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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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September 18, 2014

Chamber of Commerce Uses “Weird Facts” to Claim a $106 Billion Trade Deficit Isn’t There

The Chamber of Commerce is a place of magic.  For its latest trick, the corporate alliance tried to make a $106 billion trade deficit disappear.

The Chamber took to its blog last week to highlight for readers “One Weird Fact About the Trade Deficit No One Has Noticed.”  Here’s the claimed “fact”: “in 2012 — for the 20 countries with which the United States has entered into a free-trade agreement (FTA) — the trade deficit vanished.”

A disappearing U.S. trade deficit with our FTA partners?  That’s not just weird – it’s incredible.  As in, not credible. 

Want to know why “no one has noticed” this oddity?  Because it didn’t happen. 

In 2012 the U.S. trade deficit with FTA partners topped $106 billion.  That includes trade in goods and services.  (If you just count goods, the deficit was $178 billion.) 

And that mammoth FTA trade deficit is not “vanishing.”  The estimated U.S. trade deficit with FTA partners in 2013 is exactly the same: $106 billion. 

Indeed, the aggregate U.S. goods trade deficit with FTA partners has actually increased by more than $147 billion since the FTAs were implemented. In contrast, the aggregate deficit with all non-FTA countries has decreased by more than $130 billion since 2006 (the median entry date of existing FTAs).

The Chamber goes on to claim, “The United States has recorded a trade surplus in manufactured goods with its FTA partner countries for each of the past five years.”  The opposite is true.  The U.S. has run a major trade deficit in manufactured goods with its FTA partners in each of the last five years.  The average FTA manufacturing trade deficit during this period exceeded $48 billion. Last year, it topped $51 billion.

How does the Chamber claim to not see glaring FTA trade deficits?  By using some “weird facts” of its own. 

The Chamber distorts the data by counting “foreign exports” as “U.S. exports.”  Foreign exports are foreign-made goods that pass through the United States without alteration before being re-exported abroad.  Along the way, they support zero U.S. production jobs.  And yet, the Chamber includes foreign-made exports alongside U.S.-made exports as if they had the same value for U.S. workers.

Doing so dramatically deflates the size of the actual U.S. trade deficit with FTA partners.  By errantly including foreign exports, the 2012 goods trade deficit with FTA partners can be made to look less than 40 percent of its actual size ($71 billion vs. the true deficit of $178 billion).  The distortion was even worse in 2013, when the actual FTA goods trade deficit was nearly three times as large as the distorted deficit with foreign exports included ($67 billion vs. the true deficit of $180 billion). 

The graph below shows how this single data trick allows the Chamber to claim that a $106 billion FTA trade deficit has disappeared.  As the administration contemplates expanding the old deficit-ridden FTA model via the controversial Trans-Pacific Partnership, it seems that we should be looking at the actual evidence from past FTAs, not illusions. 

Chamber Weird Fact
A footnote on data availability: services data are not available for some FTA countries, particularly the smaller economies.  The missing data were not included in either the Chamber’s figures or those reported above.  Also, while the Chamber did not report figures for 2013 due to a claimed lack of available services data for that year, 2013 services data is actually available for all but two of the FTA partners for which 2012 data were available.  For those two countries, services data for 2013 has been extrapolated based on observed growth trends.

August 12, 2014

Advocacy = Results: Proposal to Disguise Offshoring Shelved after Groundswell of Opposition

Can one person make a difference?  Hard to say.  But apparently 26,000 of them can. 

About a month ago we warned of an administration proposal to reclassify U.S. corporations that offshore their manufacturing as “factoryless goods” manufacturers.  Calling Apple a “manufacturer” – though its iPhones are made in Foxconn factories in China – defies common sense.  But why does it matter? 

Because it would mask the erosion of U.S. manufacturing incentivized by offshoring-friendly policies, including a raft of unfair trade deals.  The Orwellian proposal would undermine efforts to replace more-of-the-same policies with a fair trade model. 

Under the proposal, reported U.S. “manufacturing” jobs and wages would balloon overnight, as brand managers and programmers would suddenly be counted as “manufacturing” workers.  The broad reclassification initiative would also deceptively deflate the large U.S. manufacturing trade deficit.  U.S. imports of made-in-China iPhones would not be tallied as manufactured goods imports but as imports of Foxconn's “services,” while iPhones exported from China to, say, Europe would actually be rebranded as “U.S.” manufacturing exports.  

During an official period to comment on the proposal, Public Citizen, many labor groups, and other allies invited people to send their two cents to the administration.  The response was overwhelming. 

In short order, about 26,000 people filed comments in opposition to the “factoryless goods” proposal.  The last time the administration tried to implement this proposal, they received 10 comments.

This past Friday, the administration responded.  This announcement appeared in the Federal Register:

“Given these initial research results and the large number of public comments submitted on the topic of FGPs [Factoryless Goods Producers], OMB [the Office of Management and Budget] here announces that the FGP recommendation will not be implemented in 2017.” 

If you submitted a comment, congratulations.  According to the administration, your voice of reason contributed to a chorus that helped convince the administration to rethink the wisdom of categorizing firms that do not manufacture anything as U.S. manufacturers.  Advocacy, as it turns out, can work. 

Please place your hand above your back and pat vigorously.  But don’t break out the champagne glasses.

Thanks to the groundswell of public opposition (and the contributions of some clear-minded naysayers within the administration), the “factoryless goods” proposal has been shelved.  But it has not been dustbinned. 

OMB makes clear that the “factoryless goods” fantasy will likely emerge again, albeit in a different form:

“Without the deadline imposed by the 2017 NAICS revisions, the relevant statistical agencies will now have the opportunity to complete the additional research, testing, and evaluation needed to determine the feasibility of developing methods for the consistent identification and classification of FGPs that are accurate and reliable. This process will also be informed by questions raised in public comments. Results of this research, testing, and evaluation could lead to a different FGP proposal for consideration or implementation.

As "factoryless goods" proponents regroup and decide what to do next, we will remain vigilant.  Future bouts of pressure will likely be needed to keep our data, and the policymaking that it informs, free of distortion.  As we push to change our trade policies, we will need to keep pushing against efforts to simply change our numbers. 

But for now, kudos.  

July 22, 2014

Administration Flooded with 26,000 Comments Opposing Proposal to Disguise Offshoring of U.S. Manufacturing

Broad Reclassification Plan Would Count iPhones Made in China as U.S. Exports; Data Tricks Would Artificially Inflate U.S. Manufacturing Jobs, Deflate Manufacturing Trade Deficits

More than 26,000 people nationwide have submitted comments opposing Obama administration proposals that would severely distort U.S. job and trade data by reclassifying U.S. corporations that offshore American jobs as “factoryless goods” manufacturers. Under a broad data reclassification plan, much of the value of U.S. brand-name goods assembled by foreign workers and imported here for sale would no longer be counted as imported goods, but rather as manufacturing “services” imports. This would deceptively deflate the U.S. manufacturing trade deficit.

The “factoryless goods” proposal, designed by the administration’s Economic Classification Policy Committee (ECPC), also would, overnight, falsely increase the reported number of U.S. manufacturing jobs as white-collar employees in firms like Apple – now rebranded as “factoryless goods producers” – would suddenly be counted as “manufacturing” workers. This shift also would create a false increase in U.S. manufacturing wages and output.

“The only reason you would classify an iPhone made in China as a U.S. export is to hide the size of our massive trade deficit,” said James P. Hoffa, Teamsters general president.

“To revive American manufacturing jobs and production, we need to change our policies, not cook the data,” said Brad Markell, executive director of the AFL-CIO Industrial Union Council. “We need to reform the trade policies that have incentivized offshoring and resulted in decades of trade deficits and millions of U.S. manufacturing jobs offshored, not cover up the evidence that our current trade policy is not working.”

One element of the proposed economic data reclassification plan would rebrand U.S. imports of goods manufactured abroad, such as Apple’s iPhone (which is assembled in China by a firm called Foxconn) as “services” imports rather than imports of manufactured goods. And if Foxconn exported iPhones to other countries, the proposed reclassifications would count the iPhones manufactured in China as U.S. manufactured goods exports, further belying the real U.S. manufacturing trade deficit. 

The economic data reclassification initiative, if implemented, could further undermine efforts to bolster U.S. manufacturing by producing a fabricated reduction of the U.S. manufacturing trade deficit.

“These Orwellian data rebranding proposals would hide the damage wrought by past trade pacts like the North American Free Trade Agreement, greasing the way for more-of-the-same, job-killing, deficit-boosting trade deals,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

The comments submitted by concerned individuals include:

  • “Reclassifying jobs that have been and continue to be shipped overseas under the euphemism ‘factoryless goods’ is an insult to the citizens of the United States who want real manufacturing jobs, and know that the TPP and other NAFTA-style trade deals are not in our best interest.” – Susan Marie Frontczak, Boulder, Colorado
  • “Put the tricks aside. It's time to address the bad trade policies that have led to incentivized offshoring, rather than play with rebranding.” – Merill Cole, Macomb, Illinois
  • “NAFTA and GATT were a really bad idea ... TPP is worse ... and ECPC as a cover-up for unfair trade policies is just ridiculous. Bring manufacturing back to the US and stop this unfair trading with other countries.” – Aaron McGee, Madison, Wisconsin

This month, 14 members of the U.S. House of Representatives wrote to U.S. Trade Representative (USTR) Michael Froman, demanding that he immediately begin to provide Congress with accurate U.S. trade data. The letter followed an admission by USTR staff that the agency was providing Congress with uncorrected raw data collected by the U.S. Census Bureau. That data includes “re-exports,” which are goods produced in foreign countries that pass through the United States without alteration before being sold abroad.

Each month, the U.S. International Trade Commission provides corrected trade data that removes the foreign re-exports, but USTR has chosen not to use this data. By using the uncorrected data, the USTR can misleadingly appear to make more than half the $177 billion 2013 NAFTA goods trade deficit “disappear.” The USTR does this by, for instance, counting goods that are imported from China, that are not altered in the United States and that are then “re-exported” to Mexico as “U.S. exports” to Mexico.

Congress’ demand for accurate trade data from the USTR and the administration’s distortionary data reclassification proposals come as administration officials seek support for two controversial trade and investment pacts now under negotiation: the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Free Trade Agreement (TAFTA). The administration’s push to obtain Fast Track authority for those pacts has met strong opposition from both parties in Congress and from more than 60 percent of the U.S. voting public. 

July 03, 2014

Let’s Just Pretend We Didn’t Offshore Manufacturing

Is an iPhone made in China and exported to Europe a U.S. export?

Is an Apple executive a manufacturing worker?

Yes, and yes.  At least those could become the answers if a new proposal afoot among some in the administration is allowed to take effect.  Federal agencies grouped under the bland-sounding Economic Classification Policy Committee (ECPC) are proposing to radically redefine U.S. manufacturing and trade statistics. 

Under the proposal, U.S. firms that have offshored their production abroad – like Apple – would become “factoryless goods” manufacturers.  The foreign factories that actually manufacture the goods – like the notorious iPhone-producing Foxconn factories in China – would no longer be manufacturers, but “service” providers for the rebranded “manufacturing” firms like Apple.

It appears the administration has been reading Orwell

But the problem with this proposed redefinition is not merely that it offends common sense.  The “factoryless goods” proposal would deceptively deflate the size of reported, but not actual, U.S. manufacturing trade deficits, while artificially inflating the number of U.S. manufacturing jobs overnight.

While some details of the proposal remain open-ended, one thing is clear: this maneuver would obscure the erosion of U.S. manufacturing.  It would disguise the mass-offshoring of U.S. middle-class factory jobs incentivized by NAFTA-style trade deals.  It would undermine efforts to change the unfair trade and other policies that have led to such decline.  

To boost U.S. manufacturing jobs and production, we need to switch our policies, not our numbers.

The ECPC is accepting comments on their “factoryless goods” proposal until July 21.  If you’d care to offer your thoughts, click here.
  

The 3 Big Distortions of the "Factoryless Goods" Proposal
  

1.  The proposal would result in a fabricated reduction of the U.S. manufacturing trade deficit by rebranding imports of U.S. manufactured goods as “services” imports, according to recent explanations offered by officials of ECPC member agencies.  The redefinition would not affect all U.S. trade statistics, but it would distort some of the most widely-reported numbers (those calculated on a balance of payments basis), misleading the public and policymakers alike.

Take, for example, a scenario in which Apple ships iPhone parts to China to be assembled in a Foxconn factory and then sent back to the United States to be sold here.  Currently, the value of the imported iPhone minus the lesser value of the exported parts counts as a net U.S. import of a manufactured good.  This reflects the fact that Apple offshored its iPhone manufacturing to China.

But under the ECPC proposal, Foxconn, now called a “manufacturing services provider,” would not be described as having manufactured the iPhones but as having provided services to Apple.  As a result, the net U.S. import of manufactured goods resulting from Apple’s decision to offshore would be reduced. In its place would be an import of Foxconn’s factory “services.”
  

2.  The proposal would treat some goods exported by foreign factories as U.S. manufactured exports.  Take a scenario in which Apple ships iPhone parts to China that are assembled by Foxconn and then shipped to the European Union (EU).  Currently, Apple’s export of parts to China counts as the only U.S. export in this scenario. 

But the ECPC proposal, according to officials of ECPC member agencies, would instead count China’s export of the fully-assembled iPhones to the EU, less the cost of any imported parts, as a “U.S. manufactured goods export.”

The absurd logic of this rebranding is that while China manufactured and exported the iPhones, they count as U.S. manufactured exports because they were under the control of a U.S. brand.  This Orwellian proposal would spell an artificial increase in U.S. manufactured exports (on a balance of payments basis), further belying the real U.S. manufacturing trade deficit.
  

 3.  The proposal would spur a disingenuous, overnight increase in the number of U.S. “manufacturing” jobs as white-collar employees in firms like Apple – now rebranded as “factoryless goods producers” – would suddenly be counted as “manufacturing” workers. 

This change would also create a false increase in manufacturing wages, as many of the newly-counted “manufacturing” jobs would be designers, programmers and brand managers at “factoryless goods producers” like Apple. 

Reported U.S. manufacturing output would also abruptly and errantly jump, as revenues from firms like Apple would be lumped in with the output of actual manufacturers. 
  

This proposal defies common sense.  It would dramatically distort U.S. trade, labor and gross domestic product statistics.  Goods manufactured abroad and imported into the United States are not something other than manufactured goods imports.  Goods exported from foreign factories do not become “U.S. exports” when they are produced for U.S. brands.  And jobs in which workers spend zero time actually manufacturing anything are not “manufacturing jobs.”  

The offshoring of U.S. manufacturing under years of unfair trade policies cannot be undone with a data trick.  The hoped-for “renaissance” of U.S. manufacturing will come through new policymaking informed by accurate data, not politically convenient distortions.  

June 25, 2014

Corporate America’s Mysterious Affinity for the Number 700,000

The Chamber is at it again.  As negotiations drag and support flags for the controversial Trans-Pacific Partnership (TPP), the U.S. Chamber of Commerce has come up with a new number to sell the controversial deal to a skeptical Congress and U.S. public: 700,000. 

That’s the number of U.S. jobs that the corporate alliance claims could be created by the sweeping pact opposed by a diverse array of members of Congress, small businesses, and labor organizations for its threats to, well, U.S. jobs. 

How did the Chamber get this number?  They don’t say. 

The Chamber blog post proclaiming the six-digit figure simply says it is “based on the methodology and outcomes” of a Peterson Institute study that used outsized assumptions to produce miniscule projections for the TPP’s economic impact.  Under the most optimistic scenario the authors could envision, the study projected a 0.13 percent increase in U.S. GDP under the deal –- a fraction of the estimated GDP contribution of the latest version of the iPhone. 

But the Peterson Institute study did not project what this tiny economic impact would mean for jobs.  It is unclear how the Chamber pulled a jobs number from a study that did not produce a jobs number. 

We called them to ask.  We were told that no one was there who could answer our question.  Multiple calls and emails later, and we still have no response from the Chamber to solve the mystery of the unsubstantiated statistic.

Here’s one theory on the steps the Chamber took to derive its estimate of the TPP’s prospective impact:

  1. Copy
  2. Paste

This is not the first time the Chamber has used the number 700,000. Indeed, the Chamber appears to have an uncanny affinity for the number when pushing a retrograde, anti-worker agenda. 

When some states raised their minimum wage laws and increased workers’ benefits after the Great Recession, the Chamber commissioned a study finding that such labor laws had cost U.S. jobs.  How many?  700,000

When the Obama administration proposed a tax increase on the wealthy in 2012, the Chamber commissioned a study finding that the proposal would eliminate U.S. jobs…700,000 jobs, to be precise. 

Perhaps it should not come as a surprise that the Chamber is using its lucky number once again to push a regressive deal like the TPP. 

But hey, if the copy/paste method works…

Maybe we should take a cue from the Chamber and start using whatever numbers we have lying around.  Let’s see…how many U.S. jobs have been lost under NAFTA to Mexico alone?  Well I’ll be -– the answer is 700,000

Borrowing a card from the Chamber, we hereby project that the TPP will cost U.S. workers 700,000 jobs. 

Okay, obviously it would be ridiculous to pull such projections out of thin air.  And let’s hope that’s not what the Chamber is doing to arrive at its unsubstantiated claim. 

But without an explanation from the Chamber, we are left to speculate.  Maybe they somehow converted Peterson’s miniscule projected GDP gain projection into a much larger jobs gain, errantly ignoring the impact of TPP-spurred inequality.  (The Center for Economic and Policy Research found that the likely increase in inequality resulting from the TPP would swamp the small gains projected by the Peterson Institute, spelling a pay cut for 90 percent of U.S. workers.)  

Or maybe the Chamber extrapolated a jobs figure from the study’s export calculations, errantly ignoring the impact of TPP-spurred imports.  (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 existing U.S. pacts.) 

In the end, we don’t know how the corporate alliance generated the mystery number behind its TPP cheerleading.  Until we see some evidence, we’re going to take the Chamber’s statistic with about 700,000 grains of salt.  

May 09, 2014

Release of Two Years of Korea FTA Data Throws More Cold Water on Obama TPP and Fast Track Efforts After Asia Trip Fails to Change Dynamic

U.S. Exports to Korea Down 5 Percent, Imports from Korea Up and Trade Deficit With Korea Swells 50 Percent, Contradicting Obama Claims of U.S. Export and Job Growth

The just-released official  U.S. government trade data covering the first two years of the U.S.-Korea “free trade” agreement (FTA) further chills the prospects for the Trans-Pacific Partnership (TPP) and Fast Track trade authority. Today’s release of the U.S. International Trade Commission (USITC) data likely will intensify congressional antipathy toward Fast Track and concerns about the TPP. The USITC data, corrected to remove re-exports not produced in the United States, show falling U.S. exports to Korea and a ballooning U.S. trade deficit under the Korea FTA, which served as the U.S. template for the TPP.

U.S. goods exports to Korea have dropped 5 percent  under the Korea FTA’s first two years, compared to the two years before FTA implementation, in contrast to the Obama administration’s promise that the Korea FTA would mean “more exports, more jobs” and recent claims that the agreement has shown “strong results.” Imports into the United States from Korea have climbed 8 percent under the FTA (an increase of $4.7 billion per year).

From the year before the FTA took effect to its second year of implementation, the U.S. goods trade deficit with Korea swelled 50 percent (a $7.6 billion increase). In 23 out of 24 months since the Korea FTA took effect, the U.S. goods trade deficit with Korea has exceeded the average monthly level seen in the two years before the deal. The trade deficit increase under the FTA indicates the loss of more than 50,000 U.S. jobs, according the trade-jobs ratio that the Obama administration used to project gains from the deal. 

“The fact that the Korea deal has resulted in a worse trade deficit and more lost jobs has had a very chilling effect on public and congressional support for the TPP and Fast Track, and the Obama administration’s dishonest claims that the pact has expanded exports has only hardened that opposition,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “While most Democrats and a sizeable bloc of Republicans in Congress have already voiced opposition to Fast Tracking the TPP, both the negative outcomes of the Korea FTA and the administration’s dishonest claim that the pact is a success are adding more converts daily.” 

Rather than acknowledge that the Korea pact has resulted in declining U.S. exports and a larger trade deficit, the administration’s Office of the U.S. Trade Representative (USTR) has relied on data omissions and distortions in press materials that attempt to paint failure as success. For a full response to the USTR’s litany of data errors, visit http://www.citizen.org/documents/Korea-FTA-USTR-data-debunk.pdf

The USTR’s biggest distortion is counting foreign-made products that are simply shipped through the United States en route to Korea as “U.S. exports” to Korea. Rather than use the official U.S. government trade data provided by the USITC that counts only U.S.-made exports, USTR cites data that treat the 14 percent rise in foreign-made exports to Korea under the FTA as a boost to U.S. exports, artificially diminishing the dramatic U.S. export downfall.

The USTR relies on a series of other data errors in attempt to hide the dismal Korea FTA record, including:

  • Failing to account for inflation: By treating a rise in prices as a rise in exports, the USTR mistakenly claims that the observed decrease in U.S. exports to Korea in manufactured goods under the FTA is an increase.
  • Ignoring aggregate losses to cherry-pick tiny winning sectors: TheUSTR does not mention the overall 34 percent downfall in U.S. agricultural exports to Korea under the FTA’s first two years. Instead, the USTR boasts export increases in products like fruit and wine. The combined annual export gains in fruit and wine amount to $69 million, less than 6 percent of the more than $1.2 billion aggregate annual export loss in agricultural products.
  • Using a selective timeframe: The USTR’s assessment of the Korea FTA record ignores 12 months of available data under the FTA and fails to include in the pre-FTA baseline of comparison the three months of data immediately prior to the deal’s implementation. This selective timeframe, combined with the decision to incorporate foreign-made exports, allows the USTR to claim that the U.S. export downfall under the FTA is entirely because of diminished exports in corn and fossil fuels. But even after discounting both corn and fossil fuels, the full set of data shows that U.S. exports to Korea have still fallen under the FTA, and the U.S. trade deficit with Korea has still ballooned.

“The USTR’s resort to major data deceptions to try to play down the debacle of the Korea FTA indicates just how desperate the administration is to shake the mounting evidence that the FTA model it now seeks to expand with the TPP costs U.S. jobs,” said Wallach. “But using data tricks to try to cover up the failure of the largest Obama trade deal, like treating foreign-made products as U.S. exports, is likely to backfire, and members of Congress do not take kindly to deception.”

The decline in U.S. exports to Korea under the FTA’s first two years was broad-based; of the 15 U.S. sectors that export the most to Korea, nine of them have experienced export declines under the FTA. Export shifts under the FTA have been larger for losing sectors than for winning sectors. Of the 15 top export sectors, eight have seen declines in exports to Korea of greater than 5 percent while only three have seen growth of exports to Korea of greater than 5 percent.

Many of the sectors that the administration promised would be the biggest beneficiaries of the FTA have been among the largest losers, including U.S. meat producers. U.S. poultry exports to Korea have plummeted 31 percent under the FTA, while U.S. beef and pork exports have fallen 10 and 19 percent respectively. 

The U.S. automotive industry, another promised winner under the deal, has endured a surge in automotive imports from Korea that has swamped a marginal increase in U.S. automotive exports to Korea since the FTA took effect. While U.S. average annual automotive exports to Korea under the pact have been $294 million higher than before the deal, average annual automotive imports from Korea have soared by $4.9 billion under the deal, spurring a 32 percent increase in the U.S. automotive trade deficit with Korea.

Overall, U.S. export growth to countries with pacts like the Korea FTA has been particularly lackluster. Growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to FTA partners by 30 percent over the past decade.

For further analysis of the outcomes of the Korea FTA’s first two years, visit http://www.citizen.org/documents/Korea-FTA-USTR-data-debunk.pdf.  

April 17, 2014

Corporate Group Launches “Fact-Based” Trade Series, Avoids Facts

When launching a new series of materials touted as “fact-based analysis,” it is unwise to begin with a distortion of the facts.  But that’s the inauspicious move taken today by the Emergency Committee for American Trade (ECAT), a corporate alliance that has launched a new “Trade Notes” series with some confused data on the record of U.S. trade under “free trade” agreements (FTAs).  

Official government data show that U.S. trade deficits have ballooned with FTA partners while actually diminishing with the rest of the world.  As we reported recently, the aggregate U.S. trade deficit with FTA partners has increased by more than $147 billion, or 443%, since the FTAs were implemented.  In contrast, the aggregate deficit with all non-FTA countries (even including China) has decreased by more than $130 billion, or 16%, since 2006 (the median entry date of existing FTAs). 

Two factors explain this proclivity toward trade deficits with FTA partner countries.  First, imports from those countries have spiked – an unsurprising result of a trade model that has incentivized offshoring and pitted U.S. workers against their lower-wage counterparts abroad.  Second, and perhaps more surprising, is that U.S. export growth to FTA partner countries, despite all promises to the contrary, has been slower than to non-FTA countries. Indeed, growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 30 percent over the last decade.

But that isn’t the takeaway from ECAT’s Trade Notes debut today.  In response to “some commentators [who] have argued that trade agreements drive growth in U.S. trade deficits,” ECAT asserts, “recent data suggest that trade agreements, on the whole, actually help to improve U.S. trade balances with FTA partner countries.” 

How can ECAT make this claim?  First, they take oil and gas out of the trade data. Echoing the refrain of many FTA proponents that burgeoning FTA deficits are just about oil imports, ECAT displays a chart that appears to show aggregate non-oil trade deficits with FTA partners diminishing and then turning into surpluses over the last decade.

But the official government data beg to differ.  Even if we remove oil and gas, the non-oil U.S. goods trade balance last year with all U.S. FTA partners was a $100 billion deficit, not a surplus. And while ECAT claims that the non-oil trade balance with FTA countries has been improving, the non-oil U.S. trade deficit with these 20 countries was larger last year than in any of the last six years. 

What, then, explains the gulf between the data and ECAT’s claim of a growing non-oil surplus with FTA countries?  The primary explanation is that ECAT – like the U.S. Trade Representative and fellow corporate conglomerates such as the Chamber of Commerce, National Association of Manufacturers, Business Roundtable, etc. – has decided to count foreign-made exports as U.S. exports.  As we’ve explained time and again, determining FTAs’ impacts on U.S. jobs requires counting only U.S.-made exports.  Instead, ECAT also counts “re-exports” – goods made abroad that are shipped through the United States en route to a final destination.  As re-exports to FTA partner countries have been steadily increasing, counting them in trade data – as ECAT does – has had an increasingly distortionary effect on the true record of FTAs (e.g. you can make the NAFTA deficit look half as big simply by counting foreign-made re-exports as U.S. exports). 

In announcing today’s new Trade Note series, ECAT President Calman Cohen stated, “ECAT member companies recognize the importance of maintaining a fact-based dialogue on the contribution of trade and investment to our national economic interest.  ECAT seeks to make a constructive contribution to that dialogue through its new Trade Notes series.”

We’re all for contributions to fact-based dialogue.  Let’s hope we start seeing some from ECAT.  

April 02, 2014

Data Debunk for USTR Froman’s Thursday Committee Hearing

In recent weeks, U.S. Trade Representative Michael Froman has begun making outlandish claims about past U.S. trade agreements. These claims are not supported by the official  U.S. government trade data. The Office of the U.S. Trade Representative’s (USTR) recent assertions that the North American Free Trade Agreement (NAFTA) has led to a U.S. trade surplus with Mexico and Canada and that the U.S.-Korea Free Trade Agreement (FTA) has increased U.S. manufacturing exports to Korea have been met with incredulity. These pacts’ recent anniversaries have spotlighted how the trade pact model on which the Trans-Pacific Partnership (TPP) is premised has led to massive trade deficits.

The premise that NAFTA would improve our trade balance was the basis for NAFTA proponents’ promises that the pact would create U.S. jobs. Many of the same government and industry sources made the same claims to sell the 2011 U.S.-Korea FTA. These pacts’ dismal outcomes – slow or even negative export growth, rising imports and burgeoning trade deficits – are intensifying congressional opposition to Fast Track authority for the TPP.

Rather than altering the trade agreement model to avoid repeating these outcomes, USTR appears intent on trying to change the data. To generate the outlandish claims about NAFTA and the Korea FTA, USTR employs a smorgasbord of data tricks to look out for in Froman’s testimony Thursday before the House Ways and Means Committee:

USTR’s Biggest Distortion: Counting Foreign-Made “Transshipped” Products as U.S. Exports

USTR’s primary data distortion is the decision not to use the official U.S. government trade data provided by the U.S. International Trade Commission (USITC).[i] Instead, USTR cites data that include what are called “re-exports.” These are goods made abroad that are simply shipped through the United States en route to a final destination. (The USTR figures would include as U.S. exports goods taken off a truck from Canada in California’s Port of Long Beach then shipped to their final destination in Korea, or goods shipped from China, unloaded in a California port and trucked to Mexico.) Each month, USITC removes re-exports, which do not support U.S. production jobs, from the raw data gathered by the Census Bureau.[ii] But USTR uses the uncorrected data, inflating the actual U.S. export figures.

  • Using the official USITC data, U.S. export growth to countries with which we do not have FTAs has been 30 percent faster than to our FTA partners over the past decade.[iii]
  • The USITC data show U.S. average monthly goods exports to Korea are down 11 percent, imports from Korea have increased and the U.S. average monthly trade deficit with Korea has swelled 47 percent since the enactment of the Korea FTA.[iv] The total U.S. trade deficit with Korea under the FTA’s second year is projected to be $8.6 billion higher than in the year before the deal.[v]  Using the administration’s current export-to-job ratio, this drop in net exports represents the loss of more than 46,000 U.S. jobs.[vi] However since the FTA, foreign-made re-exports passing through the United States en route to Korea are up 13 percent on a monthly average basis.[vii] By counting these foreign goods as U.S. exports, USTR artificially diminishes the dramatic drop in actual U.S. exports to Korea, and errantly claims gains in some sectors.
  • Using the USITC data, the 2013 U.S. goods trade balance with NAFTA nations was a deficit of $177 billion. The combined U.S. goods and services deficit with Mexico and Canada rose (in real, inflation-adjusted terms) from $9.7 billion in 1993 to $139.3 billion in 2012 (the year of comparison used by USTR).[viii] This NAFTA deficit increase of $129.5 billion, or 1,330 percent, represents hundreds of thousands of lost U.S. jobs.[ix]  But adding re-exports has had an increasingly distortionary effect on the true NAFTA deficit, allowing NAFTA proponents to make the 2013 NAFTA goods deficit of $177 billion look less than half as large. By incorporating re-exports, USTR claims in recent press materials: “U.S. total goods and private services trade balance with Canada countries (sic) shifted from a deficit of $2.9 billion in 1993 to roughly balance in 2012 (surplus of $37 million).” But after removing re-exports and adjusting for inflation, the actual total U.S. goods and services trade deficit with Canada increased from $16.9 billion in 1993 to $49.1 billion in 2012. That’s a deficit increase of $32.2 billion, or 191 percent. Similarly, USTR claims: “U.S. total goods and private services trade balance with Mexico countries shifted from a surplus of $4.6 billion in 1993 to a deficit of $49.4 billion in 2012.” But after removing re-exports and adjusting for inflation, the actual total U.S. goods and services trade deficit with Mexico changed from a $7.2 billion surplus in 1993 to a $90.1 billion deficit in 2012. That’s a $97.3 billion decline in the U.S. goods and services trade balance with Mexico.

We Still Have Big Deficits Without Fossil Fuels (And Corn Doesn’t Explain Korea Export Crash)

Despite USTR’s claim that our NAFTA deficit is all about fuel imports, the share of the U.S. NAFTA goods trade deficit that is comprised of petroleum, petroleum products and natural gas has declined under NAFTA, from 77 percent in 1993 to 53 percent in 2013, as we have faced a surge of imported manufactured and agricultural goods.[x] Even if one removes all of these “oil” categories from the balance, the remaining 2013 NAFTA goods trade deficit was $82.9 billion. The combined NAFTA goods and services deficit in 2012 minus oil was $38.3 billion. 

Similarly, with respect to the Korea FTA, USTR claims“[O]ur trade balance has been affected by decreases in corn and fossil fuel exports, changes that are due to the U.S. drought in 2012 and change in Korea’s energy mix.”[xi] But even discounting both corn and fossil fuels, U.S. monthly exports to Korea still fell under the FTA, and the monthly trade deficit with Korea still ballooned.[xii] USTR claims that corn and fossil fuels explain the entirety of the export downfall largely by using an ill-suited 2011 versus 2013 timeframe that omits 10 months of available data and relies on a less relevant pre-FTA baseline. Usage of this less accurate timeframe produces a greater drop in corn and fossil fuel exports, and a smaller decline in exports of all other goods, than has actually occurred under the FTA when comparing the year immediately preceding the FTA with the full set of available post-FTA data. It is not surprising that the dismal FTA record remains without these products, given that of the 15 U.S. sectors that export the most to Korea, 11 of them have experienced export declines under the FTA.[xiii] No product-specific anomalies can explain away what has been a broad-based downfall of U.S. exports to Korea since the pact went into effect.

Not Adjusting for Inflation Counts Increased Prices as an Increase in U.S. Exports

USTR also inflates U.S. exports to Korea by failing to adjust for price inflation. For instance, in its recent Korea FTA news release, USTR claims: “In the two years that this landmark agreement has been in effect … exports of U.S. manufactured goods to Korea have increased … Made-in-America manufactured goods still grew their sales in Korea by 3 percent.”[xiv] Simply adjusting for inflation alone completely erases USTR’s claim of growth in exports of U.S. manufactured goods to Korea under the FTA. That is, even if one includes the distortion of re-exports and uses USTR’s timeframe, U.S. exports to Korea of manufactured goods fell slightly under the FTA after properly accounting for price increases.[xv] If one removes the re-exports (i.e., uses the official USITC data) and looks at the actual months that the FTA has been in effect, U.S. monthly exports to Korea of manufactured goods have fallen 5 percent on average relative to the year before the deal took effect. The United States has lost an average of more than $150 million each month in manufactured goods exports to Korea under the FTA. Manufacturing sectors that provide critical shares of U.S. exports to Korea, such as machinery and computers/electronics, have experienced steep export declines under the FTA (11 percent and 12 percent respectively). In contrast, of the four critical manufacturing sectors that have seen increases in average monthly exports to Korea under the FTA, none has experienced an increase of greater than 2 percent.[xvi]

Cherry-Picking Small-Dollar Winning Sectors, Omitting Major Losers to Distract from Net Losses

In its Korea FTA press release, USTR claims: “U.S. exports of a wide range of agricultural products have seen significant gains. … There were also dramatic increases in U.S. exports of key agricultural products that benefit from reduced tariffs under KORUS, including dairy, wine, beer, soybean oil, fruits and nuts, among many others.”[xvii] But the losses in U.S. meat exports to Korea under the pact alone nearly cancel out the combined export gains for all agricultural sectors that USTR touts as winners (a monthly average loss of $20.1 million in meat exports versus a combined $24.7 million monthly average gain in exports of dairy, wine, beer, soybean oil, fruits and nuts).[xviii]Average monthly exports of all U.S. agricultural products to Korea have fallen 41 percent under the FTA in comparison to the year before the deal. Ignoring this overall result, USTR singles out fruit as a winning agricultural sector under the FTA. But U.S. monthly average exports to Korea of all fruits have increased by just $312,120 under the FTA. This 1 percent increase could hardly be described as “dramatic.” USTR also highlights wine, but U.S. monthly average exports of wine to Korea have increased by just $370,378 under the FTA.[xix] The amount of wine sold in an average six minutes in the United States is worth more ($402,415) than the gain in U.S. wine exports to Korea in an average month under the Korea FTA.[xx]

Such paltry gains pale in comparison to the more than $20 million lost on average under each month of the FTA in U.S. exports to Korea of meat – one of the sectors that the administration promised would be among the biggest beneficiaries of the Korea deal.[xxi] Compared with the exports that would have been achieved at the pre-FTA average monthly level, U.S. meat producers have lost a combined $442 million in poultry, pork and beef exports to Korea in the first 22 months of the FTA.[xxii]Since the FTA, U.S. average monthly exports of poultry to Korea have fallen 39 percent below the pre-FTA monthly average. U.S. poultry exports to Korea have been lower than the pre-FTA monthly level in every single month since the FTA’s implementation. U.S. average monthly exports of pork to Korea since the FTA have fallen 34 percent below the pre-FTA monthly average, and U.S. average monthly exports of beef to Korea have fallen 6 percent below the pre-FTA monthly average.[xxiii]

Omissions and Data Tricks to Hide Massive Auto Sector Deficit Growth Under the Korea FTA

The USTR data on U.S. automotive trade with Korea under the FTA is based on a series of tricks. USTR claims: “Since the Korea agreement went into effect, U.S. exports to Korea are up for our manufactured goods, including autos … overall U.S. passenger vehicle exports to Korea increased 80 percent compared to 2011, and sales of ‘Detroit 3’ vehicles are up 40 percent.”[xxiv] In fact, exports to Korea of U.S.-produced Fords, Chryslers and General Motors vehicles increased by just 3,400 vehicles from 2011 to 2013.[xxv]  But given that pre-FTA exports of “Detroit 3” vehicles was also tiny – 8,252 vehicles – USTR can express the small increase of 3,400 cars as a “40 percent” gain. Meanwhile, 125,000 more Korean-produced Hyundais and Kias were imported and sold in the United States in 2013 (after the FTA) than in 2011 (before the FTA), when Hyundai and Kia imports already topped 1.1 million vehicles.[xxvi]

And USTR’s claim of an “80 percent” rise in passenger vehicle exports, in addition to being inflated by increases in re-exports and prices, omits the export of auto parts, which constitute the majority of the value of U.S. automotive exports to Korea. U.S. average monthly exports of auto parts to Korea have fallen 12 percent under the FTA, offsetting much of the rise in passenger vehicle exports.[xxvii] After including auto parts, excluding foreign-made re-exports, using the more FTA-relevant timeframe and adjusting for inflation, U.S. average monthly automotive exports to Korea have increased by only 12 percent under the FTA, while average monthly automotive imports from Korea have risen by 19 percent.

The disparity is even starker in dollar terms: While U.S. average monthly automotive exports to Korea under the FTA have been $12 million higher than the pre-FTA monthly average, average monthly automotive imports from Korea have soared by $263 million under the deal. The tiny gains in U.S. exports have been swamped by a surge in auto imports from Korea that the administration promised would not occur because of its additional FTA auto sector measure negotiated in 2011. In January 2014, monthly automotive imports from Korea topped $2 billion for the first time on record. The post-FTA flood of automotive imports has provoked a 19 percent increase in the average monthly U.S. auto trade deficit with Korea.[xxviii]

Using a Selective Time Frame to Measure the Outcomes of the Korea FTA

Rather than compare the post-Korea-FTA period to the 12 months prior to the FTA’s implementation (i.e., April 2011 through March 2012), USTR uses calendar year 2011 as a baseline. This means that USTR omits data from the three months immediately prior to the FTA’s 2012 implementation (January through March 2012) and replaces it with data from the same three months in 2011. This difference matters, since U.S. exports to Korea in the first three months of 2011 were 9 percent lower than in the first three months of 2012, giving USTR a lower baseline of comparison that makes the downfall in U.S. exports look less severe than if using the three most recent pre-FTA months.[xxix] In addition, USTR uses only calendar year 2013 to assess the FTA’s record, omitting 10 months of available post-FTA data (April through December 2012 and January 2014). While a comparison between 2011 and 2013 could serve as a second-best approximation in the absence of more precise data, the more FTA-relevant monthly data is readily available.

 


[i] USITC data can be found at U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb.” Available at: http://dataweb.usitc.gov/.

[ii] Census Bureau data can be found at U.S. Census Bureau, “U.S. International Trade Data,” U.S. Department of Commerce. Available at: http://www.census.gov/foreign-trade/data/.

[iii] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed February 11, 2014. Available at: http://dataweb.usitc.gov/. The statistic is a comparison of the average annual growth rate of the combined inflation-adjusted exports of all non-FTA partner countries versus that of all FTA partner countries from 2004 through 2013 (adjustments have been made to account for the changes in these two categories as  non-FTA partners have become FTA partners). All data in this memo is inflation-adjusted according to the CPI-U-RS index of the U.S. Bureau of Labor Statistics (which provides indices up through 2012) and the online inflation calculator of the U.S. Bureau of Labor of Statistics (which provides an approximate index for 2013). U.S. Bureau of Labor Statistics, “Consumer Price Index Research Series Using Current Methods (CPI-U-RS),” U.S. Department of Labor, updated March 29, 2013. Available at: http://www.bls.gov/cpi/cpiursai1978_2012.pdf.  U.S. Bureau of Labor Statistics, “CPI Inflation Calculator,” U.S. Department of Labor, accessed March 10, 2014. Available at: http://www.bls.gov/data/inflation_calculator.htm.

[iv] In this paragraph and throughout, figures concerning average monthly trade levels with Korea compare data from the year before the FTA’s implementation and from the 22 post-implementation months for which data are available. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[v] The projection for export losses under the FTA’s first two years assumes that trends during the FTA’s first 22 months continue for the remaining two months for which data are not yet available. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[vi] Michael Froman, “2014 Trade Policy Agenda and 2013 Annual Report of the President of the United States on the Trade Agreements Program,” Office of the U.S. Trade Representative, March 2014, at 2. Available at: http://www.ustr.gov/sites/default/files/2014%20Trade%20Policy%20Agenda%20and%202013%20Annual%20Report.pdf.    

[vii] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[viii] Goods trade data in this bullet point come from U.S. International Trade Commission, “Interactive Tariff and Trade Dataweb,” accessed February 20, 2014. Available at: http://dataweb.usitc.gov. Services trade data in this bullet point come from U.S. Bureau of Economic Analysis, “International Data: Table 12: U.S. International Transactions, by Area,” accessed February 20, 2014. Available at: http://www.bea.gov/iTable/iTable.cfm?ReqID=6&step=1#reqid=6&step=1&isuri=1.

[ix] See Robert Scott, “Heading South: U.S.-Mexico trade and job displacement after NAFTA,” Economic Policy Institute, May 3, 2011. Available at: http://www.epi.org/publication/heading_south_u-s-mexico_trade_and_job_displacement_after_nafta1/.

[x] Trade in petroleum, petroleum products and natural gas is defined as NAICS 2111 and 3241 for data since 1997 – when NAICS replaced the SIC classification system – and SIC 131, 291, 295, and 299 for data before 1997.

[xi] Office of the U.S. Trade Representative, “U.S.-Korea Free Trade Agreement Shows Strong Results on Second Anniversary,” USTR press release, March 12, 2014. Available at: http://www.ustr.gov/about-us/press-office/press-releases/2014/March/US-Korea-Free-Trade-Agreement-Shows-Strong-Results-on-Second-Anniversary.

[xii] Corn is defined as NAICS 111150 and fossil fuels are defined as NAICS 211111, 211112, 212112 and 212113. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xiii] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xiv] Office of the U.S. Trade Representative, “U.S.-Korea Free Trade Agreement Shows Strong Results on Second Anniversary,” USTR press release, March 12, 2014. Available at: http://www.ustr.gov/about-us/press-office/press-releases/2014/March/US-Korea-Free-Trade-Agreement-Shows-Strong-Results-on-Second-Anniversary.

[xv] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xvi] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xvii] Office of the U.S. Trade Representative, “U.S.-Korea Free Trade Agreement Shows Strong Results on Second Anniversary,” USTR press release, March 12, 2014. Available at: http://www.ustr.gov/about-us/press-office/press-releases/2014/March/US-Korea-Free-Trade-Agreement-Shows-Strong-Results-on-Second-Anniversary.

[xviii] “Meat” includes beef (defined as SITC 011), pork (defined as SITC 0122, 0161 and 0175) and poultry (defined as SITC 0123 and 0174). Dairy is defined as NAICS 2111511, 311512, 311513, 311514 and 311520. Wine is defined as NAICS 312130. Beer is defined as NAICS 312120. Soybean oil is defined as NAICS 311222 and 311224. Fruits are defined as NAICS 11310, 11320, 111331, 111332, 111333, 111334 and 111339. Nuts are defined as NAICS 111335 and 111992. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 21, 2014.  Available at: http://dataweb.usitc.gov/.

[xix] Fruits are defined as NAICS 11310, 11320, 111331, 111332, 111333, 111334 and 111339. Wine is defined as NAICS 312130. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xx] The statistic is based on an estimated $34.6 billion in wine sales in the United States in 2012, adjusted for inflation. The Wine Institute, “2012 California and U.S. Wine Sales,” 2013, accessed March 21, 2014. Available at: https://www.wineinstitute.org/resources/statistics/article697.

[xxi] “Meat” includes beef (defined as SITC 011), pork (defined as SITC 0122, 0161 and 0175) and poultry (defined as SITC 0123 and 0174). Dairy is defined as NAICS 2111511, 311512, 311513, 311514 and 311520. Wine is defined as NAICS 312130. Beer is defined as NAICS 312120. Soybean oil is defined as NAICS 311222 and 311224. Fruits are defined as NAICS 11310, 11320, 111331, 111332, 111333, 111334 and 111339. Nuts are defined as NAICS 111335 and 111992. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 21, 2014.  Available at: http://dataweb.usitc.gov/.

[xxii] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xxiii] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xxiv] Office of the U.S. Trade Representative, “U.S.-Korea Free Trade Agreement Shows Strong Results on Second Anniversary,” USTR press release, March 12, 2014. Available at: http://www.ustr.gov/about-us/press-office/press-releases/2014/March/US-Korea-Free-Trade-Agreement-Shows-Strong-Results-on-Second-Anniversary.

[xxv] Korea Automobile Importers & Distributors Association, “New Registration,” 2014, accessed March 10, 2014. Available at: http://www.kaida.co.kr/en/statistics/NewRegistList.do.

[xxvi] Timothy Cain, “Hyundai-Kia Sales Figures,” GoodCarBadCar.net, 2014, accessed March 10, 2014. Available at: http://www.goodcarbadcar.net/2012/10/hyundai-kia-group-sales-figures.html.

[xxvii] Passenger vehicles are defined as code 300 and 301 in the one-digit End Use classification system, while auto parts are defined as 302. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xxviii] Total automotive exports and imports are defined as code 3 in the one-digit End Use classification system. U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

[xxix] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed March 10, 2014.  Available at: http://dataweb.usitc.gov/.

March 28, 2014

U.S. Trade Deficits Have Grown More Than 440% with FTA Countries, but Declined 16% with Non-FTA Countries

The aggregate U.S. goods trade deficit with Free Trade Agreement (FTA) partners is more than five times as high as before the deals went into effect, while the aggregate 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. Incredibly, the U.S. Chamber of Commerce website states, “For those worried about the U.S. trade deficit, trade agreements are clearly the solution – not the problem.” Their pitch ignores the import surges contributing to growing deficits and job loss, while their export “data” is inflated, using tricks described below.

The aggregate U.S. trade deficit with FTA partners has increased by more than $147 billion (inflation-adjusted) since the FTAs were implemented. In contrast, the aggregate deficit with all non-FTA countries has decreased by more than $130 billion since 2006 (the median entry date of existing FTAs). Two reasons: a sharp increase in imports from FTA partners and significantly lower export growth to FTA partners than to non-FTA nations over the last decade. Using the Obama administration’s net exports-to-jobs ratiothe FTA trade deficit surge implies the loss of about 800,000 U.S. jobs. Trade with Canada and Mexico (our first and third largest trade partners, respectively) contributed the most to the widening FTA deficit. Under the North American Free Trade Agreement (NAFTA), the U.S. deficit with Canada ballooned and the small U.S. surplus with Mexico turned into a nearly $100 billion deficit. The trend persists under new FTAs – two years into the Korea FTA, the U.S. trade deficit with Korea has jumped more than 51 percent. Reducing the massive trade deficit requires a new trade agreement model, not more of the same.

U.S. Export Growth Falters under FTAs

Growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 30 percent over the last decade. Between 2003 and 2013, U.S. goods exports to FTA partner countries grew by an annual average rate of only 4.9 percent. Goods exports to non-FTA partner countries, by contrast, grew by 6.3 percent per year on average. Since 2006, when the number of FTA partner countries nearly doubled with the implementation of the Central America Free Trade Agreement (CAFTA), the FTA export growth “penalty” has only increased. Since then, average U.S. export growth to non-FTA partner countries has topped average export growth to FTA partners by 47 percent.

Corporate FTA Boosters 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 “re-exports:” NAM has misleadingly claimed that the United States has a manufacturing surplus with FTA nations by counting as U.S. exports goods that actually are made overseas – not by U.S. workers. NAM’s data include “re-exports” – goods made elsewhere that are shipped through the United States en route to a final destination. Determining FTAs’ impact on U.S. jobs requires counting only U.S.-made exports.
  • 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 443 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 $251 billion, and Bahrain, where they do not reach $1 billion), despite accounting for such critical differences for non-FTA countries.

Chart: U.S. Trade Deficit Rises by $147 Billion with FTA Partners, Falls by $131 Billion with Rest of the World

FTA v non-FTA 3

March 13, 2014

Administration Uses Data Omissions and Distortions to Try to Hide Dismal Korea FTA Realities

The Office of the U.S. Trade Representative (USTR) disseminated a press release yesterday riddled with false claims about the record of the U.S. “free trade” agreement (FTA) with Korea, which turns two years old this week. The release attempts to obscure the fact that two years after the pact went into effect, the actual outcomes are exactly the opposite of the “more exports, more jobs” that the administration promised: U.S. monthly goods exports to Korea are down 11 percent, imports from Korea have increased and the U.S. monthly trade deficit with Korea has swelled 47 percent.

To set the record straight, here are USTR’s claims, followed by the Korea FTA’s inconvenient realities according to the official U.S. government trade data provided by the U.S. International Trade Commission. For a detailed, data-driven review of the Korea FTA’s two-year record, click here for Public Citizen’s new report: “Korea FTA Outcomes on the Pact’s Second Anniversary.”

USTR Claim: “In the two years that this landmark agreement has been in effect…exports of U.S. manufactured goods to Korea have increased” … “Made-in-America manufactured goods still grew their sales in Korea by 3 percent”

Reality: U.S. monthly exports to Korea of manufactured goods have fallen 5 percent on average relative to the year before the deal took effect. The United States has lost an average of more than $150 million each month in manufactured exports to Korea under the FTA. Manufacturing sectors that provide critical shares of U.S. exports to Korea, such as machinery and computers/electronics, have experienced steep export declines under the FTA (11 percent and 12 percent respectively). In contrast, of the four critical manufacturing sectors that have seen increases in average monthly exports to Korea under the FTA, none has experienced an increase of greater than 2 percent.

USTR Claim: “Since the Korea agreement went into effect, U.S. exports to Korea are up for our manufactured goods, including autos” (Ambassador Froman) … “overall U.S. passenger vehicle exports to Korea increased 80 percent compared to 2011, and sales of “Detroit 3” vehicles are up 40 percent.”

Reality:  Exports to Korea of U.S.-produced Fords, Chryslers and Cadillacs increased by just 3,400 vehicles from 2011 to 2013.  But given that pre-FTA exports of “Detroit 3” vehicles was also tiny – 8,252 vehicles – USTR can express the small increase of 3,400 cars as a “40 percent” gain. Meanwhile, 125,000 more Korean-produced Hyundais and Kias were imported and sold in the United States in 2013 (after the FTA) than in 2011 (before the FTA), when Hyundai and Kia imports already topped 1.1 million vehicles. Overall, while U.S. average monthly automotive exports to Korea under the FTA have been $12 million higher than the pre-FTA monthly average, average monthly automotive imports from Korea have soared by $263 million under the deal – a 19 percent increase. The tiny gains in U.S. exports have been swamped by a surge in auto imports from Korea that the administration promised would not occur because of its additional FTA auto sector measure negotiated in 2011. In January 2014, monthly automotive imports from Korea topped $2 billion for the first time on record. The post-FTA flood of automotive imports has provoked a 19 percent increase in the average monthly U.S. auto trade deficit with Korea.

USTR Claim: “…U.S. exports of a wide range of agricultural products have seen significant gains.”…  “There were also dramatic increases in U.S. exports of key agricultural products that benefit from reduced tariffs under KORUS, including dairy, wine, beer, soybean oil, fruits and nuts, among many others.”

Reality: Average monthly exports of all U.S. agricultural products to Korea have fallen 41 percent under the FTA in comparison to the year before the deal – a decline of $125 million per month. USTR omits the overall U.S. agricultural export record in its release, apparently hoping to distract from the net decline in agricultural exports by cherry picking a few products that have seen export gains. Meanwhile, some of the agricultural sectors that the administration promised would be the biggest beneficiaries of the Korea FTA – such as the meat industry – have been among the largest losers. Compared with the exports that would have been achieved at the pre-FTA average monthly level, U.S. meat producers have lost a combined $442 million in poultry, pork and beef exports to Korea in the first 22 months of the FTA – a loss of more than $20 million in meat exports every month. Since the FTA, U.S. average monthly exports of poultry to Korea have fallen 39 percent below the pre-FTA monthly average. U.S. poultry exports to Korea have been lower than the pre-FTA monthly level in every single month since the FTA’s implementation. U.S. average monthly exports of pork to Korea since the FTA have fallen 34 percent below the pre-FTA monthly average, and U.S. average monthly exports of beef to Korea have fallen 6 percent below the pre-FTA monthly average.

USTR Claim: “…Koreans are buying more U.S. services than ever…”…  “Exports of services to Korea increased an estimated 18.5 percent between 2011 and 2013, to an estimated $19.4 billion.”

Reality: Growth in U.S. services exports to Korea has actually slowed under the FTA. While U.S. services exports to Korea increased at an average quarterly rate of 3.0 percent in the year before the FTA took effect, the average quarterly growth rate has fallen to 2.3 percent since the deal’s enactment – a 24 percent drop. The pre-FTA year used as a baseline was not an anomaly – taking into account the full 13 pre-FTA years for which data are available, the long-term average pre-FTA quarterly growth rate for U.S. services exports to Korea was 2.9 percent, 21 percent higher than the post-FTA rate.

USTR Claim: “While our trade balance has been affected by decreases in corn and fossil fuel exports, changes that are due to the U.S. drought in 2012 and change in Korea’s energy mix, both of which were unrelated to the agreement” (Ambassador Froman) 

Reality: Corn and fossil fuels do not account for most of the crash in U.S. exports to Korea since the FTA. After removing corn, average monthly U.S. agricultural exports to Korea still declined under the deal. And after removing all fossil fuels (oil, natural gas and coal), the overall post-FTA decrease in U.S. average monthly exports to Korea barely budges, shifting from an 11 percent downfall to a 10 percent downfall. Even if discounting both corn and fossil fuels, U.S. monthly exports to Korea still fell under the FTA, and the monthly trade deficit with Korea still ballooned. It is not surprising that the dismal FTA record remains without these products, given that of the 15 U.S. sectors that export the most to Korea, 11 of them have experienced export declines under the FTA. No product-specific anomalies can explain away what has been a broad-based downfall of U.S. exports to Korea since the pact went into effect. Those losses amount to an 11 percent decline in average monthly exports to Korea that, combined with a 4 percent increase in average monthly imports, have caused the average monthly U.S. trade deficit with Korea to swell 47 percent under the FTA. The total U.S. trade deficit with Korea under the FTA’s second year is projected to be $8.6 billion higher than in the year before the deal. Using the administration’s current export-to-job ratio, this drop in net U.S. exports to Korea in the FTA’s first two years represents the loss of more than 46,600 U.S. jobs.

USTR Claim: “Slow economic growth in Korea between 2012 and2013 dampened demand for imports”

Reality: Korea’s GDP growth rate for 2013 is estimated to be higher than in both 2012 and 2011. And in 2012 (the first year of the FTA), Korea’s gross national income grew 2.3 percent and final consumption expenditures grew 2.2 percent. Since enactment of the Korea FTA, Koreans have been purchasing more goods overall, while purchasing fewer U.S. goods.

USTR Claim: “KORUS has also improved Korea’s investment environment through strong provisions on intellectual property rights, services, and investment, supporting U.S. exports.”

Reality: The Korea FTA included extraordinary foreign investor privileges that incentivize the export of U.S. investment, not the export of U.S. products, thereby promoting the offshoring of U.S. jobs. The deal’s “investor-state” terms provide special benefits to firms that relocate abroad and eliminate many of the usual risks that make firms think twice about moving out of the United States. New incentives for U.S. firms to relocate to Korea under the pact include a guaranteed minimum standard of treatment in Korea and compensation for regulatory costs, including the right to obtain government compensation simply because a regulation is altered after a foreign investment is established. U.S. firms that offshore production to Korea are also empowered to skirt Korea’s domestic legal system and directly “sue” the government in World Bank and U.N. tribunals comprised of three private attorneys. Such extraordinary privileges have already incentivized widespread offshoring under existing U.S. FTAs.

March 12, 2014

On 2nd Anniversary of Korea FTA, U.S. Exports Down, Imports Up and Trade Deficit Balloons, Fueling Congressional TPP Skepticism

Export Decline Hits U.S. Farmers and Auto Workers Particularly Hard, Dismal Outcomes of Pact Used as TPP Template Will Bolster Opposition to Obama Bid for Fast Track Authority

Two years after the implementation of the U.S.-Korea Free Trade Agreement (FTA), government data reveal that the Obama administration’s promises that the pact would expand U.S. exports and create U.S. jobs are exactly opposite of the actual outcomes: a downfall in U.S. exports to Korea, rising imports and a surge in the U.S. trade deficit with Korea. Using the administration’s export-to-job ratio, the estimated drop in net U.S. exports to Korea in the FTA’s first two years represents the loss of more than 46,600 U.S. jobs.

The damaging Korea FTA record, detailed in a new Public Citizen report, undermines the administration’s attempt to use the same failed export growth promises to sell an already skeptical Congress on Fast Track authority for the Trans-Pacific Partnership (TPP), a sweeping deal for which the Korea FTA was the template.

Contrary to the administration’s promise that the Korea FTA would mean “more exports, more jobs”:

  • U.S. goods exports to Korea have fallen below the pre-FTA average monthly level for 21 out of 22 months since the deal took effect.  See graph below.
  • The United States has lost an average of $385 million each month in exports to Korea, given an 11 percent decline in the average monthly export level in comparison to the year before the deal.
  • The United States lost an estimated, cumulative $9.2 billion in exports to Korea under the FTA’s first two years, compared with the exports that would have been achieved at the pre-FTA level.
  • Average monthly exports of U.S. agricultural products to Korea have fallen 41 percent.
  • The average monthly U.S. automotive trade deficit with Korea has grown 19 percent.

The U.S. exports downfall is particularly concerning given that Korea’s overall imports from all countries increased by 2 percent over the past two years (from 2011 to 2013).

PC Korea FTA Graph 1

The average monthly trade deficit with Korea has ballooned 47 percent in comparison to the year before the deal. As U.S. exports to Korea have declined under the FTA, average monthly imports from Korea have risen four percent. The total U.S. trade deficit with Korea under the FTA’s just-completed second year is projected to be $8.6 billion higher than in the year before the deal, assuming that trends during the FTA’s first 22 months continue for the remaining two months for which data is not yet available.

Meanwhile, U.S. services exports to Korea have slowed under the FTA. While U.S. services exports to Korea increased at an average quarterly rate of 3 percent in the year before the FTA took effect, the average quarterly growth rate has fallen to 2.3 percent since the deal’s enactment – a 24 percent drop.

“Most Americans won’t be surprised that another NAFTA-style deal is causing damage, but it’s stunning that the administration thinks the public and Congress won’t notice if it recycles the promises used to sell the Korea pact – now proven empty – to push a Trans-Pacific deal that is literally based on the Korea FTA text,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “The new evidence of the Korea FTA’s damaging record is certain to make it even more difficult for the Obama administration to get Congress to delegate its constitutional trade authority via Fast Track for the TPP.”

The decline in U.S. exports under the Korea FTA contributed to an overall zero percent growth in U.S. exports in 2013, rendering virtually impossible Obama’s stated goal to double exports by the end of 2014. At the export growth rate seen over the past two years, the export-doubling goal would not be reached until 2054. While the Korea pact is the only U.S. FTA that has led to an actual decline in U.S exports, the overall growth of U.S. exports to nations that are not FTA partners has exceeded combined U.S. export growth to U.S. FTA partners by 30 percent over the past decade.

“The data simply do not support the Obama administration’s tired pitch that more FTAs will bring more exports,” said Wallach. “Faced with falling exports and rising, job-displacing deficits under existing FTAs, the administration needs to find a new model, not to repackage an old one that patently failed.”

The Korea FTA has produced very few winners; since the FTA took effect, U.S. average monthly exports to Korea have fallen in 11 of the 15 sectors that export the most to Korea, relative to the year before the FTA (see graph below). And while losing sectors have faced relatively steep export declines (e.g. a 12 percent drop in computer and electronics exports, a 30 percent drop in mineral and ore exports), none of the winning sectors has experienced an average monthly export increase of greater than two percent. Ironically, many sectors that the administration promised would be the biggest beneficiaries of the Korea FTA have been some of the deal’s largest losers.

PC Korea FTA Graph 2
AGRICULTURE: While the administration argued for passage of the FTA in 2011 by claiming, “The U.S.-Korea trade agreement creates new opportunities for U.S. farmers, ranchers and food processors seeking to export to Korea’s 49 million consumers,” average monthly exports of U.S. agricultural products to Korea have fallen 41 percent under the FTA.

  • U.S. average monthly poultry exports to Korea have fallen 39 percent.
  • U.S. average monthly pork exports to Korea have fallen 34 percent.
  • U.S. average monthly beef exports to Korea have fallen 6 percent.

Compared with the exports that would have been achieved at the pre-FTA average monthly level, U.S. meat producers have lost a combined $442 million in poultry, pork and beef exports to Korea in the first 22 months of the Korea deal – a loss of more than $20 million in meat exports every month.

AUTOS AND AUTO PARTS: The administration also promised the Korea FTA would bring “more job-creating export opportunities in a more open and fair Korean market for America’s auto companies and auto workers,” while a special safeguard would “ensure… that the American industry does not suffer from harmful surges in Korean auto imports due to this agreement.” The U.S. average monthly automotive exports to Korea under the FTA have been $12 million higher than the pre-FTA monthly average, but the average monthly automotive imports from Korea have soared by $263 million under the deal – a 19 percent increase. So while U.S. auto exports have risen very modestly under the FTA, those tiny gains have been swamped by a surge in auto imports from Korea that the administration promised would not occur under the FTA.

  • In January 2014, monthly auto imports from Korea topped $2 billion for the first time on record.
  • About 125,000 more Korean-produced Hyundais and Kias were imported and sold in the United States in 2013 (after the FTA) than in 2011 (before the FTA).
  • Sales of U.S.-produced Fords, Chryslers and Cadillacs in Korea increased by just 3,400 vehicles.

The post-FTA flood of automotive imports has provoked a 19 percent increase in the average monthly U.S. auto trade deficit with Korea. The Obama administration has sought to distract from this dismal result by touting the percentage increase in U.S. auto sales to Korea. This allows the sale of a small number of cars beyond the small pre-FTA base of sales to appear to be a significant gain when in fact it is not.

Read the new Public Citizen report on the Korea FTA record.

February 19, 2014

Fact-checking Froman: The Top 10 Myths Used by Obama’s Top Trade Official

U.S. Trade Representative Michael Froman tried in a speech yesterday to defend the Obama administration’s beleaguered trade policy agenda: the controversial Trans-Pacific Partnership (TPP) and Trans-Atlantic Free Trade Agreement (TAFTA) pacts and an unpopular push to Fast Track those sweeping deals through Congress.  The list of those publicly opposing the Fast Track push includes most House Democrats, a sizeable bloc of House Republicans, House Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid, and 62% of the U.S. voting public

In attempt to justify the administration’s polemical pacts, Froman resorted to some statements of dubious veracity, ranging from half-truths to outright mistruths.  To set the record straight, here are the top 10 Froman fables, followed by inconvenient facts that undercut his assertions and help explain the widespread opposition to TPP, TAFTA, and Fast Track.

1. Access to affordable medicines

  • Froman:  “[In TPP] we’re working to find better ways to foster affordable access to medicines…” 

2. Income inequality

  • Froman:  “Our trade policy is a major lever for encouraging investment here at home in manufacturing, agriculture and services, creating more high-paying jobs and combating wage stagnation and income inequality.”
  • Fact:  First, study after study has shown no correlation between a country’s willingness to sign on to TPP-style pacts and its ability to attract foreign investment, casting doubt on Froman’s promise of a job-creating investment influx.  But more importantly, Froman opted to ignore a big part of why U.S. workers are currently enduring such acute levels of “wage stagnation and income inequality.”  He did not mention the academic consensus that status quo U.S. trade policy, which the TPP would expand, has contributed significantly to the historic rise in U.S. income inequality.  The only debate has been the extent of trade’s inequality-exacerbating impact.  A recent study estimates that trade flows have been responsible for more than 90% of the rise in income inequality occurring since 1995, a period characterized by trade pacts that have incentivized the offshoring of decently-paid U.S. jobs and forced U.S. workers to compete with poorly-paid workers abroad.  How can the TPP, a proposed expansion of the trade policies that have exacerbated inequality, now be expected to ameliorate inequality? 

3. Internet freedom

  • Froman:  “I’ve heard some critics suggest that TPP is in some way related to SOPA [the Stop Online Piracy Act].  Don’t believe it.  It just isn’t true….”
  • Fact:  Froman’s attempt to assuage fears of a TPP-provided backdoor to SOPA-like limits on Internet freedom would be more convincing if a) he offered details beyond “it just isn’t true,” or b) if his statement didn’t directly contradict leaked TPP texts.  A November leak of the draft TPP intellectual property chapter revealed, for example, that the U.S. is proposing draconian copyright liability rules for Internet service providers that, like SOPA, threaten to curtail Internet users’ free speech.  Indeed, while nearly all other TPP countries have agreed to a proposed provision to limit Internet service providers’ liability, the United States is one of two countries to oppose such flexibility.

4. Corporate trade advisors

  • Froman:  “Our cleared advisors do include representatives from the private sector… [but] they [also] include representatives from every major labor union, public health groups…environmental groups…as well as development NGOs...” 
  • Froman:  “I’m pleased to announce that we are upgrading our advisory system to provide a new forum for experts on issues like public health, development and consumer safety.  A new Public Interest Trade Advisory Committee, or PTAC, will join the Labor Advisory Committee and the Trade and Environment Policy Advisory Committees to provide cross-cutting platforms for input in the negotiations.”
  • Fact:  Froman’s announcement of a new “public interest” committee – a response to the outcry over the vast imbalance of this corporate-dominated advisory system – offers too little, too late. Amid a slew of advisory committees exclusively devoted to narrow industry interests, the “public interest” now gets a single committee?  And how much influence will this committee have in changing the many core TPP provisions that threaten the public interest, now that the administration hopes to conclude TPP negotiations, which have been going on for four years, in the coming months?  Proposed as a TPP afterthought, this new committee comes across as window-dressing, not a genuine restructuring of a system that gives corporations insider access to an otherwise closed trade negotiation process.

5. Fast Track

  • Froman:  Fast Track is “the mechanism by which Congress has worked with every administration since 1974 to define its marching orders on what to negotiate…”  We can use Fast Track to “require[] future administrations to require labor, environmental and innovation and access to medicines [standards]…”
  • Fact:  Under Fast Track, Congress has not given the administration “marching orders” so much as marching suggestions.  Though Congress inserted non-binding “negotiating objectives” for U.S. pacts into past Fast Track bills – a model replicated in the unpopular current legislation to revive Fast Track for the TPP and TAFTA – Democratic and GOP presidents alike have historically ignored negotiating objectives included in Fast Track.  For example, Froman stated that Fast Track could be used to require particular labor standards.  But while the 1988 Fast Track used for the North American Free Trade Agreement (NAFTA) and the establishment of the World Trade Organization (WTO) included a negotiating objective on labor standards, neither pact included such terms.  The history shows that Fast-Tracked pacts that ignore Congress’ priorities can still be signed by the president (locking in the agreements’ contents) before being sent to Congress for an expedited, ex-post vote in which amendments are prohibited and debate is restricted. 

6. Currency manipulation

  • Froman:  In response to a question of whether currency manipulation is being addressed in the TPP: “We take the issue of exchange rates or currency manipulation very seriously as a matter of policy…”
  • Fact:  U.S. TPP negotiators have not even initiated negotiations on the inclusion of binding disciplines on currency manipulation, much less secured other countries’ commitment to those disciplines.  The U.S. inaction on currency in the TPP contrasts with letters signed by 230 Representatives (a majority) and 60 Senators (a supermajority) demanding the inclusion of currency manipulation disciplines in the TPP.  Unless U.S. negotiators take currency manipulation more “seriously,” the TPP may be dead on arrival in the U.S. Congress. 

7. Labor rights

  • Froman:  “In TPP we’re seeking to include disciplines requiring adherence to fundamental labor rights, including the right to organize and to collectively bargain, protections from child and forced labor and employment discrimination.” 
  • Fact:  The TPP includes Vietnam, a country that bans independent unions.  And Vietnam was recently red-listed by the Department of Labor as one of just four countries that use both child labor and forced labor in apparel production.  While Froman acknowledged such “serious challenges,” he did not explain how they would be resolved.  Is Vietnam going to change its fundamental labor laws so as to allow independent unions?  Is the government going to revamp its enforcement mechanisms so as to eliminate the country’s widespread child and forced labor?  Barring such sweeping changes, will the U.S. still sign on to a TPP that includes Vietnam?  

8. Environmental protection

  • Froman:  “We’re asking our trading partners to commit to effectively enforce environmental laws…”
  • Fact:  While Froman touted several provisions in the draft TPP environment chapter as requiring enforcement of domestic environmental laws, he didn’t mention the draft TPP investment chapter that would empower foreign corporations to directly challenge those laws before international tribunals if they felt the laws undermined their expected future profits.  Corporations have been increasingly using these extreme “investor-state” provisions under existing U.S. “free trade” agreements (FTAs) to attack domestic environmental policies, including a moratorium on fracking, renewable energy programs, and requirements to clean up oil pollution and industrial toxins.  Tribunals comprised of three private attorneys have already ordered taxpayers to pay hundreds of millions to foreign firms for such safeguards, arguing that they violate sweeping FTA-granted investor privileges.  Froman’s call for countries to enforce their environmental laws sounds hollow under a TPP that would simultaneously empower corporations to “sue” countries for said enforcement.

9. TPP secrecy

  • Froman:  “Let me make one thing absolutely clear: any member of Congress can see the negotiating text anytime they request it.”
  • Fact:  For three full years negotiations, members of Congress were not able to see the bracketed negotiating text of the TPP, a deal that would rewrite broad swaths of domestic U.S. policies.  Only after mounting outcry among members of Congress and the public about this astounding degree of secrecy did the administration begin sharing the negotiating text with members of Congress last June.  Even so, the administration still only provides TPP text access under restrictive terms for many members of Congress, such as requiring that technical staff not be present and forbidding the member of Congress from taking detailed notes or keeping a copy of the text.  Meanwhile, the U.S. public remains shut out, with the Obama administration refusing to make public any part of the TPP negotiating text.  Such secrecy falls short of the standard of transparency exhibited by the Bush administration, which published online the full negotiating text of the last similarly sweeping U.S. pact (the Free Trade Area of the Americas). 

10. Exports under FTAs

  • Froman:  “Under President Obama, U.S. exports have increased by 50%...”  “Today the post-crisis surge in exports we experienced over the last few years is beginning to recede.  And that’s why we’re working to open markets in the Asia-Pacific and in Europe...”
  • Fact:  U.S. exports grew by a grand total of 0% last year under the current “trade” pact model.   The year before that, they grew by 2%.  Most of the export growth Froman cites came early in Obama’s tenure as a predictable rebound from the global recession that followed the 2007-2008 financial crisis.  At the abysmal export growth rate seen since then, we will not reach Obama’s stated goal to double 2009’s exports until 2054, 40 years behind schedule.  Froman ironically uses this export growth drop-off to argue for more-of-the-same trade policy (e.g. the TPP and TAFTA).  The data simply does not support the oft-parroted pitch that we need TPP-style FTAs to boost exports.  Indeed, the overall growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 30 percent over the last decade.  That’s not a solid basis from which to argue, in the name of exports, for yet another FTA. 

February 13, 2014

Obama Mexico Visit Spotlights 20-Year Legacy of Job Loss from NAFTA, the Pact on Which Obama’s TPP Is Modeled

New Public Citizen Report Catalogs the Negative NAFTA Outcomes That Are Fueling Opposition to Obama Push to Fast Track TPP

The 20-year record of job loss and trade deficits from the North American Free Trade Agreement (NAFTA) is haunting President Barack Obama’s efforts to obtain special trade authority to fast track the Trans-Pacific Partnership (TPP), said Public Citizen as it released a new report that comprehensively documents NAFTA’s outcomes. Next week’s presidential trip to Mexico for a long-scheduled “Three Amigos” U.S.-Mexico-Canada summit will raise public attention to NAFTA, on which the TPP is modeled, which is not good news for Obama’s push for the TPP and Fast Track.

Numerous polls show that opposition to NAFTA is among few issues that unite Americans across partisan and regional divides. Public ire about NAFTA’s legacy of job loss and policymakers’ concerns about two decades of huge NAFTA trade deficits have plagued the administration’s efforts to obtain Fast Track trade authority for the TPP. The TPP would expand the NAFTA model to more nations, including ultra-low-wage Vietnam. In the U.S. House of Representatives, most Democrats and a bloc of GOP have indicated opposition to Fast Track, as has Senate Majority Leader Harry Reid (D-Nev.).

Public Citizen’s new report, "NAFTA’s 20-Year Legacy and the Fate of the Trans-Pacific Partnership", compiles government data on NAFTA outcomes to detail the empirical record underlying the public and policymaker sentiment. It also shows that warnings issued by NAFTA boosters that a failure to pass NAFTA would result in foreign policy crises – rising Mexican migration and a neighboring nation devolving into a troubled narco-state – actually came to fruition in part because of NAFTA provisions that destroyed millions of rural Mexican livelihoods.

“Outside of corporate boardrooms and D.C. think tanks, Americans view NAFTA as a symbol of job loss and a cancer on the middle class,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “If you are a president battling to overcome bipartisan congressional skepticism about giving you special trade authority to fast track a massive 12-nation NAFTA expansion, it is really not helpful to be visiting Mexico for a summit of NAFTA-nation leaders.”

The Public Citizen report shows that not only did projections and promises made by NAFTA proponents not materialize, but many results are exactly the opposite. Such outcomes include a staggering $177 billion U.S. trade deficit with NAFTA partners Mexico and Canada, one million net U.S. jobs lost in NAFTA’s first decade alone, slower U.S. manufacturing and services export growth to Mexico and Canada, a doubling of immigration from Mexico, larger agricultural trade deficits with Mexico and Canada, and more than $360 million paid to corporations after “investor-state” tribunal attacks on, and rollbacks of, domestic public interest policies.

“The data have disproved the promises of more jobs and better wages, so bizarrely now NAFTA defenders argue the pact was a success because it expanded the volume of U.S. trade with the two countries without mentioning that this resulted in a 556 percent increase in our trade deficit with those countries, with a flood of new NAFTA imports wiping out hundreds of thousands of American jobs,” said Wallach.

The study tracks specific promises made by U.S. corporations like Chrysler, GE and Caterpillar to create specific numbers of American jobs if NAFTA was approved, and reveals government data showing that instead, they fired U.S. workers and moved operations to Mexico.

“The White House and the corporate lobby sold NAFTA with promises of export growth and job creation, but the actual data show the projections were at best wrong,” said Wallach. “The gulf between the gains promised for NAFTA and the damage that ensued means that the public and policymakers are not buying the same sales pitch now being made for theTPP and Fast Track.”

The report also documents how post-NAFTA trade and investment trends have contributed to middle-class pay cuts, which in turn contributed to growing income inequality; how since NAFTA, U.S. trade deficit growth with Mexico and Canada has been 50 percent higher than with countries not party to a U.S. Free Trade Agreement, and how U.S. manufacturing and services exports to Canada and Mexico have grown at less than half the pre-NAFTA rate.

Among the study’s findings:

  • Rather than creating in any year the 200,000 net jobs per year promised by former President Bill Clinton on the basis of Peterson Institute for International Economics projections, job loss from NAFTA began rapidly:
    • American manufacturing jobs were lost as U.S. firms used NAFTA’s foreign investor privileges to relocate production to Mexico, and as a new flood of NAFTA imports swamped gains in exports, creating a massive new trade deficit that equated to an estimated net loss of one million U.S. jobs by 2004. A small pre-NAFTA U.S. trade surplus of $2.5 billion with Mexico turned into a huge new deficit, and a pre-NAFTA $29.6 billion deficit with Canada exploded. The 2013 NAFTA deficit was $177 billion, representing a more than six-fold increase in the NAFTA deficit.
    • More than 845,000 specific U.S. workers, most in the manufacturing sector, have been certified for Trade Adjustment Assistance (TAA) since NAFTA because they lost their jobs due to offshoring to, or imports from, Canada and Mexico.The TAA program is narrow, covering only a subset of jobs lost at manufacturing facilities, and is difficult to qualify for. Thus, the TAA numbers significantly undercount NAFTA job loss. A TAA database searchable by congressional district, sector and more is available here.
    • According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent.  
    • As increasing numbers of workers displaced from manufacturing jobs have joined those competing for non-offshorable, low-skill jobs in sectors such as hospitality and food service, real wages have also fallen in these sectors under NAFTA. The resulting downward pressure on middle-class wages has fueled recent growth in income inequality.
  • Scores of environmental and health laws have been challenged in foreign tribunals through NAFTA’s controversial investor-state dispute resolution system. More than $360 million in compensation to investors has been extracted from NAFTA governments via “investor-state” tribunal challenges against toxics bans, land-use rules, water and forestry policies, and more. More than $12.4 billion is pending in such NAFTA claims, including challenges of medicine patent policies, a fracking moratorium and a renewable energy program.
  • The average annual U.S. agricultural trade deficit with Mexico and Canada in NAFTA’s first two decades reached $975 million, almost three times the pre-NAFTA level. U.S. beef imports from Mexico and Canada, for example, have risen 133 percent. Over the past decade,  total U.S. food exports to Mexico and Canada have actually fallen slightly while U.S. food imports from Mexico and Canada have more than doubled. This stands in stark contrast to projections that NAFTA would allow U.S. farmers to export their way to newfound wealth and farm income stability. Despite a 239 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal U.S. price of food in the United States has jumped 67 percent since NAFTA.
  • The reductions in consumer goods prices that have materialized have not been sufficient to offset the losses to wages under NAFTA; U.S. workers without college degrees (63 percent of the workforce) likely have lost a net amount equal to 12.2 percent of their wages even after accounting for gains from cheaper goods.This net loss means a loss of more than $3,300 per year for a worker earning the median annual wage of $27,500.
  • The export of subsidized U.S. corn did increase under NAFTA’s first decade, destroying the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture. The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.
  • Facing displacement, rising prices and stagnant wages, more than half the Mexican population, and more than 60 percent of the rural population, still falls below the poverty line, despite the promises that NAFTA would bring broad prosperity to Mexicans. Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods than on the day that NAFTA took effect. Despite promises that NAFTA would benefit Mexican consumers by granting access to cheaper imported products, the cost of basic consumer goods in Mexico has risen to seven times the pre-NAFTA level, while the minimum wage stands at only four times the pre-NAFTA level. Though the price paid to Mexican farmers for corn plummeted after NAFTA, the deregulated retail price of tortillas – Mexico’s staple food – shot up 279 percent in the pact’s first 10 years.

“Given NAFTA’s damaging outcomes, few of the corporations or think tanks that sold it as a boon for all of us in the 1990s like to talk about it, but the reality is that their promises failed, the opposite occurred and millions of people were severely harmed and now this legacy is derailing President Obama’s misguided push to expand NAFTA through the TPP,” said Wallach.

February 10, 2014

2013 Trade Data: USITC Corrections of Last Week’s Census Data Show Why Obama’s TPP, Fast Track Quest Is in Trouble

This weekend’s U.S. International Trade Commission (USITC) release of corrected 2013 year-end trade data goes a long way in explaining broad congressional and public opposition to the Obama administration’s trade agenda, which is premised on expanding to additional nations a model of trade pacts that the data show are failing most Americans. The data (graphs below) show:

A stunning decline in U.S. exports to Korea, a rise in imports from Korea, and a widening of the U.S. trade deficit under the Korea Free Trade Agreement (FTA).

  • In 20 out of 21 months since the Korea FTA took effect, U.S. goods exports to Korea have fallen below the average monthly level in the year before the deal.
  • U.S. average monthly exports to Korea since the FTA are 12 percent lower than the pre-FTA monthly average, while monthly imports from Korea are up 3 percent.
  • The monthly trade deficit with Korea has ballooned 49 percent compared to the pre-FTA level. These losses amount to tens of thousands of lost U.S. jobs.

Zero growth in U.S. goods exports relative to 2012, placing the United States decades behind in Obama’s stated goal to double exports in five years.

  • Total U.S. goods exports in 2013 actually dropped slightly from 2012 after adjusting for inflation, revealing a negative 0.1 percent growth rate.
  • The data show there is no chance to meet President Obama’s stated goal to double 2009’s exports by the end of this year. At the paltry 1 percent annual export growth rate seen over the past two years, the export-doubling goal would not be reached until 2054, 40 years behind schedule.

A staggering U.S. trade deficit with Canada and Mexico after 20 years of the North American Free Trade Agreement (NAFTA).

  • The 2013 U.S. goods trade deficit with Mexico and Canada was $177 billion - a nearly seven-fold increase above the pre-NAFTA level, when the United States enjoyed a small trade surplus with Mexico and a modest deficit with Canada.
  • Even worse for U.S. workers, the non-oil NAFTA deficit has multiplied more than 13-fold, costing hundreds of thousands of U.S. jobs. Indeed, the share of the combined U.S. trade deficit with Mexico and Canada that is comprised of oil has declined since NAFTA.

Today’s USITC data correct last week’s Census Bureau trade data to remove re-exports – goods made elsewhere that pass through U.S. ports en route to final destinations. The corrected data only heaps further doubt on Obama’s prospects for getting Fast Track trade authority, now publicly opposed by most House Democrats, a sizeable bloc of House Republicans, and Senate Majority Leader Harry Reid. Obama has asked for Fast Track to push through Congress the Trans-Pacific Partnership (TPP), a controversial deal modeled on the Korea FTA and NAFTA.

Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch

“Many in Congress and the public oppose NAFTA-on-steroids “trade” agreements like the TPP and Fast Track authority to expedite them because past trade deals have proved to be so damaging. Just like today for TPP, in the past we were sold on glorious projections of these deals’ benefits but the actual data show an ever-larger drop in U.S. exports to Korea since that pact and a growing trade deficit, a massive NAFTA trade deficit and overall zero growth for U.S. goods exports relative to last year despite implementation of more-of-the-same trade deals. The White House and the corporate lobby are trying to sell Congress the TPP and Fast Track with the same old promises about export growth and job creation, but today’s data show that under Obama’s only past major trade deal with Korea on which TPP is modeled, U.S. exports dropped dramatically, imports soared and the U.S. lost more jobs to a trade agreement.”

Korea 2013.

Obama Exports 2013.

NAFTA 2013

December 18, 2013

TAFTA Studies Project Tiny Economic Gains, Assume No Costs from Gutting Safeguards

Over the last several days we've highlighted the threats that a new U.S.-EU "trade" deal, under negotiation this week, could pose to food safety, financial stability, and efforts to rein in climate change.  A “trade” deal only in name, the Trans-Atlantic Free Trade Agreement (TAFTA) would require the United States and EU to conform domestic financial laws and regulations, climate policies, food and product safety standards, data privacy protections and other non-trade policies to TAFTA rules.

To sell such a dramatic rewrite of domestic safeguards to U.S. and EU policymakers and the general public, corporate lobby groups and TAFTA negotiators contend that the deal would bring economic benefits. TAFTA’s corporate proponents repeatedly point to a few theoretical studies to justify claims of increased national income resulting from the deal.

These studies use many dubious assumptions, questioned by economists at institutions such as the UN, to project TAFTA’s economic impact. Similar studies, when used for prior pacts, have produced vastly inaccurate predictions of gains. But even if one accepts all such assumptions regardless of their basis in reality, the studies project negligible economic “benefits” from TAFTA. Meanwhile, they ignore TAFTA’s likely costs to consumers, workers and the environment, despite the abundant evidence of such costs resulting from prior pacts.

Pro-TAFTA Study Projects Trade “Benefit” of Three Cents per Day

A standard argument for “free trade” agreements is that such deals reduce tariffs, thereby expanding trade, and that the benefit to all from access to cheaper imports outweighs the damage to those who lose their jobs. But tariffs between the United States and the EU are “already quite low,” as acknowledged by the U.S. Trade Representative. The EU and U.S. officials promoting TAFTA have readily stated that TAFTA’s primary goal is not tariff reduction, but the “elimination, reduction, or prevention of unnecessary ‘behind the border’” policies, such as domestic financial regulations, climate policies, food safety standards and product safety rules. 

That is why studies focused on the impact of TAFTA’s possible tariff reduction have produced meager estimates of any economic impact. Under the most optimistic scenario envisioned by a frequently cited pro-TAFTA study by the European Centre for International Political Economy, TAFTA tariff reductions would result in an estimated 1 percent increase in U.S. gross domestic product (GDP). But that estimate is unrealistically high, given that it assumes a contentious proposition of tariff reductions causing strong “dynamic” economic growth, a dubious theory at best. Noted academics have repeatedly cited empirical evidence showing no such trade-growth causation.  By omitting this assumption, the study notes that the theoretical TAFTA-prompted increase in U.S. GDP of $182 billion drops to just $20.5 billion, a 0.1 percent blip in what is projected to be an $18.3 trillion U.S. economy in the assumed year of TAFTA implementation. By comparison, economists estimate that the introduction of the fifth version of Apple’s iPhone delivered a GDP increase up to five times higher than the projected TAFTA effect.

TAFTA’s trivial trade impact shrinks even further when considering what the deal would mean in terms of actual income. The pro-TAFTA study projects that total annual U.S. national income would be just $4.6 billion higher under the deal. Even this number is unrealistic, given that it assumes that 100 percent of existing tariffs between the EU and the U.S. would be fully eliminated under the deal, an unlikely scenario given that the EU has already stated that sensitive products should be afforded exemptions from tariff reductions.  But proceeding with this inflated figure still results in deflated “benefits.” After adjusting for inflation and population growth in the years before the pact would be fully implemented, the projected $4.6 billion boost would amount to an extra three cents per person per day

Studies Ignore Costs, Use Big Assumptions to Project Tiny Gains from Weakened Safeguards

Several other studies touted by pro-TAFTA officials and industry associations focus not on the reduction of tariffs but on the deal’s central goal of reducing health, financial, environmental and other public interest regulations that have been euphemistically renamed “non-tariff barriers” or “trade irritants.” Leaked EU position papers reveal that TAFTA could include obligations for products and services that do not comply with such domestic safeguards to be allowed under processes called “equivalence” and “mutual recognition,” or obligations to actually alter domestic U.S. and EU policies to conform to new trans-Atlantic standards negotiated to be more convenient to business.  

Pro-TAFTA studies ignore the proven costs of such safeguard weakening while employing models based on the unproven business mantra that curtailing health, safety and environmental regulations would produce economic benefits for everyone. Despite such lopsided calculations, the studies still produce meager projections for TAFTA’s economic gains. An oft-cited pro-TAFTA study, commissioned by the European Commission and prepared by the Centre for Economic Policy Research, estimates that, if public interest regulations are significantly diluted or eliminated, TAFTA could produce a 0.2 – 0.4 percent increase in U.S. GDP (a $66 – 126 billion addition in 2027).

To arrive at this estimate of a smaller TAFTA gain than was delivered by the latest iPhone, the study assumes that up to one out of every four non-tariff barriers – which, according to the study, could include Wall Street regulations, food safety standards and carbon controls – would be reduced or eliminated. (The study acknowledges that some safeguards could not reasonably be slated for dismantling because doing so “may require constitutional changes…; because there is a lack of sufficient economic benefit to support the effort;...because of consumer preferences…; or due to other political sensitivities.”) To generate projections of economic gains from such safeguard dismantling, the study employs a methodology that UN economists have criticized as inchoate and unreliable: using an assumptions-laden computable general equilibrium model to study non-tariff policies.

In addition to the social and environmental toll that would result from such a degradation of health, safety, environmental, and other public interest standards, such regulatory weakening would also result in quantifiable monetary costs for U.S. consumers and the broader economy. The study ignored such costs.

For example, in the financial sector, the study names the Sarbanes-Oxley Act of 2002 as a “non-tariff barrier” on the target list of European businesses and officials. The Act created enhanced accounting and anti-fraud standards to prevent a recurrence of the Enron, WorldCom, and other corporate accounting scandals that destroyed billions of dollars of U.S. investments. The study also lists as a barrier U.S. “regulatory capital requirements,” which limit financial firms’ ability to take on risky bets that could lead to bankruptcy and financial instability. Indeed, the EU’s top financial regulator, Michel Barnier, has repeatedly criticized proposed U.S. capital requirements for foreign-owned banks – designed to rein in the excessive risk-taking that led to the Great Recession – while calling for such Wall Street reforms to be subject to TAFTA negotiations. Undermining such critical financial reregulation via TAFTA would heighten the risk of more accounting scandals or another financial crisis, threatening dire impacts on the real economy. Such risks hardly seem worth a small, speculative blip in GDP.  

November 15, 2013

Falling Exports under Korea FTA Likely to Bolster Fast Track Opposition

This week's government release of trade data highlights a stunning decline in U.S. exports to Korea, a rise in imports, and a ballooning of the U.S. trade deficit under the Korea Free Trade Agreement (FTA).  With such sorry results emerging from the Korea deal, it's little wonder that 178 Democrats and Republicans this week rejected Obama's bid to Fast Track through Congress another FTA -- the sweeping Trans-Pacific Partnership (TPP).  

U.S. goods exports to Korea fell 8 percent and imports from Korea grew 8 percent under the first 18 months of the Korea deal, relative to the 18 months before the deal took effect. The shift provoked an incredible 56 percent growth in the U.S. trade deficit with Korea in the FTA’s first year and a half.

The Korea FTA’s abysmal record for U.S. jobs has been consistent: in 18 out of the 18 months since the deal took effect, U.S. exports to Korea have fallen below the average level seen in the year before the deal.  And in every single one of the 18 months since the FTA, the U.S. deficit with Korea has exceeded the average monthly deficit before the deal took effect (see graphs below). These losses amount to tens of thousands of lost U.S. jobs.

The disappointing data from the Korea FTA, a template for the TPP, is poised to generate even more congressional opposition to Obama’s request for Fast Track’s extraordinary authority to railroad the TPP through Congress on an expedited timeline with limited debate and no amendments.

Korea Exports Nov 2

Korea Deficit Nov 2

October 02, 2013

Corporate TPP Factsheet Flurry: Many Sheets, Few Facts

Corporate America has just felled a (closed) national park’s worth of trees to draft 51 fancy, fanciful factsheets in attempt to better sell to a skeptical Congress the controversial Trans-Pacific Partnership (TPP) –the sweeping 12-country “free trade” agreement (FTA) mired in deadline-missing negotiations.

In projecting TPP impacts, the factsheets are heavy on platitudes and light on, well, facts. 

The factsheet series was released yesterday by the Business Roundtable (e.g. Goldman Sachs, Verizon, Pfizer, Exxon Mobil), the Coalition of Services Industries (e.g. Halliburton, Walmart, Citigroup), the National Association of Manufacturers (e.g. Lockheed Martin, Merck, Smithfield Foods), the U.S. Chamber of Commerce and other corporate conglomerates. The series posits one set of counterfactual claims, and then replicates them in 50 state-specific variations. The resulting 306-page ream of TPP cheerleading is impressive for its girth, if not its veracity.

Here are the corporate alliances’ three claims about the TPP – sourced from conjecture – followed by some inconvenient and contradictory facts – sourced from data:

1.  Claim: The TPP will “expand trade between the United States and existing FTA partners.” 

Fact: The U.S. is not even discussing trade expansion (i.e. tariff reduction) with most existing FTA partners in the TPP negotiations.  How can something not under discussion be promised as a result of the deal?

Of the 11 countries negotiating the TPP with the United States, six already have FTAs with the U.S.: Australia, Canada, Chile, Mexico, Peru, and Singapore.  The U.S. Trade Representative has stated that the U.S. is not negotiating tariff reductions with most of these countries, in part because tariffs with these FTA partners are already relatively low.  Despite this, the corporate factsheets state, “the TPP negotiations provide an opportunity to…address a range of important tariff…barriers that currently impede exports to these countries.”  Even the TPP-promoting government officials negotiating the deal would have to disagree.  

2.  Claim: The TPP will “open new markets in countries that are not current FTA partners.”

Fact: U.S. exports have actually suffered under FTAs, not gained.  How can we do more of the same and expect different results?

U.S. goods exports to Korea fell 10 percent in the first year of the U.S.-Korea FTA, a template for the TPP that took effect in March 2012. Overall, U.S. export growth has actually been better without FTAs than with them. Growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 38 percent over the last decade. Repeating the tired claim that we need FTAs to boost exports does not make it true.

In addition, some of the particular export growth “opportunities” highlighted by the corporate groups require a reality check.  For example, they cite New Zealand’s 5% tariff on U.S. lactose products as a barrier that, if only reduced via TPP, would herald an increase in U.S. dairy exports to New Zealand.  But U.S. dairy producers fear just the opposite.  U.S. dairy producers have lobbied against the reduction of dairy tariffs between New Zealand and the U.S., fearing that it would lead to their displacement, not a new export “opportunity.” The corporate factsheets’ tariff reduction promises are dotted with such inconvenient facts that, like flies on ointment, tarnish the rosy picture painted for Congress.

3.  Claim: The TPP will “encourage companies based in TPP countries to increase their business investment in the United States.”

Fact: Study after study has shown no correlation between a country’s foreign investment levels and its willingness to be bound to the extreme sort of investor privileges enshrined in the TPP.  With no proven upside, why would we sign up for the proven downside of empowering foreign investors to bypass domestic courts, drag the government to an extrajudicial tribunal, and demand taxpayer compensation for public interest policies that they find inconvenient?  

The corporate factsheets identify corporations based in TPP countries with operations in the United States, arguing (despite the evidence) that TPP investor privileges would encourage them to boost their business. In fact, the TPP would empower these foreign firms, on behalf of any of their 30,000 subsidiaries in the U.S., to directly attack U.S. health, financial, environmental and other public interest policies that they view as undermining new foreign investor rights that the TPP would establish. Extrajudicial tribunals, comprised of three private attorneys unaccountable to any electorate, would be authorized to determine the validity of the challenged policies and order unlimited taxpayer compensation if the policies undermined corporations’ “expected future profits.”  

This extreme “investor-state” system already has been included in a series of U.S. FTAs, forcing taxpayers to hand more than $400 million to corporations for toxics bans, land-use rules, regulatory permits, water and timber policies and more. Just under U.S. pacts, more than $14 billion remains pending in corporate claims against medicine patent policies, pollution clean ups, climate and energy laws, and other public interest polices. Are these the “barriers” to investment that the corporate alliances hope the TPP will remove? 

In the wake of this corporate factsheet flurry, the message to Congress is simple: check the facts.  For they are not found on these sheets.  And they reveal a truer and uglier picture of the TPP than the corporations’ latest attempt at airbrushing.

September 27, 2013

Beware of Outlandish Claims About Economic Benefits of U.S.-EU ‘Free Trade’ Deal

This Week’s U.S. International Trade Commission Study Assumes Total Elimination of U.S.-EU Consumer, Environmental, Financial Policy Differences, Follows British Embassy’s 50-State Rehash of Discredited 2009 Study Based on Similar Assumption

On Thursday, the U.S. International Trade Commission (USITC) sent a report to the U.S. Trade Representative (USTR) on the projected economic impact of the Trans-Atlantic Free Trade Agreement (TAFTA), a report that is premised on the ridiculous assumption that 100 percent of the differences between U.S. and EU health, safety, environmental and financial regulations will be eliminated. Given that the report, which is not being made available to the press or public, relies on a premise that can only lead to fanciful results, U.S. negotiators should not consider it, much less use it to guide their approach to the agreement.

That study comes two days after yet another think tank report that recycled a litany of flawed assumptions from a 2009 study on TAFTA, chopping up baseless findings to present a 50-state version of imaginative projections of economic gains from a similar dismantling of public interest safeguards.

The core premise of these studies is the unproven business mantra that rolling back Wall Street reforms, food health standards and medicine safety regulations will somehow deliver economic gains to us all. The main contribution of the recent flurry of studies is the addition of extra gloss and fancy printing to the old, debunked assumption that such an assault on consumers, workers and the environment would have zero costs.

In its request for Thursday’s study, the USTR asked the USITC to assume an impossible outcome of U.S.-EU negotiations: “that any known U.S. non-tariff barrier will not be applicable” to imports from the EU if the sweeping deal were to take effect. By the USTR’s own definition, “non-tariff barriers” include differences in domestic financial regulations, food safety standards, product safety rules and other U.S. public interest safeguards that TAFTA apparently would render null. 

Even the most fanciful pro-TAFTA study, the 2009 ECORYS study prepared for the European Commission that has been regularly rehashed, including in a British Embassy report this week, avoided such an outlandish assumption, stating, “It is unlikely that all areas of regulatory divergence identified can actually be addressed … because this would require constitutional changes … ; because there is a lack of sufficient economic benefit to support the effort; …because of consumer preferences…; or because of political sensitivities.”

On Tuesday, the findings of the 2009 study were revived in another TAFTA-touting study, commissioned by the British Embassy in Washington, the Bertelsmann Foundation and the Atlantic Council. That glossy piece recycled the 2009 study’s improbable assumptions – breaking them down to state-by-state projections – to hypothesize the “gains” that TAFTA could deliver to each state if public interest safeguards were sufficiently weakened. The study assumes that TAFTA would eliminate one of every four “non-tariff barriers” – from the Volcker Rule at the center of Wall Street reform to safety standards for children’s toys to the U.S. ban on beef linked to mad-cow disease – at no cost to consumers.

While ignoring costs, the report uses a computable general equilibrium model to generate projections of hypothetical economic gains, despite studies showing that this methodology is inchoate and unreliable when studying non-tariff policies. Past studies using this cost-ignoring, gain-inflating methodology have still producedmeager projections for TAFTA’s “gains.” A pro-TAFTA study whose findings were recycled in Tuesday’s report estimated that, if TAFTA would significantly dilute or eliminate public interest regulations, the deal could produce a tiny 0.2 – 0.4 percent blip in U.S. gross domestic product (GDP). According to economists, that’s a smaller contribution to GDP than was delivered by the latest version of the iPhone

The list of “non-tariff barriers” slated for elimination in the underlying 2009 study includes food safety standards such as “Grade A dairy safety … rules and inspection requirements” for milk and financial stability measures such as the Sarbanes-Oxley Act that enacted accounting and anti-fraud standards to prevent a recurrence of Enron-like corporate accounting scandals. The study ignored the predictable social and economic costs that would result from such extreme regulatory rollback, such as an increase in the incidence of foodborne illness and a rise in financial instability.

Tuesday’s report, like its predecessors, made clear that TAFTA is not primarily about trade. Acknowledging that tariffs between the United States and the EU are “already quite low,” USTR and EU officials have made clear that TAFTA’s primary focus will be on the “elimination, reduction, or prevention of unnecessary ‘behind the border’” policies, such as the health, financial and environmental regulations targeted by Tuesday’s study. Attempts to exclusively measure the economic impact of TAFTA-prompted tariff reductions have produced embarrassingly meager results, estimating that even in the unlikely scenario of 100 percent tariff elimination, TAFTA would deliver economic benefits equivalent to three extra cents per person per day.

September 24, 2013

Gussying Up Old Assumptions: Today’s TAFTA-Touting Report Is a Re-Run

If you say something enough times, does it become true?  That seems to be the calculation of some proponents of the Trans-Atlantic Free Trade Agreement (TAFTA), a sweeping deal that would require the U.S. and EU to conform domestic safeguards to deregulatory rules currently being negotiated under corporate supervision.  Pro-TAFTA think tanks have been rehashing the same set of starry-eyed prognostications of TAFTA economic benefits at a frequency (and concern for accuracy) that rivals iterations of the “Fast and the Furious” movie series. 

But repetition does not truth make.  As we’ve pointed out time and again, these reports keep using sweeping assumptions to project that TAFTA would bring a surprisingly miniscule economic blip.  And to get that blip, they assume that we’ll be willing to watch corporate-advised TAFTA negotiators dismantle a swath of health, environmental, financial, and other safeguards.  Click here for our retort to this parade of studies. 

Another TAFTA-touting report came out today, commissioned by the British Embassy in Washington, the Bertelsmann Foundation, and the Atlantic Council (whose advisors include executives from J.P. Morgan and Big Pharma). 

The report offers 71 glossy pages of rewarmed speculations.  Here are the five main takeaways:

1. The “new” study is not really new.  It is largely a recycled version of another recycled version of a study that appeared in 2009.  Today’s report hypothesizes what TAFTA could mean for each U.S. state, assuming economic gains primarily from the weakening of financial regulations, climate policies, food and product safety standards, data privacy protections and other “trade irritants.” Those “gains” were tabulated about four years ago, dusted off in a study disseminated in March, and sliced up by state in today’s report.

2. The study confirms again that TAFTA is not about trade.  Since tariffs (an actual trade issue) are “already quite low” between the EU and U.S., pro-TAFTA government officials have readily stated that TAFTA’s primary goal is not tariff reduction, but the “elimination, reduction, or prevention of unnecessary ‘behind the border’” policies, ranging from Wall Street reforms to milk safety standards to GMO food labels. 

That’s why attempts to measure the economic impact of TAFTA-prompted tariff reductions have produced embarrassingly meager results.  A frequently cited pro-TAFTA study estimates that even in the unlikely scenario of 100% tariff elimination, TAFTA will deliver economic benefits equivalent to three extra cents per person per day.  To project a higher benefit, the study released today had to not just repeat this unrealistic assumption of 100% tariff reduction, but also assume that TAFTA would reduce health, financial and environmental regulations that have been euphemistically renamed “non-tariff barriers.” 

3. The study assumes zero downside of eliminating consumer and environmental safeguards. Today’s study assumes that TAFTA would eliminate one out of every four “non-tariff barriers” – from the Volcker Rule at the center of Wall Street reform to safety standards for children’s toys to the ban on beef linked to mad-cow disease – at no cost to consumers.  In addition to an obvious social and environmental toll, such a degradation of safeguards would also result in quantifiable monetary costs for U.S. consumers and the broader economy.

For example, the 2009 study on which today’s report relies counts “Grade A dairy safety…rules and inspection requirements” for milk and “a US ban on the import of uncooked meat products” in the case of “a health risk” as “non-tariff barriers” that could be slated for dismantling under TAFTA. The elimination of such consumer protections would likely result in greater incidence of food-borne illness in the United States, which would not only increase the medical costs of affected consumers, but would reduce their productivity levels and number of days at work, spelling a negative impact on aggregate economic output.

In financial services, the study names the Sarbanes-Oxley Act of 2002 as a “non-tariff barrier” on the target list of EU businesses and officials. The Act created enhanced accounting and anti-fraud standards to prevent a recurrence of the Enron, WorldCom, and other corporate accounting scandals that destroyed billions of dollars of U.S. investments. Undermining such critical financial reregulation via TAFTA would risk a return to such costly scandals. Today’s study ignored such costs.

4. The study uses contested models with assumptions that can turn economic losses into gains.  While ignoring costs, today's study strives to capture all theoreticaly plausible benefits by relying on assumptions-laden methods, such as using a computable general equilibrium (CGE) model to assess removal of “non-tariff barriers” (NTBs).  A U.N. study has questioned the reliability of this inchoate approach. It argues, “ongoing liberalization policy efforts to eliminate the restrictive effects of NTBs are proceeding with little economic analysis…the modeling of NTBs using general equilibrium modeling techniques is still in its early stages.” The U.N. study tested the usage of differing assumptions in a CGE model to estimate the economic effects of NTB removal and found that a change in the assumptions meant that the net economic effect of NTB removal actually switched from positive to negative for some countries (even before taking into account the above costs).  If today’s study performed any such testing of assumptions, it did not reveal the results. 

5. The study assumes a massive rollback of Buy American and Buy Local policies.  Another assumption of today’s study is that TAFTA would eliminate one half of all “procurement barriers,” a euphemism for popular policies like Buy American and Buy Local to ensure that U.S. government projects, funded by U.S. taxpayers, are used to create U.S. jobs.  It is rather fanciful to think that the U.S. Congress, state legislatures, or the U.S. public would accept such a clear-cutting of policies that enjoy 90% support.  Indeed, today’s study assumes an even greater undercutting of Buy American and Buy Local than the EU negotiators themselves are hoping for. In a leaked EU position paper on government procurement, the EU explicitly names 13 U.S. states and 23 U.S. cities it is targeting for rollback of Buy Local policies.  Today’s study assumes that the U.S. will offer to eliminate Buy Local in about twice as many states as the EU itself requested.

For more information on the lineage of TAFTA-touting studies from which today’s rosy report descended, click here to see our factsheet.  

September 20, 2013

Obama’s Corporate Export Council Ignores Dismal Export Data, Backs More-of-the-Same “Trade” Deals

Yesterday, just before a meeting of the President’s Export Council, we asked whether the powerful, Obama-advising group would recognize that U.S. export growth is seriously lagging and that status-quo “free trade” deals have failed to fulfill promises of increased exports.

They didn’t. 

Somehow the room full of corporate representatives and government officials, “the principal national advisory committee on international trade,” which exists to “promote export expansion” and “discuss and resolve trade-related problems,” made it through two hours of prepared speeches without once acknowledging that we’re 18 years behind schedule to meet Obama’s goal to double exports.  

Groupthink is one plausible explanation.  The members of Obama's top "export" panel include:

  • 17 executives of Fortune 500 corporations and 8 other business representatives
  • 17 administration officials, 9 hand-picked members of Congress, and 2 state and local government officials
  • 0 representatives of labor, environmental, health, consumer, family farmer, or any other public interest groups

It turns out that Obama's "principal national advisory committee on international trade" doesn't need to include a broad cross-section of groups and concerns implicated by trade policy.  Perhaps if a single worker, farmer, or advocate had been present, someone would have pointed out the obvious: exports (i.e. the group's raison d'être) are not doing well.  

Export CouncilInstead, the group touted insignificant data points as “gains.”  For example, President Obama declared, “Part of the reason we set up the Export Council was to make sure we meet our goal of doubling exports in a relatively short period of time.  And we now sell more goods overseas than ever before.” 

Um, the second sentence’s mundane “achievement” is irrelevant to the first sentence’s central goal.  We have actually “sold more goods overseas than ever before” in 43 of the last 53 years – rising exports has been a longstanding accompaniment to economic growth, not a novel cause for bragging rights. 

Actually, Obama’s unremarkable claim may not even prove true for 2013. The most recent government data indicates that U.S. goods exports so far this year are actually one percent lower than they were in the same period last year.  At the current rate, we’d expect 2013 to be a historically unique year of falling exports. 

If so, Obama’s export-doubling goal, which already looked impossible after last year’s sluggish two percent growth rate (mentioned just once during the Export Council meeting), would become even more remote.

Choosing to ignore this elephant in the room, the President’s Export Council called for a hearty embrace of status quo trade policy. Corporate CEOs and administration officials praised two more-of-the-same pacts currently under negotiation: the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Free Trade Agreement (TAFTA)

No one brought up how exports have actually fared under similar pacts.  No one mentioned that exports to Korea have actually fallen 10 percent under the Korea “free trade” agreement (FTA), a blueprint for the TPP.  No one mentioned that export growth to countries that are not FTA partners has actually exceeded U.S. export growth to countries that are FTA partners by 38 percent over the past decade.

Instead, the Council affirmed the tired and counterfactual narrative that deals like the TPP and TAFTA, which would rewrite wide swaths of non-trade domestic policies, are necessary for export promotion. 

And they reiterated that getting the increasingly controversial deals past a skeptical Congress and a critical U.S. public would require Fast Track – the undemocratic tool used to ram through Congress the Korea FTA, NAFTA, and other past controversial deals whose results the Council resolutely ignored. 

In a decision that took less than thirty seconds, and entailed zero deliberation, the Council approved a resolution supporting Obama’s push for Fast Track.  The Chair, representing Boeing, did not even bother to call a voice vote, opting instead to “assume no objection” and then declare approval of the resolution by stating, “I so move, all in favor, okay.”

So is the President’s Export Council really blind to the current export problems that are central to its mandate?  Are they really unaware of the shoddy export record of “free trade” deals to which they are unblinkingly committed? 

Or do the Council members, representing some of the country’s most aggressive corporate interests, have something else to gain by advocating for the TPP and TAFTA?  For example, Council member J.P. Morgan, Wall Street’s largest firm, might be less concerned with the deals’ implications for exports and more interested in the constraints that the pacts would impose on the reregulation of Wall Street

Maybe Pfizer and Merck, both incoming Council members, decided to join the powerful body to push for the TPP proposal to expand their monopoly patent protections, increasing their profit margins and our medicine prices.  And Walt Disney may be particularly keen, as a Council Member, in pushing for the TPP to include some of the draconian copyright provisions that the corporation failed to get enacted in the Stop Online Piracy Act (SOPA), defeated in Congress as a threat to Internet freedom.  Archer Daniels Midland, meanwhile, would probably like to use its Council membership to push for TAFTA to weaken EU limits on genetically-modified food, while Council member Verizon has already expressed its hope that the pact can be used to roll back Europe’s data privacy safeguards

It’s possible that the President’s Export Council is delusional about the shoddy export record of the status-quo “trade” model that the TPP and TAFTA would expand.  It’s more likely that they are willfully ignorant.  The corporations’ unqualified support for the pacts likely stems not from data-defying hopes of export promotion, but from realistic expectations that the sweeping deals would rewrite health, environmental, financial, and other domestic safeguards that the corporations find inconvenient – and that most of the rest of us find essential.

Will President Obama grant the wishes of his corporate Council members?  In his closing remarks for the meeting, Obama joked, “I am expecting a gold watch from Boeing at the end of my presidency, because I know I’m one of the top salesmen for Boeing.” As Obama continues attempting to sell the TPP and TAFTA to the U.S. public and fast track the controversial pacts through Congress, the likes of Boeing, J.P. Morgan, and Pfizer must be lining up the gold watches.  

September 06, 2013

Exports Fall Short under Korea FTA for 16 out of 16 months

At this week's G20 summit in Russia, President Obama has been trying once again to sell two enormous "trade" pacts -- the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Free Trade Agreement (TAFTA) -- using the beleaguered pitch that such deals will deliver jobs by boosting exports.  

But government trade data released this week douses Obama's export promise with another bucket of cold reality.  Under the Korea "free trade" agreement (FTA), a model for the TPP, U.S. exports have been steadily falling, imports have been rising, and job-displacing trade deficits have surged.    

In fact, in every single month since the Korea FTA took effect in March 2012, U.S. goods exports to Korea have fallen below the average export level seen the year before the deal took effect.  Average monthly exports to Korea since the FTA have sunk 11% below the average monthly level before the FTA. 

The U.S. monthly trade deficits with Korea, meanwhile, have soared about 50% higher than the pre-FTA level.  In 16 out of 16 months since the FTA took effect, the U.S. trade deficit with Korea has exceeded the average monthly deficit seen the year before the deal.  

The dismal record of the Korea FTA for U.S. exports and jobs does not bode well for the administration’s attempt to push the controversial TPP through Congress on a democracy-defying Fast Track under the tired and counterfactual promise of export promotion.  Members of Congress are not likely to be persuaded to revoke their constitutional authority over trade and allow the TPP to be railroaded through Congress after seeing the disappointing data for a deal upon which the TPP is modeled.  

Sep Korea 1

Sep Korea 2

June 07, 2013

Obama's Top Trade Official Nominee: The Good, The Bad, and The Ugly

Yesterday was the Senate Finance Committee's confirmation hearing for Michael Froman, Obama's pick to be the next U.S. Trade Representative (USTR).  

If confirmed, Froman would replace Ron Kirk, who left his post as the top U.S. trade official in March to take a job at a corporate law firm that specializes in defending multinational corporations against claims of vast environmental damage, including helping Chevron evade payment of $18 billion in damages for decades of pollution in Ecuador's Amazon.  

We've been a tad skeptical of Obama's pick of Froman, given his Wall Street roots and his role in crafting the much-maligned North American Free Trade Agreement (NAFTA) and the deficit-plagued Korea FTA.  

Here's what went down at yesterday's hearing, divided by the time-honored categories of good, bad, and ugly: 

The Good (maybe)

  • Sen. Sherrod Brown (D-Ohio) raised the fact that "Wall Street and industry-friendly European regulators are now seeking to use any means they can to roll back some of the reforms" enacted since the 2008 financial crisis to rein in banks' excessive risk-taking.  Specifically, he mentioned that big banks on both sides of the Atlantic are trying to use the newly-hatched Trans-Atlantic Free Trade Agreement (TAFTA) as a backdoor means of attacking controls on risky derivatives, too-big-to-fail regulations and other Wall Street reforms included in the Dodd-Frank reregulatory law.  Froman responded by promising, "There is nothing that we are going to do through a trade agreement to weaken our financial regulation, to roll back Dodd-Frank, or to roll back the efforts that the administration and Congress have worked on for the last four years to reform our financial regulatory system here."  Really?  If honored, Froman's promise would represent an about-face in U.S. trade policy.  USTR is currently pushing provisions in the Trans-Pacific Partnership (TPP) that would prohibit bans on risky derivatives, counteract too-big-to-fail regulations, and bar capital controls -- the very deregulatory moves that Froman says are now off the table.  Will Froman halt USTR's legacy of helping banks use "trade" deals to water down financial regulation?  Given Froman's Citigroup stomping grounds, we're skeptical.  But so long as Froman's in the business of promising change, we're in the business of holding him to that promise.   

The Bad

  • Sen. Brown also highlighted the incredible proposal to include the extreme investor privileges of past NAFTA-style deals in the U.S.-EU deal (TAFTA). The proposal -- to empower foreign corporations to circumvent domestic courts and directly challenge health and environmental policies before extrajudicial tribunals authorized to order taxpayer compensation -- sparked a flood of critical comments from the public to USTR last month.  Brown asked, "Do we need an extrajudicial and private enforcement system when U.S. and European property rights are...advanced and protected already?"  Froman dodged the question, saying the matter was a "topic worthy of discussion."  More aptly, it's a topic worthy of an answer.  The appropriate response to Brown's yes-or-no question would have been, "No. Empowering foreign corporations to completely circumvent our courts is unnecessary for investor protection, insults basic democratic tenets, and threatens consumers' health and taxpayers' wallets."  
  • Sen. Ron Wyden (D-Ore.) raised the extraordinary secrecy shrouding the Obama administration's trade negotiations to date.  Wyden has blasted USTR's incredible decision to keep the negotiating text of the sweeping TPP pact, affecting everything from food safety to Internet freedom, hidden from the U.S. public and even from members of Congress.  Not even the Bush administration attempted that degree of secrecy.  Wyden asked, "If confirmed, will you make sure that the public...gets a clear and updated description of what trade negotiators are seeking to obtain in the negotiations so that we can make this process more transparent in the future?" Wyden further asked that negotiating texts be placed online.  Froman responded by saying he agrees with the principle of transparency.  But instead of committing to a meaningful fulfillment of that principle by releasing the TPP text online (as done under Bush), he reiterated USTR's general desire to seek input from "stakeholders."  It is of course difficult for stakeholders to provide meaningful input if they cannot see the thing in which they have a stake.   
The Ugly
  • Gothmog1Froman (and Obama) plan to pursue Fast Track: "If confirmed, I will engage with you to renew Trade Promotion Authority. TPA is a critical tool."  Fast Track, cynically rebranded "Trade Promotion Authority," is indeed a tool.  A battering ram sort of tool.  A tool that, before allowed to expire, was used to shove unpopular "trade" deals like NAFTA through Congress by empowering the executive branch to negotiate and sign the sweeping pacts before sending them to Congress for a no-amendments, limited-debate, expedited, post-facto vote.  Click here for a full analysis of Fast Track's democracy-curtailing, NAFTA-enabling track record.  If past is precedent, any attempt from Froman to refurbish this antiquated legislative ramrod would prove vastly unpopular among the U.S. public and Congress.  We'll see if Froman, despite the political liability, makes good on his threat to, as one of his first acts, pick a Fast Track fight.  

June 06, 2013

Under Korea FTA, U.S. Trade Deficit Surges to Highest Point in History (Again)

April was another record-breaking month for U.S. trade with Korea under the U.S.-Korea Free Trade Agreement (FTA).  The monthly U.S. trade deficit with Korea soared to its highest point in history, topping $2.5 billion for the month of April alone.  

According to a ratio used by the Obama administration, the unprecedented deficit surge implies 13,500 U.S. jobs lost to trade with Korea in just thirty days.  April's trade deficit with Korea was 30% higher than in April 2012 -- the first full month of FTA implementation -- and 90% higher than in April 2011, before the FTA took effect.  

The deficit increase owes largely to a dramatic drop in U.S. exports to Korea since enactment of the FTA.  U.S. exports to Korea in April once again fell below the levels seen in any given month in the year before the FTA took effect.  The sorry track record defies the promise (FTA = more exports) that the Obama administration used to pass the FTA.  Undeterred by the facts, today the administration is using the same worn-out promise to sell the Trans-Pacific Partnership

April 2013

The downfall in U.S. exports to Korea under the FTA has particularly afflicted sectors that, ironically, the administration had singled out as projected winners under the deal -- namely U.S. meat producers.  In April of this year, U.S. beef exports to Korea fell to 43% below the pre-FTA level seen in April 2011, while U.S. pork exports plummeted 66% below the April 2011 level.  In the first full year of FTA implementation, beef exports fell 8%, pork exports dropped 24%, and poultry exports plunged 41% in comparison to the year before the FTA took effect.  

For more on how U.S. food exports (and imports) have fared under deals like the Korea FTA, check out our brand new briefing paper: Let them Eat Imports.  The exposé presents new evidence, arguments, and a smorgasbord of graphs to show how lackluster agricultural exports and soaring food imports under FTAs have jeopardized farmers' livelihoods and consumers' safety. 

May 08, 2013

As Korean President Addresses Congress Today, First Year of Korea Free Trade Agreement Data Shows U.S. Exports Down, Trade Deficit with Korea Up

After First Year of U.S.-Korea FTA, U.S. Exports to Korea Down 10 Percent, Imports from Korea Up and Deficit With Korea Swells 37 Percent, Contradicting Obama Promises of U.S. Export and Job Growth

Just-released government trade data, covering the first year of implementation of the U.S.-Korea Free Trade Agreement (FTA), shows a remarkable decline in U.S. exports to Korea and a rise in imports from Korea, provoking a dramatic trade deficit increase that defies the Obama administration’s promises that the pact would expand U.S. exports and create U.S. jobs, Public Citizen said today.

The coincidence of the dismal trade data coming out just before the Korean president’s Wednesday address to a joint session of Congress can only heighten attention to the gap between the administration’s promises and the outcomes of its trade agreements.

“The Korea pact’s damaging outcomes being the opposite of the administration’s promises will certainly complicate the administration’s current efforts to use the same claims about export expansion to persuade Congress to delegate away its constitutional trade authority or to build support for the administration’s next trade deal, a massive 11-nation Trans-Pacific Partnership (TPP) based on the same model,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

U.S. export growth to countries with NAFTA-style pacts like the U.S.-Korea FTA has been particularly lackluster; growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 38 percent over the past decade.

In contrast to the Obama administration’s promise that the U.S.-Korea FTA would mean “more exports, more jobs,” U.S. goods exports to Korea have dropped 10 percent (a $4.2 billion decrease) under the Korea FTA’s first year, in comparison to the year before FTA implementation. U.S. imports from Korea have climbed 2 percent (a $1.3 billion increase). The U.S. trade deficit with Korea has swelled 37 percent (a $5.5 billion increase). The ballooning trade deficit indicates the loss of tens of thousands of U.S. jobs.

“Most Americans will not be shocked that another trade agreement has increased our trade deficit, because they know that these NAFTA-style deals are losers, but anger toward the politicians who keep supporting these deals is soaring,” said Wallach. “The question is why any member of Congress would buy the same tired promises that once again have proven false and cede to the administration’s demands that Congress give away its constitutional authority over trade to allow the administration to Fast Track into effect yet another deal, TPP, that will increase our trade deficit and cost U.S. jobs.”

The decline in U.S. exports under the Korea FTA contributed to an overall disappointing U.S. export performance in 2012, placing the United States far behind Obama’s stated goal to double U.S. exports by the end of 2014. At the sluggish 2012 export growth rate of 2 percent, the United States will not achieve the president’s goal until 2032, 18 years behind schedule.

“The sorry Korea FTA numbers beg the question: How can the administration call for a rebirth of American manufacturing and job growth while pushing the TPP, a sweeping deal that would expand the failed Korea FTA model to low-wage countries like Vietnam, ban Buy American provisions and offshore tens of thousands more U.S. jobs,” said Wallach.

Many of the sectors that the Obama administration promised would be the biggest beneficiaries of the Korea FTA have actually been some of the deal’s largest losers:

  • U.S. pork exports to Korea have declined 24 percent under the first year of the FTA relative to the year before FTA implementation.
  • U.S. beef exports have fallen 8 percent.
  • U.S. poultry exports have plunged 41 percent.

The U.S. deficit with Korea in autos and auto parts increased 16 percent in the first year of the FTA. U.S. auto imports from Korea have surged by more than $2.5 billion under the FTA’s first year. FTA proponents have shamelessly touted “gains” in U.S. auto exports without revealing that this increase totaled just $130 million, with fewer than 1,000 additional U.S. automobiles sold in Korea relative to the 1.3 million Korean cars sold here in 2012.

Read additional analysis of the government data on U.S. trade with Korea under the U.S.-Korea FTA.

March 01, 2013

The Obama Administration Wants to Sell You a Used Trade Policy

The Office of the U.S. Trade Representative (USTR) just released the 2012 annual trade report and 2013 trade agenda of the President.  It reads a bit like a used car salesman trying to do his best with a lemon.  The report/car’s well-polished sheen looks pretty… until you take a peek under the hood. 

Take the first sentence: “Trade is helping to drive the success of President Obama’s strategy to grow the U.S. economy and support jobs for more Americans.”  Almost makes you forget that last year’s non-oil trade deficit rose to a five-year high, implying the loss of millions of jobs, doesn’t it?  How about the second sentence: “The Obama Administration’s trade policy helps U.S. exporters gain access to billions of customers beyond our borders to support economic growth in the United States and in markets worldwide.”  That’s an interesting way to frame a year whose sluggish two percent export growth rate put us 18 years behind schedule in achieving Obama’s export-doubling goal.  The report continues on with its pitch, trying its darndest to pretty up what amounts to a year of ugly trade policy impacts for workers and consumers, and what appears to be more of the same planned for the 2013 trade agenda. 

Before you buy this “certified pre-owned” trade policy, let us help interpret some of the report's glossy claims:

Fast Track

The report’s first page features these two sentences: “To facilitate the conclusion, approval, and implementation of market-opening negotiating efforts, we will also work with Congress on Trade Promotion Authority. Such authority will guide current and future negotiations, and will thus support a jobs-focused trade agenda moving forward.”  Those lines have prompted a frenzy of press speculation that the Obama administration could ask Congress for Fast Track, the controversial tool that presidents from Nixon to Bush II have used to seize Congress' constitutional prerogative to set trade policy.  Fast Track has been newly euphemized as "Trade Promotion Authority." (It's not a "clunker," it's a "mechanic's dream.")  Much of the press hubbub has been over whether or not Congress would or should revive the "politically contentious" Fast Track authority for Obama. But that's not the right question. We should be asking: what kind of trade negotiating system should replace Fast Track?  It's time for a modern, democratic trade negotiating process to replace an autocratic Fast Track system that predates disco. 

It's interesting that the administration decided to devote two lone sentences to Fast Track in a 382-page report. Why not be more forthright in heralding a new push for Fast Track?  Because when asking for something unpopular, it makes sense to whisper.  And Fast Track is vastly unpopular.  Before being allowed to die in 2007, Fast Track was a Nixon-conceived attempt to sidestep checks, balances and other pesky features of a democratic republic by taking from Congress its Constitution-granted prerogative to determine trade policy. In one fell swoop, Fast Track 1) delegated away Congress’ authority to choose trade partners and set the substantive rules for “trade” pacts that have deep ramifications for broad swaths of non-trade domestic policy, 2) permitted the executive branch to sign and enter into FTAs before Congress voted on them, 3) forced a congressional vote on FTAs, and 4) suspended amendments and truncated debate when that vote occurred.  It was under this legislative luge run that we got NAFTA, CAFTA, the Korea FTA, etc.  Fast Track's extreme approach has created many an opponent (right, left, and center), spurring politically costly battles for past presidents that have attempted to wrest the unpopular authority from Congress.  

If Fast Track carries such political liability, why is the Obama administration pursuing it?  Well, according to today's report, it's to “facilitate” the passage of FTAs like the TPP (see below).  But if the TPP is such a “high-standard” agreement, what’s the harm in letting Congress get a good look at it, rather than handcuffing their involvement with Fast Track?  Doing so would save Obama the political grief of a Fast Track fight.  Or maybe there’s something even more objectionable about the TPP itself that requires Fast Track’s unparalleled sequestration of congressional power to get the deal enacted?  

Again, the choice is not Fast Track or no Fast Track.  It's Fast Track or a sensible model of trade policymaking for a modern democracy.  A new model of delegated authority would respect Congress' responsibility to play the lead role in determining the outcome of “trade” deals that intend to rewrite policies regarding financial regulation, immigration, climate and energy policy, healthcare, food safety, etc.  

Trans-Pacific Partnership

USTR reiterates throughout the report its standard definition of the Trans-Pacific Partnership (TPP) as “a high-standard regional trade agreement that will link the United States to dynamic economies throughout the rapidly growing Asia-Pacific region.” (italics added)  The primary problem with this pitch is that we’re already quite linked with these economies -- as in, 90 percent linked.  The United States already has trade deals with six of the seven largest TPP negotiating economies, which constitute 90 percent of the combined GDP of the negotiating bloc.  The TPP “dynamic economies” with which we don’t already have liberalized trade include Vietnam, where annual income per person is $1,374, and Brunei, which has a population smaller than Huntsville, Alabama.  As we’ve said time and again, this deal is not primarily about trade. 

What is it about?  It's about banning Buy American policies that support U.S. jobs; discreetly enacting provisions of the congressionally-defeated, Internet-freedom-threatening Stop Online Piracy Act; restricting safety standards for imported food; empowering foreign investors to directly challenge governments’ public health and environmental policies while demanding taxpayer compensation for “expected future profits;” counteracting efforts to reregulate Wall Street; giving pharmaceutical corporations better tools to undermine drug cost containment policies; and more.  USTR appears to have omitted such details in today's report.   

Under a section entitled “Inclusion of stakeholders at Trans-Pacific Partnership negotiations,” USTR boasts that “Stakeholder engagements and briefings provided an opportunity for the public to interact with negotiators from all of the participating countries and provide presentations on various trade issues, including public health, textiles, investment, labor and the environment.”  We have indeed given such presentations…while TPP negotiators were simultaneously scheduled to be on the other side of the negotiating venue.  It’s hard to engage trade negotiators who are supposed to be in two places at once.  We do appreciate the attempt at engagement, but would appreciate a more concerted effort

After patting its back for being “open” and having “unprecedented direct engagement with stakeholders,” USTR includes this: “At the same time, the Administration will vigorously defend and work to preserve the integrity of confidential negotiations, because they present the greatest opportunity to achieve agreements that fulfill U.S. trade negotiation objectives.”  Here USTR is trying to explain the equivalent of a used car's missing motor: an unbending commitment to not release the TPP negotiating text.  While claiming “unprecedented” engagement with stakeholders, USTR’s decision to keep the TPP negotiating text secret from the public, the press, and even congressional offices is “unprecedented” among 21st-Century trade deals of this scope.  The World Trade Organization (WTO), hardly a paragon of transparency, posts key texts online for public review. In addition, when the last major regional “trade” agreement (the Free Trade Area of the Americas) was at the same stage as the TPP is now, the text was formally released by the U.S. and other negotiating governments (in 2001). It’s hard to claim genuine engagement with stakeholders when those stakeholders cannot see the thing in which they hold such a stake. 

Trans-Atlantic FTA

The report reiterates President Obama’s State of the Union surprise: that the United States intends to not just negotiate a NAFTA-style pact spanning the Pacific (the TPP), but also one spanning the Atlantic. In brief discussion of the Trans-Atlantic FTA (TAFTA), the report says, “Such a partnership would include ambitious reciprocal market opening in goods, services, and investment, and would offer additional opportunities for modernizing trade rules and identifying new means of reducing the non-tariff barriers that now constitute the most significant obstacle to increased transatlantic trade.”  But this deal, even more than most, is not about trade.  Says who?  USTR itself.  U.S. Trade Representative Ron Kirk, in a briefing on the deal said that the administration has resisted including the word “trade” in the name of the deal “because it is so much broader than trade.” 

With tariff levels already quite low between Europe and the United States, this FTA appears to be primarily about those “non-tariff barriers” standing in the way of “regulatory coherence.”  What might such opaque terms mean?  In the past, they have been code for a lowest-common-denominator approach to reducing all those safety, environmental, health, financial stability and other domestic regulations that corporations have not been able to roll back via domestic pressure.  “Trade” deals provide a handy forum in which to write binding rules that contravene such regulations.  What regulations in particular might be on the hoped-for chopping block?  European firms have already taken aim at U.S. financial regulations, while U.S. corporations have long been annoyed by Europe’s tougher policies against unsafe food, GMOs, and carbon emissions.  Big agribusiness, oil and gas, chemical, and financial firms on both sides of the Atlantic may be hoping to undermine such policies in a new TAFTA, to the detriment of, well, just about everyone else. 

Exports and Jobs

The report informs the reader that “Data from 2012 showed that every $1 billion in U.S. goods exports supported an estimated nearly 5,400 American jobs...”  Good to know.  What about an additional $1 billion in imports?  As per usual, USTR trumpets the gains of exports without looking at the other side 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 occurred last year.  The non-oil U.S. deficit in goods rose six percent in 2012 to $628 billion, the largest non-oil U.S. trade deficit in the last five years.  According to the Obama administration’s own math, that degree of negative net exports implies the loss of 3.4 million jobs.  That data from 2012 didn’t make it into the report. 

Readers of Eyes on Trade know that U.S. exports to Korea under the Korea FTA have been faring particularly poorly: they fell 10 percent in 2012 after the deal took effect (compared to the same months for 2011).  How did USTR deal with this inconvenient truth in its annual report?  It didn’t.  With respect to the three FTAs implemented in 2012, the report states “…in 2013 we will work with Korea, Colombia, and Panama to ensure that the bilateral trade agreements that went into effect last year continue to operate smoothly…”  A ten percent fall in exports for a deal that was sold under the unrelenting promise of “More Exports. More Jobs?”  Real smooth.  It seems that these are not the things one mentions in an annual report when one’s accompanying agenda for the next year includes more of the same FTAs (e.g. TPP), sold under the same “More exports. More jobs” pitch.   

Buy American and Green Procurement Policies

Wonder why our exports and job growth has been so sub-par recently?  USTR thinks it has found the answer—that scourge of our economic woes called “localization.”  Here’s what the report has to say on the topic: “We are also actively combating “localization barriers to trade” – i.e., measures designed to protect, favor, or stimulate domestic industries, service providers, and/or intellectual property (IP) at the expense of goods, services, or IP from other countries…Localization barriers to trade that present significant market access obstacles and block or inhibit U.S. exports in many key markets and industries include: requiring goods to be produced locally; providing preferences for the purchase of domestically manufactured or produced goods and services; and requiring firms to transfer technology in order to trade in a foreign market…Building on progress made in 2012, the localization taskforce will coordinate an Administration-wide, all-hands-on-deck approach to tackle this growing challenge in bilateral, regional, and multilateral forums…” 

Before the USTR dedicates the few hands it has on deck to scour the globe for pernicious localization policies, it might want to check out a few of our own.  Namely, Buy American.  This program, widely-supported among Republicans, Democrats and independents, provides a textbook example of USTR’s definition of a “localization barrier.” Buy American explicitly “provides preferences for the purchase of domestically manufactured or produced goods,” by requiring that U.S. tax dollars be spent on domestic firms when the U.S. government purchases construction equipment, vehicles, office supplies, etc.  Did USTR have in mind the elimination of this job-supporting program? Their trade agenda would certainly indicate so –- the TPP and other FTAs ban the Buy American treatment for any foreign firms operating in new FTA partner countries. 

“Localization” also implicates Buy Local and other green procurement policies that governments are increasingly using to transition to a greener economy.  Ontario, for example, has employed a renewable energy program that requires energy generators to source solar cells and wind turbines from local businesses so as to cultivate a robust supply of green goods, services, and jobs.  The program has earned acclaim for its early success in generating 4,600 megawatts of renewable energy and 20,000 green jobs.  But one group hasn’t had much acclaim to offer: the WTO.  In a ruling at the end of last year, the WTO decided that the successful program’s local requirements violate WTO rules.  Today's report confirms indications that USTR now also intends to take on such climate-stabilizing “barriers to trade." Last month, the United States initiated a WTO case against India, attacking buy-local components of its solar energy policy.  A refurbished trade agenda that undermines an urgently-needed clean-energy agenda?  Sounds like a lemon. 

February 14, 2013

Job-Killing Trade Deficits Soar under "Free Trade" Agreements

While President Obama's State of the Union reiterated the tired "free trade" = exports = jobs refrain, the newly-released government trade data for 2012 shows that job-eroding U.S. trade deficits have ballooned with "free trade" agreement (FTA) partners while declining with the rest of the world. Why? In part, because export growth has actually been slower under FTAs. Why then did Obama commit on Tuesday night to expand this deficit-boosting FTA model across both the Pacific and the Atlantic in the name of jobs?  Maybe he hasn't seen the data.  Here it is (click here for the PDF version): 

U.S. Trade Deficits Grow More Than 440% with FTA Countries, but Decline 7% with Non-FTA Countries

The aggregate U.S. trade deficit with FTA partners is more than five times as high as before the deals went into effect, while the aggregate deficit with non-FTA countries has actually fallen slightly.1 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. Incredibly, the U.S. Chamber of Commerce website states, “For those worried about the U.S. trade deficit, trade agreements are clearly the solution – not the problem.” Their pitch ignores the import surges contributing to growing deficits and job loss, while their export “data” is inflated, using tricks described below.

The aggregate trade deficit with FTA partners increased by more than $144 billion (inflation-adjusted) since the FTAs were implemented. In contrast, the aggregate deficit with all non-FTA countries decreased by more than $55 billion since 2006 (the median entry date of existing FTAs). Two reasons: a sharp increase in imports from FTA partners – notably Mexico and Canada under the North American Free Trade Agreement (NAFTA) – and significantly lower export growth to FTA partners than to non-FTA nations over the last decade. Using the Obama administration’s net exports-to-jobs ratiothe FTA trade deficit surge implies the loss of nearly one million American jobs. (Scroll to the bottom for a chart giving the country-by-country data.)  

Trade with Canada and Mexico (our first and third largest trade partners, respectively) contributed the most to the widening FTA deficit. Under NAFTA, the U.S. deficit with Canada ballooned and the small U.S. surplus with Mexico turned into a $100 billion-plus deficit. The trend persists under new FTAs – nine months into the Korea FTA, our deficit with Korea has jumped 26 percent. Reducing the massive trade deficit requires a new trade agreement model, not more of the same.

U.S. Export Growth Falters under FTAs

Growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 38 percent over the last decade.2 Between 2002 and 2012, U.S. goods exports to FTA partner countries grew by an annual average rate of only 4.8 percent. Goods exports to non-FTA partner countries, by contrast, grew by 6.6 percent per year on average. Since 2006, when the number of FTA partner countries nearly doubled with the implementation of the Central America Free Trade Agreement (CAFTA), the FTA export growth “penalty” has only increased. Since then, average U.S. export growth to non-FTA partner countries has topped average export growth to FTA partners by 46 percent.

Corporate FTA Boosters 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 appears 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 “re-exports:” NAM has misleadingly claimed that the United States has a manufacturing surplus with FTA nations by counting as U.S. exports goods that actually are made overseas – not by U.S. workers. NAM’s data includes “re-exports” – goods made elsewhere that are shipped through the United States en route to a final destination. Determining FTAs’ impact on U.S. jobs requires counting only U.S.-made exports.
  • 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 441 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. This artificially magnifies claimed FTA 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 $244 billion, and Bahrain, where they do not reach $2 billion), despite accounting for such critical differences for non-FTA countries.

Chart: U.S. Trade Deficit Rises by $144 Billion with FTA Partners, Falls by $55 Billion with Rest of the World

FTA Partner

Entry Date

Pre-FTA Trade Balance

2012 Balance

Change in Balance Since FTA

Israel*

1985

($1.0)

($12.4)

($11.4)

Canada

1989

($23.3)

($79.7)

($56.5)

Mexico

1994

$2.5

($101.2)

($103.7)

Jordan

2001

$0.3

$0.5

$0.2

Chile

2004

($1.9)

$7.9

$9.8

Singapore

2004

$0.7

$6.9

$6.2

Australia

2005

$7.2

$19.3

$12.1

Bahrain

2006

($0.1)

$0.4

$0.6

El Salvador

2006

($0.2)

$0.2

$0.4

Guatemala

2006

($0.5)

$1.0

$1.5

Honduras

2006

($0.7)

$0.9

$1.6

Morocco

2006

$0.1

$1.3

$1.2

Nicaragua

2006

($0.7)

($1.7)

($1.0)

Dominican Republic

2007

$0.6

$2.4

$1.8

Costa Rica

2009

$1.2

($5.4)

($6.6)

Oman

2009

$0.5

$0.3

($0.2)

Peru

2009

($0.2)

$1.6

$1.8

Korea

2012

($15.0)

($17.9)

($2.9)

Colombia

2012

($9.8)

($10.3)

($0.5)

Panama

2012

$7.6

$8.7

$1.1

         

FTA TOTAL:

 

($32.7)

($177.2)

($144.4)

Non-FTA TOTAL:

[2006]

($776.1)

($720.7)

$55.4

FTA Deficit INCREASE:  441%             Non-FTA Deficit DECREASE:  7%

Source: U.S. International Trade Commission. Units: billions of 2012 dollars. (*Measured since 1989 due to data availability.)



1The change in the aggregate U.S. trade deficit with FTA partners is found by comparing 1) the combined inflation-adjusted U.S. trade balance in goods for all current FTA partners in the year before the FTA entered into force, and 2) the combined U.S. trade balance with those same countries in 2012. The change in the aggregate trade deficit with non-FTA countries is found by comparing 1) the combined inflation-adjusted U.S. trade balance in goods in 2005 (the year before the median entry date of existing FTAs) for all countries that are not current FTA partners, and 2) the combined U.S. trade balance with those same countries in 2012. All data comes from U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed February 11, 2013. Available at: http://dataweb.usitc.gov/.

2All figures in this section use an inflation-adjusted weighted average to find average annual growth rates of domestic exports for both FTA partner countries and non-FTA partner countries. All data comes from U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” accessed February 11, 2013. Available at: http://dataweb.usitc.gov/.

February 11, 2013

Obama's Export Promise Falls 18 Years Behind Schedule as Exports Decline under FTAs

USITC Trade Data Shows Obama Goal of Doubling Exports Is Even More Remote Relative to Census Bureau Data, Due in Part to Falling Exports under FTAs with Korea, Colombia and Panama

The Obama administration’s attempt to tout the decline in the overall U.S. trade deficit for 2012 as a trade policy success diverted from the three most critical trends that the annual data revealed:

  • The drop in the overall trade deficit represented an increase in U.S. oil exports and a decrease in oil imports. However, the U.S. deficit in goods excluding oil actually rose six percent in 2012 to $628 billion, the largest non-oil U.S. trade deficit in the last five years. The U.S. trade deficit with China (even with oil included) broke all past records, topping $321 billion.
  • Friday’s 2012 annual trade data from the U.S. Census Bureau, despite using inflated figures that count “re-exports” – goods not produced by U.S. workers, showed that President Obama’s goal of doubling U.S. exports is seriously lagging. Data released over the weekend by the U.S. International Trade Commission (USITC) reveals that Obama’s export growth goal is even more remote - at the sluggish 2012 export growth rate, we will not achieve the president’s goal until 2032, 18 years behind schedule. After removing foreign-made “re-exports” from the Census figures, the USITC data shows that U.S.-made goods exports in 2012 were $210 billion (more than 13 percent) below what Census reported.
  • U.S. exports were particularly disappointing to the three countries with “free trade” agreements (FTAs) that the Obama administration pushed to passage in 2011. Under the Korea, Colombia and Panama FTAs, which took effect in 2012, combined U.S. exports to the three countries fell four percent relative to the same months of 2011. Despite this, the Obama administration is pushing an 11-nation Trans-Pacific Partnership (TPP) FTA based on the same model of the North American Free Trade Agreement (NAFTA). The TPP pact includes Vietnam, the low-wage alternative to China for manufacturing outsourcing.

Goal of Doubling Exports off Track

In his 2010 State of the Union address, President Obama set a goal to double exports over the following five years. With two years left, the United States should be 60 percent of the way toward achieving this goal. Instead, the 2012 Census data, despite being inflated by the inclusion of foreign-made re-exports, showed that we are just 37 percent of the way toward Obama's export growth goal, with U.S. goods exports growing at less than one-sixth of the promised pace in 2012. The USITC data, reporting only U.S.-made exports, shows that we are even farther from doubling exports and, under the sluggish 2012 export growth rate of two percent, will not achieve the president’s goal until 2032, 18 years behind schedule. The picture would be worse were it not for the 2010 export growth spurt – an anomalous and predictable rebound after U.S. exports plunged in 2009 amid the global recession.

2012 Trade Data 1

 

U.S. Exports to Korea Plummet 10 Percent under Obama-Backed FTA

The new USITC data shows that under the FTAs that took effect in 2012 with Korea, Colombia and Panama, combined U.S. exports to the three countries have actually fallen four percent relative to the same months of 2011. U.S. goods exports to Korea declined by 10 percent (more than $3.1 billion) in comparison to 2011 levels for the same months. The U.S. trade deficit with Korea grew 26 percent during this period.

Driving the combined FTA export downfall was the decline in U.S. exports to Korea, by far the largest of the three economies, under the first nine months of the Korea FTA. Despite Obama administration promises that the pact would boost exports, U.S. exports to Korea took a dramatic plunge after the deal took effect in March 2012, and have continued the downward trajectory since. Some of the worst declines were in the sectors the administration touted as prospective “winners” under the agreement. U.S. pork exports to Korea declined 17 percent under the FTA in 2012 relative to the same months in 2011, while beef exports fell 11 percent and poultry exports plunged 40 percent. While U.S. auto exports to Korea have increased four percent under the FTA, U.S. auto imports from Korea have surged 17 percent, causing an 18 percent rise in the U.S. auto trade deficit with Korea.

Overall, growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 38 percent over the last decade. Between 2002 and 2012, U.S. goods exports to FTA partner countries grew by an annual average rate of only 4.8 percent.  Goods exports to non-FTA partner countries, by contrast, grew by 6.6 percent per year on average.

2012 Trade Data 3

 

Beware the Re-Export Data Trap…

As the chart below shows, the U.S. Census Bureau methodology inflates the value of U.S. exports by counting goods that actually are made overseas – not by U.S. workers. These “re-exports” are goods made elsewhere that are shipped through the United States en route to a final destination. Since passage of NAFTA and similar FTAs, re-exports have increased dramatically, causing a growing gap between U.S.-made exports and the inflated export numbers reported by the U.S. Census Bureau.

As a result, the actual U.S. trade deficit in goods has exceeded the re-exports-skewed trade deficit data to an increasing degree, soaring more than 20 percent above the skewed number for the last four years. In 2012, the actual trade deficit exceeded the distorted trade deficit by $170 billion, a difference that implies an additional 1.1 million net U.S. jobs displaced by unbalanced trade, according to a ratio used by the Obama administration.  

2012 Trade Data 2

February 08, 2013

Despite Inflating Exports, Today's 2012 Trade Data Falls Short of Obama's Export Growth Promise

The U.S. Census Bureau just released 2012 trade data showing yet another year of massive U.S. trade deficits. You will not find two critical pieces to the 2012 trade story in the release or the accompanying press reportsthe Census data is skewed in a way that inflates U.S. export levels, and even the inflated export figures show that President Obama’s goal of doubling exports is seriously lagging. 

The U.S. Census Bureau methodology inflates the value of U.S. exports by counting goods that actually are made overseas – not by U.S. workers. These “re-exports” are goods made elsewhere that are shipped through the United States en route to a final destination. Accurately determining the impact of status quo trade policy on U.S. jobs requires counting only U.S.-made exports, which will be quietly reported by the U.S. International Trade Commission (USITC), probably over the weekend. We will send out the USITC 2012 year end data Monday.

As the graph below shows, since passage of the North American Free Trade Agreement (NAFTA) and similar "free trade" agreements (FTAs), re-exports have increased dramatically, causing an increasing gap between U.S.-made exports and the inflated export numbers reported by the U.S. Census Bureau. As a result, the actual U.S. trade deficit in goods has exceeded the re-exports-skewed trade deficit data to an increasing degree, soaring more than 20 percent above the skewed number for the last three years. In 2011, the actual trade deficit exceeded the distorted trade deficit by nearly $150 billion, a difference that implies an additional one million net U.S. jobs displaced by unbalanced trade, according to a ratio used by the Obama administration. 

Re-exports

But even with the inflated exports figures, the United States is falling significantly behind the export growth goal set by President Obama, as shown in the graph below. In his 2010 State of the Union address, President Obama set a goal to double exports over the following five years. With two years left, the United States should be 60 percent of the way toward achieving this goal. Instead, the new 2012 exports data, despite being inflated by the inclusion of foreign-made re-exports, shows that we are just 37 percent of the way toward Obama's export growth goal, with U.S. goods exports growing at two-thirds of the promised pace. Though the 2010 export growth spurt came close to promised levels, this rise owed largely to a predictable rebound after U.S. exports plummeted in 2009 amid the global recession. The 2012 data shows far more lackluster export growth.

U.S. exports have been particularly sluggish to countries that have an FTA with the United States. Indeed, under the FTAs with Korea, Colombia and Panama, which the Obama administration pushed to passage in 2011 and which were implemented in 2012, U.S. goods exports to the three countries have actually fallen relative to the same months of 2011. Overall, growth of U.S. exports to countries that are not FTA partners has exceeded U.S. export growth to countries that are FTA partners by 44 percent over the last decade. 

Re-exports promise
Stay tuned for a press release from us on Monday that will report the more accurate 2012 trade data and what it means for U.S. jobs.

September 12, 2012

Let Them Eat Steak: How Costco Totally Makes Up for NAFTA's Sordid Legacy

On Monday, the Washington Post published an article extolling NAFTA for bringing Costco to Mexico.  The article profiled the expansion of the bulk goods behemoth across the Rio Grande as an example of how NAFTA has allowed “Made in USA” products to sweep through Mexico, to the delight of U.S. workers and Mexican consumers.  It’s a happy, albeit misleading, narrative. 

The Post article missed nearly two-thirds of the NAFTA story.  It reported that “trade between the United States and Mexico is surging” thanks to NAFTA.  Indeed.  But 65% of the surge has been in Mexican products imported into the U.S., not U.S. products heading to Mexico.  While U.S. exports to Mexico have more than doubled since NAFTA, imports from Mexico have more than quadrupled (after controlling for inflation).  The net impact on U.S. workers has been the disappearance of hundreds of thousands of jobs as the small pre-NAFTA trade surplus with Mexico has crashed into 17 consecutive years of trade deficits.  Last year the U.S. trade deficit with Mexico topped $100 billion for the first time, accelerating the job atrophy.

Meanwhile, the article portrayed the comparably small rise in U.S. exports as a gift to Mexican consumers, who can now, according to the article, stroll Costco’s wide aisles for “marbled slabs of steak” and “sacks of russet potatoes.”  Really?  The populace that perfected a delectable, corn-based diet should thank NAFTA for steak and potatoes?  While Mexico's small upper-middle class may well enjoy the southward march of Costco, the 51% of Mexicans who now live below the national poverty line—a higher share than at any point in the last decade—are not loading carts with “Made in USA” steak. 

Indeed, for many Mexicans, Costco has meant fewer tamales sold, not more steak bought. The article notes that the NAFTA-encouraged proliferation of megastore chains is “challenging, for better or worse, the traditional mom-and-pop stores doling out soda, eggs and tortillas.”  Let’s see—is that “better” or “worse?”  NAFTA displaced approximately 28,000 small and medium-sized Mexican businesses in just its first four years.  Those who support small business as a means of creating jobs and overcoming poverty will find that NAFTA trend decidedly “worse.”

When newspapers perpetuate narratives that obscure NAFTA’s failures for the majority of workers at home and abroad, policymakers are more prone to replicate the failure.  And replicate they did with last year’s passage of the NAFTA-style deals with Korea, Colombia, and Panama.  With the Korea FTA now in effect since March, we are already starting to see results that all too closely resemble NAFTA’s legacy.  On Tuesday, the U.S. International Trade Commission released data for another month of FTA trade with Korea, revealing a whopping $1.9 billion trade deficit with the country in July alone, 30% above last year’s July deficit.  Overall, the U.S. trade deficit with Korea has risen to $6.8 billion under the first four months of the Korea FTA, as mounting imports have surpassed exports and eroded U.S. jobs. 

Even so, maybe the NAFTA-style deal has at least allowed Korean consumers to enjoy a new influx of Costco’s.  That is, assuming they’ve been willing to jettison small businesses in exchange for steak and potatoes.  

July 11, 2012

What Jobs? After NAFTA-Style Deal, an Unparalleled Surge in Korea Trade Deficit

Last year, President Obama and Congressional Republicans sold the U.S. public the promise that a NAFTA-style deal with Korea, passed last October, would bring jobs by boosting U.S. exports.  At the time, this claim contradicted even the government’s own projection that the trade deal would worsen the U.S.’s trade balance with South Korea.  Now, it appears to contradict the evidence. 

Since the March 15 implementation of the Korea trade deal, the U.S. trade deficit with South Korea has reached dramatic levels for the second consecutive month for which we have data.  While the U.S.’s goods deficit with South Korea in March was a mere $0.6 billion, in April the deficit trebled to $1.8 billion.  By contrast, the U.S. goods deficits with major trading partners like Japan, Mexico, and Germany all declined that month. 

In May, the goods deficit with South Korea hit the $2 billion mark, the ninth largest monthly deficit among the U.S.’s 230 trading partners.  (In May of last year, the deficit stood at only $1.3 billion and South Korea ranked 15th in deficit magnitude.)  Indeed, from March to May, while the overall U.S. trade deficit fell, the deficit with South Korea increased more (in dollar terms) than with any other country in the world, except for one: China. 

This worrisome data cripples the Obama Administration’s promise that more NAFTA-style deals will bring export-led job growth.  The post-FTA surge in the trade deficit with Korea was prompted in part by a $759 million downfall in U.S. exports to Korea from March to May.  Using a ratio employed by the International Trade Administration, the drop in exports over these two post-FTA months alone amounts to over 5,000 lost U.S. jobs. 

Last month, President Obama’s campaign ads named Presidential hopeful Mitt Romney as a would-be “Outsourcer-in-Chief,” accusing the Republican candidate of offshoring U.S. jobs during his time at Bain Capital.  Given the track record of the Korea trade deal thus far, perhaps the President should take some of his own medicine.  He could start by telling his Administration to stop pushing forward the Trans-Pacific Partnership, a NAFTA-on-steroids deal with even larger job-killing prospects than what we’ve seen from the deficit-fostering Korea deal.  

June 15, 2012

Korea trade deficit balloons under NAFTA-style deal

Last October, President Obama and House Republicans teamed up to pass a NAFTA-style deal with Korea, even though the government's own projections showed it would increase the U.S. trade deficit.

That deal ended up going into effect on March 15 of of this year (despite many Koreans' opposition to the rights given multinationals under the pact, not to mention the opposition of many here at home).

We now have the first full month of data on the deal, and it's not looking good.

The deal, sold as a way to increase job-creating U.S. exports, actually saw job-displacing imports rise much more quickly in its first full month. As Inside U.S. Trade reports,

The U.S. trade deficit in goods with South Korea tripled during the first full month the U.S.-Korea free trade agreement was in force, amid a slight decrease in the overall U.S. goods and services deficit that month, according to April trade data released last week by the Commerce Department. The bilateral FTA went into effect on March 15.

The U.S. goods trade deficit with South Korea grew to $1.8 billion in April, with imports totaling roughly $5.5 billion compared to exports of $3.7 billion. That was a larger bilateral deficit than the $0.6 billion recorded in March, where imports totaled $4.8 billion and exports were $4.2 billion. In April 2011, the U.S. goods deficit with Korea was $1 billion.

On auto trade, the bilateral deficit with South Korea climbed to $1.65 billion in April from $1.45 billion the previous month. While U.S. exports of autos and auto parts stayed the same over both months at roughly $100 million, imports from Korea rose to $1.76 billion in April from $1.56 billion the previous month. The data were released June 8.

While it's difficult to draw too many conclusions from a single month of data, rest assurred that workers concerned about offshoring of jobs and trade displacement are going to be watching these numbers closely for many months and years to come. If the trade deficit (in autos and more generally) continues to climb, it will be very difficult for policymakers to sell more NAFTAs (like the proposed TPP) to an already skeptical public.

May 15, 2012

Implementation of Colombia Trade Deal a New Low for Workers and the Environment

It is oddly fitting that U.S. Trade Representative (USTR) Ron Kirk would celebrate today’s implementation of the U.S.-Colombia trade deal at the U.S. Chamber of Commerce. After all, even as the U.S. government’s own projections showed that this pact and a similar one with Korea would increase the U.S. trade deficit, both USTR and the Chamber worked overtime to misrepresent this and other likely impacts.
 
At a time when nearly four out of ten Americans are unemployed or simply not participating in the labor force, it is unconscionable to implement a trade deal with Colombia – the unionist murder capital of the world.  At a time when multinational mining and other extractive industries are displacing poor Colombians, it is unthinkable for this pact to privilege these same corporations with special rights to challenge Colombia’s social and environmental mitigation policies in supranational tribunals. The Colombian government’s own pre-pact assessment anticipated the likely consequence of this deal: rural Colombians “would have no more than three options: migration to the cities or to other countries (especially the United States), working in drug cultivation zones, or affiliating with illegal armed groups.''

The failed North American Free Trade Agreement has virtually identical rules as the Colombia pact, and we know how that worked out: increased job insecurity and more corporate attacks on public interest policies outside of national judicial systems. These rules weren’t a good idea when it came to Mexico: they’re even worse when it comes to Colombia.

In October, President Obama set a new low by pushing a controversial U.S.-Colombia trade deal that attracted the highest level of Democratic opposition to a Democratic president’s trade initiative in history. Instead, record high levels of Republican support were marshaled, only because the Tea Party-supported members of Congress flip-flopped on their campaign commitments by voting for a trade deal that undermines American jobs and sovereignty.

If the administration continues the course on the failed trade policies of the Bush-Clinton-Bush years (as it seems to be with the nine-nation Trans-Pacific Partnership), it can expect continued outrage from people across the political spectrum.

March 14, 2012

Global Trade Watch's Director Lori Wallach in The American Prospect

PACIFIC ILLUSIONS: NEW REPORT EXPOSES TRANS-PACIFIC PARTNERSHIP SHORTCOMINGS, AS OBAMA PRESSES AHEAD

 Washington, DC -- Today, President Obama will announce plans to escalate the administration's trade offensive against China. This follows the administration's pattern of taking a hard line on narrow issues, while at the same time working to finalize a much more consequential grand-bargain with the region: the Trans-Pacific Partnership (TPP). As Obama’s main trade and diplomatic thrust in the Pacific, the TPP is meant to revive the U.S. export economy and counter Chinese influence. In reality, it does neither. 

Pacific Illusions, a new special report by The American Prospect, examines why the TPP appears doomed to repeat the failures of previous free-trade agreements. 

Read Pacific Illusions online: http://bit.ly/AxMS2R

Pacific Illusions shows how the TPP fails on trade because it doesn’t address the most important issues: currency manipulation, trade with state-owned companies, investment subsidies to induce off-shoring, and the asymmetry between the mercantilist policies and practices of much of Asia and the free trade regime of the United States. 

Contributors and issues covered include:

-- Clyde Prestowitz, President of the Economic Strategy Institute, explains why the TPP will undercut the U.S. strategic position in "The Pacific Pivot."

 

-- Jeff Faux, founder of the Economic Policy Institute and now its distinguished fellow, analyzes how the deal will accelerate offshoring and drive down wages, in "The Myth of the Level Playing Field."

-- Lori Wallach, director of Public Citizen’s Global Trade Watch, argues that the provisions of the proposed deal and its secretive negotiations amount to a covert attack on regulation, in "A Stealth Attack on Democratic Governance."

-- Kevin P. Gallagher, associate professor of international relations at Boston University and senior researcher at the Global Development and Environment Institute, Tufts University describes how the damage won't be limited to the U.S., as the economies of smaller Asian countries will also take a hit, in "Not A Great Deal For Asia."

-- Merrill Goozner, senior correspondent for The Fiscal Times, takes a look at how U.S.-based solar and microchip industries will be harmed the agreement; Harold Meyerson, editor-at-large at The American Prospect, addresses the negative impact on auto and steel manufacturing. 

 

Obama Ignores Korean Request for Changes to Trade Deal; Implementation Rushed to Beat Korean April Election

Korean Party Expected to Win Warns Obama It Will Revoke Pact Absent Changes

 WASHINGTON, D.C. – The Obama administration should accept Korean demands to remove controversial private corporate protections from the Korea Free Trade Agreement (FTA), rather than rush to implement the deal ahead of the April 11 Korean parliamentary elections (which recent polls indicate will elevate a political party that has vowed to terminate the pact unless the “investor-state” enforcement system is altered), Public Citizen said today. The mid-month implementation date being pushed for the Korea FTA is extremely rare for the United States. Generally, trade pacts are implemented on the first day of a month, since tariff cut phase-ins are determined from the date a pact goes into effect.

On Dec. 27, 2011, the Korean parliament passed a resolution calling for FTA renegotiations to remove the private investor enforcement system. On Feb. 8, nearly 100 parliamentarians – mainly from the opposition Democratic United Party (DUP), which is expected to gain control of the parliament in April – wrote President Barack Obama, vowing to terminate the FTA if it is implemented without changes. Shortly thereafter, the United States Trade Representative announced that the pact would be implemented on March 15.

Tens of thousands of anti-FTA protestors are again in the streets of Korea, while Korean polling shows 70 percent opposition to the pact. The FTA is one of the defining issues of the Korean election. The ruling party reorganized under a new name after polling predicted defeat by the DUP, which has made opposition to the current FTA one of its marquee issues.

“Just how damaging this deal is to the 99 percent in both countries has been repeatedly revealed from this latest disgrace of trying to outrun the democratic accountability of Korea’s election to the White House, notably canceling a public bill-signing ceremony after the FTA was passed here,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “By rushing the implementation, the Obama administration is trying to cement in the extreme NAFTA-style corporate investor privileges that candidate Obama pledged would not be included in his trade agreements and that a large majority of Korea’s parliament also opposes.”

 NAFTA-style foreign investor privileges and their private “investor-state” enforcement are among the most controversial aspects of past U.S. trade deals. In fact, this provision is now emerging as a point of major contention in the Trans-Pacific Partnership (TPP) negotiations, where Australia has indicated it will not accept “investor-state” enforcement. The terms of “investor-state” promote job offshoring by requiring host countries to guarantee privileged treatment for foreign investors, forbidding limits on investors’ capital transfers, and providing corporations with a private enforcement of these rights. The system allows corporations to sue governments directly for cash damages in tribunals of three private-sector lawyers who alternate between serving as “judges” and bringing cases against governments for corporations, and who operate under arbitration rules of the World Bank and United Nations.

 The “investor-state” regime eliminates many costs and risks normally associated with relocating production to low-wage developing countries. It also exposes a wide range of common government policies and actions to challenge outside domestic courts. Currently, Chevron is using an “investor-state” tribunal to try to avoid paying $18 billion in environmental cleanup and punitive damages ordered after 18 years of U.S. and Ecuadorian court rulings. Philip Morris is using the system to attack Australian and Uruguayan cigarette plain packaging laws. More than $675 million has been paid by governments to corporations under U.S. pacts’ “investor-state” provisions alone, 70 percent of which has been in attacks on environmental, health and other non-trade policies.

 A greater percentage of Democrats in the U.S. House of Representatives opposed Obama on the Korea FTA’s passage (and two other trade deals passed the same day) than on any other legislation during his presidency. A higher percentage of House Democrats voted against Obama on this deal than did House Democrats against former President Bill Clinton’s North American Free Trade Agreement (NAFTA) or China’s entry into the World Trade Organization.

 The official U.S. International Trade Commission study showed that the Korea FTA is projected to increase the overall U.S. trade deficit, with seven U.S. manufacturing sectors particularly hard hit. The Economic Policy Institute used government trade balance data to project that the pact would cost 159,000 American jobs in its first seven years.

 The pact, signed before the global financial crisis, also includes limits on financial regulation. The Obama administration did not remedy this problem in 2010 when it tweaked auto trade provisions of the pact that had been signed in 2007 by then-President George W. Bush. Citigroup called the Korea FTA “the best financial services chapter negotiated in a free trade agreement to date.”

“The Korea FTA has become the major campaign issue in Korea. And given the growing focus on American manufacturing in the U.S. election, I suspect many American politicians will rue the day that they supported a deal that even the official government studies show will increase our trade deficit and slam seven U.S. manufacturing sectors,” said Wallach.

 

                                                            ###

Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org

February 09, 2012

Tucker in Extra!: The Trade Debate That Wasn’t Reported

Our own Todd Tucker has a piece on the media distortion of last year's trade debate in this month's edition of Extra!, Fairness and Accuracy in Reporting's magazine. Here’s a snippet:

++

In the 16 months leading up to the congressional vote on a set of trade deal with Korea, Colombia and Panama in mid-October, new reporting on the agreements scarcely mentioned that critics existed; when they were acknowledged, their objections were frequently mischaracterized. With media doing little to evaluate misleading claims made by the trade pacts' proponents, all three were approved by Congress by considerable margins.

There were two major points that opponents of the trio of deals – including  labor, environmental, consumer and even Tea Party groups – consistently emphasized in reports, press releases, letters and direct outreach to reporters.

First, these trade deals were modeled on the controversial North American Free Trade Agreement (NAFTA), a pact whose actual content reporters have historically paid little attention to (Extra!, 11-12/97). The combined text of the three new deals was nearly 4,000 pages; as with NAFTA, the bulk of the provisions were not related to "trade" issues per se, but rather restrict how the U.S. and the other nations might regulate their domestic economies. For instance, corporations are given new rights to challenge environmental and other regulations outside of national court systems, and demand that taxpayers compensate them for regulations' potential impact on profits.

Second, unlike earlier trade deals, even the government's own projections showed that the pacts would increase the U.S. trade deficit (Extra!, 10/11). The projections were produced by the independent U.S. International Trade Commission (ITC), which typically produces overly rosy estimates of trade deals' impacts.

But at two of the country's most prominent papers, the New York Times and the Wall Street Journal, such criticisms were almost entirely absent.

++

The full article is available by subscription.

December 07, 2011

WTO Turnaround: Food, Jobs and Sustainable Development First!

GTW will be heading to Geneva next week to join the global civil society response to the World Trade Organization's 8th Ministerial Conference. Our colleague Deborah James from Our World Is Not For Sale Network wrote this informative piece, published in Common Dreams, which explains the current complexities facing the multilateral trading system and our global call from civil society for a "WTO Turnaround".

****

WTO Turnaround: Food, Jobs and Sustainable Development First!

December 15-17, 2011, Trade Ministers will convene in Geneva, Switzerland for an 8th WTO Ministerial Meeting. After many failed Ministerial meetings and nearly ten years of negotiations, the Doha Round of WTO expansion is at a crossroads. Increasingly, developed countries have tried to push aside agreements to negotiate on key developing country issues intended to correct the imbalances within the existing WTO, which formed the basis of the development mandate of Doha. Instead, rich-country governments appear to be re-packaging the old liberalization and market access demands of their corporate interests as so-called “21st century” issues. This Ministerial will determine the future path of WTO negotiations, and the global Our World Is Not for Sale (OWINFS) network is calling for a fundamental transformation.

November 30 marked the 12th anniversary of the massive protests against the World Trade Organization (WTO) in Seattle, Washington, which succeeded in preventing the launch of the so-called “Millennium Round” of WTO expansion negotiations. Developing countries, led by African ministers and buoyed by massive street protests, opposed the launching of a new round of liberalization, focusing instead on their demands to fix the problems left over from the last round. Two years later, after receiving promises from rich countries that the next round would focus on development, these same countries acquiesced to a new “Doha Round.”

Throughout the last ten years, negotiations have collapsed several times, but have always been re-started. Unfortunately, the development mandate has been all but abandoned, with negotiations shifting to focus on the desires of corporations in rich countries, in services, agriculture, and manufactured goods, to achieve greater access to markets in developing countries. Nevertheless, they came perilously close to concluding in the summer of 2008. Since then, the emergence of the economic crises has resulted in a global re-think of the neoliberal economic model by citizens around the world, with resulting domestic pressure against governments to further entrench such a calamitous economic paradigm.

our world is not for sale 2photo: RonnieHall

In many countries – such as Brazil, India, South Africa, and China – leaders are no longer willing to roll over to U.S. and EU demands, as their geopolitical power has grown along with their economies. A key demand of the United States, roiling under the surface of the negotiations, is that these countries should no longer be treated as developing countries – although they have far more poor people than all of the Least Developed Countries (LDCs) combined. The Obama administration decided that since it could not get much of a stimulus package through the Republican-controlled House, the U.S. would focus on increasing exports to these “emerging markets” as a way to boost U.S. economic recovery. But since many of these countries did enact stimulus programs adequate to the size of their economies, and were thus faster on the road to recovery after the crisis than the United States, they are understandably reluctant to bail out the U.S. economy at the expense of their own jobs and development potential. (Unfortunately, past experience with WTO and bilateral trade agreements demonstrates that they are net job losers, thus exposing the jobs claim as a cover-up for pushing the trade agenda of corporate donors.)

Continue reading "WTO Turnaround: Food, Jobs and Sustainable Development First!" »

November 30, 2011

Now They Tell Us: Korea FTA Auto Tweaks Were Useless

In the run-up to the congressional vote on the Korea FTA, the Obama administration claimed that its small tweaks to the Korea FTA's auto provisions would lead to greater exports of U.S. autos to Korea. The relaxation of Korean environmental and safety standards for imported U.S. vehicles was supposed to soften the blow of the clobbering that U.S. automakers would suffer when U.S. tariffs on Korea vehicles were lifted under the FTA. Trusting this claim, Congress passed the Korea FTA last month. Now Bloomberg is reporting that the tweaked auto provisions were all for naught:

When Back Seung Chul bought a new car in Seoul, he didn’t even look at imported models from General Motors Co. (GM), Chrysler Group LLC and Ford Motor Co....

Back’s decision -- he bought a Sportage R sports utility vehicle from Hyundai (005380) affiliate Kia Motors Corp. -- suggests that a new U.S.-Korea trade deal won’t mean a leap in sales in the Asian country for U.S. automakers, which accounted for just 1.1 percent of the market last year. The agreement, likely to take effect Jan. 1 after it was signed by President Lee Myung Bak in Seoul today, calls for the phasing out of South Korea tariffs on U.S. vehicles.

“It is highly unlikely American cars will do well in the Korean auto market,” said Kang Sang Min, a Hanwha Securities Co. analyst in Seoul. “Local automakers like Hyundai and Kia can make good cars and offer quick, convenient service.”

The article also discusses the widespread preference for fuel-efficient vehicles in Korea, since Koreans must buy gasoline at double the price of U.S. consumers. Somewhat ironically, the Obama administration's efforts to have Korea relax its fuel efficiency standards for imported U.S. vehicles will only solidify the negative perceptions of U.S. vehicles in Korea.

In sum, Koreans' preference for domestic vehicles over U.S. vehicles - not safety regulations - is the reason that sales of U.S. vehicles have lagged. We warned about this in our comments to the U.S. International Trade Commission (USITC) about the methodology that they would use to predict the impact of the FTA upon the U.S. auto sector. Even though the USITC did not adopt the modifications to their methodology that we recommended, its report still predicted that the annual U.S. auto trade deficit would rise by hundreds of millions of dollars under the Korea FTA. Although Bloomberg's reporting on this issue can be viewed as better late than never, it is certainly too late for the thousands of U.S. auto workers who will likely lose their jobs from the Korea FTA.

November 28, 2011

Election 2012: the Candidates on Trade

(Disclaimer: Public Citizen has no preference among candidates for office.)

Candidatestrade

With the budget and other scandals dominating political discourse, little space has remained for discussion of trade policy among possible presidential candidates.

To fill this void we decided to examine exactly where the politicians fall on key trade issues:


Bachmann

Although foreign policy hasn’t always been her strong suit, Rep. Michele Bachmann (R-Minn.) is pretty confident about her views on trade. Bachmann interrupted her presidential campaign and broke a streak of 88 absences to cast a vote in favor of the free trade deals with Korea, Colombia and Panama. In a press release she writes that these deals will “spur economic growth… without cost to taxpayers.” Notably, the representative voted against Trade Adjustment Assistance, which would provide support for workers displaced by the deals. Bachmann also voted against Fast Track cancellation in 2008 and in favor of the Peru trade deal in 2007.

In a blog post urging lawmakers to pass the Korea, Colombia and Panama trade deals, Bachmann writes that the “role of free trade as an expression of liberty….signifies the very principles our country was founded upon.” Unfortunately, these trade deals were negotiated under Fast Track, leaving Congress no authority to amend the agreements. (The constitution, or the document our country was actually founded upon, outlines a system of checks and balances granting Congress the power to “regulate commerce with foreign nations”).


Paul
A self-proclaimed proponent of free trade in its most pure form, Rep. Ron Paul (R-Tex.) opposes NAFTA-style trade deals because they erode U.S. sovereignty and are unconstitutional. He has voted against almost every trade deal that has surfaced during his tenure in office, including Peru, Oman, Bahrain, CAFTA, Australia, Singapore and Chile. Paul has also been an advocate of withdrawing from the World Trade Organization.

Continue reading "Election 2012: the Candidates on Trade" »

November 11, 2011

Japan Forces Down Value of Yen, Raising Concerns on Trans-Pacific FTA

Last week the Japanese central bank undertook the single largest intervention in its currency market since at least 1991 when it bought about $100 billion in U.S. dollars. The intervention was designed to push down the value of the yen, and it worked: the value of the yen fell five percent against the dollar, the largest single-day drop since the depths of the financial crisis in October 2008.

Even in ordinary times, this intervention would concern U.S. policy makers, as it will likely boost the U.S. trade deficit with Japan as Japanese imports become cheaper and U.S. exports to Japan rise in price. But now in particular it should give pause to policymakers since Japan has expressed interest in joining the Trans-Pacific Free Trade Agreement (FTA) talks. U.S. trade negotiators will be meeting with their counterparts from other countries to discuss the Trans-Pacific FTA during the Asia-Pacific Economic Cooperation summit this weekend in Honolulu, and Japan's interest in joining is sure to come up. As of yet, there is no sign that the Trans-Pacific FTA will discipline currency manipulation, so the U.S. could end up signing a trade deal with a country that is willing to massively intervene in the currency market, leaving U.S. businesses and workers vulnerable to artificially cheap imports.

Japan has a long history of intervening in its currency market for trade advantage. According to the Congressional Research Service, Japan has intervened heavily in its currency market to hold down the value of the yen in the periods 1976-1978, 1985-1988, 1992-1996, and 1998-2004. During the last period of heavy intervention, stretching from 1998 to 2004, the Japanese yen was undervalued by about 20 percent, or about 600 percent greater than the average U.S. normal trade relations tariff of 3 percent. To put this into perspective, GM estimated that the undervaluation of the yen amounted to a subsidy on Japanese autos sold in the U.S. of about $3,000 per vehicle in 2003. This virtual exchange rate subsidy likely hurt sales of U.S.-made vehicles in the United States and cost jobs.

The latest estimates of the equilibrium yen exchange rate suggest that the yen is undervalued against the dollar by about 10 percent, contributing to the $60 billion U.S. trade deficit with Japan. And those estimates were developed before Japan initiated its latest round of currency intervention. Will U.S. policymakers blindly sign a trade deal with a country that manages its exchange rate for trade advantage, like they did with Korea? Or will they steer the Trans-Pacific FTA negotiations toward the 21st-century fair trade model that the Obama administration has promised?

November 10, 2011

Sherrod Brown Tosses the Panama FTA

Well, not quite. But, man, that FTA text does look pretty heavy, and like it could put a hurtin' on some of the senators in the room that are against fair trade.

But here's a floor speech from fair trade champion Sen. Sherrod Brown (D-Ohio) on the night the Senate voted on the Panama, Korea and Colombia trade deals. It's about 30 minutes, and a very eloquent description of why these trade deals are no longer primarily about "trade," but about how we regulate our domestic economy. Brown's TRADE Act would go a long way to getting "trade" policy right.

November 04, 2011

Benefits from WTO Doha Round are a MIRAGE

As the next WTO ministerial meeting in December approaches, the debate over the economic effects of the Doha round proposals is heating up again, for the umpteenth time. (For previous rounds of handwringing and number-crunching, see here and here.) On Monday, CEPII-CIREM, a French think tank, published the results of a modeling exercise using the MIRAGE model that attempted to measure the global effects of the implementation of various Doha proposals. The EU, which commissioned this study, somehow convinced Reuters to publish their sunny spin on the results.

Here’s the short of the CEPII-CIREM study. Even under optimistic scenarios, many developing countries will be worse off because of the Doha Round, which (on average) would bring annual income growth of only a dollar to each of us.

Discouraging results from latest round of modeling of Doha Round impact

The main result of the study is that the Doha proposals on goods and services liberalization and "trade facilitation" will only lead to an increase in global GDP of about two tenths of one percent - $152 billion - by 2025.  (The press release of the EU Trade press office bizarrely focuses on the expected rise in trade flows, as if the movement of goods across borders with the associated environmental costs is beneficial in itself.)

Even assuming the study's predictions would come to pass, $152 billion is a paltry sum for a policy project that has soaked up so much energy.  It amounts to an average annual growth in global GDP of about $11 billion per year over the 14-year implementation period. Considering the Doha Round was launched in 2001, we should really amortize the $152 billion over a 24 year period, bringing the gain down to growth of $6.3 billion a year. Divide that by every person on the planet, and it’s not quite a dollar per year. So, you can get the Doha Round and risk losing your job or you can get a Coke. Your choice.

Compare this “gain” to what we could harvest from investing our policy energy elsewhere. The Global Financial Integrity Project of the Center for International Policy, for instance, estimates that global illicit outflows of money from developing countries due to corruption, tax haven activity, and other illegal activities amounted to $1.26 trillion in 2008. That's over ten times the global economic growth that CEPII-CIREM expects from the Doha round. In other words, taking strong action on tax haven abuse and corruption would yield much greater economic gains.

The small size of the overall impact is not the only concerning part of the results. The topline number on the supposed boost to global GDP does not delve into the distribution of these gains among countries or within countries. According to the study, the Doha proposals on goods and services liberalization will actually cause the economies of Sub-Saharan Africa, Mexico, and the Caribbean to shrink.  Both skilled and unskilled workers in Mexico will see their wages fall under all "core" scenarios - goods and services liberalization and trade facilitation measures. Workers - either skilled or unskilled - in Brazil, the Caribbean, North Africa, Sub-Saharan Africa, Paraguay, and Uruguay will experience falling wages under some scenarios.

Doha Round vs. 6 hours of stimulus spending, and more!

Some other discouraging results:

Continue reading "Benefits from WTO Doha Round are a MIRAGE" »

October 31, 2011

Wallach and Tucker in American Prospect: Parties realign on flawed trade deals

Our own Lori Wallach and Todd Tucker have a piece in the American Prospect today. Here’s a snippet:

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American Prospect logoAs he gears up for a difficult re-election campaign, President Obama risks losing key swing states that he won in 2008 because of a recent flip-flop on trade commitments…
 
Even the government’s own study, produced by the U.S. International Trade Commission (ITC), showed that these pacts would increase U.S. imports by more than exports…
 
Instead of probing such matters, most mainstream press reports over the entire four-plus year debate simply parroted corporate and Obama-administration talking points.

The missed political storyline, too, was equally astounding. Two-thirds of Democratic House members opposed Obama on the Korea pact and 82 percent who opposed him on the Colombia pact. It's his biggest split with House Democrats thus far. The number who voted against the deal is even greater than the percentage of House Dems who opposed the Patriot Act (63 percent) or the war-funding bills (56 percent). And of course, Obama got nothing in return for the capitulation: Republicans advanced the trade pacts while blocking his second stimulus package. So much for negotiation.

It took Bill Clinton nearly eight years of NAFTA job losses, sellouts, and scandals to have about two-thirds of the House Democrats vote against China’s entry into the World Trade Organization in 2000. Obama managed to meet and beat that record with his first trade votes. The percentage of Democratic House votes against these deals even surpassed Democrats’ average level of opposition to Republican presidents’ trade initiatives.

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Click here for the full article.

October 12, 2011

Job-Killing Trade Deals Pass Congress Amidst Record Democratic Opposition

Obama and Tea Party Flip Flop on Fair Trade Campaign Commitments

Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch

With nine percent unemployment and Americans desperate for job creation, it is unconscionable that President Obama and House Republicans would push through a trio of NAFTA-style job-killing trade agreements that even the government’s own studies show will increase the U.S. trade deficit.

This represents a complete flip-flop for President Obama, who won crucial swing states by pledging to overhaul our flawed trade policies. So it is no surprise that a sizeable majority of Democrats in Congress voted against these agreements, against Obama and for American jobs.

Today a larger share of House Democrats voted against a Democratic president on trade than ever before. It took Bill Clinton nearly eight years of NAFTA job losses, sell outs and scandals to have nearly two-thirds of the House Democrats vote against him on trade.

Given the strong Democratic opposition, ultimately it was the Tea Party GOP freshmen who passed these job-killing deals despite their campaign commitments at home to stand up for Main Street businesses, against more job offshoring and for Buy American requirements. The three pacts explicitly ban Buy America procurement policies. The Korea FTA is projected to increase the trade deficit, with seven U.S. industrial sectors hardest hit and job losses of 159,000 in its first seven years.

Members of Congress that voted for these job-killing agreements – backed by Wall Street and America’s most notorious job-offshoring corporations and harmful to American workers, small business and consumers – will face a reckoning as the damage of these pacts hits home. We promise to closely track and publicize every development.

Everyone is asking what the Obama administration could have been thinking to push the sorts of NAFTA-style trade deals that polls show majorities of Democrats, Independents and even GOP voters oppose as job killers, especially after the lesson of the 1993 NAFTA vote, when a Democratic president’s blurring of the distinctions between the parties on trade and jobs caused a disgruntled base to stay home. 

Every election cycle, more Democrats and GOP are campaigning against these sorts of NAFTA-style trade pacts. Given this and the high unemployment rate, it will be very rough for those officials who then betrayed folks at home and voted for these deals loved only by Wall Street and job-offshoring corporations.

Record of Congressional Democratic Opposition to Democratic Presidents on Trade Pacts

- 82.3% of House Democrats opposed the Colombia FTA (158 Democrats against, 31 for)

- 67.7% of House Democrats opposed the Korea FTA  (130 Democrats against, 59 for)

- 64.1% of House Democrats opposed the Panama FTA (123 Democrats against, 66 for)

- 60.6% of Democrats opposed NAFTA (1993)

- 35% opposed the WTO (1994)

- 65.56% opposed China PNTR (2000)

 

Record of Congressional Democratic Opposition to GOP Presidents on Trade Pacts

- 62.6% opposed the Chile FTA (2003)

- 62.14% opposed the Singapore FTA (2003)

- 41.3% opposed the Australia FTA (2004)

- 39.32% opposed the Morocco FTA (2004)

- 92.6% opposed the Central America Free Trade Agreement (2005)

- 40.4% opposed the Bahrain FTA (2005)

- 87.6% opposed the Oman FTA (2006)

- slightly more than half opposed the Peru FTA (2007)

October 11, 2011

Obama Shifts Away From Jobs Message to Promote Bush-Signed Trade Pacts Projected by Official Government Studies to Increase Trade Deficit

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

It is bizarre that President Barack Obama has switched from his long-awaited focus on jobs to spending effort passing three George W. Bush-signed, NAFTA-style trade deals that official government studies show will increase our trade deficit even as polls show most Americans oppose NAFTA-style trade pacts and recognize that they kill American jobs.

The only way these deals will pass is if congressional GOP lawmakers expose themselves to the foreseeable election attack ads and provide President Obama almost all of the votes; most congressional Democrats will oppose these deals, which are loved by the U.S. Chamber of Commerce and despised by the Democratic base groups.

Apparently, the Obama team has a way to win re-election that does not involve Ohio or other industrial swing states. We saw with NAFTA in 1993 the dire political consequences of a Democratic president blurring distinctions between the parties on this third-rail issue of trade and jobs. And unlike NAFTA, this time, even official government studies show that these pacts will increase our trade deficit.

Trade disaster: Congress votes tomorrow

A message from Lori Wallach, Director of Public Citizen's Global Trade Watch

You don't hear from me often. Over the past year, I have spend most of my time on Capitol Hill, meeting with members of Congress, educating them about our current flawed trade policy and how we can create a trade model that works.

I have been working to get a majority on Congress to say NO to the three devastating NAFTA-style trade deals signed by Pres. Bush that now Pres. Obama is trying to ram through Congress.

But today, I urgently need a favor from you. It will take about five minutes. Congress will vote on these job-killing, unsafe-import-flooding deals on Wednesday. I need you to pick up the phone and call 1-800-718-1008 right now to stop the three unfair trade deals with Korea, Colombia, and Panama.

Take 5 minutes to save jobs. Dial 1-800-718-1008 and tell your Representative to vote NO on all three flawed trade deals.

Here’s why:

  • The Korea trade deal is the largest offshoring deal of its kind since NAFTA. If approved, the deal will displace 159,000 American jobs in the first seven years. Even the official U.S. government study on the Korea pact says that it would increase our trade deficit, and it hits the "jobs of the future” sectors hardest – solar, high speed trains, computers. [Learn more]
  • We should have never even discussed a new trade deal with Colombia, the world capital for violence against workers. More unionists are assassinated every year than in the rest of the world combined. In 2010, 51 trade unionists were assassinated. Do you think we would consider a trade deal with a county where 51 CEOS were murdered? So far in 2011, another 22 have been killed, despite Colombia’s heralded new "Labor Action Plan.” [Learn more]
  • The Panama agreement has many of the same problems as the other two deals -- undercutting the reregulation of the big banks and speculators who destroyed our economy and empowering foreign investors to attack U.S. health, safety, labor and environmental laws before foreign tribunals. But, Panama is also one of the world’s largest tax havens. There, rich U.S. individuals and over 400,000 corporations take advantage of the offshore financial center, many dodging paying the taxes our communities desperately need. This FTA would undercut our current tools to fight tax dodging and money laundering. [Learn more]

Stop the trade deals that replicate the failed policies of the past. Call your Representative today.

Behind the scenes and throughout the country, our team has done everything we can do to try and get through to the leaders in Congress to stop these trade agreements. But it looks like many of our leaders in Washington—both Democrats and Republicans—are siding with corporate lobbyists instead of learning from the experience of working Americans.

YOU know the reality of these trade deals better than corporate lobbyists—and Congress needs to listen to you.

Please call 1-800-718-1008 right now.

Speak out with millions of Americans against the job-killing trade deals that only reward fat cats, off-shore our jobs and undermine our environmental and financial stability safeguards.

September 09, 2011

At least 18,600 jobs offshored by corporations signing pass-the-FTAs ad

As part of the corporate ad campaign to push congressional passage of the NAFTA-style trade deals with Korea, Colombia, and Panama, the heads of 32 corporations placed an "open letter" in yesterday's National Journal Daily (subscription only). Thing is, many of these very corporations are certified by the U.S. government as having offshored thousands of jobs under past U.S. trade agreements. That's right, the advertisement claiming that these Bush-era FTAs are needed to create U.S. jobs is sponsored by many chronic trade-agreement offshorers of, um, U.S. jobs.

Moreover, while these CEOs claimed that these deals would create U.S. jobs, the government’s own official studies predict an increase in the U.S. trade deficit from the deals. And, an independent economist projected the net loss of hundreds of thousands of jobs from the pacts. The historical record of similar trade agreements is that the United States has slower export growth to countries we have NAFTA-style deals with than with other countries.

In reality, it's likely that these corporations are licking their chops waiting for the offshoring opportunities that will come with another batch of unfair trade deals. Thanks to the Department of Labor's Trade Adjustment Assistance (TAA) data on workers laid off due to imports and offshoring, we can see how these corporations have taken advantage of past unfair trade deals to ship jobs overseas. (And, given it provides a list of corporate offshorers, we can also see why the Republicans in Congress are keen to kill off this program that provides training and extended unemployment benefits to workers whose are certified as casualties of trade pacts, offshoring, and rising imports.)

We have a searchable form of the TAA database on our website. There you can see that some of these 32 corporations have shipped a combined 18,600 American jobs overseas since 2001. Consider that an example rather than a full accounting of the damage, as TAA is a narrow program that excludes many workers who may well have lost their jobs to trade pacts and imports but who do not meet the program's criteria. If a broader range of trade-related job loss is utilized, the Department of Labor reports over 35,000 workers who have lost their jobs at these companies due to trade since 2001.

Just to pick out a few examples, Whirlpool took advantage of NAFTA and shipped over 1,000 jobs at their Fort Smith, Arkansas facility to Mexico in 2008. Caterpillar, a major backer of the proposed trade pact with Colombia, laid off 338 workers at its Mapleton, Illinois facility when it shifted their work to Mexico. And it looks like Texas Instruments was getting a head-start on the offshoring possibilities offered by the Korea trade deal when it shipped 149 jobs at its Attleboro, Massachusetts facility to South Korea, Mexico, and China in 2005. It just so happens that electronics is going to be the hardest-hit sector in terms of the ballooning deficit from the Korea pact, so the remaining Texas Instruments workers in the United States should be wary.

This ad came the day of Obama's big jobs speech, and it turned out that he slipped in one definitely anti-jobs pitch, advocating for the passage of the Korea, Colombia, and Panama pacts. (Although this time, unlike in the State of the Union address, he did not make the dubious "70,000 jobs supported" claim.) If this isn't bad enough, Larry Summers, Obama's former director National Economic Council, last month argued that "We should not oppose offshoring or outsourcing."

After the jump is a list of the incidents of offshoring at the corporations that signed the letter pushing the three trade pacts:

(UPDATED 9/12/11)

Continue reading "At least 18,600 jobs offshored by corporations signing pass-the-FTAs ad" »

September 07, 2011

Lori Wallach on HuffPo: "Trade Pacts Obama's Flacking in Jobs Plan Would Increase Trade Deficit Say Government Studies"

Check out Lori Wallach's latest piece on the Huffington Post.

 

HuffPo logo

Trade Pacts Obama's Flacking in Jobs Plan Would Increase Trade Deficit Say Government Studies

Everyone expects Obama's imminent jobs plan and related speeches to include a pitch to pass Bush's leftover Free Trade Agreements (FTA) with Korea, Colombia and Panama. ... Problem is, whatever one thinks about the idea of "free trade," the federal government's own studies predict that these three deals would increase the U.S. trade deficit. Higher deficits mean more jobs will be displaced by imports than are created by exports. This was a critical factoid largely missed by reporters covering Obama's speeches after the debt ceiling deal -- with many stories simply repeating Obama's claim that these FTAs were vote-ready job-creators for Congress to take up ASAP."

Read the entire piece at the Huffington Post to find out what you need to know about the trade aspects of Obama's jobs plan.

August 22, 2011

U.S. Trade Representative's New Jobs Strategy

Last week, amid mounting signs that the job market may be deteriorating further, Tim Robertson, Director of the California Fair Trade Coalition, interviewed U.S. Trade Representative (USTR) Ron Kirk about the implications of the Korea, Colombia, and Panama trade deals. In the course of the interview, Kirk seemed to suggest that the Obama administration's trade policy encouraged shrinking the number of jobs in the United States. According to Kirk, our massive trade deficit is inconsequential since the imports constitute goods that "we don't want to make in America." He explains:

Let's increase our competitiveness... the reality is about half of our imports, our trade deficit is because of how much oil [we import], so you take that out of the equation, you look at what percentage of it are things that frankly, we don't want to make in America, you know, cheaper products, low-skill jobs that frankly college kids that are graduating from, you know, UC Cal and Hastings [don't want], but what we do want is to capture those next generation jobs and build on our investments in our young people, our education infrastructure. Our advanced services like [at the architecture firm where we met], there's no reason in the world ... why would we not want to capture the economic benefit of that here in America? I mean, I would argue that that is exactly the reason that we're doing it.

With the unemployment rate at nine percent, it's hard to fathom a government official saying that the United States should pass up jobs, even if those jobs don't require a degree. Shoes are arguably some of the "cheaper products" that Kirk references. The Washington Post recently ran a piece about New Balance's shoe plant in Maine where the workers are glad to be keeping their jobs, contrary to Kirk's assertion that we don't want to make them anymore:

“We want to fight really hard to keep this business in Maine,” said Lori Cook, 28, a single mom with two kids. “I’d like to keep my job.”

The Korea trade deal, projected to result in the loss of 159,000 U.S. jobs, will not just displace workers in the apparel industry, however. The Korea FTA will increase the U.S. deficit in cutting-edge industries, including electronics and motor vehicles, costing us even the "next generation" jobs that Kirk extolls. The Korea, Colombia, and Panama trade deals clearly endanger President Obama's job creation agenda, and USTR Ron Kirk should go back to the drawing board to formulate a trade policy that creates jobs instead of one that eliminates them.

August 12, 2011

Brookings FTA Paper Falls Short on the Facts

Last month, the Brookings Institution published a policy brief advocating for the passage of the Korea, Colombia and Panama trade deals (or FTAs). The policy brief contains little in the way of new research, but it certainly quotes existing research in a selective way.

Like the Obama administration, the policy brief incorrectly cites the U.S. International Trade Commission's (USITC) predictions for the change in exports to Colombia under the Colombia FTA as the increase in U.S. exports ($1,060 million), rather that prediction for the change in total U.S. exports under the FTA ($654 million). Moreover, the brief does not discuss the jobs implications of the fact that U.S. imports will increase more than exports under the Korea and Colombia trade deals. Since imports will increase more than exports, net job losses will likely result.

By now, this export mistake is familiar. What is new in the Brookings policy brief is it emphasizes the USITC's predicted change in nominal GDP under the FTAs. The policy brief says that the USITC predicts the Korea FTA will boost U.S. GDP by up to $12 billion and the Colombia FTA will boost GDP by $2.5 billion. (The USITC did not give a GDP estimate for the Panama FTA since the model that they used for that study could not estimate GDP changes.)

In reality, the numbers that the policy brief quotes are actually the USITC's estimates for changes in nominal GDP, i.e. changes in GDP that take into account price changes due to the FTAs. Basically, this is the number that is not adjusted for the inflation that occurs within the model. In a footnote to its $12 billion GDP estimate for the Korea deal, the USITC explains:

GDP here is defined as nominal GDP, which takes into account both the price and quantity changes of its components. Welfare, on the other hand, summarizes the real (i.e., exclusive of price effects) value of present and deferred consumption....Increases in the prices of consumption or investment will lead to an increase in GDP, but not in welfare.

In plain English, this means that the $12 billion figure cited in the policy brief is not the change in the quantity of goods and services produced by the U.S. economy. Rather, a separate measure called welfare represents this change in the real value of the economy that actually matters to businesses. Browsing through the tables (specifically, Table 2.1) in the report reveals that the USITC's estimate of the real increase in GDP under the Korea FTA is only $1.8-2.1 billion. Real GDP under the Colombia FTA is expected to increase by $419 million.

So, the predicted increase in GDP is smaller than claimed, but there's still an increase, and therefore we benefit, right? The truth is that the small predicted real GDP gains under the FTAs will not be enjoyed equally by everyone. The big economic issue with FTAs is that some of them may boost overall GDP slightly, but the gains go almost exclusively to corporations and those Americans who already have a lot of wealth. Meanwhile, the adjustment costs fall upon the middle and working classes, leading to net losses for them. Incidentally, the USITC's model simply assumes that adjustment costs don't exist. This distributional issue in trade policy is critical. Josh Bivens at EPI estimates that trade flows have increased income inequality in the U.S. by 7 percent, costing an average household $2,000 per year.

The policy brief also repeatedly claims that the U.S. is losing market share in Asia to its competitors. It argues that the Korea FTA will reverse this "trend."  This claim has scant evidence to back it up. As we pointed out in our latest Trade-ifact, U.S. exports to the Pacific region have grown 35 percent since 2005, while overall U.S. exports to the world have grown at a slower rate, 25 percent, over the same period.  And without FTAs the United States continues to edge out competitors, increasing its market share in most of the major Asian economies since 2005, including South Korea.

In a claim about the "benefits" of the Colombia FTA, the authors of the policy brief seem uninformed about the realities of Colombia’s rural economy. They write, "[The Colombia FTA] supports U.S. goals of helping Colombia reduce cocaine production by creating alternative economic opportunities for farmers." However, the Colombian Ministry of Agriculture and Rural Affairs conducted a study of the effects of an FTA with the U.S. upon nine primary agricultural products and found that full liberalization would lead to a 35 percent decrease in employment in those sectors (see pages 162-163 of the study). The study said that with an FTA without agricultural protections, rural Colombians “would have no more than three options: migration to the cities or to other countries (especially the United States), working in drug cultivation zones, or affiliating with illegal armed groups” (pg. 180). Thus, contrary to the claims of the policy brief, all evidence indicates that the FTA would reduce agricultural opportunities for farmers, possibly increasing cocaine production.

August 08, 2011

Unlike Budget Debate, Basic Math Error on Trade Continues to Go Unchallenged

The Obama administration spent much energy over the weekend attempting to discredit Standard & Poor’s credit rating agency’s downgrade of U.S. debt, which they said was based on a “basic math error of significant consequence.”

In sum, the administration argued that S&P applied the Budget Control Act’s deficit reduction dollar amount of $2.1 trillion to a non-inflation adjusted baseline scenario, when that number was derived from a scenario where discretionary spending levels grew with nominal GDP. In 2021, government debt as a share of GDP would be 93 percent under S&P’s original methodology, while it would be 85 percent under what Treasury maintains is the correct methodology. This claim of an error has been all over the press for days.

It would sure be nice if the Treasury and press got as worked up about basic math errors that the White House itself is making on the three pending trade deals with Korea, Colombia and Panama.

The administration maintains that the Korea deal will boost U.S. exports by $11 billion, when in fact the administration’s own numbers within the U.S. International Trade Commission study show that the deal will lead to a decline in net exports of about $416 million. The S&P’s debt number overstated the debt by about nine percent, but the administration’s claim of exports under the Korea deal overstates the magnitude of the change in the trade balance by 25,000 percent, in addition to getting the direction of the change wrong. If, as the Treasury Department says, the S&P debt error was “of significant consequence,” the administration’s trade-deal export claims must qualify as a misstatement of colossal consequence.

Similarly, the administration says that U.S. exports will increase by $1 billion under the Colombia deal, when the administration’s own numbers show that net exports will take a $66 million hit under the deal. (No estimates have been provided for the U.S.-Panama deal.)

Why these discrepancies? In its public statements, the administration is selectively looking only at one side of the ledger, extracting a number for bilateral exports, while not accounting for the overall change (the change in exports minus imports under the deal). In budget economics, this would be akin to looking only at what the government is taking in as revenue, without looking at what the government is spending. If the government simply assumed away any government spending, I’m betting that the press would call them on this “basic math error of significant consequence.”

The administration is also selectively looking at just the change in U.S. exports to Korea and Colombia under the pacts. But as the administration’s own reports show, these deals will also induce changes in trade patterns with other countries. At the end of the day, the U.S. is projected to be importing more than it is exporting as a result of these deals.

It is newsworthy that the administration’s own reports (produced by the USITC) conclude that net exports will decline under the deal, especially since their primary public rationale for the deals is that exports will increase. These USITC reports in the past have tended to be wildly optimistic, such as underestimating the increase in the U.S.-China trade deficit after China entered the World Trade Organization by $166 billion. But, the reports have nonetheless always concluded that, even if bilateral deficits increase, the global U.S. balance will improve. That is, until the reports on the three pending deals, and the deal with Peru (negotiations on all four were concluded in 2007), predicted a worsening of the overall balance.

This fact was even trumpeted by no less of a champion of NAFTA-style deals than Sen. Chuck Grassley (R-Iowa), who said that the total net export number is the “the one number that is of significance to our economic health.” (See full quote below, after the jump.)

It is unclear why the press continues to report as fact (or unchallenged assertion) the claim that the pending trade pacts will create jobs. These claims rely on using the wrong trade numbers from the government’s own study. Unlike many complex economic debates, all these numbers are publicly available, very straightforward and involve reading no more than two pages in two reports to simply verify the administration’s claims (pages 2-14 and 2-15 of the Korea report and pages G-12 and G-13 of the Colombia report). Moreover, the administration’s basic math error has been known for over nine months, and communicated to reporters and their editors repeatedly over that time (see “Survey of Studies on Potential Economic Effects of the Korea FTA Show Rising Deficits and Job Losses”,  “Survey of Studies on Potential U.S. Economic Effects of Korea Trade Deal Shows Rising Deficits and Job Losses, 2010 ‘Supplemental Deal’ Does Not Alter These Outcomes”, “Guide to the the State of the Union on Jobs, Exports”, “Previewing Ways and Means Chair Camp’s Request for USITC Analysis of the December 2010 Korea FTA Supplemental Auto Deal”, “The Korea FTA is Lose-Lose for the U.S. and Korea: The Facts”, “Here’s an Impediment to Job Creation That Ways and Means Hearing Should Discuss: Korea Trade Deal Is Projected to Increase the Overall U.S. Trade Deficit”.

Reporters can and should quote advocates of these trade deals, and explore their reasoning for wanting Congress to pass them. But, to the extent that job and export claims are based on the administration’s basic math errors, this needs to be pointed out in reporting.

(For what it’s worth, there is also no historical support for the notion that NAFTA-style deals increase exports in relative terms. This would also cast doubts on the administration’s stated rationale for pushing the agreements. However, one would not even have to examine the record to report that the administration is misrepresenting its own research.)

Continue reading "Unlike Budget Debate, Basic Math Error on Trade Continues to Go Unchallenged" »

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