington. The US has already failed to reform its generous payments to politically powerful cotton farmers, despite having had them declared illegal by the WTO, and a deal for the LDCs would cut across the existing US scheme to give preferential access to all African countries.
Yi Xiaozhun, the Chinese ambassador, took implied aim at the US, saying that the insistence on bringing in new issues was crippling discussions. “The intention of various members to put on their own demands . . . would finally kill the core package that the LDCs really need,” said Mr Yi.
The Doha round has made no significant progress since a ministerial meeting collapsed in mid-2008 in Geneva. An increasing number of officials admit privately that the round will never conclude, but as yet no government has publicly declared it over.
We all see what's going on here, right? Any deal on cotton and LDCs - relatively minor issues that almost all WTO Members support - would require legislative changes to US laws and, of course, the expense of political capital by the already-campaigning White House to get that done. As I said on Monday, the President's unwillingness to spend such capital on trade issues is well-documented at this point. Indeed, when it comes to our WTO-illegal cotton subsidies, the Obama administration is so utterly unwilling to take some political lumps and pursue necessary reforms that it's resorted to bribing Brazilian cotton farmers (with taxpayer dollars, of course) instead of modifying the offending programs.
And let's please not kid ourselves here and blame Congress for the Administration's political pusillanimity on these trade issues - the House voted to terminate the Brazilian payoffs just last month, and both the Republican-controlled House and Democrat-controlled Senate recently showed a willingness to address US preference programs by attaching them (rightly or not) to the US-Colombia FTA implementing legislation. So if the White House really wanted to get a cotton/LDC package through Congress, it could very likely do so.
But that would require, you know, political courage and effort - something sorely lacking these days over at 1600 Pennsylvania Avenue (and not just on trade).
So, given these sad facts, what does USTR do in Geneva? They submarine the December deal by making other demands that many nations adamantly oppose. Who knows whether they did this to try to buy off domestic opposition to the cotton/LDC package or to just kill the chances of a final deal, but the result of their demands was the same in either case: inevitable failure.
Again.
Yes, other Members like the EU also have made additional demands, but do you really think that they would maintain their positions if the United States expressed robust support for the basic LDC/cotton package? I sure don't. Indeed, as Phil Levy and I argued last December, bold US leadership could have realistically secured a robust Doha package in 2011. Certainly it could get this feeble package across the finish line.
And yet, here we are. Sigh.
So, once again, American political cowardice has helped scuttle an important trade liberalization initiative. And, once again, supporters of robust American free trade policy are reminded that we, like the WTO negotiators in Geneva, should just pack it all in until 2013 (hopefully).
Any optimism before that time would just be foolish.
One of the reasons that anti-trade policies prevail in spite of the ample economic and moral arguments against them is that the benefits of protectionism are concentrated and seen, while the costs are diffuse and unseen. For example, when our politicians are mulling the imposition of tariffs on steel, it's easy for them to identify the few US steelmakers and workers who will benefit by a large amount, while it's harder to predict the many, many American steel consumers (and, in many cases, their workers) who are harmed in smaller-yet-equally-real sums.
This classic public choice dilemma has confounded free trade advocates for decades, and it's why surveys like the one recently conducted by the Coalition for GSP are so important for not only the debate about renewing the Generalized System of Preferences program, but also educating American citizens and policymakers about the very real harms that anti-trade policies inflict on American families and businesses.
As you'll recall, GSP and the similar Andean Trade Preferences Act (ATPA) expired at the beginning of the year due to a classic case of congressional ineptitude and backroom dealing. Once the program expired, GSP-eligible imports from developing countries that used to enter the USA duty-free immediately became subject to tariffs. Thus, American importers and consumers were immediately hit with a new tax - totaling hundreds of millions of dollars so far - on the products that they need to survive in this rough economic climate.
In the survey, the Coalition asked two simple questions of these unfortunate American importers/consumers:
1. How much in new tariffs has your business paid in 2011 because of GSP expiration?
2. What percentage of your business comes from products imported under GSP?
If you're like me, the answers will disgust you. Here's a sample:
“The timing couldn’t be worse with a weak dollar and inflationary prices on raw materials. My company was just starting to experience growth out of this recession when these three factors hit it hard all at once and crippled us.”
“This inaction is causing 2 problems. We have paid out over $18,000 in additional duties, making what should have been a slightly profitable year into a losing one and forcing us to cut plans to expand. Also the uncertainty of whether or not this will be signed again makes decision-making even more difficult.”
“We need GSP renewal. We are losing sales as our products are too expensive & we will have to cut jobs in our office.”
“I was set to hire at least one employee and possibly two at the beginning of the year which I scrapped after paying about $12,000 in customs that used to be covered under GSP eligibility.”
"For very small companies like ours, the loss of GSP and ATPA simultaneously has wrought havoc on our finances. We have paid over $61,000 in duty since Jan. 1, 2011 for frozen food imports. These costs cannot be passed along to our customers, who are large food manufacturing companies with long term contracts. With the problems of availability of credit for small businesses having taken its toll, the increase in the cost of health care premiums for employees, and now the loss of GSP/ATPA, for the first time ever we have had to lay off an employee and cut back on benefits."
Some of our elected officials like to talk about trade policy in terms of accepting "economic reality." Well, you can get any more real than this, can you? Sheesh.
The RenewGSPToday website has more horror stories of protectionism's "unseen victims," and I highly recommend that you share them far and wide. It's about time that the other side of the story was told.
Happy belated early St. Patty's Day. Here are some links to keep your lucky streak going:
AEI's Phil Levy writes a great column about the likely economic aftershocks of the Japan tragedies caused by, among other things, global supply chains. The WSJ follows (intentionally or not) Levy's lead with an interesting report on how Japan's problems should affect its exports to China (and thus Chinese exports of goods typically made from the imported Japanese inputs).
Speaking of Levy, he provides a very good explanation of why China's Indigenous Innovation policy can't achieve China's long-term policy goals but should be a priority for the United States because of the significant near-term pain it'll cause American companies.
The absurd, needless expiration of the US Generalized System of Preferences cost American manufacturers $54.4 million in January alone. Awesome.
Last week's BEA release of the US trade deficit stats elicited a typically awful write-up from the AP. The forces of good appropriately correct the journalist responsible here, here, here and here.
The Heritage Foundation's Walter Lohman and Derek Scissors deftly analyze something that I noticed about a year ago: Australia's China policy is very, very sound. And, as if on cue, the Aussies provide even more proof of this fact.
I selfishly hate the relatively new starting date for Daylight Savings Time because it makes getting out of bed to go for a jog excruciatingly difficult, but now I have a more altruistic, economic reason to hate it. Bonus.
In reporting on the latest developments in the longstanding US-Canada softwood lumber dispute, the Economist provides another great lesson on the fleeting benefits and long-terms costs of protectionism.
The Washington Post confirms what we already knew: the White House, not USTR, drives American trade policy.
More excellent destruction of self-avowed protectionist Ian Fletcher's public "arguments" by Cafe Hayek's Don Boudreaux here, here, here and here. To my knowledge, Fletcher has yet to respond directly to any of Boudreaux's killer critiques.
Here are several headlines that are well worth your time:
So the US and Mexico have apparently resolved their cross-border trucking dispute. By my math, it only took the President two years - and many millions of dollars worth of needless tariffs on US exports - to "end" (only half the tariffs were immediately lifted) the dispute, and his big "solution" actually appears to be worse (i.e., more trade-limiting) than the program his party unlawfully eliminated back in 2009. In that way this new "fix" is just like the President's solution to the US-Korea FTA - long delays, tons of lost export opportunities, and a worse agreement than the one his predecessor negotiated many years prior. (Hey, are we seeing the emergence of an "Obama doctrine" on trade?)
Simon Lester absolutely dismantles the latest trade-skeptical piece from Princeton's Uwe Reinhardt, which bizarrely characterizes the free trader's view of the world as "a giant cattle farm to be managed in ways that maximize the collective weight of the cattle." Lester also gets in a good shot on everyone's favorite protectionist punching bag, Ian Fletcher.
Speaking of Fletcher, Cafe Hayek's Don Boudreaux pens yet another devastating-yet-simple criticism of Flether's latest protectionist screed (be sure to read Don's enlightening follow-ups in the comments section); AEI's Mark Perry follows-up by pointing out the basic economic ignorance of protectionism. (I'd also note the utter insanity of Fletcher's assertion that mainstream media journalists "are well-paid and 'lean right' on trade." Umm, WHAT?)
Cato's Sallie James heartily fisks Sen. Sessions' silly press release extolling his new legislative "fix" to the GSP program. I'd only add that, according to the his presser, Sessions is apparently proud to be aligned with this guy on the GSP issue. (Err, congrats, Senator. Way to think that one through.)
Mark Perry highlights a fascinating study on the changing dynamics of the American and Chinese manufacturing sectors, and the fact that "some manufacturing is being brought back to the U.S. from China, especially for smaller American firms, because of: a) rising labor costs in China, b) inconsistent quality, c) shipping costs that have doubled in the last year (see chart above), and d) the lack of safeguards on intellectual property." Put another nail in the "outsourcing" coffin. (Note: as I've previously noted, these "in-sourcing" and "re-shoring" phenomena have been happening for a while and seem to gain steam when energy prices are high.)
EconLog's David Henderson efficiently undermines the misguided notion that unionization promotes the "middle class." (Of course, one need only notice the unions' uniform opposition to free trade to realize the absurdity of that notion, but still....)
The Examiner's invaluable Tim Carney mercilessly details how all those super-neato green subsidies aren't "driven by tree-hugging activists, earnest liberal bloggers, or ecologically minded citizens" and instead flow "from the lobbyists and executives of well-connected multinational corporations and built-for-subsidy startups that see profit in the loan guarantees, handouts, mandates, and tax credits Congress creates in the name of saving the planet." Shocking, I know.
Last night, I reported on the oodles of criticism - all of it well-deserved - that the Cato Institute and Heritage Foundation were heaping on the Trade Adjustment Assistance (TAA) program. Well, looks like the think tanks' excellent and thorough evisceration of TAA paid off today($):
House leadership abruptly pulled a trade bill off the floor Tuesday, amid concerns from conservative Republicans that the measure allowed for too much government interference in the economy.
The underlying legislation would have extended expiring Trade Adjustment Assistance programs (TAA), along with a host of specific tariff reductions. The assistance programs provide aide and training to workers who lose their jobs, or see their hours or wages reduced, due to increased imports.
While the TAA program has traditionally enjoyed bipartisan support, the conservative Republican Study Committee outlined several concerns with the bill in its legislative bulletin Tuesday morning, stressing that conservatives have voted to eliminate the program in the past.
The RSC notes that the program was expanded as part of the 2009 economic stimulus law (PL 111-5 ) and argues that it picks "winners and losers" by singling out workers affected by increased imports for "extra generous treatment" by the government. The group called the program duplicative, overly expensive and ineffective.
Trade adjustment benefits have long been used as a way to build support for free trade agreements. The RSC argues that recent TAA extensions have been enacted as part of an implicit agreement that stalled trade agreements with South Korea, Colombia and Panama would be advanced; thus far, none of those agreements has won congressional approval.
Many Republicans remain reluctant to advance TAA without a commitment from the administration to send all three pending trade deals to Congress for approval - not just the deal with South Korea.
Brad Dayspring, spokesman for House Majority Leader Eric Cantor , R-Va., said that "Chairman Camp and other Members informed the Leader that they wanted to have a further discussion about the legislation."...
Just two months ago, Congress extended expiring TAA benefits and trade preferences for Andean nations through Feb. 12 (PL 111-344), offsetting the cost with an extension of a customs user fee that was previously set to expire in 2019. It also increased the size of a tax installment due from corporations that send the government estimated tax payments.
With that law set to expire this weekend, the House had been slated to consider a longer-term extension of those programs. But instead of using a customs fee increase as an offset, House Republicans have proposed cutting $238 million from the $500 million in fiscal 2014 funding that is scheduled to be available to the TAA's Community College and Career Training grant program three years from now.
The CQ article above emphasizes the defection by fiscally conservative House Republicans as the root cause of TAA's meltdown today. Another free market group, the Club For Growth, also opposed the TAA/ATPA extension (as did the Wall Street Journal) for reasons similar to those of the RSC - ATPA is a fine little program, but TAA is a big, ugly mess. Business groups like the US Chamber of Commerce and the American Apparel and Footwear Association, on the other hand, urged House Members to hold their noses and vote "yes" on the TAA/ATPA extension.
On the other hand, The Hill reports that today's TAA/ATPA failure was less about a growing divide among "true believers" and "RINO squishes" on the TAA issue and more about a unified GOP voice railing against the Obama administration's lackluster trade policy:
House Republicans have postponed Tuesday night's planned vote to extend two expiring trade provisions, in part because they do not believe the Obama administration has shown enough commitment to advancing the U.S. trade agenda.
Republicans had planned a vote to extend the Andean Trade Preferences Act (ATPA), which lowers duties on imports from Andean countries, and the Trade Adjustment Assistance (TAA) program, which helps U.S. workers hurt by overseas competition. The TAA program is widely supported by Democrats, and some Republicans were known to be pressing for a White House commitment to move ahead with the Colombia and Panama free trade agreements (FTAs) before allowing a vote on TAA.
House aides said Tuesday that the vote has been postponed for this reason, and that a vote has not been rescheduled at this point.
While I have no doubt that many House Republicans are fed up with the administration's deplorable stance on the Colombia and Panama FTAs, it seems pretty unlikely that this is the real reason why today's TAA vote got pulled. Instead, this looks like a classic case of House leadership putting lipstick (ATPA) on a big, smelly pig, and then erroneously expecting their more conservative/libertarian colleagues to just hold their noses and smooch away. And look, the leadership may have had a point, at least politically. As AEI's Phil Levy noted today in urging House members to approve the TAA extension:
[T]o eliminate TAA altogether would send an unfortunate message of callousness that program critics do not intend. It would also seriously impair efforts to craft a new bipartisan understanding between the administration and congressional trade supporters. There are plenty of obstacles to trade progress; this would add a new and unnecessary one.
A temporary extension of TAA would demonstrate good faith in talks to revive a national trade agenda and would buy time until a better program can be put in place.
I totally get Levy's point - this provides political opportunists (like a certain senior Senator from New York) with an shiny new talking point - and I may have agreed with Phil if it weren't for the undeniable fact that (i) TAA has ballooned to a pretty massive ($2.4 billion) program; (ii) TAA's expansion hasn't convinced congressional Democrats - or our allegedly pro-trade President - to robustly support the pending FTAs; and (iii) this TAA package only had the relatively small ATPA sweetener and didn't include a needed extension of the much larger and more significant Generalized System of Preferences program. Given those facts, and the many others raised by Cato, Heritage, the RSC, the WSJ and the Club for Growth, it seems that, on balance, today's TAA legislation did not deserve to be supported.
Only time will tell, however, if the "true believers" can make this one stick.
NRO's Andrew Stiles reports that Sen. Jeff Sessions (R-AL) has decided to vocally champion the much-needed reform of America's embarrassing corporate tax system:
During a Senate Budget Committee hearing today titled “Tax Reform: A Necessary Component for Restoring Fiscal Responsibility,” ranking member Jeff Sessions (R., Ala.) made an impassioned case for why corporate-tax rates must be significantly reduced — in addition to any general reform measures designed to simplify the tax code — if the United States wants to remain an attractive place to do business. Simply doing that, he argued, would go a long way toward bringing down the unemployment rate....
"The problem is far more serious than that. We have, even in real rate terms, one of the highest, if not the highest corporate [tax] rate in the developed world. Corporations are making decisions every day: where to expand, where to hire workers…"
"This is not academic. This is going on every day. We have an unemployment rate that is unacceptable and to have the highest corporate tax rate virtually in the world — and other nations are seeing the light in reducing it — and we remain high?"
"So even if we eliminate certain deductions and have a flat rate that appears lower, it seems to my simple mind that we’ve got no less real burden on the corporate community than we had before."
As readers of this blog know, I agree wholeheartedly with Sen. Sessions that we need to reduce taxes (and other government-induced burdens) on American companies to help them better compete and thrive in today's global economy. However, Sen. Sessions' views on reducing corporate "burdens" would be a lot more believable if he weren't singlehandedly responsible for increasing taxes on American business to the tune of several hundred million dollars per year.
As I noted in December, Sen. Sessions alone blocked the 2011 extension of the Generalized System of Preferences (GSP) - a longstanding program that lowers or eliminates tariffs (which are taxes, of course) on developing country imports, including a lot of industrial inputs and equipment used by American businesses - because he couldn't get Congress and the administration to agree to increase tariffs (taxes) under the GSP on sleeping bags from Bangladesh in order to protect a small Alabama sleeping bag manufacturer from duty-free import competition. So he pitched a fit, put a "hold" on the GSP legislation, and the program expired. (And per the New York Times, it appears that he's still at it.)
Cato's Sallie James explains that the cause and effect of Sessions' actions are straightforward and significant:
The Generalized System of Preferences is a federal program that offers duty-free access to the U.S. market to certain goods from certain developing countries. Or, I should say, was a federal program, because it expired on December 31. My opinion of the program is ambivalent at best, but one cannot deny that the program brings real cost savings to American consumers and businesses -- to the tune of $580 million a year -- through lower import duties....
But those duty savings are, apparently, worthless in the face of special interest politics....
The GSP expired and millions of U.S. consumers and businesses (not to mention developing country exporters) are being penalized to save a hypothetical 20 (that's two-zero) jobs that don't even exist yet. The jobs being lost by businesses that depend on the GSP to keep them competitive are, apparently, not worth consideration. And as for consumers' buying power being eroded, well forget it.
By my math, that's about $29 million in increased taxes per hypothetical new job! While that might beis probably a good deal by Washington standards, it's a pretty awful deal for the US business community, which is feeling real, not hypothetical, pain because of Sen. Sessions. In fact, the Coalition for GSP has started a great new website chronicling the real American businesses that benefit - err, benefited - from the lower taxes on developing country imports made possible by GSP. (It also provides a broader lesson about the benefits of free trade for US manufacturers and consumers, of course.) Here's a taste:
Behr Dayton manufactures engine cooling and air conditioning technology for the automotive industry in a 1.1 million square foot facility in Dayton, Ohio. According to Heinz-J. Otto, President and CEO of Behr America, the 1,000 workers in Dayton “make engine-cooling and air-conditioning components and systems for cars built by GM, Ford and Chrysler, U.S.-built cars by BMW and Mercedes, and heavy trucks produced by Freightliner and International.”
In addition to being one of Dayton’s largest manufacturing employers, Behr is one of the most frequent importers of aluminum foil from Brazil. In the first 11 months of 2010, 99.98 percent of those imports entered the United States duty free under the GSP....
GSP saved manufacturers like Behr Dayton more than $2.5 million on imports from Brazil. Surprisingly, Brazil isn’t even the largest supplier of aluminum foil under GSP. That honor goes to tiny Armenia. About a quarter of the size of Ohio and with a population just over 3 million, Armenia exported more than $58 million worth of aluminum foil under GSP through November 2010 and saved American companies another $3 million.
Sen. Sessions selfish, nakedly-political actions have forced US manufacturers like Behr Dayton to face more than $5 million in new taxes in 2011. Other manufacturers face similar pains, and even if (when?) GSP is eventually renewed and applied retroactively to January 2011, it's quite likely that many of these American companies will have already made other, more expensive sourcing plans (and that planning ain't exactly a costless exercise itself, you know). And, naturally, with new taxes and more uncertainty come fewer jobs.
The junior Senator from Alabama talks a big game about eliminating taxes and other burdens on American businesses in order to improve the US economy and decrease unemployment. And he's right: those burdens definitely need to be removed, and such reform could really help jumpstart our economy. But if Sen. Sessions really believes all that great free market rhetoric, he can - and should - prove it.
Releasing his GSP hostages would be a great, and easy, place for the Senator to start.
Question:When is a legislative provision imposing a tax on all Americans in order to financially benefit a single, politically-connected manufacturer in a Senator's backyard not an earmark?
Answer:When a United States Senator says it isn't, goshdarnit!
Please allow me to explain. A rather substantial stink has recently been building on Capitol Hill due to Sen. Jeff Sessions' (R-AL) desire to increase taxes on US sleeping bag consumers in order to benefit an American manufacturer of those products who just so happens to be located in Sessions' home state of Alabama. The Hill gives us a good rundown of the issue:
While Republicans mounted a chorus of opposition to earmarks in spending bills this week, Sen. Jeff Sessions has been quietly blocking a routine tax measure to demand the addition of what is basically an earmark: a new tariff that would benefit a single small business in his state....
Sessions is arguing for a tariff on Bangladeshi sleeping bags to benefit an Alabama company called Exxel Outdoors, which claims to be the only U.S. manufacturer of discount sleeping bags.
CEO Harry Kazazian told Roll Call the tariffs are needed to close a loophole in the Generalized System of Preferences, which allow for duty-free import of certain products from developing nations.
Enacted during President George H.W. Bush’s presidency, the law applies to goods that would not provide direct competition to domestic manufacturers and was designed to help the economic growth of developing nations.
Since it was passed, the legislation has largely gone unnoticed. Aides in both parties said it has typically been renewed through unanimous consent agreements and has become one of the background bills agreed to during evening wrap-ups in the Senate.
But over the past year, Exxel has found its business threatened by the GSP, as companies have begun importing inexpensive sleeping bags from Bangladesh essentially duty-free.
Kazazian said Wednesday that could spell the end for his Haleyville, Ala., company....
Earlier this year, Sessions sought to include language in the renewal of the GSP to close the loophole and save Exxel’s Alabama plant, but he has been unable to reach an agreement with Democrats and Republicans, who are pushing to pass the bill as is.
After numerous proposals to address the situation, Sessions opted to place a hold on the bill, which at this late date in the session means the GSP is likely to lapse at the end of the year.
Ok, let's fill in a few blanks here that The Hill missed. The GSP and other tariff preference programs provide duty-free access for about 5000 different imported goods from developing countries not only to benefit those countries, but also to benefit the myriad American businesses and families that consume those imports. The bill essentially eliminates vestiges of protectionism - high tariffs that remain in the US tariff schedule due to old school cronyism - that force American consumers to pay more for the protected goods. In short, and to use a phrase that protectionists just love, US preference programs "level the playing field" for beneficiary developing countries seeking to compete in the US market by lowering or eliminating existing tariffs that have tilted the playing field in domestic producers' favor. This "leveling," of course, also provides lower prices for US consumers. Indeed, according to the US International Trade Commission, US prices for high-tariff goods like clothing, dairy products, shoes and ball bearings are significantly higher than global prices, thus imposing a regressive tax on all consumers and forcing American families to expend more of their paychecks on the protected finished goods (and American businesses to pay more for the protected inputs). So GSP and other preference programs essentially provide tax cuts for all US consumers - tax cuts that disproportionately benefit those on the lower-end of the income scale.
In the case of sleeping bags, the US tariff schedule imposes a 9% tax on all imports of these products, thus preventing typical foreign producers from competing freely in the US market and forcing American retailers and consumers to pay more of their hard-earned money for sleeping bags. GSP eliminates that regressive tax for imports from (economic powerhouse) Bangladesh, thus enabling Bangladeshi producers to compete with US producers on a truly level playing field (i.e. one without any artificial barriers to trade due to a 0% tariff) and allowing Americans to pay less for their sleeping bags, if they so choose. We don't know where the money saved will go - maybe to savings or camping trips or S'mores or whatever - but what we do know is that American consumers won't be forced to waste their money on non-competitive domestic sleeping bags. They, of course, can very well choose to buy the American sleeping bags if they want, but that choice simply is not good enough for Sen. Sessions and his cronies. They want to amend GSP such that we are all forced to pay more for sleeping bags in order to "save" (read: prolong the inevitable demise of) a tiny sleeping bag manufacturer in Alabama.
And Senator Sessions is willing to take down the entire GSP program to do it, thus jeopardizing exporters and consumers of not only sleeping bags but also lots of other things that we use everyday like tires, jewelry, carpets, luggage, gloves, etc etc. According to the Coalition for GSP, total 2009 trade in products covered by GSP totaled over $20 billion, thus saving American families and companies (and their thousands of workers) millions of dollars annually and providing poor countries with a fantastic, free market way to help their citizens escape abject poverty. Yet all of these benefits - and others resulting from another preference program targeting the Andean region (ATPA, which covers Colombia, Ecuador and Peru) - will disappear next week because of a little earmark for an Alabama sleeping bag manufacturer and its 70 workers. Nice, eh?
Now, some, including Sen. Sessions argue that Bangladesh doesn't compete "fairly" with the United States because of its cheap labor costs, so this 9% tax is desperately needed to truly "level the playing field" and allow Exxel to compete in the US market. Now, leaving aside for a moment the absurdity of calling a 9% tariff on fairly-traded goods a "playing field-leveler," or the cold-yet-important economic question of whether American citizens should be subsidizing labor-intensive industries that simply can't compete on price with other, lower-cost manufacturers (hint: they shouldn't), does Sessions' "competitiveness" argument hold any water? In short, no for two important reasons. First, it's a real stretch to believe that a 9% tariff on sleeping bags from a single country will solve Exxel's competitiveness problems over the long-term, when America's anti-competitive tax and regulatory regime pose a much higher threat than some manufacturers in poverty-stricken Bangladesh. As Exxel's own CEO admits, "I spend more on health care in one month than they spend all year on labor,” and ObamaCare will only make those costs worse. Moreover, the United States has the highest corporate tax rate in the developed world. So attacking GSP simply masks Exxel's real economic problem - a domestic business environment that is, at present, hostile to business - and in the process harms lots of other (over-taxed and -regulated) American businesses that rely on GSP-elgible imports to remain globally competitive. Clearly, the Senator's approach to America's competitiveness problems is an awful deal for the US economy.
Second, GSP has a built-in "surge protector" for hyper-competitive products from beneficiary developing countries called a "competitive needs limitation." If imports from a country break the CNL (either total import value or as a share of total imports), they lose their GSP status. So the idea that super-competitive duty-free sleeping bags from Bangladesh are flooding the US market simply defies reality. Indeed, a quick review of US import stats from 2008-2010 reveals that China dominates the import market for sleeping bags and is once again increasing its market share here, and that Bangladesh, while gaining market share over the last few years, is still running a very, very distant second:
So if we revoke Bangladesh's duty-free status, the chart above makes clear that most likely outcome is not Exxel's resurgent dominance in the US market but instead (i) more market share for China, (ii) higher prices for US consumers and (iii) the denial of a critical lifeline to one of the world's poorest countries. Awesome.
Sen. Sessions, however, will have none of these measly economic or legal arguments. So let's talk in terms that he apparently does understand: politics and public image. Apparently, the good Senator isn't worried that his efforts might scuttle GSP, ATPA and all of the programs' attendant economic benefits, or that his efforts, while winning about 71 votes in Alabama, will do little to help Exxel in the long-run. But he is very, very upset that some people in Congress (and the media) are calling him (gasp!) a low-down dirty earmarker:
Sessions flatly denies the provision he is seeking is an earmark. His office claimed he is trying to undo an old earmark.
“Bangladesh gets to ship sleeping bags to America without paying a cent of taxes, and they get to use materials from China without paying a cent of taxes either,” Sessions spokesman Stephen Miller said Wednesday. “This outrageous earmark for Bangladesh is crushing America’s top sleeping bag manufacturer, Exxel, and threatening their workers’ jobs.
“Sen. Sessions is trying to end that injustice, and eliminate that earmark, by ensuring that Bangladesh and China have to play by the same rules as everyone else in the world. He is fighting to close a gaping loophole in our trade laws so that companies in America are at least allowed to compete on the same playing field. We need to stop giving Bangladesh workers an earmark so we can give these Alabama workers a fighting chance. Or is the message we want to send this Christmas that we will keep this loophole in place, even as our nation struggles with crippling unemployment?”
But that argument isn’t sitting well with Democrats or Republicans.
“Sen. Sessions is putting politics ahead of a remarkably successful program that supports more than 80,000 U.S. jobs and sustains economic growth and employment in Alabama and across the U.S. and the globe. Rather than working to sustain thousands of American jobs and small businesses — including many in Alabama — Sen. Sessions is looking to carve out protections for one single sleeping bag producer,” a Senate Democratic aide said.
A GOP aide agreed, arguing that, “You can call it whatever you’d like, but when you’re holding up legislation that effects a wide swath of the economy for a carve-out benefiting one company, it certainly doesn’t look good.”
The aide pointed out that the Senate GOP’s internal earmark ban for next year would bar not only traditional earmarks such as line-item appropriations, but also tax provisions and tariffs that would benefit an individual company.
Even the Senate’s earmark disclosure rules clearly define the tariff change Sessions is seeking as an earmark. For instance, the rules require the disclosure of any “congressionally directed spending items, limited tax benefits, or limited tariff benefits.” Limited tariff benefits are specifically defined by Senate rules as “a provision modifying the Harmonized Tariff Schedule of the United States in a manner that benefits 10 or fewer entities.”
So to recap: Republicans and Democrats in Congress call Session's protectionism an earmark; the GOP's new ban on earmarks classifies Sessions' protectionism as an earmark; and existing Senate rules define Sessions' protectionism as an earmark (three cheers for that, by the way). Yet when asked about whether the Senator is demanding an earmark, his staffer responds with, in essence, "hey, he's not an earmarker; everyone else is the earmarker," and then angrily adds that his boss' attempts to increase taxes on Bangladeshi sleeping bags (which, by law, are paid by American importers who then pass those costs onto American consumers, of course) from 0% to 9% is actually "leveling the playing field." Touchy touchy!
But hey, maybe Sessions is right. I mean, if you think about it, the existing GSP program, which has been law for decades and benefits all American consumers at the expense of a few, insular domestic industries, is an "earmark"... for the American people. And raising taxes from 0% to 9% on sleeping bags from Bangladesh does "level the playing field"... for Chinese producers. So you see, folks, this is all just a silly misunderstanding.
I fully admit that I'm not a tax/budget geek, but a tax provision slipped into a benign trade bill has set off my libertarian spidey-senses. BNA (subscription) explains:
Legislation (H.R. 4284) to extend the Generalized System of Preferences and the Andean Trade Preference Act, signed by the president Dec. 28, contains an offset that would increase 2014 estimated tax payments for corporations with at least $1 billion in assets in 2013.
The act (Pub. L. No. 111-124) increased by 1.5 percent the portion of corporate estimated tax payments due in July 2014 through September 2014.
It amended the Tax Increase Prevention and Reconciliation Act of 2005 to increase estimated tax payments for such corporations due in July, August, and September 2014 to 101.75 percent of what was otherwise due, according to the Congressional Research Service.
JCT estimated that the provision would increase revenues by $806 million in fiscal year 2014 and decrease revenues by $806 million in fiscal year 2015.
The measure passed the House Dec. 14 and the Senate Dec. 22, in both cases under a suspension of the rules by voice vote and unanimous consent, respectively.
The final law is here, and the legislative language is as follows:
SEC. 4. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.
The percentage under paragraph (1) of section 202(b) of the Corporate Estimated Tax Shift Act of 2009 in effect on the date of the enactment of this Act is increased by 1.5 percentage points.
The CBO scoring of the law is here. The CBO scoring matches the JCT estimate above, saying that this tax measure will goose federal revenues by $806 million in FY14, but immediately reduce them by the same amount in FY15. So what gives?
I googled around and found only one analysis of the underlying "Corporate Estimated Tax Shift Act of 2009," from a random blog which calls the Act "good for the government, which extracts money from the business community sooner than planned." So by increasing the percentages in the underlying Act, a random, non-germane provision of the GSP bill seems to extract even more money from big business "sooner than planned."
But why? Normally, I'd just blow this minutia off, but considering the ridiculous budget gimmicks that the 111th Congress has attempted to pull off in order to secure its overreaching agenda, I'm calling "shenanigans." So, any tax/budget specialists out there care to opine as to why the government is trying to squeeze out an extra 800 million at the end of FY14 instead of letting it go as planned into FY15?
For your ever-expanding "Do They Have A Clue?" file (maybe cross-referenced in your "It's All Politics" file), comes seemingly bizarre news today from the US International Trade Commission (ITC) that the Office of the United States Trade Representative (USTR) has formally requested that the ITC advise on the economic effects of allowing increased imports of passenger tires from Thailand to enter the United States duty-free under the US Generalized System of Preferences (GSP). I say "seemingly bizarre" because, as you'll recall, USTR in September advised the President to impose prohibitive tariffs on Chinese imports of the very same product in order to protect the domestic tire industry from harmful import competition. But now, only three months later, they're looking at maintaining zerotariffs on surging tire imports from Thailand?
What gives?
Well, it turns out that USTR has found itself in quite the pickle, and this situation provides us with a simply-too-good-to-be-true example of (i) the very real problems that arise when bad politics trumps good policy, and (ii) the folly of bilateral protectionism in a globalized world.
Please allow me to explain. But before I do, I need to give you some very basic (read: boring) background, so please bear with me.
Pursuant to its authority to administer the US GSP program, USTR asked the ITC to provide "advice on whether any industry in the United States is likely to be adversely affected by a waiver of the competitive need limitation CNL and provide advice as to the probable economic effect on U.S. industries producing like or directly competitive articles (new pneumatic radial tires, of rubber, of a kind used on motor cars (including stations wagons and racing cars)), on total U.S. imports, as well as on consumers." Under GSP, certain imports from certain "developing" (read: poorer) countries are allowed to enter the United States duty-free in order to help the countries' manufacturing sectors and threreby encourage their economic development (and benefit US consumers in the process).
GSP, however, does not give developing countries carte blanche to export unlimited quantities of covered goods. Instead, each product has a "competitive need limitation" (CNL) which provides a country-specific ceiling on GSP benefits for the product. A country will automatically lose its GSP eligibility with respect to a product if the competitive need limitation is exceeded. For 2009, CNLs require the termination of a country's GSP eligibility on a product if, during the calendar year, US imports from that country: (i) account for 50 percent or more of the value of total US imports of that product; or (ii) exceed $140 million. When one of these limits is exceeded, products will be found “sufficiently competitive,” and by statute, all GSP treatment (not just above the threshold) for any article deemed to be "sufficiently competitive" will terminate on July 1 of 2010.
However, if a country is granted a "CNL waiver" for a product deemed "sufficiently competitive," then the duty-free treatment will remain in place (i.e., the ceiling on the GSP benefits for that product will be removed). The President (through USTR) may grant a CNL waiver - typically based on a petition to do so from a private party - if he (i) receives the advice of the ITC on whether any industry in the United States is likely to be adversely affected by the waiver; and (ii) determines, based on the ITC's advice, that the waiver is in the "national economic interest of the United States." (For you unstable/curious people, the full law is here.)
So now back to today's USTR request that the ITC to investigate granting a CNL waiver for imports of tires from Thailand. Basically, USTR is asking the ITC to determine the "probable effect" that removing the "ceiling" on duty-free tires from Thailand, thus increasing such imports, would have on the US economy. And USTR will use the ITC's report to determine whether granting the waiver is in the "national economic interest," and thus whether to raise the tariff on Thai tires from zero to the standard rate of 4% or keep it duty-free. Normally, this process would be no big deal - indeed, just standard practice under GSP for CNL waivers - but this time around, it certainly warrants some attention because, as noted above, USTR in September of this year recommended that the President impose 35% tariffs on the very same imports from China under Section 421 of US Trade Law in order to protect US tiremakers and their workers from the "market disruption" (i.e., material injury) caused by such imports.
As a result of this (bad) decision, Chinese tire imports dramatically decreased in October, and imports from other countries increased due to the predictable (and predicted) "trade diversion" that occurred when US tiremakers - exactly as they forecast to the ITC months earlier - didn't increase their production. US tire prices also skyrocketed by as much as 40%, with some retailers reporting major shortages and many poorer Americans being left unable to buy new tires during the busy - and dangerous! - winter season. (Did I mention it was a bad decision?)
A quick review of the import data for January-October 2009 indicates that a little over $120m worth of Thai tire imports have entered the United States under GSP - up about 16% over 2008 levels and quickly approaching the $140 million CNL threshold for 2009, particularly considering that the 421 ruling didn't take effect until late-September. As a result, four companies - Bridgestone (a US company, by the way), Yokohama, Sumitomo, and Falken - each petitioned USTR in November for a CNL waiver so that post-July 2010 imports from Thailand will still be able to enter the United States a zero duty (instead of the standard 4% duty rate).
These petitions spurred USTR's lawful procedures for considering a CNL waiver, including its request to the ITC, in order to decide whether to increase tariffs on tires from Thailand. And, boy, have they put USTR in a bind - one entirely of it's own making, I might add:
On the one hand, the Section 421 decision has wreaked havoc on the US tire market, thus causing (i) US tire prices to careen out of control, and (ii) imports from Thailand to abnormally spike and thus potentially face a long-term tariff increase because they unexpectedly exceeded the CNL in 2009 (and probably thereafter). Thus, granting the CNL waiver and keeping tariffs on Thai tires at 0% would greatly benefit US consumers, importers and retailers, as well as Thailand and its exporters (including US-based Bridgestone). It also would be a show of goodwill to a foreign ally and developing country that was an innocent bystander in the Section 421 mess.
On the other hand, USTR said in its Section 421 decision that trade protection - through higher tariffs on tire imports - is absolutely necessary to prevent further harm to the US tire industry and its workers, represented by the United Steelworkers union (USW). And because the tires at issue are a pretty fungible commodity (i.e., low-end Chinese tires are basically interchangeable with low-end Thai - or Korean or any other country's - tires), any formal, discretionary decision by USTR to refuse to increase tariffs on tire imports from another foreign country through the CNL waiver process (thus leading to more imports, of course) would completely undermine the Obama adminstration's Section 421 rationale and expose the President's decision for the silly political stunt that we all knew it was. And it would also inevitably lead to howls by the USW.
Well, first they'll try to get cover from the "non-partisan" ITC to say that the CNL waiver will or won't be in the "national economic interest" - after all, US law (19 USC 2463(d)(2)) requires the ITC report on the waiver's probable economic effects and requires the President to consider the ITC's findings when deciding whether to grant a waiver. So the Obama administration can use the ITC's findings (and US law) as their excuse for granting/denying the CNL waiver once the full 2009 data are complete in February 2010.
Hooray for political scapegoating!
But there's only one problem: what kind of cover will the Obama administration really get from the ITC? Keep in mind that the President's Section 421 decision also was based on a discretionary determination of whether the tire tariffs were in the "national economic interest," and it relied on the same kind of ITC economic projections. So can the ITC models used to determine that (i) increased Chinese tire imports were harming US producers, and (ii) high tariffs wouldn't harm the US economy, now show that (i) increased Thai imports won't harm US producers, and (ii) zero tariffs would help the US economy? Put simply, can the ITC, and by extension the President, really say that Chinese tires are bad for the economy (and thus warrant tariffs), but Thai tires are great for it (and thus should be duty-free)? If they do, then the ITC's new decision would essentially prove that its conclusions re: the Section 421 tariffs not harming the US economy were dead wrong (or that something fishy's going on - which I doubt from the straight-shooting ITC). Yet if the ITC finds that granting the CNL waiver would, as the Section 421 tariffs have already shown, hurt US producers, then US consumers/retailers/importers and Thailand all get slammed. And how can that be in the "national economic interest"?
And thus how will the ITC's report really solve anything?
Well, your guess is as good as mine, but I must admit that I'm going to enjoy the heck out of watching the spinmeisters at USTR attempt to wiggle their way out of this self-induced mess.
Ok, maybe not ever, but this is pretty darn dumb. From the braintrust over at the progressive "think tank" Demos comes a brilliant way to encourage economic development and growth in the developing world. And by "encourage" I of course mean "completely undermine." (Oh, and it might just harm the very environmental objectives they're looking to promote.)
In their op-ed in The Hill, authors David Callahan and Cristina Vasile argue, among other things, that the United States Generalized System of Preferences should be updated to eliminate tariff benefits for developing countries that fail to implement and enforce any new multilateral climate treaty:
If the Obama administration and congressional leaders want public backing for a climate treaty, along with Senate ratification, they need to start thinking harder about how to enforce the deal. Realistically, there is only one way to achieve this goal: Use trade rules to penalize countries that violate a new climate treaty.
[An] important step would be to include environmental criteria in trade preference programs, particularly the Generalized System of Preferences, which cut tariffs for developing nations that meet various eligibility criteria.
In 2008, developing countries imported just over $30 billion worth of products into the United States duty-free under GSP. This amounted to over $850 million in savings for countries like Brazil, India, and Indonesia. Nations in Africa, South America, and the Caribbean also realized millions in savings thanks to regional trade preference programs....
Specifically, the GSP should be amended to stipulate that beneficiary countries enforce all global environmental treaties they are party to, as well as uphold their domestic environmental laws.
Congress has a chance to act immediately to make this change because the current version of the GSP is set to expire at the end of this month. By voting to include environmental criteria in the GSP, Congress can send a message — both to the U.S. public and to the world — that the United States is serious about enforcing a climate treaty.
Forging a new linkage between trade and the environment need not mean that poor countries lose their access to U.S. markets. A period of transition would be needed as the new rules take effect. After that, steps would be taken to address violations over time, with the United States providing financial and technical assistance to help countries live up to their environmental obligations — not just to a climate treaty but to other pacts designed to protect the planet.
Developing countries have their own reasons to go green, of course, and new trade rules can help empower environmentalists in those countries.
Studies show that poorer regions will be hurt most by climate change, and many people in these places are already suffering from unchecked air pollution, contaminated drinking water, and deforestation. Meanwhile, the development benefits of such steps as investing in renewable energy or preserving biodiversity are becoming ever more evident.
Too often, environmentalists in places like Asia and South America find themselves impotent in the face of powerful interests who argue that nothing should stand in the way of economic growth. New U.S. trade rules would help change that balance of power and foster more sustainable patterns of development....
Ok. Let me tick off a few of the many, many problems with this silly idea:
1) The purpose of GSP and other unilateral preference programs is to encourage economic growth and development in the world's poorest countries by offering them duty-free access to the US market. Today, the only way for poor countries to develop their economies and become rich (i.e., able to afford fancy alternative fuels and climate mitigation technologies) is to burn fossil fuels. This is why developing countries at Copenhagen are demanding bazillions of dollars from the US, EU and others (who, you know, developed using traditional energy and thus are responsible for the lion's share of historic carbon emissions) - they simply can't develop without emitting tons of carbon unless they get that cash (or so the theory goes). To implement a rule under GSP and other preference programs that essentially removes tariff benefits - a key avenue for economic growth - for countries that actually pursue and begin to achieve such growth both defies basic logic and completely undermines the programs' primary development objectives. In other words, it's stupid.
2) The authors' tacitly recognize problem #1 (hence, the "transition period") but think that more foreign subsidies ("financial and technical assistance") can solve it (helping developing countries "live up to their environmental obligations"). Such a "solution" is the height of naivete: in many of these countries - especially sub-saharan African ones - corruption is so bad that a vast majority of such aid will end up in the pockets of the ruling class, rather than spent on complying with global climate treaties or enforcing domestic environmental regulations. The result: fat dictators, bankrupt companies AND a still-dirty country. Awesome.
3) The authors are certainly right that "developing countries have their own reasons to go green." Yet they utterly fail to realize that if rich countries simply help developing countries, you know, DEVELOP, such countries will go green on their own once they're rich enough to do so. (Everybody wants clean air and water - they just want food, shelter and security first.) Policies like GSP - by encouraging private sector growth through free trade - accelerate developing countries' economic growth (and subsequent environmental improvement). So why on earth would we want to take that away? Indeed, even the threat of taking it away can retard development - a prime reason why GSP supporters have long advocated longer-term extensions of preference programs to increase the reliability of the programs' tariff benefits and encourage long-term contracts.
4) Naturally, the authors also completely fail to recognize that the primary beneficiary of that "$850 million" in tariff savings isn't the developing country exporters, but rather US consumers that purchased the subject products. Indeed, under US law, exporters don't pay tariffs - importers (and then consumers) do. So the Demos "plan" might actually result in a billion-dollar tax increase for American families and businesses (while also discouraging economic development in poor nation, of course). Perfect medicine for the ailing domestic and global economies, huh?
5) Most ridiculously, the Demos strategy could actually discourage developing countries from entering into multilateral climate treaties. Think about it: if you're a a developing country, and you're told that all of these billions of juicy tariff benefits could disappear if you fail to implement a global climate treaty (based, of course, on the United States' own definition of what qualifies as "proper implementation"), would you take that risk? Or would you refuse to sign on or - even smarter - try to sandbag the entire treaty altogether? I dunno about you, but that's a pretty easy call for me. Now, the authors might argue that the new GSP provisions could automatically apply to all countries that refused to join the treaty (although they didn't say that), but then the United States is essentially attempting to force developing countries to sign on to an agreement. Something tells me that such an encroachment on these countries' national sovereignty wouldn't be too well-received by progressives' cherished "global community."
I could go on, but you get the idea. This is a wretched proposal. Of course, I normally would've ignored the op-ed altogether, except for three things: (i) it was in The Hill (and thus might actually be read by an aspiring staffer); (ii) GSP re-authorization is up this month; and (iii) according to Wikipedia, Demos' "...first group of fellows and board members included... Barack Obama, then a state senator in Illinois." So this outfit might actually have a voice somewhere in the administration.
