A trade policy nerd can only be subjected to blatant protectionist nonsense for so long. So, after months of hearing/reading/seeing myths about Trade Promotion Authority, the Trans-Pacific Partnership and free trade more broadly, I finally cracked. The result is a 3500+-word debunking of the nine most common myths (just like old blog times!). The intro and direct links are below.
Enjoy!
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Top Nine Myths About Trade Promotion Authority And The Trans-Pacific Partnership
The current debate over Trade Promotion Authority proves, once again, that the classic description of the anti-globalization movement—as “largely the well-intentioned but ill-informed being led around by the ill-intentioned and well informed”—still holds true. Despite the tireless efforts of trade policy experts to explain why TPA and the U.S. trade agreements it’s intended to facilitate are, while imperfect, not a secret corporatist plot to usurp the U.S. Constitution and install global government, myths and half-truths continue to infect traditional and social media outlets.
Because these myths—originating with the same old anti-trade bedfellows that have been with us for decades—have duped a lot of good folks who are otherwise predisposed to support liberty and free markets (including some in Congress), and because the House of Representatives is poised to vote on TPA in the coming days, here is one last debunking of the top nine myths about TPA, the Trans-Pacific Partnership (TPP), and U.S. free-trade agreements (FTAs) more broadly.
To save some time, you can skip to your favorite myth by clicking on the links below.
Myth 1: TPA and U.S. FTAs are unconstitutional and undemocratic!
Myth 2: TPA grants the president new and unlimited powers!
Myth 3: TPA sets legally binding congressional rules for U.S. trade negotiations!
Myth 4: Once TPA is approved, Congress will be powerless to stop TPP or other FTAs!
Myth 5: TPP is being negotiated via a dangerous and unprecedented level of secrecy!
Myth 6: FTAs, completed via TPA, undermine U.S. sovereignty!
Myth 7: TPP is a secret backdoor for a parade of horribles (and TPA lets that happen)!
Myth 8: FTAs (and free trade generally) benefit large corporations at the expense of working people!
Myth 9: TPA doesn’t matter!
Showing posts with label Trade Policy. Show all posts
Showing posts with label Trade Policy. Show all posts
Tuesday, June 9, 2015
Tuesday, December 23, 2014
Yes, Of Course We Should End the Cuban Embargo
My latest at The Federalist:
Communist-hating lovers of liberty have offered myriad reasons to oppose the current Cuban embargo (see, for example, here and here), but today I want to focus on the most basic: over the last two decades, the United States government has utterly failed to justify its forcible, legislated ban on Americans’ freedom of travel, contract, and commerce. Because we live in a country of natural rights and limited, constitutional government, the state alone bears a heavy burden of proving that its restrictions on individual liberty are in fact warranted. In the case of free trade, and especially freedom of movement, this means that there is a strong presumption in favor of Americans’ right to freely travel to wherever they want, and transact with whomever they want—one that may only be overcome where the state establishes a compelling interest in prohibiting or limiting those actions.Read the whole thing here.
Thursday, January 2, 2014
My International Trade Policy Course: Description & Syllabus
As eagerly mentioned a while ago, I'll be teaching an undergraduate course at Duke University this semester on international trade policy and politics. For those of you who aren't lucky enough to be Duke students (or live in the area and have the ample time/energy needed to audit the course), I've posted the syllabus below after the jump with the basic course descrption and materials. As you'll see, almost all of the materials that we'll be covering in class are available for free online, so you can poke around the links and follow along if you're so inclined. (Or you can just complain vociferously about my obvious confirmation bias - whatever floats your boat.)
Enjoy!
Enjoy!
Thursday, December 12, 2013
I, Nutella
Via Radley Balko, these pieces never get old:
Some 250,000 tons of Nutella are now sold across 75 countries around the world every year, according to the OECD. But that’s not what’s amazing about it. Nutella, it turns out, is a perfect example of what globalization has meant for popular foodstuffs: Not only is it sold everywhere, but its ingredients are sourced from all over the place too.The whole OECD study is available here.
Even though Ferrero International, which makes the stuff, is headquartered in Italy, it has factories in Europe, Russia, North America and South America. And while certain inputs are supplied locally—like, say, the plastic for the bottles or milk—many others are shipped from all over the world. The hazelnuts are from Turkey; the palm oil is from Malaysia; the cocoa is from Nigeria; the sugar is from either Brazil or Europe; and the vanilla flavoring is from France.
The OECD mapped it all out. Have a look:
Friday, December 6, 2013
American Media Finally Starting to Notice the Problems Caused by US Export Restrictions on Oil & Gas
Decades-old US laws currently prevent the free exportation of
American crude oil and natural gas, thus raising a host of economic, legal and
policy problems. This is not a good
thing, but it fortunately appears that the stalwart American media are starting
to notice. Unfortunately, it took them a
heckuva long time to do it, as two recent news stories make clear.
First, several media outlets picked up a new National Association of Manufacturers analysis which finds that US natural gas export restrictions likely violate WTO rules. This Reuters clip is pretty indicative of the media coverage:
Second, the Wall Street Journal reported this week that startling increases in US crude oil production, combined with onerous export restrictions, have led to a glut of domestic oil, a host of potential problems for domestic oil producers and newfound focus on the 1970s era export law:
Sour grapes aside, these news items raise two far-more-important points. First, it’s good to see that the media are finally, after only a year, catching on to the many unnecessary problems created by US oil and gas export restrictions. Hopefully, they’ll keep at it (even if they continue to ignore me).
Second, and maybe more obviously, these export restrictions – dating back, in the case of gas, to the 1930s! – are causing serious, serious problems for the United States: distorting energy markets, eliminating jobs, depressing economic growth, creating global trade frictions and undermining other, worthwhile US government policies. They reflect a bygone era of US energy homogeneity and scarcity.
Isn’t it time that our laws – and our political leaders – caught up?
First, several media outlets picked up a new National Association of Manufacturers analysis which finds that US natural gas export restrictions likely violate WTO rules. This Reuters clip is pretty indicative of the media coverage:
A lobbying group pressing the U.S. government to speed approval of U.S. natural gas and coal export proposals released a report on Tuesday contending that long delays in the approval process may violate global trade rules.
The National Association of Manufacturers commissioned James Bacchus, a former Democratic Congressman and World Trade Organization judge, to pen the report, which it says sends a message to the Obama administration and Congress that they should accelerate the approval process and lift regulatory barriers…
The NAM asked Bacchus to consider whether delays by the Department of Energy in issuing licenses to export liquefied natural gas to certain countries violate obligations under World Trade Organization rules.
In the report Bacchus concluded that both actions violate the General Agreement on Tariffs and Trade, which forbids export restrictions. "The United States has always been a strong advocate of rules that forbid export restrictions and has been forceful in challenging export restrictions imposed by other countries," said Bacchus, warning that "the tables may be turned on the United States directly in the WTO."NAM and Bacchus are right to raise this issue (and on the legal merits), and it’s good to see the media report the problem. However, it’s surprising that this new analysis is treated as some sort of revelation, given that a certain Cato Institute scholar first warned of the WTO and other policy problems surrounding the natural gas export system (and a similar one for crude oil) almost ten months ago:
Beyond the economic problems, both export licensing systems raise serious concerns under global trade rules. First, the U.S. export licensing regimes for natural gas and crude oil likely violate U.S. obligations under the General Agreement on Tariffs and Trade (GATT). Under GATT Article XI:1, WTO Members are generally prohibited from imposing quantitative restrictions on imports and exports. Under Article XI and related WTO jurisprudence, “discretionary” licensing systems (i.e., those in which the administering authority has the freedom to grant or deny a license) and systems in which applications are delayed for several months constitute impermissible restrictions on export quantities. On the other hand, licensing systems in which approval is automatic and relatively quick (e.g., five days) have been found to be lawful.Another think tank expert came to similar conclusions around the same time. Thus, these legal concerns have been pretty common knowledge now for quite a while (and originally weren’t pushed by a “lobbying group”). It’s really odd that they’re today being treated as novel.
Based on these standards, both the U.S. natural gas and crude oil licensing systems appear to violate GATT Article XI:1. Each system provides the administering agency (DOE or BIS) with the discretion to grant or deny an export license based on subjective and nonbinding criteria (the “public interest” or “national interest” standards). Moreover, the pending export license applications have been delayed for several months (and, in a few cases, years). Both of these facts support findings of GATT violations.
Second, the Wall Street Journal reported this week that startling increases in US crude oil production, combined with onerous export restrictions, have led to a glut of domestic oil, a host of potential problems for domestic oil producers and newfound focus on the 1970s era export law:
The U.S. Gulf Coast—home to the world's largest concentration of petroleum refineries—is suddenly awash in crude oil. So much high-quality U.S. oil is flowing into the area that the price of crude there has dropped sharply in the past few weeks and is no longer in sync with global prices. In fact, some experts believe a U.S. oil glut is coming. "We are moving toward a significant amount of domestic oversupply of light crude," says Ed Morse, head of commodities research at Citigroup….
And the glut on the Gulf Coast is likely to grow. In January, the southern leg of TransCanada Corp.'s Keystone pipeline is set to begin transporting 700,000 barrels a day of crude from the storage tanks of Cushing, Okla., to Port Arthur, Texas.
The ramifications could be far-reaching, including lower gasoline prices for American drivers, rising profits for refineries and growing political pressure on Congress to allow oil exports. But the glut could also hurt the very companies that helped create it: independent drillers, who have reversed years of declining U.S. energy production but face lower prices for their product….
"Not one person saw this coming," says Paul Sankey, an energy analyst at Deutsche Bank. He says he expects growing production to eventually push prices of West Texas Intermediate crude, the U.S. benchmark, below $80 a barrel, down from $97.38 Thursday. The industry "will start screaming" for Congress to lift the export moratorium, he says.
Adam Bedard, a market analyst for High Sierra Energy, a subsidiary of NGL Energy Partners, agrees that pressure will rise on the federal government to loosen crude-oil export restrictions, which date back to the 1973 OPEC oil embargo. Oil storage in the Gulf region appears to be filling up, he says. "It's like someone built a superhighway where there wasn't one before."Again, the WSJ should be commended for highlighting this important story and the serious economic and legal problems caused by US export restrictions on crude oil. However, it’s laughable to say that “not one person saw this coming.” Indeed, that very same Cato scholar warned of this problem back in February:
[B]y depressing domestic prices and subjecting export approval to the whims of government bureaucrats, the U.S. licensing systems retard domestic energy production, discourage investment in the oil and gas sectors, and destabilize the domestic energy market. Artificially low prices prevent producers from achieving a sustainable rate of return on the massive up-front costs required to drill and extract oil and gas, and investors lack any assurances under the discretionary licensing systems that domestic prices will not collapse when output increases. Such concerns have led the IEA to recently warn that U.S. export restrictions put the “American oil boom” at risk.This modern day Nostradamus then drilled down (pun intended!) on the problem for Reuters in June:
[A] bipartisan swath of federal and state officials is pressing for new infrastructure, like the Keystone XL pipeline, to move a glut of domestic oil from the center of North America to Gulf ports. This is a crucial step, but unless Congress reforms archaic restrictions on crude oil exports, all that black gold’s going nowhere….
[B]y curtailing exports and subjecting license approvals to the whims of bureaucrats, the current system slows domestic production, breeds economic distortions, discourages investment and destabilizes energy markets.
U.S. oil producers, for example, lose an estimated $10 billion a year due to their inability to sell crude in foreign markets. They’ve also spent hundreds of millions of dollars building “mini-refineries” in the Midwest and Gulf region to circumvent the current restrictions and export a slightly processed, cheaper product — leaving another $1.7 billion in potential profit on the table.
As Rube-Goldbergian as this sounds, producers have few alternatives, given that U.S. oil consumption has collapsed in recent years and building new refinery capacity is virtually impossible in many “environmentally friendly” states. These problems prompted the head of the International Energy Agency to warn recently that U.S. export restrictions put the “American oil boom” at risk….
Given these problems, it’s clear that the current crude oil export licensing system needs to go. Congressional supporters of the U.S. energy boom must lead the charge.Sounds familiar, eh? If only there were some sort of “search engine” or something that would allow curious journalists to find such things on the internet. Alas, maybe next year.
If advocates really want to develop our vast energy resources and expand the economy, they should craft a licensing policy that reflects the new energy landscape and the immense U.S. export potential. They’d also be restoring some overall coherence to U.S. trade and energy policy — and avoiding potentially embarrassing trade conflicts. If they ignore these restrictions, and their many flaws, the nascent U.S. oil boom could be snuffed out.
Sour grapes aside, these news items raise two far-more-important points. First, it’s good to see that the media are finally, after only a year, catching on to the many unnecessary problems created by US oil and gas export restrictions. Hopefully, they’ll keep at it (even if they continue to ignore me).
Second, and maybe more obviously, these export restrictions – dating back, in the case of gas, to the 1930s! – are causing serious, serious problems for the United States: distorting energy markets, eliminating jobs, depressing economic growth, creating global trade frictions and undermining other, worthwhile US government policies. They reflect a bygone era of US energy homogeneity and scarcity.
Isn’t it time that our laws – and our political leaders – caught up?
Friday, November 1, 2013
VIDEO: Me on Trade Politics, Messaging & Policy
The Cato Institute has (finally) published the third video that I recorded for them a few weeks ago on U.S. trade policy. This one actually covers many of the same things that I discussed in yesterday's piece for The Federalist, so be sure to read that too for the total consumer experience. Enjoy!
Thursday, October 31, 2013
New Article: "America’s Horrible, No Good, Messed-Up Trade Policy (and How to Fix It)"
[Ed. note: This article was first published in The Federalist, which you really should be reading by now.]
Americans currently pay high taxes on food, clothing, automobiles, industrial inputs and other goods and services, and their own United States Trade Representative is vigorously fighting other countries to keep it that way. Even worse, the government’s efforts all but ensure that removing such taxes – and easing the artificial burdens they place on American families and businesses – will remain unnecessarily, and irrationally, difficult for years to come.
Americans currently pay high taxes on food, clothing, automobiles, industrial inputs and other goods and services, and their own United States Trade Representative is vigorously fighting other countries to keep it that way. Even worse, the government’s efforts all but ensure that removing such taxes – and easing the artificial burdens they place on American families and businesses – will remain unnecessarily, and irrationally, difficult for years to come.
This is the awful state of American trade policy, and serious reform is long overdue.
Americans tend to think of the United States as some sort of free trade bastion in which unfettered globalization is – for better or worse – simply a way of life. However, while many U.S. tariffs were lowered decades ago, several tariff “peaks” remain in certain politically-connected areas like food, clothing, footwear and automobiles. Moreover, “non-tariff barriers” to trade – subsidies, regulations, etc. – have proliferated in recent years, and many “trade remedies” duties – based on allegations of “unfair” trade – also remain in place, particularly for industrial inputs like steel and chemicals.
The pros and (mostly) cons of these government measures vary, but one thing remains constant: their staunch and unflinching defense by the U.S. government in global free trade agreement negotiations. In these venues, gains are viewed as coming only from new access for U.S. exports and investment, while imports are the unfortunate price that America must pay for such “victories.” For example, as negotiations in both the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) gained momentum earlier this year, blubbering American journalists were quick to proclaim President Obama’s supposed “free trade renaissance” and strong support for expanding U.S. exports, but uniformly failed to report on the fact that his firm resistance to negotiating partners’ calls for lower U.S. trade barriers was a major reason for the agreements’ continuing difficulties. Nor did any such reports delve into the fact that those barriers, while certainly good for certain well-connected companies in the United States, injured the vast majority of American individuals and firms. And when TPP negotiators inevitably miss their much-ballyhooed and over-promised 2013 deadline for completing the agreement, you can bet that these facts will not receive top billing (or maybe even passing mention). Instead, only trading partners’ refusal to heed U.S. export demands will be blamed.
Trade and Reciprocity
The Obama administration, of course, is not the first to engage in such negotiating tactics and instead is simply the latest White House to do so. In fact, since the 1930s, American trade policy has utilized a “reciprocity” model of trade negotiations in which the United States treated any trade liberalization (e.g., the reduction of tariffs), no matter how smart or moral, as a “concession” that is only to be traded for another nations’ own acceptance of new U.S. exports or investment. Moreover, the diplomatic origins of the reciprocity model have ensured that trade liberalization is treated as a foreign, rather than domestic, policy area in which trade negotiations take on a zero-sum, war-like mentality where benefits are “won” or “lost”, instead of mutually achieved. Put most simply, exports are an unquestioned good to be pursued, while imports are an unmitigated bad to be resisted. Full stop.Even though U.S. foreign and domestic policy – as well as economics, politics and society more broadly – has changed dramatically in the intervening decades, U.S. trade policy remains mired in this 20th century, cold-war framework, as the current TPP and TTIP negotiations make abundantly clear. Unfortunately, some things to not get better with age, and U.S. trade policy is certainly one of those things. In fact, there are at least five fundamental problems with the United States’ mercantilist, reciprocity-based approach to international trade.
First and most basically, it is economically ignorant. Since Adam Smith first penned The Wealth of Nations, there has been a near-universal economic consensus in support of the elimination of trade barriers regardless of whether other nations do likewise. For this reason, there is quite literally no policy issue on which more economists – left, right and center – agree more, and the supposed death of the “free trade consensus” in academia has been wildly exaggerated.
This support, however, goes far beyond mere economic theory: there is also an endless array of empirical and historical evidence demonstrating the value of free trade and free markets. In fact, just last week the Heritage Foundation rounded up a lot of the latest data in order to (once again) resoundingly conclude that trade and investment liberalization is awesome, and that Congress should unilaterally eliminate tariffs on a wide range of products in order to boost the U.S. economy (including U.S. manufacturers). Heritage is certainly not alone: policy shops across the political spectrum, including Brookings, AEI and my colleagues at the Cato Institute, have produced similar studies in the past. And, as Dan Ikenson and I explained in a 2009 paper for Cato, the facts not only support free trade, but also destroy the various myths used by protectionists to undermine public support for such policies, including the greatly-exaggerated “death” of American manufacturing; the alleged link between imports, the trade deficit and U.S. jobs; and the idea that foreign companies and governments routinely cheat in order to gain an “unfair” advantage over their American counterparts.
Second, the reciprocity model has proven increasingly ineffective in producing tangible trade liberalization gains for U.S. businesses and consumers. The biggest example of this failure is WTO’s Doha Round of multilateral trade negotiations, which remains comatose after 12 years of missed deadlines, unkept promises and angry finger-pointing among stubborn nations that refuse to make further “concessions” to finalize the multi-trillion-dollar deal. Even the WTO’s “mini package” of supposedly-low-hanging fruit – intended to jump-start Doha during this December’s ministerial meetings in Bali, Indonesia – appears in doubt.
The need to provide exemptions, or “carve outs,” to avoid a collapse in negotiations also raises concerns over the final form the TPP will take. The secrecy surrounding the negotiations makes it difficult to assess progress, but—from what is known—there is the risk of degenerating into a series of loosely tied bilateral deals. Indications are that the two largest TPP members—the U.S. and Japan—are proceeding along bilateral lines, threatening the demanding single-undertaking approach the TPP is supposed to adopt.
Although the number of countries involved in these negotiations is much lower than at the WTO, for instance, it does not translate to a commensurate reduction in diversity in terms of disparate interests. These interests often conflict, especially in a context where the agenda is far more ambitious than any other proposed thus far. The recent round of negotiations that took place in Brunei Darussalam in August 2013 was reported to have made very little progress, highlighting the difficulties being faced as the TPP moves toward finding common ground on the more difficult issues.
Bloomberg has more on the ADB report and the TPP’s current problems here. Among the carve-outs demanded by TPP participants are Japan’s agricultural protectionism and Malaysia’s imposition of discriminatory regulatory barriers to tobacco, but many such demands originate in Washington, including three of the negotiations’ most contentious issues:
- Sugar protectionism. The United States has not only resisted calls to liberalize archaic tariffs and quotas on sugar imports, but also refused to reopen the current U.S.-Australia FTA, which completely excludes sugar from the Agreement.
- Textiles, apparel and footwear. The Obama administration has repeatedly refused requests from Vietnam and other large exporters to lower U.S. tariffs on textiles, clothing and shoes, and has demanded complicated “rules of origin” that will dramatically narrow the goods that could qualify for preferential access to the U.S. market.
- Automobiles. The United States also has vigorously fought Japan over U.S. tariffs on automobiles (2.5% for cars and a whopping 25% for light trucks) – a nearly-identical request that delayed the implementation of the U.S.-Korea FTA for several years after it was originally signed by the Bush Administration.
The third flaw in the current system is that it’s needlessly messy and archaic. Every U.S. FTA, from NAFTA to KORUS, contains a different “schedule” which dictates the level and timing new market access for individual FTA partners’ goods and services. Rules of origin and other commitments also vary widely across agreements, thus creating an impenetrable web of rules and regulations and making the U.S. tariff code look like the Rosetta Stone. As a result, the exact same product will be subject to different taxes and rules based solely on its origin and the year in which it enters the country, and U.S. businesses often make sourcing decisions based on FTA rules rather than a product’s actual value. (And, of course, they must spend millions of dollars annually to determine those rules!)
Not only is this process costly and inefficient, but it is wholly out of step with the 21st century world of seamless and ever-changing global supply chains. Today, product components are often sourced from multiple countries and assembled in another, and sourcing patterns routinely change based on market developments. (See, e.g., the evergreen “origins” of the iPhone and its competitors.) Arcane trade rules prevent such dynamism and thus hurt U.S. companies and consumers. Put another way, goods today are “made on earth,” but our trade agreements reflect a bygone era of vertical manufacturers, simplistic designs and old-fashioned notions of bilateral trade among individual nations. It makes no sense. None.
Fourth, the United States’ “free trade” policy has proven to be a horrible tool for actually achieving and sustaining public support for trade liberalization and free markets. For one thing, focusing on exports, FTAs and arcane market access issues (e.g., pharmaceutical patent protections) gives many Americans the not-totally-unwarranted impression that our trade policy is little more than a tool of large multinational exporters and investors at the expense of American workers. That is hardly a way to achieve grassroots support for important economic policy!
More importantly, the constant focus on exports and resistance to any type of import liberalization actually breeds public misunderstanding and distrust of trade liberalization. As Dan Ikenson and I explained in 2011:
The pervasive view that exports are good and imports are bad is a central misconception upon which rests the belief that trade negotiations and “reciprocity” are essential to trade liberalization. Under this formulation, an optimal trade agreement, from the perspective of U.S. negotiators, is one that maximizes U.S. access to foreign markets and minimizes foreign access to U.S. markets. An agreement requiring large cuts to U.S. tariffs, which would thus deliver significant benefits to consumers, would not pass political muster unless it could be demonstrated that even larger export benefits were to be had. This misguided premise that imports are the cost of exports and should be minimized lies at the root of public skepticism about trade. Ironically, it is also a prominent feature of the favored pro-trade argument.
There is nothing, of course, wrong with exports or pursuing new market access for U.S. businesses. The political appeal of that message is obvious, and exports do contribute to economic growth and, thus, job creation. However, the U.S. government’s relentless obsession with exports and reciprocity not only confuses the public and reinforces bad economics, but also creates a large and unnecessary opening for misleading protectionists:
[The mecantilist] message invites the following retort: if exports help grow the economy and create jobs, then imports must shrink the economy and cost jobs. In failing to explain why that conclusion about imports is wrong, trade proponents have yielded the floor to trade skeptics, who have been more than happy to manufacture talking points about the “deleterious” impact of imports on the U.S. economy. Most of those talking points are misleading or plain wrong, but there has been inadequate effort to correct the record. As a result, too many Americans accept the mercantilist fallacy that exports are good, imports are bad, and the trade account is a scoreboard.
Birdcages across the country are lined with op-eds from protectionist union leaders, businessmen and “consumer protection” groups that turn FTA proponents’ mercantilist message against them. Indeed, just this month I was treated to a piece in my hometown paper from the NC AFL-CIO, arguing that the U.S.-Korea FTA – and U.S. free trade policy more broadly – was a clear disaster for North Carolina because imports from Korea increased in the agreement’s first year, while U.S. exports declined. (Nevermind the fact that Korea’s economy was struggling mightily in 2012 and thus represented a low-demand export market, or that free trade resoundingly benefits the Tarheel state.) Sadly, using the Obama administration’s own misguided metric for gauging an FTA’s success (i.e., exports and the trade balance), the union had a point and thus capably hoisted the administration on its own mercantilist petard. And until the U.S. government changes this shortsighted, incorrect approach to trade policy and messaging, this rhetorical weapon will be readily available to protectionists, and public opinion will remain subject to the whims of meaningless statistics instead of economic consensus and actual historical fact.
Trade and Morality
Finally, the current approach to U.S. trade policy is manifestly immoral. Government intervention in voluntary economic exchange on behalf of some citizens necessarily comes at the expense of others and is inherently unfair, inefficient, and subverts the rule of law. At their core, trade barriers like those for sugar, clothing, footwear and automobiles are the triumph of coercion and politics over free choice and economics. The protectionist policies that USTR fights to maintain are the result of productive resources being diverted to achieve political ends and, in the process, taxing unsuspecting consumers to line the pockets of the special interests that succeeded in enlisting the weight of the government on their side.
This immorality has a clear and tangible cost. In 2011, Americans paid over ten billion dollars in tariffs on clothing alone, and another two billion each for shoes and automobiles – $29 billion total that year and $40 billion total in 2012. These taxes also raise the prices of goods made here at home and, as a result, American families pay much more for everyday staples like butter, milk, ice cream, sugar, tuna, apparel and shoes than their foreign counterparts. And American companies do the same for industrial inputs like ball bearings, steel and cement.
Protectionism is akin to earmarks, but it comes out of the hides of American families and businesses instead of the general treasury. And under the current trade negotiations system, our government is essentially choosing certain U.S. businesses and workers – those seeking protection and those seeking new export markets – over everyone else in America. As a result of these taxpayer-funded efforts, U.S. families pay higher prices for everyday essentials, and import-consuming companies struggle to remain globally competitive. (See, for example, U.S. candy makers who have moved their operations, and thousands of jobs, overseas due to sky-high sugar prices here.) Why on earth should our government pursue such an obviously immoral approach to international economic policy? Obvious answer: it shouldn’t.
A Better Path Forward
Fortunately, there is a much better, simpler way forward for U.S. trade policy. Most obviously, the United States should (i) immediately and unconditionally eliminate tariffs on basic human necessities like food, clothing, shoes, as well as industrial inputs that U.S. manufacturers rely upon to remain globally competitive; and (ii) phase out all other tariffs over a relatively short transition period. This change, coupled with matching rhetorical shift about the domestic benefits of trade liberalization, would instantly put the United States back at the forefront of global economic policy and in line with longstanding economic doctrine, fundamental fairness and modern business practices.
And, contrary to popular belief, such moves are politically possible: not only have countries like Australia, Chile, China, New Zealand, Canada, Mexico and Colombia pursued unilateral import liberalization in recent years in order to boost their economies, but the U.S. government also has done so via more limited initiatives like the Generalized System of Preferences and the Miscellaneous Tariff Bill (and sold such policies by – rightly – emphasizing their benefits to U.S. businesses and consumers). These policies would resonate with policymakers on the right and left, particularly in this era of increasing bipartisan disdain for corporate welfare. They would be consistent both with conservatives’ principled opposition to higher taxes and big government interventionism, and with liberals’ opposition to regressive taxation.
Furthermore, the unilateral elimination of tariffs would not lead to a flood of “unfair” imports that destroy U.S. industry because we already have trade remedy laws designed to address such situations and, due to years of domestic industry lobbying, are extremely biased towards protection. (Not to mention the fact that the vast majority of imports are already “fairly traded.”)
Speaking of which, the United States also should pursue fundamental reforms of its trade remedy laws to ensure that they actually address unfair and injurious imports (rather than domestic lobbying) and take into account the broader public interest – including U.S. consumer concerns. Our government should be ever vigilant of the fact that American consumers, not foreign exporters or governments, pay U.S. “unfair” trade duties, and these measures should therefore be a last resort.
Other regulatory reforms also are necessary, such as the elimination of most U.S. subsidy programs and various forms of “regulatory protectionism,” such as the Lacey Act and Dodd-Frank rules on “conflict minerals,” all of which thwart competition, raise prices and distort domestic and global markets.
Finally, the United States should complement these important changes by coupling them with “American competitiveness agenda” in order to give U.S. workers and companies what they really need to compete in today’s global economy: lower individual and corporate taxes in order to reflect new global norms, limits on lawfare and professional/occupational licensing, energy deregulation, etc. Such changes would boost economic growth, eliminate most domestic demands for protection from low-cost foreign competition, and, combined with the aforementioned tariff liberalization, boost U.S. exports without the need for slow and messy reciprocal trade negotiations. (Remaining trade barriers could be addressed via more aggressive litigation of existing rights and obligations under WTO rules and a “name and shame” approach to the most egregious transgressors.)
The global economy is advancing at a breakneck pace, but U.S. trade policy is stuck in neutral. Our elected leaders ignore basic facts and economics and pursue negotiations that not only benefit a well-connected cabal of businesses and lobbyists at the expense of U.S. consumers, but also undermine long-term public support for free trade. This archaic, immoral approach has produced diminishing returns in recent years and has called into question almost 70 years of U.S. leadership in the global economy. Meanwhile, other countries press ahead with agendas that better serve their citizens and reflect the realities of modern global supply chains, multinational investment and other key aspects of the 21st century economy.
The global economy is advancing at a breakneck pace, but U.S. trade policy is stuck in neutral. Our elected leaders ignore basic facts and economics and pursue negotiations that not only benefit a well-connected cabal of businesses and lobbyists at the expense of U.S. consumers, but also undermine long-term public support for free trade. This archaic, immoral approach has produced diminishing returns in recent years and has called into question almost 70 years of U.S. leadership in the global economy. Meanwhile, other countries press ahead with agendas that better serve their citizens and reflect the realities of modern global supply chains, multinational investment and other key aspects of the 21st century economy.
It’s time America did the same.
Wednesday, May 22, 2013
Welcome to the Whimsy-conomy, Energy Trade Edition
This entry was cross-posted on the Cato Institute's blog, Cato at Liberty.
The AP reports some bad news for anyone seeking a little security and predictability in the US and global energy markets:
And who says the U.S. government isn’t swift and efficient?
Government sloth aside, these two recent announcements raise a host of serious concerns. As I explained in a recent blog post summarizing my Cato Institute paper on crude oil and natural gas exports, the immediate approval of all natural gas export license applications, as well as broader reform of the system itself, is an economic and political no-brainer. This is because the current licensing systems—and the de facto export restrictions that they create—raise a raft of economic, legal and political problems. For example, the discretionary restrictions on exportation—reinforced by the last week’s developments—likely violate the United States’ WTO obligations and directly contradict longstanding U.S. government support for American exports and opposition to other countries’ export restrictions.
Moreover, and contrary to Moniz’s assertions, the evidence of the economic benefits of fossil fuel exports isn’t isolated to a single DOE study, but has been repeatedly and thoroughly established by government, think tanks, and industry and consumer groups. For these reasons, there is wide, bipartisan support in Congress and the U.S. business community for immediately approving all pending natural gas export applications. The only groups that oppose these exports are the strange bedfellows of misguided environmentalists (who fear that additional exports will lead to increased fracking) and self-interested, gas-consuming industries (who want that cheap gas all to themselves, regardless of the broader economic or trade policy harms).
More broadly, these recent developments demonstrate the government-created uncertainty plaguing not only American energy producers, investors, and workers, but many other of their fellow Americans. As I noted in February:
Unfortunately, this type of uncertainty pervades U.S. trade and economic policy. Whether it’s bailing out Detroit and the UAW at the expense of certain private investors, or heavily subsidizing green energy through supposedly temporary tax breaks, or negotiating restrictions on Japanese auto imports as Japan’s “entry fee” into the Trans-Pacific Trade Negotiations, or implementing last-minute tax hikes or spending increases, the U.S. government seems intent on substituting the whims of politicians and bureaucrats for predictable, constitutional, free market fiscal policy. As a result, our American “whimsy-conomy” sputters along.
It would be crazy to think that U.S. policymakers can eliminate this rampant uncertainty overnight, but they could at least begin the process by reforming our archaic and problematic energy export laws to freely permit the exportation of all energy products, regardless of type or origin. Such a policy change would help the economy, bring U.S. policy into compliance with our trade commitments, have strong political support, and take America’s energy future out of the hands of unelected bureaucrats like Secretary Moniz.
If they can’t undertake these simple and obviously necessary reforms, the rest of the whimsy-conomy doesn’t stand a fighting chance.
The AP reports some bad news for anyone seeking a little security and predictability in the US and global energy markets:
Energy Secretary Ernest Moniz said Tuesday he will delay final decisions on about 20 applications to export liquefied natural gas until he reviews studies by the Energy Department and others on what impact the exports would have on domestic natural gas supplies and prices.
Moniz, who was sworn in Tuesday as the nation’s new energy chief, said he promised during his confirmation hearing that he would “review what’s out there” before acting on proposals to export natural gas. Among the things Moniz said he wants to review is whether the data in the studies are outdated.
A study commissioned by the Energy Department concluded last year that exporting natural gas would benefit the U.S. economy even if it led to higher domestic prices for the fuel.The AP adds that Secretary Moniz justified this delay as his “commitment” to Senate Energy Committee Chairman Ron Wyden (D-Ore.) who opposes natural gas exports and has criticized the DOE study. Moniz’s statement comes just days after his department (quietly, on a Friday) approved one pending export application—moving the grand total of approvals to two out of 20 total applications, most of which have been sitting on DOE’s desk for several years now.
And who says the U.S. government isn’t swift and efficient?
Government sloth aside, these two recent announcements raise a host of serious concerns. As I explained in a recent blog post summarizing my Cato Institute paper on crude oil and natural gas exports, the immediate approval of all natural gas export license applications, as well as broader reform of the system itself, is an economic and political no-brainer. This is because the current licensing systems—and the de facto export restrictions that they create—raise a raft of economic, legal and political problems. For example, the discretionary restrictions on exportation—reinforced by the last week’s developments—likely violate the United States’ WTO obligations and directly contradict longstanding U.S. government support for American exports and opposition to other countries’ export restrictions.
Moreover, and contrary to Moniz’s assertions, the evidence of the economic benefits of fossil fuel exports isn’t isolated to a single DOE study, but has been repeatedly and thoroughly established by government, think tanks, and industry and consumer groups. For these reasons, there is wide, bipartisan support in Congress and the U.S. business community for immediately approving all pending natural gas export applications. The only groups that oppose these exports are the strange bedfellows of misguided environmentalists (who fear that additional exports will lead to increased fracking) and self-interested, gas-consuming industries (who want that cheap gas all to themselves, regardless of the broader economic or trade policy harms).
More broadly, these recent developments demonstrate the government-created uncertainty plaguing not only American energy producers, investors, and workers, but many other of their fellow Americans. As I noted in February:
By depressing domestic prices and subjecting export approval to the whims of government bureaucrats, the U.S. licensing systems retard domestic energy production, discourage investment in the oil and gas sectors, and destabilize the domestic energy market. Artificially low prices prevent producers from achieving a sustainable rate of return on the massive up-front costs required to drill and extract oil and gas, and investors lack any assurances under the discretionary licensing systems that domestic prices will not collapse when output increases. Such concerns have led the IEA to recently warn that U.S. export restrictions put the “American oil boom” at risk.In short, current uncertainty retards highly capital-intensive domestic energy investment, production, and hiring, thereby destabilizing the market and curtailing economic growth. And what better example of such uncertainty is the surprise approval of one gas export application quickly followed by a single bureaucrat’s announcement that—in order to keep a “commitment” to a single U.S. Senator—no others will be approved until he personally is satisfied with widely-supported data that have been before his agency for months?
Unfortunately, this type of uncertainty pervades U.S. trade and economic policy. Whether it’s bailing out Detroit and the UAW at the expense of certain private investors, or heavily subsidizing green energy through supposedly temporary tax breaks, or negotiating restrictions on Japanese auto imports as Japan’s “entry fee” into the Trans-Pacific Trade Negotiations, or implementing last-minute tax hikes or spending increases, the U.S. government seems intent on substituting the whims of politicians and bureaucrats for predictable, constitutional, free market fiscal policy. As a result, our American “whimsy-conomy” sputters along.
It would be crazy to think that U.S. policymakers can eliminate this rampant uncertainty overnight, but they could at least begin the process by reforming our archaic and problematic energy export laws to freely permit the exportation of all energy products, regardless of type or origin. Such a policy change would help the economy, bring U.S. policy into compliance with our trade commitments, have strong political support, and take America’s energy future out of the hands of unelected bureaucrats like Secretary Moniz.
If they can’t undertake these simple and obviously necessary reforms, the rest of the whimsy-conomy doesn’t stand a fighting chance.
Monday, April 29, 2013
Unilateral Import Liberalization Is Helpful, Egalitarian and - Yes - Politically Possible
The Heritage Foundation's Bryan Riley has a great new study out today arguing in favor of the unilateral elimination of all - yes, all - US barriers to imports. Here's the summary:
Congress routinely makes targeted, short-term tariff cuts through “miscellaneous tariff bills.” While conventional wisdom is that unilateral tariff cuts are politically impossible, these bills show that it is possible to reduce tariffs. Proponents of such tariff cuts argue that the cuts support U.S. jobs; critics argue that the economic value of miscellaneous cuts is modest, and that the process is open to abuse. While it is healthy to discuss ways to maximize the benefits provided by miscellaneous tariff bills, the United States would see the most economic benefit from across-the-board tariff reform. The best possible reform would be for the U.S. Congress to eliminate all remaining import tariffs and quotas.After noting that the United States rates a dismal 38th place in Heritage's ranking of trade freedom (and would jump to first if if eliminated all barriers), Riley explains that import liberalization is one of the few things on which economists - left, right and center - can actually agree, with over 85% of them repeatedly favoring the policy in recent surveys. The reasons for this are obvious:
Tariffs make Americans poorer by transferring dollars from the country’s most competitive industries to the industries that have the best political connections.
Countries with low tariffs, such as New Zealand and Singapore, are more prosperous than countries with high, protective tariffs, such as India and Venezuela. The latest rankings of trade freedom around the world, developed by The Heritage Foundation and The Wall Street Journal in the 2013 Index of Economic Freedom, demonstrate how citizens of countries that embrace free trade have higher average incomes than citizens of countries that do not.Riley then looks at several examples of countries - including Australia, Chile, China, New Zealand, Canada, and Mexico - unilaterally liberalizing import barriers to great economic success. And while all of this historical and economic data are great, I think the following passage is my favorite because it really hits home just how obscenely immoral our current tariff/quota system really is, as it disproportionately punishes both poor countries and poor Americans:
Former WTO Director-General Mike Moore observed: “You know, the least-developed countries account for less than 0.5 percent of world trade, yet where they have areas of excellence, they’re not allowed to export to the United States or to Europe.”
In the United States, the average tariff on products from developing countries is much higher than on products from developed countries. For example, imports from Bangladesh faced an average U.S. tariff of 15 percent in 2012, but imports from Belgium faced an average tariff of just 0.7 percent. The overall U.S. average tariff on products from the U.N.’s Least Developed Countries list in 2012 was 3.9 times higher than the average tariff on products from other countries.
Imposing tariffs on imports from developing countries makes it more difficult for people in those countries to escape poverty, and keeps them dependent on U.S. aid dollars. In 2011, the U.S. government sent Bangladesh $218 million in economic aid, and collected $746 million in tariffs. If the U.S. government cut the 15 percent effective tariff on imports from Bangladesh, it could keep some aid dollars at home.
In 2011, U.S. the government collected $28.6 billion in tariff revenue, and spent $31.7 billion on foreign economic aid....
Although some people argue that it is politically impossible to cut tariffs unilaterally in the United States, in fact most U.S. tariffs are already close to zero. The United States’ tariff problem stems from the country’s two-tier regime consisting of shoes, clothing, and related items on one tier, and everything else on the other.
Tier One items including shoes and clothing account for less than 6 percent of total imports, but tariffs on these items account for 47 percent of U.S. tariff revenue.[28] As the liberal blog ThinkProgress observed, tariffs are highly regressive: “The kinds of goods where freer trade would mostly benefit the poor are exactly the kinds of goods where trade is least-free.” A study in the Journal of Diversity Management found that tariffs are higher for clothing purchased by low-income consumers, and also higher for women’s clothing than for men’s clothing....So not only does our tariff/quota system hurt the US economy, but it also benefits rich, politically-connected US industries (like these guys) at the expense of developing countries and the most vulnerable American citizens. Now if that isn't a good enough reason to reform the system, then I don't know what is.
Riley concludes by making several great recommendations for reform and by noting that import liberalization isn't nearly as radioactive as some politicians and political hacks claim because the United States government routinely passes import liberalization bills in the form of temporary, small scale programs like the Generalized System of Preferences and the Miscellaneous Tariff Bill. The same economic and moral principles supporting these bills - eliminating cronyism and helping the economy, US consumers and less-developed countries - obviously would apply to broader liberalization measures (and, of course, to much greater effect). Indeed, when Congress failed to reauthorize GSP in 2011, one champion of import liberalization got on his high horse and explained what's at stake:
The exclusion of the Generalized System of Preferences from the package means that this important program will lapse on December 31, hurting American consumers and businesses as well as workers and farmers in many of the world's poorer countries....This is exactly right, and it echoes many of the findings in Riley's study. So who, you might ask, is this great, economically-literate champion of free trade?
U.S. businesses and consumers benefit from the GSP program through cost savings on imports. Also, according to a 2005 U.S. Chamber of Commerce study, the program supports over 80,000 American jobs associated with moving GSP imports from the docks to farmers, manufacturers and ultimately to retail shelves. U.S. imports under GSP exceeded $20 billion in 2009 and are on pace to exceed $27 billion in 2010. GSP saved U.S. importers nearly $577 million in duties in 2009. The program was instituted on January 1, 1976, by the Trade Act of 1974. In addition to its benefits to American families, GSP is designed to promote economic growth in the developing world by providing preferential duty-free entry for about 4,800 products from 131 designated beneficiary countries and territories.
The typically mercantilist and import-skeptical Obama administration's USTR, that's who.
So with all of the economic benefits and moral arguments for import liberalization so clear, it kinda makes you wonder what's keeping President Obama from supporting a bigger, better, more permanent version of GSP, eh?
Tuesday, April 9, 2013
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:
My favorite line comes from James' new blog post on the 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.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.
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.
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.
Monday, March 25, 2013
Smart Power
One of the things not covered in my Cato Institute paper on US natural gas and crude oil exports was the potential geopolitical implications of the US fossil fuel boom. This omission was due mainly to size constraints and the fact that the paper was intended to focus on the economic and trade issues raised by the United States' restrictive export licensing systems for gas and oil. That doesn't mean, however, that these systems - and the de facto bans on US gas/oil exports that they effectuate - don't raise important foreign policy concerns, as noted in this recent article from US News and World Report:
And it's for this reason that the following stories from the last week have me scratching my head (if not banging it against my desk):
[I]f the U.S. is allowed to export to Europe... countries such as the Czech Republic, Hungary, and Greece gain access to alternate, more stable sources of natural gas, loosening Russia's vice grip on the European natural gas supply. Incidentally, the U.S. has already played a role shifting the relationship between energy suppliers and importers in Europe.... The shale gas revolution, which has dramatically increased domestic supplies of natural gas in the United States has all but eliminated the need for imports. That, in turn, has rerouted supplies originally headed for U.S. ports to Europe, helping to ease price pressures there.Many other people from a wide range of political and policy perspectives have echoed these conclusions: scrapping our archaic oil and gas export restrictions and thereby permitting such exports to Europe and Asia is a geopolitical no-brainer for the United States, especially in this new "sequestration" era of tight federal budgets and reduced US spending on more traditional forms of national defense.
U.S. exports of natural gas could also play a role in increasing the bite of sanctions levied on Iran over its nuclear program. Turkey currently depends on Iran for 20 percent of its natural gas imports. But as with Europe, if new sources of gas imports are made available, Turkey could reduce its reliance on Iran. That would, in turn, cut into the revenues reaped by the Iranian regime.
In Asia, exporting natural gas to energy hungry allies such as Japan and South Korea could help solidify diplomatic relations. In the wake of the Fukushima Daiichi nuclear disaster, Japan—already the top importer of natural gas—has shut down nearly all of its reactors, making the country much more dependent on fossil fuels such as oil, coal, and natural gas. With high natural gas prices in Asia, Japan is looking for anything cheaper. At rock bottom prices at home, U.S. suppliers can beat the international prices and make a good profit even with expensive liquefaction and shipment....
And it's for this reason that the following stories from the last week have me scratching my head (if not banging it against my desk):
- UK's Telegraph: "With the worst snow conditions in the country since 1981, it’s worrying, to say the least, that gas supplies are running low.... Because of a misguided faith in green energy, we have left ourselves far too dependent on foreign gas supplies, largely provided by Russian and Middle Eastern producers. Only 45 per cent of our gas consumption comes from domestic sources. All it takes is a spell of bad weather, and the closure of a gas pipeline from Belgium, to leave us dangerously exposed, and to send gas prices soaring. Talk of rationing may be exaggerated, but our energy policy is failing to deal with Britain’s fundamental incapacity to produce our own power."
- Bloomberg: "China agreed to double oil supplies and supported construction of a natural gas pipeline from Russia under 'breakthrough' agreements during President Xi Jinping’s first state trip abroad. OAO Rosneft, the world’s biggest traded oil producer by output, will borrow $2 billion from China Development Bank Corp., backed by 25 years of oil supplies, under accords signed yesterday in the Kremlin. The Russian company also offered China National Petroleum Corp. access to Arctic resources, and OAO Gazprom said it plans to conclude a 30-year gas-supply contract to China by year-end."
To recap: as the Obama administration continues to stall pending natural gas export license applications and has (apparently) no intention of reforming our current, problematic systems for gas or oil, US allies in Europe and Asia are desperate for access to cheap, stable energy supplies, and China's insatiable appetite for oil and gas has just pushed them ever-closer to Moscow.
So much for that "smart power," eh?
UPDATE: Mark Perry has more on the UK's major energy mess. If only they had a friend who could help.
UPDATE: Mark Perry has more on the UK's major energy mess. If only they had a friend who could help.
Wednesday, March 13, 2013
Perspective, Ctd.
Just as I was drafting last night's blog post on the supposed "American free trade renaissance", a detailed - and totally depressing - dispatch on the Trans-Pacific Partnership arrived in my inbox from foreign policy gadfly Chris Nelson of "the Nelson Report." Nelson collected various quotes from US and foreign business reps (aka the people who are paid to be eternal trade optimists) on the latest round of TPP negotiations in Singapore, and, boy, does it paint a different picture than the pretty one being paraded around by USTR today. I won't bore you - and steal all of Nelson's intellectual property - by cutting and pasting the entire download, but here are the some of the lowlights (bold are Nelson's commentary; italics are quotes from his anonymous, in-the-know sources):
Maybe that's just too much to ask.
...the background story at Singapore TPP. Not a happy group of campers. Mexico is just saying no to everything, apparently...in contrast to Canada which is being lovely. Viets totally focused on their one chapter...textiles/apparel and shoes, and US not giving them anything to work with. No one excited about Japan, because it's really not true many chapters finally closed...nearly all still open thru brackets. So if Japan joins, the deal gets kicked further and further down the road. Oct/Bali as a deadline...a joke, and Indonesia's not in TPP anyhow. And Kirk hanging on really depressed folks. US negotiators can't show any flex, even if they wanted to, until the new guy named. Zients? Zero industry/biz support...just WH.
...
"Mexico seems only to have defensive issues, nothing positive except for beef. We'd thought Mexico would play a sort of supportive role as a member of the 'US bloc'. My god if we're having this hard a time now with Mexico, which is mainly fixated on its own ag and apparel issues, what will happen when Japan comes in across the board, it's one of the world's most complex economies!"
...
In fact, as a practical matter Japan won't be compelled to "swallow" all the already-settled chapters, for the basic reason that so many "difficult issues" remain in brackets, and thus remain to be negotiated, perhaps at the Leadership level. A related problem for the outside business observers not allowed in the room:
"We're not even allowed to know the names of the chapters at this point. It's a really stupid parlor game. That made the so-called 'stakeholder briefings' an exercise in frustration".
...
Vietnam? Not negative like Mexico, but very, very, very focused on "just one thing...textiles and apparel, and shoes", and making no bones about it. But here's the problem...so far, in the absence of new guidance from the White House (including no successor to Ron Kirk) USTR negotiators have no flexibility on textiles, apparel and shoes, even if they were so inclined, observers feel.
"So Vietnam has every right to be angry and frustrated, and in the corridors, they made no bones about it!"
Thailand has similar concerns prompting it to lay back and not decide whether to join, it's agreed.
...
Business observers frankly confess to "not being sure what to make of the SOE [State-Owned Enterprise] issue. The Vietnamese tell us it's no longer a big problem, with SOE's now only involved in a small percentage of their economy. So we don't know what's 'reality'."
...
Finally, a big impediment we kept hearing about could really be called the "third problem" from above...
"we have no USTR nominee, and that was on everyone's lips"...
Going forward, the issue is that so long as Kirk's replacement isn't even named, much less confirmed, neither USTR negotiators, nor US trading partners, can have an intelligent discussion on possible deals on anything "sensitive", including all those pesky brackets. Business reps cite as sample problems which cannot even be approached, much less resolved until a new USTR is in place...what about US pharmaceuticals and patent protection? What about US tobacco, very important in Asia, if no longer here?Not a pretty sight, eh? Maybe all of this gets worked out over the next few months, but, after reading the above, it seems that at least a little skepticism and caution is warranted. So isn't it about time that the real TPP negotiations, the Obama administration's questionable handling of them, and the President's real trade policy get reported by the mainstream press here in the states?
"With Kirk just hanging-on, no US negotiator or any trade partner can make any concessions until a replacement is confirmed, presumably also with TPA instructions, yet the US keeps pushing everyone else to put concessions on the table. How can they?"
Maybe that's just too much to ask.
Tuesday, March 12, 2013
Giving Obama's Free Trade Legacy Some Much Needed Perspective
Over the last several weeks, Americans have been treated to a pretty constant stream of news stories applauding President Obama's new found affection for free trade. The impetus for this fawning coverage is obvious: since the end of 2012, the Obama administration has repeatedly thrust trade - in particular the inclusion of Japan in the ongoing Trans-Pacific Partnership talks and the launch of FTA negotiations with the EU - into the spotlight. The administration does deserve some credit for finally, after four years of depressing inaction, putting the United States back in the free trade game (a game we not only used to dominate, but also kinda, you know, invented), but the media reaction to these announcements - i.e., assuming the FTAs' timely completion and all-but-anointing President Obama to be the greatest free trade president in the history of anything ever - has been utterly ridiculous. Fortunately, Cato's Dan Ikenson has finally had enough and today does his best Winston Wolfe impression by throwing some much-needed cold water on the media's coronation party. First, he quickly recites the administration's actual record on trade so far:
Back to the current situation. Ikenson then points out the myriad landmines in the TPP and EU deals themselves:
Finally, Ikenson explains what's really driving President Obama's new embrace of trade, and it's hardly flattering:
Seriously, man. What the...?
Thus, all the breathless media coverage of the president's free trade renaissance places the responsible journalists into one of three categories: (i) ignorant dupes fooled by savvy USTR and White House press shops; (ii) hopeless, overly-optimistic Obamaphiles blinded by their love for The One; or (iii) complicit hacks acting as the administration's unofficial PR wing. None of these is very flattering, but - after comparing the media's Pollyannaish reports with the realities presented by Ikenson, Barfield and other trade experts - there really isn't any other option.
Fortunately, there's always foreign media.
[B]efore anyone awards the president the Nobel Trade Prize for a job yet done, consider this: in four-plus years, this administration has concluded zero trade agreements, while launching 13 WTO cases against various trade partners. For 50 months, enforcement and domestic protectionism—not liberalization—have dominated the trade agenda....Yep. Next, Ikenson mentions another, ahem, minor hurdle to completing ambitious trade agreements in a rapid fashion - our totally unnecessary lack of a lead trade negotiator:
For starters, wouldn’t the president have delegated someone capable and experienced to take ownership of the trade agenda if he were really committed to leaving a trade policy legacy? U.S. trade representative Ron Kirk announced more than one year ago that he would be leaving his post early in a second Obama administration. Yet there is nobody vetted and ready to take the reins of trade policy. Kirk’s official resignation came at the end of last month—though he has been hanging around to help out on account of … “sequestration.”I'd be remiss not to note that the Obama administration also had a really tough time finding Kirk back in 2008-09 because at least one candidate (rightly, in retrospect) saw that trade policy would be a low priority in the Obama White House and thus turned the job down. But I digress...
The most prominent name floated for U.S. Trade Representative has been the OMB’s Jeff Zients, the person most closely associated with President Obama’s proposal to subsume the USTR under the enforcement-centric Commerce Department—again, not exactly the substance of trade legacy-building. Members from both parties in Congress have demanded a better candidate if the president expects his trade agenda to be taken seriously.
Back to the current situation. Ikenson then points out the myriad landmines in the TPP and EU deals themselves:
Accomplishments, not rhetorical intentions, should serve as the basis for our judgments. Anyone can announce initiatives. President Obama is quite proficient at reciting litanies of initiatives. But it remains to be seen how he handles the situation when the deals require his confronting allied interests and dismantling their protectionist perches. In fairness, the administration’s trade negotiators have been working hard toward a Trans-Pacific Partnership agreement with 10 Pacific-rim nations. But let’s see where this goes before we start writing history. There’s still a lot of ham left on that bone.AEI's Claude Barfield also deftly details the many serious hurdles facing the TPP and the TTIP - definitely worth a read. (Conclusion: "The administration is misguided in bowing to the EU’s frantic plea for a crash, two-year timetable for FTA negotiations. Such a course will fail — and of much greater significance, it may well imperil a successful conclusion of the strategically and economically vital TPP negotiations." Ouch.)
The administration has verbally committed to completing the TPP negotiations by the end of this year and the just-announced Transatlantic Trade and Investment Partnership negotiations with Europe by the end of next year—both virtual impossibilities given where things stand in those negotiations and between the White House and Congress. So we already have a credibility problem.
Both sets of agreements are likely to include provisions that penetrate deeper than usual into the domestic regulatory space of all countries involved. Understandably, this is generating resistance—particularly to U.S. demands for extra investor and intellectual property protections. Some of the groups that were instrumental in defeating SOPA and PIPA legislation last Congress are beginning to mobilize in response to concerns that the TTIF could be a backdoor to IP-based restrictions that affect internet use and data sharing, among other issues. U.S. negotiators are making serious demands on matters they claim to be central to 21st century trade, yet they appear unwilling to give ground on the 18th century protectionism still afforded U.S. textile and footwear producers.
I bring attention to these details not to pick a fight about Obama’s trade record, but to emphasize that facts matter. So do characterizations. Readers should know about growing resistance to U.S. demands that threaten to prolong or derail the TPP and TTIP negotiations. Readers should know that if the talks break down or produce less ambitious outcomes, that there is probably more to the story than the official U.S. account, which will pin the blame on foreign intransigence. Readers should know that the U.S. government engages in all sorts of protectionist policies and then relies on media to characterize trade as a zero-sum contest between U.S. producers and foreign producers. Under this rubric, U.S. protectionism is presented as a necessary response and it becomes patriotic to support our own trade barriers—the very protectionism that hurts us the most....
Furthermore, the administration has barely begun to do anything substantive with respect to securing Fast Track negotiating authority from the Congress, which it will need to get any trade agreements approved by the legislature. Congress is largely in the dark about what the administration has been negotiating in the TPP. The administration’s cavalier attitude toward this potentially arduous process betrays either a lack of understanding or concern that Congress, if it grants that authority, will attach all sorts of conditions that may render moot the past couple years of negotiations on the TPP....
Finally, Ikenson explains what's really driving President Obama's new embrace of trade, and it's hardly flattering:
Alas, President Obama has not found religion on trade after all. He’s merely run out of options. The TPP was motivated from the outset as a means to regain some of the influence—on policy and institution-building in the Asia-Pacific—presumed to have been lost to China, as America toiled in Iraq and Afghanistan. Persistently high unemployment, despite four years of stimulus, subsidies, and bloated federal spending, had finally led the administration to its last resort: trade liberalization.Oof. I'd say that Ikenson's bitter assessment is pretty much a pitch-perfect review of President Obama's real free trade legacy (so far, at least), and it's either telling or sad that the media can't seem to grasp these easily Google-able facts. Indeed, foreign media reports of the administration's pre-negotiations with Japan regarding its entry into the TPP hardly inspire confidence in the President's resurgent free trade bona fides:
So there you have it. A president who has settled on trade agreements as a last resort to spur investment and create jobs shouldn’t inspire too much confidence that he’s in it for the long haul and that he’ll be willing to make the tough political decisions ahead, particularly if the economy starts to improve and his affection for trade agreements proves fleeting.
Japan plans to agree to let the United States maintain its automobile tariffs for a certain period during preparatory talks for joining the Trans-Pacific Partnership free-trade negotiations, sources said Tuesday.To summarize: the United States is demanding the maintenance of high tariffs on imported trucks (and lower ones on cars) as the "price" of Japan's entry into free trade negotiations, and in return, Japan will get to keep high tariffs on farm products like rice and wheat. Such a deal is sadly illiberal but it really shouldn't shock anyone: it's quite similar to the one that the administration worked out for the US-Korea FTA re-negotiation back in late 2010. But, still, since when does vigorously protecting protectionism permit fawning reports of a president's commitment to free trade?
As the United States fears a possible surge in Japanese auto exports to the U.S. market under the TPP, Japan is set to agree that the United States will be allowed time to eliminate the tariffs in an attempt to extract a U.S. concession over Japan’s agricultural tariffs once it enters the TPP negotiations, the sources said.
Japan’s participation in the TPP negotiations has been opposed by the U.S. auto industry, as well as by Japanese farming groups fearful of cheaper agricultural imports. Japan currently imposes high tariffs on farm products such as rice and wheat to protect domestic farmers.
The United States currently imposes tariffs of 25 percent on trucks and 2.5 percent on cars.
Seriously, man. What the...?
Thus, all the breathless media coverage of the president's free trade renaissance places the responsible journalists into one of three categories: (i) ignorant dupes fooled by savvy USTR and White House press shops; (ii) hopeless, overly-optimistic Obamaphiles blinded by their love for The One; or (iii) complicit hacks acting as the administration's unofficial PR wing. None of these is very flattering, but - after comparing the media's Pollyannaish reports with the realities presented by Ikenson, Barfield and other trade experts - there really isn't any other option.
Fortunately, there's always foreign media.
Thursday, February 28, 2013
New Podcast re: License to Drill
The good folks at Coffee & Markets had me back on today to discuss my new Cato Institute paper on natural gas and crude oil export restrictions. The podcast is available for listening or downloading here. Enjoy!
Wednesday, February 27, 2013
Speaking of Distortions...
In my new Cato paper, I discuss the distortions and economic loss caused by current US export restrictions on natural gas and crude oil - one of the big reasons why fundamental reform of our export licensing systems is desperately needed. Most of the current policy debate has focused on the natural gas market, but the economic distortions are just as prevalent for crude oil. Case in point: this new Bloomberg article (emphasis mine):
That seems... inefficient.
So isn't it time we established some rhyme and reason to the system?
A glut of shale oil in fields from Texas to North Dakota is forcing producers to find ways around the U.S.’s three-decade-old ban on crude exports in order to seek higher prices in foreign markets.So because of US crude oil export restrictions, domestic oil producers are spending billions of dollars to construct mini-refineries that produce a slightly-refined product that may be freely exported but sells at a discount to crude on the international market. Meanwhile, simply getting the US government out of the way and permitting unlimited crude oil exports would generate $40 billion per year for US energy producers and their workers.
Kinder Morgan Energy Partners LP (KMP) is among companies setting up mini-refineries to process certain grades of crude just enough to qualify them as refined fuels, which are legal to export.
The industry’s best hope is ultra-light oil, which is so abundant in shale rock that it has flooded the Gulf Coast and traded for a record discount to global benchmark Brent crude last quarter. Potential revenue for exports is $40 billion a year based on global prices, or about $9.7 billion more than what the same oil fetches in the U.S....
Because there are not enough buyers where it’s pumped, the easy-to-refine crude has become the vanguard of an effort by the oil industry to get Congress to further weaken U.S. limits on most crude oil and natural gas exports that have been in place since the early 20th century....
Valero Energy Corp. (VLO), Kinder Morgan and Marathon Petroleum Corp. (MPC) are spending $850 million to build mini-refineries or upgrade existing plants to process the ultra-light crude. The soonest to come online is Kinder’s, set for the first quarter of 2014.
The plants will do little more than heat oil and condensate to a boiling point and distill them into separate fluids. Prices for condensate average about $4.57 less per barrel than heavier U.S. crude, crimping producer profits by as much as $1.7 billion a year, according to calculations based on RBN Energy data....
The units, called splitters, may be able to process as much as 300,000 barrels of crude a day, Luaces said. The mini- refineries being built “split” the condensate into naphtha, a feedstock for making plastic and other chemicals, and kerosene, which can be exported to markets in Asia and Latin America, he said.
Those chemically simpler products may not fetch as much as finished gasoline or diesel fuel, but the lower cost of running the splitter makes it attractive to sell them on international markets, said Judith Dwarkin, chief economist at ITG Investment Research Inc. in Calgary.
“It’s a cheap way around the export limitation,” Dwarkin said in an interview.
There are no limits on refined products. U.S. fuel exports reached an all-time high last year of an average 2.6 million barrels a day, according to Energy Department data. U.S. fuel imports from OPEC have fallen 37 percent, and the country’s petroleum deficit, the difference between the cost of its hydrocarbon imports and exports, fell to $18.7 billion, the lowest since 2004, according to data compiled by Bloomberg.
“Some molecules are painted with a no export sign,” said Braziel, of RBN. “Other molecules are painted with the OK to export sign, and there doesn’t seem to be any rhyme or reason as to why some molecules are OK and some aren’t.”
That seems... inefficient.
So isn't it time we established some rhyme and reason to the system?
Thursday, January 31, 2013
Hitting 'Em Where It Hurts [UPDATED]
One of the oft-heard criticisms of the WTO dispute settlement system - rightly or wrongly - is that it lacks real teeth. Yes, a WTO Member could theoretically face retaliation if it refuses to comply with a WTO panel or Appellate Body ruling against its protectionist measures, but this mechanism often fails to push the Member into complying for two main reasons: (i) as Econ 101 teaches us, the primary means of WTO-sanctioned retaliation - increased duties on the Member's exports - also hurts the WTO Member(s) who originally complained, won and then received permission to retaliate, thereby eliminating any economic incentive to do so; and (ii) smaller - oftentimes developing country - Members import such insignificant amounts of goods and services that any retaliatory duties imposed against another Member (especially the big boys in Brussels and Washington) would fail to cause enough "pain" to affect the offending Member's trade behavior.
Thus, the primary reasons - in my opinion, at least - why nations comply with adverse WTO decisions are strategic (i.e., to maintain the legitimacy of WTO dispute settlement process, particularly given the fact that the "defendant" Members will be, or are already, complainants in other cases) and political/diplomatic (i.e., to avoid looking like an international trade scofflaw and facing all the bad press that comes along with such a title). Such incentives have been pretty successful in holding the permissive WTO dispute settlement together, but they certainly aren't perfect. Indeed, as Dan Ikenson unfortunately notes, the United States quite frequently ignores adverse WTO rulings, especially when sacred American cows like trade remedies are involved:
However, recent events do leave me wondering whether a new form of retaliation - against intellectual property rights rather than imports of goods or services - could tip the scales a little more towards "compliance" and away from "political expediency," especially for big, developed countries like the United States and the EU. In particular, Antigua recently announced that - due to continued US non-compliance with a WTO ruling against a discriminatory American online gambling law - the island nation has sought and received permission from the WTO to infringe on US copyrights, instead of imposing duties on US goods:
first devised recently pushed [Ed. note: apparently Ecuador first used the IPR cross retaliation idea in the 1990s Banana dispute, back when I was still a beer-swilling frat guy; it remains uncommon, however.] by Brazil when the United States refused to scuttle cotton subsidy programs that had been repeatedly found to be WTO-illegal. Of course, Brazil never went through with the threat because the US government agreed to pay hundreds of millions of taxpayer dollars in "technical assistance" to Brazilian cotton farmers. (Insert appropriate sound effect.)
Maybe Antigua is angling for a similar payoff, but one thing's for sure: after years of getting the ol' brushoff, the little island has definitely gotten Washington's attention:
Given the large number of disputes in which the non-compliant United States is involved, this could all get quite serious quite quickly, don't you think? And if it does, WTO compliance might just become a little more common - a good thing for free traders and consumers around the world.
Of course, this rosy scenario assumes that the WTO's big dogs don't just start offering more taxpayer-funded "technical assistance" to avoid IPR-related retaliation or take even more drastic action against the WTO system itself.
Hmm. On second thought....
UPDATE: AEI's Claude Barfield emails with some excellent perspective: "[Y]ou could have added the irony that it was the US back in the 1990s that insisted that cross-retaliation be added to the arsenal of tools... we argued that was needed because in some cases merely raising tariff wouldn’t bring miscreant to heel." Claude's right: a quick Google search finds John Croome's book on the history of the WTO's Uruguay Round, which describes the United States' "ambitious proposal" on cross retaliation. Adding to that irony is the fact that, according to Croome, the US proposal was most vehemently opposed by the very developing countries who now stand to benefit from using it today. And to thicken the irony even more, I'd be remiss not to mention that it was - and remains - the United States government who most aggressively demands the inclusion of IPR disciplines in WTO and bilateral/regional FTA rules.
I know hindsight's 20/20 and all (especially considering that rapid online filesharing was pretty much science fiction in the 1980s and early 90s), but that's gotta sting a little, don't you think?
Thus, the primary reasons - in my opinion, at least - why nations comply with adverse WTO decisions are strategic (i.e., to maintain the legitimacy of WTO dispute settlement process, particularly given the fact that the "defendant" Members will be, or are already, complainants in other cases) and political/diplomatic (i.e., to avoid looking like an international trade scofflaw and facing all the bad press that comes along with such a title). Such incentives have been pretty successful in holding the permissive WTO dispute settlement together, but they certainly aren't perfect. Indeed, as Dan Ikenson unfortunately notes, the United States quite frequently ignores adverse WTO rulings, especially when sacred American cows like trade remedies are involved:
U.S. policies have been the subject of more World Trade Organization disputes (119, followed by the EU with 73, then China with 30) and have been found to violate WTO rules more frequently than any other government’s policies. No government is more likely to be out of compliance with a final WTO Dispute Settlement Body (DSB) ruling – or for a longer period – than the U.S. government. To this day, the United States remains out of compliance in cases involving U.S. subsidies to cotton farmers, restrictions on Antigua’s provision of gambling services, country of origin labeling requirements on meat products, the so-called Byrd Amendment, a variety of antidumping measures, and several other issues, some of which were adjudicated more than a decade ago. In some of these cases, U.S. trade partners have either retaliated, or been authorized to retaliate, against U.S. exporters or asset holders, yet the non-compliance continues as though the United States considers itself above the rules.Clearly, the United States (and, yes, many other countries) has for years been able to skirt WTO rules and adverse decisions when a protectionist measure's political value outweighs the WTO-sanctioned retaliation (or threat of retaliation) that the measure provoked. That's certainly the government's prerogative, and I certainly wouldn't argue against the voluntary nature of WTO compliance (for reasons discussed at length here).
Despite all the official high-minded rhetoric about the pitfalls of protectionism and the importance of minding the trade rules, the U.S. government is a serial transgressor. Nowhere is this tendency to break the rules more prevalent than it is with respect to the Commerce Department’s administration of the antidumping law. Nearly 38 percent (45 of 119) of the WTO cases in which U.S. policies have been challenged concern U.S. violations of the WTO Antidumping Agreement.
However, recent events do leave me wondering whether a new form of retaliation - against intellectual property rights rather than imports of goods or services - could tip the scales a little more towards "compliance" and away from "political expediency," especially for big, developed countries like the United States and the EU. In particular, Antigua recently announced that - due to continued US non-compliance with a WTO ruling against a discriminatory American online gambling law - the island nation has sought and received permission from the WTO to infringe on US copyrights, instead of imposing duties on US goods:
In 2005 the WTO ruled that the US refusal to let Antiguan gambling companies access their market violated free-trade, as domestic companies were allowed to operate freely. In 2007 the WTO went a step further and granted Antigua the right to suspend U.S. copyrights up to $21 million annually.Antigua's plan is indeed a crafty one - the tiny country with (I'm assuming) insignificant US imports can hit the United States where it actually hurts (namely, Hollywood and Silicon Valley) yet avoid imposing equivalent pain on its own citizens. However, Mr. Mendel and his clients can't take all the credit: as you may recall, this kind of "cross retaliation" was
TorrentFreak is informed by a source close to Antigua’s Government that the country now plans to capitalize on this option. The authorities want to launch a website selling U.S. media to customers worldwide, without compensating the makers.
The plan has been in the works for several months already and Antigua is ready to proceed once they have informed the WTO about their plan. Initially the island put the topic on the WTO meeting last month, but the U.S. blocked it from being discussed by arguing that the request was “untimely.” This month Antigua will try again, and if they succeed their media hub is expected to launch soon after.
Antigua’s attorney Mark Mendel told TorrentFreak that he can’t reveal any details on the plans. However, he emphasized that the term “piracy” doesn’t apply here as the WTO has granted Antigua the right to suspend U.S. copyrights. “There is no body in the world that can stop us from doing this, as we already have approval from the international governing body WTO,” Mendel told us.
Maybe Antigua is angling for a similar payoff, but one thing's for sure: after years of getting the ol' brushoff, the little island has definitely gotten Washington's attention:
The United States warned Antigua and Barbuda on Monday not to retaliate against U.S. restrictions on Internet gambling by suspending American copyrights or patents, a move it said would authorize the "theft" of intellectual property like movies and music.USTR's rather, ahem, spirited response to Antigua's plan retaliation plan indicates that the tiny island may have finally hit a nerve. And, regardless of whether Antigua will go through with its plan, this all leaves me wondering how many other WTO Members who are on the smelly-end of US (or EU or...) non-compliance have already started devising their own IPR schemes. I would think that at least a few are considering it, given that (i) these countries can implement a "file sharing" service relatively easily (a big change from when cross retaliation was first conceived); (ii) compared to retaliatory tariffs, such schemes won't cost them or their citizens a penny; and (iii) as Brazil's and Antigua's experiences demonstrate, this approach seems to drive the United States government into an instant tizzy (or make Washington far more amenable to compliance and/or "technical assistance").
"The United States has urged Antigua to consider solutions that would benefit its broader economy. However, Antigua has repeatedly stymied these negotiations with certain unrealistic demands," said Nkenge Harmon, a spokeswoman for the U.S. Trade Representative's office.
The strong statement came after the tiny Caribbean country said it would suspend U.S. copyrights and patents, an unusual form of retaliation, unless the United States took its demands for compensation more seriously in a ruling Antigua won at the World Trade Organization.
"The economy of Antigua and Barbuda has been devastated by the United States government's long campaign to prevent American consumers from gambling on-line with offshore gaming operators," Antigua's Finance Minister Harold Lovell said in a statement.
"We once again ask ... the United States of America to act in accordance with the WTO's decisions in this matter."
Given the large number of disputes in which the non-compliant United States is involved, this could all get quite serious quite quickly, don't you think? And if it does, WTO compliance might just become a little more common - a good thing for free traders and consumers around the world.
Of course, this rosy scenario assumes that the WTO's big dogs don't just start offering more taxpayer-funded "technical assistance" to avoid IPR-related retaliation or take even more drastic action against the WTO system itself.
Hmm. On second thought....
UPDATE: AEI's Claude Barfield emails with some excellent perspective: "[Y]ou could have added the irony that it was the US back in the 1990s that insisted that cross-retaliation be added to the arsenal of tools... we argued that was needed because in some cases merely raising tariff wouldn’t bring miscreant to heel." Claude's right: a quick Google search finds John Croome's book on the history of the WTO's Uruguay Round, which describes the United States' "ambitious proposal" on cross retaliation. Adding to that irony is the fact that, according to Croome, the US proposal was most vehemently opposed by the very developing countries who now stand to benefit from using it today. And to thicken the irony even more, I'd be remiss not to mention that it was - and remains - the United States government who most aggressively demands the inclusion of IPR disciplines in WTO and bilateral/regional FTA rules.
I know hindsight's 20/20 and all (especially considering that rapid online filesharing was pretty much science fiction in the 1980s and early 90s), but that's gotta sting a little, don't you think?