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  • Eyes on Trade is a blog by the staff of Public Citizen's Global Trade Watch (GTW) division. GTW aims to promote democracy by challenging corporate globalization, arguing that the current globalization model is neither a random inevitability nor "free trade." Eyes on Trade is a space for interested parties to share information about globalization and trade issues, and in particular for us to share our watchdogging insights with you! GTW director Lori Wallach's initial post explains it all.

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April 16, 2015

Hatch Bill Would Revive Controversial 2002 Fast Track Mechanism That Faces Broad Congressional, Public Opposition

Today’s Proposal Replicates Language of Failed 2014 Bill, Would Expand Same Broken Trade Model That Has Led to $912 Billion Trade Deficit, Loss of Millions of Manufacturing Jobs, Attacks on Public Interest Policies 

The trade authority bill introduced today would revive the controversial Fast Track procedures to which nearly all U.S. House of Representatives Democrats and a sizable bloc of House Republicans already have announced opposition.  Most of the text of this bill replicates word-for-word the text of the 2014 Fast Track bill, which itself replicated much of the 2002 Fast Track bill. Public Citizen calls on Congress to again oppose the outdated, anti-democratic Fast Track authority as a first step to replacing decades of “trade” policy that has led to the loss of millions of middle-class jobs and the rollback of critical public interest safeguards.

In the past 21 years, Fast Track authority has been authorized only once by Congress – from 2002 to 2007. In 1998, the U.S. House of Representatives voted down Fast Track for President Bill Clinton, with 71 GOP members joining 171 House Democrats.

Today’s bill explicitly grandfathers in Fast Track coverage for the almost-completed Trans-Pacific Partnership (TPP) and would extend Fast Track procedures for three to six years. The bill would delegate away Congress’ constitutional trade authority, even after the Obama administration dismissed bipartisan and bicameral demands that the TPP include enforceable currency manipulation disciplines. The trade authority proposal would not require negotiators to actually meet Congress’ negotiating objectives in order to obtain the Fast Track privileges, making the bill’s negotiating objectives entirely unenforceable.

“Congress is being asked to delegate away its constitutional trade authority over the TPP, even after the administration ignored bicameral, bipartisan demands about the agreement’s terms, and then also grant blank-check authority to whomever may be the next president for any agreements he or she may pursue,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “Rather than putting Congress in the driver’s seat on trade, this bill is just the same old Fast Track that puts Congress in the trunk in handcuffs. I expect that Congress will say no to it.”

Instead of establishing a new “exit ramp,” the bill literally replicates the same impossible conditions from past Fast Track bills that make the “procedural disapproval” mechanism to remove an agreement from Fast Track unusable. A resolution to do so must be approved by both the Senate Finance and the House Ways and Means committees and then be passed by both chambers within 60 days. The bill’s only new feature in this respect is a new “consultation and compliance” procedure that would only be usable after an agreement was already signed and entered into, at which point changes to the pact could be made only if all other negotiating parties agreed to reopen negotiations and then agreed to the changes (likely after extracting further concessions from the United States). That process would require approval by 60 Senators to take a pact off of Fast Track consideration, even though a simple majority “no” vote in the Senate would have the same effect on an agreement. In contrast, the 1988 Fast Track empowered either the House Ways and Means or the Senate Finance committees to vote by simple majority to remove a pact from Fast Track consideration, with no additional floor votes required. And, such a disapproval action was authorized before a president could sign and enter into a trade agreement.

“Chairman Hatch said he would never accept changes that make it possible for Congress to remove Fast Track from an agreement that does not measure up, and he got his way,” said Wallach. “What is being advertised as a new safeguard is not an exit from Fast Track’s confiscation of Congress’ policymaking prerogatives, but new curtains hung over the same brick wall.”

Today’s bill faces long odds for approval. Members of Congress who supported past trade initiatives have been angered by the extreme secrecy of TPP negotiations and the administration’s refusal to include currency disciplines in the pact.

The bill proposed today makes only minor adjustments to the Hatch-Camp-Baucus Fast Track bill that was dead on arrival in the House when it was introduced in 2014. At the time, only eight out of 201 House Democrats supported the bill and House GOP leaders could not count more than 100 members as “yes” votes. Since then, 14 of the 17 current freshman Democrats in the House have signed letters opposing Fast Track despite pressure from the administration. And, in contrast to past Congresses, a sizable bloc of freshmen GOP members has refused to declare support for Fast Track despite a corporate lobby push.

“This bill is a repeat of the Fast Track proposal that died a quick death one year ago,” said Wallach. “The only difference is that that congressional opposition to the very concept of Fast Track authority has grown.”

The bill comes despite broad and growing opposition to Fast Track and the TPP. A 2015 bipartisan poll from the Wall Street Journal and NBC News shows that 75 percent of Americans think that the TPP should be rejected or delayed. In recent weeks, voters in Maryland, Oregon, Washington, Connecticut, Colorado and other states protested against Fast Track, citing the devastating impact past Fast Tracked pacts have had on local jobs, small businesses and farmers. Recent data show that similar trade deals have already pushed the United States to the precipice of a historic $1 trillion trade deficit, contributed to the loss of five million American manufacturing jobs and increased U.S. income inequality. 

Today’s bill, sponsored by U.S. Senate Finance Committee Chair Orrin Hatch (R-Utah), House Ways and Means Chair Paul Ryan (R-Wis.) and Finance Committee Ranking Member Ron Wyden (D-Ore.), failed to attract a single House Democratic sponsor. Today’s bill would:

  • Empower the executive branch to unilaterally select partner countries for a trade pact, determine an agreement’s contents through the negotiating process, and then sign and enter into an agreement – all before Congress voted to approve a trade pact’s contents, regardless of whether a pact met Congress’ negotiating objectives;
  • Authorize the executive branch to write legislation containing any terms the White House decides are “necessary or appropriate” to implement the pact. Such legislation would not be subject to normal congressional committee review and markup, meaning this and future administrations could include in a Fast Tracked trade bill whatever terms it desired;
  • Require votes in both the House and Senate within 90 days, forbidding any amendments and limiting debate to 20 hours, whether or not Congress’ negotiating objectives were met. 

An analysis of today’s bill shows that

  • The Hatch bill includes several negotiating objectives not found in the 2002 Fast Track authority, most of which were also in the 2014 bill. However, the Fast Track process that the legislation would re-establish ensures that these negotiating objectives are entirely unenforceable. Whether or not Congress’ negotiating objectives are met, the president could sign a pact before Congress approves it and obtain a yes or no vote in 90 days. Democratic and GOP presidents alike have historically ignored negotiating objectives included in Fast Track. The 1988 Fast Track used for the North American Free Trade Agreement and the establishment of the World Trade Organization included a negotiating objective on labor standards, but neither pact included such terms. The 2002 Fast Track listed as a priority the establishment of mechanisms to counter currency manipulation, but none of the pacts established under that authority included such terms.
  • Some of the Hatch bill negotiating objectives advertised as “new” are in fact identical to what was in the 2014 bill and were referenced in the 2002 Fast Track. For example, the 2002 Fast Track included currency measures: “seek to establish consultative mechanisms among parties to trade agreements to examine the trade consequences of significant and unanticipated currency movements and to scrutinize whether a foreign government engaged in a pattern of manipulating its currency to promote a competitive advantage in international trade.” (19 USC 3802(c)(12)) The so-called “new” text in the Hatch bill repeats word-for-word what was in the 2014 Fast Track bill: “The principal negotiating objective of the United States with respect to currency practices is that parties to a trade agreement with the United States avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other parties to the agreement, such as through cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate.” Even if Congress had the power to ensure that this negotiating objective was met, the language of this negotiating objective itself does not require enforceable disciplines on currency manipulation to be included in the TPP or other deals obtaining Fast Track treatment. Despite the requests from bipartisan majorities of both houses of Congress that enforceable currency manipulation disciplines be included in the TPP, the Hatch negotiating objective lists “enforceable rules” as just one approach among several non-binding options for the TPP and other Fast Tracked deals. 
  • Provisions that are being touted as improving transparency, by empowering the Office of the U.S. Trade Representative (USTR) to develop standards for staff access to negotiating texts, would in fact provide a statutory basis for the unacceptable practice of requiring congressional staff to have security clearances to view any draft trade pact text and would fail to match even the level of transparency seen during the Bush administration’s trade negotiations. A close read of a new provision requiring USTR to post a trade agreement text on its website 60 days before signing reveals that this timing would be 30 days after the agreement was initialed and the text locked, meaning the text would only become public after it was too late for the public or Congress to demand changes.
  • Today’s bill includes a new negotiating objective related to human rights: “to promote respect for internationally recognized human rights.”  But since the bill does not alter the fundamental Fast Track process, the president still would be able to unilaterally pick countries with serious human rights abuses as trade negotiating partners, initiate negotiations with them, conclude negotiations, and sign and enter into the trade agreement with the governments committing the abuses, with no opportunity for Congress to require the president to do otherwise. 
  • The bill’s terms regarding labor and the environment replicate those of the 2014 Fast Track bill, which in turn memorialize the provisions of the “May 10, 2007” deal that, according to recent government reports, have proven ineffective. While the May 10 provisions went beyond the 2002 Fast Track objectives regarding labor, a U.S. Government Accountability Office report released in November 2014 found broad labor rights violations across five surveyed Free Trade Agreement (FTA) partner countries, regardless of whether or not the FTA included the labor provisions of the May 10 deal.
  • What the bill’s co-sponsors are touting as “strengthen[ing] congressional oversight” is actually the renaming of the 2002 Congressional Oversight Group as the “House Advisory Group on Negotiations” and the “Senate Advisory Group on Negotiations.”  This exact language was also in the 2014 bill.

For additional, in-depth analysis of the Hatch bill provisions, visit www.citizen.org/fast-track-2015.

April 15, 2015

Cato and Public Citizen: No parallel legal system for foreign corporations

Here's something you won't see every day: an op-ed jointly written by analysts at Public Citizen and the Cato Institute.  Often divided on issues of trade policy, we find common ground in opposing the proposed expansion, via the Trans-Pacific Partnership, of a shadow legal system for foreign corporations.  Read about it in today's The Hill.  Here's an excerpt:

Special courts for foreign investors

By Simon Lester and Ben Beachy

On the precipice of the biggest congressional trade debate in decades, a once-arcane investment provision has become a lightning rod of controversy in the intensifying battle over whether Congress should revive Trade Promotion Authority (TPA), also known as “fast track,” for the Trans-Pacific Partnership (TPP). Sen. Elizabeth Warren (D-Mass.) calls this provision a system of “rigged, pseudo-courts.” The Republican leadership of the House Ways and Means Committee defends it as “a vital part of any trade agreement.”

But this is not your standard partisan congressional battle. Inside Congress and out, criticism and support for this parallel legal system, known as investor-state dispute settlement (ISDS), crosses the political spectrum. Analysts with the Cato Institute and Public Citizen usually stand on opposing sides of trade policy issues, but we find common ground in opposing this system of special privileges for foreign firms.

The TPP would extend this controversial system, found in some existing trade pacts and investment treaties, to new countries and tens of thousands of new companies. Under ISDS, “foreign investors” – mostly transnational corporations – have the ability to bypass U.S. courts and challenge U.S. government action and inaction before international tribunals authorized to order U.S. taxpayer compensation to the firms.

Pacts with ISDS are often promoted as simply prohibiting discrimination against foreign firms. In reality, they go well beyond non-discrimination, and create amorphous government obligations that have given rise to corporate lawsuits against a wide array of policies with relevance across the political spectrum. Foreign corporations have used this system to challenge policies ranging from the phase-out of nuclear power to the roll-back of renewable energy subsidies. Nearly all government actions and inactions are subject to challenge, covering local, state, and federal measures taken by courts, legislators and regulators.

Take, for example, the recent U.S. Supreme Court rulings that companies cannot patent human genes or obtain abstract software patents favored by patent trolls. Foreign holders of those patents could use ISDS to claim that these decisions interfere with their patent rights and ask an international tribunal to order compensation from the U.S. government...

Click here for the full op-ed from The Hill

April 10, 2015

50 Reasons We Cannot Afford the TPP

How would your state be impacted by the Trans-Pacific Partnership (TPP) – a controversial “free trade” agreement (FTA) being negotiated behind closed doors with 11 Pacific Rim countries? 

Click here for a state-by-state guide to the specific outcomes of the status quo “trade” model that the TPP would expand.  Get the latest government data on how many jobs have been lost in your state to unfair trade, how much inequality has risen, how many family farms have disappeared, and how large your state’s trade deficit with FTA countries has grown. 

The TPP would extend the North American Free Trade Agreement (NAFTA) model that has contributed to massive U.S. trade deficits and job loss, downward pressure on middle class wages, unprecedented levels of inequality, lagging exports, new floods of agricultural imports, and the loss of family farms.

These impacts have been felt across all 50 U.S. states.  Here is a sampling of the outcomes:

  • North Carolina: North Carolina has lost more than 369,000 manufacturing jobs – nearly half – since NAFTA and NAFTA expansion pacts have taken effect.  More than 212,000 specific North Carolina jobs have been certified under just one narrow Department of Labor program as lost to offshoring or imports since NAFTA.
  • Delaware: Delaware’s total goods exports to all U.S. FTA partners have actually fallen 27 percent while its exports to non-FTA nations have grown 34 percent in the last five years. 
  • California: In the last five years, California’s $403 million NAFTA agricultural trade surplus became a $187 million trade deficit – a more than $590 million drop. In contrast, California’s agricultural trade surplus with the rest of the world increased by $3 billion, or 79 percent, during the same time period.  The disparity owes to the fact that California’s exports of agricultural products to NAFTA partners Mexico and Canada grew just 27 percent, or $693 million, in the last five years, while its agricultural exports to the rest of the world grew 70 percent, or $4.3 billion. Meanwhile, California’s agricultural imports from NAFTA partners during this period surged $1.3 billion – more than the increase in agricultural imports from all other countries combined.
  • Michigan: Michigan’s trade deficit with all U.S. FTA partners is nearly five times larger than its deficit with the rest of the world. Michigan’s FTA deficit has grown more than three times as much as its non-FTA deficit in the last five years. Today, Michigan’s trade deficit with FTA partners comprises 83 percent of the state’s total trade deficit.
  • Louisiana: Before the Korea FTA – the U.S. template for the TPP – the United States had balanced trade with Korea in the top 10 products that Louisiana exports to Korea – including everything from metal to agricultural products. Under two years of the FTA, that balance became a $9 billion annual trade deficit. 
  • New York: The TPP and the Trans-Atlantic Free Trade Agreement (TAFTA) would empower 3,067 foreign corporations doing business in New York to bypass domestic courts, go before extrajudicial tribunals, and challenge New York and U.S. health, environmental and other public interest policies that they claim undermine new foreign investor rights not available to domestic firms under U.S. law.
  • Texas: U.S. farmers were promised that the Korea FTA would boost U.S. agricultural exports to Korea. But U.S. exports to Korea fell in eight of Texas’ top 10 agricultural export products, from cotton to wheat to meat in the first two years of the Korea FTA.  Meanwhile, U.S. exports to Korea of beef, pork and poultry – all top agricultural exports for Texas – declined 18, 15, and 42 percent, respectively (measuring by volume).
  • Nevada: The richest 10 percent of Nevadans are now capturing more than half of all income in the state – a degree of inequality not seen in the 100 years for which records exist.  Study after study has produced an academic consensus that status quo trade has contributed to today’s unprecedented rise in income inequality.  
  • Minnesota: Small-scale U.S. family farms have been hardest hit by rising agricultural imports and declining agricultural trade balances under FTAs.  Since NAFTA took effect, 15,500 of Minnesota’s smaller-scale farms (24 percent) have disappeared.

April 07, 2015

Fact-Checking the Fact-Checker: Washington Post Gets It Wrong on Bogus Trade-Pact Jobs Claims

As the Obama administration seeks to Fast Track the controversial Trans-Pacific Partnership (TPP) through Congress over public and congressional opposition, it has resorted to a familiar tactic – promising job gains from the deal on the basis of unfounded assumptions. We have repeatedly warned against dubious TPP jobs claims by spotlighting the inaccuracy of the administration’s job claims for the last major trade pact – the 2012 Korea “free trade” agreement (FTA). The Korea FTA was used as the U.S. template for the TPP.

The White House promised that the Korea FTA would create 70,000 jobs based on a report issued by the U.S. International Trade Commission that projected an increase in U.S. goods exports and a decrease in the U.S. goods trade deficit with Korea. In contrast, in the first three years of the Korea pact, U.S. goods exports to Korea have fallen while our goods trade deficit with Korea has surged.

We have shown that, plugging the actual U.S. government trade data into the ratio that the administration used to project job gains from the pact, the first three years of the Korea FTA’s outcomes defy the administration’s “more exports, more jobs” slogan for the deal, providing a cautionary tale for the job claims the administration is currently using to sell the TPP.

The Washington Post’s Fact Checker columnist Glenn Kessler has similarly taken on the administration’s TPP job claims, describing them as a baseless fabrication. But in today’s Post, Kessler takes issue with our fact-checking of the administration’s Korea FTA jobs promise.

Kessler seems to think that we are producing our own jobs projection for the Korea FTA, when we are actually fact-checking the administration’s jobs projection – a projection that Kessler acknowledges “would have earned Pinocchios if it had come to our attention at the time.” It is unclear why Kessler is now assigning Pinocchios to us for calling out the administration’s bogus Korea FTA jobs claim, rather than to those who actually made the claim.

In our recent press release on the third anniversary of the Korea FTA, we stated:

The U.S. goods trade deficit with Korea has ballooned an estimated 84 percent, or $12.7 billion, in the first three years of the Korea FTA (comparing the year before the FTA took effect to the projected third full year of implementation)…The surge in the U.S. trade deficit with Korea under the FTA equates to the loss of nearly 85,000 American jobs, according to the trade-jobs ratio that the administration used to promise job gains from the deal.

Kessler’s primary critique of this statement appears to be that we did not replicate the administration’s flawed methodology of only counting exports and disregarding imports when debunking the administration’s jobs projection. Such a misleading approach – ignoring half of the trade equation – contradicts standard economics and empirical data showing the job-displacing impacts of imports, which Kessler even acknowledges in his column today.

As an example of the administration’s one-sided trade accounting, the Office of the U.S. Trade Representative’s (USTR) factsheet on the third anniversary of the Korea FTA touted that 21,255 additional vehicles were exported to Korea under the FTA. It made no mention of the 461,408 additional vehicles imported from Korea during the same time period (using the administration’s same cut of the automotive trade data). That is, for every additional vehicle the United States exported to Korea under the FTA, it imported more than 21 additional vehicles from Korea. The net effect has clearly been a loss for U.S. auto workers. It is not only contrary to mainstream economics, but common sense, to only look at exports and ignore imports when assessing trade’s impact on jobs.

Indeed, when Kessler did a Fact Checker column in January debunking the administration’s “concocted” claim that the TPP would create 650,000 U.S. jobs, he stated that the study used as the basis for that claim actually showed that “the net number of new jobs [projected for the TPP] is zero” because the study “found that imports would increase by virtually the same amount as exports.” That is, Kessler presumed that $1 in imports had a job-displacing effect equivalent to the job-supporting effect of $1 in exports, which matches the calculation used in our press release. (For what it’s worth, respected economists estimate the dollar-for-dollar job-displacing effect of imports may be even greater than the job-supporting effect of exports.)

But even if we were to abandon the common-sense approach that Kessler presumed in January, defy standard trade accounting, and only count exports, U.S. goods exports to Korea fell by more than $2 billion in the first three years of the FTA. Were we to replicate the administration’s exports-only approach, then our fact-check of the administration’s Korea FTA promises would need to say something to the effect of:

The estimated $2.6 billion decline in U.S. goods exports to Korea in the FTA’s first three years equates to the loss of 17,400 American jobs, according to the trade-jobs ratio and exports-only methodology that the administration used to promise job gains from the deal. That methodology ignores the impact of imports and the significant increase in the U.S. trade deficit with Korea since the FTA was implemented. Including imports, the surge in the U.S. trade deficit with Korea under the FTA equates to the loss of 85,000 American jobs, according to the trade-jobs ratio that the administration used to promise job gains from the deal. 

The takeaway is the same. Any (reasonable) way you slice it, the administration’s job gains promise for the Korea FTA is the opposite of the deal’s outcome thus far. Indeed, over the Korea FTA’s first three years, the actual results have been consistently the opposite of the specific export growth and job gain figures that the Obama administration used to sell the Korea FTA. And that gets back to our main point: rely on similar promises now being made for the TPP to your own peril.

Kessler also takes issue with our time frame, implying that we should have counted the trade data from January and February of 2012 as part of the results of the Korea FTA, despite the fact that the FTA actually took effect on March 15, 2012. Our measurement compares U.S. trade with Korea in the 12 months before the Korea FTA took effect (April 2011 to March 2012) with the third full year of the FTA’s implementation (April 2014 to March 2015).

Kessler dislikes this approach, which he criticizes as “trying to be very precise.” Instead, he states it would be more “appropriate” to compare calendar years. But the selective timeframe for which Kessler advocates would errantly count pre-FTA months as occurring since the FTA, while eliminating the most recent months of actual Korea FTA data.

The Fact Checker column also bizarrely faults us for adjusting for inflation. Typically, trade flow studies are criticized if they fail to perform the standard adjustment for inflation, since this would misleadingly count price increases as export or import increases. Nonetheless, Kessler considers the adjustment for inflation as “an effort to manipulate the data further.” Why?  Because “the price of goods could decrease.” It is precisely because the price of goods could decrease (or increase) that it is important to adjust for inflation. We do so by using a standard inflation adjustment from the U.S. Bureau of Labor Statistics, thereby eliminating the effect of shifts in goods prices. (And, for what it’s worth, if we were trying to “manipulate” the data rather than be scrupulous with it, we would not be the ones controlling for inflation. Failing to adjust for inflation would make the increase in the U.S. goods trade deficit with Korea during the FTA’s first three years appear even larger than it is in real terms, not smaller.)

After deciding to replicate the administration’s usual data distortions of not counting imports, counting non-FTA months as occurring since the FTA, and not adjusting for inflation, Kessler then performs his own assessment of the Korea FTA outcome, claiming that U.S. exports increased by $2.3 billion in the FTA’s first three years.

This claim is in need of a fact check, as we have not been able to replicate it with any cut of the data. If you use the selective timeframe preferred by Kessler (comparing calendar years 2011 and 2014) and skip the inflation adjustment, you get a $750,000 increase in U.S. exports, not a $2.3 billion increase. (And that "increase" owes entirely to price increases - after a standard inflation adjustment, it becomes a real export decline of more than $1 billion.) Even if you misleadingly count foreign-produced goods as “U.S. exports,” as the administration often does, you get a $1 billion increase in exports – still less than half of Kessler’s claim (and still a real decline in U.S. exports merely by properly accounting for inflation).

The only way we see to get a $2.3 billion increase in U.S. exports to Korea is by mistakenly axing an entire year of the FTA and comparing 2014 with 2012 (as if the FTA did not take effect until 2013 – one year later than its actual implementation date). Even with this blunt error, you would still need to use the arbitrary calendar year timeframe, fail to adjust for inflation, count foreign-produced goods as “U.S. exports,” and ignore imports altogether.

Using the accurate FTA time period and excluding foreign-made goods, our total goods exports to Korea actually have fallen since the Korea FTA took effect (whether or not one properly controls for inflation). Rather than acknowledge this aggregate outcome, the Fact Checker column highlights a few specific products as having “shown real gains in the past three years” of the Korea FTA. This is another common  maneuver of USTR: while overall U.S. agricultural exports to Korea increased an estimated zero percent in the FTA’s first three years, for example, USTR focuses on a $78 million gain in cherry exports. The cherry-picking in today’s Fact Checker column, however, includes products, such as apparel, that have actually not seen export gains. U.S. apparel exports to Korea actually have fallen $43 million, or 37 percent, in the Korea FTA’s first three years.

Unfortunately, this exports decline has been more the rule than the exception under the Korea FTA, as overall U.S. goods exports to Korea have fallen. Meanwhile, imports from Korea have risen, and the U.S. trade deficit with Korea has surged. The point that we have repeatedly made stands: the outcome of the FTA thus far is a far cry from the administration’s promise of “more exports, more jobs.” We would do well to keep that failed promise in mind as we now hear its echoes in the administration’s sales pitch for the TPP. 

March 25, 2015

TPP Leak Reveals Extraordinary New Powers for Thousands of Foreign Firms to Challenge U.S. Policies and Demand Taxpayer Compensation

Unveiling of Parallel Legal System for Foreign Corporations Will Fuel TPP Controversy, Further Complicate Obama’s Push for Fast Track

The Trans-Pacific Partnership’s (TPP) Investment Chapter, leaked today, reveals how the pact would make it easier for U.S. firms to offshore American jobs to low-wage countries while newly empowering thousands of foreign firms to seek cash compensation from U.S. taxpayers by challenging U.S. government actions, laws and court rulings before unaccountable foreign tribunals. After five years of secretive TPP negotiations, the text – leaked by WikiLeaks –proves that growing concerns about the controversial “investor-state dispute settlement” (ISDS) system that the TPP would extend are well justified.

Enactment of the leaked chapter would increase U.S. ISDS liability to an unprecedented degree by newly empowering about 9,000 foreign-owned firms from Japan and other TPP nations operating in the United States to launch cases against the government over policies that apply equally to domestic and foreign firms. To date, the United States has faced few ISDS attacks because past ISDS-enforced pacts have almost exclusively been with developing nations whose firms have few investments here.

The leak reveals that the TPP would replicate the ISDS language found in past U.S. agreements under which tribunals have ordered more than $3.6 billion in compensation to foreign investors attacking land use rules; water, energy and timber policies; health, safety and environmental protections; financial stability policies and more. And while the Obama administration has sought to quell growing concerns about the ISDS threat with claims that past pacts’ problems would be remedied in the TPP, the leaked text does not include new safeguards relative to past U.S. ISDS-enforced pacts. Indeed, this version of the text, which shows very few remaining areas of disagreement, eliminates various safeguard proposals that were included in a 2012 leaked TPP Investment Chapter text.

“With the veil of secrecy ripped back, finally everyone can see for themselves that the TPP would give multinational corporations extraordinary new powers that undermine our sovereignty, expose U.S. taxpayers to billions in new liability and privilege foreign firms operating here with special rights not available to U.S. firms under U.S. law,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “This leak is a disaster for the corporate lobbyists and administration officials trying to persuade Congress to delegate Fast Track authority to railroad the TPP through Congress.”

Even before today’s leak, U.S. law professors and those in other TPP nations, the U.S. National Conference of State Legislatures, the Cato Institute and numerous members of Congress and civil society groups have announced opposition to the ISDS system, which would elevate individual foreign firms to the same status as sovereign governments and empower them to privately enforce a public treaty by skirting domestic courts and “suing” governments before extrajudicial tribunals. The tribunals are staffed by private lawyers who are not accountable to any electorate, system of legal precedent or meaningful conflict of interest rules. Their rulings cannot be appealed on the merits. Many ISDS lawyers rotate between roles – serving both as “judges” and suing governments for corporations, creating an inherent conflict of interest.

The TPP’s expansion of the ISDS system would come amid a surge in ISDS cases against public interest policies that has led other countries, such as South Africa and Indonesia, to begin to revoke their ISDS-enforced treaties. While ISDS agreements have existed since the 1960s, just 50 known ISDS cases were launched worldwide in the regime’s first three decades combined. In contrast, foreign investors launched at least 50 ISDS claims each year from 2011 through 2013. Recent cases include Eli Lilly’s attack on Canada’s cost-saving medicine patent system, Philip Morris’ attack on Australia’s public health policies regulating tobacco, Lone Pine’s attack on a fracking moratorium in Canada, Chevron’s attack on an Ecuadorian court ruling ordering payment for mass toxic contamination in the Amazon and Vattenfall’s attack on Germany’s phase-out of nuclear power.

“By definition, only multinational corporations could benefit from this parallel legal system, which empowers them to skirt domestic courts and laws, and go to tribunals staffed by highly paid corporate lawyers, where they grab unlimited payments of our tax dollars because they don’t want to comply with the same laws our domestic firms follow,” Wallach said.

Public Citizen’s analysis of the leaked text is available here

March 13, 2015

Unhappy Third Birthday for Korea FTA Drags Down Obama Push for Fast Track

U.S. Exports Down, Imports from Korea Up and Job-Killing Trade Deficit With Korea Balloons 84 Percent on Third Anniversary of Korea Pact, Which Is TPP Template

Three years after implementation of the U.S.-Korea Free Trade Agreement (FTA), government data reveal that the administration’s promises that the pact would expand U.S. exports and create American jobs proved to be the opposite of the pact’s actual outcomes. The post-Korea FTA decline in U.S. exports to Korea and a new flood of imports from Korea have resulted in a major surge in the U.S. trade deficit with Korea that equates to nearly 85,000 lost U.S. jobs. The abysmal FTA record deals a fresh blow to the administration’s controversial bid to Fast Track the Trans-Pacific Partnership (TPP), for which the Korea FTA served as the U.S. template.

“Three years ago we heard the same ‘more exports, more jobs’ sales pitch for the Korea FTA that the administration is making for the TPP, but the reality is that tens of thousands of U.S. jobs have been lost as exports have fallen and trade deficits have surged,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “The only silver lining of the Korea FTA debacle is that it further cripples the administration’s push to Fast Track the TPP, which was literally modeled on the Korea deal, perhaps saving us from more of the same pacts that offshore jobs and push down middle-class wages.”

Contrary to the administration’s promise that the Korea FTA would mean “more exports, more jobs,” U.S. International Trade Commission and U.S. Department of Agriculture data reveal that:

  • The U.S. goods trade deficit with Korea has ballooned an estimated 84 percent, or $12.7 billion, in the first three years of the Korea FTA (comparing the year before the FTA took effect to the projected third full year of implementation). In January 2015, the monthly U.S. goods trade deficit with Korea topped $3 billion – the highest level on record.
  • The surge in the U.S. trade deficit with Korea under the FTA equates to the loss of nearly 85,000 American jobs, according to the trade-jobs ratio that the administration used to promise job gains from the deal.
  • U.S. goods exports to Korea have fallen an estimated 5 percent, or $2.2 billion, in the first three years of the Korea FTA. 
  • Had U.S. exports to Korea continued to grow at the rate seen in the decade prior to the Korea FTA’s implementation, U.S. exports to Korea in the FTA’s third year would have been 24 percent, or $9.8 billion, higher than they are actually projected to be.
  • Imports of goods from Korea have risen an estimated 18 percent, or $10.5 billion, in the Korea FTA’s first three years.
  • U.S. exports to Korea of manufactured goods have stagnated under the Korea FTA, growing an estimated zero percent in the first three years of the deal. U.S. manufactured imports from Korea, meanwhile, have grown an estimated 18 percent under the FTA. As a result, the U.S. manufacturing trade deficit with Korea has grown an estimated 44 percent, or $10.1 billion, since the FTA’s implementation.
  • U.S. exports to Korea of agricultural goods have stagnated under the Korea FTA, growing an estimated zero percent in the first three years of the deal – even as U.S. agricultural exports to the world increased 6 percent during the same period. U.S. agricultural imports from Korea, meanwhile, have grown an estimated 28 percent under the FTA. As a result, the U.S. agricultural trade balance with Korea has declined an estimated 1 percent, or $72 million, since the FTA’s implementation.

Given the bleak data, the Office of the U.S. Trade Representative (USTR) may repeat past efforts to try to obscure bad Korea FTA results. Congressional upset about the pacts is fueling opposition to the administration’s push to Fast Track the TPP through Congress. Typical USTR data omissions and distortions regarding the Korea FTA include:

  • The USTR likely will count foreign-produced goods as “U.S. exports,” falsely inflating the export figures that can be reported. It is by using this raw Census Department data versus the corrected official U.S International Trade Commission (USITC) trade data that USTR falsely claims that U.S. exports to Korea have grown and were at a record level in 2014.  Despite congressional demands to stop using the distorted data, USTR continues to report export figures that include “foreign exports,” also known as “re-exports.” These are goods made abroad that pass through the United States before being re-exported to other countries. By U.S. Census Bureau definition, foreign exports undergo zero alteration in the United States, and thus support no U.S. production jobs. Each month, the UCITC removes foreign exports from the raw data gathered by the U.S. Census Bureau. But the USTR regularly uses the uncorrected data, inflating the actual U.S. export figures and deflating U.S. trade deficits with FTA partners like Korea. In the first three years of the Korea FTA, foreign exports to Korea have risen an estimated 13 percent, or $284 million, which the USTR may errantly count as an increase in “U.S. exports.”
  • The USTR might misrepresent the relatively small increase in U.S. exports to Korea of passenger vehicles under the FTA as a large percentage increase, while omitting both that the touted increase amounts to an estimated 23,000 more passenger vehicles exported from a base of fewer than 15,000 and that imports of passenger vehicles from Korea have surged by an estimated 450,000 vehicles – from about 863,000 to more than 1.3 million in the first three years of the FTA. This trick was included in the USTR’s press release on the FTA’s second anniversary. While U.S. automotive exports to Korea have increased an estimated $686 million in the FTA’s first three years, U.S. automotive imports from Korea have ballooned an estimated $6.4 billion. As a result, the U.S. automotive trade deficit with Korea has increased an estimated 36 percent, or $5.7 billion, in the FTA’s first three years.
  • The USTR also may claim, as it did in its press release on the Korea FTA’s second anniversary, that the decline in U.S. exports to Korea under the FTA is due to decreases in exports of fossil fuels and corn. But even after removing fossil fuels and corn products, U.S. exports to Korea still have declined by an estimated $1.4 billion, or 4 percent, in the first three years of the FTA. Product-specific anomalies cannot explain away the broad-based drop in U.S. goods exports to Korea under the FTA.
  • The USTR also may try to dismiss the decline in U.S. exports to Korea under the FTA as due to a weak economy in Korea – another claim made in the USTR’s press release on the FTA’s second anniversary. But the Korean economy has grown each year since the FTA passed, even as U.S. exports to Korea have shrunk. Korea’s gross domestic product in 2014 is projected to be 9 percent higher than in the year before the FTA took effect, suggesting that U.S. exports to Korea should have expanded, with or without the FTA, as a simple product of Korea’s economic growth. Instead, U.S. exports to Korea have fallen an estimated 5 percent in the first three years of the FTA. 

February 26, 2015

Forthcoming TPP Sales Pitch So Predictable, We Decided to Predict It

In the coming days, the U.S. Trade Representative (USTR) will release its annual report on the Obama administration’s trade policy agenda.  We know that you can’t wait to see what it will say. 

Good news.  You don’t have to.  Below we present the world’s first look at the report’s contents. 

How do we know in advance what the annual trade report will say?  No, we don’t have a mole at USTR (though if any of our USTR readers would like to volunteer…). 

We have a pretty good idea of the report’s contents, given that these reports tend to recycle the same old sales pitches that the administration has been disseminating ad nauseam (figuratively and, sometimes, literally). 

Since the status quo trade platitudes have become predictable, we thought we might as well predict them. 

So, you heard it here first – below are some of the administration's standard TPP-related talking points likely to be rehashed in USTR’s forthcoming report, followed by an explanation of why they do not bear repeating:

95 percent of the world’s consumers live outside our borders.

[But our trade pacts have not helped us reach them.]

Yes, this statistic shows a basic understanding of geography and population.  But it shows little else.  The official government trade data reveal that past trade deals have not been successful in helping U.S. firms reach consumers who live abroad.  In fact, U.S. goods exports to our “free trade” agreement (FTA) partners have grown 20 percent slower than U.S. exports to the rest of the world over the last decade.

The TPP would grant U.S. firms greater access to the world's fastest-growing region.

[But the relevant TPP countries have been growing one-fourth as fast as that region.]

The United States already has FTAs with six of the 11 TPP negotiating partners.  The combined GDP of the other five countries (the ones that could offer “greater access”) has been growing at a paltry 1 percent annually over the last decade – one fourth of the growth rate of the Asia-Pacific region overall.  Yes, the region has been growing quickly.  That just happens not to be relevant to the TPP. 

Exporters tend to pay their workers higher wages.

[But jobs displaced by imports pay even higher.]

What this talking point fails to mention is that jobs lost to imports under unfair trade deals tend to pay even higher wages than jobs in exporting industries, according to new data unveiled by the Economic Policy Institute (EPI).  If a manufacturing worker making $1,020 per week loses her job to imports under a raw trade deal and gets re-hired in an exporting firm where she gets paid less than $870 per week (the actual numbers from EPI’s analysis), it’s probably small consolation that she could be making even less in a non-traded sector like restaurants.  But that is the very argument – that exporting industries pay more than non-traded industries – that the administration has been using to push for the TPP’s expansion of the trade status quo.

Their pitch omits the fact that far more jobs have been lost in the higher-paying import-competing industries than have been gained in exporting sectors under existing trade deals, judging by the burgeoning U.S. trade deficit with FTA partners, which has grown 427 percent since the deals took effect. It also does not mention that most trade-displaced workers do not actually get rehired in exporting industries, but in non-traded sectors, spelling an even bigger pay cut than the example given above.

China wants to write the rules for commerce in Asia. Instead, we should write the rules.

[We didn’t write the TPP’s rules – multinational corporations did. The TPP would hurt our national interests while failing, like past FTAs, to affect China’s influence.]

Ah yes, the boogeyman tactic.  When the economic sales pitch for a controversial new FTA falters on the existing FTA record of lost jobs, lower wages and increased trade deficits, FTA proponents frequently resort to raising the specter that without the controversial pact, the influence of a foreign opponent will rise further.  But the notion that the establishment – or not – of any specific U.S. trade agreement would affect China’s rising influence is contradicted by the record.  Proponents of the North American Free Trade Agreement (NAFTA) and NAFTA expansion pacts similarly warned that those deals were necessary to prevent rising foreign influence in Latin America.  But in the first 20 years of NAFTA, the share of Mexico’s imported goods coming from China increased from 1 to 16 percent, while the U.S. share dropped from 69 percent to 49 percent.  And from 2000 to 2011, a period in which U.S. FTAs with eight Latin American countries took effect, the share of Latin America’s imported goods coming from China increased from 1 percent to 7 percent, while the U.S. share fell from 25 percent to 16 percent.  Why should we believe the recycled pitch that another FTA would keep China’s economic influence in check?  

And the attempt to paint the TPP as a battle between “our rules” and China’s rules is absurd.  “We” did not write these rules.  The draft TPP text was crafted in a closed-door process that granted privileged access to more than 500 official U.S. trade advisors, nine out of ten of them explicitly representing corporations.  It is little surprise then that leaked TPP terms include new monopoly patent rights for pharmaceutical companies that would increase healthcare costs, limits on efforts to reregulate Wall Street, a deregulation of U.S. gas exports that could increase domestic energy prices, maximalist copyright terms that could thwart innovation and restrict Internet freedom, and new investor protections that incentivize offshoring.  Good luck selling that as advancing U.S. interests. 

The TPP is a 21st-century agreement with strong labor and environmental standards.

[Government reports show that those standards have proven ineffective.]

The vaunted inclusion in the TPP of labor and environmental provisions that were hatched in a May 10, 2007 deal is nothing new. These provisions have been included in existing FTAs, but have proven ineffective. The George W. Bush administration, for example, included "May 10" terms in the FTA with Colombia, where anti-union violence and repression remain rampant. Indeed, a U.S. Government Accountability Office report released in November 2014 found broad labor rights violations across five surveyed FTA partner countries, regardless of whether or not the FTA included the “May 10” labor provisions. As for environmental standards, the TPP would empower foreign corporations (e.g. oil/gas companies) to demand taxpayer compensation before extrajudicial tribunals for new environmental protections in TPP countries (e.g. rejection of a proposed controversial pipeline). 

And despite recent claims to the contrary, the evidence shows no correlation between an FTA’s inclusion of the “May 10” standards and its trade balance impact. Though the Korea FTA, the U.S. template for the TPP, included the “May 10” standards, the U.S. trade deficit with Korea has grown more than 70 percent in the three years since the deal’s passage. According to the administration’s trade-jobs ratio, that equates to the loss of more than 70,000 U.S. jobs – the same number of jobs that the administration promised would be gained under the deal. 

98 percent of U.S. exporters are small or medium-sized enterprises (SMEs).

[The few small businesses that export have endured slow and falling exports under FTAs.]

Only 3 percent of U.S. SMEs export any good to any country. In contrast, 38 percent of large U.S. firms are exporters. Even if FTAs actually succeeded in boosting exports, which government data show they do not, exporting is primarily the domain of large corporations, not small businesses.

The relatively few small businesses that do actually export have endured even more disappointing export performance under FTAs than large firms have experienced.  U.S. small businesses have watched their exports to Korea decline even more sharply than large firms under the Korea FTA (a 14 percent vs. 3 percent decrease).  And small firms’ exports to Mexico and Canada under NAFTA have grown less than half as much as large firms’ exports. Indeed, small firms’ exports to all non-NAFTA countries has exceeded by more than 50 percent the growth of their exports to NAFTA partners.

February 23, 2015

Exports Lag 20%, Trade Deficits Surge 427% under "Free Trade" Deals

A recent parade of reports from corporate lobbies and think tanks has played a familiar but discordant refrain, alleging that more of the same "free trade" agreements (FTAs) would boost U.S. exports and reduce the U.S. trade deficits that displace U.S. jobs.  It sounds nice.  But this tired promise is simply not supported by the data.  

According to the official government trade data from the U.S. International Trade Commission, the aggregate U.S. goods trade deficit with FTA partners is more than five times as high as before the deals went into effect, while the aggregate trade deficit with non-FTA countries has actually fallen. The key differences are soaring imports into the United States from FTA partners and lower growth in U.S. exports to those nations than to non-FTA nations.

Why do we keep hearing arguments that more of the same will produce different results?  Well, if you (or your corporate backers) wanted to Fast Track through Congress the controversial Trans-Pacific Partnership (TPP), which would expand the status quo FTA model, you might also find it convenient to parrot the standard FTA sales pitch of higher exports and lower trade deficits.  In doing so, you would need to ignore these facts:

  • Growth of U.S. goods exports to FTA partners has been 20% lower than U.S. export growth to the rest of the world over the last decade (annual average growth of 5.3 percent to non-FTA nations vs. 4.3 percent to FTA nations from 2004 to 2014). 
  • The aggregate U.S. goods trade deficit with FTA partners has increased by about $144 billion, or 427 percent, since the FTAs were implemented. In contrast, the aggregate trade deficit with all non-FTA countries has decreased by about $95 billion, or 11 percent, since 2006 (the median entry date of existing FTAs). See the chart below. Using the Obama administration’s net exports-to-jobs ratio, the FTA trade deficit surge implies the loss of about 780,000 U.S. jobs.
  • The North American Free Trade Agreement (NAFTA) contributed the most to the widening FTA deficit – under NAFTA, the U.S. trade deficit with Canada has ballooned and a U.S. trade surplus with Mexico has turned into a nearly $100 billion deficit.
  • More recent deals have produced similar results. Since the 2011 passage of the Korea FTA, the U.S. template for the TPP, the U.S. trade deficit with Korea has already surged 72 percent.

FTA deficits

“Higher Standards” Have Failed to Alter FTA Legacy of Ballooning Trade Deficits

Some proponents of status quo trade have claimed that post-NAFTA FTAs have included higher standards and thus have yielded trade balance improvements. But the Korea FTA included the higher labor and environmental standards of the May 10, 2007 deal, and still the U.S. trade deficit with Korea has grown over 70 percent in the three years since the deal’s passage. Meanwhile, most post-NAFTA FTAs that have resulted in (small) trade balance improvements did not contain the “May 10” standards. The evidence shows no correlation between an FTA’s inclusion of “May 10” standards and its trade balance impact. Reducing the massive U.S. trade deficit will require a more fundamental rethink of the core status quo trade pact model extending from NAFTA through the Korea FTA, not more of the same.

Corporate FTA Boosters Omit Imports, Use Errant Methods to Claim Higher Exports under FTAs

Members of Congress will invariably be shown data by defenders of our status quo trade policy that appear to indicate that FTAs have generated an export boom. Indeed, to promote congressional support for new NAFTA-style FTAs, the U.S. Chamber of Commerce and the National Association of Manufacturers (NAM) have funded an entire body of research designed to create the appearance that the existing pacts have both boosted exports and reversed trade deficits with FTA partner countries. This work relies on several methodological tricks that fail basic standards of accuracy:

  • Ignoring imports: U.S. Chamber of Commerce studies regularly omit mention of soaring imports under FTAs, instead focusing only on exports. But any study claiming to evaluate the net impact of trade deals must deal with both sides of the trade equation. In the same way that exports are associated with job opportunities, imports are associated with lost job opportunities when they outstrip exports, as dramatically seen under FTAs.
  • Counting “foreign exports”: NAM has errantly claimed that the United States has a manufacturing surplus with FTA nations by counting foreign-made goods as “U.S. exports.” NAM’s data include “foreign exports” – goods made elsewhere that pass through the United States without alteration before being re-exported abroad. Foreign exports support zero U.S. production jobs and their inclusion distorts FTAs’ impacts on workers.
  • Omitting major FTAs: The U.S. Chamber of Commerce has repeatedly claimed that U.S. export growth is higher to FTA nations that to non-FTA nations by simply omitting FTAs that do not support their claim. One U.S. Chamber of Commerce study omitted all FTAs implemented before 2003 to estimate export growth. This excluded major FTAs like NAFTA that comprised more than 83 percent of all U.S. FTA exports. Given NAFTA’s leading role in the 427 percent aggregate FTA deficit surge, its omission vastly skews the findings.
  • Failing to correct for inflation: U.S. Chamber of Commerce studies that have claimed high FTA export growth have not adjusted the data for inflation, thus errantly counting price increases as export gains.
  • Comparing apples and oranges: The U.S. Chamber of Commerce has claimed higher U.S. exports under FTAs by using two completely different methods to calculate the growth of U.S. exports to FTA partners (an unweighted average) versus non-FTA partners (a weighted average). This inconsistency creates the false impression of higher export growth to FTA partners by giving equal weight to FTA countries that are vastly different in importance to U.S. exports (e.g. Canada, where U.S. exports exceed $260 billion, and Bahrain, where they do not reach $1 billion), despite accounting for such critical differences for non-FTA countries.

February 10, 2015

2014 Trade Data Deal Further Blows to the Push for Fast Track

2014 Trade Data Reveal Surging U.S. Trade Deficits Under Korea FTA and NAFTA, and a Dramatic Failure to Meet Obama’s Export-Doubling Goal

Today’s release of the corrected 2014 annual trade data from the U.S. International Trade Commission reveal that President Barack Obama’s goal of doubling exports has failed dramatically, with a growing trade deficit with Korea under the U.S.-Korea Free Trade Agreement (FTA) and a burgeoning non-fossil fuel trade deficit with North American Free Trade Agreement (NAFTA) partners. Even as overall U.S. exports increased slightly due to growing U.S. fuel exports, manufacturing exports stagnated, according to projections. The data show that continuing with more-of-the-same trade policies would kill more middle-class jobs, dampen wages and increase income inequality – outcomes contrary to Obama’s “middle-class economics” agenda. The abysmal trade data are likely to reinforce congressional opposition to Obama’s bid to expand the status quo trade model by Fast Tracking the Trans-Pacific Partnership (TPP). 

  • Obama’s Five-Year Export-Doubling Plan Failed, in Part Thanks to His 2011 Korea FTA: The context for Obama’s 2015 State of the Union ask for Fast Track for the TPP is the abysmal failure
    of his 2010 State of the Union trade initiative – a plan to double U.S. exports in five years. The 2014exportgoal2014 data show U.S. goods exports over those five years have increased by just 36 percent, falling more than $660 billion short. U.S. goods exports grew by less than 1 percent in 2014 – the same average rate of the prior two years. (The first two years of stronger export growth represented recovery from the worldwide crash in trade flows after the global financial crisis.) At the paltry 2012-2014 annual export growth rate, which is a fraction of the 4 percent average annual export growth seen in the decade before the Obama administration, Obama’s export-doubling goal would not be reached until 2057 – 43 years behind schedule.
  • U.S. Exports Declined Under the Korea FTA, While Imports and the U.S. Trade Deficit with Korea Soared: Today’s data release also reveals a 14 percent increase in the U.S. goods trade deficit with Korea in 2014, marking the third consecutive year of substantial growth in the U.S. 2014koreatrade deficit with Korea since the 2011 passage of the Korea FTA, which U.S. negotiators used as the template for the TPP. The 2014 U.S. goods trade deficit with Korea topped $26 billion, a 72 percent increase over the trade deficit in 2011 before the FTA took effect. U.S. exports remain lower than the level before the FTA went into effect, as imports have increased 17 percent. Had U.S. exports to Korea continued to grow at the rate seen in the decade before the FTA’s implementation, exports would be about 18 percent, or $7 billion, higher in 2014 than they actually were. The resulting trade deficit increase represents more than 70,000 lost American jobs, according to the ratio the Obama administration used to project gains from the deal. Ironically, 70,000 is the number of jobs the Obama administration promised would be gained from the Korea FTA.
  • Non-Fuel NAFTA Trade Deficit Grows: The 2014 trade data are also projected to show a more than 12 percent, or $10 billion, increase in the non-fossil fuel U.S. goods trade deficit with NAFTA partners Canada and Mexico. The overall U.S. goods trade deficit with NAFTA partners, which also increased in 2014, has ballooned $155 billion, or 565 percent, under 21 years of the pact, reaching $182 billion in 2014.
  • Contrary to the Administration’s TPP Sales Pitch That More FTAs Would Boost U.S. Exports, U.S. Exports to FTA Partners Have Grown More Slowly Than U.S. Exports to the Rest of the World Over the Past Decade. Taking into account the data for 2014, average annual U.S. export growth to all non-FTA partners in the past 10 years outpaced that to FTA partners by 24 percent.
  • The United States Has a Large Trade Deficit with FTA Partners: Overall, the aggregate U.S. trade deficit with all U.S. FTA partners topped $177 billion in 2014, marking a more than $143 billion, or 427 percent, increase in the aggregate U.S. FTA trade deficit since the pacts were implemented. In contrast, the aggregate deficit with all non-FTA countries has decreased by more than $95 billion, or 11 percent, since 2006 (the median entry date of existing FTAs). Despite this, U.S. Trade Representative (USTR) Michael Froman testified to Congress last month that we have a trade surplus with the group of FTA nations.

Heads Up for Distorted Data…

Given that the record of lagging U.S. exports and surging trade deficits under U.S. FTAs jeopardizes Obama’s prospects for obtaining Fast Track, the administration may try to obscure the results with distorted data. The USTR has taken to lumping foreign-made products in with U.S.-produced exports, which artificially inflates U.S. export figures and deflates U.S. trade deficits with FTA partners.

“Foreign exports,” also known as “re-exports,” are goods made abroad, imported into the United States, and then re-exported without undergoing any alteration in the United States. Foreign exports support zero U.S. production jobs. Each month, the U.S. International Trade Commission (USITC) reports trade data with foreign exports removed, providing the official government data on made-in-America exports. But the USTR likely will choose to use the uncorrected raw data, as it has in the past, that the U.S. Census Bureau released last Thursday, which counts foreign-made goods as U.S. exports. Our figures are based on the corrected data.

By using the distorted data, the USTR may errantly claim an aggregate trade surplus with all U.S. FTA partners, though the actual 2014 U.S. goods trade balance with FTA partners is a more than $177 billion trade deficit. By counting foreign exports as “U.S. exports,” the USTR can artificially eliminate more than two-thirds of this FTA deficit, shrinking it to less than $57 billion. The USTR may misleadingly claim an FTA trade surplus by then adding services trade surpluses with FTA partners, which pale in comparison to the massive FTA trade deficit in goods when properly counting only American-made exports.

The USTR also may repeat its bogus claim that the United States has a trade surplus with its NAFTA partners by errantly including foreign exports as “U.S. exports,” removing fossil fuels and adding services trade data. But even after removing fossil fuels (coal, oil and natural gas) and adding services 2014naftare-exporttrade surpluses, the United States still had a projected NAFTA trade deficit of $50 billion in 2014. Indeed, the fossil fuels share of the NAFTA trade deficit declined in 2014, and U.S. exports of services to NAFTA partners fell, according to projections. The USTR can make its errant claim of a “NAFTA surplus” only by including foreign exports, which artificially reduces the NAFTA goods trade deficit to less than half of its actual size.

The USTR also may boast about an increase in U.S. exports to Korea in 2014, while ignoring the much larger increase in imports from Korea. While U.S. goods exports to Korea in 2014 increased by $2.3 billion, imports from Korea have risen by $5.6 billion, spelling a $3.3 billion increase in the U.S. goods trade deficit with Korea in the third calendar year of the Korea FTA.

Moreover, U.S. exports to Korea have declined since the FTA went into effect and did not return to the pre-FTA level in 2014. Monthly imports from Korea repeatedly broke records in 2014, such as in October when imports from Korea topped $6.3 billion – the highest level on record.

Expect the administration to repeat the same data trick it employed last year with respect to U.S. auto sector exports to Korea. Exports to Korea of U.S.-produced Fords, Chryslers and General Motors vehicles increased by fewer than 3,100 vehicles per year in the first two years of the Korea FTA. But given that exports of “Detroit 3” vehicles before the FTA were also tiny – fewer than 8,200 vehicles per year – the USTR expressed the small increase as a significant percentage gain in a press release. The USTR did not mention that more than 184,000 additional Korean-produced Hyundais and Kias were imported and sold in the United States in each of the Korea FTA’s first two years, in comparison to the two years before the FTA, when Hyundai and Kia imports already topped 1 million vehicles per year.

February 03, 2015

If Pinocchio Were Trying to Sell a Controversial Trade Deal

Four Pinocchios.  That’s the rating, reserved only for the biggest whoppers, that The Washington Post has given to the Obama administration’s most recent assertion of truthiness about the controversial Trans-Pacific Partnership (TPP) - that the deal could boost income and “support 650,000 new jobs” in the U.S. 

How far off was the administration’s claim that the deal could create 650,000 jobs?  By about 650,000 jobs. 

As Glenn Kessler, Washington Post fact-checker, explained, “the correct number is zero (in the long run), not 650,000, according to the very study used to calculate this number.”

That’s right – the study itself, from the Peterson Institute for International Economics, did not produce an estimate of job growth from the TPP.  Indeed, the study used an assumption of full employment, under which projected job gains would be precisely zero. 

The Peterson Institute has been hesitant to project employment impacts of controversial trade pacts since inaccurately predicting that NAFTA would create jobs, on the basis that the U.S. trade surplus with Mexico would rise.  Just two years into NAFTA, the $3 billion trade surplus with Mexico turned into a $26 billion trade deficit.  At that point, one of the study’s authors told The Wall Street Journal, “the lesson for me is to stay away from job forecasting.”

The Obama administration has yet to learn that lesson, apparently.  But how did the administration get a jobs number from a study that did not produce one?  (If this sounds familiar, the Chamber of Commerce pulled this same trick last year.)

The administration took the study’s projection that the TPP might yield a 0.4% increase in aggregate income in 2025 and used a back-of-the-envelope calculation to determine how many jobs could be created if that income went to new jobs instead. But then they claimed that the TPP not only could create these jobs, but simultaneously could create the income gains that they had just exhausted to produce their jobs prediction. 

In short, they double-counted, taking the Peterson Institute’s projection for the TPP’s economic impact and multiplying by two.

It’s hard to blame them – the study’s projection for the deal’s economic impact amounts to less than 40 cents per person per day in 2025 (at present value).  If you were selling the TPP, you’d want to double that too.  (Not that “less than 80 cents per day” is a great motto for a deal likely to make medicines more expensive, offshore jobs, and undermine health, environmental and financial protections.) 

But, you may say, let’s set aside the administration’s fast-and-loose numbers – don’t the Peterson Institute results still mean income gains from the TPP, however meager?  

That depends – do you make more than $88,330 per year?  If not, you’d be more likely to see income losses from the deal - not gains. 

The Peterson study made no attempt to determine the impact that the TPP would have on inequality, despite an academic consensus that trade flows under such deals have exacerbated U.S. income inequality.  So, in a study in 2013, the Center for Economic and Policy Research (CEPR) took the projected TPP gains from the Peterson Institute study and added an analysis of how the TPP would affect income inequality.  Taking the Peterson Institute's income projections as given, CEPR used the empirical evidence on the trade-inequality relationship to show that even with the most conservative estimate of trade's contribution to inequality (that trade is responsible for just 10 percent of the recent rise in inequality), the losses from projected TPP-produced inequality would wipe out the tiny projected gains for the median U.S. worker.  

If one assumes the still-conservative estimate that recent trade flows have been responsible for 15 percent of the rise in inequality, then CEPR calculates that the TPP would mean wage losses for all but the richest 10 percent of U.S. workers.  So if you're making less than $88,330 per year (the current 90th percentile wage), the TPP would mean a pay cut.  

And that’s probably still too kind to the TPP, given that it requires accepting the array of outsized assumptions that the Peterson Institute used to produce its small income gain projection.  Nearly half of the study’s projected income gains come from what the study presumes will be a surge in foreign investment resulting from the TPP. But a raft of studies has produced, at best, contradictory evidence as to whether or not TPP-like investment protections included in past trade and investment agreements have actually had any impact on foreign investment.  Indeed, the most recent studies have concluded that such terms have failed to boost foreign investment.  If the Peterson study reflected this reality, the projected aggregate income gain (which would only reach the pockets of the wealthiest) would be halved.

The study also assumes that the workers who the TPP would displace would be able to rapidly find new jobs and that these new jobs would be just as high-paying as the old jobs, meaning no negative impact on consumer demand.  This runs counter to U.S. government data.  According to the Bureau of Labor Statistics, three out of every five displaced workers in the manufacturing sector (where we could expect significant TPP-induced displacement) were forced to take a lower paying job upon being rehired last year.  For one third, the pay cut was more than 20%.  Why should we assume that the same losses would not befall TPP-displaced manufacturing workers?   

The Peterson study itself projects that during the final years of TPP implementation, about 100,000 U.S. workers would be displaced each year, and that’s only counting those who take jobs in entirely new sectors.  It’s unreasonable to assume that job replacements for all these workers would be immediate, that pay cuts would be nonexistent, and that there would be zero resulting impact on demand.  Back in reality, the hit to consumer demand would depress further the tiny aggregate income gain projected from the deal, spelling even tinier gains for the richest and even steeper income losses for the rest of us. 

So yes, the administration’s claim of 650,000 jobs from the TPP definitely deserves its four Pinocchios.  Or, to borrow a card from the administration, let’s call it eight.  

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