And Now for a Brief, but Important, Lesson on Trade Promotion Authority

Claude Barfield's latest piece emploring the GOP to advocate free trade has a great rejoinder to the persistent-yet-silly arguments from some on the right that Trade Promotion Authority is unconstitutional or unconservative:

Two arguments explain the incipient dissent: one, though not stated openly, is a reaction against giving any kind of victory to the Obama administration; and two, on more substantive grounds, broader constitutional arguments have been raised against TPA as ceding congressional power to the executive and eroding national sovereignty. As for the personal and political distaste for giving Obama a victory, opposition to TPA - and thus, by extension ratifying TPP and TTIP - for Republicans is akin to the proverbial "cutting off your nose to spite your face." Ultimately, a defeat for TPP and TTIP, if and when they come before Congress, would represent a defeat for longstanding Republican policies and principles and a victory for those elements of the Democratic party that are deeply suspicious of globalization and global free enterprise (The Elizabeth Warren wing of the party would be ecstatic).

On the constitutional questions, despite claims from anti-global activists on the left (and right: viz., Pat Buchanan and Clyde Prestowitz), conservative judicial experts have consistently defended the limited grant of authority on trade from Congress to the Executive as within the bounds of the division of powers envisioned by the Founding Fathers.

They make two points: first, through the TPA process, Congress exercises the power to dictate specific negotiating goals, and it mandates constant consultations with congressional leaders during the course of extended bargaining sessions. Second, and of paramount importance, Congress through TPA reaffirms that the provisions of trade agreement cannot force changes in US domestic law. Legislation implementing trade agreements all contain the following language:

"No provision of the Agreement...which is inconsistent with any law of the United States shall have effect." "Nothing in this Act shall be construed...to amend or modify any law of the United States...unless specifically provided for in this Act."

A decade ago when similar questions were raised about the constitutionality of similar trade legislation, two legal experts with impeccable conservative credentials - former Attorney General Edwin Meese and Judge Robert Bork - both endorsed the Executive-Legislative partnership on trade agreements. As Bork wrote at the time: "No treaty or international agreement can bind the United States if it does not wish to be bound. Congress may at any time override such an agreement or any provisions of it by statute."

As Meese and Bork affirm, US sovereignty and congressional prerogatives are not threatened by TPA or the proposed new trade agreements. Thus, Republicans should get on with the job of reaffirming their traditional commitment to open markets and vigorous international competition.

The whole Barfield piece is worth reading, so be sure to check it out.  My only quibble: Republicans should support all forms of free trade, not just free trade agreements which require TPA.  Indeed, as I argued recently, unilateral liberalization of US trade barriers is not only an economic no-brainer, but also a manifestly constitutional, conservative and moral policy that any fan of free markets and limited government (I think that still means Republicans) should strongly support.  And, of course, my preffered free trade policy doesn't require messy reciprocal trade agreements, politically difficult TPA or the costly, Big Government things (*cough*TAA*cough*) that are so often attached to such measures.

Yet here we are, debating TPA and hoping against hope that somehow the President can complete new FTAs.  That seems... misguided.

(p.s. Bill Watson's recent review of Republicans and TPA is also worth your time.)

Tackling Regulatory Protectionism, Finally

I've occasionally peered into the abyss that is the barriers to international trade imposed by the US regulatory regime, but I've never been courageous enough to tackle the very important - yet mind-numbingly difficult - task of rigorously documenting these non-tariff barriers and their deleterious effects on the US economy.  Fortunately, Cato's Sallie James and Bill Watson have proven up to the task with a brand new paper:

Despite the impressive success of trade liberalization, domestic industries continue to find ways to use the power of government to protect themselves from foreign competition. The practice of using domestic environmental or consumer safety regulation as a way to disguise protectionist policy has become a serious and growing problem in the United States. This regulatory protectionism harms the U.S. economy and violates our trade obligations.

A number of factors combine to explain the rise in regulatory protectionism. Economic globalization has provided Americans with access to a wide range of imported products. This has enabled consumers to demand not only high-quality products at low cost but also products that are produced according to consumers’ philosophical or ethical preferences. Simultaneously, domestic producers seeking protection from this influx of imports must find alternative shelters now that the use of tariffs and quotas is constrained by international law and economic good sense. The consequence is a perfect storm in which social welfare activists and special commercial interests join forces to promote regulatory regimes that unfairly and unnecessarily restrict imports.

There is already a system of laws in place to prevent regulatory protectionism. The rules of the international trading system recognize that domestic laws can be just as protectionist as tariffs. Many of the disciplines of World Trade Organization (WTO) law are embedded in the rules U.S. administrative agencies follow when setting new regulations.

But the U.S. government must take its WTO obligations more seriously. Prior to implementing a new regulation, federal agencies should be required to evaluate the possibility that less trade-restrictive alternatives could meet regulatory goals as effectively as their preferred proposal. Also, the U.S. government should not dilute or bypass the multilateral rules of the WTO through bilateral or regional negotiations that accept managed protectionism.

This paper uses a number of recent examples of protectionist regulations to show that the enemies of regulatory protectionism are transparency and vigilance. Policymakers should be skeptical of regulatory proposals backed by the target domestic industry and of proposals that lack a plausible theory of market failure. These are red flags that the proposal is the product of privilege-seeking special interests disguised as altruistic consumer advocates.

James and Watson examine such regulatory boondoggles as the Lacey Act, catfish inspection, Dodd-Frank's  provisions on "conflict minerals", the long-running ban on Mexican trucks, mandatory food labeling, prohibitions on certain flavored cigarettes, and supposed environmental protections for cute, cuddly little dolphins and sea turtles.  They demonstrate that, although these regulations might sound (or even start out as) benign or well-intentioned, they often end up undermining free trade and benefiting discrete domestic special interest groups that are, deep-down, seeking to use non-tariff barriers to thwart international competition at US consumers' expense.  They also offer up a sound critique of various anti-trade groups' criticisms of global trade (i.e, WTO and FTA) rules that discipline this discriminatory, regulatory protectionism, and offer up a nice litmus test to ensure that future regulatory adventurism doesn't thwart free trade in the process.

My favorite line comes from James' new blog post on the paper:

As we discuss in our paper, tariffs and other conventional trade barriers have fallen over the years, so the barriers that remain are more regulatory in nature, and more sensitive to negotiate. What we’re essentially left with is the difficult issues. They get to the heart of national sovereignty and, on a practical level, require the participation of regulatory administrators who may have very little or no trade negotiation knowledge or experience. They also have little incentive to concede their power. Whereas trade negotiators are paid to, well, negotiate, regulators are paid to inhibit commerce.

Indeed.  Be sure to read the whole paper here.

Wednesday Quick Hits

Lots of great stuff out there for your reading pleasure:

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

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

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

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

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

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

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

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

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

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

Enjoy.

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

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

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

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

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

Short answer: not at all.

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



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

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

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

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

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

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

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

Actually, these skeptics would be dead wrong.

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

Nothing.

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

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

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

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

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