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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.

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