Unilateral Import Liberalization Is Helpful, Egalitarian and - Yes - Politically Possible

The Heritage Foundation's Bryan Riley has a great new study out today arguing in favor of the unilateral elimination of all - yes, all - US barriers to imports.  Here's the summary:

Congress routinely makes targeted, short-term tariff cuts through “miscellaneous tariff bills.” While conventional wisdom is that unilateral tariff cuts are politically impossible, these bills show that it is possible to reduce tariffs. Proponents of such tariff cuts argue that the cuts support U.S. jobs; critics argue that the economic value of miscellaneous cuts is modest, and that the process is open to abuse. While it is healthy to discuss ways to maximize the benefits provided by miscellaneous tariff bills, the United States would see the most economic benefit from across-the-board tariff reform. The best possible reform would be for the U.S. Congress to eliminate all remaining import tariffs and quotas.

After noting that the United States rates a dismal 38th place in Heritage's ranking of trade freedom (and would jump to first if if eliminated all barriers), Riley explains that import liberalization is one of the few things on which economists - left, right and center - can actually agree, with over 85% of them repeatedly favoring the policy in recent surveys.  The reasons for this are obvious:

Tariffs make Americans poorer by transferring dollars from the country’s most competitive industries to the industries that have the best political connections. 

Countries with low tariffs, such as New Zealand and Singapore, are more prosperous than countries with high, protective tariffs, such as India and Venezuela. The latest rankings of trade freedom around the world, developed by The Heritage Foundation and The Wall Street Journal in the 2013 Index of Economic Freedom, demonstrate how citizens of countries that embrace free trade have higher average incomes than citizens of countries that do not.

Riley then looks at several examples of countries - including Australia, Chile, China, New Zealand, Canada, and Mexico - unilaterally liberalizing import barriers to great economic success.  And while all of this historical and economic data are great, I think the following passage is my favorite because it really hits home just how obscenely immoral our current tariff/quota system really is, as it disproportionately punishes both poor countries and poor Americans:

Former WTO Director-General Mike Moore observed: “You know, the least-developed countries account for less than 0.5 percent of world trade, yet where they have areas of excellence, they’re not allowed to export to the United States or to Europe.” 

In the United States, the average tariff on products from developing countries is much higher than on products from developed countries. For example, imports from Bangladesh faced an average U.S. tariff of 15 percent in 2012, but imports from Belgium faced an average tariff of just 0.7 percent. The overall U.S. average tariff on products from the U.N.’s Least Developed Countries list in 2012 was 3.9 times higher than the average tariff on products from other countries. 

Imposing tariffs on imports from developing countries makes it more difficult for people in those countries to escape poverty, and keeps them dependent on U.S. aid dollars. In 2011, the U.S. government sent Bangladesh $218 million in economic aid, and collected $746 million in tariffs. If the U.S. government cut the 15 percent effective tariff on imports from Bangladesh, it could keep some aid dollars at home. 

In 2011, U.S. the government collected $28.6 billion in tariff revenue, and spent $31.7 billion on foreign economic aid.... 

Although some people argue that it is politically impossible to cut tariffs unilaterally in the United States, in fact most U.S. tariffs are already close to zero. The United States’ tariff problem stems from the country’s two-tier regime consisting of shoes, clothing, and related items on one tier, and everything else on the other. 

Tier One items including shoes and clothing account for less than 6 percent of total imports, but tariffs on these items account for 47 percent of U.S. tariff revenue.[28] As the liberal blog ThinkProgress observed, tariffs are highly regressive: “The kinds of goods where freer trade would mostly benefit the poor are exactly the kinds of goods where trade is least-free.” A study in the Journal of Diversity Management found that tariffs are higher for clothing purchased by low-income consumers, and also higher for women’s clothing than for men’s clothing....

So not only does our tariff/quota system hurt the US economy, but it also benefits rich, politically-connected US industries (like these guys) at the expense of developing countries and the most vulnerable American citizens.  Now if that isn't a good enough reason to reform the system, then I don't know what is.

Riley concludes by making several great recommendations for reform and by noting that import liberalization isn't nearly as radioactive as some politicians and political hacks claim because the United States government routinely passes import liberalization bills in the form of temporary, small scale programs like the Generalized System of Preferences and the Miscellaneous Tariff Bill.   The same economic and moral principles supporting these bills - eliminating cronyism and helping the economy, US consumers and less-developed countries - obviously would apply to broader liberalization measures (and, of course, to much greater effect).   Indeed, when Congress failed to reauthorize GSP in 2011, one champion of import liberalization got on his high horse and explained what's at stake:

The exclusion of the Generalized System of Preferences from the package means that this important program will lapse on December 31, hurting American consumers and businesses as well as workers and farmers in many of the world's poorer countries....

U.S. businesses and consumers benefit from the GSP program through cost savings on imports. Also, according to a 2005 U.S. Chamber of Commerce study, the program supports over 80,000 American jobs associated with moving GSP imports from the docks to farmers, manufacturers and ultimately to retail shelves. U.S. imports under GSP exceeded $20 billion in 2009 and are on pace to exceed $27 billion in 2010. GSP saved U.S. importers nearly $577 million in duties in 2009. The program was instituted on January 1, 1976, by the Trade Act of 1974. In addition to its benefits to American families, GSP is designed to promote economic growth in the developing world by providing preferential duty-free entry for about 4,800 products from 131 designated beneficiary countries and territories.

This is exactly right, and it echoes many of the findings in Riley's study.  So who, you might ask, is this great, economically-literate champion of free trade?

The typically mercantilist and import-skeptical Obama administration's USTR, that's who.

So with all of the economic benefits and moral arguments for import liberalization so clear, it kinda makes you wonder what's keeping President Obama from supporting a bigger, better, more permanent version of GSP, eh?

Global Competitiveness, Ctd.

Two very timely updates since last night's post on US corporate taxes and global competitiveness:

• Cause. First, the National Federation of Independent Business, the main trade association for small businesses in the United States, highlights other aspects of the Ernst and Young study that I mentioned last night: "New data released today by Ernst and Young shows tax increases shows that allowing the top two tax rates to increase, as has been proposed by President Obama and many Members of Congress, would greatly impact small businesses. The preliminary results of the study show business owners paying the top two rates account for: 72 percent of all S corporation income; 61 percent of all partnership income; and 13 percent of all sole proprietorship income. Subchapter S corporations, partnerships, LLCs, and sole proprietorships are all considered "pass-through' businesses for tax purposes, in which business income is taxed at the individual rates. NFIB research shows three-quarters of small businesses are organized in such a manner. In addition to this week's Ernst and Young data, the Congressional Joint Committee on Taxation recently published research that estimates around 53 percent of business income would be impacted allowing tax relief to expire on the top two individual brackets, impacting an estimated 940,000 who earn business income.  

• Effect.  Second, we see the real world effects of the US government's inability to reform its painful, arcane tax and regulatory policies: "Cisco CEO John Chambers says there’s one place in the world where doing business is easy – and it’s not the U.S.  Canada, he told analysts during a Tuesday conference call, is “the easiest place to do business." "It doesn’t matter which party is in power, even in their provinces, i.e. their states... leaders in Ottawa get it,” he said. “They drive down through and make it very easy to do business there. You’re going to see us grow our business there as well as invest overall."   In case you've forgotten, Canada has repeatedly lowered its corporate tax rate over the last several years, and it now stands at 15% - a full 20 percentage points lower than the federal statutory corporate tax rate in the United States.  Oof.

Leading from Behind on Trade

Last night, I lamented the last four years of politics-driven US trade policy stagnation and the United States' abdication of its traditional role as the world's global trade leader.  My longwinded essay was admittedly light on links and examples, but did happen to finger Canada as one of several countries that have left the United States in the trade liberalization/leadership dust over the last few years.  Tonight comes a great example of just what I meant:

The Honourable Ed Fast, Minister of International Trade and Minister for the Asia-Pacific Gateway, today announced that Canada will soon begin the first full round of trade negotiations with Japan, the world’s third-largest economy and Canada’s fourth-largest merchandise export market....

Known as the Canada-Japan Economic Partnership Agreement, the first full round of official talks, which will begin on November 26 in Tokyo, will build on the recently released joint study that found a trade agreement between Canada and Japan could translate into gains of up to $3.8 billion a year in Canadian gross domestic product. The study also found that Canadian exports to Japan could increase by as much as 67 percent and lead to gains for Canadian exporters of goods and services, as well as enhanced investment opportunities. That is equivalent to the creation of more than 26,000 new jobs, and expected to bring strengthened bilateral trade opportunities in a variety of areas, including in Canadian agri-food products and natural resources....

In less than six years, the Harper government has concluded free trade agreements with nine countries: Colombia, Honduras, Jordan, Panama, Peru and the European Free Trade Association member states of Iceland, Liechtenstein, Norway and Switzerland. In addition to ongoing negotiations with the European Union and India, Canada recently joined the Trans-Pacific Partnership.

Nine FTAs concluded and three - now four - major agreements under negotiation.  Very impressive.  By contrast, since mid-2007, the United States has concluded precisely zero trade agreements, and is currently negotiating exactly one deal, the TPP.  I've repeatedly criticized the Obama administration for not getting Japan into the TPP when it had the chance, and it was great to see that Governor Romney's team announce that, as President, he'd welcome the country - one of our closest allies and largest trading partners - into the only trade negotiations that the United States is now pursuing.

But, hey, maybe if President Obama gets re-elected, we can just count on the Harper Government to push for Japan's inclusion.

Talk about leading from behind.

More Depressing News re Global Protectionism and US Trade Leadership

A few days ago, I reported on a distressing new report from the WTO on the recent increase in global trade protectionism.  Unfortunately, it appears that the WTO's report has plenty of company, as a relatively new article from the New York Times makes clear:

Argentina tweaked import regulations on bottle caps and water balloons. India banned exports of cotton. South Africa instituted a tariff on artificial turf. Those recent policy changes sound minute. But they, and scores more like them, have stoked fears about trade protectionism rising as the global economy cools.

The World Trade Organization and other independent analysts are sounding the alarm. In a report released at the end of April, the W.T.O. said that since mid-October the Group of 20 economies — the world’s biggest, which account for a vast majority of the world’s economic output and trade — had added 124 new restrictive measures affecting about 1 percent of world imports.

Global Trade Alert, a respected independent survey, titled a June update on trade protections “Debacle.” It bumped up its estimate of the number of protectionist measures enacted in 2010 and 2011, by 36 percent, and warned that countries had many more coming.

The European Union also issued a report finding a “staggering increase in protectionism” in recent months. Group of 20 members “need to seriously step up their efforts to fight protectionism,” Karel De Gucht, the European Union trade commissioner, said in a statement. “It sends the wrong signal to global trading partners, it sends the wrong signal to investors and it sends the wrong signal to the business community.”

The wave of protectionism comes as growth has slowed or stalled in nearly every region of the world. Trade experts say that governments — particularly in developing and emerging economies that rely heavily on exports to fuel their growth — have felt pressure to protect their domestic industries and started inhibiting foreign competition to compensate....

The Group of 20 countries upheld their promise not to protect their own businesses by restricting trade — the so-called standstill clause. But talks over how long to extend the pledge were tense. Some countries wanted the pledge to expire at the end of 2013. The negotiators representing the Group of 20 countries failed to work out a deal, and the presidents and prime ministers had to step in to reach an agreement to extend the pledge through 2014.

Analysts argue that the countries in the Group of 20 are already breaking their pledge by enacting new measures....

According to the Global Trade Alert, the share of protectionist measures put in place by Group of 20 economies has climbed to 79 percent today from 60 percent in 2009.

The NYT's mention of Argentina is appropriate: under the leadership of Cristina Fernandez de Kirchner, that country has really taken an anti-market turn over the last couple years, and news today that it will suspend an auto trade agreement with Mexico adds to that troubling trend, as well as to the broader global trend toward protectionism.

As I mentioned previously, there are a lot of governments to blame for this mess, but particular consternation should be directed towards the Obama administration and its extremely absent leadership on global international trade issues.  A scathing new oped from Canadians Derek Burney and Fen Hampson provides another laundry list of the administration's failings on this front, and explains the immense toll that they've taken on one of the United States' most important bilateral relationships:

Permitting the construction of the Keystone XL pipeline should have been an easy diplomatic and economic decision for U.S. President Barack Obama. The completed project would have shipped more than 700,000 barrels a day of Albertan oil to refineries in the Gulf Coast, generated tens of thousands of jobs for U.S. workers, and met the needs of refineries in Texas that are desperately seeking oil from Canada, a more reliable supplier than Venezuela or countries in the Middle East. The project posed little risk to the landscape it traversed. But instead of acting on economic logic, the Obama administration caved to environmental activists in November 2011, postponing until 2013 the decision on whether to allow the pipeline.

Obama’s choice marked a triumph of campaign posturing over pragmatism and diplomacy, and it brought U.S.-Canadian relations to their lowest point in decades. It was hardly the first time that the administration has fumbled issues with Ottawa. Although relations have been civil, they have rarely been productive. Whether on trade, the environment, or Canada’s shared contribution in places such as Afghanistan, time and again the United States has jilted its northern neighbor. If the pattern of neglect continues, Ottawa will get less interested in cooperating with Washington. Already, Canada has reacted by turning elsewhere -- namely, toward Asia -- for more reliable economic partners.

Economically, Canada and the United States are joined at the hip. Each country is the other’s number-one trading partner -- in 2011, the two-way trade in goods and services totaled $681 billion, more than U.S. trade with Mexico or China -- and trade with Canada supports more than eight million U.S. jobs. Yet the Obama administration has recently jeopardized this important relationship. It failed to combat the Buy American provision in Congress’ stimulus bill, which inefficiently excluded Canadian participation in infrastructure spending.

What’s more, by engaging in protectionism, Washington has violated the substance and spirit of the North American Free Trade Agreement, the trade bloc formed in 1994 among Canada, the United States, and Mexico. As a result, NAFTA, which was initially intended as a template for broader trade expansion by all three partners, has languished while each country has negotiated a spaghetti bowl of bilateral trade agreements with other countries. Trilateral economic summits among the NAFTA partners have become little more than photo-ops accompanied by bland communiqués. Bilateral meetings between U.S. and Canadian leaders, which were a regular feature of the Bill Clinton and George W. Bush eras, have also mostly fallen by the wayside. Meanwhile, the United States demanded upfront concessions from Canada as the price of entry to negotiations over the Trans-Pacific Partnership, a regional free-trade group, while preserving massive agriculture subsidies of its own. The protracted wrangling over a seat at the table does not augur well for meaningful progress.

After years of procrastination, Canada finally secured an agreement for a new Detroit-Windsor bridge -- over which 25 percent of trade between Canada and the United States crosses -- but only after it offered to cover all of the initial costs. The U.S. share is to be repaid over time by the tolls collected, but any shortfalls will rest with Canadian taxpayers. Canada was essentially forced to hold negotiations with Michigan; the U.S. federal government observed quietly from the sidelines....

The only good news in U.S.-Canadian relations to come out of this White House has been the Beyond the Border declaration, a joint statement that Obama and Canadian Prime Minister Stephen Harper issued in February 2011. The initiative was supposed to remove much of the bureaucratic sludge that has thickened the U.S.-Canadian border since 9/11, including costly inspection and reporting requirements on virtually all cross-border shipments. Despite the initial fanfare, however, the border initiative has yet to deliver much of substance, and there has been little evidence to suggest that Obama remains engaged.

Of course, the U.S.-Canadian relationship has had its rocky moments before. In the 1970s and 1980s, in response to public concern over the United States’ economic domination of Canada, Ottawa enacted a wide variety of protectionist measures that irritated Washington. Eventually, the two countries recognized their mutual interests and resolved what differences they had, ratifying the Canada–United States Free Trade Agreement in 1987 and its successor, NAFTA, seven years later.

Back then, Canada had little choice but to find a way to fix its relationship with the United States, the only game in town. Ottawa is in a different position now. Today, it enjoys a respectable platform of self-confidence, having weathered the financial crisis and ensuing recession far better than the United States. And unlike in the past, Canada can now look beyond its own neighborhood for economic opportunities -- especially to the rising economies of Asia.

Indeed, Canada has made a full-court press in the Asia-Pacific region. It is wooing countries such as China, India, Japan, and South Korea, which are eager to invest and trade in Canadian minerals, energy, and agricultural products. Harper has announced Canada’s intention to explore free-trade negotiations with China, and talks with Japan, Thailand, India, and South Korea are under way. As Harper put it during a visit to China in February, “We want to sell our energy to people who want to buy our energy.”

To be sure, Canadian companies will never abandon the U.S. market. Nevertheless, the U.S. recession and the rise of Asia have allowed Canada to diversify its economic relations. In 2010, only 68 percent of Canadian exports were destined for the United States, down from 85 percent in 2000. Canadians are accustomed to benign neglect from a neighbor preoccupied with more urgent global flashpoints, but since that neglect has grown so much as to be malign, they have begun to reappraise their relationship with the United States. As Canada develops closer ties with China and finds more receptive outlets for its exports, the United States may find itself with a less obliging partner to the north.

For the sake of brevity, I left off some of the other Canada-related mistakes Burney and Hampson mention, so be sure to read the whole article when you get the chance.  It's quite the depressing read.

And it's even more proof that, as folks try to trace the origins of global protectionism's renaissance, there's really only one place to start.

Good News: Canada Joins the TPP, But At What Price?

As expected, the US and Canadian governments announced today that Canada would join the Trans-Pacific Partnership negotiations.  (To get caught up, Peter Clark has some great backstory on the recent machinations.)  First up with the good news was Canadian PM Harper:

Opening new markets and creating new business opportunities leads to jobs, growth and long-term prosperity for all Canadians," said Prime Minister Harper in a statement about the Trans-Pacific Partnership (TPP).

"A TPP agreement will enhance trade in the Asia-Pacific region and will provide greater economic opportunity for Canadians and Canadian businesses."

Then USTR made its formal announcement:

President Obama announced today that the United States and the eight other countries negotiating the Trans-Pacific Partnership (TPP) Agreement have extended an invitation to Canada to join the TPP negotiations, pending successful conclusion of domestic procedures. In addition to the United States, the current TPP countries are Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.

“Inviting Canada to join the TPP negotiations presents a unique opportunity for the United States to build upon this already dynamic trading relationship. Through TPP, we are bringing the relationship with our largest trading partner into the 21st century,” said Ambassador Kirk. “We look forward to continuing consultations with the Congress and domestic stakeholders regarding Canada’s entry into the TPP as we move closer to a broad-based, high-standard trade agreement in the Asia-Pacific region.”

Next steps will parallel those for Mexico, which was also invited to join the TPP negotiations yesterday. The Administration will shortly notify Congress of our intent to include Canada in the TPP negotiations. The notification will trigger a 90-day consultation period with Congress on U.S. negotiating objectives with respect to Canada. We also will publish a notice in the Federal Register seeking public comments.

As I said last night, the addition of the conservative, (mostly) free-market Harper government to the TPP negotiations is undoubtedly a good thing for proponents of of trade liberalization in both countries.  Hopefully its participation will reinvigorate the flagging talks and encourage more countries to jump on the TPP bandwagon.  And, as Heritage's Derek Scissors noted yesterday, Mexico's inclusion is also a very good thing - an important point that I unfortunately neglected to mention in my rush to get into the weeds of the NAFTA partners' negotiating status.  

Speaking of that status, while the benefits of adding Mexico and Canada are clear, what isn't clear at this stage is precisely what Canada conceded to the United States in order to finally - finally - get Washington to sign off on its Northern neighbor's TPP participation.  The Obama administration told Inside US Trade [$] that Mexico (and presumably Canada) would not be able to participate in any way - not even as an observer - until the full 90-day period for congressional consultations had expired, essentially meaning that neither party will join any TPP talks until mid-September or so.

But once they get the all-clear on that front, will there be any limitations on their participation?

As I noted yesterday, the Obama administration last Friday allegedly asked both Canada and Mexico to agree to some pretty onerous procedural conditions before it would agree to let them join the TPP - essentially demoting the Canadians and Mexicans to "second-class" participants.  However, before today's big announcement, Harper surrogatesmade clear that they would in no way accept such a demotion:

Canada and Mexico were told they could join if they agreed to several conditions that ensured new entrants didn’t slow down negotiations. Canada and Mexico could not reopen any agreements already reached among current TPP partner countries – unless these nations agreed to revisit them. And the two nations would not have “veto authority” over what was agreed upon by the original members.

Both countries were also supposed to agree to this before they’d even seen the latest version of negotiating texts.

A Canadian official said Monday there was no way Canada would agree to be a junior, or second-class, member at the talks.

So what exactly did they agree to?  I honestly have no idea, nor do others who are watching Canada's TPP participation very closely.  And when asked about what Canada gave up to join the talks, PM Harper and other Canadian officials weren't entirely clear:

Harper said there were no conditions attached to Canada's entry to the TPP talks when asked if he would put supply management on the negotiating table.

"Canada has not agreed to any specific measures in terms of an eventual Trans-Pacific Partnership Agreement," he said.

"Canada aims, whenever it gets into a trade negotiations, to promote and to protect all of its interests across all the range of industries ... and Canada's record in terms of dealing with those particular issues in trade negotiations under our government has been very strong and that will continue to be our position," he said.

He said Canada would not seek to undo any progress already made by existing TPP partners and that the negotiations were in very preliminary stages. "As in any negotiations, nothing is agreed to until everything is agreed to by all parties."

Canada's accession to the TPP will take a period of time, he said, without giving details....

Gerald Ked, parliamentary secretary to the minister of international trade, reaffirmed on Tuesday that Canada did not give anything away to be part of the talks.

Sounds strong, right?  Well, Harper and Ked appear to be talking mainly about substance (in particular Canada's controversial system of agricultural supply management), not about process (in particular whether Canada is a "full" TPP participant will the same procedural rights as all other countries).  On that front, the Canadians' strong statements are, well, less strong, although Harper is most definitely correct that the agreement is far, far from finished, so Canada's agreement not to harm completed FTA chapters is a very minor concession.

I'm sure that we'll find out about these details in due time.  In the meantime, let's celebrate Canada's and Mexico's entry into the TPP - it was a long and arduous path that required a lot of hard diplomatic work from both US allies (unfortunately).

Now if only we can get Japan on board.

(I know, I know, best to quit tonight while I'm still in a good mood.)

Mexico Joins TPP as a "Second-class" Participant; Will Canada Follow? [UPDATE: Looks Like Canada's In]

The big news of the day was that, as has been expected for the last week or so, Mexico has joined the ongoing Trans-Pacific Partnership negotiations.  USTR formally announced the news this morning: 

President Obama announced this morning that the United States and the eight other countries negotiating the Trans-Pacific Partnership (TPP) Agreement have extended an invitation to Mexico to join the TPP negotiations, pending successful conclusion of their domestic procedures. In addition to the United States, the current TPP countries are Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.

“We are delighted to invite Mexico, our neighbor and second largest export market, to join the TPP negotiations,” said Ambassador Kirk. “Mexico’s interest in the TPP reflects its recognition that the TPP presents the most promising pathway to boosting trade across the Asia Pacific and to encouraging regional trade integration. We look forward to continuing consultations with the Congress and domestic stakeholders as we move forward.”

After Mexico expressed its interest in joining the TPP last November, the United States briefed Mexico about the status of the TPP negotiations and the high standards and objectives that the TPP countries are seeking in the agreement. The United States also discussed with Mexico its ability to negotiate on issues that are a priority for the United States in the TPP. Mexico has assured the United States that it is prepared to conclude a high-standard agreement that will include issues that were not covered in the North American Free Trade Agreement (NAFTA).

Conspicuously missing from today's announcement was any mention of Canada, the other NAFTA signatory that expressed interest in joining the TPP - and has been furiously lobbying for it - at the same time as Mexico back in November 2011 (and shortly after Japan made a similar request).  As I noted back in April, it had become quite clear that the United States was blocking Canada's entry into the TPP, but rumors began swirling last week that the accession of both NAFTA partners was possible during this week's G20 summit, leading some to fearlessly predict that Canada would be joining Mexico in the TPP this week.

Those predictions clearly haven't come true (yet), but after learning the stringent negotiating conditions that the Obama administration demanded Mexico and Canada accept before agreeing to let them join the TPP negotiations, I gotta say that I really can't blame the Canadians for balking.  According to Inside US Trade [$], the Obama administration essentially demanded that the two countries accept "second-class" status in the negotiations before the US government would let them join.  In particular:

Last Friday (June 18), the Obama administration sent a letter to both Canada and Mexico that made clear that the U.S. could support both of them joining the talks if they agreed to at least two conditions. These conditions appear designed to ensure that these potential new entrants do not slow down the pace of the negotiations.

The first condition stipulated that Canada or Mexico would not be able to reopen any agreements that have already been reached among the current nine TPP partners, unless those nine members agreed to revisit something to which they had previously agreed, sources said.

One source said Canada and Mexico would have to agree to this condition without even having seen the negotiating texts in their current states.

In addition, the letter made clear that Mexico or Canada, if they were to join, would not have "veto authority" over closing out chapters in the future. In essence, this means that if the nine original members reached agreement in a chapter, Canada and Mexico would have to go along with it, one source said.

This source said that, in essence, this condition means that Canada and Mexico would be something less than full negotiating partners if they were to join.

The US letter raises concerns on several levels.  Procedurally, it's clear that Canada and Mexico would have less negotiating authority than all other TPP participants with respect to completed and future FTA provisions.  While, as noted below, the TPP's extremely-unfinished state limits the impact of the former issue (even though that had to be agreed sight-unseen!), the latter issue could be significant where, for example, all TPP partners agree on FTA text that would disproportionately benefit themselves and disproportionately harm Mexico or Canada.  Such limitations could not only hamstring Canadian and Mexican negotiators on these and other FTA provisions (kinda hard to demand concessions when everyone knows that you can't really hold up the agreement if you don't get your way), but also create serious political pain at home.  Just how do you explain to domestic constituents that you are absolutely powerless to prevent their pet issues from being on the TPP chopping block?  Would the United States ever agree to such conditions? (Stop laughing.)

On principle, the US demands are just as unpalatable - if not more so.  As noted above, Canada and Mexico requested admission to the TPP more than eight months ago, but the United States is only now agreeing to consider each nation for admission and is using time constraints as the primary reason for imposing onerous negotiating restrictions on each nation.  If the United States had agreed to admit Canada and Mexico back in November when they first requested it, the negotiations would've been far less advanced, and such limitations would have been groundless.  (And it's not like admission to the TPP automatically requires a long, drawn-out process.  For example, Malaysia, which unlike Canada and Mexico does not have an FTA with the United States, requested admission to the ongoing negotiations in 2010 and was admitted very shortly thereafter.)  In short, the United States needlessly delayed Canada's and Mexico's admission for eight months, and then demanded that each country accept "second-class" status because the negotiations were too far along.

Talk about chutzpah.

Perhaps worse is the fact that, even though the TPP parties have been going at it since late 2009, the negotiations really aren't all that advanced.  And as Greg Rushford recently explained in a must-read piece on the precarious state of the TPP, US negotiating positions are partly to blame for the TPP's slow pace:

Meanwhile, US trade negotiators in the TPP have been playing small ball, acting as if Uncle Sam can continue to get away with just about anything. One veteran trade observer calls the American game: "ad hoc mercantilism." You don't have to look far to see why.

New Zealand is being asked to reform its pharmaceutical-procurement practices (which it really should), while being informed that there will be no talk --- at least before the Nov. 6 U.S. vote --- of giving the Kiwis more access to protected American dairy markets. The U.S. has informed the Australians that Uncle Sam is not interested in talking about increasing Aussie access to U.S. sugar markets. The Canadians are pressed to demonstrate their willingness to dismantle some of their protectionist agriculture schemes as one price of entry into the TPP talks. Can anyone imagine the reaction in Washington, should the Canadians say that to prove their good faith, the Americans should first agree to make the U.S. farm program more market-oriented? But Washington doesn't mind telling Ottawa such things.

There's even talk that Obama has positioned himself to be the anti-smoking advocate, by proposing that cigarettes be excluded from tariff cuts in the TPP --- while the same Obama wants to promote the export of U.S. tobacco leaf, an obvious sop to voters in the politically important battleground states of North Carolina and Virginia. While it's difficult for outsiders to know how serious the president is on tobacco issues, the White House pressures on Vietnam and Malaysia are at least transparent, if embarrassing.

The Vietnamese (and Malaysians) are being bullied --- there's no better word for that --- into accepting a complicated and economically unwise scheme where they would agree to buy American yarn and fabric to make apparel --- if they have any hopes to get around high U.S. tariffs on imported clothing and footwear.

Meanwhile, Obama is demanding that Prime Minister Nguyen Tan Dung reform that Southeast Asian country's state-owned enterprises. The Vietnamese agree that their SOEs need long-overdue reforms to make them more transparent and market-oriented. Still, imagine the political heavy-lifting required to restructure nearly 40 percent of the Vietnamese economy. But while he asks a lot of Hanoi, the American president doesn't like being asked to cut tariffs on clothing that isn't made in America anyway.

Barack Obama was 13-years old when Hanoi won the Vietnam War in 1975. Does the president really understand how determined the Vietnamese can be, when their core interests are involved?Today, Prime Minister Dung has the welfare of more than two million Vietnamese clothing and footwear workers to consider. Many of these people are women who come from poorer parts of the country --- and their prime minister is supposed to sell them out to please the U.S. textile lobby? U.S. Trade Representative Ron Kirk was born in 1954, the year the Vietnamese Communists defeated the French in the battle Dien Bien Phu. Mr. Kirk has said that Vietnam is only a "small country" that will give in to U.S. pressure in the TPP. Perhaps he will be proven right. Still, does the U.S. trade negotiator appreciate that history suggests otherwise?

The U.S. insistence on ad-hoc mercantilism --- making demands upon other countries to summon the political will to open their markets, while stonewalling suggestions the Americans might do more of the same --- explains why the TPP process is nowhere nearly ready to be completed by the end of this year.

Yet the United States is proposing significant procedural conditions on Canada's and Mexico's TPP admission to ensure that the nations "do not slow down the pace of the negotiations."

Seriously, how much slower can they get?

Despite these concerns, Mexico has apparently agreed to the United States' conditions and will now join the ongoing negotiations.  Good for them, although I do wonder whether the pressure of hosting the G20 summit and the mounting expectation that Mexico would join the TPP were just too much for the Calderon government to resist.  On the other hand, the conservative Harper government - and its long history of butting heads with the, ahem, less-conservative Obama administration - has yet to cave to the United States' demands and has instead merely expressed "delight" in being offered a chance to join the talks.  So one of the United States' biggest trading partners and closest allies (and one of the world's better trade liberalization proponents) remains excluded from the only proactive US trade liberalization effort currently ongoing.

"Delightful," indeed.

Certain TPP-watchers, like Canada's Peter Clark, tell me that "it ain't over till it's over," and that Canada could still end up a TPP participant before the G20 adjourns.  Canadian news reports echo Clark's sentiments and suggest that a big Canadian announcement will arrive tomorrow (Tuesday) morning.  I'll believe it when I see it, but there's simply no question that free-market Canada's entry - in any capacity - would be a welcome boost to the flagging negotiations (if only Japan were as close).  But if Harper and Obama leave Cabo San Lucas without any formal TPP announcement, it would be extremely difficult to blame Canada for not wanting to bow to the United States' unreasonable demands.

[UPDATE: The Wall Street Journal tweets Tuesday morning that "Canada's Invitation Into TPP To Be Announced Later Tuesday - Source".  Good.   More to come, I'm sure.]

Perfect: US TPP Negotiating Positions Getting Bogged Down by a Product We Don't Even Make Anymore

I've expressed more than a little skepticism about the Obama administration's ambitious plan to complete the Trans-Pacific Partnership by the end of the year.  My concerns relate more to systemic issues (e.g., the lack of a consensus view on the framework for market access schedules), rather than product-specific ones.  But maybe I should start sweating the latter as much as, or more than, the former. It seems that a minor war has broken out over - no joke - US tariffs on footwear.  Here's Businessweek with some details:

The Footwear Distributors and Retailers of America, which wants an end to the trade barriers, says tariffs for some types of shoes can run as high as 67.5 percent, and when the costs get passed on, they effectively triple the price of foreign-made shoes. New Balance, based in Boston, says the duties that help sustain its U.S. athletic footwear production are as high as 20 percent and asks that they be preserved.

The 7 million pairs of shoes New Balance produces each year in the U.S. make up only a quarter of U.S. sales, says Matthew LeBretton, director of public affairs. The rest are made in the U.K., China, Indonesia, and Vietnam. “If this is purely a business decision, then it’s very clear that you make more profit by making shoes in Asia than in the United States,” LeBretton says. “We aren’t purists, but we are doing this for reasons that are other than financial impact. It’s the right thing for us to do. We suffer as a country when we lose the ability to manufacture.” He adds that producing in the U.S. lets New Balance react faster to demand from U.S. stores and helps those stores maintain lower inventory. The company also says local workers maintain better quality control than workers abroad.

Keeping the tariffs is important because most of New Balance’s jobs are in communities where there are few other options for employment, says Senator Olympia Snowe (R-Me.). “They’re paying 46¢ an hour in Vietnam, and New Balance is paying $10 an hour here, plus all the benefits,” Snowe says. “It’s not a level playing field. Our government has to finally wake up and understand that.”

Nike has supporters, too. “I really believe that the government should not negotiate agreements for one company,” says Matt Priest, president of the footwear distributors association. Representative Earl Blumenauer (D-Ore.), whose district is home to Nike employees and the U.S. headquarters of Adidas (ADS), says keeping the tariffs taxes millions of consumers to keep a few thousand jobs.

Trade talks will continue this month. Maine lawmakers are applying pressure on the administration to keep cuts in athletic footwear tariffs out of any final agreement. The U.S. hasn’t made any decision, says Carol Guthrie, a spokeswoman for Ron Kirk, the U.S. Trade Representative, in an e-mail. “Footwear is an area of interest for Vietnam and remains a sensitive item for the U.S.,” Guthrie says. “The challenge we will face is how to address this product, and we continue to consult with Congress and stakeholders on how to do so.”

Greg Rushford adds in a recent op-ed for the Wall Street Journal Asia that this is not just a fight between protectionist New Balance and free trade Nike/Adidas for a tiny slice of the TPP.  In fact, this skirmish is affecting the entirety of the TPP negotiations; thus, there are a lot of other US companies also hoping that the Obama administration stops shilling for New Balance in order to save the struggling agreement:

The White House is demanding TPP partners, chiefly Vietnam, agree to new rules that would bring transparency and market-oriented efficiencies to their inefficient (and often corrupt) state-owned enterprises. SOEs are indeed a drag on Vietnam, comprising around 38% of the economy. Prime Minister Nguyen Tan Dung has struggled with the problem for years with little result.

Though the U.S. is pushing Vietnam to help itself by reforming SOEs, Hanoi wants something in return. The country is America's second-largest supplier of clothing, and Mr. Dung's trade negotiators insist the U.S. get rid of high tariffs on clothing and footwear, which generally range from 18% to 36%.

This is a chance for Mr. Obama to live in a "21st century economy," as he often says. Unfortunately, he seems to be caught in 18th century mercantilism.

The American president is in tight with the U.S. textile lobby, which supported him in 2008. The industry has benefited from high tariffs and various protectionist schemes since the 1700s. So U.S. trade negotiators have taken a hard line against liberalizing the U.S. rag trade. The Vietnamese know a double standard when they see one, and are incensed. No deal on market access for us, no deal on SOEs, they say.

Here's how the debate plays out in Washington. On the "21st century" side are the mainstays of the American economy. Giants like Boeing, General Electric, Intel, Microsoft, New York Life, Citi and Federal Express strongly support a TPP that would write new competition and transparency rules for Asian government-run corporations. Opposing the TPP deal is one shoe manufacturer in New England that employs about 1,200 Americans, New Balance Athletic Shoe, and a handful of mid-sized textile manufacturers in the American south.

The giants of American manufacturing and finance, which have major offshore operations, can't get serious consideration from this White House. Mr. Obama—the "Buy American" candidate—stands behind any company like New Balance that vows to keep jobs at home.

So, there we have it: New Balance (and Maine's uber-protectionist champions in Congress) versus the world, and the fate of the TPP could hang in the balance.  Fantastic.

Now, for the moment, I'm going to ignore the economic falsehoods spewed by LeBretton and Sen. Snowe about the state of US manufacturing or the idea that developing country labor costs are some sort of unfair game-ender for US manufacturers.  Instead, I just want to focus on the idea that New Balance actually still makes a lot of shoes in the United States (and thus that their fight is really about valiantly protecting US shoe manufacturing, regardless of how dumb the economics are).  The Businessweek article seems to indicate that tons of New Balance shoes are still made here and thus hang in the, umm, balance, but Rushford spills the beans:

[B]ehind the pro-American propaganda is a harder economic truth. New Balance makes 75% of its shoes in places like Indonesia and China, even some in Vietnam. The remaining 25% come from the New England factories. But most of those sneakers aren't really "Made in America," but "Made in the U.S.A. of Imported and Domestic Components," as the technical label reads. To be the former, at least 70% of the sneakers must be made from components sourced domestically. Company officials declined to comment or provide a detailed breakdown of their Asian-made components.

This much is clear: New Balance imports shoe parts from Asia and then has their American workers glue the shoes together. Without imported components, the American workforce couldn't make shoes at a competitive price.

Why is New Balance against giving Hanoi trade concessions? Its operations in Vietnam are tiny compared to elsewhere in Asia. But tariff cuts would give a big boost to its competitors, Adidas and Nike, which have significant footprints in Vietnam.

The company's patriotism feels even flatter if you consider Nike and Adidas, which unashamedly manufacture their footwear in Asia, together employ some 27,000 Americans. This highly paid workforce in marketing, logistics, design and advertising is 22 times New Balance's American presence.

In New Balance's defense (sorta), Rushford's oped also makes clear that the Obama administration isn't sandbagging the TPP negotiations only for shoes - southern textile manufacturers and their heavily-unionized workers are also getting in on the action (and I hear sugar's getting an, ahem, sweet, deal too).  Nevertheless, both articles above firmly establish that TPP is struggling, in part at least, because of the White House's staunch, politically-motivated defense of archaic tariffs on a product that isn't even "made in the USA" anymore.

Unreal.

Word on the street is that Canada's enthusiasm for joining the TPP negotiations may be waning, and that the US ally and major global player might be looking elsewhere for a trade deal.  If so, that would be a huge loss for the TPP.

But after reading the articles above, could you really blame them?

VIDEO: Six Former USTRs Speak Frankly About US Trade Policy

CSIS held a cool event last week with six former US Trade Representatives speaking about US trade policy.  The whole video is posted below, and I highly recommend a full viewing for anyone who's interested in better understanding US trade policy (especially you foreigners out there who don't obsess over it like I do):

If you don't think you have time to view the whole video, AEI's Claude Barfield provides a nice summary on his organization's blog of some of the USTRs' more interesting points.  The title of the post - "Why the Doha Round is dead and much more" - gives a bit of the game away, but here's the more-robust accounting:

First, there was almost unanimous agreement that the Doha Round is dead and the US and other major trading nations should move on. Coming from fervent supporters of the WTO, this judgment is an important message for the trade community, and mirrors the judgment of the US business community. Only Carla Hills, the most dedicated multilateralist, expressed misgivings about jettisoning Doha negotiations.

Of more immediate interest, the group had much to say—partly in response to high interest from the audience—on the only serious negotiations now on the table: the nine-nation Trans-Pacific Partnership Agreement. The Obama administration wants to conclude these negotiations this year, but the USTRs all doubted this was possible. The question that has arisen then is what to do about the desire of Canada, Mexico, and Japan to join the negotiations. At a trilateral summit this past week, both Canadian PM Harper and Mexican President Calderon pressed Obama hard on this decision—with inconclusive results.

Interestingly, the USTRs almost unanimously supported the quick inclusion of both nations into the negotiations (on Japan there was more skepticism that the political situation in Japan itself would allow entrance this year). The group took this position for two reasons: one, to their credit, the trade leaders view the TPP not only as an economic agreement but also as part of a larger US diplomatic push to retain leadership in the Asia-Pacific. From this, they are convinced that only with the heft that will come from additional large economies (Canada, Mexico, Korea, and later, Japan) will the TPP emerge as a real vehicle for a trans-Pacific economic architecture. The administration will have to bite the bullet and respond over the next few months. It is hard to know what weight the USTRs collective judgment will have—but if the president does respond affirmatively he will clearly have this group at his back.

One final partisan note: at the end of the session came a political question: to wit, why had trade policy virtually stopped when the Obama administration came into office. Barshevsky gave a general answer pointing to the economic crisis in 2009. Fair enough, but what was missing here and often in these sessions is a clear statement of political reality: on trade issues, a Democratic president for at least two decades has faced a deeply divided party. In general, a majority of House Democrats oppose new trade liberalizing agreements. A Republican president, on the other hand, in general has a united party on trade, backed strongly by the business community.

This makes a huge difference on White House calculations—not least when elections loom every two and four years.

Barfield then added one more interesting point over email:

[N]ot a single USTR supported the president’s reorganization plan — or at least folding USTR into Commerce or a new department.

Ouch.  I'm happy to note that the esteemed USTRs' consensus views closely mirror my own, less-esteemed opinions.  (I promise that I will try not to tear a rotator cuff patting myself on the back.)  

That critically-important point aside, I hope that the few summary points above will convince you to take the time to watch the video and learn a good bit about the current - and frustrating! - state of US trade policy.

Enjoy.

Guess Who's Blocking Canada's Participation in the TPP [UPDATED]

Back when Japan announced that it was interested in joining the ongoing Trans-Pacific Partnership negotiations - which currently include the United States, current US FTA partners Australia, Chile, Peru, and Singapore, as well as new FTA partners Brunei, Malaysia, New Zealand and Vietnam - I noted that admitting the economic power and close US ally was a no-brainer.  Certain TPP participants (and their political allies at home), however, weren't so gung-ho about Japan's inclusion in the agreement, and Japan has its own internal politics to sort out, so our friends in Tokyo are still waiting around to see if they're on the TPP VIP Guest List.  Joining Japan on the wrong side of TPP's velvet rope are Canada and Mexico, who announced their interest in joining the agreement shortly after Japan.  Readers of this blog know my affinity for the Harper Government's pro-market, pro-trade reforms over the last few years, so of course I think that Canada's inclusion in the TPP would be a very welcome development.

Unfortunately, however, it appears that certain members of the Obama administration don't agree, and thus the United States might just be the last holdout on Canada's TPP participation.  My source for this juicy gossip, you ask?  Well, none other than PM Harper himself:

Harper sat down with Obama and Mexican President Felipe Calderón for their first such meeting in almost two years -- and the last before Calderón leaves office this fall -- and for all the jovial friendship on display for the cameras in the Rose Garden, some issues clearly rankled.

The meeting, which came up considerably short of the advertised three hours, ended without Canada getting an invitation to join negotiations for a new Trans-Pacific Partnership....

Canada's system of supply-management of eggs, milk and other farm products is seen as a stumbling block to participation in the new free-trade zone.

In scripted remarks, Harper emerged from the meeting to say he was "especially pleased" Obama had welcomed Canada's interest in the trade talks.

But he later pointed the finger squarely at the White House for holding up Canada's formal inclusion. "Our strong sense is that most of the members of the Trans-Pacific Partnership would like to see Canada join," Harper told an audience at the Woodrow Wilson Center. "I think there's some debate, particularly within the (Obama)  administration, about the merits of that."

For his part, Obama did not duck a question that specifically asked if Canada's dairy and egg marketing boards would have to go in order for Canada to join the party.

"Every country that's participating is going to have to make some modification," Obama said, flanked by Harper and Calderón at a news conference in the Rose Garden. "That's inherent in the process because each of our countries has their own idiosyncrasies, certain industries that in the past have been protected."

The prime minister did not answer a direct question on whether he was prepared to abandon the marketing boards, but said his government would do what is needed to protect industries. "Canada will attempt to promote and to defend Canada's interests, not just across the economy but in individual sectors as well," said Harper.

Although some of Canada's agriculture policies are undoubtedly suspect, the idea that its marketing boards - which have been in place for several decades and haven't impeded NAFTA (as a new IBD editorial helpfully notes) - are preventing the United States - one of the largest agriculture-subsidizers on the planet - from signing off on Canada's TPP participation is laughable.  The laughs get even louder when one considers that the "too protectionist" Canada has been unilaterally opening large swaths of its market to imports, while the "free trade" Obama administration has been working hard, in FTA negotiations and via US trade law, to keep ours closed (and to keep those US farm subsidies firmly in place).  Or when one considers the Obama administration's long history of playing the "you're too protectionist on issue [X]" card to justify FTA-related delays (just ask South Korea or, as noted above, Japan).

Then again, if I were in the White House (stop laughing) and had to choose between (1) admitting into the TPP the unilaterally-liberalizing, corporate tax-cutting, FTA-completing Harper Government (and its directly-competitive Canadian farmers, manufacturers and service providers), or (2) just making up some silly "protectionist" excuse in order to stall Canada's admission and cover for my own government's trade/tax policy ineptitude, I'd probably be pretty darn tempted to choose Door #2 too.

Of course, if I were in the White House (seriously, stop laughing), the United States wouldn't be in this embarrassing position to begin with.

UPDATE: A reader passes along this great 2010 op-ed from Peter Clark on the United States, ahem, recalcitrance re: Canada's admission to the TPP.  Clark focuses on one reason for the White House's exasperating Canada-TPP position that I glossed over last night but deserves direct mention: rampant US mercantilism.  US exports already have mostly-duty-free access to the Canadian market through NAFTA, and, as mentioned above, if Canada is allowed into the TPP, competitive Canadian exporters would gain equal footing with their US counterparts in the rapidly-developing, high-demand TPP (especially Asian) markets.  Clark further notes that Canada would likely not support the United States' mercantilist push to retain all the sweet, sweet carveouts and import protection that are embedded in its existing FTAs with TPP participants like Australia.  His arguments seems quite logical - and depressing - to me.  Alas.  (Clark raises other issues in another good, detailed op-ed from earlier this year.)

Canada Continues to Pwn the United States - to US Companies' and Workers' Serious Detriment

Readers of this blog will know that I've long celebrated Canada's commitment to lowering government-induced costs on domestic industries in order to boost their global competitiveness.  The Canadian government has been reducing corporate taxes and tariffs on imports of industrial inputs for a couple years now, and a recent Reuters article indicates that the Canadians have no intention of reversing course.  In fact, they're going full steam ahead and, in the process, making the United States look pretty pathetic:

Canadian Finance Minister Jim Flaherty said on Sunday the government would eliminate tariffs on dozens more products used by Canadian manufacturers, aiming to lower their costs and encourage more hiring.

The initiative would scrap custom duties on 70 items used by businesses in sectors such as food processing, furniture and transportation equipment.

Flaherty, who estimated the tariff cuts would save Canadian businesses C$32 million ($30.5 million) a year, said the cuts were part of the Conservative government's overall free trade policy.

"We believe in free trade in Canada," Flaherty said on CTV's "Question Period" program. "Some of these old-fashioned tariffs get in the way. So we're getting rid of them."

As part of its Economic Action Plan to pull Canada through the global slowdown of 2008-09, the government has eliminated more than 1,800 tariff items, providing about C$435 million a year in tariff relief. Its stated goal is to make Canada a tariff-free zone for manufacturers by 2015.

AEI's Mark Perry has some great commentary on this news, and I highly recommend that you check out the whole thing.  His bottom line: "Even though we usually think of increasing exports as the route to increased domestic manufacturing output and employment, Canada's trade policy of reducing tariffs for its manufacturing sector highlights the important contribution of imports to domestic manufacturing."

Meanwhile, the United States continues to impose high tariffs on many of these same products, thus putting US companies at a distinct disadvantage vis-a-vis their Canadian counterparts.  Further exacerbating this disadvantage is our horrendous corporate tax burden, as made distressingly clear by the latest World Bank report Paying Taxes.  The WSJ comments:

A report released this month exposes some unpleasant truths about America's uncompetitive system for taxing businesses.

The Paying Taxes 2012 study, produced by the World Bank, International Finance Corp. and PricewaterhouseCoopers, ranks countries based on the ease or difficulty of paying business taxes. The Maldives came in first, followed by Qatar and Hong Kong. America clocks in at 69 out of 183 countries, down one spot from last year and 23 places shy of its finish in 2009...

The authors note that many countries have cut tax rates for businesses in recent years—an average of 8.5 percentage points since 2006. Three of the top five economies in the table—Hong Kong, Singapore and Ireland—offer businesses generally flat profit taxes. America is behind the curve. Its total tax rate of 46.7% (factoring in Social Security and other taxes on top of the 35% rate on corporate income) places the U.S. at an abysmal 131 in the tax-rate ranking, behind the likes of the U.K., Finland, Norway, Switzerland and Ghana.

The biggest changes in the rankings come from steps to streamline taxation. South Korea climbed five places in one year, to 44, after combining several labor-related taxes onto one form and one payment. In all, 123 out of 183 economies in the survey have made at least some tax improvements since 2006.

America's decline in the rankings is attributable to tax-policy stagnation as other countries reform their own revenue codes. Already a notably complex system with the second-highest corporate tax rate in the world after Japan, the U.S. tax code appears ever more cumbersome compared to countries that grow simpler and cheaper by the year. The Netherlands has improved only two spots since the 2008 survey, to 34, even with important reforms that cut the hours needed for compliance to 127 from 250 and the total tax rate to 40.5% from above 45%. Hong Kong won high marks in part for its flat, low-rate corporate taxes and partly for an easy-to-use electronic filing system.

One of the countries cutting business taxes over the last few years is - you guessed it - Canada.  As I noted in this 2010 FoxNews op-ed:

Canada didn’t stop with tariffs. It also slashed the corporate tax rate to 18 percent. And the rate will fall farther -- to 16.5 percent next year and to 15 percent a year later. The Harper government reasoned that such tax cuts would help make Canada one of the world’s most attractive destinations for international business investment. And they certainly have a point: Canada’s 2010 marginal effective tax rate is more than 16 percentage points lower than the United States’ 34.2 percent rate and two points below the OECD average.

The aforementioned World Bank report rewards Canada for these and other corporate improvements by raising its ranking from 28th in 2009 to an impressive 11th this year, noting that "Canada made paying taxes easier and less costly for companies by reducing profit tax rates, eliminating the Ontario capital tax and harmonising sales taxes."  As the WSJ editorial notes above, the United States dropped from an already-bad 46th to an abysmal 69th over the same period.

So, good for Canada.  Really, really bad for American businesses and workers.

Isn't it about time we got with the program?

Canadian Elections: Further Proof that Our Northern Neighbors Are Smart (and that Free Trade Isn't Political Poison)

The news about the timely death of what's-his-face has dominated American TV, so you may be excused for failing to notice that Canada had a big national election yesterday, and that the results of that election provided further proof that, when it comes to trade and tax policy, Canada is putting its southern neighbor to shame:

The Conservatives have finally captured their coveted majority government in an historic election that vaulted the NDP to a stunning second-place finish, making them the official Opposition, pushing aside the Liberals to a humiliating third.

At the Telus Convention Centre in Calgary, Conservative Leader Stephen Harper expressed elation at his huge win.

"What a great night," Harper told more than 1,500 cheering Conservative supporters.

"A strong, stable, national Conservative government," he said.

Readers of this blog may recall the not-so-subtle man-crush I've harbored for the Harper government's smart corporate tax and trade policies over the last couple years.  As I said last summer:

Since the global recession hit two years ago, Canada has implemented a broad array of free market tax and trade policies....

At the onset of the recession, Prime Minister Stephen Harper’s government moved aggressively to improve Canadian manufacturers’ global competitiveness. After extensive consultations with Canadian industries, Ottawa unilaterally eliminated tariffs on 1,755 different types of machinery, equipment and other manufacturing materials.

The Department of Finance presented a straightforward rationale for the move: “By reducing the cost of importing key factors of production, tariff relief encourages innovation and allows businesses to enhance their stock of capital equipment.” The Department projected that Canada’s complete liberalization of more than C$5 billion in imports will provide an additional C$300 million in annual duty savings for Canadian businesses.

Canada didn’t stop with tariffs. It also slashed the corporate tax rate to 18 percent. And the rate will fall farther -- to 16.5 percent next year and to 15 percent a year later.

The Harper government reasoned that such tax cuts would help make Canada one of the world’s most attractive destinations for international business investment. And they certainly have a point: Canada’s 2010 marginal effective tax rate is more than 16 percentage points lower than the United States’ 34.2 percent rate and two points below the OECD average.

And Canada has pursued free trade agreements (FTAs) with a passion....

And what, pray tell, was the super-awesome Conservative campaign platform that secured this surprising landmark victory?  Oh, right:

Harper campaigned on a message that the New Democrats stood for higher taxes, higher spending, higher prices and protectionism....

One outcome of Harper’s victory is that planned corporate income tax cuts will move ahead. Canada reduced the federal rate by 1.5 percentage points to 16.5 percent on Jan. 1, and it will fall to 15 percent in 2012 under legislation passed in 2007…

Canada is relying on business investment to help lead the recovery. Energy companies have been a main driver of spending, allowing the country to grow in the fourth quarter at a faster pace than any other Group of Seven country.

To recap: low corporate taxes, free trade and other business/investment-friendly regulatory policies have led to impressive economic growth, and publicly promoting those policies has catapulted Harper's Conservatives to a groundbreaking new majority government in Canada.

Canadians are smart people, eh?

Tuesday Quick Hits

Happy belated early St. Patty's Day.  Here are some links to keep your lucky streak going:

• AEI's Phil Levy writes a great column about the likely economic aftershocks of the Japan tragedies caused by, among other things, global supply chains.  The WSJ follows (intentionally or not) Levy's lead with an interesting report on how Japan's problems should affect its exports to China (and thus Chinese exports of goods typically made from the imported Japanese inputs).

• Speaking of Levy, he provides a very good explanation of why China's Indigenous Innovation policy can't achieve China's long-term policy goals but should be a priority for the United States because of the significant near-term pain it'll cause American companies.

• The absurd, needless expiration of the US Generalized System of Preferences cost American manufacturers $54.4 million in January alone.  Awesome.

• Last week's BEA release of the US trade deficit stats elicited a typically awful write-up from the AP.  The forces of good appropriately correct the journalist responsible here, here, here and here. 

• The Heritage Foundation's Walter Lohman and Derek Scissors deftly analyze something that I noticed about a year ago: Australia's China policy is very, very sound.  And, as if on cue, the Aussies provide even more proof of this fact.

• I selfishly hate the relatively new starting date for Daylight Savings Time because it makes getting out of bed to go for a jog excruciatingly difficult, but now I have a more altruistic, economic reason to hate it.  Bonus.

• In reporting on the latest developments in the longstanding US-Canada softwood lumber dispute, the Economist provides another great lesson on the fleeting benefits and long-terms costs of protectionism. 

• The Washington Post confirms what we already knew: the White House, not USTR, drives American trade policy. 

• More excellent destruction of self-avowed protectionist Ian Fletcher's public "arguments" by Cafe Hayek's Don Boudreaux here, here, here and here.  To my knowledge, Fletcher has yet to respond directly to any of Boudreaux's killer critiques.

• And finally, this is absolutely hilarious (h/t Radley Balko).

Enjoy!

New Op-Ed: "G-20 Summit: Fresh Winds of Economic Leadership from the North"

I have a new op-ed on FoxNews.com today.  Here's the tease:

Leaders from 19 countries and the European Union will gather for the G-20 summit in Toronto beginning June 26 to discuss how to stem the global recession and get the world back on the path to strong, stable economic growth. They picked a good spot, as the assembled leaders could learn a lot from their host country.

Since the global recession hit two years ago, Canada has implemented a broad array of free market tax and trade policies. As a result, our neighbor to the north has surpassed an increasingly statist, mercantilist United States in The Heritage Foundation’s Index of Economic Freedom. More importantly, Canada is emerging from the “Great Recession” much more rapidly than the U.S. and virtually every other G-20 participant as well.

Read the whole thing here.  Go ahead.  You know you want to.

Canada's Senate Approves Canada-Colombia FTA: Good for Them, Bad for the US

AFP reports that Canada's Senate approved the Canada-Colombia FTA today, only a few days after the Canadian House of Commons did the same:

A Canada-Colombia free trade pact is expected to be signed into law here next week, after Canada's senate voted in favor of the agreement late Monday, an official told AFP Tuesday.

The trade legislation adopted last week by members of parliament must still be signed by Governor General Michaelle Jean, representative of Queen Elizabeth II, said Monika Bujalska, press secretary to Trade Minister Peter Van Loan.

"This is expected next week," she said.

Canada's senate passed the bill despite some reservations about "the seriousness of human rights violations" in Colombia, which had held up signing the accord for two years.

Both governments must still set a date for the free trade agreement to come into force.

The deal is expected to boost Canadian investment in Colombia's mining and oil sectors, as well as increase agricultural exports, primarily wheat and barley. Canada-Colombia trade topped 1.3 billion dollars in 2008, according to the latest figures.

Colombia's Congress approved the FTA back in August 2009, and President Uribe gave the agreement his final approval shortly thereafter.  The agreement still needs to be ratified by Colombia's constitutional court, which (so I'm told) is expected as early as September 2010.  So despite the fact that the two countries haven't set a date for the agreement to enter into force, it could be as early as July 2010 (as IBD's Monica Showalter noted last week)this Fall.  Meanwhile, the US-Colombia FTA, completed and signed about two years before the Canadian agreement, has absolutely no chance of entering into force this year due to continuing fecklessness by the Obama administration and its Democrat colleagues in Congress.

The Chamber's John Murphy comments today on this development and its implications for US businesses:

Last night, Canada’s Senate gave final approval to the Canada-Colombia Free Trade Agreement. For months, the U.S. Chamber and others have warned that the Canada-Colombia FTA will put U.S. workers and farmers at a marked competitive disadvantage in Colombia. Canadian wheat farmers will be able to sell their crop to Colombians at a discount, and Canadian manufacturers will be better able to undercut their U.S. competitors in the Colombian market.

Unfortunately, this scenario is already unfolding. Following implementation of a new trade accord between Colombia and Mercosur, the U.S. share of Colombia’s market for soybean meal, yellow corn, and wheat dropped by 67%, 53%, and 37%, respectively, in 2008-2009.

In other words, a newly-minted Canada-Colombia deal is fantastic news for Canada and Colombia and awful news for US exporters (and consumers).  Grrrreat.

And in case you're wondering, there was nary a mention of any of this today from our wonderful USTR.  (Of course not.)

UPDATE:  My original post was wrong about the earliest that the Canada-Colombia FTA can enter into force.  I've corrected the post above to include mention of Colombia's constituional court and a revised timeline for implementation.

Canada-Colombia FTA Rolls On, US Watches from the Sidelines

Over the last few months, I've frequently opined on how our hockey-loving neighbors to the North have been runningskating circles around the US government when it comes to international economic policy.  While we embrace senseless mercantilism, they rush to open their markets to import competition (and its glorious cost-reduction benefits).  While we kvetch about foreign currency practices, they see the bright side and adapt.  While we maintain the second-highest corporate tax rate in the world (and seemingly add new tax burdens everyday), they lower their corporate tax rate and implement plans to reduce it even further.  And, of course, when we prudishly refuse to enact signed Free Trade Agreements with Panama, South Korea and Colombia, they rush to finish and implement as many FTAs with as many partners as possible.  I'll have a lot more to say about all of this in the next few days (hint, hint), but tonight let's just focus on the last item on the depressing tick-list above, FTAs.  As Bloomberg reports:

Canadian lawmakers today approved a free trade agreement with Colombia, a move that may give its agricultural producers an advantage over U.S. competitors in the Latin American country.

Canada’s House of Commons voted 188 to 79 in favor of the accord, which now moves to the Senate for final approval. The two countries began negotiations in 2007 and signed the agreement in 2008.

“In adopting this free trade agreement, Canada will be in a very strong competitive position vis-à-vis our other competition around the world and this will mean a great deal to our agricultural sector,” Canadian Trade Minister Peter Van Loan told reporters earlier today.

Colombian Trade Minister Luis Guillermo Plata said in an April 28 interview that Canadian exporters may gain as U.S. lawmakers delay approval of their free-trade agreement. Plata traveled to Ottawa and Washington earlier this year to court lawmakers in a bid to build support for the trade accords before Colombian President Alvaro Uribe’s term expires in August.

“Many of the things that we buy from the U.S. we could buy from Canada and we could buy tariff-free,” Plata, 42, said in the interview, pointing to purchases of wheat, barley, corn, machinery and mining equipment....

Prime Minister Stephen Harper’s governing Conservatives have made strengthening ties with Latin America a priority in an effort to broaden markets for Canadian commodities and reduce the country’s dependence on the U.S. economy.

Harper’s Conservatives lack a majority of seats in Parliament and needed the support of the opposition Liberals to pass the legislation. The Liberals amended the agreement to include yearly assessments of human rights conditions.

I've repeatedly gone over the obvious trade and foreign policy implications of the Canada-Colombia FTA and the US-Colombia FTA, so let's leave those important issues alone for now.  Instead, let's look at the sheer politics of the issue. The Bloomberg report makes clear that Canadian PM Stephen Harper lacked the numbers to force the FTA through Canada's lower chamber on a strictly party-line vote.  So he engaged his opposition, worked out a side agreement on human rights, and got the job done (by a huge margin, no less).  Now, let's contrast that with the Obama administration, which (i) has overwhelming partisan majorities in each chamber, (ii) by law (under Trade Promotion Authority) dictates the introduction and timeline of the FTA's implementing legislation, yet (iii) can't even get the economically meaningless US-Panama FTA considered in either congressional chamber.  I'd say that's a pretty strong indication of the President's political willingness to engage on these pending FTAs, wouldn't you?

And given that moving on trade issues requires oodles of political will, is it any wonder at all that Harper's government is sprinting past Obama's?

(Quick answer: no.)