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.  

Tuesday Quick Hits

I'm travelling this week, so blogging will remain light, but here are a few things to keep you going:

• Senate Minority Leader Mitch McConnell (R-KY) takes to the op-ed pages today to explain what many of us have been saying for a month now: President Obama's "blame Congress" strategy for the continuing stagnation of US FTAs with Colombia, Panama and Korea is extremely disingenuous.

• Mitt Romney released his economic plan today, including a detailed section on trade policy (starting at p. 41).  I'll have a lot more on this later, but for now let's just say that, on US-China trade, Governor Romney regrettably appears to have taken a page right out of Donald Trump's China playbook.  (Jon Huntsman's recently-released plan was far less antagonistic.)

• The WSJ today explains how Korea is facing a serious inflation problem because its trying to competitively devalue its currency as in the face of continued easy money policy in the United States.  If this all sounds familiar, it should: China's having the same problem for much the same reason.  Crazy how basic economics works, eh?

• Speaking of China, the WSJ reports that its "low wage export engine" is starting to "sputter" due to labor cost inflation and competition from other low-cost countries like Vietnam.  Shocking, I know.

• The WSJ rightly explains that Asia's impressive increase in high net-worth individuals is a good sign for those economies (and the global economy more broadly), but it's troubling that some of that increase is due to cronyism and government patronage rather than merit.

That's it for tonight, folks.

Congratulations, Canadian Exporters!

Last month, we congratulated EU and Korean exporters and consumers on the entry into force of the Korea-EU FTA.  And, much to the dismay of the US exporters and consumers who have been patiently waiting on the Obama administration and congressional Democrats to finally move the Korea-US FTA, the KOREU has already produced some eye-popping benefits.

Now, it's time for us to congratulate the lucky consumers and exporters in Canada and Colombia, as their bilateral trade agreement entered into force today.  Meanwhile, the US-Colombia FTA collects dust in the same Oval Office drawer as the KORUS:

“I’ve got a flag on my lapel, not a maple leaf,” U.S. Trade Representative Ron Kirk exclaimed at a Senate Finance Committee hearing in March. Today, as Canada’s free-trade agreement (FTA) with Colombia enters into force, it is the maple leaf that represents competitive pressures on U.S. market share and the political influence that goes with it.

Canada and Colombia are two of our closest friends in the Western Hemisphere, and their strengthened commercial ties clearly benefit their mutual interests as well as Washington’s broader goal of promoting open markets and economic development. Yet U.S. businesses and their congressional advocates are keenly aware that Canada has beat us to the punch, leaving U.S. exporters to an important emerging market at a competitive disadvantage.

The implications of delayed ratification of the U.S.-Colombia FTA are not lost on either Colombia or Canada. As Colombian President Juan Manuel Santos bluntly put it in a recent interview with Americas Quarterly, “American products are being replaced in the Colombian market because other countries have free-trade agreements. If the FTA is not approved shortly, the U.S. will continue losing market share.” Those losses will be particularly acute in the agricultural sector, where duty-free Canadian wheat will likely replace U.S. imports.

Similarly, on a visit to Bogotá last week, Canadian Prime Minister Stephen Harper lauded the leveling of the playing field for Canadian business vis-à-vis competitors who have or are seeking preferential access to the burgeoning Colombian economy. For Canadian wheat exporters, for example, this will mean the opportunity to catch up with Argentina, which has surpassed the United States as Colombia’s number one agricultural supplier. Tellingly, the president of the Canadian Wheat Board noted that the U.S. has yet to ratify its own agreement as he welcomed the competitive edge gained by Canadian grain exporters.

For both Ottawa and Bogotá, a strengthened trade relationship is also geopolitically attractive. As Harper stated on his official visit to Colombia, “diversifying trade and economic activity like this is the focal point of Canada’s renewed outreach to its hemispheric neighbors.” As in the United States, securing parliamentary approval of the FTA with Colombia was not an easy lift, given domestic opposition from labor unions and human rights groups. Nevertheless, the trade agreement was viewed an important tool in a comprehensive strategy to engage with Latin America.

House Ways & Means Chair Dave Camp (R- and Trade Subcommittee Chair Kevin Brady (R-TX) issued an unequivocal press release calling for the Congress to act "immediately by passing all three of our trade agreements before we lose any more jobs" and "stand[ing] ready to do so as soon as the President submits them to Congress."  Meanwhile, Senate Finance Chair Max Baucus (D-MT) issued an, ahem, interesting statement of his own (emphasis mine):

Canada’s trade agreement with Colombia gives our competitors a leg up and shows the importance of coming together quickly to pass America’s pending trade agreements and Trade Adjustment Assistance.  Every day our trade deal with Colombia languishes is a day U.S. ranchers and farmers can fall behind in this lucrative market, which is why we've been fighting so hard to pass the Colombia Free Trade Agreement. Approving our trade agreements with Colombia, Panama and Korea in tandem with Trade Adjustment Assistance will increase exports by $13 billion for ranchers, farmers and businesses in Montana and across the country and create jobs here at home – and that’s why we cannot afford further delay. As we open new markets for American goods with these free trade agreements, this package ensures we are fulfilling our duty to help provide U.S. workers the resources they need to succeed. Working together to enact this package into law needs to be a top priority when we return in September to help create the jobs and economic opportunities American ranchers, farmers and workers need to prosper in this global economy.

That's right, folks.  The US-Colombia FTA is such a "top priority" for the White House, Sen. Baucus and his fellow congressional Dems that they refuse to move the deal (and the Korea and Panama FTAs) unless it's done "in tandem" with TAA expansion.  And we "cannot afford further delay" - except to wait for a vote on expanded TAA, of course.  And how exactly does TAA expansion "increase exports by $13 billion for ranchers, farmers and businesses in Montana and across the country and create jobs here at home"?  Oh, that's right, it doesn't.  TAA expansion is just the $1B ransom we apparently have to pay in order to get the FTAs' economic benefits.

But other than that, Sen. Baucus has been "fighting hard" to pass the agreements, and he's ready to roll in September, baby!

(Unless congressional Republicans refuse to pass the TAA expansion, of course.)

Quick Reminder: FTA Delay Is Far From Painless

It's been pretty common knowledge for a while now that congressional consideration of pending US FTAs with South Korea, Colombia and Panama wouldn't happen before Congress' summer break (woo hoo!) August recess due to the unnecessary impasse between the White House and congressional Republicans about Trade Adjustment Assistance.  Insiders note that several different (Rube-Goldbergian) plans are circulating to secure passage of the trade agreements after the August recess, and most of the big "planners" are confident that the FTAs will be speedily passed in September.

Those of us who have been watching this comedy tragedy of errors unfold since mid-2007, of course, are taking a more cautious approach (read: we'll believe it when we see it).  But for a moment, let's just swallow the Kool-Aid and assume that the FTAs will finally get done in the Fall.  Everything will be cool then, right?  No harm, no foul, right?

Wrong.  Wrong wrong wrong wrong wrong.

As I noted when the EU-Korea FTA entered into force on July 1, the delay of pending US trade agreements is imposing serious, and unnecessary, pain for US exporters and consumers who are facing higher tariffs (and thus higher prices/costs) at home and abroad that they would be if the KORUS (and other FTAs) had been implemented at some point over the last four(!) years.  When I first mentioned this problem, however, I was speaking in hypothetical terms, as the KOREU deal had just entered into force.  Now, after a few weeks of operation, South Korea's JoongAng Daily provides us with real proof of those formerly-hypothetical gains for European and Korean consumers and businesses (and, thus, of the real losses for American consumers and businesses):

Since the free trade agreement between Korea and the European Union took effect on July 1, cheap commodities from Europe are already helping ease consumer price strains here.

Frozen pork belly, known as samgyeopsal in Korean, from the Netherlands now sells at almost half the price of local pork belly, which stands at 2,280 won ($2.17) per 100 grams. Thanks to the imports, the sky-high price of Koreans’ favorite meat dish - which spiked from the mass culling of pigs after the recent foot-and-mouth disease epidemic - has come down considerably. Pork belly products from Belgium and France have also hit the shelves at more accommodating prices of 1,000 won per 100 grams.

The downward price movement does not only apply to produce: luxury European products also have modified their price tags. As a result, Koreans can now buy a BMW 3 Series for as much as 8.5 million won less than pre-FTA prices of 45.3 million won to 51.6 million won.

And the Korea-EU FTA has not only shaved prices of European products. Japanese and American carmakers are also reducing prices to compete with European imports. They are even cutting dealership margins in order to bring down prices.

In Europe, Korean companies are making big strides thanks to the tariff benefits of the FTA. Hyundai Motor, for example, sold 336,000 vehicles in 25 European countries in the first half of the year and is expected to outpace Japanese automaker Toyota by raising its market share in the euro zone by more than 5 percent in the second half. Japanese media have begun worrying that Japan will lose its share in the European market to its Korean counterparts due to a strong yen and the Korea-EU FTA.

It is undisputable that benefits from free trade agreements are immense. During the seven years of the Korea-Chile free trade agreement, bilateral trade has surged by 287 percent. In Chile, Korean motor vehicles and electronics now outperform their Japanese competitors.

Very cool.  For Europeans and Koreans, I mean.  It's totally un-cool for American consumers and exporters who needlessly face (and in some cases have needlessly faced for over four years now) higher prices at home and tougher competition abroad due to their government's embarrassing inability to implement the pending US FTAs.  And some of the Korean (and soon, Colombian) market moves happening right now because of the "rival" FTAs will not be easily reversed if/when American companies gain equal footing with their European (or Canadian or...) competitors.

So, hey, if the US trade deals do finally get finalized in September, it'll certainly be better than if they don't move at all.  But let's please never forget that (i) American families and businesses are paying a steep price for their government's incompetence, and (ii) all of this pain easily could have been avoided if President Obama really cared enough to make that happen.

But he doesn't.  So here we are.

See you in September, I guess.


[P.S.  I've often said that FTAs are the least-good option when it comes to free trade policies (third to unilateral and multilateral liberalization), but the article above really hits the point home that FTAs, while far from perfect, are still a significant improvement over the status quo.]

Right Now

There's an old joke that the definition of "chutzpah" is when a man kills his parents and then pleads for mercy on the grounds that he's an orphan. (Ba-dum-cha!)  Well, after President Obama's speech this morning on the dismal June jobs numbers, I think we have a new definition: when a President and his political party do everything in their power to stall four-year old US trade agreements and then publicly grouse about the deals' still-pending status.

In trying to deflect blame for the United States' continued inability to escape the doldrums of the 2009 recession (the worst "recovery" ever, by the way), the President stated today:

There are a few things that we can and should do, right now, to redouble our efforts on behalf of the American people.... Let me give you some examples.... Today, Congress can advance trade agreements that will help businesses sell more American-made goods and services to Asia and South America, supporting thousands of jobs here at home. That could be done right now.

Actually, Mr. President, that could have been done in 2008, had then-Speaker Pelosi (D-CA) not rewritten the longstanding congressional-executive agreement on Trade Promotion Authority (and "fast track" before that) when President Bush tried to implement the US-Colombia FTA.

And that could have been done in 2009, had you not shelved the FTAs in order to placate your party's protectionist wing.

And that could have been done in 2010, had you not demanded that each one be renegotiated in order to further stall the agreements and to pay off powerful domestic constituencies.

And that could have been done earlier this year, had you simply submitted the renegotiated FTAs' implementing legislation to a Republican-controlled House of Representatives that was literally begging for you to do so.

And that even could have been done last week, had you not attached a "poison pill" to the US-Korea FTA in the form of an expensive and highly controversial Trade Adjustment Assistance (TAA) expansion that congressional Republicans had already voted down in February and had repeatedly warned would be deal-killer.

And, despite all of this, Mr. President, you and Congress could still implement these FTAs right now if you would just submit clean FTA implementing legislation to the House and Senate pursuant to TPA.

So, what do you say, Mr. President?  How about we get on this?

Right now.

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.

The TAA-FTA "Deal," Part 1: It's the Spending, Stupid

[Ed note: This is the first of a three-part series in which I'll review the joint FTA-TAA legislation proposed by the Obama administration and Senate Democrats last week.  Familiarity with the White House's brilliant plan and recent events is presumed.]

One of the reasons that things went haywire last week was the simple fact that the White House's joint FTA/TAA legislation didn't actually represent a "compromise" on the scope of the Trade Adjustment Assistance expansion that was attached to the US-Korea FTA.  As AEI's Claude Barfield notes:

The attempt to slip TAA through in the FTA process took both the House majority leadership and Senate Republicans, who apparently not been privy to any of the negotiations, by surprise. And it infuriated Finance Committee Republicans, who felt particularly dissed by the substance and the process. The usually mild-mannered [Orrin] Hatch gave a blistering critique of the administration and the president personally in his speech here at AEI. In addition, House Speaker John Boehner immediately disassociated the House Republican leadership from the president’s decision to combine the FTA and TAA legislation in one bill.

Under all of this, there is another complication—the belief by some Republicans Representative Camp had conceded too much on TAA to the administration, allowing too many provisions of the expanded 2009 TAA bill to remain in place. At the panel session we held here at AEI after Hatch’s speech on Thursday, the two speakers, Howard Rosen (long-time advocate for TAA) and Sallie James (a leading critic), who agreed on little else, both agreed that the “compromise” did not split the difference but went far in the direction of the administration’s position.

According to Inside US Trade [$], administration officials have actually been bragging to their supporters about the broad scope of the TAA program attached to the US-Korea FTA implementing legislation:

Administration officials described the TAA deal they negotiated with Republicans and Senate Democrats as a “strong and strengthened program” that retains the most important features of a 2009 expansion. For example, officials noted that the deal retains the eligibility of service workers and workers who lose their jobs due to offshoring and trade with countries with which the U.S. does not have FTAs.

In short, the joint TAA/KORUS legislation saves almost all of the features of the "mega-TAA" program that was created as part of the 2009 Stimulus* bill.  So, given the serious budget constraints facing the federal government these days, this fact of course raises a very simple question:

How much does this darn thing cost?

Well, if the White House is to be believed, they have absolutely no idea:

It now costs about $1 billion annually and administration officials said they did not have a final estimate of what the revised program would cost.

So much for the President's "adult-in-the-room" fiscal responsibility streak, eh?  Of course, such claims of ignorance do run straight into the fact that the "offsets" section of each piece of proposed legislation - required under congressional PAYGO rules - are extremely precise.  For example, Section 601 of the the KORUS legislation raises certain Customs merchandise processing fees on imports from 0.21% to 0.329%.  Meanwhile, Section 602 extends the duration of one Customs users fee program from January 7, 2020 to December 31, 2020 and another Customs users fees program from January 14, 2020 to November 10, 2020.

Those are pretty odd and exact numbers for a program of allegedly indefinite cost, eh?  And don't the White House and Congress have, like, their own personal budget analysts on call?  Hmmmmmm.

The disconnect between the precision of such offsets and the administration's claims of ignorance raises only two possibilities, neither of which are flattering for the White House.  Either they truly have no clue as to how much the TAA program costs and are just spitballing the offsets (insipring total confidence in the process, no doubt); OR they know exactly how much the expanded TAA program costs, but don't want to say in order to avoid putting a very-public pricetag on the cost of their little pet program.  Either way, it's very sketchy.

Furthermore, what kind of fiscally responsible "offset" is the extension of Customs users fees programs from January 2020 to November/December 2020 anyway?  (Such goofy extensions are also included in the legislation for the Panama and Colombia FTAs too.)  There are good arguments against the strict use of PAYGO rules, particularly for legislation that lowers tariffs and taxes, but they're the rules that are now in place.  So please someone explain to me how "paying" for TAA and the FTAs by extending a revenue program that doesn't expire for 9 years passes the "fiscal responsibility" laugh test.

Quick answer: it doesn't.  (So much for the "First Adult.")

The aforementioned KORUS/TAA offsets in Section 601 of the legislation also raise other serious questions.  As I noted before (also discussed by Cato's Sallie James):

• Raising customs fees on imports by about 50% is a rather ridiculous way to "offset" the revenue impact of legislation that eliminates tariffs on those very same imports (and others); and

• Using customs fees to expressly supplement federal budget revenues instead of paying for the cost of services actually rendered could very well violate the United States' international trade obligations under GATT Article VIII.

Moreover, Section 601 of the KORUS legislation also raises questions under the very US law that it amends.    In particular, 19 USC Sec. 58c(a)(9)(B)(i) expressly indicates that such Customs fees should reflect the costs of Customs services rendered not be used to pay for things like TAA (strikethrough represents the KORUS amendment):

The Secretary of the Treasury may adjust the ad valorem rate specified in subparagraph (A) to an ad valorem rate (but not to a rate of more than 0.210.329 percent nor less than 0.15 percent) and the amounts specified in subsection (b)(8)(A)(i) (but not to more than $485 nor less than $21) to rates and amounts which would, if charged, offset the salaries and expenses that will likely be incurred by the Customs Service in the processing of such entries and releases during the fiscal year in which such costs are incurred.

In short, the KORUS legislation is partially paid for by increases in Customs users fees that, according to very same law being amended, are only supposed to "offset the salaries and expenses that will likely be incurred by the Customs Service in the processing of such entries and releases during the fiscal year in which such costs are incurred."  Nice.

So to recap: the Obama administration's TAA legislation (i) is of unknown (but significant) cost; (ii) raises revenue by, in part, extending customs programs that don't actually expire for almost 9 years; and (iii) contains offsets that raise taxes on imports and potentially violate WTO rules and US law.

Behold, the new era of American fiscal responsibility!  Bring on the debt ceiling!

Ugh.

Tomorrow (hopefully), I'll examine whether the KORUS/TAA legislation can proceed in the Senate under Trade Promotion Authority (aka "fast track"), as some Senate Democrats claim.

(And Happy 4th, everyone.)

Congratulations, EU Exporters!

Great news for European and South Korean exporters and consumers: as expected, the EU-Korea FTA entered into force today:

A landmark free trade agreement between South Korea and the European Union took effect Friday amid expectations of a boost to already booming commerce between the two sides.

The agreement brings together the 27-member EU, the world's largest economic bloc, and increasingly affluent South Korea, Asia's fourth-largest economy.

It is the first such accord for the EU with an Asian country. South Korean and EU lawmakers ratified the agreement earlier this year with the implementation date set for July 1....

It immediately slashes 70 percent of tariffs, with that set to expand to 98.7 percent within five years, Kozlowski told reporters Thursday. Among items for which import duties have disappeared are South Korean auto parts and mobile phones and European auto parts, industrial machinery and wine, he said.

Of course, not everyone's cheering today's big announcement.  EU exporters' biggest competitors must be, ahem, less-than-enthused about the news:

The pact marks a come-from-behind victory of sorts for the EU over the United States. The bloc began negotiations for the deal with South Korea in May of 2007, a month after Washington and Seoul first concluded their own free trade agreement....

The agreement, originally negotiated by previous governments in the two nations, was long hung up on demands by the Obama Administration for more U.S. access to South Korea's auto market. South Korea reopened the deal under pressure from Washington and negotiators reached a compromise late last year.

Now, however, it has become caught up in a debate in the U.S. Senate along with two other stalled free trade deals with Colombia and Panama over proposed financial and job-retraining help to workers hurt by foreign competition.

"The earlier entry into force of the Korea-EU FTA is really significant," Choi Seok-young, Seoul's top free trade negotiator, told The Associated Press, citing the lowering of tariffs. "U.S. competitors in the Korean market and EU market would face comparatively disadvantaged positions from today onward."

The EU ranked as South Korea's fourth-largest trading partner last year behind China, the Association of Southeast Asian Nations and Japan, according to South Korean statistics....

The U.S. is South Korea's fifth-biggest trading partner.

Of course, what this article unhelpfully omits is that the "debate" over the proposed "financial and job-retraining" subsidy - you know, the one that has further delayed implementation of the completed-and-signed-in-2007 US-Korea FTA and cemented its second-place finish behind the EU-Korea FTA - is also a demand of the Obama administration.  But what the article does make depressingly clear is that, as of today, every day that passes is a day in which American exporters and consumers pay real and unnecessary costs due to the continued stagnation of the US-Korea FTA.  (And in some cases, the costs are huge.)

Gee, you'd think with the clock ticking and Americans needlessly suffering, the White House - which has repeatedly praised the KORUS - would just get on with it and submit the FTA to Congress, right?  You'd think that nothing, especially a billion-dollar unemployment subsidy that's not connected to the agreement, would get in President Obama's way, right?

Right?

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?

Monday Quick Hits

It's been a while since I last cleared the decks, so these headlines will go back a couple weeks:

• Former Chair of President Clinton's Council of Economic Advisers Laura D'Andrea Tyson systematically and correctly explains why China's currency policies should not be the focus of this week's US-China Strategic & Economic Dialogue.  (Although it all sounds awfully familiar, if you ask me.)

• AEI's Phil Levy explains the absurdity of the AFL-CIO's opposition to the US-Colombia FTA.

• Unlike most other countries, the United States isn't really interested in Chinese investment.

• Undaunted, Chinese investors are still trying to give us money and jobs, and, fortunately for us, they are occasionally successful.

• The Economist looks at the effect of trade on carbon emissions.

• The US Steel Industry is doing really well these days. (Somebody should tell steel-loving protectionist Reps. Visclosky and Murphy.)

• All of China's currency meddling is pushing the Chinese government to increase the nominal value of its currency.  (Shocking, I know.)

• World Bank study: China will become less trade-dependent over the next decade. (Good writeup of the study here.)

• Chinese study: China's exports will inevitably slow, while its imports will surge. 

• China's one-child policy is creating some serious economic pressures.

• The US-Korea FTA had a pretty ridiculous setback in Korea's National Assembly.  Unfortunately for US exporters, the National Assembly seamlessly approved the EU-Korea FTA a few days later.  (Tick tock tick tock, President Obama.)

• Art Carden explains why the iPad isn't bad for the US economy (and yes, that is apparently a necessary economics lesson for some in Congress).

• US inches closer to allowing Mexican trucks to travel on American roads; retaliatory tariffs on $1.2 worth of US exports remain in place until that actually happens.

• Heritage: The "Age of America" will only end if we let it.

• Steve Horwitz on the pernicious fallacy of the "fixed jobs pie."

That should keep y'all busy for a while. 

Selectively Quoting His Way to Protectionist Victory

Everyone's favorite protectionist caricature/blogger, Ian Fletcher, has published a new screed breathlessly questioning how we could possibly be considering the US-Korea FTA when its predecessor, the NAFTA, was such a giant, job-killing failure.  It's chock-full of the usual protectionist myths about NAFTA and other FTAs that I've discussed here many, many times (especially here and here), so I'm not going to waste your (or my) time going through all the NAFTA and trade deficit mythology that Fletcher's interminably long post brings up.  I'm also not going to again mention the unseriousness of any anti-trade essay that cites to the long-debunked work of the union-run-and-union-funded Economic Policy Institute, which erroneously claims that US trade agreements like NAFTA have caused bilateral trade deficits, which in turn have caused millions of US job-losses.

However, in scanning Fletcher's latest masterwork, something noteworthy did catch my eye: the complete lack of hyperlinks to the author's many references.  Indeed, except for one link to another Fletcher piece on the KORUS, his anti-NAFTA anthology doesn't contain a single link to supporting evidence, despite the fact that he cites lots of (bad) stats and has several (allegedly) supporting quotes.  One of those quotes comes from the Sane Paul Krugman of Yesteryear (i.e., back when he was a really good commentator on trade economics and policy instead of a really bad commentator on, well, everything else):

The agreement was sold under false pretences. Over the protests of most economists, the Clinton Administration chose to promote NAFTA as a jobs-creation program. Based on little more than guesswork, a few economists argued that NAFTA would boost our trade surplus with Mexico, and thus produce a net gain in jobs. With utterly spurious precision, the administration settled on a figure of 200,000 jobs created--and this became the core of the NAFTA sales pitch.

Fletcher uses this un-linked Krugman quote as evidence that NAFTA was a failure, and to further support his earlier EPI-backed claim that NAFTA, through its alleged exacerbation of the US-Mexico trade deficit, actually cost hundreds of thousands of American jobs.  But there's only one problem: if you Google around and find the Krugman piece that Fletcher quotes, the very next passage argues strongly against Fletcher's thesis that a trade deficit (or surplus) can dramatically and directly affect domestic employment:

The overall number of U.S. jobs, however, was never going to be noticeably affected by swings in our trade balance with Mexico. Our economy employs more than 120 million workers; it has added more than 8 million jobs since 1992. Job growth has slowed since 1994, but not because those 200,000 export-related jobs failed to materialize (the real culprit is the Federal Reserve's interest rate policies).

In other words: the US-Mexico trade deficit (or surplus), no matter how big it gets, simply cannot have a significant impact on overall US employment.  (A view shared by most reputable economists, by the way.)

Gee, I wonder why Fletcher didn't link to that Krugman article and include the entire quote in his new piece?  Oh, riiiight, because he said two paragraphs earlier that, according to EPI, the widening US-Mexico trade deficit cost 760,000 US jobs, and that Krugman quote would, like, totally deflate his awesome NAFTA/trade deficit demagoguery.

Well, friends, there's an easy and obvious solution to that inconvenient dilemma: crop the quote!

Of course, anyone who's paying attention already knew that all of this NAFTA nonsense was, well, just that.  But I'd say that Fletcher's selective quotation speaks volumes about the depth of his protectionist playbook.  I mean, Ian, buddy, if you can't even include the very next paragraph from your big "gotcha" quote, then, well, maybe you need to sit the next play out, Champ.

And the one after that.

(p.s. Fletcher's alleged "Department of Labor" stats are also complete bunk.)

Tuesday Quick Hits

Since I was traveling last week, you might be behind on your reading. Here are some headlines to catch you up:

• NC State University Report: North Carolina ports support more than 65,000 jobs across the state and provide an economic impact of $7.5 billion.

• Doing business in China can really stink for US companies; investor/buyer/seller beware.

• GMU's Russ Roberts absolutely dismantles Paul Krugman's (and others') latest nonsense about the omnipotence of America's "rich".

• Geithner: Chinese inflation is driving the real US-China exchange rate and altering companies' business decisions.  (Yes, this should all sound very familiar.)

• Hyundai and Kia are dominating in Alabama and Georgia, respectively, and bringing American manufacturing jobs with them.  (And Cafe Hayek's Don Boudreaux provides some great additional commentary.)

• In the Solyndra debacle comes further proof that the US government's record on "investing" in green manufacturing is abysmal, and that private (aka "real") investment and government (aka fake) "investment" are two very different things.

• EU-Korea FTA clears its final hurdle in Europe.

• US to China: invest in our debt, not our companies.

• Ikenson: Tony Soprano meets the US antidumping law.  And Simon Lester adds some helpful anonymous commentary. 

Enjoy.

Do Free Trade Agreements Undermine US Sovereignty? (Hint: No)

My recent blog post on a new anti-KORUS group's misleading propaganda provoked a disgruntled comment questioning my assertion that "the anti-KORUS website contains the usual anti-trade myths about... sovereignty."  The comment is now available at the bottom of my original blog post, but here's the crux of the commenter's challenge:

Are you seriously suggesting that KORUS (and NAFTA before it) do not sacrifice American sovereignty? This is not really a debatable point. They do. It is a question of whether the marginal gains in "free trade" are worth the loss of sovereignty.

After reading this, I checked through my files and realized that I actually haven't written here on the widely-used protectionist myth that trade agreements "sacrifice American sovereignty."  So let's do that now.

First, it's important to define "sovereignty," so we can determine whether US trade agreements "sacrifice" it.  The Google has lots of definitions, but I think this one captures the political term well: "The state of making laws and controlling resources without the coercion of other nations."  Although there are a lot of other definitions, the unifying theme among them all is external, forcible control of a nation's actions, particularly against its wishes or interests.  So for a US trade agreement to sacrifice American sovereignty it would have to grant another country - the trading partner(s) to the agreement - the ability to coerce the American government to act or, put another way, the power to control American lawmaking, regulation and/or resource allocation.  So do US trade agreements do that?  Do they authorize another nation to force US government into acting in a certain manner, even against its wishes?

Short answer: not at all.

For a great overview of how the WTO agreements don't sacrifice American sovereignty, I highly recommend the the excerpt (pp. 118 - 123) below from Dan Griswold's great book, Mad about Trade:



For those of you who are lazy like me and don't want to read five whole pages, Dan offers a boatload of reasons why the "sovereignty" argument is complete bunk.  For our purposes, these five dealing with the WTO are the most important:

(1) Because the WTO operates on consensus (i.e., agreement among all Members) only, no changes to the WTO Agreements can occur without US approval;

(2) The foundation of the WTO Agreements - the General Agreement on Tariffs and Trade 1994 - expressly allows member nations to act outside WTO disciplines in the name of, among other things, national security, public health and safety, or the environment.  Dan doesn't cite it, but those broad exceptions are at GATT Arts. XX and XXI if you're interested; other WTO agreements, like the General Agreement on Trade in Services (at Arts. XIV and XIVbis), contain others;

(3) Any challenges to US trade policies must originate from other WTO Members, not the WTO (and I'd add that under WTO rules, all national policies are presumed to be consistent with WTO rules until proven otherwise in formal dispute settlement);

(4) Even if the US "loses" a WTO dispute, the WTO has no authority to force - and, again, that's the key with respect to sovereignty - the United States to bring its trade measures into compliance.  All the WTO can do is let the complaining Member retaliate against the US (typically through tariffs on US exports) without worrying about being deemed WTO-inconsistent itself.  Sure, US exporters might complain, but that has nothing to do with US sovereignty - i.e., the US government's ability to make laws and control resources as it wishes.  In fact, the US government has frequently refused to comply with WTO dispute settlement rulings and instead accept retaliatory sanctions - for example on "zeroing," cotton subsidies and internet gambling.  These instances underscore the complete absence of coercive power that the WTO or any US trading partner has over United States laws and policies.  The US government makes a choice, like any other, based only on what it believes to be in the best interests of the country (or, more accurately, the US government, but you get the idea - it's a cost-benefit analysis like every other government policy choice).

(5) If a US trading partner does retaliate, it controls only its own laws and regulations; the US retains the same authority over its laws, regulations and resources that it always had, before or after the WTO's implementation.  Again, nothing changes, and US sovereignty remains untouched.

Now, some skeptics might innocently say, "Well, Scott, that's only the WTO.  What about NAFTA or the new US-Korea FTA?  I'm sure that they sacrifice American sovereignty, right?"

Actually, these skeptics would be dead wrong.

Just like the WTO agreements, there is nothing in any US FTA, including NAFTA or the pending KORUS, that would curtail US sovereignty by granting Canada/Mexico/Korea or any other nation the power to force the United States government to act against its interests.

Nothing.

Indeed, US FTAs like the NAFTA (at Chapter 21) and the KORUS (at Chapter 23) have even broader exceptions than the WTO Agreements, allowing the United States to act inconsistently with the FTAs' respective terms for a laundry list of reasons.  And just like the WTO Agreements, US FTAs provide our trading partners with absolutely no coercive authority when the United States is found to have acted inconsistently with an agreement's terms.  In short, our FTA partners can't force us to do anything; all they can do is suspend (see, e.g., Article 2019 of the NAFTA or Article 22.13 of the KORUS) some of the benefits that the US receives under the FTA - benefits, by the way, that the United States only enjoys because of the trade agreement!

Recent events makes this last point crystal clear, as this is exactly what has played out over the last two years as the United States has refused to let Mexican transport trucks travel on US roads (a direct violation of NAFTA).  Mexico couldn't force the United States to open US roads to Mexican trucks, and those roads thus remain closed (despite a lot of complaining by the Mexican government and a certain disgruntled trade blogger).  All Mexico could do is suspend some of the tariff benefits that the US receives under the NAFTA - essentially raise its own tariffs on US exports back to pre-NAFTA levels - until the US government decides to comply with the agreement and let Mexican trucks travel on American roads.  Despite hundreds of millions of dollars in tariffs, the Obama administration still hasn't re-opened US roads, and there's nothing Mexico can do about it.  Nada.

Now, the retaliatory Mexican tariffs might eventually convince the US government to re-open its roads to Mexican trucks, but that has nothing to do with coercion or force (and thus has nothing to do with affecting American sovereignty).  This is merely a policy choice, like any other, that the Obama administration must make: accept the tariffs (and the political and economic pain they entail) or comply with the Agreement (and reap the economic benefits therefrom).  Yes, NAFTA created this choice, but there is no coercion, no force, and thus no loss of "sovereignty."  None.

So the next time that you hear someone complaining about how trade agreements have "sacrificed American sovereignty," please let them know that either they don't understand the agreements, or they don't know what "sovereignty" actually means.  Either way, they're wrong.

But hey, the commenter above is right about one thing: this really isn't a "debatable point."

With (Trade) Friends Like These...

I've frequently lamented the attempts of many advocates of trade liberalization and FTAs to champion free trade policies through an exports-only, essentially mercantilist, approach.  Tonight's State of the Union Address - and protectionists' responses to it - perfectly demonstrate why my angst is well-deserved and why free trade proponents in Congress, the White House and the US business community need to ditch the mercantilism and adopt a new sales pitch.

Beyond the simple fact that there are myriad moral and economic arguments for open markets that are equal to or better than an export-centric approach, one of the biggest problems with a "free trade" message based only on exports is that it's completely self-defeating.  As I said last year when commenting on the President's post-State of the Union statements on trade to a group of GOP congressmen:

Obama states that "the suspicion about trade agreements is that they're all one way." Ok, that's true, but what's feeding that suspicion is not the FTAs themselves, or most Americans' real-world experiences with imports and free trade, but rather political demagoguery and media misreporting on imports, the trade deficit and the state of US manufacturing.... Until these myths are corrected - until the American people understand that imports are good for US businesses and consumers, that US manufacturing output is still the world's largest, and that the US trade balance is not some "free trade scorecard" - any attempt to sell free trade through an exports-only focus will actually enhance Americans' suspicions, rather than alleviate them. Americans simply will look at the trade deficit (which the US has held since the 1960s, so it's not like it's going away anytime soon) and think that we're "losing" at trade, and that our supposedly "reciprocal" FTAs stink. Why? Because the President told them that exports are the only thing that matter, and that the only reason that American companies aren't exporting more is because our trading partners are cheating by illegally denying US companies access to their markets....

Protectionists, of course, are more than happy to exploit this glaring vulnerability and, as I've noted many times here, they've tailored their trade-skeptical (and myth-filled) messages to prey on the public's misconceptions about trade - many of which are fueled by free trade advocates' shoddy trade salesmanship.

Case in point: President Obama's State of the Union sales pitch on the US-Korea FTA:

To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 – because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.

The message here is clear: FTA = exports = jobs.  And while exports are certainly a fine and laudable goal, the immediate protectionist response to this argument is exactly as predicted:

• Whether trade creates U.S. jobs depends on net export gains and reducing the trade deficit, which our past policies have not done.
• U.S. export growth under past Free Trade Agreements (FTAs) has been less than half that to countries with which we do not have FTAs.
• The U.S. International Trade Commission's (USITC) official study of the Korea FTA that Obama will emphasize concluded that the deal would increase the U.S. trade deficit.
• Korea FTA's chief U.S. negotiator admitted it would not be a boon for U.S. exports.
• Beware of administration claim that the Korea FTA will "support" 70,000 jobs; the core question is what net effect the Korea FTA will have on U.S. employment.
• The Economic Policy Institute projects American job losses from the Korea FTA at 159,000.
• The December 2010 Obama supplemental Korea trade deal does not alter the increased trade deficit, job loss findings.
• The USITC study identified nine losing U.S. economic sectors that include many high-wage industries, including auto and electronics manufacturing.
• Beware of the administration claim that the Korea FTA could reduce the U.S. trade deficit.
• The auto manufacturing industry may lose a significant number of workers due to the Korea FTA.
• Lack of currency manipulation disciplines in the Korea FTA mean agriculture could also lose out.

Every single one of these arguments is based on the same old protectionist myths about imports, the US trade deficit, and the state of US manufacturing.  And, despite the fact that these myths (and bogus "stats" like those from the union-backed Economic Policy Institute) have been routinely debunked here and elsewhere, they unfortunately sound almost-plausible when cast against the backdrop of the President's mercantilist SOTU statements on exports and the US-Korea FTA (and, of course, other, similar statements from pro-trade members of Congress and the US business community).

Just as troubling is the fact that the anti-trade "response" above actually came out yesterday!  In short, the "pro-trade" message coming from the White House and Congress has become so stale and predictable that anti-traders don't even have to wait until after the message has been delivered before they respond with their tired, mythtastic talking points.  (It must be nice to get paid for repeatedly cutting and pasting the same old arguments over and over again, huh?)

Could you imagine if the President and other trade advocates ever changed their mercantilist tune and spoke about the benefits of both exports and imports?  Or if they defended each American's freedom to engage in voluntary, mutually beneficial transactions with whomever he or she pleases, regardless of the political boundaries involved?  Or if they denounced protectionism as a pernicious, regressive tax on American consumers designed to line the pockets of a few well-connected producers?  Or if they simply explained that the American manufacturing sector has resumed its decades-long rise and remains the world's largest, or that an expanding US trade deficit is closely associated with economic growth, or that 55% of all imports are capitol goods and equipment that American businesses use to remain globally competitive?

For starters, anti-traders' responses couldn't be mailed-in anymore; and they'd actually have to come after the President's remarks, not before them.  Maybe they'd come up with new arguments, but seeing the dreck that they currently peddle, I'm not so sure that they could.  And considering that they've been relying on the same tired playbook for the last twenty-odd years, it would definitely be fun watching them scurry to come up with new dreck for a change.

Crazy thoughts, I know.

Is Americans for Tax Reform Secretly Fomenting "Conservative/Libertarian" Opposition to the KORUS FTA? (Probably Not, But...) (UPDATED: No, So Who Is?)

A little-known group called "Americans for Free and Fair Trade" has started a new website and PR campaign dedicated to fomenting congressional opposition to the US-Korea FTA.  The group describes itself as follows:

We are a coalition of hard-working taxpayers, grassroots groups and business organizations that want free and fair trade, not managed, unfair trade masquerading as “free trade.”

Many of us are veterans in the fight against NAFTA and other so-called “free trade” fiascos that have cost America jobs and independence. But whether we call ourselves conservatives, libertarians or just “free-traders,” we are unable to support any expansive trade agreement that violates the U.S. Constitution or compromises our national sovereignty and security.

I decided to do a little Googling about this group and came up with very, very little.  However, the anti-KORUS website contains the usual anti-trade myths about manufacturing job losses, the trade deficit, foreign investment, sovereignty, etc., so I casually assumed it was your typical union/leftist front organization (BO-ring!), and thus wasn't even going to blog on the new group and its oddly-sparse website.

Until, that is, a new piece of anti-KORUS propaganda from AFFT came across my inbox today, providing 23 reasons "why even free traders oppose President Obama's Korean NAFTA Trade Agreement (KORUS)."  Hmmm.  I've downloaded that document and embedded it here so you can take a look for yourself; according to a friend, it's also apparently been circulating around Capitol Hill this week.  (Try not to focus on the glaring fact that "Korean NAFTA Trade Agreement" makes "ATM Machine" or "PIN Number" look like frickin' Shakespeare.  It's difficult, I know.  But try.)




Although most of the arguments in here are the same old protectionist gobbledygook, what's somewhat unique about this brochure is that it's trying to sabotage the trade agreement from allegedly "free market" and "conservative" points of view.  For now at least, I'm not going to tackle much of its substance because I've addressed almost all of these "protectionist myths" in other blog posts.  I will quickly note, however, the silly and obvious fabrication that is the "factual basis" of Reason #1.  The pamphlet asserts therein that, according to this Congressional Research Service Report, "Korean GDP will grow 20 times more than the U.S. GDP as a result of this not-so-free-trade."  Now, leaving aside the fact that no sane fiscal conservative or libertarian with even a rudimentary grasp of economics would judge the "free-ness" of a trade agreement on whether it is projected to produce nearly-identical increases in partner countries' respective GDPs, the pamphlet completely distorts what the CRS Report actually said.  The Report notes (pp. 6-7) that varying projections of the FTAs economic effects show an increase in US GDP by between 0.1% ($11 billion) and 0.14% ($25 billion), while Korea's GDP would increase by between .42% and 2.27%.  While this might sound like a big difference, in reality, it's insignificant because the US economy ($14.1 trillion in annual GDP) is about 17 times bigger than the Korean economy ($832 billion):



With this proper perspective, the CRS report actually shows that the KORUS is projected to increase Korea's GDP by an aggregate amount far less ($3 billion to $19 billion) than the United States' GDP increase ($10 billion to $25 billion).  But again, who cares?  Both countries are forecast to experience billions of dollars in GDP growth because of the KORUS FTA!  And this is a reason to oppose the agreement?  Really?  What a joke.

The pamphlet has similar distortions of the CRS Reprt in reasons #10, 17, 19 and 20, and shows its true lack of economic bona fides by citing the Economic Policy Institute's long-debunked data on imports and jobs.  So it's clearly not a piece of serious scholarship and is unquestionably more than a little misleading.

Given these stark and embarrassing realities, it's no wonder that this anti-KORUS campaign's front organization (Americans for Free and Fair Trade) refuses to divulge its true identity and membership.  What is surprising, however, is that when you search the address provided on the pamphlet above (722 12th St NW Suite 400 Washington, DC), you get the home office of the small government, pro-trade Americans for Tax Reform. 

What the... .?

So could ATR - a renowned champion of lower taxes, limited government and free trade - actually be stoking grassroots opposition to the KORUS using misleading arguments couched in conservative/libertarian rhetoric?  Count me as skeptical.  In fact, ATR recently blogged on the KORUS that:

It is a disgrace that the Obama administration has held this agreement hostage, one that benefits almost all sectors of the economy, to appease just one sector- Detroit automakers and their protectionist unions. Nonetheless, the net gains from this agreement far outweigh the negatives and Congress should move quickly to ratify. Now if only we could get Colombia and Panama done…

That's almost identical to something I penned right after the big KORUS deal went through in December, so that leaves us with one of three conclusions: (1) ATR has had a huge change of heart; and/or (2) the group is running some sort of secret backdoor KORUS opposition movement; or (3) some unethical, anonymous anti-trade outfit has fraudulently used ATR's home address on its deceptive "conservative" anti-KORUS propaganda.  Given the blog post above, I'm opting for option #3, and I've emailed ATR's Director of Communications John Kartch for his confirmation.  When (if?) he chimes in, I'll be sure to update this post accordingly (and then we can start asking whether this new anti-KORUS lobbying campaign - recall, these pamphlets are being handed out on the hill - has moved beyond just smarmy/unethical).

But regardless of who is behind the pamphlet, the extent of this organization's anonymity speaks volumes as to the integrity and veracity of their message, wouldn't you say?  Clearly, if Americans for Free and Fair Trade were confident that their message could withstand proper scrutiny - and as noted above, it clearly cannot - then the group wouldn't need to hide behind a fake address and/or a fake organization name.  Yet they do, and that should tell us everything we need to know about their message and their intentions.

UPDATE: ATR's Kartch just got back to me and says quite clearly that "ATR supports the U.S.-Korea free trade agreement.  There's no such entity on the fourth floor of 722 12th Street NW."  So now we know.