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.  
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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. 

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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.

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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. 

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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/.

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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

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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.

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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.  

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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.  

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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.

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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.

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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. 

 

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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

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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:

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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.

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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".

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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!" »

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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.

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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" »

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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?

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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.

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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" »

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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.

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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)

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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.

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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.

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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" »

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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.

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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.

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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.

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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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Incorrect Numbers Continue to Pop Up in Trade Reporting: Trade-ifact III

The announcement late Wednesday of a nebulous "agreement" in the Senate on a legislative "path forward" for the Korea, Colombia, and Panama trade deals (or FTAs), has renewed the trade chatter in the newswires. But we're still seeing a lot of questionable claims about the FTAs in these stories, so it's time for another edition of Trade-ifact.

For the third installment , we've organized the stories by theme.

 

Faulty Export Numbers

Misquotes of the official U.S. International Trade Commission (USITC) studies of the three trade deals continue to pop up in news articles, either directly or through quotes of FTA proponents.

As we have said before, FTA supporters only look at the USITC's bilateral export numbers and do not consider the USITC's projections on the change in overall U.S. imports. When the global changes in exports and imports are taken into account, the USITC studies reveal that net exports would decline by $482 million under the Korea and Colombia trade deals (instead of the “bilateral exports only” of $11-12 billion). The USITC made no overall trade estimate for Panama.) 

There were several stories that misreported this $12 billion export number as fact, including:

- Doug Palmer (Reuters), US Congress leaders agree path to pass trade deals (8/3/2011)

- Angus Loten (Wall Street Journal),  Trade Pacts Urged for Export Growth (7/27/2011)

There were several additional stories that reported the incorrect number as the opinion of an interviewee or the Obama administration, but failed to note its misleading origin. These included:

- Mark Drajem (Bloomberg), U.S. Senate Leaders End Impasse on Three Free-Trade Deals, Workers’ Aid (8/4/2011)

- Jim Abrams (AP),  Senate deal on taking up worker, trade bills (8/4/2011)

- Suzy Khimm (Washington Post),  How can Washington help create jobs? (8/3/2011)

- Doug Palmer (Reuters), U.S. business hopes debt deal clears way for trade (8/1/2011)

Doug Palmer’s stories also round up the administration's export claims from $12 billion to $13 billion.

 

Faulty Jobs Numbers

News stories are also continuing to report that the trade deals will create or support 70,000 jobs. This has got to be one of the most popular outright errors in the history of trade debates. As we show here, it is derived from applying an incorrect methodology to an incorrect number (bilateral export projection). But even if one accepts the administration’s methodological choices, applying that method to the correct number (net exports) would reveal a decline in jobs.

Doug Palmer's US Congress leaders agree path to pass trade deals (8/3/2011) misreported this number as fact.

There were several additional stories that reported the incorrect number as the opinion of an interviewee, but failed to note its misleading origin. These included:

Continue reading "Incorrect Numbers Continue to Pop Up in Trade Reporting: Trade-ifact III" »

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Pelosi pushes back against Obama-backed unfair trade agreements

The Hill reports that:

House Minority Leader Nancy Pelosi pushed back Wednesday against several pending free-trade agreements championed by President Obama.

The California Democrat signaled doubts that looming trade deals with South Korea, Panama and Colombia would benefit U.S. workers. President Obama on Tuesday called on Congress to approve the deals, which he and Republicans argue would create jobs.

“The White House may support it, but the Congress may have a different view,” Pelosi warned on MSNBC.

During a lengthy interview, MSNBC's Andrea Mitchell suggested that the long-delayed trade pacts “could have produced more jobs.”

Pelosi responded, “Well, that's debatable.”

Unlike Mitchell and too many other reporters, Pelosi may have examined the government's own numbers, which show that the U.S.-Korea and U.S.-Colombia deals will increase the U.S. trade deficit. Or she may have examined the record of past trade deals, which have led to loss of U.S. jobs, and accounted for lower-than-average export growth.

Or she may have examined the text of the U.S.-Panama trade pact, which effectively excludes the Panama Canal expansion project from its scope. (See here, page 17.) That project is the one commercially meaningful piece of business happening in that economy, which specializes in offshore tax evasion. It will give Panama new tools to attack U.S. financial transparency initiatives, just as they've used trade pact rules in the past to successfully attack Colombia's (all too scarce) attempts to address money laundering.

And all three pacts will allow corporations to challenge environmental and public health initiatives, in foreign tribunals, outside the U.S. court system, for taxpayer funded compensation. These investor rules wreak havoc wherever they go.

Congrats to Pelosi for standing up for jobs instead of corporate/ideological initiatives like the three unfair trade deals.

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Op-Ed Round-Up

Here's a round-up of some of the best opinion pieces over the last couple of months about the pending trade deals:

 

The Hill masthead

U.S.-Korea trade deal is bad for both countries

By Chun Jung-bae, National Assembly of the Republic of Korea

"There is some rosy fantasy that the pending U.S.-Korea Free Trade Agreement will create tens of thousands of well-paying jobs in both countries and strengthen and expand the U.S. relationship with Korea. This is a fabrication of multinational corporations that have no allegiance to either country. As a member of the Korean National Assembly, I would like to set the record straight: In reality, the deal is lose-lose."

Read the entire piece here.

 

Seattle_times_logo 

Congress should reject proposed trade agreements and insist on better policies

By Lynne Dodson, secretary-treasurer of the Washington State Labor Council, and Kathleen Ridihalgh, senior organizing manager of the Sierra Club in Washington and Oregon.

"The definition of insanity is doing the same thing over and over and expecting a different outcome. This summer, insanity reigns over proposed U.S. trade agreements with South Korea, Colombia and Panama. For more than 20 years, "free" trade agreements have systematically undermined the American economy and the middle class. The growing disparity between the "haves" and "have nots" is turning the American dream into a nightmare. It is a direct result of our failed trade policy, and it needs to stop now."

Read the entire piece here.

 

SacBeeLogo

US-Colombia free trade agreement bad idea for both countries

By John I. Laun and Cecilia Zarate-Laun, Colombia Support Network

"In the coming days, the U.S. Congress will be debating a free trade deal between the United States and Colombia. The agreement, if finalized, will have a negative impact on both countries. It will not lead to job creation in the United States. Instead, it will cost U.S. jobs, as multinationals will relocate to Colombia in order to avoid paying higher wages here. But Colombia will not benefit, either."

Read the entire piece here.

 

HuffPo logo

Trading Our Future: Tax Cheating and the Panama Free Trade Agreement

By Dylan Ratigan, host of MSNBC's "The Dylan Ratigan Show"

"If you want to know why politicians are so eager to pass a free trade agreement with Panama this month, type "Panama offshore banks" into Google and look at the paid ads. What you'll see is advertising by law firms and banks that will offer you help to set up a secret corporate structure in Panama immune from taxes."

Read the entire piece here.

 

Knoxville-news

Free Trade Pacts Will Cost Tennesseans Jobs

By Robert E. Scott, director of trade and manufacturing policy research at the Economic Policy Institute

"Based on past U.S. experience with NAFTA and other trade agreements, I have estimated that the U.S.-Korea and Colombia FTAs will displace 214,000 U.S. jobs. These job losses will fall hardest in industrial states like Tennessee. Workers there would be well-advised to think twice before supporting these job-displacing trade agreements."

Read the entire piece here.

  

MilwaukeeJS logo So-called 'free' trade agreements harm American workers

By Steve Kagen, doctor and former member of Congress from Appleton, Wis.

"Professional politicians in Washington and their partners on Wall Street are lining up for another payday - this time by promoting 'free trade' deals with Korea, Panama and Colombia. But if you're not in Washington or on Wall Street, there's a problem. These new deals are just like the old deals. They are job-killers - just like NAFTA and CAFTA before them."

Read the entire piece here.

 

Bangor_Daily_News_Logo 
 
Say no to new trade deals and start over

Editorial

"If so-called free trade is not done right...the only winners are corporations without borders. The losers are the people who live and work in those developing nations and the American blue-collar workers who see jobs leave the States. ... There is a good reason that both Maine tea party groups and organized labor oppose the South Korea, Panama and Colombia trade agreements. After defeating them, Congress must create a better way to promote global trade."

Read the entire piece here.

 

Detnews_logo

Open borders, trade deals are ruinous for America

By James P. Hoffa, president of the International Brotherhood of Teamsters

"Three more job-killing trade deals are in the hopper, and you can bet the news media will swallow whole the phony claims made about them by the U.S. Chamber of Commerce and other groups. Congress is now considering trade agreements with Colombia, where trade unionists are routinely murdered; Panama, a well-known tax haven; and South Korea, in the biggest trade deal since NAFTA. It seems our trade policy is of the corporation, by the corporation and for the corporation."

Read the entire piece here.

 

Boston_globe

Trade deals are no deal for US

By Steven J. D'Amico, former Mass. state Representative and member of the American Jobs Alliance

"Even after losing 682,000 jobs to NAFTA since it took effect in 1994, and 2.4 million to China since it joined the World Trade Organization, Washington continues in its blind faith that somehow these trade deals are good for us. This summer Congress is expected to take up three new trade deals - with Korea, Panama, and Colombia. These trade pacts are bad for American workers, bad for our domestic economy, and bad for democracy."

Read the entire piece here.

 

Columbus Dispatch 
Free-trade deals would be costly to U.S.

By Tom Burga, president of the Ohio AFL-CIO

"For over a decade, the labor movement and development advocates have called for fair-trade policy that is part of a more coordinated and coherent national economic strategy.  Unfortunately, the Korean, Colombian and Panamanian free-trade deals before Congress do not address the fundamental policy failures of the North American Free Trade Agreement and China's inclusion into "favored nation status," which has led to catastrophic job loss in the U.S. and the explosion of our import/export deficit, now reaching $500 billion annually."

Read the entire piece here.

 

Redding Record Searchlight Trade pacts bad for California agriculture

By Curtis W. Ellis, executive director of the American Jobs Alliance, and Joaquin Contente, president of California Farmers Union 

"Pending free trade agreements with Korea, Colombia and Panama are bad for California farmers and must be rejected if we are to preserve our way of life. All three trade treaties are based on North American Free Trade Agreement-style policies that have displaced American farmers while sending jobs that support California's rural communities offshore. In fact our leading export is jobs and we reward companies that outsource jobs. Since NAFTA took effect, the United States has lost 300,000 farms and millions of jobs."

Read the entire piece here.

 

WisStateJrnl 
Wisconsin Farmers Union opposes free trade pact with Korea

By Darin Von Rudin, president of Wisconsin Farmers Union

"WFU strongly opposes the Korea-U.S. Free Trade Agreement and urges Congress to do the same. We feel our legislative leaders should be protecting and promoting American jobs, family farms and our rural communities through sound economic, environmental and labor policies. We don’t think this trade agreement adequately promotes these values."

Read the entire piece here.

 

Statesman_Journal_logo 
Rep. Schrader is confused on international trade

By Steve Hughes, state director of the Oregon Working Families Party,Ray Kenny, International Brotherhood of Electrical Workers Local, and Frank Rouse, president of the Machinists Union Local 1005

"Congressman Kurt Schrader seems to be confused. On the one hand, he says he opposes trade deals that extend greater rights to foreign investors than exist for Oregonians doing business in our state. On the other hand, he is supporting a massive new free trade agreement with South Korea that does just that."

Read the entire piece here.

 

Minneapolis Star-Tribune logo 
Free trade agreements jolt the economy, but not in a good way

By Jessica Lettween, director of the Minnesota Fair Trade Coalition

"It's easy to understand why multinationals adore the Korea agreement. But with around 7 percent unemployment in Minnesota, a budget crisis, and an electorate that is strongly opposed to more NAFTA-style trade agreements, it is baffling why any member of Congress would endorse a deal that will cost us so much."

Read the entire piece here.

 

The Hill masthead

Choose voters over donors on free trade

By Gordon Lafer, professor at the University of Oregon, former senior adviser to the U.S. House’s Labor Committee

"Like Republicans, the White House is eager to get these treaties done quickly, so that voters will have forgotten by the fall of 2012. To see the Obama administration and Republican leadership quietly collaborating to seal this deal in knowing violation of the voters’ will is among the most telling signs of corporate power in Washington, and among the most depressing stories in these tough times."

Read the entire piece here.

 

Winona Daily News

Obama's trade policy clearly shortsighted

By Karen Hansen-Kuhn, international program director for the Institute for Agriculture and Trade Policy

"More than two years into the Obama administration, we're still waiting for a 21st-century trade policy."

Read the entire piece here.

 

(Disclosure: Public Citizen has no preference among the candidates for public office.)

 

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Dylan Ratigan on Tax Cheating and the Unfair Panama Trade Deal

Check out this HuffPo piece about the Panama trade deal from MSNBC's own Dylan Ratigan:Ratigan

"If you want to know why politicians are so eager to pass a free trade agreement with Panama this month, type "Panama offshore banks" into Google and look at the paid ads. What you'll see is advertising by law firms and banks that will offer you help to set up a secret corporate structure in Panama immune from taxes.

The State Department knows this. Here's how the State Department described the Panamanian economy in 2006 in a secret memo revealed on Wikileaks.

The Panamanian "incorporation regime ensures secrecy, avoids taxes,and shields assets from the enforcement of legal judgments. Along with its sophisticated banking services, Panama remains an environment conducive to laundering the proceeds from criminal activity and creates a vulnerability to terrorist financing."

Read the whole article.

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Trade-ifact Part Deux

It's time for the second installment of Trade-ifact: Keeping the Media Honest about Trade Deals. Since our last installment, FTA proponents in the administration and Congress have worked to move along the negotiations for curtailing Trade Adjustment Assistance (TAA), all while maintaining a straight face when claiming that these trade pacts will create jobs. Late yesterday, White House Chief of Staff Bill Daley said that they would submit the FTAs for Congressional approval within days, so next week expect the FTA debate to turn white-hot (and a wave of questionable claims to reach tidal wave heights).

Doug Palmer (Reuters)

US showdown looming on Korea trade without deal soon (7/10/2011)

Palmer writes, "A year ago, Obama moved to resolve Democratic concerns with the deals." Democratic concerns with the three FTAs remain unresolved. Despite small tweaks to the auto provisions in the Korea FTA, imports of Korean autos are still projected to slam U.S. autoworkers. Plus, nothing was done to address the Korea FTA's prohibitions on certain vital financial sector regulations. Murders of labor union leaders in Colombia continue, and many Democrats are vowing to oppose the Colombia FTA as a result. Finally, Panama's status as a tax haven will remain unchanged if the Panama FTA is approved. The FTA's investor-state provisions would even allow the Panamanian government and corporations to challenge U.S. policies targeting tax havens. Overall, there has been no fundamental change to the NAFTA trade model that Obama promised while he was a presidential candidate.

Palmer claims that Fast Track trade negotiating authority "has long been considered vital for securing trade deals with U.S. trading partners worried that without it their agreements could be picked apart by Congress."  As noted in our book on the history of Fast Track, scores of trade agreements have passed Congress without Fast Track protection, including 130 trade and investment agreements under the Clinton administration alone (Clinton lacked Fast Track authority from 1995 to the end of his second term). In 2000, former Clinton U.S. Trade Representative went as far as to say, "if you look at our record on trade since 1995, I don't think the lack of Fast Track impeded our ability to achieve our major trade goals."

Obama said ready to move on South Korea trade bill (7/14/2011)

Palmer says that Obama demands an "extension" of TAA be approved along with the three FTAs. The Obama administration's proposal on TAA is actually to narrow eligibility and cut benefits. As Inside U.S. Trade reports, under the new TAA plan workers displaced by trade could receive a maximum of 130 weeks of income support while undergoing retraining, while currently workers can receive up to 153 weeks of income support. It also would restrict income support eligibility for workers who are not in retraining programs, cutting the types of waivers for income support from six to three. Chairman of the House Ways and Means Committee, Republican Rep. Dave Camp, said of the deal, "The final result is a program that has been cut not only from 2009 levels, but also below 2002 levels in several key areas." The "2009 levels" are the elements of the TAA program that expired earlier this year, while the 2002 levels are the elements that are currently in effect. The cuts are a burden on displaced workers when they can least afford it.

Vicki Needham (The Hill)

Republicans split on trade tactics (7/13/2011)

Continue reading "Trade-ifact Part Deux" »

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Chamber of Commerce's Misleading Data Website Gives Only Half the Story

Today the Chamber of Commerce launched a website that purports to show the effects of U.S. trade upon jobs in each congressional district, as part of its lobbying campaign to pass the Korea, Colombia, and Panama Free Trade Agreements (FTAs).  Even a cursory review shows that the data included to represent “effects of trade” is only gross exports – imports are excluded, as are net figures that show the actual impact of trade on the districts. 

Indeed, the Chamber’s “new” website just repackages the previously-released old exports-only data featured in past Chamber “studies” of the FTAs. It’s the same misleading approach - like only counting deposits into ones bank account, not also withdrawals or the ending balance.

And, this is especially deceptive because it operates to cover up the huge U.S. trade deficit, which has been driven to astronomical levels by the very same NAFTA-style trade pacts supported by the Chamber of Commerce and the American jobs lost from years of large annual trade deficits.

When economists study the jobs impact of  trade pacts, they consider both sides of the ledger by estimating the number of jobs supported by exports as well as the number of jobs displaced by imports. As Nobelist Paul Krugman noted: " If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not…"

Studies that review both imports and exports explain why broad majorities of Americans are against the types of trade pacts the Chamber continues to promote. For instance, the Economic Policy Institute found that 5.6 million more jobs were displaced by imports than were supported by exports in 2007. Looking into the future, the Economic Policy Institute has estimated that implementation of the Korea and Colombia FTAs alone will lead to a net loss of 214,000 U.S. jobs due to rising trade deficits.

Exports support jobs, but the NAFTA-style trade pacts touted by the Chamber will lead to greater imports than exports, displacing workers in the United States. Says who? Well, among others, the Korea FTA’s lead negotiator Ambassador Karan Bhatia who was Pesident George W. Bush’s deputy U.S. trade representative. In an October 2006 speech to a Korean audience, Bhatia said that it was a “myth” that “the U.S. will get the bulk of the benefits of the FTA.” He went on to say, “If history is any judge, it may well not turn out to be true that the U.S. will get the bulk of the benefits, if measured by increased exports.” He added that, in the instance of Mexico and other countries, “the history of our FTAs is that bilateral trade surpluses of our trading partners go up,” meaning that the U.S. trade deficit with those countries increased. 

Even on its own terms, the Chamber website’s estimates of the number of jobs supported by exports in each congressional district are often double counted and misleading. According to the website’s own methodological summary, if any part of a county intersects with a congressional district, all of that county's exports and extrapolated “jobs-supported” are added to that  district's total. This leads to a huge degree of double-counting, since exports from a single county are often assigned to multiple congressional districts. In Texas alone, the sum of the number of jobs supported by exports in each congressional district is 250 percent greater than the state total given by the Chamber, meaning that the jobs estimate for the average Texas congressional district is inflated by 250 percent. Thus, users of the website are misled when they think they are accessing the number of jobs supported by exports in their congressional districts.

Public Citizen has estimated the number of jobs in each congressional district in sectors that will be hit particularly hard by the Korea FTA. A searchable database of these estimates is available at:
http://www.citizen.org/korea_fta_jobs_at_risk

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Trade Looms Large in NY Special Election

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

Yesterday Democrat Kathy Hochul pulled off an upset win against Republican Jane Corwin in the special election for New York's 26th District, wresting control of a seat the GOP has occupied since the 1960's. Much attention has focused on the candidates' positions on Medicare as a deciding factor in the race, but trade policy also played a key role in the election.

Jack Davis, independent candidate and president of a local manufacturing company, turned the spotlight on the devastating consequences of unfair trade policies for American manufacturing workers. His focus on offshoring garnered nine percent of the votes in the special election.

Earlier in the race, Davis was polling at 23 percent, a testament to the power of trade as an election issue.  Eager to be on the right side of the trade issue, Kathy Hochul released a strongly-worded statement condemning NAFTA and opposing the Korea, Panama, and Colombia FTAs.

For her part, Corwin ran an ad claiming that she would "oppose trade agreements that just aren’t fair", but never followed through in naming a specific pact that she would oppose. When asked point-blank in a questionnaire if she supported NAFTA and the Korea, Panama, and Colombia FTAs, she refused to take a position.  The tension between Corwin's vague fair trade statements and her reluctance to oppose specific policies came to a head when Hochul and Corwin addressed Davis' absence from the May 12th debate:


Oddly, Hochul and Corwin both ended up noting Davis’ absence from the debate not to needle him, but each other.

Hochul started it, saying she wished Davis had participated because “he brings a lot to the debate,” and on his behalf demanded Corwin state her view of the North American Free Trade Agreement and unfair trade. That’s been Davis’ signature issue in all four of his congressional campaigns.

Corwin’s answer: “Right back at’cha, Kathy. There are a lot of things that Jack could ask Kathy Hochul. I think we need to get clarification on her plan for Medicare. She talks about holding the line on taxes. How do you hold the line on taxes when you’re advocating ... to raise taxes?”


That exchange sharply contrasted the difference between Hochul's commitment to oppose specific trade agreements and Corwin's broad statements on fair trade. A large number of the new GOP House freshmen campaigned on supporting fair trade. With Hochul's solid win over Corwin, they're on notice that they will have to put their money where their mouths are on the upcoming votes on the Korea, Panama, and Colombia FTAs or face voter anger in November 2012.

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Trade Deficit with FTA Countries Continues to Climb

Yesterday the Census Bureau released the March trade flow numbers, revealing that our trade deficit continues to worsen. The U.S. trade deficit rose by $2.8 billion, or 6.2 percent, between February and March on a seasonally-adjusted basis.

With Congress on the verge of considering another set of trade agreements based on the NAFTA model, digging into the data of this new release could help illustrate whether existing NAFTA-style trade agreements are aiding or hindering the fight to keep the trade deficit under control.

The most recent trade data shows that the deficit with our 17 FTA partners continues to worsen, adding to the body of evidence that NAFTA-style trade agreements are hurting American workers. Between February and March, the U.S. trade deficit with U.S. FTA partners grew by $1.6 billion, or 12.3 percent. News reports on the trade deficit noted that the dramatic rise in the price of oil in March accounted for much of the widening of the overall trade deficit. Do oil imports explain the rise in the trade deficit with our FTA partners? No, the jump in the trade deficit with U.S. FTA partners is still huge when you take out oil to account for the jump oil prices. With oil excluded, the trade deficit with FTA partners increased by $846.9 million, or 13.9 percent, between February and March. The non-oil trade deficit with countries that are not FTA partners grew by only 6.8 percent over February-March, less than half the pace of the growth in the deficit with FTA partners.

The latest trade numbers are a sign that the trade deficit is acting as a brake on the momentum of the economic recovery. Given that trade with our current FTA partners act as a primary force in that brake, it is time for the Obama administration to rethink the Korea, Panama, and Colombia FTAs and chart a path away from the old trade model that leads to skyrocketing deficits.

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New Estimate of NAFTA Jobs Impact Warns Against Korea FTA

Rob Scott at the Economic Policy Institute has released a new study estimating 683,900 U.S. jobs have been displaced due to the rise in the trade deficit with Mexico after NAFTA was enacted. It serves as a grim warning of what could come if Congress were to approve the Korea FTA, which is based on the NAFTA model. Scott breaks down the job displacement by industry and congressional district, illustrating how workers across the country have been harmed as the deficit with Mexico skyrockets.

As Scott notes, corporate lobbyists and administration officials pushing the Korea FTA today sound just like pro-NAFTA government officials back in the early 1990's before NAFTA devastated U.S. manufacturing jobs. Once again they are claiming that a NAFTA-style trade agreement will create thousands of jobs, but this new study is a wakeup call to anyone who views their claims as believable.

Scott highlights the fact that the industrial structure of U.S. trade with Mexico and South Korea are very similar, which portends NAFTA-like job loss if the Korea FTA were to be implemented. The U.S. has huge trade deficits in electronics and motor vehicles and parts with both Mexico and South Korea, and the U.S. International Trade Commission predicts that the U.S. trade deficit in these products will dramatically increase if the Korea FTA were to enter into force.

Daniel Griswold over at the Cato Institute challenged the results of the study, claiming that the study's method of computing job losses is flawed. Proponents of unfair trade may rail against the methodology that Scott employs now, but what did they think of it when they were trying to prove that NAFTA would be a boon for workers before it passed? They embraced it. Gary Hufbauer and Jeffrey Schott, leading NAFTA proponents at the Institute for International Economics, released a study in 1993 predicting that the annual U.S. trade balance with Mexico would improve by $9 billion due to NAFTA, leading to a net increase of 171,000 U.S. jobs. To estimate the increase in the number of jobs, they used same method as Rob Scott used in his latest NAFTA study and applied it to their prediction of the change in trade flows after NAFTA, although their study did not break down jobs geographically.* Perhaps FTA proponents have changed their minds about the method merely because it now reveals all those claims about NAFTA job gains went up in smoke after NAFTA was actually enacted.

Griswold then goes on to belittle the magnitude of the job displacement estimated by the study, comparing it to the 15 million jobs that are created and destroyed annually. It's a silly comparison, because the 15 million figure deals with turnover, whereas Scott's study deals with the changes in the total number of jobs displaced by trade with Mexico at two different points in time, i.e. the net change after all the turnover has completed. 683,900 jobs is a lot of jobs, especially to those workers who have seen their jobs offshored due to unfair trade policy.

*The only significant difference between the studies is that Hufbauer and Schott used estimates from a 1992 Department of Commerce study of the number of jobs supported in each industry by each export commodity to Mexico, for which there is no similar recent data. Scott used data from the Bureau of Labor Statistics on the jobs supported by a given quantity of goods produced in the United States by industry, which gives results similar to the Department of Commerce data.

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Todd Tucker in Foreign Policy magazine: "Obama has swapped smart policy for the same-old job-crushing trade deals."

Check out Todd Tucker's piece in Foreign Policy magazine.

 

ForeignPolicyLogo1 

A Bad Trade

Obama has swapped smart policy for the same-old job-crushing trade deals.

"When Barack Obama was elected back in 2008, he committed to breaking with the same flawed trade policy the United States has followed for a generation. Obama promised a new page, one that focused on creating American jobs and protecting the environment. Instead, his administration has flip-flopped on these campaign promises and is now pushing free trade agreements (FTAs) that are projected to cost American jobs, undermine U.S. negotiating credibility, and could even dampen the president's electoral prospects in 2012. ..."

Read the entire piece here.

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USDA's FTA Report Repeats Errors of Previous Flawed Studies

Earlier this week, the USDA released a report attempting to estimate the effects of the Korea, Colombia, and Panama FTAs upon U.S. agricultural trade. It also examined possible effects of the ASEAN-China and ASEAN-Australia-New Zealand FTAs upon the U.S.

Unfortunately, the USDA estimated the effects through a computable general equilibrium (CGE) model, which has a shoddy track record, to say the least. A 1999 U.S. International Trade Commission (USITC) study on the likely effects of China’s tariff offer for WTO accession used a CGE model to estimate that the U.S. trade deficit with China would increase by only $1 billion dollars due to China’s accession. In reality, the trade deficit with China skyrocketed by $167 billion between 2001 and 2008.

Similar studies on NAFTA were also way off the mark. An economist at the Federal Reserve concluded that a CGE-based study of NAFTA underestimated NAFTA’s impact upon U.S. imports by ten times the actual effect of NAFTA. He concluded his study with a recommendation: “If a modeling approach is not capable of reproducing what has happened, we should discard it.”

Not accounting for currency manipulation is a chief problem of CGE models, as Rob Scott at the Economic Policy Institute has demonstrated. The USDA's report even acknowledges the devastating effect currency devaluation can have upon U.S. agricultural exports:

In 1997, U.S. apple exports to Southeast Asia peaked at 150,000 tons, just as the Asian financial crisis struck. The crisis led to sharp devaluations of Southeast Asian currencies that raised the prices of imported apples and income losses that further discouraged apple buying, triggering a dramatic decrease in U.S. apple exports to the region.

As we discuss in a factsheet, Korea is only one of three countries to have ever been placed on the Treasury Department’s list of currency manipulators, having repeatedly manipulated its currency in the past. The Korea FTA contains no prohibition against currency manipulation, so the Korean government could effectively negate the tariff cuts mandated under the FTA through currency manipulation. Despite the long history of Korea manipulating its currency, the USDA’s estimates do not attempt to account for the very real possibility of another devaluation, even though they could have done so through estimating alternative scenarios.

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Obama’s Korea Trade Deal Undermines Future of U.S. Auto Industry, Finds Government Report

The newly released study by the U.S. International Trade Commission (USITC) on the South Korea Free Trade Agreement’s (FTA) supplemental auto deal found that the already hard-hit U.S. auto industry is in for more pain under the Obama administration’s FTA with South Korea. The study was requested following a December 2010 “supplemental deal” that exempted some U.S. autos from having to meet stringent Korean auto safety and environmental standards.

The latest study confirms that, even with the supplemental agreement, very few U.S. autos will be sold in Korea, and a huge increase in Korean auto imports into the U.S. is predicted.

Moreover, the new study did not alter the previous findings that the bilateral and global balance in autos will worsen under this agreement, nor that the U.S. will see an increase in its overall global trade deficit.

The USITC’s newest findings were not unexpected, because in undertaking their congressionally mandated studies of each trade pact, the agency assumes an agreement is fully implemented and tariff reductions are already phased in. The December supplemental deal did not change the ultimate tariff phase outs, only the timelines over which tariffs go to zero. The USITC’s initial 2007 study on the Korea FTA found that the U.S. auto deficit would increase by $531-708 million as a result of the pact.

The House GOP leadership didn’t like that finding, so they requested a new one that incorporated the changes made to the pact in 2010.

In the new study, the USITC noted that slightly improved numbers on U.S. net exports to Korea “stem from changes to the economic environment (e.g., the recent economic downturn) and declines in trade flows in 2009.”

Bizarrely, House Ways & Means Committee Chairman Dave Camp (R-Mich.) celebrated the new study, touting an estimate that the supplemental deal will increase U.S. auto exports by $48-66 million to Korea. But Chairman Camp fails to note that his new study does not change the initial troubling finding that U.S. imports from Korea will also increase $907 million.
 
The findings of the new USITC study, though already bad news for U.S. autoworkers, are also likely to be underestimating the actual damage and inflating the prospective benefits of the FTA and supplemental agreement, for several reasons:

  • The USITC refused to incorporate into its modeling more realistic assumptions about Korean consumer preferences, which are overwhelmingly biased in favor of domestically made goods.
  • The USITC also did not incorporate into its model the fact that “South Korean” autos can be made with up to 65 percent Chinese or North Korean content, and still receive the privileges of the deal.
  • The USITC did not address the concern that members of Congress, industry and unions had that the “transplant” Korean companies now producing in the U.S. South might reduce their employment there, as tariffs are phased out and it becomes easier to simply ship Korean-made cars to the United States.
  • The USITC also does not attempt to model the specific non-tariff barriers that Korea promised to remove in the December negotiations, for instance exemptions from safety standards for U.S. automakers that sell below 25,000 cars a year in the Korean market and the exemptions from environmental standards from the years 2012 to 2015. The agency simply assumes that all non-tariff barriers are removed. (The USITC’s model assumes that any difference between the price of U.S. autos in the world market and the price of U.S. autos in the Korean market are attributable to a black box that is deemed one big “non-tariff barrier.” That price differential is simply assumed to disappear.)

Given Koreans are already disinclined to buy foreign cars, a high profile exemption of U.S. cars from having to meet Korea’s strong safety and environmental standards will only exacerbate Korean consumers’ notions that imports are inferior.

President Barack Obama campaigned and won on overhauling our unfair trade policies. Instead, what Americans face with the Korea FTA is the same Bush NAFTA-style agreement, with slightly altered auto tariff schedules. The Korea trade deal is still projected to increase the overall U.S. trade deficit and cost 159,000 U.S. jobs. The Korea deal requires the kind of financial deregulation that contributed to the economic crisis. The FTA’s labor chapter still contains Bush’s ban on reference to the International Labor Organization conventions when enforcing its weak labor standards. This agreement even allows South Korean goods to be given the benefits of the agreement even if such goods contain inputs or parts from North Korea, despite our sanctions on trade with that country. And it still has sovereignty-eroding, public-interest-policy-chilling rules that allow multinational corporations to sue governments in private, foreign tribunals for taxpayer money. There are nearly $9.1 billion in claims in the 14 so-called investor-state cases outstanding under NAFTA-style deals. None of them relate to traditional trade concerns; all of them relate to environmental, public health and transportation policy.

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Korea FTA Benefits China at the Expense of U.S. and South Korean Workers

We’re continuing our series of facts in response to the Korean Embassy’s misleading claims on the Korea Free Trade Agreement (FTA). Our full response can be viewed here. This is the final installment, focusing on the Korea FTA’s lax domestic content requirements for autos.

Lori Wallach’s Huffington Post piece: “The FTA allows its benefits to accrue to autos that contain only 35 percent U.S. or Korean content.”

Korean Embassy’s claim: “The KORUS FTA stipulates that 35% of the components used to manufacture products (under the build-up method/net cost method) or 55% of the components of the final product (using the build-down method) must originate in one of the two countries to be eligible for preferential treatment. A 45% maximum foreign content rule under the Korea-EU FTA corresponds with the minimum 55% domestic contents rule under the KORUS FTA (using the builddown method). Also, the EU’s standard foreign content rule was 40%, not 45%.” Elsewhere, the Embassy has gone further, stating that the build-up and build-down methods “are supposed to be equivalent to each other. The 20% difference between the methodologies reflects the operation cost in the final product processing stage and manufacturers’ dividends, etc.”[i]

Facts: These two methods are not equivalent. Multinational companies have pushed for rules that intentionally allow them the discretion to include as much as 65 percent content from outside the FTA countries, at the expense of workers in both the U.S. and South Korea.

As the United Autoworkers and others have repeatedly noted, Korean automakers have the option to use the “build-up” method to calculate the domestic value content under the US-Korea FTA, which requires that only 35 percent of the value of the motor vehicle be comprised of domestic parts to qualify for FTA benefits. This method allows – but does not require – that importers deduct certain “fringe” costs like transportation when calculating the maximum permissible share of content from non-FTA countries.[ii]

The EU-Korea FTA provides for only one way for automakers to calculate the domestic value content. Under the EU-Korea FTA, a Korean motor vehicle qualifies for FTA benefits only if its foreign content comprises 45 percent or less of the vehicle.[iii] Put differently, the minimum domestic value content for the EU-Korea FTA is 55 percent. Given that the EU-Korea FTA mandates that 55 percent of the value of a Korean auto must be of domestic components, while the “build up” method of the US-Korea FTA mandates that only 35 percent of the value of a Korean auto must be of domestic components, Korean automakers will be able to put a much greater portion of Chinese components into vehicles destined for the United States, undercutting auto production in the United States.

Members of Congress and fair trade groups have long raised concerns about the low percentage of originating content required for goods to qualify for duty-free FTA treatment. The Labor Advisory Committee for Trade Negotiations and Trade Policy has warned that the lax rules of origin in the Peru, Oman, and Korea FTAs would allow large quantities of goods from third countries such as China to enter the United States duty-free under the FTAs.[iv] Reports on previous FTAs have made similar points.[v] However, industry representatives have successfully pushed the U.S. Trade Representative to include lax rules of origin in FTAs.[vi]



[i] http://www.koreauspartnership.org/pdf/Other%20Issues.pdf

[ii] See Annex 6-A of the Korea FTA,  Available at: http://www.ustr.gov/sites/default/files/uploads/agreements/fta/korus/asset_upload_file680_12704.pdf. See also: International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW), “The Social and Economic Impact of the US-South Korea Free Trade Agreement (KORUS FTA),” September 14, 2010, Available at: http://www.imfmetal.org/files/10102608591310005/UAW_KORUS_FTA_ENGLISH.pdf

[iii] See Protocol 1 of the E.U.-Korea Free Trade Agreement, Available at: http://trade.ec.europa.eu/doclib/html/145192.htm

[iv] Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Oman Free Trade Agreement,” November 15, 2005, at 9, Available at: www.citizenstrade.org/pdf/omanLACreport_11152005.pdf

Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Peru Free Trade Agreement,” February 1, 2006, at 1, Available at: www.citizenstrade.org/pdf/peruLACreport_02012006.pdf

Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Korea Free Trade Agreement,” April 27, 2007, at 28, Available at: http://ustraderep.gov/assets/Trade_Agreements/Bilateral/Republic_of_Korea_FTA/Reports/asset_upload_file698_12781.pdf

[v] See Labor Advisory Committee for Trade Negotiations and Trade Policy, “The U.S.-Singapore Free Trade Agreement,” February 28, 2003, at 14-15. Available at: http://ustraderep.gov/assets/Trade_Agreements/Bilateral/Singapore_FTA/Reports/asset_upload_file77_3220.pdf

[vi] For example, the Industry Sector Advisory Committee on Transportation, Construction, Mining, and Agricultural Equipment urged USTR to allow the build-down method to calculate the domestic content for autos in the Chile FTA after the initial draft agreement only included the build-up method. The final agreement allowed the both methods. See ISAC 16, “Report for the Chile Free Trade Agreement,” February 2003, at 6; USITC, “U.S.-Chile Free Trade Agreement: Potential Economywide and Selected Sectoral Effects,” June 2003, at 80; Chapter 4 of U.S.-Korea FTA.

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The Korea FTA’s Contribution to the U.S. Trade Deficit

We’re continuing our series of facts in response to the Korean Embassy’s misleading claims on the Korea Free Trade Agreement (FTA). Our full response can be viewed here. This time, the focus is on the Korea FTA’s projected increase in the U.S. trade deficit.

Lori Wallach’s Huffington Post piece: The “U.S. International Trade Commission has concluded that the Korea agreement will increase the overall U.S. trade deficit.”

Korean Embassy’s claim: “The ITC clearly cautioned users of its data against doing exactly what Ms. Wallach and others have done: the ITC’s simulation results “should not be interpreted as changes in total imports and exports, or as implying meaningful information about the balance of trade impact of the entire U.S.-Korea FTA.” In its 2007 report, “U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Benefits,” the ITC predicted that the agreement would increase U.S. merchandise exports to Korea by $9.7 billion to $10.9 billion and merchandise imports from Korea by $6.4 billion to $6.9 billion.”

Facts: Embassy continues to dodge the fact that the Korea FTA will be lose-lose. While it cites the USITC projections on the bilateral trade balance showing Korea would lose, it ignores the fact that the U.S. global trade deficit is expected to increase – and it is the U.S. global balance that will affect jobs here.

The USITC’s study on the Korea FTA predicted that implementation of the Korea FTA would cause total U.S. exports to rise by $4.8-5.3 billion dollars and total U.S. imports to rise by $5.1- 5.7 billion, resulting in an increased trade deficit of $308-416 million.[i] This result is inseparable from the other findings in the report, including those that the FTA boosters prefer to highlight.

Interestingly, the USITC has not in the past made caveats like the one quoted in regards to its findings, despite the fact that its model’s track record has proven to be overly optimistic. For instance, a 1999 USITC study using roughly the same model estimated that China’s tariff offer for WTO accession would increase the U.S. trade deficit with China by only $1 billion dollars.[ii] In reality, the trade deficit with China skyrocketed by $167 billion between 2001 and 2008.[iii] Although China’s WTO accession alone (and the favorable trade treatment that came with it) likely did not cause the entirety of the huge rise in the trade deficit with China, it almost certainly contributed more than $1 billion dollars to the rise in the deficit. The USITC should indeed provide caveats that show that its own predictions have been overly optimistic.

Continue reading "The Korea FTA’s Contribution to the U.S. Trade Deficit" »

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The Korea FTA is Lose-Lose for the U.S. and Korea: The Facts

The Korean Embassy recently released claims purporting to rebut the statements in Lori Wallach’s February 15, 2011 Huffington Post piece about the lose-lose nature of the NAFTA-style deal with South Korea. These statements do not reveal the full truth of the matter and could leave a mistaken impression of the so-called “free trade agreement” (FTA) with Korea and its consequences. We’ll be posting the facts in response to the Korean Embassy’s misleading claims throughout the week.

THE FTA, FINANCIAL DEREGULATION AND WEAK LABOR RIGHTS

Korean Embassy does not even dispute that the Korea FTA could worsen financial stability and undermine labor rights. Wallach wrote that, “Another issue intensifying opposition to the FTA in Korea is the pact’s pre-crisis era financial deregulation requirements. After the 1997 Asian financial crisis wiped out decades of improvements to Korean living standards, Korea's policy response to the recent global crisis was forceful. Yet, aspects of both Korean and U.S. financial regulation would newly be exposed to direct challenge by the very firms that wrecked the global economy. Finally, the Korean union members on the delegation clearly shocked many of their audiences with their stories of how South Korean labor laws allow for strikers to be arrested for, well, striking and also allow individual strikers to be sued for compensation by their employers for lost profits.” The Korean Embassy does not rebut any of these points in their response to Wallach.

THE KOREA FTA’S DAMAGE TO THE U.S. AUTO SECTOR

Lori Wallach’s Huffington Post piece: “…the ITC [International Trade Commission] study showed that the (overall) U.S. deficit in autos and auto parts would increase by at least $531 million under the pact.”

Korean Embassy’s claim: “The ITC study predicted that the KORUS FTA would increase U.S. auto exports to Korea by 45.5 percent to 58.9 percent and auto imports from Korea by 9.1 percent to 12.0 percent. At the request of the House Ways and Means Committee, the ITC is investigating potential effects on the U.S. auto industry of FTA modifications agreed upon in December 2010. The ITC expects to submit its findings to the Committee by March 15, 2011.”

Facts: Playing with percentages obscures the projected worsening of the auto trade deficit. The embassy’s use of percentage gains versus the net balance or quantities of vehicles obscures the reality of the data. The USITC's prediction that exports of U.S. autos to Korea would increase by 46-59 percent seems impressive at first glance, but upon closer inspection it becomes clear that the very low starting point of U.S. exports to Korea (about 6,000 vehicles in 2009) means that this percentage increase is small potatoes that will be overwhelmed by the huge increase in Korean auto exports (at about 500,000 in 2009) to the United States projected to occur under the FTA. In the USITC study, U.S. auto exports to Korea start at only $0.7 billion, but Korean auto exports to the United States start at $14.5 billion. Thus, an increase in U.S. auto exports of 46-59 percent results in $294-381 million in greater auto exports, but the increase of 9-12 percent for imports of Korean autos leads to a $1,324-1,737 million import increase, dwarfing the U.S. exports and resulting in a net increase in the auto trade deficit with Korea of $1,030-1,356 million. (Note that due to trade diversion effects, the USITC found that the total increase in the U.S. auto trade deficit with the world is less than the increased deficit with Korea itself.)

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The Incredible Shrinking FTA Jobs Claim

In Rep. Brady's announcement of last week's hearing on the Colombia Free Trade Agreement (FTA), he said, "According to the President’s own statements, [the pending trade agreements with Colombia, Panama, and South Korea] have the ability to create over 250,000 American jobs." Speaker Boehner's blog has also been claiming this 250,000 jobs gain figure.

But did the President ever say that the three FTAs will create 250,000 jobs? No. Rep. Brady here makes at least three errors. If you correct for one, the "jobs created" number goes down to 78,000. If you correct for two, the jobs number goes down to 39,333. If you correct for three, the job gain turns into a job loss of 3,200 jobs.

Back in November 2009, Obama gave an interview to Reuters on the eve of his trip to Asia in which he stated, "And right now we have about 9 percent of -- a 9 percent share of Asia's -- not just China, but Asia's trade overall, and it's estimated that for every 1 percent of increased share that we get, that could mean 250,000, 300,000 jobs."

Obama's statement was misinterpreted almost immediately by opponents of fair trade. In December 2009, Rep. Aaron Schock (R-IL) wrote an op-ed in The Hill in which he claimed, "Surprisingly, even President Obama agrees with me. He recently stated that increasing US exports by just one percent would create over 250,000 American jobs. According to the International Trade Commission [USITC], passage of the Colombia, Panama and South Korea free trade agreements would increase our exports by more than one percent. The inaction on these trade agreements is preventing the creation of a quarter million American jobs."

Rep. Schock completely ignored the crucial difference between increasing America's market share in Asia (a very big pie) and increasing total U.S. exports (a sizable, but smaller, pie). Going from 9 to 10 percent of the export market share in Asia would mean that total U.S. exports to the world would actually increase by three percent. When Obama talked about going from 9 to 10 percent of the market share in Asia, he was talking about increasing exports by $37.2 billion, which would have translated into 248,000 jobs using the standard exports-jobs multiplier estimated by the Commerce Department, so his estimate was apparently spot-on. Schock is instead talking about a projection of an increase in U.S. exports to the world of one percent, or $11.7 billion, which would translate into only 78,000 jobs using the standard jobs multiplier.

So, Rep. Brady is merely dusting off Rep. Schock's old talking claim that was based on shoddy math. But was Rep. Schock's claim that the USITC predicted a one percent increase in total US exports from the three FTAs accurate? No.

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Two opportunities to hear Ha-Joon Chang in DC

Want to hear economic and trade policy issues discussed in an accesible and engaging manner? You can  23-things-they-dont-tell-you-about-capitalism-ha-joon-chang-hardcover-cover-art
do little better than stopping by two events tonight and tomorrow in DC where Ha-Joon Chang is speaking on his new book 23 Things They Don't Tell You About Capitalism.

The first opportunity is tonight at 6:30 pm at Busboys and Poets on 14th St., NW, cosponsored by the Center for Economic and Policy Research page. The second opportunity is tomorrow at the New America Foundation at 12:15 pm.

Here's a little bit more about the book and Chang, from the promotional materials:

We may like or dislike capitalism, but surely we all know how it works. Right? Wrong. Today, most arguments about capitalism are dominated by free-market ideology and unfounded assumptions that parade as ‘facts’. With the help of the ‘Dead Presidents’ on the dollar bills, Walt Disney’s Rescuers, an Indian bus driver named Ram, and sheep-burning French farmers, Ha-Joon Chang’s new book, 23 Things They Don’t Tell You About Capitalism (Bloomsbury USA, January 2011), tell the story of capitalism as it is and shows how capitalism as we know it can be, and should be, made better.

About Ha-Joon Chang:

Ha-Joon Chang teaches in the Faculty of Economics at the University of Cambridge. His books include the international bestseller Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism and Kicking Away the Ladder, winner of the 2003 Myrdal Prize. In 2005, Chang was awarded the Leontief Prize for Advancing the Frontiers of Economic Thought.

Praise for 23 Things They Don't Tell You About Capitalism:

“Chang, befitting his position as an economics professor at Cambridge University, is engagingly thoughtful and opinionated at a much lower decibel level. ‘The “truths” peddled by free-market ideologues are based on lazy assumptions and blinkered visions,’ he charges.”—Time

“Chang presents an enlightening précis of modern economic thought—and all the places it’s gone wrong, urging us to act in order to completely rebuild the world economy: ‘This will [make] some readers uncomfortable…[;] it is time to get uncomfortable.’”—Publishers Weekly

“Myth-busting and nicely-written collection of essays”—Independent (UK)

“For 40 years, I have worked as a journalist and trained thousands of other journalists from my former perches as a University of Missouri Journalism School professor and as executive director of Investigative Reporters and Editors. I have written newspaper articles, magazine features and entire books with heavy doses of economics policy and business behavior. I wish the book 23 Things They Don’t Tell You About Capitalism had been available when I was a rookie; I would have been more alert to the hands-off-business catechism by which Americans are relentlessly indoctrinated.”—Steven Weinberg, Remapping Debate

“Shaking Economics 101 assumptions to the core … Eminently accessible, with a clearly liberal (or at least anticonservative) bent, but with surprises along the way—for one, the thought that markets need to become less rather than more efficient.”—Kirkus Reviews

“I doubt there is one book, written in response to the current economic crisis, that is as fun or easy to read as Ha-Joon Chang's 23 Things They Don't Tell you About Capitalism.”—AlterNet Executive Editor Don Hazen

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Tariffdega Nights: The Latest Ballad of Ricky Bobby

Adam McKay, the writer and director of such Will Ferrell classics as Talladega Nights: The Ballad of Ricky Talladega Nights The Ballad of Ricky Bobby
Bobby, has always had a political streak. His Funny or Die website featured the hilarious video with all the "SNL presidents" calling for Wall Street reform, and his movie "The Other Guys" tackled corporate corruption in its closing credits.

His engagement with policy runs deep. He maintains a blog over at the Huffington Post, where he recently questioned offshoring of jobs. And on comedian Marc Maron's excellent podcast, McKay recently said the following:

McKay: You have to raise trade tariffs. We only pay 2%... India has a 40% tariff, China has 22%, we only have a 2% tariff. That's crazy! You notice no one talks about that. You could almost say that one issue alone could change our whole nation if we went to a 10% trade tariff.

Maron: Because it would encourage manufacturing?

McKay: All the manufacturing would come back here. Wal-Mart couldn't be making that money anymore. You'd see factories spring up all over this country. And you could get rid of all those subsidies, the 48 billion, you could get rid of the Bush tax cuts...

By the way, we could literally balance the budget and fix the economy right now in 10 minutes. That's how easy it is. The problem is the wall of white noise and misinformation and anger that gets in the way of it where they justify everything...

How about Mitch McConnell in Kentucky voted against the Made in America provision for the stimulus package, and he's in the poorest state in the country? Against the Made in America provision, but no one talks about that. Instead it's about liberals, it's about gay marriage...

It would be pretty unusual to hear this policy advocated in Washington policy circles. But then again, as a long running Pew poll shows, there is a wide gap between the general public and elite respondents (defined as Council on Foreign Relations members) when it comes to trade policy.

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Debunked FTA Export Claims Continue to Pop Up

In his announcement of the hearing on the Colombia FTA that occurred yesterday, Rep. Kevin Brady alleged that "Since 2000, U.S. exports to the 13 countries with which the United States has implemented trade agreements have grown almost twice as fast as our worldwide exports," but a fair accounting of the export record does not support this claim.

In our September report about the dismal record of U.S. exports to our FTA partners, Lies, Damn Lies, and Export Statistics, we debunked similar claims floated by the Chamber of Commerce and the U.S. Trade Representative. Apparently fair trade opponents think this claim is just too good to let facts get in the way, because it has surfaced again in Rep. Brady's statement.

It seems Rep. Brady is engaging in the same apples-to-oranges comparison trick that we highlighted in our September report (see page 18). If you take the unweighted average growth of exports to FTA partners and compare it to the weighted average growth of exports to the world over 2000-2010, you'll get an FTA growth rate almost twice as high as the growth rate of exports to the world.* Comparing weighted and unweighted averages makes FTAs seem great for U.S. exports, but it's a false comparison.

In fact, an apples-to-apples comparison of exports to FTA partners and non-FTA partners since 2000 shows just the opposite of Rep. Brady's claims: exports to FTA partners have grown at half the pace of exports to non-FTA partners. In inflation-adjusted and trade weighted terms, exports to FTA partners grew at an average annual rate of only 1.5 percent over 2000-2010 while exports to non-FTA partners grew at an average annual rate of 3.8 percent over the same period. The best way to compare the FTA and non-FTA export rates is to use a weighted measure since it weights exports by their value - and thus their importance to U.S. workers who produce the exported goods. However, as we demonstrated in our September report, it is also the case that if you slice it the other way - comparing the unweighted FTA rate against the unweighted non-FTA rate - exports to FTA partners still have grown at half the pace of exports to non-FTA partners. Thus, any way you slice it, exports to FTA partners have lagged behind exports to countries with which we do not have FTAs.

*Since Rep. Brady says "worldwide" exports, here exports to FTA partners are not subtracted out from exports to the world to get the non-FTA export growth rate. Also, Rep. Brady speaks of 13 U.S. FTA partners, but there are 17 FTA partners and all 17 were included in the calculations here. Finally, these numbers are not adjusted for inflation because the unweighted FTA export growth rate would actually be more than twice the weighted worldwide export growth rate if the data was adjusted for inflation, which would be inconsistent with Brady's claims.

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Japan tragedy highlights consequences of corporate offshoring

Our hearts go out to those who have lost loved ones as a result of the earthquake and its aftermath in Japan.

As humanity collectively sifts through the lessons that can learned from this disaster (including with respect to the perils of nuclear power), Information Week is reporting on another fallout with global implications:

The massive 8.9 earthquake that has caused widespread devastation in Japan is expected to cause worldwide shortages and severe price swings in some semiconductors manufactured in the island nation, according to some analysts.

The electronics expected to be most affected by the 8.9 quake that struck Friday include semiconductor wafers used in making microprocessors, NAND flash used for storing music, video, and other content in handheld devices, and DRAM, which is the system memory in PCs. More than 40% of the world's NAND and 15% of the world's DRAM are made in Japan, according to market researcher Objective Analysis.

In other words, there are consequences beyond just job loss to corporations' decision to offshore production to a few locations on the planet. To put it a different way, what is rational for the individual corporation can be irrational from the perspective of society as a whole.

Such a problem was predicted nearly six years ago by my colleague Barry Lynn, the author of the book "End of the Line." In a column for the FT summarizing the book, Barry wrote:

Time and again, human beings have learned to build buffers into complex systems. We design compartments into our ships, circuit breakers into our electrical networks and minimum reserve requirements for our banks. Yet since the cold war era, we have done the exact opposite with our industrial system. Rather than conceive market-friendly methods to distribute risk and dampen shocks, we devoted ourselves to eliminating the bulkheads that have traditionally existed between nations and between companies. To evoke a more raw analogy, in our production system, we bulldozed all the levees flat.

As a result, we now live in a world where an isolated political or natural disaster on the far side of the globe can disrupt basic systems on which we all depend. Consider what would happen in the event of war on the Korean peninsula, or an uprising in south India, or an avian flu pandemic in industrial Asia.

In the first case, we would immediately lose half the global production of D-ram chips, 65 per cent of Nand flash chips and much more. At a minimum, the result would be massive disruptions in the electronics industry and in all industries that depend on electronics components. In the second case, numerous global companies, including banks, would lose their ability to process information because they have relocated key back-office operations to that region. The third case, meanwhile, presents chilling proof that the production system has evolved in directions no one expected. As a recent article
in Foreign Affairs noted, one cross-border system that would collapse in the event of a pandemic is the one the US relies on for medical respiratory masks.

In each instance, an everyday disaster far away would set off potentially massive disruptions of the industrial systems on which all nations depend... It is time to admit that our grand experiment with radical laissez faire management of industry has failed.

While the global response to the Japan earthquake in the short-term will rightly focus on saving lives and avoiding further deaths, policymakers should also assess why they have allowed corporations to break down reasonable buffers against excessive offshoring of production. A little more redundancy in supply chains is not only collectively rational, but would also have the benefit of creating jobs at home.

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Trade party at the cattle farm

Princeton economist Uwe Reinhardt had an interesting post on trade last week on the NYT website that will probably spark some debate. He writes:

The economist’s case for free trade is cobbled together from the toolkit labeled normative economics, a branch of economic analysis that seeks to identify what is efficient and what is not and, thus, what is good policy and what is not — and, therefore, what should and should not be done.

I have already written several posts that were critical of that branch of economics. My objection to this approach is the dictatorial, collectivist nature of normative analysis.

In a nutshell, in that branch of inquiry, economists view the world as a giant cattle farm to be managed in ways that maximize the collective weight of the cattle, totally in abstraction from the welfare of any individual animal. We call the collective weight of the cattle social welfare.

The cattle-farm model then allows us to say, with a straight face, that if a public policy bestows a gain of $2,000 on George but makes Martha $1,000 poorer, social welfare has been increased.

This dictum underlies the economist’s case for free trade. The cattle farm is global. Free-trade analysis pays little attention to the love people have for their own nation, which makes them assign more weight to the welfare of fellow citizens than to that of citizens of other countries.

The post - along with Reinhardt's post from last month - couldn't have come at a more appropriate time.

Many proponents of what they deem "free trade" (not to mention "free trade agreements" that have little to do with actual free trade) have been ramping up the cattle farm happy talk recently.

Take for instance this well-assembled video clip on the virtues of "free trade". I highly recommend the three minute clip, because it captures exactly what is wrong with the cattle farm metaphors.

In the simple world of Fritz and Lou (the characters in the clip), free trade makes about as much sense, as well, a division of labor at your workplace or home. That's because the simple stories we use to talk about the benefits of division of labor between individuals are at their core the same stories we use to talk about the benefits of trade between nations.

But nations are different than people, because there's more than one person in a nation. And as the recent protests in Wisconsin remind us, there is a class division in America. The trade policies that we have pursued have benefited one (increasingly tiny but insanely wealthy) class at the expense of another. And not only has the upper class not been redistributing their newfound gains to the rest of us (an operating assumption that underpins the classical free trade story), but they're actually calling for ripping off the few bandaids and burial insurance policies that are in place.

This themes are are also raised in "Free Trade Doesn't Work," a readable book by Ian Fletcher, now a fellow with the Coalition for a Prosperous America. Reinhardt and Fletcher are asking many of the same questions, making many supporters of status quo trade policies uncomfortable in the process.

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