Europe Admits Speculation Taxes a WTO Problem

Earlier this month, the European Commission (EC) released a Staff Working Document that admits that the commitments that Europe made under the World Trade Organization's (WTO) General Agreement on Trade in Services (GATS) can hinder the Europe's ability to impose financial transaction taxes (FTT). (These taxes can help deter speculative activity that undermines the real economy and jobs.)

Here's what they said:

"the compatibility of such a levy with Article XI of the General Agreement on Trade in Services (GATS), which provides that WTO Members cannot apply any restrictions on international transfer and payments for current transactions relating to their specific commitments, would have to be further assessed. As the EU has taken specific commitments relating to financial transactions, including lending, deposits, securities and derivatives trading and these commitments relate to transactions with third countries, a currency transactions tax could constitute a breach of the EU's GATS obligations."

As I blogged about last month, countries are increasingly raising questions about the GATS / regulation conflict at various WTO meetings. But the WTO Secretariat, in its most recent study of the matter, refused to state that financial transaction taxes, policies aimed at limiting bank size, or many other sound prudential regulations would be protected from WTO challenge. In fact, they confirmed many of the worst fears of WTO critics.

But to my knowledge, the EC document marks the first time since the financial crisis that a government entity has been so explicit about the potential for GATS to conflict with sound financial regulation. That's why the EC study, which also admits that transaction taxes could run afoul of various internal European treaties and directives, is such a big deal.

And just days after the EC study was released, a report by Kevin Gallagher supported by the United Nations trade group (UNCTAD) was also published that examined the GATS conflict with other types of "capital management techniques." As that study concluded:

While the WTO’s financial services provisions remain untested in formal dispute settlement, they nonetheless represent the world’s only multilateral body with enforcement capacity to discipline capital controls, on terms that provide less policy space than the IMF Articles of Agreement. Capital controls may be disciplined under the WTO for approximately 50 of the WTO members.

What's the answer to the potential for GATS conflict with FTTs and other speculation taxes?

It's certainly not to bow to the WTO chilling effect, but instead to push for changes to the WTO.

No Labor Rights Protections Harm Exports, Too

Representative Sander Levin, Chairperson of the House Ways and Mean Committee, last week gave a speech at the National Press Club where he discussed the problems with the Colombia FTA, among other things.  As is well documented, the lack of strong labor rights protections in trade agreements promotes the export of dirt cheap goods (made with dirt cheap labor) to the U.S. from our FTA partners, which suppresses wages and destroys jobs in the United States.  Rep. Levin, though, examined a less-discussed consequence of weak worker protections:  low wages hurt the U.S. on the export side of the equation, too, since workers in our FTA partner countries are not paid enough to purchase U.S.-made goods, so our exports suffer.

At the National Press Club, Levin said:

I want to say a word about Colombia….With Colombia and this was the battle we had over CAFTA. Latin American countries in too many cases, essentially, have these deep disparities in terms of income and opportunity. You can't grow middle classes under those circumstances. Middle classes are the ones who buy our goods basically.

So there's a basic point in worker rights and environmental issues, worker rights, it's not because anybody is standing up for any particular interest group in this country. We're standing up for our businesses and workers and for the workers in other countries who need to be part of the mix in order to buy our goods….

I went onto Colombia myself as I did when I went to China myself, went to the CAFTA countries myself to see firsthand what the conditions were.

I met with people who work in the sugar industry. There, essentially workers are totally deprived of their ability to be participants and have a say. They've set up these so-called cooperatives that are essentially dummy outfits and workers go from cooperative to cooperative being paid for by some entity, unable to be able to be a major part of the economy. That has to be fixed for their good and our good.

I fully understand the importance of opening up the Colombian market. I fully understand that for our workers, our businesses and workers. But we need to have trade agreements that essentially reflect our values and in the case of workers, basic international labor values.

Rep. Levin is right to be deeply concerned about the inequality in Colombia.  According to the CIA, Colombia has the 9^th highest Gini index in the world. (The Gini index is the most commonly used measure of the gap between the rich and the poor.  It is a number between 0 and 100, with higher numbers indicating greater inequality.)  And the inequality is getting worse over time – in 1996 Colombia’s Gini index was 53.8, but by 2008 it had jumped to 58.5.  In comparison, the United States, which ranks as the 42^nd most unequal society, has a Gini index of 45.0.

Another way of looking at inequality in Colombia is the share of income that goes to the poorest 10 percent of the population and the richest 10 percent of the population.  In Colombia, the poorest 10 percent earn only 0.8 percent of all income, while the richest 10 percent earn 45.0 percent of all income. 

By not protecting workers’ rights and allowing the violent suppression of unions, the government of Colombia has allowed its society to become incredibly unequal, preventing the development of a middle class that could buy U.S. goods and boost our economy. 

If Congress wants to rein in Wall Street...

If the Senate wants to create a strong financial regulation, there is still much to be amended in the current financial regulatory bill. One of these needed amendments concerns our nation’s trade policy and the World Trade Organization's involvement in financial deregulation. Check it out in Citizenvox's latest : If Congress Wants to Rein in Wall Street, It Must Strengthen Financial Reform Bill !

Can Clinton’s Confession of Failure be Obama’s Catalyst to Get Trade Right?

In David Sirota’s write up “Can Clinton’s Contrition Contribution,” Sirota asks whether Bill Clinton’s frank admission that his trade policies were a failure (see here for the Eyes on Trade post) will give President Obama the impetus to deliver a real change to U.S. trade policy.

And it’s a good question.

Clinton has confessed what many people have been saying all along: his Administration’s push for trade liberalization and deregulation across many sectors has failed many in the U.S. and overseas, with its failure to produce (or even retain) jobs here domestically, and its encouragement of bad labor, environmental and safety practices here and abroad.  However, as clear as this seems, Obama would have to make some serious changes if he wants to not repeat the same errors Clinton committed. As Sirota pointed out, President Obama might be compelled “to fire the same Clinton economic aides who now work in his administration,” the same advisors that Clinton said “were wrong” on trade. Furthermore, steering away from Clinton-Bush era trade policy would mean that Obama needs to abandon the language found in leftover trade agreements like the Colombia FTA, the Panama FTA and even perhaps the Trans-Pacific Partnership which, will being branded as an 21st century trade agreement is still a relic from the former Bush Administration.

However, evidence from his campaign shows that Obama knows this, so perhaps this will be the push that he needs. Maybe, seeing Clinton’s apology will give him the impetus to begin changing these policies and prevent him for make the same mistakes that Clinton has confessed he has to live with everyday.

Malaysia and Canada May Join TPP Trolley

 

As the Trans-Pacific Partnership (TPP) train begins to chug along the track a little faster, more countries are signaling that they want to jump on the bandwagon.  Last month Colombia indicated its interest in joining the TPP talks and now Malaysia and Canada are doing the same.  Last week, Prime Minister Razak of Malaysia gave a speech at the Center for Strategic and International Studies where he declared:

Malaysia will also take a serious look of strengthening its investment and economic ties with the US through the Transpacific Partnership with terms and modalities that are mutually beneficial.

Canada, for its part, has made a few timid steps toward joining the TPP talks.  Inside U.S. Trade reports:

Canada sent a letter to TPP members last month [March 2010] expressing its interest in the talks, but that letter was not a formal request to join the talks, according to Van Loan. Instead, it conveyed Canada’s desire to stay apprised of the TPP talks, and its interest in exploring what kind of role Canada can play in the talks, he said.

Canada is wary of joining the TPP talks since New Zealand might demand the removal of some of its dairy support programs.  Many U.S. members of Congress have already warned against inclusion of dairy in the TPP because of the uncompetitive position of New Zealand’s main dairy corporation, which controls 90 percent of New Zealand dairy production.

The TPP negotiators have envisioned the TPP as an agreement that countries other than the current negotiating partners could join after its implementation. The rapidly expanding list of potential TPP members underscores the need for the U.S. Trade Representative to prohibit the accession of new TPP members without a vote on the floors of the U.S. House and Senate.  Without this guarantee of following the democratic processes of each nation for admitting new members, the United States could find itself bound to a trade agreement with some unacceptable countries.

Ask an economist!

Our friends at the Triple Crisis blog have an interesting feature where they are taking your questions for economists in advance of the IMF / World Bank meetings. Are there financial reform proposals you want to hear more about? Submit your questions here.

Return of the Anti-NAFTA-Off?

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

Candidates in the special election to replace recently deceased fair trader John Murtha (PA-12) have focused on jobs and the economy.

The race to succeed Murtha is between the former Congressman's district director, Mark Critz, and Tea Party supporter Tim Burns. Both sides contend they're the best choice to create jobs, but so far only one has come out in favor of reforming failed trade policies.

Mark Critz opens his most recent ad with a salvo about offshoring:

Tim Burns most recent ad hits the jobs issue, but makes no mention of our failed trade polices, yet:

In 2008, the Public Citizen election report documented several races where candidates duked it out over who was hated  NAFTA more. PA-12 could well be the first of this election year.

(Also, Scott Lincicome is pointing out that the DCCC is using fair trade as a wedge issue in the Hawaii special election to succeed TRADE Act cosponsor Neil Abercrombie, who recently retired to run for governor. Scott is none too happy about it, but it does show that fair trade issues resonate far outside of the industrial midwest, as Hawaii Rep. Mazie Hirono's fair trade-themed run a few years back also indicated.)

USTR Going Rogue on Canadian Tobacco Laws?

In October of last year, the Canadian Parliament passed the Cracking Down on Tobacco Marketing Aimed at Youth Act, which contained a provision outlawing the sale of cigarettes made with flavor additives that appeal to children.  This law applies equally to tobacco products that are imported and domestically produced, but this hasn’t stopped several countries from attacking the new law.

Last month, 14 countries, including the United States, raised concerns about Canada’s new tobacco law at a WTO committee meeting.  They believe that the public health law might constitute a technical barrier to trade that could be challenged under the WTO dispute resolution mechanisms.

The U.S. Trade Representative (USTR) raising concerns about the law is objectionable enough, but a 1998 law prohibiting the USTR and some other federal agencies from “using appropriated funds to promote the sale or export of tobacco or tobacco products and from seeking the removal of nondiscriminatory foreign restrictions on the marketing of tobacco” could get USTR into some hot water if it chooses to directly challenge the law.

In a letter obtained by Inside U.S. Trade, Rep. Lloyd Doggett, the sponsor of that 1998 law, asked USTR to change course:

I strongly urge that USTR take no action contrary to Canada on this matter, and indeed, good public policy on tobacco voiced generally by the Administration suggests USTR should be actively supporting the Canadians….Even beyond the troubling implications of the United States opposing a strong public health measure of another country, in this instance, prior law expressly forbids USTR from doing so.

USTR also raised the issue in its National Trade Estimate report last month.  In the report, though, USTR stated that “The United States strongly supports the objective of deterring youth from tobacco use.” If this is truly the case, USTR should back down from this misadventure and respect Canada’s right to enact common sense laws regulating its tobacco market.

Thanks to Flickr user Wanderungen for the photo

10 out of 10 Economists Agree: We Were Wrong

After about a year of wrangling, we’re now into the final stretch of financial regulatory reform!  Sen. Dodd of the Finance Committee, Rep. Frank of the Financial Services Committee, and the White House have all said that a financial reform bill will likely be on the President’s desk by Memorial day.

As Global Trade Watch has extensively documented, the United States, in cooperation with other countries, must overhaul the WTO’s radically deregulatory financial services provisions if it wishes to enact meaningful financial regulatory reform.  Regulations specifying a maximum size of financial firms and prohibiting certain risky types of financial trading could be vulnerable to challenge under the WTO’s dispute settlement mechanisms.

Members of Congress must push back hard against those who are trying to remove the teeth from the reform proposals.  Wishful thinking about the capacity of financial services corporations to properly mange huge risks does not negate the fact that a tough regulatory framework is necessary.  This fact is illustrated quite clearly in the results of a 2004 survey of 84 finance professors conducted by the International Swaps and Derivatives Association. This survey would be a barrel of laughs if the consequences of these attitudes weren’t so disastrous.

Some of the highlights:

• 100 percent of respondents agreed with the statement that “Derivatives help companies manage financial risk more effectively.”
• 99 percent of respondents agreed that “The impact of derivatives on the global financial system is beneficial.”
• 81 percent of respondents agreed that “The risks of using derivatives have been overstated.”

It’s disheartening that these “experts” could not fathom the role that derivatives would play in the 2008 financial meltdown.  In their extended comments, many of them claimed that derivatives helped promote financial stability:

“[Derivatives] allow the transfer of risk from parties that don't want to bear risk to parties that can. For example, credit derivatives make the banking system safer.”

- James Angel, Associate Professor of Finance, Georgetown University: McDonough

Treasury Passing the Buck on China

The New York Times is reporting today that the Obama administration has decided to delay indefinitely its report on currency manipulators because the president of China will participate in a nuclear summit in the United States this month:

Mr. Hu’s visit will take place only two days before the Obama administration faces a deadline to decide whether to label China a “currency manipulator,” meaning that it intervenes in currency markets to gives its exporters an artificial advantage. Pressure in the United States has been building to take that step, which could initiate a Congressional process that would lead to slapping tariffs on Chinese imports.

But given the potential for embarrassing Mr. Hu — and for sending bilateral relations into another tailspin — the administration decided not to report on April 15, one of the deadlines set by Congress and the Treasury Department to issue a report on possible currency manipulation.

To avoid embarrassing Mr. Hu, the Treasury Department could delay the deadline for weeks. “As a practical matter, they’ve got a lot of wiggle room,” said Nicholas R. Lardy, an economist at the Peterson Institute for International Economics in Washington. Mr. Lardy added that he thought it was unlikely that China would have agreed to a visit by Mr. Hu unless there was at least an informal assurance by the Treasury that China would not immediately be named a currency manipulator.

Last Wednesday the House Ways & Means Committee held a hearing on Chinese currency policy in an effort to pressure the administration to designate China a currency manipulator.  Since it appears Treasury will avoid designating China as a manipulator, the ball is back in Congress’s court. 

Last week Senator Schumer said that, regardless of what the Treasury Department decides to do in its mid-April report, he would push for a vote on a bill that would completely overhaul the process for making determinations on currency manipulation so that it would be easier and quicker to take action on China and other countries.  Given that Treasury may decide to miss the deadline altogether, Schumer’s strategy now seems pretty shrewd.

Happy April Fool's Day!

 

NOT FOR RELEASE

Contact: Nanahcub Nayrb, 202-454-5108

China Currency Value Rises 40%, U.S. Predicted to Enjoy First Trade Surplus with China Since 1985

After Overnight Renminbi Appreciation, Trade with China to Actually Provide Benefits to U.S. Workers, Domestic Firms

WASHINGTON - With Congress poised to pass the "Nixon Did It in '71 Currency Manipulation Fix-It Act," which would impose surcharges on Chinese imports, China today appreciated the value of its currency 40 percent relative to the U.S. dollar, Google News reported.

The Obama administration predicted that its goal of doubling U.S. exports in five years would be met well ahead of time with the United States expected to achieve a trade surplus with China for the first time since 1985. China is also expected to begin transferring billions in stimulus funds to the United States to create 2.4 million American jobs to replace the U.S. jobs lost to China since 2001.

Trade wonks were stunned.

"Years ago, I made a bet with Fred Bergsten that I would eat my shoe if anything like this ever happened," said Walli Lorach, co-director of Public Citizen's Global Trade Watch. "I guess I'm going to spend the afternoon looking for a good leather recipe."

In a gesture of goodwill and reciprocity between the two countries, President Barack Obama pledged that the United States would continue to purchase billions in Chinese goods, although at a fair price, and would safeguard the value of China's billions in Treasury bills by not devaluing the dollar.  

In another tale from the bizarro world of U.S. trade policy, a news conference organized by Sen. John McCain to call for the Obama administration to revive the Bush-Clinton-Bush trade agreement model in Trans-Pacific Partnership (TPP) negotiations was disrupted by angry tea party protestors screaming "No NAFTA with 'Nam!"

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