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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Behold, the Obama Administration's NatGas Politics (and Export Hypocrisy)

Today, Heritage's Ryan Olson picks up on a pretty important trade story that I missed last week: the Obama administration appears to be blocking U.S. exports of natural gas for political reasons:

Currently, liquefied natural gas (LNG) exports are restricted to countries with free trade agreements with the United States. Producers wishing to export to countries without U.S. free trade agreements must first get approval from the Department of Energy (DOE). With proven reserves of natural gas in the U.S. at an all-time high, companies have been flocking to export LNG to foreign markets. However, the DOE is stonewalling, approving only one of the 13 requests to export to non-free trade agreement countries and staking further exports on the release of a report that has been delayed until early next year. These types of bureaucratic hoops only hurt American companies and bring into question the President’s commitment to increasing exports.

The Reuters article that Olson cites helpfully explains that the big report was originally going to be out in March, then got delayed until late summer, and now won't be out until after the November elections.  That, of course, is quite convenient for the Obama administration, as Olson explains:

The Administration appears to be listening to economic advice from interest groups (including environmental groups) who oppose natural gas exports. They argue that free trade in the LNG field will disadvantage U.S. consumers, claiming that as the spread between the international price and the domestic price closes, U.S. prices will rise.

I'd add that many of these environmental groups also argue that the process by which much of natural gas is extracted these days - hydraulic fracturing or "fracking" - is evil dangerous, and thus their opposition to LNG exportation also frequently cites fracking's dangers as grounds to deny export license applications (see, e.g., this Sierra Club brief in opposition to an application from Sabine Pass LNG).  Olson goes on to explain how the administration's stonewalling on these LNG export license applications could seriously harm the US natgas industry (and tons of good-paying American jobs), but, considering environmentalists views on fracking and fossil fuels more generally, that might just be what they had in mind, eh?

But I digress.  For the moment, I'll try to ignore the obvious economic harms imposed by the administration's political stonewalling and instead look at two pretty ridiculous trade angles in this story.  First, as Olson notes, it's rather amazing that a President whose top trade priority is the National Export Initiative is, you know, actively blocking billions of dollars in potential U.S. energy exports:

The President has said he wants to “double our exports over the next five years” through his National Export Initiative. Apparently, those exports don’t include natural gas, a booming and vibrant sector of the national economy....

Recent studies have shown that exporting natural gas could make U.S. producers up to $3 billion per year, creating much-needed jobs for Americans. Reducing burdensome trade restrictions will also make U.S. firms more efficient, encouraging competition and reducing prices—ultimately helping consumers and spurring innovation. The President’s erratic policy of promoting trade in some areas while restricting it in others is hypocritical. Even worse, it sends mixed messages that increase uncertainty, hurt investment and job growth, and threaten American’s economic competitiveness.

Indeed it does, Mr. Olson.  Indeed it does.

Second, and speaking of mixed messages, it turns out that the Obama administration has been fighting against these exact kinds of export restrictions at the WTO.  Before I get to that glaring hypocrisy, however, a very quick summary of the US system and the applicable WTO rules is necessary.  The US export licensing system for natural gas (15 U.S.C. § 717b) provides DOE with unfettered discretion to deny an application to export natural gas to non-FTA partner countries if the agency determines that the exportation would not be in the "public interest."  GATT Article XI prohibits WTO Members from imposing quantitative restrictions on exports (and imports), including those made effective through export licenses.  Although WTO jurisprudence on licensing restrictions remains a little unsettled, one thing is pretty clear: discretionary licensing regimes are impermissible restrictions under GATT Article XI.  So, because the US licensing system provides DOE with discretion to reject any license application based on the vague “public interest” standard (as evidenced by the long delays in the aforementioned LNG applications), it could be WTO-inconsistent.

So why does this little academic lesson matter?  Well, over the last couple years USTR has filed two WTO disputes against China (of course) for its export restrictions on various raw materials (DS394) and so-called "rare earth" elements (DS431).  The US won (mostly) the raw materials case citing, among other things, GATT Article XI, and the new, high-profile rare earths dispute is just cranking up.  In each dispute, one of the primary export restrictions targeted by the United States has been - wait for it - export licensing systems for the covered products.

So, to recap, the Obama administration is attacking Chinese export licensing restrictions on key raw materials at the exact same time that it is restricting US exports of natural gas via a similarly dubious export licensing system.

You cannot make this stuff up.

On the bright side, at least China isn't, you know, really starving for energy or known to retaliate against US trade litigation with cases of its own or anything.

Oh, wait.

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

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

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

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

Then USTR made its formal announcement:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Now if only we can get Japan on board.

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

Is Commerce Delaying DS379 Implementation Because of Struggles with CVD/NME and "Double Counting"?

Quick answer: it sure looks like it.

With absolutely no fanfare, the United States missed the April 25 deadline for implementing the WTO Appellate Body's decision in US-Anti-Dumping and Countervailing Duties (China) (aka DS379) which held, among other things, that the Department of Commerce's concurrent application of anti-dumping (AD) duties and countervailing duties (CVDs) on imports from China and other "non-market economies" violated WTO rules. (Lots more on the WTO's DS379 decision here if you're interested.)  According to several reports[$] (and the US statement) coming out of the WTO's Dispute Settlement Body's April 24 meeting, the Obama administration admitted that it would not be meeting the already-extended deadline (the original deadline was mid-February, but the US and China had agreed to a two-month extension), and China was none-too-pleased about it.

China's angst is totally unsurprising and (in my humble opinion) warranted, given two key facts: (1) the United States has now had over a year to implement the Appellate Body's decision and only started working on the "Section 129" compliance determination in the Fall of 2011; and (2) Congress and the President just implemented a law overturning a big US court case (GPX Int'l Tire Corp. v. United States) which held that Commerce's CVD/NME methodology violated US law.  In short, China was playing nice with the United States on DS379, but after the recent passage of the CVD/NME law, it's patience has worn very, very thin.  Like I said, unsurprising.

Word on the street is that, as of about a week ago, the US and China still hadn't agreed on another extension for the Section 129 determination (the WTO website also has nothing new to report), so it's actually a little unclear how this legal mess will proceed.  My guess (and it's only a guess) is that Commerce's repeated tardiness here will not result in any sort of formal WTO actions, and instead the agency will issue its Section 129 determinations in the next couple months, quickly followed by a formal complaint from the Chinese government against those determinations.

This all won't stop China, however, from immediately and repeatedly screaming to the high heavens about the CVD/NME issue and the United States' DS379 malfeasance.  Indeed, prior to last week's high-level Strategic and Economic Dialogue meetings, experts in China noted that the Chinese government was planning to complain vociferously about US trade remedies "misuse" - no doubt alluding to the CVD/NME issue.  And the official joint readout from the S&ED does address trade remedies and the WTO:

The two sides are committed to building a more open global trade system and jointly resisting trade protectionism. The United States and China recognize that it is critical to follow WTO rules when initiating trade remedy investigations and imposing trade remedy measures, to prevent their abuse, and commit to refrain from using such measures for purposes other than trade remedies themselves, including to achieve industrial policy objectives. The two sides commit to respect the decisions of the WTO dispute settlement mechanism. Both sides commit to handle anti-dumping and countervailing duty investigations in a fair, objective, and transparent manner.

That's typically-ambiguous diplo-speak, but I think it's pretty safe to assume that the CVD/NME issue did come up, and that US complaints (many justified) about Chinese trade remedy actions against US exports were countered with - and thus diluted by - Chinese complaints about the CVD/NME issue and DS379.

So, what, pray tell, is the big holdup with the DS379 implementation?  What's causing US stammering before the WTO's DSB and taking up precious negotiating time at the S&ED?  Well, if the recent questionnaires issued by Commerce in the Section 129 proceedings are any indication, it's because the agency still hasn't quite figured out how to handle the "double counting" issue and comply with both the new CVD/NME law and the Appellate Body's ruling.  (This gets a little complicated, so stick with me.)

On March 28, 2012 Commerce issued Section 129 questionnaires in the four AD/CVD cases involving Chinese imports that were the subject of the AB's ruling in DS379.  I've uploaded one of the public questionnaires here, and, as you can see, the questionnaires appear to be an attempt by Commerce align the Section 129 determinations with the new CVD/NME law's provisions on - you guessed it - double counting.  As you'll recall, Section 2 of the law states that, in the event a countervailable subsidy has been ascribed to an NME import for which Commerce has already made an AD determination, Commerce must reduce the AD duty (thus mitigating the risk of double remedies) where two conditions are met: (i) it has been demonstrated that such a countervailable subsidy has reduced the average price of its US imports of the subject merchandise; and (ii) DOC determines that it can “reasonably estimate” the extent to which the countervailable subsidy has increased the dumping margin for the merchandise.

As I noted at the time the CVD/NME bill was being debated, the drafters of the new law made clear that part (i) of Section 2 imposes on NME exporters the burden of demonstrating that any subsidies conferred have lowered the NME exporter’s US import prices.  Although the questions posed in the four questionnaires do not specifically reference double counting or this burden, they appear to seek information from NME exporters on how, and to what extent, any government subsidies affected the exporters' US import prices (Section 2(i) of the new CVD/NME law). On April 11, 2012, China’s Ministry of Commerce (MOFCOM) politely and fully responded to Commerce’s March 28 questionnaires.

Those responses, however, apparently were not sufficient to enable Commerce to solve the double counting conundrum and, in line with the new law, to "reasonably estimate" double counting.  On April 19 - only 6 days before the DS379 deadline - Commerce issued another set of questionnaires on double counting-related issues.  Humorously, the deadline for responses to the supplemental questionnaires was set for April 30, 2012 – five days after the DS379 deadline would have passed (so Commerce obviously knew that they weren't making that deadline) - but MOFCOM just-so-happened to respond early on April 25.  Early responses from the Chinese government are not a normal occurrence, so it's pretty clear that this was a very passive aggressive signal from the Chinese government that they were no longer playing around here.

And, to my knowledge, it's been radio silence from Commerce ever since.

So to recap: DS379 still isn't implemented; that delay appears to be due to the controversial double counting issue, which appears to be tying the Commerce Department in knots; and this mess appears be affecting important US negotiating positions in bilateral trade negotiations.  Great.  Just great.

Tell me again why Congress (including a lot of "free trader" Republicans), President Obama and much of the US business community decided to go down this road and ram through the CVD/NME law, instead of taking one of several, more logical, lawful and strategic policy positions?

Oh, right.

VIDEO: Six Former USTRs Speak Frankly About US Trade Policy

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

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

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

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

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

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

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

Barfield then added one more interesting point over email:

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

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

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

Enjoy.

CVD/NME Recap

Given all of the information on the CVD/NME issue that I've thrown onto the interwebs over the last several days, now's a good time to recap where things stand.  So here's a summary of my most significant blog posts on the CVD/NME issue and the court case (GPX Int'l Tire Corp. v. United States) that threw everything into flux:

• My summary op-ed of the issue and my reasons for why Congress should just "do nothing."

• The major problems with the current CVD/NME bill (H.R. 4105) and why more deliberation is a very good thing.  In short, the legislation (i) is biased against US importers and consumers and denies them rightful compensation; (ii) will breed a firestorm of new litigation over "retroactivity"; and (iii) doesn't solve the "double counting" problem.

• Why the urgent rush to push H.R. 4105 bill through Congress without real consideration is totally unnecessary. (More detail on that point here.)

• Why congressional inaction will not drown US companies via a flood of subsidized imports from China and Vietnam (and how the current NME methodology already addresses Chinese and Vietnamese subsidies).

• The very real pain imposed on US companies and workers due to the CVD/NME policy. (More on that here and here.)

• Background on (i) the underlying ruling of the Court of International Trade in GPX (including the court's repeated concerns over "couble counting" and DOC's admission that it doesn't know how to address those concerns); (ii) the WTO Appellate Body ruling on the U.S. CVD/NME policy and "double counting"; (iii) the "bombshell" ruling by the Court of Appeals for the Federal Circuit in GPX and its implications; (iv) the joint letter by USTR Kirk and Commerce Secretary Bryson begging Congress to step in and save them (and why their requested solution is the wrong approach).

There's plenty more on CVDs and other subsidy issues here, but these links should cover the main issues and keep you busy for a long while.  Enjoy.

[N.B. Since a few people have asked: I have absolutely no client interest in any of the ongoing litigation - appeals, reviews or investigations - related to the CVD/NME issue.  I helped litigate - and win - the first ever US CVD investigation of NME imports (Coated Free Sheet Paper from China) back in 2006-07, representing the main exporter.  But that's it.]

Zeroing's Zombies, ctd.

When the United States first announced that it had settled WTO disputes with the EU and Japan about the Commerce Department's use of "zeroing" in anti-dumping administrative reviews, I noted that, while the policy might be "dead," its zombies would be roaming the earth for quite a while:

[I]t looks like (i) all of the pending WTO disputes unrelated to the EU/Japan agreements will continue unabated; and (ii) foreign exporters, US importers and/or foreign governments will have to bring additional WTO challenges in order to force USTR to recalculate all the duties that were illegally calculated and collected pursuant to the zeroing methodology. And, even though WTO rules (or at least the Appellate Body's interpretation of them) are abundantly clear on the illegality of zeroing, point (ii) could, of course, cost plenty of time and money before it actually produces results. (Sorry, poor developing countries with tiny trade budgets, but you're gonna have to pay a lot and threaten us before we correct our errors!)

Since that time, DOC issued its Final Rule on zeroing.  It has confirmed my initial concerns... and raised a few more, as noted in a recent Law360[$] article on the subject:

Despite a recent announcement by the U.S. Department of Commerce that it will stop using zeroing in administrative reviews of anti-dumping duties, the years-long battle over the controversial methodology is far from over, attorneys say....

[T]he notice by Commerce leaves several issues unresolved and does not completely foreclose the use of zeroing in all future cases, meaning that litigation and acrimony over the practice will continue for the foreseeable future, attorneys said.

So what are those "unresolved issues"?  Well, first, the new Commerce zeroing rule only applies on a prospective basis:

[T]he announcement by Commerce to exclude zeroing in administrative cases applied only on a prospective basis, meaning it would have no effect on duties that have already been collected based on the zeroing methodology.

“There's no possibility via the Department of Commerce for a recalculation or a refund of those duties, despite the fact that this is an admission by Commerce that what they've been doing for years and years is inconsistent with [WTO] Appellate Body decisions”....

Second, the rule doesn't actually kill off zeroing entirely because it leaves open the possibility Commerce applying the methodology in an investigation where "targeted dumping" is alleged:

Despite what the announcement says, it's also quite possible that Commerce will continue to use zeroing in some cases, attorneys said, because the U.S. has taken the position that the use of zeroing is acceptable in cases of so-called “targeted dumping.”

Targeted dumping is when a company is not dumping its products in the U.S. overall, but is instead dumping its products in a specific region or during specific time periods. For instance, if a company were selling its products at less than fair value in the southwest U.S., but at more than fair value in the northeast, it would be engaged in targeted dumping....

I first discussed Commerce's newfound love of targeted dumping back in 2010, and attorneys surveyed by Law360 earlier this week (including me) noted that, because this little loophole still exists (and because zeroing leads to higher anti-dumping duties), it's extremely likely that domestic petitioners will allege targeted dumping in most future AD cases.  It's also extremely likely that new domestic and WTO litigation will emerge as US importers and foreign exporters/countries challenge the zeroing methodology in targeted dumping cases (neither a WTO panel nor the Appellate Body has ruled on zeroing and targeted dumping... yet).  The outcome of such challenges isn't clear, but if past WTO rulings on zeroing in other contexts are any indication, the US will likely lose here too.  Eventually.

Third, and as I noted a couple weeks ago, Commerce's Final Rule doesn't end several WTO disputes and US court cases on zeroing that are already in progress, and it also doesn't foreclose additional disputes for anti-dumping reviews not covered by the rule (e.g., reviews just recently concluded or still in progress):

The new rule applies to all future dumping cases, but other countries that have challenged the use of zeroing could still impose retaliatory measures on the U.S. if they prevail at the WTO. While the U.S. has said it hopes the new rule will assuage the concerns those countries have about zeroing, it remains to be seen how they will respond, attorneys said....

The new rule also has no effect on the numerous cases pending in U.S. courts over the use of zeroing in past reviews, [attorney Lew] Leibowitz said.

“There are a lot of cases over duties that are tied up in litigation, and the rule doesn't speak to those,” he said. “It's up to the courts to decide if the U.S. violated U.S. laws.”

Last year, the Federal Circuit ruled in two cases that Commerce had failed to adequately explain its rationale for using zeroing in administrative reviews, but not in original investigations.

Those cases, which are still pending, and others at the U.S. Court of International Trade each apply only to the individual investigation at issue, so litigation over the past use of zeroing is likely to go on for some time.

Well, it no longer "remains to be seen" how countries will respond to the new zeroing rule, as well as the US-Japan and US-EU Agreements.  They are going to fight, despite USTR's "hopes" that they'll just pipe down, accept the fact their companies paid millions of dollars in additional (illegal) anti-dumping duties in "old" reviews where zeroing was used, and be happy about Commerce's much-delayed (and coerced!) change of heart.  (Shocking, I know.)  Two very recent examples make this fact very clear.

First, the WTO announced on Tuesday that its Dispute Settlement Body established a panel to address Korea's January 2012 complaint against the United States' use of zeroing in anti-dumping reviews of certain Korean steel products.  The announcement shows that Commerce's Final Rule was insufficient to address Korea's concerns (emphasis mine):

Korea explained that consultations with the US, requested on 31 January 2011, allowed for a better understanding of the parties’ positions but failed to resolve the dispute. Korea noted that the US announced it would no longer use zeroing in annual reviews and welcomed the US efforts (see also disputes DS322, DS350 and DS294 below). Korea regretted that the US plans did not go far enough to fully address its concerns. Korea noted that zeroing in administrative reviews had repeatedly been found inconsistent with the WTO Anti-dumping Agreement and that the US was expected to amend the methodology accordingly.

The US said that its Department of Commerce published on 14 February 2012 a modification to its procedure regarding the use of zeroing in anti-dumping reviews. The US said that this modification would address the matter covered in Korea’s panel request. The US added that the process of modifying its methodologies to respond to DSB rulings on zeroing had been completed and, therefore, moving forward with this dispute served no purpose.

Right, "no purpose"... other than to push the United States into recalculating "zeroed" anti-dumping duties on Korean imports that would not otherwise be recalculated pursuant to Commerce's new rule.  And if you're a Korean exporter or US importer who paid those extra duties, that's a pretty big purpose, I'd say.

(The same WTO announcement also noted that Brazil is still weighing its options with respect to its complaint against the US for zeroing in reviews of Brazilian orange juice imports.  Wanna bet on what they decide to do?)

Second, the WTO separately announced that Vietnam has filed a brand new complaint against the United States related to US anti-dumping reviews of Vietnamese shrimp.  The text of the complaint isn't out yet, but reports indicate that it's a follow-up to Vietnam's successful 2010-2011 complaint against - surprise! - the United States' zeroing methodology.  The timing of Vietnam's new complaint - about a week after the publication of Commerce's Final Rule - makes clear that they, like Korea, are not going to stop litigating past US infractions just because the United States has now promised not to commit new ones.

Well, unless targeted dumping's involved, of course.

Zeroing May Be Dead, But Its Zombies Still Roam the Earth (UPDATED)

I've long lamented the United States' almost-decade-old refusal to comply with numerous WTO Appellate Body rulings (and a US appeals court decision) against the Commerce Department's "zeroing" methodology in anti-dumping investigations and reviews.  (Plenty of background here.)  DOC terminated the practice - which artifically inflates dumping margins (and thus anti-dumping duties) - in original investigations in 2007 and announced in December 2010 a "preliminary rule" intended to cease zeroing in annual reviews and 5-year "sunset" reviews.  But since 2010, there's been nary a peep from DOC with respect to the Final Rule needed to actually stop the practice and get the United States into compliance with all those adverse WTO decisions.  Thus, US exports remained vulnerable to potential retaliation from aggrieved WTO Members who had brought and won challenges to DOC's use of zeroing in reviews involving their imports, and the United States zeroing delinquency sullied its good name (stop laughing) in international trade negotiations and undermined its incessant fingerwagging about "enforcing global trade rules." 

Well, it appears that the retaliation threats (not the policy embarrassment or good will) have finally forced the US government to act:

The US has reached deals with the European Union and Japan to drop a contentious practice in its anti-dumping calculations known as “zeroing”, ending a longstanding international trade dispute in order to prevent retaliation against American products.

The agreements, signed in Geneva, will close the books on a fight that began in 2003 when the EU first filed a case against the US at the World Trade Organisation. The WTO eventually found that the “zeroing” applied by the US was in violation of global trade laws, authorising the EU and Japan, which had joined the case, to punish the US with higher tariffs on certain goods.

“We have finally put these burdensome and potentially damaging trade disputes behind us,” said Ron Kirk, US trade representative. “American farmers and businesses can invest in job-creating export markets without the uncertainty of possible trade retaliation.”

Anti-dumping measures are imposed in the event that a product is being exported at a lower price than it costs in the domestic market. But in the case of “zeroing”, a country would ignore instances in which that product was being sold at a higher price internationally than at home, which critics see as unfair and protectionist.

The full USTR press release and more background on the settlement are available here.  What caught my attention are the following passages:

Under the agreements signed today, the United States will complete the process – which began in December 2010 – of ending the zeroing practices found in these disputes to be inconsistent with WTO rules. In return, the EU and Japan will drop their claims for trade retaliation....

The United States will continue to press in ongoing WTO negotiations for affirmation that zeroing is consistent with WTO rules. Nonetheless, in these circumstances and at this time, the compliance actions announced today are important in confirming U.S. support for the rules-based system that the WTO provides. Moreover, as Ambassador Kirk explained, “the Administration is committed to vigorous enforcement of U.S. antidumping and other trade remedy laws. I am confident that we will continue to enforce these laws effectively, as was shown, for example, in our successful defense of the President’s imposition of duties on tires from China.”

The EU first requested WTO consultations with respect to zeroing in June 2003, and Japan requested WTO consultations in November 2004.  In October 2006, the EU initiated a second zeroing dispute covering additional proceedings. In each of these disputes, the WTO Dispute Settlement Body (DSB) found that the use of zeroing in certain antidumping proceedings was inconsistent with WTO rules. Detailed information may be found at www.wto.org, under dispute numbers DS294, DS322, and DS350....

After the DSB found that the United States had not come into compliance with the DSB findings, the EU and Japan made separate requests for authorizations to impose trade retaliation against the United States. These requests were referred to WTO arbitrators. The parties subsequently agreed to suspend the arbitrations to allow additional time for discussions.

Under the terms of today’s agreements, the U.S.-Japan and U.S.-EU trade arbitrations will remain suspended and will be terminated – without the issuance of awards – after the United States completes its implementation of the agreements.

The text of the bilateral agreements is not publicly available, but it would appear that USTR is signaling not only the end of zeroing in the reviews at issue in the Japan and EU disputes (via a recalculation of anti-dumping duties) but also the end of zeroing altogether.  And, indeed, word on the street is that DOC will announce in the next week or so a Final Rule terminating the practice on a prospective basis.  If so, that's good - albeit very long overdue - news. 

However (you just knew that was coming, didn't you?), beyond the seemingly interminable delay and USTR Kirk's bizarre praise for the China tires case, today's news is far from ideal.  Most notably, it appears that DOC will not recalculate duties in the hundreds of reviews in which the agency has illegally used zeroing over the last several years.  (Indeed, DOC is still vigorously defending the practice in US courts.) 

So, admittedly without seeing the bilateral agreements or DOC's Final Rule, it looks like (i) all of the pending WTO disputes unrelated to the EU/Japan agreements will continue unabated; and (ii) foreign exporters, US importers and/or foreign governments will have to bring additional WTO challenges in order to force USTR to recalculate all the duties that were illegally calculated and collected pursuant to the zeroing methodology.  And, even though WTO rules (or at least the Appellate Body's interpretation of them) are abundantly clear on the illegality of zeroing, point (ii) could, of course, cost plenty of time and money before it actually produces results.  (Sorry, poor developing countries with tiny trade budgets, but you're gonna have to pay a lot and threaten us before we correct our errors!)

Did I mention that this decision had nothing with good will and everything to do with avoiding direct retaliation against US exports?

UPDATE: A friendly commenter directed me to the text of the US-EU Agreement.  As expected, it calls for the recalculation (via a "Section 129" determination) of duties only for EU imports, as specified in the Annex.  I understand that the US-Japan Agreement takes the same approach.  Not much more in there about DOC's Final Rule, so I guess we'll have to wait until next week for that.

On China Trade, the Obama Administration Just Can't Stop Digging

When I first reported on the "bombshell" ruling of the US Court of Appeals for the Federal Circuit (CAFC) in GPX Int'l Tire Corp. v. United States that the US countervailing duty law did not apply to China and other "non-market economies," I noted that the court decision would likely cause a lot of legal and political scrambling by the Obama administration as it rushed to clean up the big mess that its CVD/NME policies (admittedly begun by the Bush administration) had caused.  I also noted at the time that the administration could easily extricate itself from the deep CVD/NME hole that had been dug - in the US courts and at the WTO - if it did the smart, strategic thing and designated China a "market economy" under the US anti-dumping law.

It appears, however, that the administration has unsurprisingly decided not to take my advice, and instead is content to keep on digging, regardless of how deep and dirty their hole could get.

Late last week, USTR Ron Kirk and Commerce Secretary John Bryson sent an "urgent" letter to the heads of the House Ways & Means Committee and the Senate Finance Committee asking them to act quickly to pass legislation modifying the US CVD law to "clarify" that it applies to NMEs like China and Vietnam.  The full text of the letter isn't available at the USTR or Commerce website (most transparent administration ever!), but here are the highlights (and here's a nice summary of the letter by the FT's Alan Beattie):

Absent legislative or judicial action, the court's ruling will take effect shortly after February 2, 2012.  Should this occur, it would have substantial adverse economic implications for our country.

Accordingly, the Administration stands ready to work with Congress to enact legislation clarifying that the CVD law can be applied to subsidized goods from non-market economies, that CVD proceedings Commerce has already initiated on products from non-market economies are to continue, and that CVD determinations Commerce has made with respect to such products are to remain in effect.

This matter is of the utmost urgency.  Absent legislation, should the decision of the court become final, Commerce will be required to revoke all CVD orders and terminate all CVD proceedings involving non-market economy countries, including 24 existing CVD orders on imports from China and Vietnam, as well as five pending investigations and two recently filed petitions....

The CVD proceedings placed at risk by the court's decision cover a wide range of products in which U.S. manufacturing is most competitive, including steel, aluminum, paper, chemicals, tires, and other products. The annual value of the subsidized imports covered by these CVD proceedings is $4.7 billion. The U.S. petitioning industries that are competing against these subsidized imports include small and medium-sized enterprises and large corporations; family-owned businesses and Fortune 500 companies. These petitioning industries - representing more than 80 companies - are spread across 38 states and employ directly tens of thousands of manufacturing workers.

The Administration is fully committed to enforcing our trade laws and to addressing unfair trade practices in accordance with our statutes, regulations, and international obligations. As our staff discussed with your staff soon after the court's ruling, we are currently reviewing all options, including a request for a rehearing by the full appellate court, as we believe the court's decision misreads the CVD statute, precedent, and Congressional intent and historic bipartisan support of strong CVD laws. Notwithstanding the strength of our legal position, prompt legislative action is necessary to clarify the law and avoid harm from injurious, subsidized goods.

There's way too much going on here for one blog post, so for now I'll only briefly mention the letter's rather ridiculous policy aspects.  Most notably, Kirk and Bryson accept as gospel the notion that removing duties on Chinese imports would be a net loss for the US economy, and, in a similar vein, completely ignore the harms that such (illegal) duties have on American companies and consumers - a problem that's long been chronicled by Cato's Dan Ikenson.  Also, as Ikenson notes in a new blog post, the current NME methodology used by DOC in anti-dumping cases is neither precise nor reasonable, so the idea that it is this precious thing that must be protected by urgent congressional action is downright laughable.  Finally, the joint letter's one-sided nature provides an extremely troubling preview of President Obama's proposed trade agency consolidation.  While I've expressed serious doubts that Obama's "plan" will ever go anywhere, the Bryson/Kirk letter should be extremely distressing for anyone who was hoping that the new trade super-agency would retain USTR's broader, more-balanced trade policy perspective (as opposed to DOC's more blatant and forceful mercantilism).

With the (bad) policy out of the way, I'd like to focus tonight on the letter's procedural, legal and political aspects.  The letter makes clear that the Obama administration plans to pursue a two-track approach with respect to the GPX decision: (1) appeal it to the CAFC for a re-hearing or en banc review (i.e., a review by all of the circuit's judges instead of the typical three-judge panel); and (2) simultaneously seek congressional legislation that would ideally do three things: (a) "clarify" that the CVD law may be applied to imports from NME countries; (b) let the seven pending CVD investigations of NME imports continue; (c) and mandate that 24 previous CVD-NME determinations remain in force.

On the appeal front, the letter's "urgent" February 2 deadline is based on the 45-day deadline for seeking a re-hearing or en banc review before the CAFC, but the breathless air of urgency here is somewhat overblown.  In fact, Congress probably has several months to draft and pass this legislation because the GPX ruling won't actually be "final" until all appellate avenues - at the CAFC and the Supreme Court - are foreclosed.  The CAFC typically takes around 20 working days to act on a panel rehearing request and as much as 60 working days to act on a en banc rehearing request.  Granting such a request is extremely rare, and it's highly unlikely that the court in this case will grant either request because the original decision was unanimous and the full court already had a chance to review it prior to publication.  But even if both requests are denied, these long-ish deadlines mean that the Obama administration might be able to stretch out the appeals process at the CAFC until early May.

At that point, Congress might have to act, but only if the administration also hasn't decided to appeal the GPX decision to the Supreme Court.  The joint letter doesn't mention that possibility, but my guess is that DOC and USTR are just focusing on the CAFC for now because the 90-day deadline for petitioning the Supreme Court for a writ of certiorari (by which the Court would accept the appeal) won't actually start running until the CAFC has rejected the administration's rehearing/en banc request(s) in early May.  The Court typically decides whether to hear an appeal in 6-8 weeks, but this can be delayed where petitions are filed near or during the Court's summer recess in late June/early July.  In that case, the Court wouldn't announce that it was denying certiorari - the most likely outcome in this case, as I've already explained - until the first Monday of October.  So if DOC petitions the CAFC for an en banc re-hearing, then appeals the case to the Supreme Court after the CAFC rejects the re-hearing request, all possible appeals might not be foreclosed - and Congress might not be forced to act - until October 1, 2012!

Meanwhile, DOC will continue to act as if nothing has happened.  The existing, now-illegal CVD orders will remain in place and duties will continue to be collected; the pending investigations will continue apace; and DOC will initiate new investigations upon receipt of a proper petition (as it just did in the new CVD investigations of wind turbines from China and steel hangers from Vietnam).  ("Move along, nothing to see here.  Please don't look at that joint letter to Congress behind the curtain.")  For this reason alone, I expect every appeal possibility to be fully explored and utilized unless Congress acts in the meantime.

Congressional action, however, is probably going to be tricky.  First, any legislation that applies retroactively to those 24 existing CVD orders - which the joint USTR/DOC letter expressly requests - could raise legal issues under US law and WTO rules.  Although the law is unsettled in both jurisdictions, I'd be amazed if several US and/or Chinese companies didn't try to challenge the new law's retroactive application (and the collection of millions of dollars-worth of illegally-collected duties) in US courts, and/or the Chinese government didn't at least request consultations pursuant to WTO dispute settlement.

Second, and far more troubling, the likelihood that any legislation on China and CVDs can make it through both chambers of Congress during a contentious election seasons without attracting all sorts of nasty protectionist amendments - including one applying CVDs to imports of countries with "misaligned" or undervalued currencies - seems slim.  While the GOP-controlled House might be trusted to produce and pass (trade remedies bills have broad bi-partisan support) a clean measure, the same very likely cannot be said of the Democrat-controlled Senate - the same Senate that passed a stand-alone currency bill by a strong margin only a few months ago and whose leaders, Harry Reid and Chuck Schumer, just love to force Republican Senators to vote on protectionist legislation during election years.  And when a clean House bill and a currency-laden Senate bill get to a conference committee, do we really trust the conferees - including Ways & Means Chairman Dave Camp who is from trade-skeptical Michigan and up for re-election in November, and voted for a similar currency bill in September 2010 - to exorcise any offending currency language from a final bill?

I sure don't.

Moreover, if a CVD/NME/currency bill did emerge from the conference, strong bi-partisan support is all but certain in an election year, especially given the strong, vocal support for such a measure from GOP frontrunner candidate Mitt Romney.  And let's face it: the chances that President Obama would veto that bill in the fall of 2012 - contrary to much of his own party, US labor unions and his own rhetoric - seem remote (particularly, again, given Romney's aggressive position on China trade).

As I've repeatedly mentioned here, any new currency law would be a real problem for the United States, as it would likely violate WTO rules, provoke retaliation and open the floodgates to US duties on imports from other countries (like Korea) who engage in currency policies similar to those of China.  Maybe the possibility of the CVD/NME bill becoming a protectionist Christmas Tree is why Kirk and Bryson's letter has that exaggerated sense of urgency - maybe they know that the closer we get to November 2012, the more difficult it will be to prevent currency language from being included in any bill and thus to avoid a major trade conflagration between the United States and China (and several other distressed US trading partners).  Of course, both the administration and Congress are very well aware of the fact that February 2 isn't the real deadline for action, so delay of any CVD/NME bill seems pretty inevitable, particularly given the current political climate.

Meanwhile, DOC will keep acting as if nothing ever happened, US importers and consumers will continue to pay illegal duties, and China will - for very good reason - keep complaining about US "protectionism" at every possible opportunity.

In short, the CVD/NME issue is shaping up to be a complete debacle - one that the Obama administration seems perfectly willing to continue, yet probably could be avoided if the United States just moved to designate China a "market economy" under the US anti-dumping law and/or ditched the problematic NME methodology altogether.  Depending on the scope of any such effort, it could cause many, if not all, of the United States' CVD/NME problems to disappear.  Pending CVD investigations of Chinese (and maybe Vietnamese if the whole methodology was scrapped) imports could continue, and new CVD investigations could be initiated, without any concern as to whether those proceedings violated US law or WTO rules.

DOC also could recalculate previous anti-dumping and countervailing duty decisions pursuant to standard "market economy" methodologies - a move that not only would eliminate the United States' need to meet the February  late April 2012 deadline [note: it was just recently extended] for complying with the WTO Appellate Body's 2011 ruling against DOC's CVD/NME methodology, but also might (maybe) avoid further litigation related to the retroactive application of the CVD/NME law to those 20-plus CVD orders already in place.  Even if that move weren't perfectly legal, the Chinese and Vietnamese governments value the elimination of the NME stigma so much that they might be willing to look the other way.  (And, as I've previously mentioned, they also might be willing to make other concessions on issues like market access and IPR in exchange for the "market economy" designation.)

Such moves would greatly diminish the necessity and urgency of potentially-problematic, pre-November legislation "clarifying" US CVD law to apply to NMEs.

The big policy change also would give the United States some moral high ground in bilateral trade negotiations with China.  The US has many legitimate complaints against unfair or distortive Chinese trade practices, but the CVD/NME issue - and the United States continued refusal to comply with adverse court and WTO rulings - undermine the strength of those very valid concerns and expose US exports to potential retaliation.  And the United States will be required to relinquish China's NME status in December 2016, as stated in China's WTO Accession Protocol, so time is running out anyway. (Ikenson has more on these points here.)

In short, there's a very simple way to avoid most, if not all, of the economic, legal and political problems raised by the current CVD/NME mess, and the move makes lots and lots of sense regardless of the CAFC decision.

And yet the Obama administration just keeps on digging.

UPDATE:  Ikenson throws in a nice little "told you so" on Cato's blog, noting that if the Obama administration had just taken our (admittedly unsolicited) advice three years ago, they could have avoided all of this.  Alas.

UPDATE2: I have more updates on timing and other fun stuff here.

Obama's Trade Department Reorganization Plan: Who Cares?

Late last week, the President announced a bold plan to seek new authority from Congress to combine six government agencies into one super-agency that would cover all aspects of the United States' international trade policy.  The White House "fact sheet" lays out the basics:

The President’s first focus under the Consolidation Authority Act would be to make it easier for America's small businesses – which are America’s job creators – to compete, export and grow.

Currently, there are six major departments and agencies that focus primarily on business and trade in the federal government. The six are: U.S. Department of Commerce’s core business and trade functions, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency.

Unfortunately, other than this basic information and mention of a snazzy new "BusinessUSA" website, the White House "fact sheet" is pretty devoid of, you know, actual facts.  Nevertheless, the President's big announcement elicited an avalanche of commentary from trade experts across the political and ideological spectrum.  I won't get into all of that analysis tonight, but I think the most valid substantive concern relates to the differing mandates and focuses of the agencies at issue, particularly the Commerce Department and USTR.  As former USTR Susan Schwab simply put it, "The point is that USTR works... You want from the Commerce Department a full-throated unapologetic advocate for the U.S. industry. You don’t want an agency that has to pull its punches."

Phil Levy and Bruce Bartlett - both of whom worked in the White House - provide, in my humble opinion, the best expansions of Schwab's pithy comments.  First Levy:

In describing its latest proposal, the White House states: "[T]here are six major departments and agencies that focus primarily on business and trade in the federal government." The key word in that claim is primarily. The modern trade agenda involves a significantly larger number of government agencies. When financial services are on the table, Treasury is concerned. When intellectual property questions arise, there's the Patent and Trademark Office. When the discussion turns to beef market access, it's Agriculture. On export control questions, Defense speaks up. Almost every trade agreement raises diplomatic (State) and economic (CEA) questions and could well have an impact on workers (Labor) and business (Commerce). The list goes on.

For this reason, trade issues are commonly hashed out through an interagency process. With the benefit of its position in the White House, USTR serves as an impartial chair of this policy process. If USTR and the trade-related components of Commerce were to merge, how would an administration handle interagency disputes? Of course, a White House body like the National Security Council or the National Economic Council could play the impartial chairing role, but that would require a vastly expanded support staff to cover the broad range of intricate issues. That could effectively mean a re-creation of the current USTR, resulting in minimal savings.

Or the administration may just be arguing that it cares only about export promotion, the traditional domain of the Commerce Department. That would be consistent with the President's mercantilist view of trade, in which exports are good and imports are better left unmentioned. But it would be bad policy.

Then Bartlett:

I know from personal experience at the Treasury Department that in internal administration discussions of trade policy the various agencies are expected to play certain roles. Commerce always defends whatever business wants because that’s its job. The Council of Economic Advisers always takes the principled free trade position, and so on.

At the end, the Office of the Trade Representative is the “honest broker,” a role that would be impossible for it to play as part of the parochial Commerce Department. The Office of the Trade Representative’s ability to fulfill this function is now assured by its position as part of the executive office of the president. This allows it to take the broad view of what is in the best interest of the country as a whole and bargain with our trading partners in good faith.

To effectively abolish the Office of the Trade Representative is a dreadful idea. It is a small agency; there are no efficiency gains to be realized by making it another bureau within Commerce. And no matter what promises are made to guarantee its independence, placing the Office of the Trade Representative within Commerce will inevitably politicize the office....

The Obama proposal may just be an election year ploy so that he can continue to say that he will create two million jobs through exports.... But [it] may also indicate a commitment to discredited industrial policies and a subordination of trade policy to political interests.

Having worked extensively with both USTR and Commerce, I had the same substantive concerns when I first heard about the White House's plan.

But substance certainly wasn't my primary, or even secondary, reaction.  Instead, I'm left wondering why pretty much every trade policy wonk in the country has decided to immediately write a few hundred words on a "plan" that quite literally doesn't - and might never - exist.  Bartlett and Levy both mention this little concern in passing, as have a few other folks, but that didn't stop them all from then opining at length on the economic, legal and procedural aspects of the plan (and by "plan," I again mean the aforementioned bullet points).

This is no small matter, and it deserves more than passing mention.  What the President has proposed is a major endeavor involving thousands of government employees, competing (if not outright conflicting) agency mandates, and, of course, congressional approval during what promises to be a very contentious election season.  His idea isn't new - it's been proposed by previous administrations and was first raised by Obama about a year ago in his 2011 State of the Union Address.  It comes on the heels of other trade-related White House announcements - such as the new US Trade "Panel" to watch China trade and the revival of the beloved "outsourcing tax" - that have more than a little "election year scent" attached to them.  And it was proposed by a White House team that, as Levy notes, has a long history of using trade issues as political tools.

So here we have a trade policy concept that - whatever its actual merits - would require a very detailed and serious plan and very prolonged and serious political effort from a White House that, when it comes to trade, has repeatedly shown distaste for such things.  And despite the fact that the President announced his concept a year ago, we've seen absolutely nothing from the White House beyond a very simplistic "fact sheet" that basically echoes what Obama said last year.  Heck, even his fellow Democrats are pretty clearly ambivalent about the whole thing, yet I'm supposed to get excited about it?

Umm, no thanks.

But, hey, maybe the White House will surprise me and issue its reorganization blueprint tomorrow and its congressional lobbying strategy the day after that.  I guess anything's possible.  But until I see a concrete plan and concrete action, I remain more than a little skeptical that Friday's "big announcement" was anything more than Step 23(b) on the White House's re-election playbook.

And as for my friends and colleagues in the trade community, either they admirably possess far less cynicism than I, or, with the Doha Round on ice and pending US FTAs finally through Congress, they're really this bored and desperate for something to talk about.

I guess it could be both.

Obama Administration Votes Present on Japan and the TPP

As had been rumored for about a week now, Japanese Prime Minister Yoshihiko Noda announced today that his country will formally seek to join the ongoing the Trans-Pacific Partnership, which now includes the United States, current US FTA partners Australia, Chile, Peru, and Singapore, new FTA partners Brunei, Malaysia, New Zealand and Vietnam.  It's undeniable that Japan's membership in the TPP would provide immense economic benefits for US exporters and consumers and cement relations with one of the United States’ closest allies (and a country that could really use our help right now).  Japan's inclusion also would transform the relatively minor agreement into a serious platform for even greater trade and economic growth and an important counterweight to China’s growing influence in the region, thus giving the slow-moving TPP just the kick in the butt it needs to hasten completion.

Despite these economic and strategic benefits, Noda's decision didn't come easy: free trade faces serious political obstacles in Japan, particularly from domestic farm and other groups who have long opposed further liberalization initiatives.  So, given all of this, the United States responded to Noda's big, politically-risky announcement with excitement and encouragement, right?

Err, take it away, USTR Kirk:

The United States welcomes Prime Minister Noda’s important announcement expressing Japan’s intention to begin consultations with Trans-Pacific Partnership countries towards joining the TPP negotiations....  In close consultation with Congress and our domestic stakeholders, we look forward to engaging with the Japanese in these discussions. To join the negotiations, Japan must be prepared to meet the TPP's high standards for liberalizing trade and to address specific issues of concern to the United States regarding barriers to agriculture, services, and manufacturing trade, including non-tariff measures.  Japan’s interest in the TPP demonstrates the economic and strategic importance of this initiative to the region.

Translation: "Yeah, umm, thanks.  We'll be in touch."

Gee, I wonder what could be holding back the Obama administration from openly and warmly embracing one of the largest economies in the world and one of our biggest allies?

Oh, right.  That.

Politix Can Make You Stoopid

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

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

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

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

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

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

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

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

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

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

Smooth.

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

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

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

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

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

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

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

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

(Although that would've been awesome.)

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

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

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

(h/t Andy Roth)