New Podcast: Russia, the United States and the WTO

The good folks at Coffee and Markets had me on their show today to talk about Russia's WTO accession, the related US congressional vote on Permanent Normal Trade Relations (PNTR), and broader US efforts (or lack thereof) at the WTO.  The podcast is available to listen or download here or here.

Enjoy!

With Russia Poised to Enter the WTO, Will Congress Really Deny Permanent Normal Trade Relations?

Reuters reported over the weekend that several US auto parts manufacturers will travel to Russia with the US Department of Commerce to seek new customers in Russia, which was approved to join the World Trade Organization in December 2011.  The trip itself is pretty unremarkable - Russia has a big, untapped auto parts market, and DOC organizes these kinds of trade promotion trips all the time.  One passage, however, warrants further discussion (emphasis mine):

With Russia on the verge of joining the World Trade Organization in July, the White House is also trying to persuade a skeptical Congress to repeal a Cold War-era trade measure known as the Jackson-Vanik amendment in order to establish "permanent normal trade relations" (PNTR).

The vote is important because unless Congress takes that step Moscow could deny U.S. exporters the market opening-benefits of Russia's accession to the WTO, while granting them to U.S. competitors around the world.

Russia's fast-growing auto market is certainly "a great example of why we need to go ahead with terminating Jackson-Vanik and granting PNTR," [Commerce Deputy Under Secretary Michelle] O'Neill said.

That's expected to be difficult because of concerns in Congress about Moscow's record on human rights and its foreign policy, which is often at odds with the United States.

In addition, some lawmakers are unhappy with the automotive terms of Russia's entry into the WTO, even though Detroit's Big Three automakers have endorsed the pact.

Reuters certainly isn't wrong to note recent congressional grumbling about the impending vote on Russia trade relations.  At a key Senate hearing last month, the GOP's number 2 Senator, John Kyl, joined several of his Republican colleagues in expressing concerns about Russia's human rights record and support for Syria.  And, some protectionist lawmakers will certainly oppose PNTR, regardless of what Russia does on human rights.

Nevertheless, I'm willing to go out on a limb and say that the current conventional wisdom that the Russia PNTR vote will be a difficult one is mostly exaggerated for several reasons.

First, as this recent Cato Institute briefing paper makes clear, granting Russia PNTR is an economic no-brainer because it will provide immense new market access opportunities for US companies:

To enjoy the enhanced access to Russia's market, the U.S. government will need to grant permanent normal trade relations (PNTR) to the Russian Federation. Under the 1974 Jackson-Vanik Amendment, Congress is required annually to pass a special exemption for Russia extending it conditional access to the U.S. market. The law was originally intended to withhold normal-trade-relations status from communist countries that did not allow Jewish citizens to freely emigrate. Even after the fall the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991, the law continued to apply to most former communist countries because of their continued status as "nonmarket economies."

As a condition of membership in the WTO, all members are expected to grant unconditional most-favored nation (MFN) status to all other members. This means each WTO member must offer the same level of market access to other members without attaching special conditions to that access. Continued application of Jackson-Vanik to Russia would be a violation of unconditional MFN status, since it depends on Congress granting renewal each year.

If Congress does not grant PNTR to Russia by repealing Jackson-Vanik, then the enhanced market-access commitments Russia has made in its accession protocol would not apply to exports from the United States. Producers in the other 150-plus members would enjoy those benefits but not producers in the United States.

The Cato paper goes on to note that certain US exporters, most notably in agriculture, civilian aircraft and financial services, stand to benefit greatly from Russia's WTO accession.  For these reasons, and a few others, the U.S. business community overwhelmingly supports PNTR; for example, in March a coalition of 173 US companies and business groups sent a letter to Congress urging lawmakers to support the measure. Thus, congressional opposition to PNTR will face intense scrutiny from the US business community (not to mention free trade advocacy groups who will undoubtedly be scoring the vote).

Second, the Cato paper also makes clear that denying PNTR won't prevent Russia from joining the WTO, and thus that US exporters and consumers, not their Russian counterparts (or the Russian government), would feel the vast majority of the pain from rejecting PNTR:

Under WTO rules, MFN must be applied "unconditionally." However, WTO Article XIII permits the nonapplication of multilateral trade agreements (e.g., MFN) among particular members under predetermined conditions. Specifically, Article XIII states that nonapplication "may be invoked between original Members of the WTO which were contracting parties to GATT 1947 only where Article XXXV of that agreement had been invoked earlier and was effective as between those contracting parties at the time of entry into force for them of this Agreement." In addition, Article XIII states that WTO agreements "shall not apply as between any Member and any other Member if neither of the Members, at the time either becomes a Member, does not consent to such application." Application of Article XIII essentially amounts to an official and legal declaration that any and all WTO privileges, obligations, and mechanisms are nonexistent and inapplicable between the newly acceding WTO member and the member invoking Article XIII. The United States remains the only country to have evoked Article XIII.

When a WTO member thus "determines that it cannot, for political or other reasons, accede to this or any other GATT/WTO principle toward a newly acceding member, it can 'opt-out' of its obligations toward that member by invoking the non-application provision." In this way, a current WTO member such as the United States can legally refrain from granting unconditional MFN to a newly acceding member such as Russia. The catch is that the member opting out of such an obligation is not entitled to benefit from the increased trade liberalization that the new member has agreed to in its accession protocol. So if Congress refuses to pass PNTR, Russia will become a member of the WTO regardless, but U.S. producers will be denied the same full access to the Russian market that will be available to other WTO members.

The US Congress certainly knows these facts, so it seems quite unlikely that most members would vote to deny PNTR on the (clearly incorrect) grounds that doing so will somehow thwart Russia's accession or teach the Russian government a "big lesson."

Third, and on a related note, it's important to understand that the WTO accession process provides ample opportunities for any WTO Member to gain concessions - trade-related or otherwise - from an acceding nation.  Members can join the acceding nation's "working party" and make bilateral (government-to-government) or multilateral (as part of the whole working party) requests to that nation.  If the acceding nation refuses to comply with those requests, then the requesting WTO Member can block the accession.  Thus, if the United States had really serious concerns about automobiles market access (or anything else) prior to Russia's accession, then it shouldn't have signed off on the final deal until the Russian government addressed those concerns.  But now that the United States has approved Russia's WTO accession, it can't use PNTR as some sort of threat to address them now because, as noted above, the primary victim would be the United States, not Russia.  (That type of negotiating move may have worked in Blazing Saddles, but it's probably not gonna work here.)

So, in short: we had our "big chance" to address any and all issues with Russia, and now we'll have to wait to use WTO dispute settlement or other negotiations to address lingering concerns.  And, again, Congress certainly knows this.

Finally, there's an important procedural - and likely political - element at play here.  Procedurally, Russia's not yet a full WTO Member and probably won't be until mid-summer (at the earliest).  By the terms of Russia's accession, the Russian Duma has until July 23, 2012 to ratify the country's accession agreement.  Russia will then become a full WTO member 30 days after its government formally notifies the WTO that it has ratified the deal.  In order to avoid losing out on all that sweet, sweet new access to the Russian market, Congress only needs to pass, and the President only needs to sign, PNTR legislation right before Russia is a full WTO Member (i.e., when those 30 days are up).  Most insiders agree that Russia will wait until the very last minute to ratify its accession agreement.  Thus, Congress will probably have until mid-August 2012 to grant Russia PNTR before the US business community goes nuclear (and the United States' global trade reputation sinks even further into the anti-trade abyss).

So - and this is just a guess here - if you're a Republican politician looking to score some easy political points by tying President Obama to the, ahem, troublesome Russian government, what better way than to express a little "skepticism" about PNTR and force the Obama administration to publicly support the deal?  Then, in a few months (when it really matters to the US business community), you can put together some simple (non-binding) human rights legislation and set up a monitoring program or two and, all of a sudden, change your tune on PNTR.  But in the intervening months, you can sit back and enjoy reading numerous press reports about your ethical (and patriotic!) skepticism and the Obama administration's strong support for Russia.

Cynical?  Sure.  Smart politics?  Probably.  Harmful in the long-term?  Unlikely.

But that doesn't mean that we all have to play along.

Government Woefully Unprepared for Market Innovation, Part 7491

I've discussed "3D printing" before, but a new must-read article from The Economist explains just how the new technology is causing a "Third Industrial Revolution."  The whole article is worth reading, but I was particularly struck by this discussion of the revolutionary technology's immense impact on national policy:

Consumers will have little difficulty adapting to the new age of better products, swiftly delivered. Governments, however, may find it harder. Their instinct is to protect industries and companies that already exist, not the upstarts that would destroy them. They shower old factories with subsidies and bully bosses who want to move production abroad. They spend billions backing the new technologies which they, in their wisdom, think will prevail. And they cling to a romantic belief that manufacturing is superior to services, let alone finance.

None of this makes sense. The lines between manufacturing and services are blurring. Rolls-Royce no longer sells jet engines; it sells the hours that each engine is actually thrusting an aeroplane through the sky. Governments have always been lousy at picking winners, and they are likely to become more so, as legions of entrepreneurs and tinkerers swap designs online, turn them into products at home and market them globally from a garage. As the revolution rages, governments should stick to the basics: better schools for a skilled workforce, clear rules and a level playing field for enterprises of all kinds. Leave the rest to the revolutionaries.

This all should scare the bejeebus out of those of us who advocate national trade and economic policies which reflect modern realities of today's markets.  Why?  Because our policymakers still haven't accepted obvious market phenomena that have been around for a decade or more, and thus develop and advocate archaic policies that actually serve to hurt domestic industries, workers and the economy more broadly.  For example, almost all US politicians - in both major parties - still kvetch about the US-China trade balance, even though study after study has demonstrated just how pointless that statistic has become in this era of global supply chains.  The latest example of that fact comes from this great new graphic (h/t ToGetRichIsGlorious) which shows the cost and profit breakdown of the iPad in 2010:

As you can see, of the of the $499 retail price, Apple (30.1%) and other US companies (2.4%) get 32.5 percent of the profits, while China gets only a tiny fraction of that (1.6%).  Yet 100% of the iPad's US customs value adds to the US-China trade deficit.  So why on earth do our politicians act like this bilateral deficit - or any bilateral trade deficit for that matter - should form the basis for US-China trade policy?  It's simply mind-boggling.

Another common example of the gaping market-politics disconnect that I've frequently lamented - and one hinted by the story above - is our politicians' continued fetishization of manufacturing (and manufacturing employment).  It warms my heart that a few politicians appear to be getting the message about services, as this recent and (mostly) refreshing op-ed from US Trade Representative Ron Kirk demonstrates:

The United States today is a services trading powerhouse, and it's vital that we build on our already robust services surplus with dynamic new opportunities...

Next month, the U.S. will host the 12th round of negotiations in the Trans-Pacific Partnership. Those critical talks will follow closely on the heels of a number of key engagements with America's global trading partners, including last week's Summit of the Americas, this week's meetings of the G-20 trade ministers, and May's Strategic and Economic Dialogue with China. In June, the trade ministers of the Asia-Pacific Economic Cooperation forum (APEC) will meet in Russia.

In all of these fora, the U.S. will be seeking new avenues for American businesses to sell more of their products around the world, and to hire more workers in the services sector, which already accounts for four out of five American jobs.

The U.S. is the largest services trading country in the world, with $1 trillion in two-way trade in 2011 and a services trade surplus last year of $179 billion (up 23% from 2010). In what economist Bradford Jensen defines as the fastest-growing services sectors, Bureau of Economic Analysis data show that the U.S. in 2010 had a trade surplus of $57 billion with the Asia-Pacific region, of $44 billion with the European Union, of $35 billion with the countries covered by the North American Free Trade Agreement (Canada and Mexico), and of $25 billion with the rest of Latin America....

If some of those data sound familiar, they should - they mirror several of the points that I made in December about America's globally-dominant services sector (and politicians' ignorance thereof).  The aforementioned op-ed goes on to explain some of the (mostly good) things that USTR is doing to further expand US service suppliers' access to foreign markets, but unfortunately, Kirk's boss doesn't seem to share the love for the US service sector.  Instead, most of President Obama's tax and trade policies are geared toward boosting the US manufacturing sector (at the services sector's expense, naturally) - a troubling disconnect that I've noted repeatedly.  So while USTR Kirk's services affinity is certainly a welcome development, it's a bit less exciting when one considers the archaic and misguided policies pushed by the rest of his colleagues in the Obama administration.

And this gets me back to 3D printing and the "Third Industrial Revolution."  If our very "modern" and "progressive" government (and other governments like it) still refuses to recognize and adapt to simple and obvious market developments that have been going on for decades now, what hope does it have in recognizing and adapting to the more complicated and revolutionary things that are happening right now?

If the trade-related examples above are any indication, the answer to that question is as depressing as it is obvious.  That answer also should inform our faith in government policy accepting and adapting to other critical market phenomena too.  Maybe, just maybe, highly complex things like industrial policy or nationalized healthcare aren't very good ideas after all, huh?

Crazy thought, I know.

Destroying Disingenuous Allegations that the WTO is "Anti-health"

About two weeks ago, the WTO's Appellate Body ruled that US ban on clove and certain other flavored cigarettes violated WTO rules.  In particular, the AB found that the US tobacco law violated Article 2.1 of the WTO Agreement on Technical Barriers to Trade, which applies the WTO's "national treatment" non-discrimination principle to "technical regulations":

Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.

In short, WTO Members can impose "technical regulations" all they want, but the regs just can't be biased against imports of the regulated product.

The AB's ruling in the clove cigarettes case is best summarized in the following excerpt of the AB Report.  As you can see, the fatal flaw in the US ban on flavored cigarettes, including clove cigarettes that are overwhelmingly produced in Indonesia, was that the regulation expressly exempted menthol cigarettes, which are overwhelmingly produced (and consumed) in the United States:

In the light of the foregoing considerations with regard to the Panel's findings on likeness and less favourable treatment, we therefore uphold, albeit for different reasons, the Panel's finding, in paragraphs 7.293 and 8.1(b) of the Panel Report, that Section 907(a)(1)(A) of the FFDCA is inconsistent with Article 2.1 of the TBT Agreement because it accords to imported clove cigarettes less favourable treatment than that accorded to like menthol cigarettes of national origin.

In reaching this conclusion, we wish to clarify the implications of our decision. We do not consider that the TBT Agreement or any of the covered agreements is to be interpreted as preventing Members from devising and implementing public health policies generally, and tobacco-control policies in particular, through the regulation of the content of tobacco products, including the prohibition or restriction on the use of ingredients that increase the attractiveness and palatability of cigarettes for young and potential smokers. Moreover, we recognize the importance of Members' efforts in the World Health Organization on tobacco control.

While we have upheld the Panel's finding that the specific measure at issue in this dispute is inconsistent with Article 2.1 of the TBT Agreement, we are not saying that a Member cannot adopt measures to pursue legitimate health objectives such as curbing and preventing youth smoking. In particular, we are not saying that the United States cannot ban clove cigarettes: however, if it chooses to do so, this has to be done consistently with the TBT Agreement. Although Section 907(a)(1)(A) pursues the legitimate objective of reducing youth smoking by banning cigarettes containing flavours and ingredients that increase the attractiveness of tobacco to youth, it does so in a manner that is inconsistent with the national treatment obligation in Article 2.1 of the TBT Agreement as a result of the exemption of menthol cigarettes, which similarly contain flavours and ingredients that increase the attractiveness of tobacco to youth, from the ban on flavoured cigarettes.

In short, the AB ruled that (i) domestically-produced menthol cigarettes are "like" all other forms of imported flavored cigarettes, including Indonesian clove cigarettes; and (ii) the US regulation violates the TBT Agreement because it objectively discriminates against flavored imports (cloves) in favor of flavored domestics (menthols).

The AB's ruling is pretty straightforward, but has nevertheless given certain groups - who just so happen to be big critics of the WTO and trade liberalization more generally - the vapors.  Most notably, Lori Wallach at Public Citizen's Global Trade Watch pretty much went nuts, screeching that the ruling was yet another WTO "attack on consumer protection and health laws," and that the United States now will be "ordered" to terminate the offending tobacco regulation.

Unfortunately for Wallach (and fortunately for the rest of us), neither of her assertions has any basis in law or fact, as Cato's Dan Ikenson makes clear in a great blog post.  In particular, Ikenson notes correctly that--

• Compliance with WTO rules is perfectly voluntary, and the WTO has absolutely no power to command or compel the United States to change any of its laws or regulations.  As I noted a while ago when discussing trade agreements and US sovereignty, if the United States government decides that, for whatever reason, it does not want to amend or terminate a law or practice deemed to be WTO-consistent, it doesn't have to do so, and the worst thing that can happen is that the aggrieved WTO Member can retaliate against US exports (i.e., "suspend concessions") in the amount of the harm allegedly imposed by the offending US law/practice.  In this case, if the US decides not to comply with the AB's ruling, the WTO can't force it to do so.  It can simply permit Indonesia to eliminating tariff or other benefits that US exports receive in the Indonesian market on the basis of the WTO agreements.

• The WTO is not anti-health or anti-consumer protection; it's just anti-discrimination.  As Ikenson puts it: "[T]he WTO did not rule against banning the sale of flavored cigarettes. The law could be made WTO compliant by extending the ban to include menthol, in which case it might be more defensible as a measure to protect youth health.  Or the law can be changed so that both clove and menthol cigarettes are not banned.  The bottom line is that there are many ways to pursue public health and safety and consumer protection that don’t, coincidentally, punish foreign firms to the benefit of domestic ones (which is the narrow area of concern to the WTO)."  This is exactly right, and I'd only add two points: First, there are probably other, less cut-and-dry ways for the United States to comply with the AB's ruling that Ikenson doesn't mention.  Second, claims that the WTO is somehow anti-health or even anti-regulation are ridiculous on their face, given the AB's statements above, and the fact that the WTO Agreements have multiple provisions (e.g., GATT Arts. XX and XXI and GATS Arts. XIV and XIVbis)  specifically exempting protectionist trade measures that would otherwise violate WTO rules where those measures are imposed to protect, among other things, national security, public health and safety, or the environment.  Indeed, the preamble of the TBT Agreement expressly states that "no country should be prevented from taking measures necessary to ensure the quality of its exports, or for the protection of human, animal or plant life or health, of the environment, or for the prevention of deceptive practices, at the levels it considers appropriate," as long as any such regulations "are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade, and are otherwise in accordance with the provisions of this Agreement."  It's precisely the WTO's job to determine, on an objective basis, whether a technical regulation meets the latter condition.  In the cigarettes case, the AB ruled that, because of the gaping menthols loophole, that condition was not met.  In other cases, the WTO has ruled that similar regulatory measures comply with WTO rules or qualify for one of the aformentioned exceptions.

But, hey, maybe Ikenson and I are just crazy libertarian free traders who are blind to the justice and reason behind the views of Wallach and her colleagues.  Maybe everyone else agrees that the WTO is some secretive, pernicious anti-health outfit destined to deregulate the world (and kill myriad puppies, dolphins and children in the process, of course).  

Actually, no.  Many other trade experts have come to the exact same conclusions.  For example, Rob Howse really gets into the weeds of the AB's decision and discovers that the case may really be about the failure of the United States to justify the disparate regulatory treatment among menthol and other flavored cigarettes - a burden that the US government bears because the regulation is so obviously discriminatory against Indonesian clove cigarettes.  

Peter Clark explains that the Appellate Body simply didn't buy the United States' myriad excuses for this "regulatory distinction":

So, why did Washington exclude methanol from the scope of the law? According to the Appellate Body, the: “United States argued that the exemption of menthol cigarettes from the ban on flavoured cigarettes aims at minimizing: (i) the impact on the U.S. health care system associated with treating “millions” of menthol cigarette smokers affected by withdrawal symptoms; and (ii) the risk of development of a black market and smuggling of menthol cigarettes to supply the needs of menthol cigarette smokers. Thus, according to the United States, the exemption of menthol cigarettes from the ban on flavoured cigarettes is justified in order to avoid risks arising from withdrawal symptoms that would afflict menthol cigarette smokers in case those cigarettes were banned.”

The AB did not accept these excuses, explaining: “the addictive ingredient in menthol cigarettes is nicotine, not peppermint or any other ingredient that is exclusively present in menthol cigarettes, and that this ingredient is also present in a group of products that is likewise permitted under Section 907(a)(1)(A), namely, regular cigarettes. Therefore, it is not clear that the risks that the United States claims to minimize by allowing menthol cigarettes to remain in the market would materialize if menthol cigarettes were to be banned, insofar as regular cigarettes would remain in the market.”

Clark goes on to explain some facts behind US consumption of menthol cigarettes which belie some of the US government's claims, but Steve Craven, I think, gets at the real reason for the menthol exclusion: "Menthol-flavored brands... are a big money-maker for tobacco companies and highly popular with American adults.  A special dispensation was put into the act to grandfather menthol cigarettes, prompting some wags to call it the Marlboro Monopoly Act of 2009."  In short, it wasn't public health concerns or US budgetary constraints (ha!) that led to the regulatory exemption for menthols; it was American politics, plain and simple. (More here and here on that point.)

Indeed, Lori Wallach's Public Citizen colleague Todd Tucker essentially admits the political motivations of the menthol exclusion when he comments on another blog post that he "see[s] zero possibility of extending a ban to menthols in the current political climate, or the political climate likely to be prevail by July 2013 - which seems like the outer edge of a 'reasonable period' under Article 21.3 of the DSU. (There's no amount of data that will change the anti-regulatory stance of the GOP, the peculiar politics of menthols within the Congressional Black Caucus, or U.S. courts' skepticism of more burdensome tobacco regulation.)"

Of course, there's nothing in WTO rules preventing a WTO Member from implementing a less-than-perfect regulation which seeks to achieve some perceived social good yet has been watered down for political reasons (and thus discriminates against imports - intentionally or not).  And, as noted above, there's nothing preventing a WTO Member from refusing to comply with a dispute settlement decision against that regulation for similar political reasons. (Indeed, the EU for years refused to comply with multiple WTO rulings against its ban on hormone-fed beef for largely political reasons; it instead chose to accept retaliatory US and Canadian tariffs on EU exports rather than face the political consequences.  And, surprisingly enough, the WTO never dispatched an army of flying Genevan monkeys to stop the EU from pursing this course of action.)

On the other hand, it's simply not for the WTO to make subjective determinations as to the political feasibility or motivations behind a clearly discriminatory law or government practice.  WTO rules, like the GATT before it, are designed to objectively define, adjudicate and discourage discrimination - in law and in fact - against imports.  In the present case, the US ban on flavored cigarettes (because it exempts menthols) discriminates against imports of other "flavored" cigarettes.  The United States could comply with WTO rules by including methols in the ban, but if that or any other method of compliance isn't politically feasible, then the US government can simply sit back and watch Indonesia impose commensurate countermeasures against US exports.  What the United States can't do is impose the partial ban and then expect the WTO to sanction the regulation because it was, according to the US government, the "best they could do," given the political climate.  And groups like Public Citizen certainly shouldn't slander the WTO for refusing to do so.

Indeed, if the WTO ever did make such a subjective, politics-based decision, then pretty much any form of politically-motivated import discrimination could pass muster, and WTO rules - which were intended to de-politicize the trade game by creating objective non-discriminatory rules and an unbiased, apolitical adjudicatory body to determine whether nations laws and actions were objectively non-discriminatory - would instantly be worthless.

Then again, given Public Citizen's longstanding distaste for the WTO - and free trade more generally - maybe that's precisely what Lori Wallach and her colleagues have in mind.

Happy (Additional) Tax Day

As most everyone knows, today is Tax Day in the United States - the annual deadline for paying state and federal income taxes.  I've long been a critic of the irrationality and complexity of US tax code, and the good fiscal cons at the Republican Study Committee have two new charts to really hit these points home.  First, we see just how insanely complex the US tax code really is:

After reviewing my inscrutable tax returns (for the fourth time) yesterday, I'm honestly surprised that the Tax Code's only 3,827,105 words. (It felt like my return alone topped out at a million.)  And it's really no wonder that the World Bank has ranked the United States at an embarrassing 69th out of 183 countries in terms of overall tax burden, including ease of doing taxes.  Pathetic.

Next, the RSC shows us just how much work it takes for the average American to pay his tax bill:

So it'll take the average American over a hundred days to pay off his annual tab to Uncle Sam, and our total tax bill is well more than we'll pay on food, clothing and shelter combined.  Painful.

And speaking of clothing, the American Apparel and Footwear Association helpfully reminds us today that today's income tax bills are really just one of the many taxes that Americans fork over to the federal government:

In case you missed it, today is Tax Day. People all around the country (and even some on staff here at AAFA) are busy crunching numbers to fill in their 1040 form ahead of tonight’s deadline.

If you stop by the mall on your way to or from the post office or jump on your favorite store’s Web site after e-filing, and purchase a shirt, a pair of shorts, or new sandals for the summer with your anticipated return, today is Double Tax Day for you.

You see, 98 percent of the clothing and 99 percent of the shoes sold in the United States are imported. And often, those imports are charged a duty, or a tax paid to the government to allow that product to enter into the United States. For every American who wears clothes and shoes, you are paying extra taxes to the government and you may not even realize it. In fact, while apparel and footwear imports account for only less than five percent of total U.S. imports, clothes and shoes account for more than 40 percent of total duties collected by the U.S. government. And these duties amount to a $30 billion tax at the cash register every year for hardworking American families.

As I've repeatedly noted here, these apparel and footwear tariffs are just a few of the many existing US import taxes that make everyday necessities (and industrial inputs) more expensive in America than they are elsewhere in the world.

So while we all might have a glorious 364 more days before we again worry about today's extra special (and onerous) tax burden, just remember that pretty much every day is "Tax Day" for American businesses and consumers thanks to the US tariff code.

Delicious: DC's Top (Reputable) Currency Hawk Dramatically Lowers Estimate of RMB Undervaluation

Over the last few years, the debate in the United States over China's currency practices has taken significant RMB undervaluation as a given and focused more on its effects and possible US responses. A few folks out there (like your humble correspondent) have questioned this fundamental assumption, but for the most part - especially in Congress - the idea that the RMB might not be as super-undervalued as everyone says is rarely, if ever, entertained.  A primary reason for this strongly-held assumption is the fact that the highly-reputable and (mostly) pro-free trade Peterson Institute for International Economics has loudly and repeatedly told Congress - and pretty much anyone else who'll listen - that their rigorous economic models clearly and unequivocally demonstrate that, despite some appreciation over the last few years, the RMB remains seriously undervalued.  Congress, the Obama administration and campaigning politicians like Mitt Romney, in turn, have repeatedly cited to PIIE's numbers to justify their calls for more aggressive US action against China's currency practices. So what's going to happen on the Hill, in the White House and on the campaign trail now that PIIE's top currency hawk has dramatically changed his tune on the RMB?

A ballooning surplus as China’s exports soared provided the smoking gun in the case against China’s undervalued currency. Economists reasoned that it was the undervalued yuan that was responsible for China’s massive surplus, and a substantial appreciation would be required to correct it.

Helping lead the analytic charge was William Cline, a senior fellow at the Peterson Institute in Washington D.C.

In 2008, working with fellow Peterson economist John Williamson, he estimated the yuan would have to appreciate by 18% in real effective terms, 31.5% against the dollar, to bring China’s current account surplus down to 3% of gross domestic product.

Now, though, a surplus that expanded to 10.1% of GDP in 2007, has shrunk to just 2.8% in 2011 – already below the 3% target.

That has prompted economists to return to their spreadsheets to try and work out whether the contraction is a temporary blip, or here to stay, and what that means for the yuan.

The International Monetary Fund is expected to ratchet down its medium term estimate of China’s current account surplus when it publishes its World Economic Outlook next week, down from above 7%.

Mr. Cline is getting ahead of the curve. “I am coming to the conclusion that the current account surplus is likely to be lower than in past projections,” he said, sharing his latest thinking with China Real Time....

“If the medium-term surplus reaches 4% to 5% of GDP and the international norm is a ceiling of 3%, then it requires 1% to 2% of GDP reduction in the current account” he said. ”Given the size of exports in the Chinese economy, a 1% real effective appreciation of the exchange rate reduces the current account surplus by 0.3% of GDP. So a real effective appreciation of about 3.5% to 7% would be required to reach the target.”

That is a pronounced reduction in Mr. Cline’s estimate of the extent of yuan undervaluation.

"Pronounced" is a serious understatement: only a few months ago, Cline and his PIIE colleague estimated that the RMB was undervalued by a whopping 24%.  Now, he's down to about 5%.  That's quite the shift in only a few months, and the reduction blows a giant hole into the longstanding argument the United States must pursue aggressive, unilateral action to compensate for China's dangerous currency practices.  (Sorry, Fred!)

Now, I don't cite to Cline's revisions to make some definitive case that the RMB isn't undervalued or that China's currency policies are all fine-and-dandy.  No, my point remains the same as is has been for the last several years: it is simply impossible to know the extent and effect of China's currency policies, so American politicians and pundits are mind-blowingly wrong to push harmful US trade policies (like tariffs or other nasty things) and to incite public fear and anger on the basis of PIIE's (or anyone else's) wild guess as to what the RMB's worth and what it's doing to the US and global economies.

And just think if we had followed these politicians into the protectionist abyss on the basis of these uncertain numbers.  (We got really close: China currency bills passed the House in 2010 and the Senate in 2011.)  We'd be smack-dab in the middle of a nice little US-China trade war over either a problem that fixed itself in only a few short years or what turned out to be a steaming pile of hokum.

There's a lesson here, although I unfortunately doubt that its target audience will listen.

Indeed, now that Cline (and some of his PIIE colleagues) have changed their tune on the RMB, how many DC politicians are going to stop complaining about China's currency?  And how many US labor unions and protection-craving businesses will stop demanding consumer-crushing tariffs on Chinese goods to counteract China's supposed currency "manipulation"?  (Two days before Cline revised his figures, the US Steel Industry demanded that the House pass the Senate's currency bill.  I'm sure their retraction's coming any minute now.)

No, no one's going to change his tune in this election season.  Instead, the charade will continue, as it has for the last several years.

But that doesn't mean we have to listen to them.

VIDEO: Six Former USTRs Speak Frankly About US Trade Policy

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

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

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

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

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

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

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

Barfield then added one more interesting point over email:

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

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

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

Enjoy.

"Export-Oriented America"

GMU's Tyler Cowen has a new article in the American Interest that explores a lot of the issues that I've been covering here for the last few years.  Cowen first provides three reasons to think that the United States could become an export powerhouse in the next few years (hint: none of them involve China's currency or President Obama's National Export Initiative):

First, artificial intelligence and computing power are the future, or even the present, for much of manufacturing.... Factory floors these days are nearly empty of people because software-driven machines are doing most of the work....

The more the world relies on smart machines, the more domestic wage rates become irrelevant for export prowess. That will help the wealthier countries, most of all America. This logic works on both sides. America is using less labor in manufacturing, but China is too, even as its manufacturing output is rising. The fact that Chinese manufacturing employment is falling along with ours means that both our higher wages and their lower wages are becoming less relevant for the location of manufacturing decisions. The less manufacturing has to do with labor costs and relative wage levels, the greater the comparative advantage of the United States....

The second force behind export growth will be the recent discoveries of very large shale oil and natural gas deposits in the United States. Come 2030, the United States may well be the new Saudi Arabia of energy markets. We have new fossil fuel discoveries to draw upon, enough to fuel this country for decades, and there is plenty of foreign demand for those resources....

[T]he third reason why America is likely to return as a dominant export power: demand from the rapidly developing countries, and not just or even mainly demand for fossil fuel. As the developing world becomes wealthier, demand for American exports will grow. (Mexico, which is already geared to a U.S.-dominated global economy, is likely to be another big winner, but that is a story for another day.)

In the early stages of growth in developing nations, importers buy timber, copper, nickel and resources linked to construction and infrastructure development. Those have not been U.S. export specialties, and so a lot of the gains from these countries’ growth so far have gone to Canada, Australia and Chile. Usually American outputs are geared toward wealthier consumers and higher-quality outputs, which is what you would expect from the world’s wealthiest and most technologically advanced home market. To put it simply, the closer other nations come to our economic level, the more they will want to buy our stuff. Indeed most of those nations are growing rapidly, so we can expect their attentions to shift toward American exporters. The leading categories of American exports today—civilian aircraft, semiconductors, cars, pharmaceuticals, machinery and equipment, automobile accessories, and entertainment—are going to be in the sweet spot of growing demand in what we now call the developing world....

Just as Canada and Australia have prospered over the past ten years because their specialties matched Chinese demands, the United States is likely to be the bigger winner in the next ten years as Chinese (and other) demands mature. It’s a trend that has clearly already begun. In 2010, for instance, American exports to China rose by 32 percent, according to a 2011 report by the U.S.-China Business Council. Furthermore, American companies, with their practicality and marketing expertise, will be well positioned to convert scientific innovations from Chinese labs into new commercial products once such innovations start to arrive in large numbers.

So far, so good. Cowen goes on to explain that America's new export strength "will resurrect the United States as a dominant global economic power," helping to resolve the United States budget, trade and diplomatic problems.  I especially like Cowen's optimism that "[t]he opposition to free trade as it existed during the 1980s, and which led even Ronald Reagan into auto protectionism, is almost gone, and these pro-export developments mean that it won’t come back anytime soon."  I wonder, however, whether this new US support for free trade could be undermined as US exports are increasingly subject to trade remedies actions in key foreign markets like China - ironic, considering that the United States has always been one of the biggest users (and defenders) of trade remedies to curb foreign imports.  On the other hand, maybe it will result in a significant change in US trade remedies policies in forums like the WTO, seeking to impose, rather than rebuff, more stringent disciplines on nations' application of trade remedies measures.

That interesting hypothetical aside, Cowen goes on to explain the big downside to the United States big export surge:

The new export-based prosperity may not translate into higher wages for everyone, or even most people, in the United States. Skilled laborers who work with smart machines or even hold advanced managerial jobs will continue to make big gains, as the numbers have been showing for some time. Capital will do well too, especially if it is geared toward export success.... [S]ignificant segments of the American workforce are likely to continue suffering falling real wages, even in a time of rising export prowess.

As the number of American jobs in manufacturing has fallen dramatically, it is often forgotten that American manufacturing output has continued to rise, even during some slow times. In the past decade, the flow of goods coming from U.S. factories has gone up by a third as capital has increasingly become a greater share of input over labor....

[W]e’ll probably see a lot of the American workforce accept lower wages. A lot of American exporters are already experimenting with a two-tiered wage structure, with significantly lower wages for incoming workers....

To some extent, these trends resonate with the old saying, “Live by the sword, die by the sword.” Jobs in the export sector face intense competition, precisely because U.S. companies are increasingly selling into a global market, and that means wages in this sector cannot be guaranteed to rise. They might, and they might not, depending on how creative, efficient and well managed we are. Services, in contrast, are often produced inefficiently, but the jobs are more extensively cocooned within a protected domestic market, often based on government privileges and market-distorting third-party payment schemes.

Although I agree (and have argued for a long while now) that US manufacturing exports are not some magic bullet for the US labor market, I'm inclined to quibble a bit with Cowen's repeated characterization of the US services sector as "cocooned within a protected domestic market."  While that's certainly true for government jobs and certain health care and education jobs, it's definitely not the case for an increasing number of services jobs - for example in medicine, engineering, IT and, yes, even law (trust me) - that totally dominate in the face of real and growing global competition (precisely because US services providers are much more "creative, efficient and well managed" than their global counterparts).  Cowen seems to imply later (see below) that a such a dynamic services sector is to be expected in the coming years; I'd argue that, in this respect, the future is indeed now (and it's not nearly as dystopian as Cowen makes it out to be).

Nevertheless, Cowen next explains that even his overly-bad news comes with a silver lining:

There is the prospect of a better career path, accompanying future export gains, that stands a chance of making life less grim for the working class. Some of the new technological and export-related breakthroughs will consist of making education and health care more affordable, often through software and smart machines that bypass the current credentialized control of those fields. Imagine getting an online medical diagnosis from a smart machine like IBM’s Watson, or learning mathematics from an online MITx program or one of its successors. The American poor and lower middle class will have considerably greater opportunities, at least if they are savvy with information technology and disciplined enough to take advantage of these new free or cheaper goods. Of course, this will not come close to helping everybody. These internet tools reward the self-motivated, who will be disproportionately well educated, even if their parents lack higher education, wealth and connections. Many of the rest will still fall by the wayside.

Even American earners who must cope with stagnant wages will probably reap big gains from new opportunities to lower their basic living expenses. Imagine a family earning $37,000 per year that has much cheaper education and health care costs, thanks to government benefits and internet-based innovation. No one will be tempted to call such households wealthy, but they won’t fit the standard measure of poverty either. They will have positive experiences in their lives and lots of free and nearly free goods....

The internet will continue to make it easier for small businesses to export, but many of the growth areas, including fossil fuels, heavy equipment and cars and other high-tech items will remain the province of big business. America will likely see a new age of corporate titans selling their products and services to the entire world, and the world as a whole will be far wealthier than in times past. The wealthiest American earners will be very wealthy indeed, even by current standards. Due to their export activities, they will take an increasingly global perspective, and they will give away lots of their money, just as Bill Gates has expanded his philanthropy abroad.

Cowen concludes by predicting that the growing divide between the hyper-productive and over-protected will grow to dominate our society and our politics:

These days, this old portrait of the two-tiered economy, originally applicable to a developing economy, may be re-emerging for the United States. We had not thought through seriously enough the possibility that the world’s most technologically advanced economy would, over time, develop persistent and indeed growing productivity differentials across sectors. It clearly has, and the social and political frictions this has caused now dominate our politics—or soon will.

One way to understand this is to note a neglected implication of Moore’s Law for computer processing speed, namely that its use in the value-added process benefits some economic sectors much more than others. In this case the static sector consists of the protected services (a big chunk of health care, education and government jobs), and the dynamic sector is heavily represented in U.S. exports, often consisting of goods and services rooted in tech, connected to tech, or made much more productive by tech innovations. Piece by piece, bit by bit, we Americans are replicating the two-tiered developing economy model, albeit from a much higher base level of wealth and productivity.

A battle between the "static sector" (e.g., public sector and industrial unions) and the "dynamic sector" (e.g., industrialists, non-union workers and professional services)?  Is this really, as Cowen contends, the distant future of American politics?

Or is "the future" right now?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Did Politics Influence DOC's "Surprising" Preliminary CVDs on Chinese Solar Panels? (Hint: No)

As I discussed at length last week, the US Commerce Department's "surprisingly low" preliminary countervailing duties on Chinese solar panels caused quite a stir among global trade-watchers.  I explained that the final CVD rates could increase significantly because Commerce was investigating several other programs, but I also gave Reuters a couple guesses as to why the preliminary rates were so low, including, but not limited to, the following issues:

• Because subsidy rates are determined by dividing the amount of the subsidy by an exporter's total sales (or, in the case of export subsidies, its US imports), the "sheer volume" of Chinese solar panel-makers' production and sales "diluted the effect of any subsidies the Chinese companies received"; and 

• Because Commerce calculates subsidy rates for Chinese loans from state-owned banks by comparing the loans' actual interest rates against a "benchmark" based on a basket of lending rates from other, similarly-situated countries (based on Gross National Income),  "generally low interest rates in many countries around world might make it hard to prove Chinese companies received a significant advantage from government-set lending rates."

CFR's Edward Alden, however, has another guess as to why the rates were so low - politics:

The Obama administration has absolutely no desire to impose punitive duties that would actually impede the sale of Chinese solar modules. The power generated by new solar installations in the United States last year was twice the level added in 2010, largely due to falling panel prices, as well as U.S. government production subsidies and consumer tax breaks that have made solar more competitive with conventional sources. Expanding the use of renewable energy is among the administration’s highest priorities. Indeed, when the duties were announced last week by the Commerce Department, President Obama was touring a Nevada solar facility that is the largest PV plant in the United States. Slapping hefty tariffs on Chinese PV imports would undermine that policy.

At the same time, however, the Obama administration does not want to see the few remaining U.S.-based panel makers driven out of business by cheap imports, and key administration allies like Senator Ron Wyden (D-OR) and House Ways and Means Committee ranking member Sander Levin (D-MI) have been pressing for aid to the industry.

What to do? Well, on February 29, the board of the U.S. Export-Import Bank, the U.S. government’s export credit finance agency, approved an $81 million loan guarantee to SolarWorld, which means that most of the production from the company’s Oregon facility will be exported to Canada. The bank did not put out a press release, and it generated no media coverage, though the decision was public....  The bank says the financing will allow for a long 18-year repayment term for exports to the Stardale Solar PV Project in southwest Ontario, which is providing energy to the Ontario Power Authority. The project is owned by Innergex Renewable Energy of Quebec, and the loan will be made by the Bank of Tokyo-Mitsubishi.

The Ex-Im loan guarantee is hardly unusual. Indeed it fits within the bank’s mandate to support environmentally beneficial projects, and SolarWorld and other U.S. companies such as FirstSolar have also received generous support from the bank in the recent past. But the February loan guarantee has the added benefit of largely taking care of SolarWorld’s near-term competitive problems. SolarWorld can export panels to Canada, and the low duties imposed by Commerce mean that the flow of cheap Chinese solar panels for installation in the United States will be largely unimpeded. It is, as governments love to say, a “win-win.”

Coincidence? Maybe, but a rather happy one for the Obama administration.

Now, I certainly love a trade conspiracy theory as much as the next guy (more, actually), but given what we know about US trade law and practice, as well as the particular facts of Solar Panels case, is Alden's "grassy knoll" theory about low solar panel duties even remotely possible?

In short, no.  And there two main reasons why.

First, there's very little chance that the White House somehow convinced Commerce to fudge its subsidy calculations.  Commerce is required by law and its own regulations to calculate CVD rates - and disclose those calculations - according to a pretty strict methodology.  While some of us might disagree with the way the law/regulations are drafted and/or with certain assumptions that Commerce might make during the course of an investigation, the actual calculation of CVD rates is pretty predictable and transparent (at least for people with access to the confidential record and good lawyers) based on record evidence submitted by respondent exporters/importers, the subsidizing government and domestic petitioners.  All evidence is placed on the confidential record for all authorized parties to review, as are Commerce's actual subsidy calculations.  And all parties have a chance to review and comment on the legal and factual bases for Commerce's calculations before they're published.  Any good lawyer - and I have no reason to think that the US solar panel manufacturers and union have bad lawyers - will go over the evidence and calculations and will catch any legal or factual errors in Commerce's calculations.  (See how sexy and exciting trade law is, kids?).   Thus, any White House-mandated fudging of record data or sneaky subsidy calculations would be extremely apparent to petitioners' lawyers (and their friends in Congress and all other parties to the investigation) - a fact that the White House and Commerce most certainly understand.  Thus, the chances that the White House would risk a rather giant controversy, especially in a rather closely-watched case, to rig a preliminary decision (especially a preliminary decision) just simply isn't very plausible.

Indeed, a close review of the preliminary determination indicates that Commerce didn't take it easy on Chinese solar panel exporters and the Chinese government and instead took a  rather hard line.  For example, the agency applied "adverse facts available" (essentially taking the worst possible data for respondents, usually those provided by petitioners) with respect to several subsidy programs - provision of polysilicon inputs; provision of land; and certain grants discovered during the course of the investigation.  It also found "critical circumstances" in the investigation (retroactively applying preliminary duties by 90 days), expanded the scope of the investigation to include subject merchandise produced in a third-country from cells produced in China, and, as noted above, decided to investigate several new subsidy programs over the coming weeks.

These are not the types of determinations that a softball-pitching Commerce Department makes.

Second, Alden notes but dismisses the very-important fact that Commerce will make a related preliminary anti-dumping determination in mid-May of this year, and pretty much everyone thinks that these duties are going to be huge (as they typically tend to be under Commerce's "non-market economy" methodology).  Assuming they are (and, as I noted last week, global market conditions in 2010 pretty much guarantee large dumping margins, regardless of the Chinese industries' "predatory" intentions), the White House's secret plan to will have worked for all of 8 weeks (and, again, only with respect to preliminary estimates of final duties rather than the final duties themselves).  This hardly seems like a well-thought-out master plan to ensure that the "flow of cheap Chinese solar panels for installation in the United States will be largely unimpeded."

Granted the timing of the Ex-Im Loan is a bit of a "coincidence" (although it was several weeks before the CVD prelim), but I really, really suggest we apply Occam's Razor here: the Ex-Im loan is likely just part of the typical protect-and-subsidize strategy employed by mercantilists around the globe, particularly those who have targeted industries for extra special treatment (like the Obama administration has with US "green" energy manufacturers).  Only this time, the "protectionist" part of the Obama administration's strategy just got a little delayed by silly old things like facts and law.  But don't fret: I have no doubt that they'll complete the circle in the end.

Unfortunately for US solar panel consumers.