Unions, Trade and Robots

As I recently discussed in the context of Trade Adjustment Assistance, the economic effects of free trade are strikingly similar to those of technology advances:

As economists like Cafe Hayek's Don Boudreaux frequently note, the beneficial job churn associated with import competition is no different from that associated with technology gains:

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s? Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers? Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

In short, people lose jobs due to import competition and they lose jobs due to new technologies (a lot more of the latter than the former, by the way), and while those job losses are obviously tough for the affected workers, American society as a whole is clearly better off by letting the free market work. So why do we treat globalization so differently than mechanization? Boudreaux reasons that it's because "the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed"...

The same concepts apply to protectionism: those who oppose free trade are just as misguided as those who oppose mechanization.  So with this in mind, I invite you to read the following obituary of inventor George Devol (emphasis mine):

George C. Devol, 99, a self-taught tinkerer whose invention of the robotic arm revolutionized factories around the world, died of a heart ailment Aug. 11 at his home in Wilton, Conn.

The robotic arm, which Mr. Devol dreamed up in the early 1950s, was originally called the “programmed article handling device.” It was a long name for a relatively simple and very smart machine that, in the coming decades, would become a fixture on modern assembly lines.

The Unimate, as the product became known, was designed to perform jobs that were dangerous or costly for human workers. Mr. Devol sold the first of his robotic arms in 1961 to a General Motors plant in Trenton, N.J., where it was programmed to handle the hot metal used in die casting.

Other early customers included Chrysler and Ford. Partly because of the influence of labor unions, which saw the robots as a threat to U.S. jobs, sales did not take off in the United States.

Mr. Devol’s product was wildly successful in countries such as Japan, however, and in the late 1960s the company signed a deal with Kawasaki Heavy Industries. In 2006, the Institute of Electrical and Electronics Engineers estimated that there were more than 950,000 industrial robots in operation worldwide....

Mr. Devol was inducted into the National Inventors Hall of Fame this year. “Devol’s patent for the first digitally operated programmable robotic arm represents the foundation of the modern robotics industry,” his induction citation reads. “Today, industrial robots have transformed factories into safer places and improved products with precision and consistency.”...

But like most odd couples, Engelberger and Mr. Devol had something important in common. They believed in the potential of robotics for the United States, even at a time when U.S. clients weren’t buying.

“We’re handing it to the Japanese on a platter,” Mr. Devol told The Washington Post in 1983. “I just can’t understand America.”

When he was in his 70s, Mr. Devol began dreaming up an automatic factory that he would lease to companies.

“How can we afford to let a country as big as this go down the drain in manufacturing capability?” he said in a 1984 interview with the Miami Herald. “I’m the perpetual Don Quixote. Always flailing my arms.”

This really explains a lot, doesn't it?

Right Now, ctd.

For the last several weeks, I've been hoping that someone in the US business community would speak out against the President's repeated, and utterly disingenuous, calls on Congress to pass pending FTAs with Korea, Panama and Colombia "right now."  This unfortunate talking point was something I decried last month when President Obama first starting using it, and, finally, a business leader (J. Patrick Boyle, President and CEO of the American Meat Institute) has done the same in The Hill today:

Passing trade deals is something that “Congress can do right now,” remarked President Obama Monday at a town hall meeting in Cannon Falls, Minnesota.

Not so fast. The truth is that Congress can’t do anything on free trade agreements “right now,” because the President has yet to send the agreements to Congress for final approval, despite receiving recommendations on the agreements from Congress on July 7.

The President often mentions that in January 2009 he inherited a very difficult economic environment. He also inherited three negotiated and signed Free Trade Agreements (FTAs) with Korea, Colombia and Panama. The only step left for the Obama administration was to submit the agreements to Congress for ratification: a step yet to be taken.

But that is something the president could and should do “right now.”

The President likes to talk about “creating jobs and stimulating the rural economy.” If the administration continues to sit on these trade agreements, as it has since President Obama took office more than two and a half years ago, then Congress will be left in the “do nothing” position on free trade agreements, having never been afforded the opportunity by the Obama administration to ratify the pacts that will expand U.S. trade opportunities abroad and create more jobs at home.

Results of an impact study coordinated by the American Meat Institute highlight the high opportunity costs and job creation potential at home resulting from full implementation of these FTAs. Our study found that passage and implementation of the Korean, Colombian and Panamanian FTAs would represent an additional $2.3 billion in exports and create 29,524 badly needed jobs here at home. Many of these jobs are in rural areas of the U.S. where prospects of true economic development are seldom presented.

Not only is this roadblock hindering job creation, it’s also causing U.S. farmers, ranchers and food processors continual loss of global market share to our competitors, such as the European Union, Canada and Australia.

In his speech, the President noted that, “There is no shortage of ideas to put people to work right now. What is needed is action on the part of Congress…”

In terms of passing these trade agreements, truly creating jobs and growing the rural economy, the ball is in your court, Mr. President.

Excellent stuff and kudos to Mr. Boyle for having the courage to call the President's, ahem, bluff.  Meanwhile, FoxNews recently ran a great piece on the broader harms caused by the White House's continued failure to submit these deals to Congress:



Of course, the President's supporters and cynical political strategists (often-redundant terms, I know) might argue that the White House's continued delay of these FTAs and other free trade policies are simply the political price that he has to pay in order to ensure that anti-trade American labor unions don't abandon him during the 2012 presidential election.  Except, well, that argument is dead wrong:

Organized labor won't sit out President Obama's reelection campaign and let a Republican win the presidency, the AFL-CIO's political director said Wednesday.

Despite the frustration labor activists have expressed toward the administration for the deals it has cut with congressional Republicans, Obama is still a better alternative to a potential Republican president, said Michael Podhorzer, the labor federation's top politics officer.

"I don't think that the labor movement will be on the sidelines with President Obama," he said in a sit-down interview with The Hill Wednesday.

Podhorzer said that the union is likely to announce this fall that it's creating a so-called "super-PAC" that can spend and receive unlimited amounts of campaign donations. Podhorzer said the labor federation has been limited by election laws to contacting just its own members but that with a super-PAC, the AFL-CIO can expand its outreach to non-union voters as well....

But the union could still send a message to Democrats by boycotting the party's 2012 convention in Charlotte, which some AFL-CIO affiliates are considering, according to an Associated Press report last week. The union's governing council will monitor the situation, Podhorzer said, and make a decision largely "determined by what the Democratic Party does between now and the end of the year."...

Though unhappy with the president at times, the AFL-CIO will likely go through its formal process sometime next year to officially endorse Obama, considering his GOP opponents.

Sure, he's getting a super-PAC, union votes and organized labor's vaunted get-out-the-vote "ground game," but the AFL-CIO might boycott the 2012 Convention due to the President's failure to achieve Total Labor Victory during his first term.  That'll show him, guys.  Way to stick to your, ahem, guns.

So, yeah, it's no wonder the White House has bagged the FTAs at the expense of American exporters and consumers.  We wouldn't want the unions to boycott the White House Christmas Party too, now would we?

New "Big Mac Index" Pokes Yet Another Hole in China Currency Hawks' Boat

One of the more mainstream, if admittedly crude, measures of the relative value of countries' currencies is The Economist's "Big Mac Index."  As the magazine explains, the index "is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries."  For years now, people seeking aggressive unilateral action by the US government to "force" China to appreciate its currency have cited to the Big Mac Index as further proof that the Yuan is, like, totally undervalued and hurting the American economy (insert ominous music here).

For example, the AFL-CIO's "China Currency Coalition" cited to the Index in its 2004 petition to the US Trade Representative under Section 301 of US Trade Law, demanding that the United States impose "across-the-board tariffs on imports from China and to take measures to offset the disadvantage to U.S. exports to China."  More recently, the Fair Currency Coalition, an alliance of businesses, farmers and unions seeking similar actions by the US Government, approvingly cited to the Big Mac Index in a 2010 blog post, and several angry journalists have also relied on the index in order to complain about China's allegedly pernicious behavior (and, of course, politicians' refusal to "get tough" against the dirty commies Chinese).

The House Ways and Means Committee also has used the Big Mac Index to support its interventionist trade policies.  In September 2010 the Committee, Chaired at that time by Rep. Sander Levin (D-MI), issued a briefing memo to journalists showing that the Yuan was undervalued (based, in part, on the index) and that this alleged undervaluation is harming the American economy.  As you may recall, that memo was issued right before House Democrats spearheaded the unprecedented congressional passage of (anti)China currency legislation.  Even reputable economic journalists like the New York Times' Catherine Rampell have discussed the Big Mac Index as a respectable measure of the Yuan's significant undervaluation.

So, clearly, all of these folks think that the Big Mac Index is a worthwhile measure of countries' respective currencies, and thus I'm expecting them to be all over this new report from the folks at The Economist about the new and improved Index (emphasis mine):

At market exchange rates, a burger is 44% cheaper in China than in America. In other words, the raw Big Mac index suggests that the yuan is 44% undervalued against the dollar. But we have long warned that cheap burgers in China do not prove that the yuan is massively undervalued. Average prices should be lower in poor countries than in rich ones because labour costs are lower. The chart above shows a strong positive relationship between the dollar price of a Big Mac and GDP per person.

PPP signals where exchange rates should move in the long run. To estimate the current fair value of a currency we use the “line of best fit” between Big Mac prices and GDP per person. The difference between the price predicted for each country, given its average income, and its actual price offers a better guide to currency under- and overvaluation than the “raw” index. The beefed-up index suggests that the Brazilian real is the most overvalued currency in the world; the euro is also significantly overvalued. But the yuan now appears to be close to its fair value against the dollar—something for American politicians to chew over.

Be sure to check out the great charts at their site.  Very interesting stuff.  If you're still a little confused about how things changed so much, the Wall Street Journal provides some helpful detail and commentary (again, emphasis mine):

The index is based on the theory of purchasing power parity (PPP), essentially the idea that goods should cost the same in markets around the world no matter what currency they are priced in. Since Big Macs sell for 44% less in China than the U.S., the yuan is therefore figured to be 44% undervalued against the dollar.

But PPP only applies to tradable goods that are easily exchanged across borders, like commodities or electronics. Other, less mobile goods like labor and land may well cost different amounts in different markets, and in particular in developing countries where productivity and wages are much lower. Since labor and land are important inputs into the production of Big Macs, these differential costs feed through into the final cost of the burger.

Hence the new Big Mac index, which adjusts for GDP per capita, and thus takes into account the lower costs in poorer countries. As the magazine notes, China’s average income is one-tenth what it is in the U.S., meaning China’s burgers really ought to be substantially cheaper.

New York Senator and prominent yuan critic Chuck Schumer might want to make sure he’s sitting down before he checks out the Economist’s results, which show that on this basis the yuan is actually overvalued against the dollar by 3%. Against a group of various currencies, the yuan is still figured to be undervalued by 7%. which the Economist says is “hardly grounds for a trade war.”

Yes, based on this news, I totally expect Senator Schumer, Rep. Levin, the currency coalitions, and every other currency hawk who has ever approvingly cited to the Big Mac Index to loudly and immediately retract their earlier statements/reports criticizing China's currency policy, or to just drop their breathless protectionist demands altogether.

Riiiiight.


In all seriousness, the point here is not to boldly assert that the new Big Mac Index undoubtedly proves that the Yuan is no longer undervalued.  It's instead to caution, once again, against trusting anyone - whether it be a campaigning politician or a labor union lawyer or a lazy journalist - who aggressively seeks dangerous protectionism based on unequivocal claims that China's currency is significantly undervalued, and that such undervaluation is destroying the US economy.  The facts simply prevent such certitude, and often reveal currency hawks' ulterior motives.

Something to remember now that the 2012 election season is almost upon us.

The TAA-FTA "Deal," Part 3: It's the Politics, Stupid

[Ed note: This is the third 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.  Parts 1 (on the spending) and 2 (on the law) of the series are available here and here, respectively.]

Now that Republican and White House positions seemed to solidify over the weekend and ultimate passage of pending US FTAs with Korea, Panama and Colombia is in question, it's a good time to analyze what everyone in DC really cares about - who's to blame for any ultimate collapse.  I had planned to do an extensive history of how we got here, replete with damning quotes from certain parties, but there's no need for that now, as Doug Palmer's latest Reuters' piece on the TAA-FTA stalemate does most of the heavy lifting for me (emphasis mine):

President Barack Obama appears headed toward a fight with Republicans over a long-delayed trade deal with U.S. ally South Korea, even though both sides say they want it to pass Congress.

Obama administration officials say no deal has emerged to ease passage of an agreement that supporters contend would create tens of thousands of jobs and help the White House aim of doubling U.S. exports in five years....

The Korean deal, and two other pending pacts with Colombia and Panama, were negotiated and signed under former President George W. Bush. He could not win their approval after Democrats took control of Congress in November 2006.

A year ago, Obama moved to resolve Democratic concerns with the deals. That accelerated after Republicans won the House of Representatives in November and demanded action on all three deals by July 1.

Obama could send the agreements to Congress as early as this week after committee-level action in the House and Senate last week.

The administration has signaled to business groups it intends to submit the Korea agreement with the controversial Trade Adjustment Assistance (TAA) retraining program included, one business source said.

McConnell strongly opposes that but the administration official said they see no other way to win approval of TAA, a key White House priority along with the pacts.

The administration does not want to further upset organized labor, which is wary of trade deals over their potential impact on U.S. jobs and is an key Democratic Party constituent....

Congress created TAA in the 1960s. An expanded version expired in February after newly elected Republicans, who now lead the House, balked at the $1 billion annual price tag.


Although the underlying TAA program remained in place, the White House warned Republicans in May that it would not send the three free trade agreements to Congress until there was a deal to renew many of the expanded benefits approved in 2009....

Democrats believe the administration needs to include it in the Korea bill to prevent Senate Republicans from killing it. Republicans believe they should be kept separate and have called plans to put TAA in the Korea bill "a poison pill."

Obama appears poised to defy Republicans, apparently counting on their traditional support for free trade deals which many of his fellow Democrats traditionally oppose.

That strategy might backfire. "We can't speak for every Republican, but (McConnell) has said he'd be compelled to vote against the Korean trade bill if it includes TAA," a McConnell spokesman said, adding the Republican leader would first do "everything in his power" to block action on the bill....

A Republican aide said McConnell believes TAA would pass in the Senate on its own and would not work against it if he got a vote on renewal of the [Trade Promotion Authority] fast-track powers.

House Speaker John Boehner also wants separate votes on the TAA program and the trade bill.

So to recap:

• Because the White House, a significant minority of House and Senate Democrats and almost all congressional Republicans support the pending FTAs, the deals could, if submitted under TPA, pass both chambers of Congress relatively easily.  Like tomorrow. 

• However, the TPA "fast track" protections needed to ensure congressional passage only apply if the President submits the FTAs' implementing legislation to Congress.  Thus, the agreements' fate rests solely in the President's hands.

• Republican opposition to TAA expansion has been known since February, when the House overwhelmingly rejected extending the expanded TAA program because of substantive concerns about the program's purpose, scope and cost.

• Knowing the Republicans' substantive opposition to TAA, the White House in May demanded that TAA renewal be part of congressional consideration of the FTAs.  Republicans, quite unsurprisingly, objected.

• It is well-known that the White House's TAA demands are politically motivated in order to garner labor union support for the 2012 elections.

• Because TAA cannot pass the House or Senate on its own merits, the President has refused to submit the FTA implementing legislation to Congress without TAA being attached.  Such extortion is the only way that the President can score the political victory he wants.

• The President has issued his demands knowing full well that (a) Republican opposition to TAA is longstanding and substantive; (b) the FTAs would almost certainly be approved by Congress under TPA; and (c) the FTAs very likely cannot pass both chambers without TPA's procedural protections.  Thus, Obama's strategy is extremely risky and depends entirely on congressional Republicans reversing a substantive position on a controversial, billion-dollar spending program (of dubious value) that they cemented only a few months ago.

To summarize: the FTAs are the only thing that the White House and a majority of both chambers of Congress support, while TAA simply cannot survive the normal congressional process.  The President is thus risking the FTAs' sure passage by attaching a politically untenable program, and he's taking that risk in order score a cheap political victory.  And, of course, if the agreements' die, the President also benefits politically because US labor unions - a core Democratic constituency - steadfastly oppose them.

So, knowing this, can really there be any doubt as to who's to blame if the FTAs remain unimplemented into the Fall (and maybe even longer)?  Can there be any doubt as to who bears responsibility for the harms caused to US consumers and exporters as these trade agreements remain shelved?

Of course not, regardless of what the White House and its media supporters claim.

Still don't believe me?  Ok, then let's close with a simple hypothetical:

My wife hates anchovies, and I kinda like them.  I've known that she hates the little buggers - can't even stand to have 'em on the same plate as her food - since we first started dating.  So say one night we go to a local pizza joint and she, as she sometimes does, leaves her purse at home, thus leaving me the only Lincicome in the place with the ability to pay for dinner that night.  I only have enough cash on me for one large pie, so we're going to have to share (so much for "recovery summer," I guess).  Fortunately, we'd both be fine with a plain cheese pizza, so if I order that, we both will eat well and go home happy.  But if I were to demand that we order a large pizza with extra anchovies, she's almost sure to refuse to eat it even though, technically, she could force down a few slices and be fine (it's not like she's allergic or anything).  So say, after warning me against ordering anchovies and just begging for a plain cheese pie, I order the anchovy pizza anyway because that's what I want and, frankly, I have the cash.  When the pizza arrives at our table, she flatly refuses to eat it and, furious, demands to be taken home immediately.  So we just end up walking out of the restaurant without eating anything.  And everyone loses.

Now, is there really any way on earth that we could blame my wife for that ridiculous result?

Of course not.

So could somebody - anybody - please tell the President to just hold the damn anchovies?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What a bargain!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It's the stupid spending.

Sunday Quick Hits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tuesday Quick Hits

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.
  
• I think I'll be passing on this, uh, interesting business opportunity, thanks.

Enjoy, everyone.

Hey, Look, Another Green Trade Dispute!

USTR announced today that it has filed a request for WTO dispute settlement consultations with China over its alleged subsidies to domestic wind power manufacturers.  But this is no ordinary WTO dispute for a whole host of reasons.  Here's Reuters with the news:

U.S. trade officials said they were concerned Chinese manufacturers of wind turbines and related parts and components could have received several hundred million dollars in questionable government grants in 2008 under China's Special Fund for Wind Power Manufacturing.

They said the grants appeared to violate WTO rules by requiring Chinese manufacturers to use only Chinese-made parts and components.

"Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules," U.S. Trade Representative Ron Kirk said in a statement. "These subsidies effectively operate as a barrier to U.S. exports to China....

The steelworkers union filed a petition in September, accusing Beijing of a long list of subsidies and other policies to favor production of clean energy technologies in China at the expense of the United States and other countries.

Kirk said his office would continue to investigate many of the allegations raised in the steelworkers' petition, and could bring additional cases at the WTO.

One high-profile issue still being examined by the U.S. trade representative's office is a complaint about China's restrictions on exports of rare earth minerals used in production of wind turbines, electric vehicles, solar cells and energy efficient lighting....

Kirk's office also said it had made progress on some of the steelworkers' concerns during the U.S.-China Joint Commission on Commerce and Trade meeting last week in Washington.

Beijing agreed to no longer require foreign companies bidding for large-scale wind power projects in China to have prior experience in China, the U.S. trade office said.

China also recommitted to eliminating discriminatory local content requirements in wind manufacturing and informed the United States that two other subsidy programs challenged by the steelworkers union had been eliminated, Kirk's office said.

Steelworkers President Leo Gerard acknowledged progress was made in the recent U.S.-China talks and said the steelworkers were satisfied with the administration's approach.

The USTR request resulted from the USW's petition under Section 301 of US Trade Law.  When the USW filed the petition, I had a few notes, two of which still apply now:

(1) I must admit that I'm at a loss as to what the USW is really getting for its unknowing members' duesmoney here....  Section 301 is not like Section 421 (the tires case) or antidumping and countervailing duty investigations (the other cases mentioned), which can result in the unilateral imposition of remedial US tariffs on Chinese products. Instead, the very best outcome here is (i) the mutual resolution of the matter through bilateral consultations or (ii) a WTO case adjudicated by an independent panel of arbiters (unlike the, ahem, sympathetic US Department of Commerce or USTR). And, trust me, a 5000+ page petition drafted by a big DC law firm is not cheap (well, not if you want it done right). So what gives? Is this the world's most boring PR stunt, or am I missing something?

...

(3) It's no secret to readers of this blog that the USW complaint reeks of hypocrisy, as the Obama administration has already thrown billions of taxpayer dollars at green manufacturers over the last 21 months in an attempt to make them globally competitive. And it wouldn't be surprising at all for USTR to bring a WTO case against China's green subsidies, despite the fact that the US government's hands are also deep into the (green) cookie jar. What is surprising, however, is that the USW petition freely admits that US companies (and their unions, natch) have received tons of government cheese:... 

In essence, the USW is openly complaining that the Chinese are better cheaters than we are, and the union thus wants the US government to call in the WTO's referees in order to stop China's cheating.

The first point still applies: it simply doesn't make much sense from anything other than a PR/muscle-flexing angle for the USW to have spent all that money to get USTR to initiate one small WTO case against China (and to resolve a few other little things on the side).  USTR made clear in its press release that this is the only WTO dispute that it'll be filing based on the union's Section 301 petition.  And USTR was pretty savvy in picking a subsidy program that was relatively simple (allegations of prohibited subsidies don't require proof of "adverse" trade effects, and the subsidies, if found to violate WTO rules, must be withdrawn immediately) and relatively non-controversial.  It's pretty much the exact opposite of a case on China's rare earth minerals policies, which the USW demanded (and USTR dodged).  So by filing the case today, USTR appeases the unions, avoids a major conflict (for now), and gets a pretty easy WTO dispute - one that, if valid, will actually help to (relatively) quickly eliminate trade-distorting subsidies through bilateral consultations or a WTO panel/Appellate Body ruling.  Of course, China can always just terminate the challenged program and initiate another one, but that's not USTR's fault - it's an issue for all WTO anti-subsidy disputes.

My point (3) above is even more applicable now, seeing that the US just re-upped on a whole host of subsidies for US biofuels producers and "green" manufacturers.  And that fact should make us all wonder how China will respond to this news.  Recall that after the United States imposed tariffs on Chinese tires, China responded by immediately announcing trade remedies (anti-dumping and countervailing duty) investigations of US cars and chicken and by filing a WTO complaint.  Will China respond to the new US "green subsidy" complaint with a formal WTO challenge of the United States own green subsidies or with new CVD cases against subsidized US exports?  I wouldn't be surprised at all, but I guess we'll just have to wait and see.

Three concluding points re: the bigger picture here.  First, the new US-China WTO dispute continues an increasingly troubling pattern of international trade disputes over nations' "green" policies, particularly subsidies.  I've highlighted several of these over the past year, and should China retaliate in-kind, we'd have (at least) one more.  And, as I've said repeatedly, I wouldn't be surprised if more disputes are on the way, given that pretty much every country in the world (especially the US and China) is simultaneously enacting "green" subsidies and protectionism at home, while trying to boost sales of its green products abroad.  The only bright side (so far) is that the disputes have been peacefully handled at the WTO, through bilateral consultations or through WTO-sanctioned domestic trade remedies cases.  One must wonder, however, if that good news will continue if/when the green trade tensions keep building.

Second, has the USW's (somewhat) successful Section 301 petition resurrected the long-dormant provision of US trade law?  As you may recall, Section 301 was once a pretty powerful, contentious and much-used tool in the US trade enforcement arsenal, but the cases pretty much disappeared after the WTO came online in 1995 because (i) the law was amended to comply with WTO rules and thus no longer would result in unilateral trade measures against other WTO Members (which is pretty much everyone); and (ii) USTR (under the Bush administration) had rejected all recent petitions.  Now, with USTR's acceptance of the USW petition and its filing of this new dispute, does this mean that other aggrieved unions and/or domestic manufacturers have a new way to push USTR into initiating a WTO dispute even when USTR (or some US companies) doesn't really want to do go down that road?  As a longtime supporter of the resolution of trade disputes through the WTO, I can certainly think of worse things, although many US companies have eschewed direct confrontation with China (for obvious reasons).  But a revitalized Section 301 and more WTO cases are certainly a lot better than the often-used alternative: paying off a Senator from, say, Ohio to sponsor WTO-illegal legislation imposing aggressive unilateral measures against possibly-innocent trading partners.

Finally, the new dispute might raise some long-dormant questions about the consistency of Section 301 with WTO rules.  The EU challenged Section 301 back in the early days of the WTO, and a panel delicately ruled that the measure, in theory, didn't violate WTO rules because it allows USTR to postpone any enforcement action until after all WTO dispute settlement proceedings have been completed and authorization to retaliate had been granted.  However, the WTO's Appellate Body never ruled on the issue (thus making the Panel's decision less definitive), and the Panel's ruling was (and still is) pretty controversial.  More importantly, the Panel in the EU dispute made clear that the United States walked a pretty narrow tightrope with respect to Section 301 proceedings, and that the US could quite easily violate WTO rules in practice.  Thus, USTR's actual application of Section 301 in this case could raise a whole host of issues that the EU challenge never really raised.  I'm certainly not saying that China's definitely on solid ground for a new WTO complaint against the US application of Section 301 or the law itself, but such a dispute wouldn't surprise me at all (particularly after China boldly challenged the United States' seemingly-bulletproof decision against Chinese tires under Section 421 of US trade law).  And that doesn't even get into what happens if the US loses the WTO dispute.  Then what happens under Section 301?  Does USTR (not to mention Congress and the USW) just drop the matter altogether?  Hmmm.

I know, I know: I'm asking lots of questions tonight and providing few answers.  But, hey, cut me some slack; we're in pretty uncharted waters here.

Unions' KORUS Rift Reveals True Anti-competitive Intent

The US-Korea FTA has spawned a rather public disagreement among US labor unions - one that, upon closer review, proves that organized labor's altruistic complaints about US trade agreements hide their real motivation: good ol' fashioned protectionism.  AEI's Claude Barfield provides a nice summary of the union spat here:

When the president announced that the United States and South Korea had finally reached a deal on KORUS free trade agreement, the administration touted the fact that it broke new ground by gaining the support of both industry and labor: i.e., the Ford Motor Company, which had led the opposition in the truncated U.S. “native” auto sector, and the UAW, the auto workers union. Well, not so fast: while the food and commercial workers union did endorse the pact, the major industrial unions, led by the AFL-CIO federation, have come out in strong opposition. Virtually identical statements from the AFL-CIO, the steel workers, the machinists, and the communications workers not only decline to endorse (which might have signaled passive opposition), but also vow to “actively oppose” the agreement—meaning that their full lobbying resources will be mobilized against the pact in Congress.

Barfield goes on to predict that the UAW will join its union brethren in finding a "bogus" reason to oppose other pending US FTA with Colombia and Panama, as well as the currently-being-negotiated Trans-Pacific Partnership agreement, and thus that pre-2012 US trade policy will still be a tough slog.  I totally agree on both counts, but I still think the UAW's big change of heart on KORUS and its public rift with the rest of the AFL-CIO are valuable because they provide us with a crystal clear example of just how bogus the unions' usual FTA complaints really are.

Consider this statement from the UAW earlier this year on the KORUS FTA, which notes the union's serious concerns about the agreement:

The UAW believes the auto provisions in the KORUS FTA must be renegotiated. The U.S. should insist that Korea must first open its market to U.S.-built automotive products before we provide any further access to our market. The UAW also continues to have serious concerns regarding the effectiveness of the worker rights provisions of the proposed KORUS FTA in protecting basic labor rights in Korea. In the two-plus years since the signing of the agreement, the Korean government has not sought dialogue with our government or anyone in the industry on how to address these concerns and inadequacies regarding the labor rights provisions of the KORUS FTA.

Now, the UAW's statement of support for the agreement from last week:

President Obama, Vice President Biden and their administration gave the labor movement, and particularly the UAW, an opportunity to be part of the discussions about this agreement. Working in collaboration with the Obama Administration, Congressman Levin, Congressman Dave Camp, and top management from the auto companies, especially Alan Mulally of Ford, we believe an agreement was achieved that will protect current American auto jobs, that will grow more American auto jobs, that includes labor and environmental commitments, and that has important enforcement mechanisms.

Under the 2007 proposed agreement, almost 90 percent of Korea’s auto exports to the United States would have received immediate duty-free access on the day the FTA entered into force. Under the current proposed agreement, [2.5%] duty elimination is now delayed until Year Five of the agreement, giving U.S. automakers the time to reverse the damage caused by decades of South Korean protectionism. Also with this agreement, cuts in the U.S. 25 percent truck tariff are substantially delayed until Year Eight of the agreement and then are phased in though Year Ten of the agreement. Under the 2007 proposed agreement, truck tariffs were cut immediately from the day the FTA entered into force.

Despite its earlier grave concerns, the UAW can't point to a single concrete change to the agreement's labor (or environmental) provisions - that's because it provides for no such changes.  But, as noted at length in its press release, the union did achieve significant delays in the reduction of US car and truck tariffs (read: protectionism), so - hey, look at that! - it now supports the FTA.  And it's not like those labor and other issues have disappeared.  Just ask the AFL-CIO and its fellow labor unions, who still oppose the deal, not because of its lack of anti-competitive protectionism, but instead about vague labor, environmental, and social justice concerns:

However, the labor movement’s concerns about the Korea trade deal go beyond the auto assembly sector to a more fundamental question about what a fairer and more balanced trade policy should look like. In particular, the labor movement has consistently and for many years argued that the investment and government procurement provisions in the Korea deal will encourage offshoring. And despite the progress made in improving the labor chapter in 2007, it is clear that in both the United States and South Korea, workers continue to face repeated challenges to their exercise of fundamental human rights on the job – especially freedom of association and the right to organize and bargain collectively. This deal does nothing to improve or strengthen the provisions negotiated by former President George W. Bush in these crucial areas. It is essential that both countries bring their labor laws and practice fully into compliance with international standards prior to implementation of the agreement. And for American workers to benefit from trade deals, we must strengthen U.S. labor law to harmonize social activity.

So to summarize: UAW complains about labor rights, then gets a deal which provides absolutely no new labor changes and no new competition from Korean cars and trucks for 4 and 7 years, respectively, and it suddenly switches from KORUS opposition to support.  The other unions get no such anti-competitive deal, and so they still oppose based on the same bogus UAW labor concerns (and a few others!).

The lesson, I think, is pretty simple.  If you protect a labor union from import competition but provide absolutely no changes to previous FTAs' labor and environmental chapters, the union will still support your FTA.  If you don't, it won't.  Plain and simple.  Of course, if you submit to the unions' main (usually unspoken) demand, the agreement won't be a "free trade" deal at all.

Details, shme-tails!

So there you go: make a free trade agreement un-free, and you'll get the unions to go along.  Negotiate an agreement that achieves its core trade liberalization objectives, and, just as Barfield suspects, the "bogus" excuses will continue.

Lesson learned.  I hope.

KORUS Afterthoughts

With a KORUS deal in the bag and both Presidents signaling strong support, here are a few more things - some big, some little - to consider since last Friday's original post on the new agreement.

• It turns out that the agreement included more new protectionism than I originally noted.  In particular, Korea now gets to maintain its tariffs on US pork until 2016, instead of 2014 as originally agreed in 2007.  (The Korea Times has a nice rundown here.)  Market access for American pork was one of the big achievements of the original 2007 agreement, so this is a little more serious than it sounds.  That said, this bad change, like those on autos, won't override the agreement's overwhelming economic benefits, but it still stinks that our administration is bragging about "improving" a free trade agreement by increasing trade barriers, not lowering them. 

• Thinking more broadly about last week's deal, it becomes pretty clear to me that the Koreans really caved.  Not only does the laundry-list of achievements/concessions appear to favor US negotiators (Nice work, team! Way to keep the US market closed! Grumble grumble), but the re-opening of the agreement necessary to complete last week's deal is also a dramatic shift from Korea's consistently firm stance on the FTA that, for economic, strategic and political reasons, they would not agree to substantive, textual changes.  So why the complete reversal, especially when, armed with the Korea-EU FTA and similar trade agreements with other US competitors, the Koreans had the upper hand?  I can only think of one thing, and it actually has very little to do with the FTA: North Korea.  It seems to me that the only thing that changed between last month's embarrassing meeting and non-agreement between Presidents Obama and Lee and last Friday's deal was the unprovoked attack on South Korea (and murder of several of its citizens) by a certain psychopathic dictator and his babyfaced dictator-in-training to the North.  After those Nork missiles were fired, I think completion of these distracting trade negotiations got a lot more urgent, and the South Koreans decided that the long-term bilateral relationship was a lot more important than a few million dollars in automobiles nonsense (and the UAW had no counterbalancing concerns, of course).  So in the end, it could be that the most effective KORUS negotiator wasn't an American or a South Korean but instead a stumpy, murderous jerk who likes to look at things.

• Not everything about the KORUS deal surprised me.  For example, we got to watch our Mercantilist-in-Chief go through some typical contortions to avoid mentioning the economic benefits that Korean imports would provide American consumers (including many businesses).  In his remarks heralding last week's agreement, Obama stated that KORUS will benefit American exporters ("For our farmers and ranchers, it will increase exports of American agricultural products. From aerospace to electronics, it will increase our manufacturing exports to Korea, which already support some 200,000 American jobs and many small businesses."); he stated that it will benefit Korean exporters and consumers ("They will gain greater access to our markets and make American products more affordable for Korean households and businesses -- resulting in more choices for Korean consumers and more jobs for Americans."); but he didn't say anything about American consumers and the (very significant) benefits they'd derive from the FTA.  I guess American imports into Korea benefit Korean households and businesses, but Korean imports to the US?  Not so much.  And once again, when faced with a very public opportunity to educate the public on all of trade's benefits, President Obama whiffed.  Shocking, I know. 

• Finally, and on a serious note, has anyone given any thought to how this new deal will affect congressional consideration and approval of FTA?  Sure, people are already vote counting, but that's not actually my concern (I think the agreement will pass pretty easily).  Instead, I'm very curious as to whether this "new" agreement will be covered by the now-expired Trade Promotion Authority (aka "fast track"), which subjects trade agreements completed and signed before July 1, 2007 to strict procedural requirements and thus prevents congressional meddling.  A few observers are assuming that TPA will apply because the original agreement was signed on June 30, 2007, but the law on TPA (19 U.S.C. 2191-2194 and 3803-3805) states, inter alia, that it will cover trade agreements "entered into" by the President before July 1, 2007.  Thus, it appears that whether TPA applies to the KORUS will rest entirely on whether the 2010 changes on autos, beef, etc. mean that the agreement wasn't "entered into" until now.  The changes announced to the FTA - especially those affecting the countries' previously-agreed tariff schedules - almost certainly constitute substantive changes to the agreement, so I'm having a very hard time figuring out how someone can seriously argue that TPA will apply - i.e., that the agreement wasn't substantively modified such that it must be re-signed and "entered into" again.  [Note: USTR is calling this a "supplemental agreement," so maybe they're going to spin this as outside the original agreement, but that seems like a pretty hard sell considering that specific tariff lines, present in the original agreement, have been changed by the 2010 pact.] 

• And trust me, this is no small matter - if TPA doesn't apply, then all of its important procedural limitations - short timelines, limited committee consideration, no amendments, etc. - don't apply.  And, as I discussed a few weeks ago, TPA effectively prevents a few powerful congressmen or senators from singlehandedly derailing the deal (through procedural maneuvers, "poison pill" amendments and other nasty things).  Senate Finance Committee chair Max Baucus is apparently spitting mad that last week's deal didn't address Korean restrictions on US beef exports, and while he's powerful enough to scuttle the deal, I doubt he'll do it (although he might use his new power to get Korea to move on beef outside the confines of the FTA).  On the other hand, folks like anti-trade stalwart Sen. Sherrod Brown (D-OH) would probably have no such reservations, particularly if Brown's favorite constituents - the United Steelworkers Union - decide to oppose the deal (as of now, they're still decidingdetermining what goodies they can squeeze out of the White House).  So am I missing something here, or is TPA a bigger issue than most people are considering?  I'd assume that the White House and USTR have already considered this important procedural issue, so maybe I'm worrying about nothing; then again, considering that this is the same team that amateurishly allowed the President to set - and then miss - a very public November 2010 deadline for KORUS' completion, I'm not so sure about that anymore.  I guess we'll find out soon enough.

A little more food for thought.  Your thoughts on the last point would be particularly welcome.

[UPDATE: According to Reuters' Doug Palmer (via Twitter), USTR and the White House say that TPA will apply.  I'd prefer to hear that from the congressional experts - i.e., the House and Senate parliamentarians, and maybe the Ways & Means and Senate Finance trade counsels - not the agreement's salesmen.]

Administration's Big "China Friday" Was Probably the Best We Can Realistically Hope For, but It's Still Not Great

Last Friday, the Obama administration had a rather busy day handling China trade issues.  First, USTR announced that it was initiating, at the United Steelworker's request under "Section 301" of US trade law, an investigation of Chinese subsidies and other trade measures related to "green" energy production:

U.S. Trade Representative Ron Kirk announced today that the United States has initiated an investigation under Section 301 of the 1974 Trade Act with respect to acts, policies and practices of the Government of China affecting trade and investment in green technologies. The investigation has been initiated in response to a petition filed by the United Steelworkers (USW) on September 9, 2010.

The petition alleges that China employs a wide range of World Trade Organization (WTO)-inconsistent policies that protect and unfairly support its domestic producers of wind and solar energy products, advanced batteries and energy-efficient vehicles, among other products, as China seeks to become the dominant global supplier of these products. According to the petition, these policies include export restraints, prohibited subsidies, discrimination against foreign companies and imported goods, technology transfer requirements, and domestic subsidies causing serious prejudice to U.S. interests. The petition further alleges that China’s policies have caused the annual U.S. trade deficit in green-technology goods with China to increase substantially since China joined the WTO, making China the top contributor to the U.S. global trade deficit in the sector....

The investigation will consider whether acts, policies, and practices of the Chinese government deny U.S. rights or benefits under the GATT 1994, under the Subsidies and Countervailing Measures Agreement (SCM Agreement), and under China’s Protocol of Accession to the WTO.

Under the Section 301 statute, the U.S. Trade Representative may request consultations with the foreign country concerned at the time an investigation is initiated. The statute also provides, however, that the U.S. Trade Representative, after consulting with the petitioner, may delay for up to 90 days any request for consultations for the purpose of verifying or improving the petition.

In light of the number and diversity of the acts, policies, and practices covered by the petition, and after consulting with the petitioner, the U.S. Trade Representative has decided to delay for up to 90 days the request for consultations with the Government of China for the purpose of verifying and improving the petition. During this period, the U.S. Trade Representative will seek information and advice from the petitioner and advisory committees. The U.S. Trade Representative will take account of this information and advice, as well as public comments submitted in response to a Federal Register notice, in improving and verifying the petition.

Because the issues covered in the China-Green Technology investigation involve U.S. rights under the WTO Agreement, any consultation request will be made under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), and unless consultations result in a mutually acceptable resolution, the U.S. Trade Representative will request the establishment of a WTO panel under the DSU.

Only a few hours later, the Treasury Department announced (as predicted!) that it was delaying its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, in which it can deem countries to be "currency manipulators" under Sections 3004 and 3005 of the Omnibus Trade and Competitiveness Act of 1988:

Since June 19, 2010, when China announced it would renew the reform of its exchange rate and allow the exchange rate to move higher in response to market forces, the Chinese currency has appreciated by roughly 3 percent against the U.S. dollar. Since September 2, 2010, the pace of appreciation has accelerated to a rate of more than 1 percent per month. If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency.

By continuing to implement reforms to strengthen domestic demand and by allowing the exchange rate to move higher to reflect fundamental economic forces, China will make a significant positive contribution to the global rebalancing effort, help reduce pressure on those emerging market economies that have more flexible exchange rates, and provide a more level playing field for trading partners around the world.

The challenge of building a stronger, more balanced and sustainable global economic recovery is a multilateral challenge, not just the responsibility of China and the United States. It requires policy reforms in all major economies.

The Heads of State, finance ministers, and central bank governors of the G-20 and the Asia-Pacific region will participate in several important meetings over the coming weeks. These meetings provide an opportunity to make additional progress on the important challenge of securing stronger and more balanced growth.

The Treasury will delay the publication of the report on international economic and exchange rate policies in order to take advantage of the opportunity provided by these important meetings.

No one in the White House would confirm that these two major China-trade announcements were related, but, c'mon, let's get real: the White House has been in quite the pickle on China trade and currency, and this is its grand Solomonic compromise.  On the one hand, they had labor unions and congressional Democrats rabidly campaigning against China trade - especially Chinese currency policies - in advance of what's shaping up to be a mid-term election bloodbath.  On the other hand, they understand fully that (a) aggressive unilateral action against China would probably violate WTO rules and could provoke serious Chinese retaliation against  US exporters; (b) calling China a "currency manipulator" less than a month before the G-20 summit would almost certainly salt the next multilateral opportunity to address global currency reform (the White House's preferred course of action); and (c) a very good argument can be made that China doesn't actually meet the legal standard for a "currency manipulator" under US law.  And compounding this stress were statutorily-mandated deadlines for the Section 301 investigation and the currency report that fell only weeks before the mid-term elections.  Thus, as I said in a few media interviews on Friday: "Given that United States Trade Representative’s Section 301 decision wasn’t due until October 24, it is either tied to Treasury’s currency announcement or one extremely large and convenient coincidence."

And in all honesty, I must admit that, given this administration's routine prioritization of trade politics over trade policy, Friday's tandem announcements are about the best that we could've hoped for.  Let's face it: considering the aforementioned political dynamics and the fact that the Commerce Department recently rejected two petitions to investigate Chinese currency practices under the US countervailing duty (anti-subsidy) law, there was absolutely no chance - NONE - that the White House was going to issue the semi-annual Treasury report and not label China a "currency manipulator" a little more than two weeks before the mid-terms.  And by delaying the report, Treasury has allowed the G-20 negotiations to remain viable.  As I said on Friday: "The Treasury report’s delay is a good sign for those discussions. A bunch of name calling right before you get together for an adult conversation is not the best strategy to use when conducting international negotiations that could affect hundreds of billions of dollars in global trade." Harumpf!

Second, initiating the Section 301 investigation is relatively harmless.  As the USTR announcement makes clear, the agency will now hold 90 days worth of meetings with the USW and other interested parties in order to "improve and verify" the union's petition.  Then USTR will simply initiate bilateral consultations with China through the WTO - the preferred multilateral channel for global trade dispute resolution.  As I said when the USW petition first dropped: "Section 301 is not like Section 421 (the tires case) or antidumping and countervailing duty investigations (the other cases mentioned), which can result in the unilateral imposition of remedial US tariffs on Chinese products. Instead, the very best outcome here is (i) the mutual resolution of the matter through bilateral consultations or (ii) a WTO case adjudicated by an independent panel of arbiters (unlike the, ahem, sympathetic US Department of Commerce or USTR)."  And, really, the USW's petition probably has some merit.  Indeed, with hundreds of billions in Chinese government subsidies to its "green" manufacturers over the years, how couldn't it?

Third, even if the USW's case some day results in WTO-sanctioned retaliatory tariffs on Chinese "green" products (solar panels, wind turbines, etc.), at least it would be on only one class of products, whereas a broadbased assault on China's currency could literally end up affecting Chinese imports of everything.  (And China's retaliation would, of course, reflect that big difference.)

Finally, the administration's compromise was pretty successful politically.  As this McClatchy article demonstrates, the dual announcements caused congressional protectionists like US Sen. Sherrod Brown (D-OH) to focus on the "good" Section 301 news and mute their criticism of the "bad" news on the currency report.  (For example: "Top Democrats publicly ignored the Treasury decision, focusing instead on the administration's decision to accept a United Steelworkers complaint that China is unfairly subsidizing its "green technology" sector. The office of the U.S. trade representative will investigate the complaint.")

So all-in-all, the administration's move was a pretty agile political tap-dance that minimized anti-trade backlash.  Not too shabby, really, and probably the best we free traders could expect.

That said, Friday's Section 301 announcement wasn't completely free from problems.  First, it's not exactly clear how USTR will navigate the difficulties that the Section 301 law itself raises under WTO rules.  The EU challenged Section 301 at the WTO and, while the adjudicating panel found that USTR could apply the law consistently with WTO disciplines on the resolution of trade disputes, it also stated very plainly that its ruling was dependent on USTR sticking closely to those disciplines.  In particular, the panel found that the timelines established under US law for the imposition of unilateral trade measures under Section 301 could conflict with WTO timeframes for the resolution of a panel dispute, but USTR had discretion to ensure that those WTO timeframes weren't violated.  But can you imagine the ruckus that Sherrod Brown and his congressional cronies - many of whom routinely complain about the WTO - would cause if the "official" Section 301 deadline arrives, and a WTO Panel still hasn't ruled?  That should make for some, umm, interesting tension between Congress and USTR, don't you think?

Second, even though USTR's announcement is pretty benign, Chinese retaliation still might be on the way.  Indeed, preliminary news reports from today indicate that China may (and I stress the word "may") have restricted exports of "rare earth minerals" - necessary for all sorts of high tech manufacturing - to the United States as part of its angry response to USTR's decision.  (The "rare earths" dispute has been brewing for a while, so I'm not convinced that today's news is really related to the Section 301 decision.)

Third, the new 301 dispute could open a whole can of worms regarding international trade conflicts over "green" policies and protectionism.  A big, contentious US-China dispute on "green subsidies" raises much, much larger retaliation concerns than those raised by China's actions today.  As I noted last month, the USW's petition freely admits that the United States has doled out at least a $100 billion of its own cash on US green manufacturers, and I've been nervously reporting for over a year now on the growing number of trade disputes surrounding green subsidies and other forms of protectionism.  If USTR's case goes forward, and then China files its own case against US subsidies, that could affect hundreds of billions of dollars in global trade.  And other cases by other WTO Members could easily follow (global trade disputes are very prone to copycat cases) - further accelerating the tit-for-tat trade tensions surrounding trade in environmental goods.

In sum, while the White House's big "China Friday" was about as good as can be expected from this administration, it wasn't great.  So strap in, folks, we've still got a long way to go on this one.

Awesome: The Daily Show on Unions, Hypocrisy and Competitiveness

Once again the folks at The Daily Show convey in one 5-minute skit what I couldn't do in 30 blogposts:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Working Stiffed
www.thedailyshow.com
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I'll again be the stick-in-the-mud and mention that this great skit, while certainly hilarious, also provides several fine examples of things that I've been trying to explain here for a while now:

• Most obviously, unions are self-interested organizations that, contrary to their statements about "greed" or "fairness" or "sticking up for the common worker," are readily willing to jettison their alleged principles when they don't benefit the union.  We've recently seen this union hypocrisy on the trade front, as the United Steelworkers loudly complained about Chinese "green energy" subsidies while conveniently forgetting to mention the billions than Uncle Sam has sent their way.

• Perhaps more interestingly, however, is that when push comes to shove, unions are rational employers that respond to market realities rather than vague concepts like "fairness."  This fact is made clear by the frank admissions of the UFCW's (rather unwitting) leader, Mike Gittings, about why they have hired temporary, non-union workers (and have given them part-time hours and no benefits) to protest Wal-Mart (starting at about 3:55): "Our union members are working.... We don't have union members that are able to go down there on a daily basis.... The alternative to the way that we do it would be to not do it...  We're doing the best we can with our limited resources..."  In short, the UFCW, as an employer without magically unlimited resources, is responding to market realities about its labor needs and costs, and if it adopted a "fairer" approach, simply wouldn't be able to hire ANYONE and thus would have to get out of the protesting business altogether.

• And thus brings us to our last lesson: the result of non-market demands on American employers erodes their global competitiveness and leads to their (a) going out of business in the face of foreign competition; or (b) offshoring of their labor force or hiring of illegal, off-book workers.  Don't believe me that a zany comedy show like TDS is providing this final lesson?  Well, check out correspondent Aasif Mandvi's "solution" to getting the "protesters" he needs at the right (non-government-mandated) price: picking up illegals to do the job.  In fact, Stewart rather coyly introduces the whole skit with an aside about "The American labor movement, sometimes criticized for driving jobs overseas with some outdated demands...."  Pretty clever, eh?  Yet labor unions don't recognize these obvious economic realities and instead choose to blame free trade for offshoring and job losses rather than look in the mirror.  And unfortunately, that's no laughing matter.

Considering that the union's behavior here - treating its own employees far more shabbily than the businesses it routinely demonizes - is hardly an isolated occurrence, these three lessons are broadly applicable.  So hopefully the millions of youngsters who watch The Daily Show instead of the real news absorbed the message.  

I'm not holding my breath, but a guy can dream.

USW to China: Green Subsidies for Me, but Not for Thee

The big trade news of the day is that United Steelworkers union (USW) has filed a petition with the US government alleging that the Chinese government unfairly favors, through subsidies and other trade measures, its domestic manufacturers of "green" goods like solar panels and wind turbines.  The petition was filed under a section of US trade law - Section 301 of the Trade Act of 1974 - that was once a strong protectionist weapon but has basically gone dormant since the advent of the World Trade Organization.  Here's the New York Times with the basic facts about the new USW case:

The United Steelworkers union filed a legal case with the Obama administration Thursday morning, accusing China of violating World Trade Organization rules by subsidizing exports of clean energy equipment to the United States.

The filing, more than 5,000 pages long and 18 inches thick, contends that the central government in Beijing and China’s provincial governments have used land grants, low-interest loans and dozens of other measures that violate W.T.O. rules.

Leo W. Gerard, president of the 850,000-member union, said in a conference call with reporters after the filing that China’s violations of free-trade rules had helped Chinese companies expand their share of the world market for wind turbines, solar panels, nuclear power plants and other clean energy equipment, at the expense of jobs in the United States and elsewhere.

The filing asks the Office of the United States Trade Representative to begin formal consultations with China, which would lead to proceedings at the W.T.O. in Geneva if Beijing did not agree to repeal the subsidies....

Nefeterius A. McPherson, a spokeswoman for the Office of the United States Trade Representative, said that the office had accepted the union’s petition and would reach a decision on whether to open an investigation of Chinese trade practices within 45 days. That is the maximum amount of time allowed under the obscure provision invoked by the union in its filing, Section 301 of the 1974 trade law....

With clean energy a stated priority of the Obama administration, as a jobs generator and for environmental reasons, the union says it hopes to gain support for its case by injecting the trade issue into the autumn Congressional campaigns....

The filing of the trade case comes as trade and currency frictions with China are mounting. Friday morning in Beijing (late Thursday night in New York) China is expected to announce that in August it ran another especially large trade surplus, possibly exceeding $25 billion.

President Obama imposed steep tariffs a year ago on tire imports from China, a decision that China is itself now challenging before a W.T.O. panel, which is expected to give an initial ruling this month. The Commerce Department has separately granted dozens of requests to impose tariffs on very narrow categories of imports from China, like steel wire strands for prestressed concrete, after finding evidence that they were subsidized, or dumped, in the American market.

But special tariffs and other import restrictions still cover less than 3 percent of American imports from China. Unions and many Congressional Democrats have contended that the administration should be more assertive in forcing China to honor previous free-trade commitments. But the United States government has long depended on companies to gather commercial information for trade cases, which companies have been hesitant to do.

China’s manufacture of solar panels, wind power turbines and other clean energy products — with the strong support of its government, through land grants and low-interest loans — has turned that nation into the global leader in those markets. China has more than one million jobs in all clean energy industries combined.

Meanwhile, American and other Western manufacturers of solar and wind power equipment have struggled to compete. Some American clean energy companies have scaled back production and laid off workers, while moving operations to China.

Mr. Obama called in his State of the Union address in January for the United States to become a leader in green energy instead of ceding the industry to foreign competitors, including China. But China continues to gain market share in practically every category of clean energy technologies, including solar panels and high-speed trains....

The United Steelworkers union represents employees in a wide range of energy-related jobs, including manufacturers who make the steel for wind turbine towers and nuclear reactors, and glassworkers who make solar panels and various kinds of incandescent and halogen light bulbs. The union also represents workers involved in the assembly of wind turbine towers and those who make gears, valves, engines and other components of clean energy equipment. All those job categories have faced increased competition from China and other countries in recent years.

Another big American union, the International Brotherhood of Electrical Workers, with more than 700,000 members, is also involved in the installation of many clean energy systems, although the steelworkers’ union has not invited it or other unions to participate in the case....

Besides Chinese government assistance to clean energy exporters in the form of free or discounted land for manufacturing plants and low-cost loans, the steelworkers’ union says China has broken W.T.O. rules by tightly restricting the export of so-called rare earth elements needed for the manufacture of wind turbines, solar panels and energy-saving compact fluorescent bulbs.

The filing also accuses the Chinese government of forcing foreign clean energy companies to license their technology to local partners as a condition of entry to the Chinese market....

In the United States, the solar industry has been largely quiet on trade actions and has not retained a law firm to advise it on the feasibility of a trade case.

So while there have been months of back-channel discussions in the United States among lawyers, administration officials and corporate executives about China’s clean energy policies, those discussions have not led to the filing of any trade cases.

Section 301 of the 1974 trade law, the provision cited by the steelworkers’ union, gives legal standing to unions as well as corporations to file trade cases. The law provided the legal basis for threats of unilateral American trade restrictions in many confrontations with Japan and South Korea through the 1980s and early 1990s....

An executive summary of the USW's big petition is available on its website here.  As the NYT article makes clear, this is a pretty complex political and legal issue that requires far more than a Thursday-night blog post (especially with the NFL regular season kicking off in about an hour!).  So while I'm sure I'll have far more to say on this later, here are a few initial thoughts to tide you over.

(1) I must admit that I'm at a loss as to what the USW is really getting for its unknowing members' duesmoney here.  As the NYT article makes clear, Section 301 is not like Section 421 (the tires case) or antidumping and countervailing duty investigations (the other cases mentioned), which can result in the unilateral imposition of remedial US tariffs on Chinese products.  Instead, the very best outcome here is (i) the mutual resolution of the matter through bilateral consultations or (ii) a WTO case adjudicated by an independent panel of arbiters (unlike the, ahem, sympathetic US Department of Commerce or USTR).  And, trust me, a 5000+ page petition drafted by a big DC law firm is not cheap (well, not if you want it done right).  So what gives?  Is this the world's most boring PR stunt, or am I missing something?

(2) As the NYT states, the USW petition claims that Chinese subsidies have crippled American producers of several products, including light bulbs.  I guess the unions and their lawyers weren't expecting a front-page article in yesterday's Washington Post which essentially demonstrated that (i) US environmental regulations, not unfair Chinese trade practices, have killed the American incandescent lightbulb industry; and (ii) Chinese long-term investment and low labor costs, not subsidies, are the biggest reasons for China's success in the compact flourescent light (CFL) business.  Talk about bad timing!

(3) It's no secret to readers of this blog that the USW complaint reeks of hypocrisy, as the Obama administration has already thrown billions of taxpayer dollars at green manufacturers over the last 21 months in an attempt to make them globally competitive.  And it wouldn't be surprising at all for USTR to bring a WTO case against China's green subsidies, despite the fact that the US government's hands are also deep into the (green) cookie jar.  What is surprising, however, is that the USW petition freely admits that US companies (and their unions, natch) have received tons of government cheese:

China’s massive domestic subsidies to green technology are distorting trade and harming producers in other countries.  In its economic stimulus package, for example, China gave more than $216 billion to subsidize green technologies – more than twice as much as the U.S. spent in the sector and nearly half of the total “green” stimulus spent worldwide. These subsidies are helping Chinese producers ramp up production, seize market share, drive down prices, and put global competitors out of business. U.S. companies and firms have suffered the consequences as their exports are displaced, domestic market share erodes, prices plummet, and jobs are lost.

Obvious translation: Sure American manufacturers received $100 billion worth of green subsidies in order to crush their foreign competitors, but China's producers received lots more, and theirs have been far more effective!  No fair!   In essence, the USW is openly complaining that the Chinese are better cheaters than we are, and the union thus wants the US government to call in the WTO's referees in order to stop China's cheating.

Talk about chutzpah.

Exit question: if USTR ends up filing a WTO dispute on the USW's grounds, does that mean we'll have our first ever official case of "subsidy envy"?

(Cheesy answer: well, they don't call them "green" products for nuthin'!)