Politix Can Make You Stoopid

It's often said that "politics makes strange bedfellows," but after yesterday's Senate Finance Committee hearing on the US-Panama FTA, I think you could safely add that it makes otherwise-smart people sound really, really dumb.  National Journal (no link - sorry) provides the latest proof:

A top administration trade official testifying Wednesday on Capitol Hill was short on specifics about how many American jobs, if any, could be lost because of a free-trade agreement with Panama.

Appearing before the Senate Finance Committee, Ambassador Miriam Sapiro, deputy U.S. Trade Representative for Europe, the Middle East, and the Americas, demurred on the question of which jobs would be lost and from what part of the economy they would come if the pact is ratified. The discussion was dominated by the Obama administration's renewed push to extend Trade Adjustment Assistance programs to help such workers.

Pressed on the jobs question repeatedly by Sen. Orrin Hatch, R-Utah, Sapiro became visibly frustrated.

“I don’t have an estimate for Panama,” she said, before adding that TAA is a “core value.”

Hatch pointed out that the Panama agreement, combined with pending Colombia and South Korea pacts, would bring an estimated $13 billion in business to the United States.

“Everything I’ve looked at says we can create jobs if we do these three trade agreements,” Hatch said. “What is there about this free-trade agreement that is going to cost any jobs?”

The federal Trade Adjustment Assistance program helps U.S. workers who have lost their jobs as a result of foreign trade through initiatives like job training and relocation allowances. The administration has tied renewal of the program to the three pending trade agreements going forward.

Sapiro told lawmakers that “a robust renewal of Trade Adjustment Assistance is so vital” and noted that the Obama administration “fully want[s] to see TAA restored in a manner that benefits those” workers displaced by trade.

So to recap: the Obama administration is loudly demanding that FTAs with Panama, Colombia and South Korea proceed through Congress with TAA - a program which is specifically designed to help American workers harmed (allegedly) by international trade. The White House thus has expressly and proactively linked the pending trade agreements to a policy that mitigates their (again, alleged) harms, but when asked to simply quantify these harms, the White House's spokesperson (DUSTR Sapiro) instantly sounds like a babbling doofus.

Smooth.

And look, it's not like Hatch is playing politics here (well, at least not entirely).  The inherent contradictions of the White House's TAA-FTA stance couldn't be more obvious to anyone paying the least bit of attention, regardless of his or her politics.  Folks who support free trade instantly noticed; for example, the editors at Investors' Business Daily stated:

Three days ago, U.S. Trade Rep. Ron Kirk in testimony before Congress described free trade as a job-creating machine. 'Continued growth in agricultural exports depends on accessing new markets for America's farmers and ranchers and ensuring their continued access to existing markets,' he told the House Agriculture Committee. Now, suddenly, it's a job killer.

Not to be outdone, the anti-trade left also cried foul (albeit for unsurprisingly different reasons):

While White House officials are claiming that a trio of pending trade pacts will result in job creation, they have tacitly revealed that they know the opposite to be true by the actions they have taken in recent days.

The fact that the president is demanding the extension of Trade Adjustment Assistance before sending bilateral free trade agreements with Colombia, Panama and South Korea to congress is a pretty good indicator that he’s aware of the consequences, according to David Sirota, writing at Salon.com.

“The administration is simultaneously selling the trade deals as engines of job growth while admitting that the deals will likely kill so many American jobs that Congress must preemptively cough up money to clean up the corresponding economic wreckage,” he writes.

Awesome.  So if both pro- and anti-trade groups immediately noticed the absurdity of the White House's FTA/TAA demands, you'd think that USTR would have some sort of canned response all ready to go when someone like Sen. Hatch dared to ask the blatantly obvious, right?

Wrong. 
Then again, I guess Sapiro had no choice but to dodge because she couldn't just respond with the truth, like: "Well, Senator, we don't have those numbers because, quite frankly, our TAA demand has nothing to do with these economically beneficial FTAs and instead is simply a political payout to one of our favorite and most powerful supporters, as well as a shrewd way to split the GOP and get congressional Republicans on the record as supporting a big chunk of the Stimulus*.  Sorry."

(Although that would've been awesome.)

And, hey, it's certainly not like Sapiro's the first smart White House official to magically lose a few dozen IQ points when confronted with the obviously problematic results of her boss' cynical political decisions.  Indeed, former CEA Chair Christina Romer became kinda infamous for her valiant-yet-futile attempts in 2009 and 2010 to defend her boss' ridiculous claims about the mythical job-creating effects of the Stimulus* (see, e.g., this hilarious video).  So Sapiro's certainly in good and plentiful company.

Of course, she and her bosses could've avoided this silly dance (and the continued delay of GDP-expanding FTAs that were completed and signed about 4 years ago) if they had just put politics aside for a split second, followed their own advice about these trade agreements and free trade more broadly, and submitted the FTAs to a Congress that had already indicated an overwhelming desire to approve them as soon as possible.  But that would have meant, you know, expending an iota of political capital to confront US labor unions and the ever-expanding protectionist wing of the President's own party.

And I guess anyone who expected this White House to actually do that is the real doofus, eh?

(h/t Andy Roth)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

China CVD: Time to Unscramble the Eggs

Yesterday, the WTO's Appellate Body delivered a pretty significant smackdown on the United States in its dispute with China over the US imposition of anti-dumping (AD) duties and countervailing duties (CVDs) on Chinese imports.  The decision follows a string of losses by China at the WTO.  It naturally left the Chinese government quite pleased and the US Trade Representative "deeply troubled," and it's certainly a significant ruling that should have substantial ripple effects.  But it's not the haymaker that some breathless news reports would have you believe - at least, it doesn't have to be.  So let's first go over the decision and then discuss why it's a big deal but not a HUGE deal.

Before we get started, it's important to note that the Appellate Body is basically the "Supreme Court" of the global trading system.  It's decisions are final - there is no appeal, and now all that's left for the United States to do is to figure out how (or, in some unfortunate cases, whether) it will conform its laws or practices to the AB's ruling.  According to that ruling's conclusions, the United States in the four China AD/CVD investigations at issue:

• Erroneously deemed certain Chinese state-owned enterprises to be "public bodies", thus automatically treating the entities as the Chinese government" for the purpose of measuring "government" subsidies;

• Correctly measured the "benefit" conferred by certain Chinese financial contributions, thereby qualifying them as "subsidies" that may be disciplined under the US CVD law;

• Correctly found certain Chinese subsidies to be "specific" and thus countervailable (i.e., deserving of remedial tariffs on the imports receiving those subsidies); 

• Erroneously calculated (by "double counting") the total anti-dumping and countervailing duties to be simultaneously applied to investigated imports from China, which is designated as a "non-market economy" (NME) under the US anti-dumping law.

For us trade lawyers, all of these conclusions are pretty important because they will significantly affect many countries' future CVD actions against China and many other countries.  But for policy purposes, the last conclusion - double counting - is the one that (I assume) sent USTR into "deeply troubled" conniptions, and should have pretty serious implications for US-China trade relations, particularly the two dozen or so completed AD/CVD investigations that relied on the United States' WTO-inconsistent methodology to impose duties on Chinese imports into the US.  But it's not - I repeat, NOT - the death knell for AD/CVD actions against China that some misguided folks have reported.

But before I get into all that, let's define "double counting" and lay out what the AB actually decided.  As I've previously explained, the Department of Commerce's (DOC's) NME AD methodology (and any resulting AD duties) address and remedy the effects of China's subsidies on the subject imports, yet its current CVD methodology offsets these exact same subsidies, thus imposing duties on Chinese imports in excess the level of dumping and/or subsidization that's actually occurring.  In short it "double counts" the subsidies and thus imposes more than "remedial" tariffs on the investigated Chinese imports.  In the WTO case at hand, the AB overturned the Panel's conclusions that the US "double counting" methodology didn't violate WTO rules and instead ruled that double counting was inconsistent with Article 19.3 of the WTO's Subsidies (SCM) Agreement, which requires that countervailing duties be levied in "appropriate amounts":

582. In sum, based on all of the above, we consider that the Panel erred in its interpretation of Article 19.3 of the SCM Agreement and failed to give meaning and effect to all the terms of that provision. Under Article 19.3 of the SCM Agreement, the appropriateness of the amount of countervailing duties cannot be determined without having regard to anti-dumping duties imposed on the same product to offset the same subsidization. The amount of a countervailing duty cannot be "appropriate" in situations where that duty represents the full amount of the subsidy and where anti-dumping duties, calculated at least to some extent on the basis of the same subsidization, are imposed concurrently to remove the same injury to the domestic industry. Dumping margins calculated based on an NME methodology are, for the reasons explained above, likely to include some component that is attributable to subsidization.

583. We, therefore, reverse the Panel's interpretation of Article 19.3 and, in particular, its findings that "the imposition of anti-dumping duties calculated under an NME methodology has no impact on whether the amount of the concurrent countervailing duty collected is 'appropriate' or not" , and that Article 19.3 of the SCM Agreement does not address the issue of double remedies. We find instead that the imposition of double remedies, that is, the offsetting of the same subsidization twice by the concurrent imposition of anti-dumping duties calculated on the basis of an NME methodology and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement.

Next, the AB found that DOC was under an affirmative obligation to ensure that its AD/CVD methodology for China and other NMEs didn't result in double-counting:

602. In the same way, therefore, as an investigating authority is subject to an affirmative obligation to ascertain the precise amount of the subsidy, so too is it subject to an affirmative obligation to establish the appropriate amount of the duty under Article 19.3. This obligation encompasses a requirement to conduct a sufficiently diligent "investigation" into, and solicitation of, relevant facts, and to base its determination on positive evidence in the record. We recall our finding above that, among the factors to be taken into account by an investigating authority, in establishing the "appropriate" amount of countervailing duty to be imposed, is evidence of whether and to what degree the same subsidies are being offset twice when anti-dumping and countervailing duties are simultaneously imposed on the same imported products. We also recall that such double remedies are "likely" when the concurrent anti-dumping duties are calculated on the basis of an NME methodology.

The AB then ruled that DOC had totally flubbed its affirmative WTO obligation by not even trying to prevent double counting from occurring; thus, its AD/CVD determinations were inconsistent with Article 19.3:

604. Thus, the USDOC made no attempt to establish whether or to what degree it would offset the same subsidies twice by imposing anti-dumping duties calculated under its NME methodology, concurrently with countervailing duties. We recall that, in the investigations at issue, the USDOC dismissed China's claim of double remedies on the ground that inter alia it had no statutory authority to make adjustments in the context of countervailing duty investigations. Therefore, the USDOC did not initiate any examination of whether double remedies would arise in the four investigations at issue and refused outright to afford any consideration to the issue or to the submissions pertaining to the issue that were presented to it.

605. In our view, by declining to address China's claims concerning double remedies in the four countervailing duty investigations at issue, the USDOC failed to fulfil its obligation to determine the "appropriate" amount of countervailing duties within the meaning of Article 19.3 of the SCM Agreement.

Finally, the AB concluded (emphasis mine):

606. Consequently, we find that, in the circumstances of the four sets of anti-dumping and countervailing duty investigations at issue, by virtue of the USDOC's imposition of anti-dumping duties calculated on the basis of an NME methodology, concurrently with the imposition of countervailing duties on the same products, without having assessed whether double remedies arose from such concurrent duties, the United States acted inconsistently with its obligations under Article 19.3 of the SCM Agreement.

The AB also found that this violation resulted in consequent violations of Article 10 and 32.1 of the Subsidies Agreement, and it recommended that the WTO Dispute Settlement Body "request the United States to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the SCM Agreement, into conformity with its obligations under that Agreement." (This request includes the inconsistent US determinations on "public body" also mentioned above.)

So now that we have that out of the way, let's examine the possible implications of the AB's ruling.  As noted above, they're pretty big:

• Assuming the the United States decides to comply with the AB's ruling (and not simply accept Chinese retaliation), DOC will need to go back and amend its existing determinations in the four AD/CVD investigations at issue in order to ensure that they are consistent with the AB's ruling.  This means that DOC will have to develop a new AD/CVD methodology that somehow addresses the double counting issue (and "public body"), and the US re-determinations will almost certainly be scrutinized by the WTO to ensure that they comply with the AB's ruling.

• As mentioned above, the AB's ruling (again, assuming the US decides to comply) should eventually affect the dozens of other AD/CVD investigations that have been initiated against China since the US first decided to apply its CVD law to NME imports back in 2006.  Although none of those cases was specifically challenged here, each involved the same illegal double counting methodology (or, more precisely, the lack of any methodology).  So it seems quite likely that, assuming the US doesn't voluntarily amend all of these determinations and recalculate (and refund!) existing duties, China will challenge these determinations at the WTO based on the AB's ruling in this case.  And it should win.

• Finally, the AB's ruling could - could - effectively end DOC's messy 5-year "CVD NME" experiment altogether.  As you'll recall, the US Court of International Trade (CIT) has already ruled that DOC's CVD NME methodology, as applied in a case against Chinese offroad tires (which was also one of the cases at issue in the WTO dispute), violated US law.  That case is currently under appeal at the Court of Appeals for the Federal Circuit, and if the CAFC upholds the CIT's very aggressive decision, you'll now have both the US courts and the WTO's Appellate Body finding major problems with DOC's current CVD NME policy (which, again, has been followed in many completed and pending AD/CVD investigations against China and other NMEs like Vietnam).  The result of all of these adverse rulings could be one of three things: (i) DOC adopts a new CVD NME methodology that dramatically limits (or offsets altogether) the concurrent application of anti-dumping and countervailing duties against Chinese and other NME imports (although the CIT seemed to preclude this option); (ii) DOC no longer allows for concurrent AD/CVD investigations of NME imports; or (iii) DOC deems China to be a "market economy" and thus uses standard AD/CVD methodologies in all future cases.  This last option seems pretty unlikely because domestic petitioners just love the NME methodology, but it's actually the simplest and most reasonable solution (especially when you consider the silly fact that Russia is a "market economy," while China isn't).  Regardless of the (hypothetical) option chosen, however, the end result would be pretty much the same: the diminished (or eliminated) value of petitioners' shiny new CVD NME weapon against Chinese imports. 

That said, the AB's ruling should not be overstated for two big reasons, both of which I mentioned above:

• Most obviously, the AB's ruling did not rule that DOC was absolutely prohibited from conducting concurrent AD and CVD investigations against China or other NMEs.  All the AB said was that double counting violated WTO rules, and that DOC's "imposition of anti-dumping duties calculated on the basis of an NME methodology, concurrently with the imposition of countervailing duties on the same products, without having assessed whether double remedies arose from such concurrent duties" was WTO-inconsistent.  In short, DOC ran into trouble because it didn't even try to prevent double counting in its AD/CVD investigations of Chinese imports.  Thus, DOC could perfectly comply with the AB's ruling where it developed a methodology that (i) "assesses whether double remedies arose from concurrent AD/CVD duties" and, where such double remedies are indeed found, (ii) removes any instances of double counting.  This, of course, is easier said than done, but there are some pretty smart folks over at DOC, and I'm confident that they could develop such a methodology if their bosses in the White House were absolutely determined to keep the AD/CVD NME process alive.  China certainly could challenge this new methodology at the WTO or in US courts, but both bodies are pretty deferential to such administrative minutiae.  (They're not so deferential where, such as here, DOC doesn't even try to adopt a methodology to avoid the legal problems raised.)  As noted above, this approach wouldn't perfectly comply with the CIT's aggressive ruling, but, even assuming the CAFC upholds it, Congress could always intervene to make this approach legal under US law (thereby mitigating the court rulings).

• Second, in the (unlikely, I think) event that DOC decides not to create a fancy AD/CVD NME methodology, it still could allow for an anti-dumping or countervailing duty investigation to proceed against Chinese (or other NME) imports.  Such an "independent" approach would avoid the double-counting issue altogether, maintain the AD NME methodology, and still let certain US petitioners attack Chinese subsidies through CVD cases.

Of course, neither of these approaches will change the fact that DOC likely has to re-do all of those completed AD/CVD determinations against Chinese imports that were based on its faulty double counting.  That's a lot of omelet-unscrambling.  And, as noted above, neither contemplates the easiest and most logical approach to solving the problems raised by the Appellate Body and the CIT - simply designating China a market economy and applying a standard, perfectly legal AD/CVD methodology in future investigations of Chinese imports.

But hey, this is what happens when bad trade politics trumps good trade policy: you get messy rulings that require ample administrative clean-up.  As I said at the time of the CIT ruling against double counting:

[B]ack in 2006-07 when my colleagues and I litigated the first US AD/CVD investigation of Chinese imports (on coated paper), one of our main arguments against a big and sudden change to DOC's longstanding CVD/NME policy was the serious can of worms (note: not a legal term) that would be opened for both US trade law and US-China trade relations. We argued that any CVD/NME changes should be slow, deliberate, and pursuant to formal notice-and-comment procedures in order to avoid endless litigation and unnecessary trade frictions. Our warnings, obviously, were ignored. Now, with two adverse CIT cases, an "illegal" DOC remand redetermination, a pending WTO case, messy congressional currency/CVD legislation and hearings, and more than two dozen completed CVD cases which rely on an "illegal" DOC methodology, I hate to say "I told you so," but......

Well, that "pending WTO case" is now yet another strike against the United States' existing China CVD policy.  And the "I told you sos" are only getting louder.

Well, That Didn't Take Long

On Sunday, your humble correspondent heaped a little praise on USTR for its rhetorical refocusing of the US Trade Policy Agenda from ridiculously-export-oriented in 2010 to only mostly-export-oriented in 2011.  In particular, the new Agenda actually had several passages which made clear and coherent references to the benefits of imports for US businesses and consumers - a welcome change for those of us who have been constantly complaining about the administration's absurd mercantilist positions over the last two-plus years.

Sadly, it appears that USTR's trade epiphany was rather short-lived.

Reviewing USTR Ron Kirk's prepared remarks before the Senate Finance Committee today, Steve Lamar points out over email:

Number of times Ambassador Kirk talks about exports – 7

Number of times Ambassador Kirk talks about imports – 1*

*Use of the word “imports” is in this context: “In December, the WTO upheld our right to take action to stop a harmful surge of Chinese tire imports...”

Aaaaannnnd we're right back to 2010.  I guess all it took was a little public/political scrutiny to put the new "free trader" version of USTR right back in the ol' mercantilist closet.  (Shocking, I know.)

On the bright side, I guess balance has been restored in the trade universe (or something).

US Trade Policy Agenda 2011: Could We Actually Be Getting Through to Them?

Last week, USTR released the President's annual Trade Policy Agenda, and nobody paying attention would be surprised to see that the document spends a disproportionate amount of ink extolling the virtues of American exports (and USTR's efforts to expand them, of course).  But this year's report was somewhat surprising in one respect: it actually acknowledged the benefits of imports too - a message that has been, as I and others have often lamented, almost totally absent from previous Obama administration speeches and documents.  Indeed, as you may recall, last year's US Trade Agenda was so totally lacking in discussion of the benefits of imports for American families and businesses that I concluded at the time, "[i]t's as if the folks at USTR waved a magic mercantilist wand and made imports virtually disappear."  (To get the full effect, go check out the word-count stats in that blog post.  It's pretty unreal.)

This year, however, things are different.  Imports have made a bit of a comeback.

Now, look, it's not as if USTR was suddenly conquered by free market economists, so the report certainly continues to overemphasize exports and praise the administrations' new "enforcement" (read: import-limiting) initiatives.  But, still, check out these statements (emphasis mine):

• Pages 1-2: "Two-way trade is essential to American economic growth and success. Ninety-five percent of consumers reside beyond our borders, and the International Monetary Fund forecasts that nearly 83 percent of world growth over the next five years will take place outside of the United States. To reach our full potential for employment and economic growth, America must engage globally to sell more goods and services abroad.... Imports can also play a positive role, serving as inputs to value-added U.S. production and supporting well-paying jobs here in the United States. Imports also offer U.S. consumers variety and affordability as they look to get the most out of their household budgets."

• Page 18: "U.S. trade preference programs also benefit the American economy. While GSP is designed to promote economic growth across the developing world, U.S. businesses and consumers benefit through cost savings on imports, through access to more goods and services, and through import-supported jobs from docks to manufacturing plants to retail stores. Americans benefit in similar ways from AGOA, ATPA, and other programs. The ATPA also has a positive effect on drug-crop eradication and crop substitution in the Andean region where the raw material for cocaine is grown, as well as job growth in export oriented industries there.... Failure to renew and extend these programs will undermine the economic development efforts of many poor countries and negatively affect U.S. businesses and consumers. The Administration will work with Congress in 2011 to secure long-term reauthorization of these two essential trade programs."

• Page 18 (again): "The link between increased trade and better jobs, as well as trade’s consumer benefits, is well established and on display in American society every day. Yet many Americans still feel strongly that trade’s costs outweigh its benefits."

Not bad, USTR.  Not bad at all.  It's almost as if someone in the Obama administration is actually listening to our criticism of their mercantilist rhetoric and has amended the official US trade agenda accordingly.

Of course, this is nothing but a rhetorical shift - the Obama administration's actual policy priorities are still unfortunately focused on exports and "enforcement," and, except for those relatively tiny trade preference programs, not a single one aims to liberalize our own, still highly protected, market (and to explain to the American people the moral and economic case for that liberalization).  And even rhetorically, the imbalance is still pretty stark - as I mentioned above, the vast majority of the trade agenda's rhetoric is export- and enforcement-centric.  (Case in point, the conclusion: "In order to accelerate a job-rich, robust recovery here in America and balanced economic growth around the world, U.S. trade policy must be bold, with an appropriate focus on exports and a strong commitment to enforcing America’s rights.")

But, hey, it's a start.  And who knows, maybe next year the administration will actually deliver some of those sweet, sweet import benefits that they've finally started talking about.

(Then again, 2012 is an election year, so I'll believe it when I see it.)

Wednesday Quick Hits

Lots of great stuff out there for your reading pleasure:

• Cato's Dan Griswold helpfully explains why all those allegedly "conservative/libertarian" arguments against FTAs are bunk.  (More on that here.)

• A ton of former USTRs and other US officials, from both parties, urge President Obama to get off his butt and submit all pending FTAs to Congress asap.

• Magic bean economics, Carolina-style: if your stimulus* can't create those mythical green jobs, then just spend $1 million more to reclassify existing jobs.  Problem "solved"!

• Aw, poor little crony capitalists: ethanol's apparently on the outs in Washington; I'll believe it when I see it.

• The Obama administration released its 2011 trade policy agenda yesterday; in response, the world let out a collective yawn and tried not to snicker when USTR Kirk said that his "Administration has blazed a new trail on trade." (I'll be providing an exciting review in the next few days.  Stay tuned!)

• Cato's Dan Ikenson is boycotting ABC and Disney because the once-venerable World News Tonight has made a conscious decision to air a week of jingoistic, fearmongering garbage.  (Of course, you already knew that.)

• The Koch brothers fight back against the Left's slander/libel, and in the process show that ethical, well-run businesses don't need or want protective tariffs.

• If the GAO's new report on redundant government programs, and the insane amounts of waste that they create, doesn't make you a libertarian (or at least a hardcore fiscal conservative), then I don't know what will.  Seriously.

• Cafe Hayek's Don Boudreaux has declared intellectual war on Ian Fletcher, the self-avowed protectionist, HuffPo blogger and new senior "economist" at something ironically called the "Coalition for a Prosperous America."  As exhibits one, two, three, four, five and six demonstrate, the results of this skirmish are as lopsided as you imagined.

• New Cato Study: the United States effective corporate tax rate is really, REALLY high.

Enjoy.

Is DOC's Zeroing Announcement a Strong Hint That the US Is Getting Serious about Doha?

Last week, while most of us were buying champagnesparkling wine and taking down our Festivus poles, the US Department of Commerce quietly announced in the Federal Register that it was exploring the elimination of "zeroing" in annual reviews of US anti-dumping duty orders.  The announcement is pretty big news for several reasons, but first let's get through the basics, courtesy of the WSJ:

The Commerce Department, hoping to head off retaliation by the European Union, Japan, and other trading partners has proposed ending a controversial method of calculating penalties on trade dumping cases.

The proposal, disclosed quietly last week in the Federal Register, could resolve a long-running fight between the U.S. and several of its largest trading partners. The dispute could spill out into a broader trade battle, with the EU and Japan threatening hundreds of millions of dollars in trade sanctions against U.S. goods in retaliation.

The EU, Japan and other countries have successfully challenged the practice at the World Trade Organization.

The dispute centers on the a method of calculating antidumping duties, a type of penalty in trade cases. This type of calculation, known as "zeroing," doesn't take into account imported goods that are priced higher than domestic goods. Other countries complain the method artificially lowers the average price of the imports.

Since early 2007, the U.S. has stopped the practice in calculating new penalties, now weighing the dumped goods against high-priced imports from the same country.

But the practice of zeroing has continued in reviews of whether to keep existing duties in place, despite several WTO rulings against the U.S.

On Dec. 28, the Commerce Department issued for public comment a plan to extend the ban on zeroing to reviews and a limited number of new investigations that weren't already covered. The comment period runs through Jan. 27, but a final decision will come later, a senior Commerce Department official said....

For those of you interested (or suffering from insomnia), DOC's formal announcement is here.  I've discussed zeroing and why it's been a black mark for US trade policy several times over the last couple years.  In short, the WTO's Appellate Body (and multiple dispute settlement panels) has consistently ruled that all forms of zeroing are inconsistent with WTO rules because zeroing leads to dumping margins (and duties) that are higher than the actual level of dumping; yet DOC continues to zero in administrative reviews and has made no efforts, until now, to change the practice.  Thus, WTO Members continue to bring new WTO cases (which the US continues to fight and lose), and, armed with adverse WTO rulings authorizing retaliatory tariffs against the US, they keep threatening to impose steep tariffs on US exports until DOC stops the WTO-illegal practice.  Moreover, the artificially (and illegally) inflated dumping margins caused by zeroing lead to higher tariffs on subject imports, thus making those goods more expensive for American consumers.  And finally, the United States' consistent refusal to comply with adverse WTO rulings on zeroing undermines its credibility at the WTO and provides other nations with an excuse to shirk their own WTO obligations (including those with respect to US exports).  It's a classic case of what I like to call "bad trade parenting": do as I say, not as I do, WTO Members.

Given all of this, it's obvious why DOC's announcement is pretty big news, and any final DOC rule that ends zeroing would be a very welcome development (although probably not the end of zeroing altogether).  The United States' obduracy on zeroing (i) wastes government resources through pointless and embarrassing WTO litigation that the US always loses; (ii) illegally raises anti-dumping duty rates on subject imports (and thus the prices that American businesses and families must pay for those and other like products); (iii) threatens US exporters with WTO-sanctioned retaliation in important foreign markets; and (iv) undermines US credibility on the global stage.  Thus, US efforts to end zeroing should be applauded, and they should scare the bejeezus out of the domestic industries and unions that have relied on zeroing to unfairly tilt the playing field in their favor (at American consumers' expense, natch).

Yet DOC's zeroing notice is big news for another reason: it could be further proof that the Obama administration is getting serious about concluding the WTO's Doha Round this year.

As I've noted previously, zeroing is one of the most contentious "lesser issues" (i.e., issues other than farm subsidies and industrial tariffs) in the Doha Round.  The debate on zeroing takes place as part of the Round's negotiations on "rules" (i.e., WTO disciplines on anti-dumping, subsidies and countervailing measures, and safeguards), and the United States has been fighting (with almost every other WTO Member) to amend the WTO Anti-Dumping Agreement such that it expressly permits zeroing.  I've wildly speculated that the United States' refusal to end zeroing in annual reviews - and the resulting beatdowns USTR keeps getting at the WTO - is (among other things) part of a sneaky US strategy in the Doha Round rules negotiations.  In short, the United States, as the only country in the world that's still zeroing, has been keeping the issue ripe for future negotiation by refusing to change its policies and admit defeat.  Thus, USTR keeps getting dragged before the WTO to face an inevitable, embarrassing and much-deserved flogging just to keep the zeroing hope alive.  (Great use of taxpayer money, eh?)

And that brings me back to DOC's formal announcement that it might eliminate zeroing in annual reviews and the announcement's potential impact on the Doha Round.  Because the Round is a "single undertaking," all negotiations - not just those on subsidies and market access - must be completed simultaneously.  (Although some Members have suggested that this approach be abandoned for an "early harvest" on low-hanging fruit like trade facilitation and trade in evironmental goods, this idea has thus far been rejected.)  Thus, if you want to finish the Doha Round, you need to complete all negotiations, including those on rules, which, again, are being held up by the contentious debate on zeroing.  If the US is serious about changing DOC's policy on zeroing, then it also could be quietly planning to do the same in the Doha Round, with DOC's announcement as a first sign of "good faith" on the issue.  In the WSJ article quoted above, a US official steadfastly asserts that DOC's notice has absolutely nothing to do with the Doha Round, but of course he has to say that - no sense in tipping your negotiating hand and angering constituents before it's absolutely necessary to do so, right?  Moreover, American reps at the WTO (and USTR's General Counsel) months ago hinted that a change in the United States' position on zeroing was in the works, so this move is certainly not out of the blue.  Thus, DOC's announcement could be a very strong hint that the United States is quietly angling to remove one of the larger impediments to completing the Doha Round and, more broadly, is serious about completing the Round in 2010.

AEI's Phil Levy and I recently laid out a basic roadmap of how the Obama administration could lead the renewed global charge to complete the Doha Round.  We hit on the "big issues" - farm subsidies (including those for cotton) and developing country market access.  A revised US position on zeroing would be a fantastic addition to our suggestions and could be the first signs that the President really is serious about concluding the Round in 2011.  Of course, if American labor unions and other protectionists stymie US efforts on zeroing, or if the administration thinks that its zeroing proposal alone will be sufficient to advance the Doha Round, then DOC's announcement could end up being a big fat nothingburger.

Guess we'll find out over the next few months.

UPDATE: Looks like Simon Lester over at the IELP blog is pondering the same thing (and beat me to the punch by a few hours!).  Great minds...

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.

Wednesday Quick Hits

Lots of headlines since last week, so let's get right to it:

• Cato's Dan Ikenson provides some much-deserved criticism of USTR's jubilation over the WTO's totally-expected ruling that last year's Section 421 decision against Chinese tire imports was consistent with global trade rules.  (Others agree.)

• AEI's Claude Barfield rightly admonishes the Politico's John Maggs for his reallllly bad reporting on US FTAs' likely path through Congress.

• Cato's Dan Mitchell and Chris Edwards explain just how embarrassing it is that, with Japan's decision to lower its corporate tax rate, the United States now has the highest statutory corporate tax rate of all OECD nations.  Edwards provides a great chart: 

Me: The next time that a protectionist complains about imports, outsourcing and a lack of American competitiveness, feel free to share this chart with him/her. 

• Columnist David Harsanyi explains that Americans are just plain wrong about the state of American manufacturing. (Gee, I wonder where they could have gotten the wrong idea?)

• Revealing WSJ interactive charts on US debt levels.  Guess what? Everyday Americans have moderated their debt levels, but Uncle Sam's tab just keeps on growing and growing and growing.

• Paul Krugman, mercantilist.

• AEI's Phil Levy (at a very interesting forum on the National Export Initiative) explains, starting at about 1:37 the pitfalls of trying to sell free trade through mercantilism (i.e., free trade = exports = jobs) approach (h/t Bryan Riley):

• Chinese inflation is becoming a pretty serious issue.  More here.

• Festivus is real.  Bring on the airing of grievances and feats of strength!

• Finally, GMU's Don Boudreaux takes to xtranormal to create a nice little cartoon explaining the idiocy of protectionism (h/t Simon Lester):

 That should keep y'all busy for a while.  Enjoy!

KORUS and TPA, ctd.

A few more thoughts on last night's open questions re: the US-Korea FTA and its 2011 congressional consideration under Trade Promotion Authority (TPA):

• An informed reader helpfully points out another scenario that I didn't mention last night: the original 2007 agreement proceeding through congress under TPA, while the 2010 "supplemental agreement" is considered separately and subsequently as a new modifying agreement that would not be subject to TPA's important disciplines.  Under such a scenario, the supplemental agreement would have been "entered into" after July 1, 2007 (the original TPA deadline), so it would have to be considered under the still-in-force 1974 Trade Act (19 U.S.C. 2112), which has none of TPA's protections.  Thus, ill-willed members of Congress could certainly try to meddle with it in all sorts of nasty ways.  (And, of course, if - as we discussed last night - the 2007 agreement was found to be "entered into" in 2010 because of the new deal's significant substantive changes, it too would have to be considered under Section 2112.)   Now, such consideration is not a total death sentence for either of the agreements - implementing legislation for the US-Jordan FTA was considered in 2001 without TPA under the 1974 Act, and it passed both chambers pretty easily.  Of course, that agreement was far less controversial and congressional Democrats hadn't wholly abandoned free trade yet, so easy passage for the KORUS under the 1974 Act is far from certain.  So in sum, unless the entire package is somehow considered to fall under TPA, the administration appears to have a little procedural mess on its hands - either the original FTA was amended, and it's thus no longer under TPA; or they've created a "supplemental agreement" outside the original agreement, and it's not subject to TPA.  Dilemma.

• It turns out that I am certainly not the first person to consider this potential problem.  Several people are asking questions about it, and, as I suspected last night, the administration was worried about all of these TPA problems back in July of this year when it was trying to figure out how it could possibly appease Ford, Chrysler and the UAW, while still keeping TPA's important procedural disciplines in place by not "re-opening" the KORUS through big, substantive changes.  (So much, as they say, for that.)  The article linked above is a great guide to all of the procedural arcania involved, so be sure to read the whole thing if you're interested in all the different ways that this could play out next year.  The most important nugget, I think, is what happens if the White House submits the FTA legislation under TPA and a congressman or senator objects: "If the FTA were submitted under TPA and a member of the House objected due to a belief that TPA protections no longer applied, that member could raise a point of order.  The ultimate decision on whether TPA applied would then fall to the House speaker, who would rule with the guidance of the House parliamentarian.... That ruling can also be challenged, in which case the entire House would vote on whether the FTA could proceed under TPA.  The majority party typically would support the ruling of the speaker in that instance. Similarly, an objection in the Senate would be ruled on by the chair of that chamber, with a vote possible in the case of further objection."  Very interesting.  The article also makes it pretty clear that, even if TPA becomes an issue for the KORUS, it's very likely that any problem can be overcome with cooperation between the White House and both chambers of Congress.  (Yet another reason to celebrate the GOP's new majority in the House, eh?)

• It appears that both the administration and House Republicans are sticking with the line that both the 2007 KORUS agreement and the 2010 supplemental agreement will be covered by TPA.  Incoming chair of the House Trade Subcommittee (and strong free trader) Kevin Brady (R-TX) said today that he wants all FTAs - not just KORUS - considered in the 112th Congress' first six months.  And when asked whether TPA would apply to the KORUS "since the new 'supplemental agreement' reached last week changes the terms of the original 2007 deal," Brady said that he was "confident the side agreement did not invalidate the original deal's fast track [TPA] protection."  

• The White House is apparently also "confident," telling sources (like the Nelson Report's Chris Nelson) that the KORUS is, like, totally covered by TPA, dude.  Nelson states: "On the possible 'Fast Track' problem that the auto tariff sections of the KORUS deal are vulnerable to a Point of Order which could deny it protection from amendments: we are told that the Administration will likely argue that the bottom line on tariffs is not changed, only the timing... so since the tariffs will end up at their "original" planned numbers, timing on when or how quickly is a technical detail, not a disqualifying change in substance."  On this argument, Nelson sounds skeptical ("Whether that will 'fly', along with the planned use of 'side letters' to make legislative changes? Stay tuned."), and he has every right to be. If you take a quick look at the tariff schedules in the 2007 agreement for both the United States and Korea, you'll see that they include the specific "codes" for the tariff elimination schedules (they key for these codes is also in the 2007 agreement here).  The 2010 supplemental agreement amends these codes based on the new, agreed (and longer) timeframes for tariff elimination.  So this remains a substantive, textual change to the 2007 agreement, and the White House's claims seem (to me at least) to be pretty flimsy.  Just think of it this way: if the President could sign a trade agreement, then modify it at will, and still have it covered by TPA, then why did President Bush and his USTR rush to complete and sign the original KORUS by June 30, 2007?  They could have just signed a tariff schedule with all lines ending up at zero, and then hammered out the tariff elimination schedules in the following months (or years).  Hmmmm?

Now, again, with strong House and Senate support for the agreement (and its consideration under TPA) and/or with all of those different ways for congressional leadership to control the fate of the KORUS (with or without TPA), all of this might just be pointless geekspeak speculation.  Then again, it might not be pointless if things start getting out of hand next year and the KORUS ends up getting held hostage (heh) by a rogue Senator or two because of the substantive changes demanded by Ford, Chrysler and the UAW.  And either way, all of this trouble is certainly further proof of why it's always, always a really bad idea for the world's most powerful man to cave to insular special interest groups just to score some cheap political points on a huge free trade agreement when he could have just stood tall and argued the facts, principle and law instead.

Oh well.

"Success": Obama Administration Finalizes Already-Finished Free Trade Agreement by Making It Less Free

At long last, the US-Korea FTA looks to be headed for the very-delayed finish line:

The United States and South Korea have a reached a deal on auto issues that have blocked congressional approval of a free-trade agreement for three years, sources familiar with the talks said on Friday.

As part of the deal, South Korea agreed to let the United States keep a 2.5 percent tariff on Korean-built cars for five more years, rather than cut it immediately, the sources said.

U.S. negotiators wrapped up several days of talks with South Korean official early on Friday and left the hotel venue north of Washington in a jubilant mood.

"We made substantial progress in our discussions," U.S. Trade Representative Ron Kirk said in a statement after a final meeting with South Korean Trade Minister Kim Jong-hoon.

"It's time for the leaders to review this progress before we move forward," Kirk said.

Once that has been done, "then we will synchronize the same time and date to go into a detailed announcement," the South Korean trade minister said before heading to the airport.

First, allow me to publicly congratulate American and Korean trade negotiators for - what appears to be at least - successfully modifying the completed-and-signed-in-2007 KORUS in a way that (a) makes the Obama administration now feel warm and fuzzy about sending the deal to Congress; and (b) kept the Koreans from walking away in disgust.

So congrats, USTR!  I must admit that, after you and the President totally flubbed  his original, self-imposed deadline for re-completing the deal and then he publicly pussyfooted with Congress' most trade-averse members, I had my doubts that you could get it done.  But you persevered, navigated the political minefield and (tentatively) finished the job.  And now it appears that the long-stalled, multi-billion-dollar trade agreement will move forward.  Nice work!

Ok, now that I have the much-deserved kudos out of the way, let's start the (totally inevitable) laundry-list of gripes.  (USTR, you might want to stop reading at this point.)

The vast majority of my issues stem from the "deal" that the negotiators achieved to reach an agreement.  It appears that, as noted above, a major breakthrough in the negotiations was that, instead of immediately eliminating its 2.5% tariff on (non-truck) passenger vehicles from Korea, the US will maintain it for 5 years and then eliminate it.  Of course, this "achievement" comes at a price: according to National Journal, Korea's 8% tariff on similar American cars will no longer be eliminated immediately and instead will be halved, with the remaining 4% eliminated pursuant to the same 5 year schedule. 

But wait, there's more! 

According to the White House factsheet on today's deal (not online at presstime), the US now also gets to maintain its 25% truck tariff until the FTA's eighth year:

The 2007 agreement would have required the United States to start reducing its tariff on Korean trucks immediately and phase it out by the agreement’s tenth year. The 2010 supplemental agreement allows the United States to maintain its 25 percent truck tariff until the eighth year and then phase it out by the tenth year – but holds Korea to its original commitment to eliminate its 10 percent tariff on U.S. trucks immediately

You did not read that wrong: the tariff is 25%, and now it won't budge until the EIGHTH YEAR.  That's seven glorious years of huge domestic market protectionism.  Too bad, American truck consumers! 

The factsheet lists other goodies, but these are the two biggest, in my humble opinion.  And have no doubt: these are big deals.  But the whole thing smells pretty bad, and here's why:

• That USTR was able to complete these negotiations only 3 weeks after a very public and embarrassing episode by the President in Seoul does not inspire much confidence in this administration's political competence.  After the President announced the G20 deadline in June, USTR waited months to approach the Koreans, never got a deal done, and the President ended up looking pretty foolish.  Yet the two sides were able to hammer it out only a few weeks later?  Two words come to mind here: amateur hour.

• That the the fate of KORUS hinged on these tariffs makes clear that the public objections of Ford, the UAW and their congressional allies like Rep. Levin (D-MI) - i.e., that Korea's market was too closed, and that Korean non-tariff barriers prevented "fair" trade - were window-dressing at best and total BS at worst.  Instead, this was about protectionism (from Korean car and truck imports), plain and simple. (Of course, if you had listened to your humble correspondent, you would have already known this.)  Indeed, relative to the original agreement, this deal actually closes the Korean market to US cars, and yet, as that National Journal article above makes clear, the US automakers are totally on board!  What a crock.  (And how does the administration plan to reconcile this deal's closing of the Korean auto market with Obama's big "National Export Initiative"?  Anyone?)

• As noted by the WSJ this morning, the elimination of that 2.5% tariff is pretty economically meaningless for two big reasons: (i) the Koreans (Kia and Hyundai) are already selling tons of cars here tariff-free because they produce them in the United States (at non-unions shops in the South, by the way) - in fact, according to the Journal, half of Hyundai's US sales are of US-made cars; (ii) normal currency fluctuations would "dwarf" the economic impact of the 2.5% tariff reductions ("In November alone, the dollar rose 0.4% against the South Korean won, virtually equivalent to the level a one-year tariff reduction would provide").  In short, during the worst economic period since the Great Depression, we delayed - for 2 years! - implementation of an FTA worth anywhere from $17 to $40 billion for (among other things) what amounts to a rounding error.  Seriously?

• And that's just the economic pain caused by this ridiculous delay.  It's totally unclear just how much damage the debacle in Seoul has done to the United States' ability to negotiate other trade agreements, including the Trans-Pacific Partnership and the sorta-revived WTO Doha Round.  Just think of it this way: if you were a US trading partner, and you just saw the White House's willingness to publicly embarrass itself and jeopardize a hugely valuable trade deal just to placate a powerful domestic constituency who was (loudly) complaining about a relatively tiny amount of trade, would you put forth your best efforts to get a deal done?  Would you, say, put forth an ambitious Doha Round market access offer that hinged on the Obama administration standing up to the US Farm Lobby?  Ummmmmmm.

• Finally, think about what just happened here, and the awful lesson it provides.  The Obama administration sat on a signed-and-completed multi-billion dollar free trade agreement for two years, just so that they could re-open it and increase tariffs at home and abroad - to make the agreement less free.  If this is a "victory," then what's the point of all those other nasty tariff reductions?  Talk about a horrible lesson for the kids out there.  Then again, this is the same administration that "solved" the problem of our WTO-illegal cotton subsidies by subsidizing the complaining Brazilian cotton farmers, so we shouldn't really be surprised that they're not really worried about setting a good free trade example, now should we?

I actually have several other issues with today's deal, but I think those will suffice for now.  But, hey, despite these gripes, let's not get too upset here.  We are talking about a relatively insignificant aspect of a very big, very good FTA.  And we are seeing the first proactive commitment of the Obama administration to free trade in any way, shape or form (albeit a pretty ugly form).  And if Congress passes the deal, it will finally reaffirm to our trading partners that the United States is still open for business and not about to fall into the protectionist abyss.  So in the grand scheme of things, it's a good day. 

But it's certainly not a Great Day, and, with a little planning, principle and backbone, it easily could have been. 

I guess that's just too much to ask with this administration.   But at this stage, I'll take what I can get.

[UPDATE: The White House KORUS fact sheets are available here.  Note another protectionist addition: a special "safeguard" mechanism which allows the US to ramp up tariffs on Korean autos if they "surge" into the US market after the agreement's implementation. ]

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.