Global Solar Panel Trade Fight Expands to India

I've often noted how trade disputes have a habit of reproducing in other jurisdictions, and with the United States and China duking it out over trade in solar panels and other "green" technologies, it was only a matter of time before other countries got into the mix.   But even I'm a little surprised at just how fast India has gotten involved:

India may initiate an anti-dumping probe in a month focused on imports of Chinese solar products, China’s Commerce Ministry said in a statement yesterday. India’s Commerce Secretary Rahul Khullar declined to comment in a phone call.

Indian manufacturers are also seeking a 15 percent tariff on imports of thin-film solar panels, the country’s Renewable Energy Ministry Secretary Tarun Kapoor said in an interview. The biggest thin-film panel company is Tempe, Arizona-based First Solar.

Indian suppliers such as Tata BP Solar India Ltd., Indosolar Ltd. and Moser Baer India Ltd. have failed to benefit from a rule intended to spawn a domestic manufacturing hub in one of the world’s fastest-growing markets.

Instead, low-cost Chinese rivals like Suntech and Trina Solar Ltd. and U.S. firms backed by preferential trade finance including First Solar have reaped most of the equipment orders for 1,100 megawatts of plants to be built by January.

“It’s a disaster in the making,” said K. Subramanya, chief executive officer of Tata BP Solar, 51 percent-owned by BP Plc and India’s third-biggest cell and panel maker. “I’m feeling a bit of anguish because we want solar to succeed but we need fair competition.”...

Local manufacturers have received almost no orders from developers building plants in India and are producing far below their factories’ full capacity, Subramanya said. India’s total manufacturing capacity is about 1,500 megawatts of panels and 500 megawatts of cells, according to Bloomberg New Energy Finance.

Indosolar, the nation’s biggest cell company, stopped production in June and has defaulted on 2.75 billion rupees ($52 million) of long-term bank loans as its business became “unviable,” Fitch Ratings analysts Vivek Jain and Salil Garg said in a Dec. 5 note. They attributed the company’s problems to a 62 percent plunge this year in the selling price of cells to about 52 cents a watt amid intense Chinese competition and declining demand in Europe where governments cut subsidies.

“We’re on the same wavelength as the U.S. manufacturers,” Indosolar Managing Director H. Rahul Gupta said by phone, referring to an Oct. 19 complaint lodged by Bonn-based SolarWorld AG’s U.S. unit and six unidentified U.S. companies....

The Indian complaints extend to both U.S. and Chinese exporters.

U.S. and Chinese suppliers have benefited from Indian orders because of cheap credit provided by state-backed lenders, said Anmol Singh Jaggi, director of Gensol Consultants Pvt., which advises project developers.

Indian projects that import U.S. equipment may be eligible for loans from the Export-Import Bank of the U.S., which charges about 3 percent to 4 percent interest. After hedging, the cost of borrowing comes to about 9 percent compared with 13 percent if they buy and borrow locally, he said....

Indian manufacturers [also] have asked the renewable ministry to waive duties on raw materials and supplies and to impose a 15 percent tariff on imports of thin-film panels, the ministry’s Kapoor said by phone from New Delhi.

For the last two years I've warned that massive "green technology" subsidies from the United States, China and other governments, combined with the nations' efforts to boost green exports in order to stimulate their economies, created a global market that was ripe for trade conflicts.  Now, green trade disputes are popping up at the national level and the WTO, and many of the subsidized companies are going bankrupt.

Maybe at some point, the US government will get the message and stop gambling taxpayer money on this big global mess, but I'm not holding my breath.

Monday Quick Hits (World Champion Dallas Mavericks Edition)

I'm sure that you, like me, are still tired from celebrating the Mavs' ridiculously unexpected victory last night. So here's a little pick-me-up:

• Sec. Clinton: Free trade is great for everyone (except Americans!).  In all seriousness, if you've ever wondered whether the Obama administration's free trade foot-dragging reflects political opportunism or a sincere-yet-misguided misunderstanding of basic economics, wonder no longer.

• WTO Director General Pascal Lamy explains that, because of global supply chains, value-added is a much better way to measure trade flows, and old school trade stats "give us a distorted picture of trade imbalances between countries." A full WTO report on this issue gives us a detailed understanding of the abject absurdity of politicians' breathless claims about global trade imbalances based on the old metrics.  For example, on our elected officials' currency demagoguery, Lamy stated: "When products include many parts made in many other countries, the effect of an isolated exchange rate appreciation or depreciation to the selling price in export markets will be reduced to the domestic content of these exports, to its 'value added content'. This may explain why empirical studies about the impact of exchange rate changes on imbalances tend to show they only have limited or ambiguous effects."  Translation: the demagoguery is pretty much baseless.  Heritage's Bryan Riley has more on our misleading trade stats here.

• In a must-read editorial, George Will absolutely destroys the White House's refusal to submit pending FTAs to Congress without congressional assurances on expanded Trade Adjustment Assistance.  My favorite lines: "A government borrowing $58,000 a second cannot afford Obama’s policy of Stimulus Forever, and there is this problem with TAA at any level: It is unjust to treat some workers as more entitled than others to protection from the vicissitudes of economic dynamism. Consider a hypothetical Ralph, who operated Ralph’s Diner until Applebee’s and Olive Garden opened competitors in the neighborhood. With economies of scale and national advertising budgets, those two franchises could offer more choices at better prices, so Ralph’s Diner went out of business. Should he and his employees be entitled to extra taxpayer subventions because they are casualties of competition? Why should someone be entitled to such welfare just because he or she is affected negatively by competition that comes from abroad rather than down the street? Because national trade policy permits foreign competition? But national economic policy permits — indeed encourages, even enforces — domestic competition. In 2001, when approximately 80,000 people worked in 7,500 music stores, the iPod was invented. Largely because of that and other technological changes, today only about 20,000 people work in 2,500 music stores. Should those 60,000 people be entitled to extra welfare because they are “victims” of technology? Does it matter if the 60,000 have found work in new jobs — perhaps making or selling electronic devices? In 2008, Americans bought 1.4 billion books made of paper and 200 million e-books. Soon they will buy more e-books than paper books, and half the nation’s bookstores will be gone. Should the stores’ former employees be entitled to special assistance beyond unemployment compensation? Reactionary liberalism holds that existing jobs must be protected with policies that reduce the economic dynamism that would mean a net increase in American jobs. So the dreary probability is that even if the TAA entitlement were re-enriched to stimulus levels, Democrats would again move the goal posts, concocting new objections to the trade agreements."  Yep. 

• Speaking of TAA, I quite enjoyed this NYT op-ed from former Bush official Matthew Slaughter and former Clinton official Robert Lawrence about how to resolve the White House's self-imposed TAA/FTA impasse.  Their solution: (i) pass the FTAs as soon as humanly possible, and then (ii) scrap TAA and the current mishmash of other federal unemployment benefits and replace the ancient, broken programs with a more streamlined and rational system that is market-friendly and doesn't discriminate against Americans who lost their jobs due to technology or something other than (allegedly) trade policy.  I don't agree with everything they propose, but I love this idea (and have advocated something similar for a few years now): "enabling unemployed workers to make penalty-free withdrawals from savings accounts like 401(k)’s and I.R.A.’s to finance costs like occupational retraining and relocation."  Sadly, the chances of this deer-in-the-headlights White House actually doing something as rational and economically-beneficial as the Slaughter/Lawrence plan are, well, not good.

• Is the, ahem, "Chicago way" coming to Geneva?  The Peterson Institute's Gary Clyde Hufbauer reports on what he sees as a very troubling development at the WTO: USTR's attempt to block Appellate Body member Jennifer Hillman from serving a second term on the world's most important arbiter of trade disputes: "The United States has never before blocked its Appellate Body appointee from serving a second term. Since the USTR has offered no explanation for blocking Hillman, suspicions are bound to arise that the United States is displeased with her decisions on the AB and wants to name a judge who is more attentive to US positions in future cases. These suspicions are bound to erode confidence in the WTO judicial system, and create a chilly reception for Hillman’s successor appointee. 'Judicial independence' is a hallowed American concept, now enshrined in the WTO.... But as a member of the bar, as well as President, Obama should seriously reconsider this damaging precedent."

• Does CNBC get just how contradictory this ridiculous news story about the Japan tragedy and the US trade deficit is?  Compare and contrast (emphasis mine): "The after-effects from the March earthquake and tsunami in Japan left behind one on the US economy: An unexpected shrinking in the massive trade deficit. But that improvement may not last long….  Most of the $3.1 billion decline came from Japan and a $2.5 billion drop in auto-related imports. The tsunami devastated the Japanese auto industry, slowing parts distribution and production essential to US car manufacturing and sales."  So to recap: choking off essential inputs for US manufacturers is a "positive impact."  Riiiiight.  (h/t Bryan Riley) 

• The Mises Institute's Jeff Tucker explains how US treatment of Vietnamese catfish basa and swai is an "archetype of disgusting protectionism."  Yep.

• In case you're wondering, inflation and rising labor costs aren't isolated to China.  According to the WSJ, India's facing similar issues: "Maruti Suzuki India, the local unit of Suzuki Motor, is facing what's become a familiar hazard in the country: labor action. On Wednesday, a strike by about 2,000 workers at one plant entered the fourth day. With $9 million of potential revenue lost each day from the closure, the total is about $32 million, or close to 1.5% of last quarter's revenue. Maruti's troubles are the latest reminder of the effect of labor unrest as workers demand better wages and benefits, triggered partly by high inflation. Last month, a similar protest by the employees of national carrier Air India lasted nine days, causing a revenue hit of $30 million. In 2010, Hyundai Motor India had to rehire most of the employees it had sacked after a two-day protest that cost a similar amount."

• Slate's Bryan Palmer explains why Europe "sucks" at innovation.  The intro reads like an article from The Onion: "The French government has banned television reporters from using the words Twitter and Facebook when referring generically to social media, because all that free advertising gives the companies an unfair advantage." Sacre bleu! 

• Bloomberg's editors go back to basics, explaining why protectionism is politically attractive yet economically stupid.  The whole thing is worth reading, but I really enjoyed this quote: "Furthermore, the benefits of free trade do not require reciprocity. Avoiding tariffs and quotas is good for us whether China, Japan or Europe follow suit."  Exactly.

• In case you need further evidence of the White House's secret understanding of free trade's myriad benefits, here's video of CIA Director (and current Secretary of Defense nominee) Leon Panetta explaining the strategic importance of free trade, especially with our allies in Korea, Colombia and Panama (start at 6:04, with Sen. Rob Portman's smart line of questioning):

Panetta: Senator, I think that when it comes to protecting our security there are number of areas that have to be addressed and one of those obviously is not just the military responsibility but there is an economic side of this that plays a very important role in terms of promoting better security. The ability of these other countries to develop trade with us to develop their economies creates greater stability within those countries. I think that’s a fact and to the extent that we can help promote that kind of trade, that we can promote that kind of economic development, I think it assists these nations in their ability to achieve stability. Columbia is a good example. They have done a great job going after narco trafficking. If we can help, you know be able to help them develop their economy, that could become another added factor in providing greater security in that region and the same thing is obviously true for Korea.

That's all for tonight.  Go Mavs!

Supporters of TAA Expansion Need to Find Another Myth

As I noted last week, the White House has refused to submit implementing legislation on pending FTAs with Colombia, Panama and South Korea until House Republicans agree to extend now-expired provisions of the Trade Adjustment Assistance program.  These provisions, included in the 2009 Stimulus* Bill, dramatically expanded the scope and coverage (and expense!) of the TAA program to include, among other things, services workers whose jobs were allegedly lost because of trade.  Here's how Sen. Debbie Stabenow (D-MI) - of the loudest proponents of the TAA expansion - described the provisions back in February:

In 2009, an update to TAA was enacted to help the program reflect the realities of today's global economy. Created in 1974, TAA originally did not allow service workers to take part in the program, and only those whose jobs were shipped to a country with which the United States has a free trade agreement qualified-in other words, workers whose jobs were sent to China and India were turned away. The 2009 update allowed service workers and those whose jobs were offshored to any country to apply.

Today Sen. Stabenow and some of her Senate colleagues repeated this refrain as they announced their support for the White House's latest FTA extortion demands.  But does their call for expanded TAA coverage to protect American services workers from outsourcing to India, China and elsewhere actually jibe with the global economic "realities" about which the Senators allegedly care so dearly?

In short, no.  Not at all.

As I recently noted, politicians' breathless claims about the rampant outsourcing of American services (and manufacturing) jobs to places like India and China are far more myth than reality.  Indeed, the United States actually ran a trade surplus in services with China (and many other countries) in 2010 and has been a net "insourcer" overall for several years now:

The US ran a relatively tiny services deficit with India in 2010 and a small surplus in 2009, but today comes eye-opening news that Indian corporations might be turning even more often to the US workforce:

[I]n a reversal of fortunes it now appears that large Indian companies are actually now themselves outsourcing - to U.S. shores.

Large corporations that have boomed in India amid the country's nimble economy have been drawn to the U.S. where unemployment has soared....

Experts said that the phenomenon, which could become more widespread in the coming years, is partly due to Indian workers demanding higher wages and higher living standards.

'The U.S. became the fastest-growing location for us last year. We expect that to continue this year,' Genpact chief executive V.N. 'Tiger' Tyagarajan said.

Joseph Vafi, an analyst at Jefferies & Co. in San Francisco told the Washington Post: 'What you have going on in India are salary hikes. As these companies get larger and larger, it just makes sense for them to do some hiring in the States.'

The Indian economy - boosted by a savings culture of large cash deposits - has boomed and is this year predicted to outpace China.

Businesses around the world have targeted India - part of the 'BRIC' emerging economies - for their global expansion.

Residents there have seen an increase in living standards and higher wages, which has led to higher spending.

In short, all that dastardly outsourcing has enriched Indian companies and workers, and now they're looking to the United States for not just new customers but also new employees.  Very cool.  The article even lists the biggest Indian companies that have outsourced work to the United States:

• Tata Consultancy Services.  Tata Consultancy Service is based in Mumbai and had a turnover of $8bn in 2011. They employ more than 200,000 worldwide with a significant number of those, believed to be around 15,000 based as outsourced jobs in the U.S.

• Aegis Communications.  Technology firm Aegis is part of the Essar group based in Mumbai with an annual revenue of $15bn. Aegis employs 9,000 in the U.S. at offices throughout the country.

• Wipro.  Based in Bangalore, IT specialists Wipro employ around 4,000 people in jobs that have been outsourced to the U.S.

• Genpact.  The IT outsourcing company employs 1,500 people in the U.S. but that is expected to triple over the next two years as bosses find it cheaper than employing Indian staff at home.

• Infosys.  The company is based in Bangalore with an annual revenue of $100m. They have 130,000 employees worldwide.

Sen. Stabenow and her colleagues claim that a massive expansion of TAA is absolutely necessary to "reflect the realities of today's global economy," so I'm sure when confronted with these indisputable facts about the global dominance of the American services sector (and its workers) - and the obvious benefits of globalization at home and abroad - these caring Senators will stop holding our pending FTAs hostage to a needless and costly TAA expansion, right?

Rrrrriiiight.

Given the fact that these TAA-loving Senators, as well as the politicians in the White House and elsewhere, desperately want to subsidize America's globally-dominant services workers with (even more) borrowed money, it seems to me that they, not those opposed to TAA expansion/extension, are the ones in dire need of a "reality check."

UPDATE: Mark Perry has more on the rapidly changing global labor market.

Wednesday Quick Hits

Plenty of great links to share today (the last day of my 34th year on the planet), so let's get right to it.

• The Economist reports on how increasing labor costs in China are once again changing the globalization dynamic - in many cases, back in US manufacturers' favor: "'Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America,' says [BCG's] Sirkin. That calculation assumes that wage growth will continue at around 17% a year in China but remain relatively slow in America, and that productivity growth will continue on current trends in both countries. It also assumes a modest appreciation of the yuan against the dollar.... Companies are thinking in more sophisticated ways about their supply chains.  Bosses no longer assume that they should always make things in the country with the lowest wages.  Increasingly, it makes sense to make things in a variety of places, including America."  The whole article is definitely worth a read.  (h/t Mark Perry)

• The WSJ's Mark Gongloff throws some cold water on the "China is dumping US Treasury debt" hysteria.

• Heritage's Bryan Riley makes a great catch:   "People who believe the United States no longer manufactures anything need to check out the newest Consumer Reports “Best Cars” list. The magazine recently selected the top cars for 2011 in 10 categories. Five 'best models' are made in the USA, three in Japan, one in Canada, and one in Mexico. Four of the made-in-the-USA models carry foreign nameplates; by contrast, the one Chevy on the list is made in Mexico."

• Cato's Dan Griswold provides clear and concise arguments for allowing Mexican trucks to travel on US roads.

• AEI's Michael Auslin provides a roadmap for expanding US-India trade and explains why it should be a point of emphasis.

• A must-read story in USA Today shows that US visa restrictions may be driving companies out of Silicon Valley and the United States entirely: "Silicon Valley may be the cradle for tech start-ups, but some foreign-born executives, engineers and scientists are leaving because of better opportunities back home, strict immigration laws here and California's steep cost of living."  I totally get the need for us to secure our borders and staunchly police illegal immigration, but the United States is suffering (and will suffer a lot more in the future) because of our government's inability to develop and implement policies to efficiently and lawfully keep super-smart foreign entrepreneurs and workers here.  Our lack of such policies is, ahem, bordering on the insane. (Sorry, I couldn't resist.) 

• The White House has surprisingly announced that it won't move pending FTAs with Colombia, Panama and South Korea unless the House GOP ties it to the now-expired Trade Adjustment Assistance program.  IBD dismantles the administration's political motivations, while Cafe Hayek's Don Boudreaux eviscerates TAA's shoddy economic foundations.  (More on this issue to come.) 

• Logistics improvements in China would mean huge gains for consumers and exporters, further proof that trade facilitation efforts can dramatically improve global trade when market access negotiations break down: "Logistics costs as a percentage of GDP are around 21%, compared with 10% in the U.S. and 13% in India.... [T]he country has a fragmented system, high tariffs for road transport and multiple providers piling on fees.... A Chinese government investigation found that two-thirds of the retail price of vegetables represents logistics costs. And even though costs are high, service is often poor.  Local logistics providers are famously slow and unreliable. Assuring end-to-end delivery of products across provincial boundaries is a real challenge."  Unfortunately, things appear to be getting worse instead of better:

• Looks like we're seeing a serious bubble in US farmland, yet American agriculture subsidies keep, ahem, plowing ahead. (Sorry, I couldn't resist... again)

• Good news: US exports surge to a new record high.  Less-good-news: as the graphic below makes clear (courtesy of Mark Perry), US exports are still below their pre-recession trendline.

That's all for today.  Enjoy!

Caterpillar CEO on Trade and How to (Really) Win The Future

President Obama and his underlings just love to talk about improving American competitiveness in order to Win the Future.  But what does the US business community - well, those not on the milky-end of the government teet - think about the current state of American policy and its impact on our companies' future global competitiveness?  Courtesy of HotAir comes a fantastic CNBC interview with the CEO of Caterpillar - one the shining stars of America's thriving manufacturing sector - on just those issues.  It's well worth your 15 minutes:



In short, Mr. Oberhelman sees the global economy not as a threat, but as a great business opportunity.  He's smartly positioned Caterpillar to take full advantage of both foreign and domestic market conditions - through things like advocating robust trade liberalization, currency hedging and maintaining near-total control over business operations in interventionist foreign markets - and he sees competitiveness-killing US government policies, not free trade or low-cost competitors in China or Brazil, as the greatest threat to his company's viability and the future of the American economy.

And what kind of US government policies are undermining our global competitiveness and thus jepoardizing our companies and jobs?  I'll let Oberhelman explain:



My favorite quote:

We've announced three or four arguably brand-new facilities [in the United States] bringing work in from outside. And frankly we weigh all of these things in which state is the most business friendly. It's not a question of labor cost or who's cheaper. If you chase cheap labor around the world, you're never going to win. It's a lot more than that. The state's got to be competitive.  The country's got to be competitive....  You see states going the other way [from Illinois], where they're very pro-business and reducing taxes, and guess where we land our plants that are very competitive.... The latest and greatest is in Texas.  We brought a plant that in the past has assembled hydraulic excavators in Japan for shipment to the U.S.... we've moved that plant to south Texas... 5,000 to 6,000 units a year, 600 to 700 high-paying assembly jobs.

Nice.  And how exactly does Mr. Oberhelman think the current administration is doing to keep American companies strong and competitive?  Well, the answer to that is in the second video, but I'll let HotAir spell it out for you.

(Hint: it's not good.)

Monday Quick Hits

The eastern seaboard is clearly under attack from global cooling.  Here are some interesting links to get you through these dark and cold "spring" days.

• Chevy Volt: the car from Atlas Shrugged Motors.

• Sore losers implore the US to take their ball and go home.  I like to call this the "Cartman strategy."

• New 2004 UCLA study: FDR's statist policies prolonged the Great Depression by seven(!) years.

• Sarah Palin advocates import liberalization in India, further solidifying her free trade bona fides: "[I]n the early 1990′s, due to clear, commonsense, pro free-market reforms, India’s economy took off! [It] abolished import licenses; cut import duties; removed investment caps & broke the union’s grip on industry."

• The United States has the most progressive tax system in the industrialized world.  Key graf: "[T]he top 10 percent of households in the U.S. pays 45.1 percent of all income taxes (both personal income and payroll taxes combined) in the country. Italy is the only other country in which the top 10 percent of households pays more than 40 percent of the income tax burden (42.2%). Meanwhile, the average tax burden for the top decile of households in OECD countries is 31.6 percent."

• A fascinating study (and a related WSJ op-ed) from the UK think tank Policy Exchange on the impact of global trade on the effectiveness (or, more accurately, the impotence) of the EU's climate change regulations has me wondering whether our policymakers will (i) learn the right lesson from the EU's experience - and the one advocated by Policy Exchange ("to accelerate the development of technologies that will be genuinely competitive with fossil fuels" rather than "browbeat[ing] developing countries into going green") or (ii) use the study to justify their calls for eco-protectionism.  I'm hoping the former but cynically expecting the latter.

• US steelmaking giant Nucor recently broke ground on a new iron making facility in Louisiana that would employ hundreds.  The same site is also permitted for another iron facility, and many are guessing that a steel mill will also show up down there in the next few years.  Oddly, ABC News isn't doing a week's worth of news stories on the Nucor plant(s) or any of the many other industrial expansion efforts across the country.

• Why won't Sen. Sherrod Brown (D-OH) debate GMU's Don Boudreaux on the merits of free trade?  (Yes, that's a rhetorical question.  *cluck cluck*)

• Cato's Dan Griswold points out that the easiest way to decrease American income inequality appears to be destroying the US economy.  (Obvious response: Shh, dude, don't give anyone any bright ideas.)

• So much for the silly myth of "McJobs" in the service industry.  According to this handy primer from the National Retail Federation, the import-dependent retail industry in 2009 employed 330,000 managers who earned an average annual salary of $91,650.  And there are another 300,000 or so well-paid folks in other positions.  (This isn't new, but it's worth mentioning here anyway.)

• Finally, Jonah Goldberg at AEI points us to an awesome video from Hans Rosling about the amazing improvements in global wealth and health over the last few decades.  All of it is cool and worth watching, but for our purposes, the most relevant point is around the 10:00 mark when Rosling unequivocally credits the dramatic, disproportionate (relative to other African nations) improvement of Mauritius on the country's embrace of free trade.

 Enjoy!

China and the WTO: A Marriage Doomed to Fail?

Last week the World Trade Organization, in particular China's membership in the global trade body, came under scrutiny from the anti-trade left and, surprisingly, the (mostly) pro-trade right.  The former's response was totally expected as the logical extension of anti-traders' longstanding "strategy" of seizing on some new headline as ex post justification for their opposition to trade liberalization.  Ian Fletcher (among others) acted the part perfectly as he melodramatically bemoaned the horrible decision of the WTO's Appellate Body in the US-China AD/CVD dispute (upon which I've already commented):

The World Trade Organization has a long history of anti-American actions. They've just handed us another one, and in the process handed a big freebie to Chinese state capitalism.

Fortunately, the obvious bias and error of Fletcher's "arguments" is made evident by simply citing, you know, the actual record of WTO disputes between the US and China since the latter joined the organization about a decade ago.  First, there's the small fact that the Appellate Body actually sided with the United States in two of the four claims raised in that case.  Then, there's the broader data refuting Fletcher's silly allegations. According to the WTO, the US and China have been involved in 17 formal disputes there, with the the United States the complainant in ten of those cases.  Four of those ten are still pending, and the United States has prevailed (through a formal dispute settlement ruling or a mutually agreed solution that resulted from required consultations) in - wait for it - all six cases.  For those of you who aren't math majors, that's a 100% success rate.  So much for the WTO's obvious anti-Americanism, eh?

And let's also not forget the dramatic benefits that China's WTO Membership bestowed upon American exporters (a metric that even a mercantilist like Fletcher can support).  Cafe Hayek's Don Boudreax, citing Doug Irwin's great book, summarizes those benefits quite succinctly (emphasis mine):

While it’s true that China – like nearly every other nation on earth – has in place a plethora of growth-inhibiting mercantilist policies, the overwhelming economic story in China over the past 33 years is the liberalization of its markets – a liberalization that includes dramatic reductions in trade barriers. Here’s economist Douglas Irwin: “In December 1978 China began to end its policy of economic isolation. Under the leadership of Deng Xiaopeng, the government decollectivized agriculture, allowed private entities to trade, and permitted foreign investment…. In 1992 the weighted average tariff [in China] on manufactured goods was over 45 percent. Since China joined the WTO in 2001, the country’s average tariff will eventually fall to less than 7 percent.”

Since these data pretty much annihilate Fletcher's claims, let's move on to what struck me as the more surprising China/WTO criticism - the grumbles of discontent coming from free trade supporters on the right.  AEI's Claude Barfield explains:

At this morning’s AEI conference, Reconsidering America’s China Policy: Engaging Party and People, I had an important exchange with Heritage Foundation scholar Derek Scissors. Derek is a keen and acute observer of China’s economy and trade policy. His major theme this morning revolved around a recantation: to wit, that he had originally supported China’s entry into the World Trade Organization (WTO), but now thought this was a mistake. He stated that the problem was that neither he, nor the decision makers at the time, had foreseen the about-face Chinese leaders after 2001 would make on key trade and investment policies. He argued that China’s leaders in the 1990s had been genuinely committed to a more open economy and downsizing the state sector. However, the leadership since then has reversed course and is committed to a new form of state capitalism and inward-looking development that will inevitably bring the PRC into conflict with WTO rules—in areas such as currency, indigenous innovation, climate change, and competition policy.

Barfield, to his credit, ably refutes Scissors' primary concerns but concludes on what I think is a very odd note (again, emphasis mine):

I, in turn, argued that whatever the future problems and conflicts within the WTO, on balance the world (and the United States) was better off with China inside the WTO. In 2001, China was forced to assume obligations well beyond those demanded of any other nation, developed or developing, as the price of WTO membership. By and large, it has fulfilled those obligations. Does it cut corners and attempt to weasel out of it commitments? Yes. But all nations—particularly those with highly paid trade lawyers such as the United States and EU—continually attempt to “reinterpret” loosely-worded WTO rules (check out U.S. positions on cotton subsidies and sketchy dumping cases). Though it initially reacted with fury at WTO cases against it, China over the past several years had skillfully defended itself at the WTO. Indeed it has just won a major case on anti-dumping and subsidy rules against the United States.

The bottom line is that the issues Derek worries about in general were not, and still are not, WTO obligations. When the GATT/WTO was founded in the 1940s and 1950s, state capitalism was the norm throughout much of Europe; and trade rules for the most part did not, and do not, cover many of these misguided economic policies. During the recent crisis, state intervention increased rather substantially (viz, Government Motors), even while traditional protection barely ticked up. 

In future years, backing the state out of its new role will be a major challenge for the world trading system. And here, Derek makes a point that is worth pondering. When pressed, it was clear that what really concerned him was that China was now so large, and with such outsized influence, that if it kept to the present inward turn, it would destroy the WTO, whatever the niceties of legal obligations. Here I agree, but that is a challenge for future negotiations and does not reverse the reality (in my view) that the world trading system was better off by accepting Chinese membership. Or putting it another way, that also speaks to Derek’s fears—without China as a member could we any longer call it the World Trade Organization?

Clearly the answer to Barfield's final question is a big, fat "no" - omitting the world's largest exporter and second-largest economy from an organization dedicated to liberalizing and harmonizing global trade would instantly de-legitimize the body (although one could rightly question whether China would have ever gained this impressive status without (a) the the trade and economic liberalization brought about by its WTO accession, and (b) the protections that WTO rules have provided China's exports of goods and services).  But should we really be concerned that if China continues its nettlesome trade and economic policies "it would destroy the WTO, whatever the niceties of legal obligations"?

Color me extremely skeptical.

Granted, I wasn't at this discussion, so maybe I'm misinterpreting Scissors' and Barfield's concerns.  But I see several flaws with the idea that China's relatively-isolated fits of protectionism will eventually destroy the WTO.  First, there is the question of whether China would allow this to happen.  Clearly, China sees a lot of value in WTO membership from both a PR and legal perspective.  On the former, WTO membership and China's participation as a "responsible stakeholder" gives China a lot of global street cred - distinguishing it from "rogue" economic nations like North Korea or Russia (which is just desperate to join for, inter alia, this very reason).  On the latter, China's recent "win" at the WTO's Appellate Body, and the country's increasingly frequent resort to WTO dispute settlement (or threats of bringing a WTO case) makes it clear that China is quite pleased with the global trade body's role as an arbiter of global trade rules and potential check on importing nations' protectionism.  For two examples of this reality, consider how often the Chinese government promised an immediate WTO challenge to any US legislation targeting China's currency practices or to climate change legislation that included "carbon tariffs."  So would China really be willing to let the WTO die just to maintain something like its indigenous innovation policy?  That seems really unlikely to me.

Second, and as Barfield sorta mentions, China has actually proven to be pretty good about (i) complying with adverse WTO dispute settlement rulings by revising the illegal trade measures at issue and (ii) liberalizing its trade and investment regime pursuant to its phased-in WTO accession commitments.  Sure, the Chinese haven't been perfect and often draw the ire of their trading partners, but as Barfield and Boudreaux note above, pretty much nobody has been perfect (see, e.g., US refusal to implement adverse WTO decisions on internet gambling or zeroing or cotton subsidies).  I imagine that China's (often reluctant) compliance is due to the same reasons I already mentioned - a strong desire not to implode a global organization that they highly value.  So, when push comes to shove, China begrudgingly caves on WTO matters just like everybody else, or it pays for its non-compliance through retaliatory sanctions (again, just like everybody else).  Such (totally routine) behavior hardly seems like the actions of a rogue nation destined to implode the WTO.

Third, I'm extremely skeptical that the trade issues that Scissors and Barfield raise - such as currency, indigenous innovation, climate change and competition - are really the WTO-breakers that they (apparently) assume.  Beyond that fact that, as Barfield notes, these issues are not really covered by standard WTO disciplines (and this omission is very much intentional - just ask USTR about EU competition policy sometime), are these really the mission-critical issues that are going to destroy a global trade organization that has (in some form) been around for more than six decades?  Let's look at each quickly:

• On China's currency, I've repeatedly noted that the issue is quickly resolving itself due to domestic inflationary pressures and, well, lots of nations have meddled with their currencies over the last few years.

• On indigenous innovation, China's already revising some of the policy's more troublesome aspects, and has agreed to submit a better offer to accede to the WTO's Government Procurement Agreement (which would discipline many other aspects).  This is admittedly a long slog and should certainly be a US negotiating priority, but it is making progress (albeit at at a glacial pace).

• On climate change, China's reluctance to sign an intensive multilateral climate change agreement and its opposition to carbon tariffs is hardly is isolated to China alone - it's something shared by almost all developing country nations (see, e.g., India's threats to bring a WTO dispute against any national climate change laws that include carbon tariffs).

• And on competition policy, again, see the United States and the many other (very sane) nations that aren't really down with global harmonization of competition (i.e., anti-trust) disciplines.

Finally, it just doesn't seem that other WTO Members harbor concerns that China's naughtiness is going to end up scuttling the WTO.  Of course, they'd never admit publicly that they had such troubling feelings, but they're still negotiating as if the WTO agreements are going to still be valuable in a few years, and they're still bringing new disputes against China and each other.  I don't know about you, but I wouldn't be wasting my government's finite resources on securing new dispute settlement rulings against China if I thought the body was going anywhere anytime soon, would you?

Now, look, I'm certainly not saying that the WTO is invincible, and as I've already noted, the body's utility as a vehicle for new trade liberalization could (could!) be coming to an end.  And who knows, maybe an issue will arise that will pit WTO Members against each other in such an entrenched and permanent way that it'll effectively destroy the global trade organization.  But in China or any other WTO Member, I've yet to see anything even remotely big enough to do it.

Wednesday Quick Hits

Just a few links tonight for your reading pleasure:

• Forbes rates the 10 worst cars of 2010, and you'll never guess what's all over the list. (Oh wait, yes you will.). "The real secret, McElroy adds, is that almost every hybrid on the market today is a flop: 'I guarantee you every single automaker is losing money on every single hybrid they build, with the exception of the Prius.'  Hybrids are losing money because consumers just aren't buying them. In the 12 years since hybrid vehicles have been on the American market, and with seven mainline brands selling more than 20 hybrid options--everything from the Lexus HS250h sedan to the Cadillac Escalade Hybrid SUV--hybrids still make up just over 2% of the market. And half of that belongs to the Prius."  The SmartCar is also in the top 10.  And once again, we shockingly find that there's money in making cars that people, you know, actually want.  Will Washington ever learn? 

• Defunct, WTO-illegal law is still paying out millions to its chosen benefactors.  (Zombie protectionism continues to roam the earth.)

• AEI's Phil Levy tells us everything we wanted to know about the KORUS but were afraid to ask.  A great rundown of most of the big issues surrounding the FTA (and I'm not just saying that because I was cited).

• In India, higher inflation and input costs spell trouble for domestic manufacturers.  Is this what American firms (many of whom rely on imported inputs) have to look forward to in the wake of QE2?  Awesome!  

• US farm exports set to break records in 2011, and the WSJ wonders if we're witnessing the next asset bubble in the booming US farmland market.  These are two very important things to consider as our politicians debate whether to extend our massive, trade-distorting agriculture subsidies in the next Farm Bill.

That's all for tonight, folks.

Wednesday Quick Hits

It's been a while since I've provided the quick hits, so this will be a table-clearing of sorts.  Enjoy:

• Sarah Palin, Free Trader.  Maybe the fact that the Guv mentioned free trade not once, but twice(!), in her "open letter to GOP freshmen" will calm some of those silly fears out there that the Tea Party's packed with raving protectionists destined to turn Republicans against trade altogether. 

• Google, Free Trader.  Alternate headline: Google fires back at China; It's, Like, So On.

• India, Currency Dove.  Great FT op-ed here about how India has thus far refused to fall into the currency abyss (and, by the way, still runs a bilateral trade surplus with the United States even as the Rupee appreciates against the Dollar).

• GM, Fake "Success."  Everyone wants to talk about how super-awesome the GM bailout turned out.  Except that it didn't.  At all.

• US, Mexico Inaugurate New Freight Crossing. Too bad that Mexican trucks are still banned from using it, and that US exporters are paying needless Mexican tariffs.  But other than that, congrats, guys!

• WTO: Cutting Red Tape Through Trade Facilitation Could Save a Fortune.  Pretty interesting stuff out of Geneva, but you already knew this because you read my blog religiously, right?  Right?

• BMW Hires 1000 Americans to Make Cars in America.  So should we start complaining about a "race to the bottom" and demanding that folks "buy American" now, or should we wait until these good folks have found other employment with "real American" companies? (<-- obvious sarcasm)

That's all for tonight, folks. 

Wednesday Quick Hits

I'm still digging out of cardboard boxes, so here are some headlines/links to keep you occupied until I'm fully functional again:

• India still talking tough on carbon tariffs, this time at the ongoing climate talks in Bonn, Germany.

• And speaking of Bonn, things are going, ahem, not-so-smoothly. 

• EU to US: "Hey, maybe you could help the WTO's Doha Round out by, you know, actually saying what you want instead of just repeating the same empty rhetoric and doing nothing."

• Canada's international economic sanity continues to make the United States' positions look (deservedly) bad - this time on China currency and opposition to the "global bank tax."

• Canadian 1Q economic growth tops expectations, doubles-up US growth. (Gee, I wonder why?)

• Czech President Vaclav Klaus: "Let's face it, people, the Eurozone has already collapsed.  And boy were we right to avoid that boondoggle."

Ok, that's it for now.  I promise to be a better blogger soon.  But these darn boxes unfortunately don't unpack themselves.

Center for American Progress, France Blindly Push for Carbon Tariffs

The left-leaning Center for American Progress has issued a new paper calling for the implementation of a US-EU system of carbon tariffs.  The author, CAP's Jake Caldwell, summarizes his case as follows:

Carbon tariffs—which the United States and the European Union could decide to impose on greenhouse-gas-intensive products imported from countries refusing to take action on climate change—have the potential to play an important role in these [climate change] discussions moving forward. Carbon tariffs can be an effective policy tool to reduce global emissions and preventing carbon leakage, or the migration of carbon-intensive industries to countries with more lax regulations.

But we must proceed cautiously. Carbon tariffs may also present significant risks to the multilateral trading system and the Earth’s climate if they are designed and implemented poorly and do not fundamentally reduce global greenhouse gas emissions. That’s why the United States and the European Union should work together to design and implement an open and transparent approach to carbon tariffs as part of an overall effort to reduce global greenhouse gas emissions.

Caldwell goes on to explain, as pleasantly as possible, how and why carbon tariffs should be a part of the United States' and EU's future climate policy plans.  As to the latter issue, Caldwell's two primary reasons for supporting carbon tariffs are (i) to stop "carbon leakage" (i.e., the movement of emissions-intensive production to poorly regulated countries); and (ii) to ensure the competitiveness of the domestic industries being strangledregulated by new climate change schemes.  Unfortunately, Caldwell's discussion includes not a shred of evidence that carbon tariffs would actually, you know, achieve those objectives.  (Seriously, there's not a single link or footnote to anything of the sort.)  On the other hand, Caldwell could have spent two minutes on this blog and found oodles of scholarly evidence (see, e.g., here, here, here and here) showing that they would not.

As for the "how," Caldwell provides a laundry list of ideas about what his ideal system should entail: (i) apply carbon tariffs in an open and transparent manner; (ii) exempt least developed countries from tariffs; (iii) consider countries’ greenhouse gas reduction efforts; (iv) establish a joint US-EU working group to identify the relationship between trade and climate change issues; (v) invoke a joint US-EU agreement to apply a “peace clause” for an initial period of 10 years; (vi) allow national leaders to make a final decision on carbon tariffs; and (vii) consider other policy options to address carbon leakage and competitiveness.

I won't get into all of these issues, but I find (i) and (iv) to be really, really interesting (and not in a good way).  On "transparency and openness," Caldwell doesn't really explain how that would work, but I (and many scholars and developing countries) am rather skeptical that such "transparency" is possible or even helpful for developing a "fair" system.  Indeed, I wonder if he's ever seen or read a 100+-page Department of Commerce decision memorandum in a US trade remedies investigation - one that imposes supposedly "remedial" tariffs of 100% or higher on "unfairly traded" Chinese imports, and requires a Rosetta Stone to even begin to understand (hence, why I'm employed).  And that's just the public memos.  There are always hundreds more pages of proprietary calculation documents.  So knowing how our existing remedial tariffs are calculated and imposed on "unfairly-traded" imports, does Caldwell really think that similarly "remedial" tariffs on "non-green" imports would be calculated and imposed any differently or better?  Oh, and let's also keep in mind who's lobbying for, and drafting, these carbon tariff "transparency" regulations.  (Hint: it ain't developing country governments, their exporters or US consumers.)

On point (iv) (i.e., the "joint US-EU working group to identify the relationship between trade and climate change issues"), I'm just flat confused.  According to Caldwell, his working group would "consider a range of issues including the use of carbon tariffs and... guide the WTO’s approach to these issues."  Well, considering how darn controversial carbon tariffs are for developing countries and that they could literally start a trade war, shouldn't an honest and sound environmental policy first consider and determine the "relationship between trade and climate change" before strongly advocating dangerous systems that include border measures based on that relationship?  And second, does Caldwell actually think that a US-EU working group, which excludes 151 other WTO Members, would be well-received and adopted at the WTO, which relies on consensus-driven decision making?  Or does he think that the WTO's seriously independent Appellate Body would gladly be "guided" by the very developed countries whose carbon tariff measures would no doubt be challenged (by India, China or other Members) before it?  (Quick answer: Not gonna happen, dude.)

And speaking of the WTO, it's a tad, ahem, unfortunate that Caldwell glosses over the very serious legal concerns raised by India and others that carbon tariffs don't comply with WTO rules.  His only legal justification is the now-notorious joint paper by the WTO and the UNEP which, as Caldwell rather coolly admits, only "suggests border adjustment measures may be consistent with WTO rules in certain circumstances." (Waffling emphasis mine.)  Of course, all those qualifiers are totally necessary because Cato's Sallie James and the Indian Government, among others, have both provided ample legal argument that most carbon tariff schemes would not be consistent with global trade rules.

Indeed, it's James' analysis which is most interesting here because one of her paper's main points was that WTO rules necessitate that "[a]ny trade-related measures (such as tariffs on goods from noncapped countries) need to be based strictly on the goal of protecting the environment, rather than an attempt to level the playing field for domestic competitors shackled by climate change regulations. Breaking the link between the trade measure and the goal of protecting the environment is a sure invitation to WTO dispute-settlement proceedings."  Yet, as noted above, one of Caldwell's two big reasons for carbon tariffs is the need to maintain the competitiveness of US and EU manufacturers.  In other words, Caldwell in one breath brushes off WTO concerns over carbon tariffs, yet his primary reasoning for their use is precisely what will trigger a big WTO dispute.

Umm, what!? 

So to recap, Caldwell (i) provides no empirical support for, and ignores the boatloads of evidence against, his main carbon tariffs justifications; (ii) proposes a "system" that is almost certainly impractical; and (iii) ignores carbon tariffs' legal problems under WTO rules.  But other than that........

But hey, all's not lost for Caldwell, as today's other carbon tariffs news shows that he's not alone out there in his support for the controversial measures.  Euractiv reports that the French government, fresh off the collapse of its own national efforts to impose carbon tariffs, is aggressively pushing for them at the EU.  Problem is that most every other European nation (minus Italy) and the EU's Trade Commissioner Karel De Gucht (among others) oppose carbon tariffs because they'd raise prices for consumers and possibly start a trade war.

Funny how Caldwell, while mentioning France and Italy, also fails to mention that stubborn little fact, huh?

(Actually, no it's not.)

Senate Sponsors of New Climate Change Legislation Try - and Hilariously Fail - to Cover Carbon Tariffs' "Competitiveness" Tracks (UPDATED)

Tomorrow, Senators John Kerry (D-MA), Lindsay Graham (R-SC) and Joe Lieberman (I-CT) will unveil their long-awaited legislation to completely re-jigger (technical term) the American energy sector.  The Hill has done some digging and uncovered the confidential internal summaries of the legislation, and it contains pretty much everything that we've expected for a while now: emissions caps, nuclear power, handouts to domestic energy producers and, of course, carbon tariffs.

The Hill links to the bill's long summary here (PDF), and just like the House climate change legislation (aka "Waxman Markey") and the Senate's old version (aka "Boxer-Kerry"), the bill isn't so forthrightbold as to actually call the carbon tariffs, well, "carbon tariffs" (or "border measures" or "border taxes" or anything anyone's ever actually heard of or been publicly concerned about.)  No, instead the legislation follows Waxman-Markey and calls its border measures an "International Reserve Allowance Program."  In particular, the summary states:

Sections 775. International Negotiations. Finds that the purposes of this subtitle can be most effectively achieved through international agreements and states that it is the policy of the United States to work proactively under the UNFCCC and in other forums to establish binding agreements committing all major-emitting countries to contribute equitably to the reduction of global greenhouse gas emissions.

Section 776. Presidential Reports and Determinations. Requires the President to submit a report to Congress no later than January 1, 2019, and every two years thereafter, regarding the effectiveness of the distribution of emission allowance rebates under Subpart I in mitigating the risk of increased greenhouse gas emissions in foreign countries resulting from compliance costs incurred under this bill. 

Requires the President to establish an International Reserve Allowance Program if a multilateral agreement consistent with the statement of policy described in section 775 has not entered into force by January 1, 2020, unless the President determines that such program would not be in the national economic or environmental interest of the U.S.  If the President establishes an International Reserve Allowance Program, this section requires the President to make a determination as soon as possible, but no later than June 30,2023, and every two years thereafter, for each eligible industrial sector, of whether not more than 70 percent of global production with respect to that sector is produced or manufactured in countries that meet specific criteria described in this section.

Section 777.  International Reserve Allowance Program. Directs the Administrator, with the concurrence of the Commissioner of Customs, to promulgate regulations establishing an international reserve allowance program. Includes provisions in addition to the reserve allowance program to mitigate or address carbon leakage by ensuring that eligible sectors may receive additional emission allowance rebates in an amount necessary to address those impacts.

It's much less controversial when completely unintelligible, you see?  But don't be fooled: those are stealth carbon tariffs, my friends. 

However, unlike Waxman-Markey (see Sec. 768) or Boxer-Kerry, it appears that the new Senate climate change legislation has, also as expected, ditched any discussion of how the border measuresinternational reserve allowances are intended to offset any domestic competitiveness concerns, and it instead has couched the carbon tariffs provisions in wholly environmental terms.  This environment-only focus is made abundantly clear in the sections above, and, as we've discussed before, it's part of a recent trend and probably quite intentional:

[T]he Senators' rhetorical shift [from competitiveness to environmental reasoning] is - shocking, I know - a rather ham-handed attempt to keep their cherished carbon tariffs consistent with WTO rules.  As Cato's Sallie James explains:

[T]he almost convincing attempt by these senators to cloak their protectionism in green-speak about the need to ensure that climate legislation is environmentally effective. They will have to keep that up, too, if they are to stay on the right side of WTO law, which says there must be a clear link between a trade measure and an environmental purpose if the measure is to be at least prima facie legitimate.  Imposing border measures to address adverse competitiveness effects of domestic environmental regulations, in other words, probably won’t cut it.

The bill's short summary (available here) also follows this new "green" road-map (and it's also a little more obvious about the bill's inclusion of border measures):

In order to protect the environmental goals of the bill, we phase in a WTO-consistent border adjustment mechanism. In the event that no global agreement on climate change is reached, the bill requires imports from countries that have not taken action to limit emissions to pay a comparable amount at the border to avoid carbon leakage and ensure we are able to achieve our environmental objectives. (Emphasis mine.)

You couldn't shoehorn more "environmental" references into this summary if you tried.  Only one small problem: this strictly "environmental" summary falls clearly under the main heading "Expanding America's Manufacturing Base," and the long summary of Sections 775-777 above comes under the main heading "Subtitle A - Protecting American Manufacturing Jobs and Preventing Carbon Leakage."  So did the Senate drafters really just take all that time purging all of the scary "competitiveness" language from their new bill's carbon tariffs provisions, only to keep them under a legislative subtitle that expressly denotes provisions dealing with domestic industrial competitiveness?

Well, the text of the bill isn't out yet, so we don't really know for sure.  But if so, this has gotta be one of the dumber drafting moves that I've seen since, well, ObamaCare.

Although I'm sure the Indian Government is just psyched.

UPDATE: Sallie James weighs in on the Kerry-Lieberman bill and finds even more proof of  really bad drafting.  Also, the legislation has been released and the headings, etc. are the same as the summaries.  Nice.

Surprising (Almost) No One, Obama Reverses Stance and Announces Support for Carbon Tariffs

National Review's Jim Geraghty has a long-running joke that all promises issued by President Obama come with an implicit expiration date.  Geraghty's well-documented thesis gets another footnote today, as the New York Times reports that the Obama Administration has officially reversed course and now supports the inclusion of carbon tariffs in the soon-to-be-released Senate cap-and-trade energy green jobs legislation:

A top White House adviser confirmed today that President Obama is open to helping energy-intensive industries cope with the costs of climate legislation, including use of controversial border tariffs he had previously warned could spark a global trade war.

Energy and climate adviser Carol Browner said the administration recognizes Congress' interest in using trade language as it works on climate legislation that addresses concerns from some of the country's industries that are most vulnerable to cheap foreign imports, including steel, cement, glass, pulp and paper.

"There's going to have to be mechanisms that recognize they compete in a global market," Browner said during an event hosted by National Journal. "I think it's fair to say a final bill will be very mindful of the needs of these particular sectors of the economy."

Obama prompted an outcry from moderate Senate Democrats last summer after he questioned a section of the House-passed climate bill H.R. 2454 that punishes developing countries with trade sanctions if they don't do enough to curb their greenhouse gas emissions.

"At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there," the president told reporters the day after the House's 218-212 vote.

The Senate climate bill's lead authors have sent signals that they will address the concerns of senators from states with trade-sensitive industries, though details on what John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) will say in their legislation remains unclear. The trio are planning to release their bill Monday.

Ten Senate Democrats, led by Sherrod Brown of Ohio and Debbie Stabenow of Michigan, called last week for a border adjustment that is automatically slapped on imports from countries that do not have greenhouse gas requirements comparable to the U.S. law (E&ENews PM, April 15).

"A border adjustment measure is critical to ensuring that climate change legislation will be trade neutral and environmentally effective," the senators wrote to Kerry, Graham and Lieberman.

But Graham said last week he didn't agree with an automatic trigger for trade sanctions. Instead, he said he supported a provision setting a roughly four-year deadline for conclusion of an international climate agreement; otherwise, Congress would need to revisit the issue.

"We don't need to create a trade war," Graham said. "We need to be WTO-compliant. But let me just say this, on behalf of manufacturing, if we don't have an international agreement covering these countries that can put us at a competitive disadvantage, then we'll have to revisit this thing. My approach has always been that you start off with business-friendly language when it comes to border adjustments that's clearly WTO-compliant, but you'd have a provision in there: If not an international agreement by a certain point in time, Congress has to revisit this."

Senate Finance Committee Chairman Max Baucus (D-Mont.) has also indicated he will weigh in on the trade issue as part of a broader plan spelled out by Majority Leader Harry Reid (D-Nev.) before any climate bill comes to the floor....

Sigh.  I have consistently maintained that the chances of any American cap-and-whatever legislation becoming law in 2010 are tiny, and I continue to believe that's the case (especially after Ways & Means Chair Sandy Levin just yesterday said that "this will probably not be the year" for the bill).  However, today's news of Obama's shift on carbon tariffs is still noteworthy for several reasons:

• First, Obama's change of heart is not as drastic as the NYT would have you believe and, quite frankly, was all-but inevitable given the partisan makeup in the Senate and the resolute support for carbon tariffs from a large gaggle of protectionist senators.  Indeed, anyone paying attention saw this change-of-heart coming months ago when the White House first started waffling on the issue.  So maybe this is "big news" for the White House's cheerleaders at the NYT, but it really shouldn't be for the rest of us.

• Second, it appears that the Obama administration and Senator Graham did not get the super-secret memo from Sen. Sherrod Brown that, for WTO-consistency reasons, US politicians and officials had to couch all discussions of carbon tariffs in terms of environmental effects (e.g., preventing "carbon leakage"), as opposed to more obvious concerns over the loss of domestic manufacturing "competitiveness."  As I noted a couple days ago, justifying border measures on competitiveness grounds appears to be a surefire way to violate WTO rules (despite what Paul Krugman would have you believe), so US politicians have uniformly modified their talking points to discuss carbon tariffs solely in terms of saving Mother Gaia.  Thus, the "competitiveness" comments of Czarina Browner and Senator Graham appear to be a major snafu and, like, so 2009.  (You know, with all the advances in modern communications technology, you'd think that America's protectionists would be able to keep their fake-messaging straight.  I'd be willing to bet that China's protectionists don't have this archaic problem.  Alas.) 

• Finally, Obama's change of tune on carbon tariffs is still troubling, despite point #1, because its further proof that he'll sacrifice free trade and the health of the multilateral trading system for whatever domestic priority is next on his plate.  Last year, the White House's concerns over passing health care caused FTAs and WTO negotiations to stall, and numerous US violations of global trade rules to go unresolved.  Now, Obama's openly disregarding ample legal analysis on carbon tariffs' WTO problems - as well as the strong public concerns/threats from India, China and other countries - because he needs to buy Senate votes for his new priority: cap-and-trade.  Indeed, as the NYT notes above, it was these very concerns that caused "2009 Obama" to explicitly oppose carbon tariffs or any other "protectionist signals."  But that was 2009, baby.  "2010 Obama" is now totally open to carbon tariffs because he needs 60 Senate votes for his last-ditch effort to control the American energy sector.  So damn-the-international-obligation-torpedoes!  And speaking of those obligations, how many more times will this President ignore them before his supporters finally drop the whole "new embrace of multilateralism and respect for other nations" nonsense?  I'd say it's about time, wouldn't you?

And with that diatribe complete, it's time to once again update the ol' carbon tariffs scorecard:

Pro carbon tariffs - President Barack Obama, Sen. Max Baucus (D-MT); Sen. Ben Cardin (D-MD), Sens. Lindsay Graham (R-SC) and John Kerry (D-MA); Sens. Amy Klobuchar (D-MN), Arlen Specter (D-PA), Carl Levin (D-MI), Claire McCaskill (D-MO), Debbie Stabenow (D-MI), Kay Hagan (D-NC), Mark Begich (D-AK), Sherrod Brown (D-OH), Tim Johnson (D-SD), Al Franken (D-MN), Evan Bayh (D-IN), John Rockefeller (D-WV), Robert Byrd (D-WV), Robert Casey (D-PA) and Russ Feingold (D-WI); Sen. Mark Warner (D-VA); the US House of Representatives (in Waxman-Markey); France; Italy and Paul Krugman.

Voting present - the White House.

Anti carbon tariffs - the rest of the world.

Senate Fans of Carbon Tariffs May Have Changed Their Tune, but the Song Still Stinks

Given the current partisan makeup of the US Senate, any small group of Senators wields enormous influence over the legislative process.  With this fact in mind comes news that a group of ten Senators, led by Sen. Sherrod Brown (D-OH), have sent a letter to Sens. John Kerry (D-MA), Joe Lieberman (I-CT) and Lindsay Graham (R-SC), setting out their demands for the new Senate climate change energy green jobs legislation, which is set to be unveiled in the next week or so.  And unsurprisingly, one of the Senators' demands is for carbon tariffs:

Apply Border Measures To Prevent Carbon Leakage. An automatically triggered border measure is necessary to promote comparable action from other countries and prevent carbon leakage. To avoid undermining the environmental objective of the climate legislation, a WTO-consistent border adjustment measure, which the WTO has recognized as a usable tool in combating climate change, should apply to imports from countries that do not have in place comparable greenhouse gas emissions reduction requirements to those adopted by the United States. A border adjustment measure is critical to ensuring that climate change legislation will be trade neutral and environmentally effective.

It's already quite certain that the new Senate bill will include some form of "border adjustment measures" (aka carbon tariffs), so this letter isn't really changing anything in that regard.  But its substance is still worth exploring.  As you may recall, this is not the first such letter sent by Sen. Brown and his merry band of protectionists.  An almost identical list of Senators sent a similar letter last August demanding carbon tariffs provisions in the 2009 version of the Senate's cap-and-trade bill.  Last time, however, their sole justification for the measures was to ensure a "level playing field" for American manufacturers who would face significantly higher costs under the energy tax scheme.

Yet now, these rust-belt Senators have dropped their heartfelt concerns about protecting constituent industries and instead want carbon tariffs only to ensure that the law is "environmentally effective" by preventing "carbon leakage" (i.e., the offshoring of dirty, carbon-intensive manufacturing).  How eco-friendly of them.  Now, leaving aside for a moment that there is an increasingly large body of scholarship demonstrating that (a) carbon leakage isn't a significant threat, and (b) border measures actually won't prevent what little carbon leakage will occur, let's focus for a moment on the Senators' abrupt change in reasoning.  What on earth could have caused this conspicuous about-face?

Well, it appears that the Senators' rhetorical shift is - shocking, I know - a rather ham-handed attempt to keep their cherished carbon tariffs consistent with WTO rules.  As Cato's Sallie James explains:

[T]he almost convincing attempt by these senators to cloak their protectionism in green-speak about the need to ensure that climate legislation is environmentally effective. They will have to keep that up, too, if they are to stay on the right side of WTO law, which says there must be a clear link between a trade measure and an environmental purpose if the measure is to be at least prima facie legitimate.  Imposing border measures to address adverse competitiveness effects of domestic environmental regulations, in other words, probably won’t cut it. ([Sallie's paper] “A Harsh Climate” has more on why unilateral border actions may in and of themselves be inconsistent with WTO obligations.)

So last year, Senator Brown and his buddies from Ohio, Michigan, Pennsylvania, West Virginia and elsewhere were focused laser-like on maintaining their heavy-industry constituents' domestic competitiveness through carbon tariffs, but now they're only concerned with carbon leakage and the environment.

How convenient.

Pardon me if I'm not buying this green-change-of-heart from this gaggle of brown-state Senators.  But hey, you gotta give them a little credit: they're sure trying like the dickens to wish away the problems that carbon tariffs have under WTO rules.  Indeed, they've even gone so far as to pretend that the WTO has expressly sanctioned the measures' use.  Of course, as James explains, this is nonsense:

[R]elated to the issue of WTO legitimacy,  is the reference to the WTO “recogniz[ing]” border adjustment measures as “a useable tool in combating climate change.” This is disengenuous and possibly misleading rhetoric from the senators, because the WTO has done no such thing. There has been no formal ruling on this issue from any WTO judicial body, because no such cases have come before it. The WTO members as a group have not issued a proclamation on it, either. I suspect the senators are referring to a joint WTO/United Nations Environment Programme report that came out last year, but as I said in my paper, that report “merely summarizes the relevant provisions, precedents and existing literature on the question on WTO consistency–without reaching any prescriptive conclusion at all.” And the demand that this tool be “automatically triggered” may put it at odds with jurisprudence that says that certain administrative procedures–including the right for a WTO member to review and appeal any decisions made–must be followed (reference for the trade wonks reading this: I am referring to Shrimp-Turtle).

Looks like a serious tsk-tsk is in order here.  But hey, maybe the Senators' weren't being intentionally misleading about that WTO "recognition."  Instead, they may have just been parroting the undoubtedly-intentional fabrications of Paul Krugman, who has repeatedly cited the WTO-UNEP report as somehow providing the trade body's express approval of carbon tariffs.  Krugman has repeated this fiction several times on his blog (see, e.g., here and here) and did it again just two weeks ago in the Sunday New York Times Magazine.  As Sallie points out above, of course, Krugman's statements are both totally wrong and highly misleading, and her great paper on the subject calls carbon tariffs' WTO-legality into serious question.  And as I've noted recently, the Indian government's own analysis has also raised serious WTO concerns about carbon tariffs, and the Indians have openly threatened to challenge any law that includes the controversial measures.

Krugman, of course, fails to mention any of this.  But hey, it's not like he's really all that concerned about veracity these days, so maybe we shouldn't be too surprised by his misleading statements and glaring omissions.

That doesn't mean, however, that we can't update the ol' carbon tariffs scorecard because the new Senate letter included one new protectionist: Sen. Mark Warner (D-VA).  His inclusion here is really a shame.  I thought he had more sense than that.  Alas.

Also, there's news out of Europe that France and Italy are demanding carbon tariffs (in what exactly isn't really clear).  Their demands aren't likely to go anywhere, but back on the big list goes France, and Italy joins the protectionist party for the first time.  Bellissima!

Pro carbon tariffs - Sen. Max Baucus (D-MT); Sen. Ben Cardin (D-MD), Sens. Lindsay Graham (R-SC) and John Kerry (D-MA); Sens. Amy Klobuchar (D-MN), Arlen Specter (D-PA), Carl Levin (D-MI), Claire McCaskill (D-MO), Debbie Stabenow (D-MI), Kay Hagan (D-NC), Mark Begich (D-AK), Sherrod Brown (D-OH), Tim Johnson (D-SD), Al Franken (D-MN), Evan Bayh (D-IN), John Rockefeller (D-WV), Robert Byrd (D-WV), Robert Casey (D-PA) and Russ Feingold (D-WI); Sen. Mark Warner (D-VA); the US House of Representatives (in Waxman-Markey); France; Italy and Paul Krugman.

Voting present - the White House.

Anti carbon tariffs - the rest of the world.