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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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May 13, 2016

New GTW Researcher Keeping an Eye on Trade

Today, Public Citizen’s Global Trade Watch (GTW) released a study on the United States International Trade Commission’s (USITC) General Equilibrium Model for estimating export and import growth as a result of trade agreements. I helped compile the background of the report, and I wanted to take a second to introduce myself.

My name is Justin Fisk, and I am the Senior Researcher at GTW. Since I first arrived in Washington, D.C. four years ago, I have been increasingly interested in international trade and its impact on the United States. During my graduate work at George Washington University, I focused my studies on international trade. At the same time, I interned full-time in many positions within the federal government and the private sector, including the Trade Promotion Coordinating Committee at the Department of Commerce and the government affairs division of a trade law firm. After I completed graduate school, I worked for two years at the Council of State Governments helping states develop export promotion plans for small businesses in the United States.

I decided to leave the comforts of my previous job to take a more challenging role at Global Trade Watch. I am excited to be here, and I look forward to sharing the findings of our research in the coming months.

For my first blog, I wanted to discuss the USITC model. It is an important time to review and analyze this model since the USITC’s next report is expected to be released next week on May 18, which will analyze the impact of the Trans-Pacific Partnership on the United States.

Policymakers need to understand the data limitations of the current model employed by the USITC. Not only does it fail to take into account currency manipulation – which the TPP has no enforceable provisions against – it also assumes that workers who lose jobs to trade can easily and seamlessly find other opportunities for work (more examples of the assumptions the model incorporates can be found in the official report here). It shouldn’t be surprising that the USITC has consistently failed to estimate in any meaningful way the impacts of a free trade agreement.  

Looking back, the USITC predicted improved trade balances as a result of the 1993 North American Free Trade Agreement (NAFTA) and 2007 U.S.-Korea Free Trade Agreement. The agency projected only a small deficit increase from China’s 1999 World Trade Organization entry deal and the granting to China of Permanent Normal Trade Relations status.

Instead, the U.S. trade deficits with the trade partners increased dramatically and, as detailed in the text of the new study, manufacturing industries from autos to steel and farm sectors such as beef that were projected to “win” saw major losses. A government program to help Americans who lose jobs to trade certified 845,000 NAFTA jobs losses alone.

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The USITC report also estimates changes of exports and imports of certain products. For example, the USITC concluded that NAFTA would result in little or no impact on meat imports into the United States because of already low U.S. tariff rates, and that if anything, U.S. exports of meat to Mexico would increase. The report projected that U.S. beef exports to Mexico would increase in the long-term by 16 percent or more. In reality, American cattle producers experienced the opposite outcome from NAFTA. In 1993, the United States exported 39,000 metric tons of beef and veal to Mexico and imported only 13,000 metric tons. By 2015, the United States imported more than 30,000 metric tons of beef and veal from Mexico more than it exported to Mexico.

In the China study, the USITC report estimated that U.S. exports of iron and steel would increase by 5.1 percent. The report does not project changes in import levels. In reality, U.S. exports of iron and steel increased by $1.1 billion or 239 percent. The USITC report did not however anticipate that U.S. imports from China of iron and steel would increase by $12.3 billion or by nearly 300 percent. The U.S. trade deficit with China in steel and iron products has worsened by nearly $7.9 billion, increasing from $2.7 billion in 2000 to $10.7 billion in 2015. In November 2015, nine steel associations wrote a joint letter insisting that China’s “overwhelmingly state-owned and state-supported steel industry” is the root problem of the 700 million metric tons of excess steel capacity in the world today, which is making it difficult for private sector firms in the U.S. to compete.”

The USITC report also projected that the U.S.-Korea FTA would likely increase exports of grain to Korea, “particularly exports of corn.” In reality, U.S. exports of corn have decreased by $1 billion or by 64 percent in the first 4 years of the Korea FTA. The Center for Economic and Policy Research released an interesting study in April that found, “there is no clear relationship between the expected effect of the KORUS on exports to Korea and the actual change in exports relative to trend.”

As mentioned earlier, the USITC model utilizes false assumptions which surely impact its results. With this in mind, policy makers should approach USITC report on TPP’s impact with caution.

May 12, 2016

With Trade Commission TPP Review Due Next Week, New Study Shows Past Pacts’ Actual Outcomes Were Opposite of Agency’s Rosy Projections

Administration Expected to Tout Imminent USITC Study in New Push for TPP Passage Despite Agency’s Systematic Failure to Accurately Assess NAFTA, China and Korea Pacts

WASHINGTON, D.C. – The reliability or usefulness of an imminent government assessment of the Trans-Pacific Partnership (TPP) was called into question by a study released today that shows that past U.S. International Trade Commission (USITC) projections of trade agreements’ benefits were systematically contradicted by the pacts’ actual outcomes.

The new study reviews USITC trade balance, job and economic sector projections in the statutorily required reports for the three most economically significant trade pacts prior to the TPP and finds the government study on each pact proved dramatically inaccurate – not only in degree, but in direction.

“Past government studies have systematically projected positive outcomes that were contradicted by the actual results, which is why members of Congress requested, without success, that the agency alter its approach to assessing the TPP,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

The USITC predicted improved trade balances, gains for specific sectors and more benefits from the 1993 North American Free Trade Agreement (NAFTA) and 2007 U.S.-Korea Free Trade Agreement (FTA) in reports on those pacts. The agency projected only a small deficit increase from China’s 1999 World Trade Organization (WTO) entry deal and the granting to China of Permanent Normal Trade Relations status.

Instead, the U.S. trade deficits with the trade partners increased dramatically and, as detailed in the text of the new study, manufacturing industries from autos to steel and farm sectors such as beef that were projected to “win” saw major losses. A government program to help Americans who lose jobs to trade certified 845,000 NAFTA jobs losses alone and econometric studies concluded that millions of jobs were lost from the China deal, in contrast to gains projected by the USITC reports.

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The new report also reviews how the USITC’s use of a computable general equilibrium (CGE) model leads to projections entirely unrelated to actual outcomes by simply assuming away the very results that have often occurred under past pacts: long-term job loss, trade deficit increases and currency devaluations.

Under the model, the USITC collects information on current exports, imports, gross domestic product (GDP), tariff rates, investment flows and more. It creates equations to calculate how trade flows would change if a pact’s terms were fully implemented. The model looks to an endpoint, not the process of getting there. It does not consider whether there may be increases in trade deficits along the way, or whether other nations may not fully implement or enforce a pact’s terms. Rather it projects a final outcome assuming full implementation. Running this simulation generates data on potential changes in exports and imports. By design, it assumes the trade balance does not change and that employment levels remain consistent – that workers who lose jobs simply obtain new jobs in other sectors where wages are presumed to increase.

A growing body of academic criticism of the CGE model employed by the USITC has focused on the numerous assumptions researchers make, including what economic factors are included and excluded, and what included factors are assumed to remain constant. For instance, implicit in the assumption that the trade balance does not change is the assumption of flexible exchange rates. But in reality, currency manipulation is a significant problem among some of the TPP countries. The U.S. Department of Treasury just recently included TPP nation Japan on its new Monitoring List in its semi-annual report on “Foreign Exchange Policies of Major Trading Partners of the United States.”

The assumptions baked into the model can contribute to gaps between projections about import and export levels and actual outcomes. Also, given that the results of the trade flow simulations are then used to project broader outcomes (such as on U.S. economic growth), assumptions piled on assumption can cause results that are incorrect, not only in degree, but in direction.

Different assumptions can result in diametrically opposed outcomes, as demonstrated by the recent Peterson Institute for International Economics and Tufts University studies on the TPP. The Peterson Institute used a CGE model with assumptions similar to those employed by the USITC in past studies and found the TPP would result in a modest increase in U.S. GDP, but not impact overall U.S. employment. Using an economic model that allows for the possibility of less than full employment and rising income inequality, called the United Nations Global Policy Model, Tufts University economists concluded that the TPP would reduce U.S. growth rates and lead to 448,000 American jobs lost.

The Tufts findings spotlight just how drastically the assumptions baked into a model affect the outcomes; the Tufts economists actually employed the Peterson Institute trade flow simulation data. They plugged the Peterson findings on import and export levels at full TPP implementation derived from one set of unrealistic assumptions into a model that applies more realistic assumptions about how trade flow changes affect growth and employment – and got the opposite results on growth and jobs.

Finally, the output of any model also is greatly affected by the data put into it. Issues to watch for in this regard for the USITC’s TPP study include:

  • How will the USITC TPP study treat “non-tariff barriers” (NTB)? What an international bank may consider an NTB may be what a policymaker or consumer considers an important safeguard to avoid costly financial crises. But recent trade pact projection studies have included guesstimates of gains resulting from the elimination of NTBs.
  • Will the USITC TPP study consider how TPP investment rules could affect decisions about where to invest in production and whether the TPP will alter foreign direct investment trends?
  • How will the USITC TPP study assess intellectual property provisions, given that longer monopolies may increase some U.S. firms’ profitability but also may cost governments and consumers more for medicines and access to information?

Under the Fast Track authority passed last year, the USITC is required to release a report projecting the economic effects of the TPP no later than May 18, 2016.

 

 

May 04, 2016

New Data Reveal That Obama’s Korea Trade Pact on Which the TPP Was Modeled Resulted in Doubling of Trade Deficit

Likely to Fuel Bipartisan Trade Revolt in Presidential and Congressional Campaigns as White House Gears up Push for Congressional Passage of TPP

WASHINGTON, D.C. – As the Obama administration intensifies its efforts to persuade Congress to pass the Trans-Pacific Partnership (TPP), new U.S. government data released today reveal an “inconvenient truth” about the Korea Free Trade Agreement (FTA) that served as the template for the TPP. The new data covering the first four years of the pact reveal that the U.S. goods trade deficit with Korea has more than doubled. This 115 percent deficit increase with Korea comes in the context of the overall U.S. trade deficit with the world decreasing slightly. 

The increase in the U.S. trade deficit with Korea equates to the loss of more than 106,000 American jobs in the first four years of the Korea FTA, counting both exports and imports, according to the trade-jobs ratio that the Obama administration used to promise job gains from the deal.

The Census Bureau data showing the outcomes of the Korea pact are the opposite of the Obama administration’s 2011 “more exports, more jobs” promises for the deal. The administration is now employing similar claims to try to sell the TPP to Congress and the American public as bipartisan opposition to more-of-the-same trade policies surges and presidential and congressional candidates spotlight the problems with the TPP and the failure of U.S. trade policies.

“President Obama has stepped up his efforts to do a hard sell on the TPP, but much of the TPP text was literally cut and pasted from the Korea agreement, so to see what a disaster the Korea deal has been is a stark warning,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “President Obama has repeatedly asked that the TPP not be judged against his predecessors’ failed trade deals, but now we can see the disastrous results from President Obama’s signature trade package, which helps to explain why in this election cycle Americans are on the warpath against our trade policies.” 

Despite the Korea FTA including more than 10,000 tariff cuts, 80 percent of which began on day one:

  • The U.S. goods trade deficit with Korea has increased 115 percent, or $16 billion, in the first four years of the Korea FTA (comparing the year before it took effect to the fourth year data).
  • Since the FTA took effect, U.S. average monthly exports to Korea have fallen in 11 of the 15 U.S. sectors that export the most to Korea, relative to the year before the FTA. Exports of machinery and computer/electronic products, collectively comprising 28.6 percent of U.S. exports to Korea, have fallen 22.6 and 6.6 percent respectively under the FTA.
  • The 115 percent surge in the U.S.-Korea goods trade deficit in the first four years of the FTA starkly contrasts with the 5 percent decrease in the global U.S. goods trade deficit during the same period.
  • While U.S. goods imports from the world have decreased by 6 percent, U.S. goods imports from Korea have increased by 19 percent, or $11.5 billion, during the FTA’s first four years.
  • U.S. goods exports to Korea have dropped 9 percent, or $4.4 billion, under the Korea FTA’s first four years.
  • U.S. exports to Korea of agricultural goods have fallen 19 percent, or $1.4 billion, in the first four years of the Korea FTA despite the administration’s oft-touted point that almost two-thirds of U.S. agricultural exports by value would obtain immediate duty-free entry to Korea under the pact. U.S. agricultural imports from Korea, meanwhile, have grown 34 percent, or $123 million, under the FTA. As a result, the U.S. agricultural trade balance with Korea has declined 22 percent, or $1.5 billion, since the FTA’s implementation. The Obama administration promised that U.S. exports of meat would rise particularly swiftly, thanks to the deal’s tariff reductions on beef, pork and poultry. However, U.S. exports to Korea in each of the three meat sectors have fallen below the long-term growth trend since the Korea FTA took effect. Compared with the exports that would have been achieved at the pre-FTA average monthly level, U.S. meat producers have lost a combined $62.5 million in poultry, pork and beef exports to Korea in the first four years of the Korea deal – a loss of more than $5 million in meat exports every month
    • Despite the promises made by U.S. officials that the pact would enhance cooperation between the U.S. and Korean governments to resolve food safety and animal health issues that affect trade, South Korean banned nearly all imports of American poultry at the beginning of 2015 due to several bird flu outbreaks in Minnesota and Iowa. Comparing the FTA’s fourth year to the year before it went into effect, U.S. poultry producers have faced a 93 percent collapse of exports to Korea – a loss of nearly 100,000 metric tons of poultry exports to Korea. U.S. beef exports are finally nearing pre-FTA levels after declining an average of 11 percent during the first three years of the agreement. U.S. pork exports have also nearly recovered to pre-FTA levels after falling by an average of 16 percent in the first three years of the agreement
  • Record-breaking U.S. trade deficits with Korea have become the new normal under the FTA – in 47 of the 48 months since the Korea FTA took effect, the U.S. goods trade deficit with Korea has exceeded the average monthly trade deficit in the four years before the deal.

The Office of the U.S. Trade Representative (USTR) has tried to obscure the bleak Korea FTA results, as congressional ire about the pact is fueling opposition to the TPP. The USTR’s standard data omissions and distortions include:

  • The USTR tries to dismiss the decline in U.S. exports to Korea under the FTA as due to a weak economy in Korea. 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 2015 was 11 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 9 percent in the first four years of the FTA.
  • The USTR selects a few products that have gained exports to emphasize, while omitting the low value of such exports and the net trade deficit increase of 115 percent.

 

May 02, 2016

Leaked TTIP Documents: Threats to Regulatory Protections

Statement of Robert Weissman, President, Public Citizen

Note: Today, Greenpeace Netherlands leaked negotiating texts of the Transatlantic Trade and Investment Partnership (TTIP) agreement, the proposed trade deal between the United States and Europe. The leaks include 13 of 17 consolidated texts, as well as a European Union memorandum on the negotiating state of play. This statement provides a preliminary analysis of one of the leaked chapters, Regulatory Cooperation.

Europe, beware. The leaked TTIP text confirms that the United States is trying to export its failed regulatory model. If the United States succeeds in its project, Big Business will gain enormous power to block, slow, undermine and repeal European regulations.

The leaked text makes clear that there are serious issues requiring analysis in particular sectors, but also that the Regulatory Cooperation chapter poses a major threat to health, safety, environmental, labor, consumer, civil and political rights, and other regulatory protections. The U.S. proposals in the Regulatory Cooperation chapter seek to export many of the worst features of U.S. rulemaking.

There is a lot to recommend about the U.S. regulatory process in theory, but in practice, the U.S. rulemaking process now evidences a massive tilt to favor the interests of regulated industries. It is far too slow; regulators are bogged down in seemingly endless analytic requirements that are themselves biased to favor the interests of regulated parties. Its veneration of “cost-benefit analysis” provides a pseudo-scientific cloak to industry’s apocalyptic claims about the costs of the next regulation and operates at loggerheads with application of the precautionary principle.

In the days ahead, Public Citizen will issue a more detailed analysis of the draft Regulatory Cooperation chapter. These are among our top line concerns from the U.S. proposals in that chapter:

  • Regulatory Delay – Paralysis by Analysis: Article X.13 would require parties to provide detailed and expansive justifications for their decision to issue a regulation, including consideration of regulatory alternatives. This is an inherently unequal obligation, because there is no burden to provide justification for doing nothing. In practice, the need to provide detailed justification for issuing a rule dramatically slows U.S. rulemaking.
  • Corporate-Biased Cost Benefit Analysis: Article X.13.1.c would require parties to conduct detailed cost-benefit studies of regulations and regulatory alternatives. It is important to understand that the U.S. understanding of the phrase “anticipated costs and benefits” is fundamentally different than the European conception of regulatory impact assessment. In the United States, cost-benefit analysis is an extremely technical concept involving extensive data collection and elaborate modeling, and it is generally understood to be a near-absolute decision-making criterion. Its highly technical nature obscures the fact that cost estimates frequently rely on regulated industry-provided data and are excessive, and that non-quantifiable or indirect benefits are frequently not captured.
  • One-Sided Analytic Requirements: Article X.13.2 would require parties to assess the impact of regulations on small businesses, a formal assessment under U.S. in certain circumstances that imposes extensive delay. It is also a one-sided required analysis, both under U.S. law and the U.S. TTIP proposal, because the specially required analysis looks to burdens (“adverse economic impacts” in the TTIP proposal) but not pro-competitive or other benefits to small business.
  • Look Back, Not Forward: Article X.16 would require parties to undertake retrospective reviews of regulations. This is, again, an inherently uneven process, because the instruction is to search for rules to revise or repeal, not for regulatory shortcomings or gaps requiring new initiatives. In practice in the United States, the obligation to undertake regulatory reviews demands valuable time and resources from agencies, and interferes with their ability to conduct forward-looking activity.
  • Trade Over the Public Interest: Article X.9 would impose a requirement for parties to consider trade effects of proposed regulations, and implicitly to justify any detrimental effects on trade. This is admittedly a soft requirement, but is notable inserting purely commercial considerations into regulatory decision-making and should be viewed as precursor to more robust demands in this area to follow.

Taken in their entirety, the U.S. Regulatory Cooperation proposals are affirmatively hostile to the precautionary principle. The precautionary principle counsels taking protective action in the face of uncertainty. The U.S. cost-benefit standards, demands for consideration of alternative regulatory approaches, and expansive analytic requirements also counsel for inaction in the face of uncertainty. Moreover, U.S.-style cost-benefit analysis places a premium on industry-provided cost estimates while effectively discounting benefits from action to prevent possible harm.

There is no need to overstate this tension; it is in fact possible to take precautionary action in a cost-benefit framework, as the United States sometimes does – but it is also the case that U.S.-style cost benefit is generally discordant with precautionary approaches.

The U.S. proposal notably does not include a requirement for judicial review of regulatory impact analytic requirements. This feature is central to the U.S. rulemaking process, but U.S. negotiators have recognized its incompatibility with European institutional arrangements. It remains to be seen how a regulatory cooperation chapter will intersect with the investment chapter. But irrespective of the intersection with the investment chapter, Europeans should be aware that, if the U.S. Regulatory Cooperation proposals are accepted and TTIP is approved, it is only a matter of time before the United States and U.S. corporations begin advocating judicial review of European compliance with the provisions of the Regulatory Cooperation chapter.

Judicial review is an inherent part of the logic of the U.S. system, and there is no doubt that U.S. corporate interests will insist that judicial review is required to enforce the terms of the Regulatory Cooperation chapter.

April 18, 2016

Audit of Administration’s ‘Tax Cuts’ Claim for TPP Reveals Cooked Numbers and Misdirects

The Obama administration’s claim that the Trans-Pacific Partnership (TPP) will deliver “tax cuts for 18,000 Made in America products” is wrong, a new Public Citizen analysis shows. The new Public Citizen report also addresses the real question from which the administration’s redirect to an impressive-sounding number distracts: Would cutting even 18,000 tariff lines necessarily equate to more U.S. exports, jobs or growth?

“The administration owes the public and Congress an explanation of how it cooked up what obviously is a false ‘TPP tax cut’ number, but more broadly touting a large number of tariff lines cuts misdirects attention from the real question of whether the TPP will create more American jobs or cause damage,” said Lori Wallach, direct of Public Citizen’s Global Trade Watch.

The disconnect between tariff lines cut and economic gains is spotlighted by the U.S.-Korea Free Trade Agreement (FTA), which cut nearly 10,000 tariff lines. Yet, in its first three years, U.S. goods exports to Korea dropped 7 percent and the U.S. deficit with Korea surged 90 percent.

Public Citizen’s new analysis reveals that:

  • The claim about 18,000 tax cuts on Made in America goods is obviously wrong.
  • In 2014, the United States exported items relating to a total of 8,687 tariff categories to all of the 11 TPP countries. Even assuming tariffs remained in each category of products, and many already are duty-free, the TPP clearly would not deliver “tax cuts” for 18,000 U.S. products. (The administration says the 18,000 figure refers only to cuts with just the five TPP nations that do not have a U.S. trade deal and to these nations we sent exports in only 7,289 categories.)
  • That the administration’s 18,000 figure represents double, triple or quadruple counting also is revealed by reviewing Brunei, Japan, Malaysia, New Zealand and Vietnam’s TPP tariff schedules. None list more than 10,000 tariff categories with many lines duty-free absent a TPP.
  • Whether tariff cuts translate into more U.S. exports or jobs relies on whether we make or TPP nations demand the relevant goods. For 5,830 of 7,289 categories (80 percent) in which the United States exported anything to the relevant TPP countries, sales were less than $5 million. A quarter had sales of less than $100,000. In only 21 of 7289 lines did we export more than $500 million and some of these already are duty free.
  • 1,225 of the tariff reductions in the products we do sell to the five TPP nations without U.S. FTAs won’t be realized for a decade or more. This includes goods we produce in volume, like beef, which will still face a 20 percent tariff in Japan in the tenth year after the TPP would go into effect.
  • The six TPP partners with which the United States already has FTAs collectively account for more than 80 percent of the trade counted in the oft-touted statistic that the TPP covers 40 percent of world trade. Thus, tariffs on U.S. goods going to Australia, Canada, Chile, Mexico, Peru and Singapore already are gone or are being eliminated. So while TPP countries may account for 40 percent of world trade, the TPP would cut tariffs on only 20 percent of that 40 percent share.
  • Among the items the United States simply do not export are those relating to species that the administration claims the TPP’s Environmental Chapter will help conserve. Yet perversely, the list of tariff cuts that the administration counts as a benefit of the TPP includes Malaysia’s shark fin tariff, Vietnam’s whale meat tariff and Japan’s ivory tariff. 
  • Even setting aside the problem of currency manipulation, cuts translate into more market access only when tariffs are significant enough to make U.S. products uncompetitive. Japan comprises fully 88 percent of the combined gross domestic product of the TPP countries that do not already have a U.S. FTA, but Japan’s average applied tariff weighted by product import shares is now only 1.2 percent. Indeed, the tariff levels in the remaining five TPP are generally low.
  • The raw number of tariff lines countries agree to cut also does not tell us much about a pact’s effect on consumer prices. The TPP includes tariff cuts on the shoes Nike produces in Vietnam to sell here, but currently shoes that retail for more than $100 cost about $10 to make. The tariff is charged on the cost, thus even a major percentage cut does not equate to much money. And, whether a firm like Nike will reduce prices or simply gain more profit on an item imported for sale here is determined by what consumers are willing to pay for the product.
  • While firms importing goods into the United States will determine whether to pass savings related to U.S. tariff cuts on to consumers, the TPP’s reduction or elimination of tariffs does necessarily reduce U.S. Treasury revenue. According to President Barack Obama’s proposed 2017 budget, the TPP would cost the United States about $28 billion in lost tariff revenue over the next 10 years. (The calculation is based on the assumption that the TPP takes effect in 2017.)

The administration’s “TPP Guide to 18,000 Tax Cuts” document oddly highlights goods that TPP nations simply do not buy in volume from anyone. Consider the 34 percent “tax” cut by Vietnam on Alaskan caviar. In 2014, Vietnam’s per capita GDP was about $2,000 and about $150,000 worth of caviar was imported by Vietnam from anywhere. Or Vietnam’s 5 percent tariff on skis from Colorado. Vietnam imported only about $50,000 in skis in total. Other highlights: Vietnam and Japan will eliminate their tariffs on silkworm cocoons, Brunei will cut its tariff on ski boots and Vietnam will eliminate its tariff on camels.

March 28, 2016

Talking Points: Response to 3/15/16 Peterson Institute Pro-TPP Paper

Below is a briefing note called, “Assuming Away Unemployment and Trade Deficits from the TPP” from the team at Tufts University that debunked the original Peterson Institute for International Economics (PIIE) TPP study which this latest missive, “Adjustment & Income Distribution Impacts of the TPP” by PIIE’s Robert Lawrence and Tyler Moran, is premised. The key points are:

  • Of course Lawrence and Moran find that TPP’s benefits far exceed the adjustment costs: They use the findings of the PIEE TPP study (Petri-Plummer) derived from a model that does not allow for permanent job loss or increased trade deficits and assumes no increased income inequality. Those assumptions, which contradict the outcomes of each past major U.S. trade pact, mean TPP wage and employment losses are just temporary “adjustment costs” on the way back to full employment. If that were not sufficient to distort the new study’s findings, the authors also pile on more outlandish assumptions to minimize the number of workers likely to be affected and the impact on their wages.
  • With larger trade deficits and permanent job loss excluded by assumption, Lawrence and Moran then start discounting how many Americans would be hit even by temporary job displacement from the TPP by presenting three scenarios. 
    • They start with 1.69 million U.S. workers possibly displaced over ten years of the TPP.
    • They drastically reduce that total to 278,000 (mainly in manufacturing), by invoking another layer of assumption based on the underlying full-employment assumption: Rising demand will generate new jobs and thus limit job loss.
    • Then they reduce that to 238,000 workers by excluding workers who voluntarily leave manufacturing jobs, so the TPP can’t be blamed for those losses.
  • They then apply a formula to estimate the temporary adjustment costs (essentially lost wages) from those “displaced.” They compare these to Petri and Plummer’s reported U.S. TPP gains of $131 billion. Recall that these gains are based on the outlandish assumptions baked into the model. Another study that allowed for job loss and increased trade deficits found the TPP would result in net losses for the United States.
  • Lawrence and Moran’s resulting cost-benefit calculation does not report the costs, just the ratios, for the three scenarios. The authors report that for their “most realistic” scenario (#3), the one with the fewest displaced jobs, the benefits are 18 times the costs over the 10-year “adjustment period” (2017-26).
    • Then, they add in three “post-adjustment years” 2027-2030 and the ratio skyrockets to 115:1. Why? Presumably because with the full-employment assumption all displaced workers are, by then, happily employed in their new post-TPP jobs.
  • Finally, the authors also make the unfounded assumption that U.S. wages will increase at the same rate as productivity, though that has not happened for thirty years. This assumption automatically raises most workers’ incomes in their analysis. They also claim the assumed income gains will be much the same for each quintile of U.S. income distribution, with the bottom quintile seeing an increase 0.007 of a percentage point higher than the top. Technically, that’s mildly progressive. But consider it in terms of absolute gains: The bottom 40 percent sees just $8 billion in income gains, while the top quintile would get $48 billion. (i.e., more in absolute terms than the bottom 80 percent combined.)
  • The resulting cost-benefit calculations are misleading not only because the costs are assumed away, but also because the benefits are overstated. This latest paper takes the earlier Petri and Plummer estimates at face value, with all their flawed growth-boosting assumptions (such as a surge in foreign investment and most growth gains from non-trade measures). Plus, the gains are simply asserted to be large, when even the Petri-Plummer estimates of gains are incredibly small, just 0.5 percent of GDP for the United States in 2030, i.e., a paltry 0.029 percent per year on average over 15 years. How small is that? Even with all of the unrealistic assumptions, for the bottom 40 percent of U.S. income distribution, the gains amount to just $62 per person, in 15 years.

THE FULL BRIEFING NOTE FROM THE TUFTS TEAM CAN BE FOUND HERE: http://triplecrisis.com/assuming-away-unemployment-and-trade-deficits-from-the-tpp/

 

March 03, 2016

President’s Annual March Trade Agenda

Administration Continues to Use Debunked Talking Points to Sell TPP

The Obama administration released the 2016 Trade Policy Agenda today as the Trans-Pacific Partnership (TPP) faces increasing bipartisan opposition in the U.S. House and Senate. However, instead of addressing the growing chorus of concerns in the 2016 trade agenda, the administration continues to push debunked talking points to the American people in hopes of selling the controversial agreement.

Public Citizen has already debunked most of talking points included in the 2016 trade agenda report:

Debunked talking point: More than 18,000 tax cuts on Made-in-America exports.

  • Reality: The Obama administration is trying to shift focus to an impressive-sounding number with its mantra about TPP delivering “18,000 tax cuts for Made in America exports.” But that is just the raw number of tariff lines cut by the five TPP nations with which the United States does not already have free trade agreements (FTAs). The United States only sold goods to those nations in less than 7,500 of the 18,000 categories. Indeed, the United States exports no goods to any nation under some of the touted 18,000 tariff lines.

 

Gtwchart
 

 

Debunked talking point: The President’s trade agenda is focused on supporting U.S. jobs and raising wages.

 Debunked Talking Point: Putting more money in middle class pockets.

  • Reality: A recent study finds the TPP would spell a pay cut for all but the richest 10 percent of Americans by exacerbating income inequality, as past trade deals have done. That would contradict Obama’s 2015 State of the Union inequality reduction goal. Macroeconomic theory predicts if Americans face more competition from workers in Vietnam who make less than 65 cents/hour, wages will be pushed down. Sixty percent of manufacturing workers losing jobs to trade who find reemployment face pay cuts, with one in three losing more than 20 percent, per U.S. DoL data. There is academic consensus that trade has contributed to the major rise in inequality.

Debunked talking point: The TPP is preserving our environment.

Debunked talking pointThe TPP is promoting our values.

  • Reality: While the Obama administration is celebrated for its defense of gay equality after dust-binning the “Don’t Ask, Don’t Tell” policy and joining those announcing that the Defense of Marriage Act was unconstitutional, it decided to allow Brunei to remain in the TPP even after the country announced that it would begin stoning to death gays and single mothers under new sharia-based laws. This has led to LGBTQ groups joining the TPP opposition.

Debunked talking point: The TPP is promoting the U.S. auto industry.

  • Reality: The TPP would threaten the president’s successful rescue of the U.S. auto industry and thousands of U.S. jobs. It would allow vehicles comprised mainly of Chinese and other non-TPP country parts and labor to gain duty free access. This would gut the rules of origin established in NAFTA that condition duty free access on 62.5 percent of value being from NAFTA countries. Ford has supported all past U.S. trade deals, but opposes the TPP.

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

  • Reality: SMEs comprise most U.S. exporting firms simply because they constitute 99.7 percent of U.S. firms overall. However, only 3 percent of U.S. SMEs export any good to any country. In contrast, 38 percent of large U.S. firms are exporters. The relatively few small businesses that do actually export have seen even more disappointing export performance under FTAs than large firms have seen. U.S. small businesses have seen their exports to Korea decline even more sharply than large firms under the Korea FTA (a 14 percent versus 3 percent decrease), while 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 have exceeded by more than 50 percent the growth of their exports to NAFTA partners.

 

February 24, 2016

Debunking the Administration’s TPP = 18,000 Tax Cuts on U.S. Exports Talking Point

U.S. Sold Nothing in More than 10,600 of Those Categories...

Without compelling jobs or economic growth data to sell the Trans-Pacific Partnership (TPP), the Obama administration is trying to shift focus to an impressive-sounding number with its mantra about TPP delivering “18,000 tax cuts for Made in America exports.”

But that is just the raw number of tariff lines cut by the five TPP nations with which the United States does not already have free trade agreements. The United States only sold goods to those nations in less than 7,500 of the 18,000 categories. Indeed, the United States exports no goods to any nation under some of the touted 18,000 tariff lines.

The 18,000 figure is a misdirect. The relevant question is not the number of tariff cuts other countries listed but whether the TPP would lead to net U.S. job creation, higher wages, an improved trade balance and higher U.S. growth rates.

  • The United States exported nothing for more than half of the 18,000 categories to the five relevant nations – Japan, Malaysia, Vietnam, New Zealand and Brunei – in 2014, the last year for which annual data is available. U.S. exporters already have “tax cuts” for their goods under previous trade deals with the other six TPP nations, including Canada and Mexico – our second and third largest trade partners.
  • For the nearly 7,500 categories of goods out of the 18,000 for which we sold anything to the five nations without previous FTAs, almost 50 percent of the categories had sales under $500,000. And the TPP is not likely to transform that reality. Brunei (annual GDP $17.1 billion) is a tiny market. New Zealand (annual GDP $200 billion – smaller than San Diego) and Vietnam (annual GDP $186.2 billion – close to that of Denver) are not big markets. And, consumer demand is limited by Vietnam’s extremely low $2,052 per capita income. Malaysia’s per capital income is one fifth of that in the United States and its GDP is $338.1 billion, about the size of Atlanta. Japan is a huge market. But, with the exception of some agricultural goods, tariffs have not been the main barriers to U.S. exports to Japan. (GDP data from the World Bank)
  • Almost 2,000 of the tariff reductions in the categories of products the United States does sell won’t be realized for over a decade. This includes some of those, such as beef and pork to Japan, where tariff cuts could make a difference. But because the TPP does not have enforceable disciplines against currency manipulation, by the time these cuts finally go into effect they could effectively have been erased if Japan devalues the yen.

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  • The administration’s “TPP Guide to 18,000 Tax Cuts” document bizarrely highlights goods TPP nations simply do not buy in volume from anyone. Consider the 34 percent “tax” cut by low-income Vietnam on Alaskan caviar. About $150,000 worth of caviar was imported by Vietnam from anywhere. Or Vietnam’s 5 percent tariff cut on skis. Vietnam only imported about $50,000 in skis in total.
  • Many of the tax cuts the administration has touted include those that the administration claims the TPP’s weak environmental chapter would conserve. Among the 18,000 tax cuts are Malaysia’s shark fin tariffs, Vietnam’s whale meat tariffs and Japan’s ivory tariffs.

Indeed, the “tax cut” list is packed with gems. Christmas ornaments and pork for Muslim nations Malaysia and Brunei. Silkworm cocoons for Vietnam and Japan. Ski boots for Brunei. Camels for Vietnam.

February 17, 2016

Remarks at the National Press Club Panel on the Proposed Inclusion of ISDS in the TPP

Delivered by Lise Johnson, Head: Investment Law and Policy, Columbia Center on Sustainable Investment, at the National Press Club in Washington DC on February 11, 2016

With the TPP, we are currently at a crucial crossroads. We either take this time to thoroughly evaluate ISDS and its costs and benefits, which, I believe, would take us in a new and more thoughtful direction, or we simply move forward with the TPP, entrenching and expanding a failed experiment in economic policy.

I refer to ISDS as an experiment because, although it is commonly noted that there are 3,000 investment treaties around the world and, therefore, that the ISDS mechanism is nothing new, the first investment treaty with ISDS was actually not concluded until the late 1960s. Investment treaties with ISDS were not widely negotiated until the 1990s, and ISDS claims only really emerged in earnest in the late 1990s and early 2000s. Thus, we really only have roughly 15 years of experience with this mechanism. ISDS is still a new area of law. An experiment.

I note that ISDS is a failed experiment because it does not appear to have achieved three of the commonly stated objectives of the mechanism. It has not led to increased investment flows, nor to a set of predictable international legal rights for investors, nor to an increase in the rule of law in host countries.

If the TPP were concluded with ISDS, we would not only be entrenching this failed experiment, but significantly expanding it. Currently, the US only has an investment treaty with one major capital exporting state, Canada, meaning that only a relatively small share of foreign direct investment in the US – roughly 10% -- is currently protected by a treaty with ISDS. With the TPP, the percentage of covered investment will more than double; and if we continue the trend in the TTIP as well, the amount of covered FDI in the US will rise significantly to approximately 70%, and along with it, the US’s exposure to costly litigation and liability.

Now, the US has said that the experiment has not cost the Government anything, frequently highlighting the point that it has yet to lose an ISDS case. But there are a few reasons why I don’t think we should count on the past to predict the future:

  • As I noted, the US’s exposure has been fairly limited; this will change with the TPP;
  • Second, in the cases the US has defended, the US has had near misses in which even the government officials working on the case thought the Government would lose; one explanation given for why arbitrators have been reluctant to rule against the US is that, if the US were to lose, it would back away from the system to the ultimate detriment of the arbitrators and counsel who make their living from ISDS cases. Thus, at least while the future of ISDS felt uncertain, it has been in the best interest of arbitrators to take it easy on the US.
  • Third, recent decisions reflect the significant delegation of authority under ISDS to arbitrators to interpret and apply the treaty, without any meaningful review or opportunity to appeal the arbitrators’ decisions. The tribunal in a recent case against the US, for example, stated that although all three NAFTA states unanimously agreed that the treaty meant “X”, it didn’t consider itself bound to that interpretation and proceeded to disregard it. This shows that there is no guarantee that tribunals will interpret treaty provisions in a way that is consistent with the US’s understanding of what treaty obligations mean.2
  • Fourth, the US has lost on key issues that have resulted in an expansion of exposure to future claims and damages.3

Moreover, irrespective of data on wins and losses, the system of ISDS itself is fundamentally flawed in that it creates a privileged and powerful system of protections for foreign investors that is inconsistent with, and erodes, the power of domestic law and institutions.

The USTR has defended ISDS against such charges by saying that the standards of protection investors receive under it mirror, but do not go beyond, the protections provided under domestic law and that therefore ISDS does not represent any change or threat to domestic law as we know it.4 But there are two key problems with the USTR’s assertion. One is that it is not correct that investment treaties do not provide foreign investors any greater rights than are provided under domestic law. We’ve done significant research comparing the protections provided under domestic law with those provided under investment treaties, and conclude that the protections provided under investment treaties in fact give foreign investors greater rights than they or anyone else have under domestic law.5 In fact, this seems to be why TransCanada, which is suing the US government as a result of the denial of the Keystone permit, is pursuing its major claim for $15 billion through the NAFTA as opposed to through domestic litigation.

But, even accepting the USTR’s argument that the substantive standards in investment treaties simply mirror substantive standards provided under US domestic law still does not address some of the significant concerns about ISDS. In this context, it is important to recall that ISDS allows investors to challenge actions of officials at any level of government – local, state, and federal, and conduct by any branch – executive, legislative and judicial. The fact that a measure is entirely consistent with domestic law is no defense or shield against liability.

What ISDS does is give private arbitrators the power to decide cases that, at their core, are merely questions of domestic constitutional and administrative law dressed up as treaty claims. Instead of recourse through local, state or federal domestic institutions, investors are able to take their claims to a panel of party-appointed international arbitrators and ask them to determine the bounds of proper administrative, legislative, and judicial conduct.

One might ask: what does it matter if we permit foreign investors to bring their claims against the government before international arbitrators as opposed to before domestic courts if the substantive standards of protection are the same? The answer is that it matters a great deal.

  • One, there is no route for a meaningful appeal. Even if a tribunal gets the law or facts wrong, its decision will likely stand;
  • Two, the decision makers in ISDS are free of the requirements of independence, impartiality, and high ethical standards that are mandatory for US judges;
  • Three, in domestic litigation, if a court issues a decision that is inconsistent with legislative intent, the legislature can pass a law correcting that decision; the legislature, however, has no power to undo or otherwise override an ISDS decision;
  • Four, the procedural rules and remedies are significantly different depending on whether an investor brings its claims through ISDS or through domestic courts, with meaningful impacts on the government’s potential exposure to claims and liability; and
  • Five, even if the law looks the similar, it is not the same. So, for example, although the TPP incorporates what superficially looks like the US’s test on regulatory expropriations, tribunals are not in any way bound to apply that test in the same manner as US courts.

Fundamentally, supranational adjudication—where the decisions of a supranational body can penetrate deep into a domestic society—is rare and raises a host of complex legal and policy questions. Much more consideration of these issues is important before we inadvertently dilute constitutional protections, weaken the judicial branch, and outsource our domestic legal system to a system of private arbitration that is isolated from essential checks and balances. This is not to say that supranational adjudication has no place in the American legal system, but rather that ISDS is an extreme, discriminatory and unnecessary version that will have undue negative effects on our domestic law and institutions.

  1. Data from the Bureau of Economic Analysis.
  2. See Lise Johnson, “New Weaknesses: Despite a major win, arbitration decisions in 2014 increase the US’s future exposure to litigation and liability,” (CCSI 2015), at p. 8, available at http://ccsi.columbia.edu/files/2013/12/9.-Johnson-New-Weaknesses-US-roundup.pdf
  3. See cases discussed Id.
  4. USTR, Fact Sheet: “Investor-State Dispute Settlement (ISDS),” (March 2015), https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2015/march/investorstate-dispute-settlement-isds (“These investment rules mirror rights and protections in the United States and are designed to provide no greater substantive rights to foreign investors than are afforded under the Constitution and U.S. law”).
  5. See, e.g., Johnson and Volkov, “Investor-State Contracts, Host-State ‘Commitments,’ and the Myth of Stability in International Law,” 24 American Review of International Arbitration 361 (2013); Lise Johnson, Lisa Sachs, and Jeffrey Sachs, “Investor-State Dispute Settlement, Public Interest, and U.S. Domestic Law,” (May 2015), available at http://ccsi.columbia.edu/files/2015/05/Investor-State-Dispute-Settlement-PublicInterest-and-U.S.-Domestic-Law-FINAL-May-19-8.pdf

February 04, 2016

On World Cancer Day, Cancer Patients Arrested at PhRMA Headquarters to Warn of ‘Death Sentence’ Imposed by Trans-Pacific Partnership Expansion of Medicine Monopolies

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WASHINGTON, D.C. – On World Cancer Day, two cancer patients – supported by health professionals and public health advocates – were arrested as they engaged in civil disobedience to dramatize their life-and-death concerns about the expansion of medicine monopolies pushed by brand-name pharmaceutical companies in the Trans-Pacific Partnership (TPP).

Zahara Heckscher, a 51-year old mother and author from Washington, D.C., who has been in treatment for aggressive breast cancer for seven years, and Hannah Lyon, a 29-year old from California who is in treatment for aggressive cervical cancer, linked arms and refused to leave the lobby of the office building that houses PhRMA, the trade association that has pushed for extreme monopolies in the TPP, while dozens of supporters chanted outside. 

They loudly shouted that the TPP would be a “death sentence” for many cancer patients by keeping life-saving cancer medicines out of reach due to exorbitant monopoly pricing. They shouted until they were arrested by the D.C. police and charged with unlawful entry.

For royalty-free video and photos of Hecksher’s and Lyon’s arrest: https://www.dropbox.com/sh/68eadvlygp3z85i/AABY6Pq1drD9v4WLXoq4-N4ca?dl=0

 “The TPP will effectively take some patients backwards in time to the dark ages of cancer treatment. It will prevent too many people with cancer – and other life threatening illnesses – from accessing the new treatments they need to stay alive,” said Heckscher, explaining why she felt compelled to risk arrest protesting the TPP at PhRMA today. “One of my current medicines would cost me $118,000 per year if I were not in a clinical trial. PhRMA pushed for provisions in the TPP that, if passed, would lock in policies in the U.S. that keep medicine prices obscenely high.”

Lyon echoed Heckscher’s concerns. “I have never spoken in public or engaged in civil disobedience before, but I know at a deeply personal level the life and death stakes for many cancer patients if the TPP is approved,” she said. “Cancer patients do not have the luxury to wait five or eight years for access to affordable medicines while PhRMA establishes extended monopolies to continue to reap outrageous profits. I want Congress to pay attention to the concerns of patients who need affordable medicine instead of catering to PhRMA lobbyists, and reject the TPP.”

Before risking arrest, Heckscher and Lyon were joined in a news conference and demonstration at PhRMA headquarters by other cancer patients, survivors, health professionals and public health advocates, wearing scrubs and surgical masks and holding signs that read “On World Cancer Day, Cancer Patients Say No TPP Death Sentence” and “Shame on PhRMA! No TPP Death Sentence.” Advocates held oversized pill bottles with giant price tags and chanted.

For royalty-free photos of the protest: https://www.dropbox.com/sh/4ad5p5m0qa2yv5t/AAADolARAKk6UE1uFhUmdOzha?dl=0

Robert Weissman, president of Public Citizen, put the struggle against the TPP ‘death sentence’ in a broader context: “Pharmaceutical industry greed has reached heights never seen before. The price of medicines has nothing to do with the cost of making them – and virtually nothing to do with the cost of research and development. Big Pharma companies are price gouging simply because they can. Drug prices are so high because there’s no competition, and because Big Pharma spent more than $1.2 billion on lobbying over the past five years and it employs an army of more than 1,400 registered lobbyists to keep it that way. As part of a comprehensive strategy to reform our broken system, we must fight Big Pharma’s scheme to win still more expanded monopoly protections through the TPP – an effort not just to impose high prices on other countries, but to block our reform agenda and maintain super-high prices in the United States indefinitely.”

Alison Case, a physician with the American Medical Student Association, gave a prospective from health professionals: “The TPP sets a dangerous precedent for our future patients by threatening access to medicines and public health. The provisions on intellectual property, including provisions regarding life-saving biologics used to treat cancer, were designed with heavy industry input in a completely non-transparent way,” she said. “This will only further an environment of high drug costs and frustratingly difficult struggles for patients who need them.”

Hilary McQuie, director of U.S. government policy at HealthGap, noted that the TPP provisions could delay efforts to end the AIDS epidemic. “We now have over 15 million people worldwide getting HIV treatment, and if we keep increasing resources to test and treat at this rate, we will end the AIDS epidemic by 2030. The only way this has been possible was through hard-won struggles to allow for massive generic imports by low and middle income countries. If in place a decade ago, the TPP’s provisions would have prevented member countries the ability to develop the very HIV treatment programs that millions are dependent on today.”

For more information on the TPP and access to medicines, see:

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