tariffs

The Colombia FTA Deserves a Speedy Vote

by Fran Smith on December 22, 2010

in International, Trade

President Obama needs to look beyond pushing only the U.S.-Korea Free Trade Agreement to standing behind ratification of the other pending trade agreements with Panama and Colombia, says Cato’s Dan Griswold in a Washington Times article today.

Griswold points out that while the FTA with Korea is economically of far greater consequence than the Colombia FTA, that agreement would help cement our relationship with an important ally that is a strong pro-democracy counterpart to dictators like Hugo Chavez.  In economic terms, the trade pact would completely eliminate most tariffs on U.S. goods and services — providing companies like Caterpillar Inc. with strong market opportunities.

He takes issue with the Obama administration’s pronouncement that they will not be introducing the implementing legislation for the Colombia FTA anytime soon because they don’t have the votes.  That shouldn’t be the case, Griswold says, because of the influx of new legislators who aren’t bound to the union-led opposition to free trade.  As Griswold says,

It sounds more like a convenient and self-fulfilling prophecy on the part of the administration. If the votes are not there for the Colombian agreement, it is only because Mr. Obama so far has failed to exercise the same leadership he recently displayed in moving the Korean agreement toward passage.

Here’s what CEI has to say on the need to vote for the U.S.-Colombia FTA.

Image credit: tanya~b’s flickr photostream.

Two GOP Senators Say Get Rid of Ethanol Subsidies; Gore Says His Support for Ethanol Subsidies a Mistake

by Fran Smith on November 23, 2010

in Agriculture, Energy, Environment, Ethanol, Global Warming

In the Washington Post’s “Plum Line” column today Greg Sargent focuses on two GOP senators’ campaign to get rid of the ethanol subsidies that are due to expire at the end of the year. It’s likely that the issue will be a divisive one on the Republican side, because some strong supporters of ethanol subsidies want to extend the 45-cent-a-gallon tax credit for blenders of ethanol and the tariff on ethanol imports.

Influential Republican Senators Jim DeMint and Tom Coburn are arguing that a clear message in the recent elections was that Americans want to reduce government spending, and the ethanol programs should be on the cutting block.

A surprise new opponent of ethanol subsidies from the other Party is former Vice President Al Gore, who was quoted as saying: “It is not a good policy to have these massive subsidies for (U.S.) first generation ethanol.” Gore noted that ethanol as a fuel has a small energy conversion ratio. He also explained his earlier support for ethanol subsidies as a product of his political ambition to become president:

“One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president.”

Many environmental and food aid groups – some of which had originally supported corn-based ethanol production - turned against this technology because of the diversion of corn crops from food to fuel production as well as the environmental damage of its production. CEI early on – in 2006 — called attention to the land and environmental costs of expanded ethanol production because of the subsidies and other incentives, especially the renewable fuels mandate. In 2007, CEI pointed to the unintended consequences of the ethanol program. Check out CEI’s global warming website for news about CEI’s continued efforts to get rid of the ethanol mandate, subsidies, and tariffs.

Take a Look at U.S. Tariffs – They Raise Costs and Restrict Choice

by Fran Smith on September 29, 2010

in International, Trade

With so much focus on “unfair” trade vis-à-vis U.S. trade partners, especially China, it’s sometimes sobering to look at protectionist U.S. policies that restrict imported goods and services by slapping them with high tariffs.  The Business Insider provides a good start in its focus on 25 imported products that have the biggest U.S. tariffs. Take a look at the highlighted tariffs that range from 20 percent on some dairy products to 37.5 percent for leather shoes, then 163.8 percent on unshelled peanuts up to a whopping 350 percent for imported tobacco.

But what do these tariffs mean for consumers?  Obviously, they raise their costs.  Ed Gresser of the Progressive Policy Institute has written extensively on how U.S. tariffs are really regressive — they hurt the poor the most by increasing the costs of needed goods, such as shoes and clothes.  Here’s what Gresser says:

Though the tariff system is smaller than other taxes, it is far more regressive. This is because poor people spend a greater share of their income on clothes and shoes than do wealthy or middle-class people. The cheap and simple goods made in poor countries and bought by low-income Americans are subject to far higher tariffs than luxury goods. An acrylic sweater attracts a 32 percent tariff, while a cashmere sweater gets only 4 percent; a polyester bra is tagged with a 17 percent tariff, while one made of silk gets less than three percent; and a cheap stainless steel fork is hit with a 19 percent tariff, while a silver-plated spoon has none at all.

Since the Business Insider feature only looked at tariffs, it missed some of the most egregious protectionist programs in the U.S. — the U.S. sugar program that guarantees sugar producers a certain price by restricting domestic supply as well as sugar imports.  Or take the U.S. cotton program that subsidizes a small number of cotton producers at taxpayer expense and makes it uncompetitive for many poor countries to export their cotton to the U.S.  As with these and other protectionist policies, they generally help a small group of producers by restricting competition, but the costs are borne by consumers in terms of fewer choices and higher prices.

No Chickening Out on Trade Retaliation

by Fran Smith on September 28, 2010 · 1 comment

in International, Trade

Trade relations between the U.S. and China are heating up, with both countries bringing antidumping charges against the other — some in retaliation for earlier actions.  With the House of Representatives primed to take up a bill allowing the U.S. to levy tariffs on Chinese imports to protest China’s currency intervention, China announced it was slapping a huge tariff on imports of U.S. poultry. This would up the chicken tariff to a minimum of 50.3 percent and a maximum of 105.4 percent on chicken products imported from the U.S. — an escalation from an earlier tariff tacked on by China in retaliation for the U.S. slapping a higher tariff on Chinese tires last year.

Last Friday, the House Ways and Means Committee approved H.R. 2378, the Currency Reform for Fair Trade Act. (Note to readers: whenever “fair trade” is used instead of “free trade,” it’s almost always supporting a protectionist policy.)  Almost immediately on September 26 — though apparently not connected — China’s ministry of commerce announced that it had concluded a year-long antidumping investigation of U.S. poultry imports and concluded that the chickens were being sold to China at lower than production costs.

This was followed quickly by a September 27 announcement by the U.S. Department of Commerce that the People’s Republic of China and Mexico were unfairly dumping seamless refined copper pipe and tube, and the U.S. would be imposing dumping duties on those imports pending a thorough investigation by the International Trade Commission.

Currently, the ITC has numerous investigations in their final stages involving Chinese imports. Here’s the current list: Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses from China and Indonesia; Drill Pipe from China; Magnesia Carbon Bricks from China and Mexico; Narrow Woven Ribbons from China and Taiwan; Seamless Refined Copper Pipe and Tube from China and Mexico; Seamless SLP Pipe from China; Woven Electric Blankets from China. 

It’s not likely that these actions and others will advance President Obama’s goal of doubling exports in five years as part of an economic recovery plan.  Important trade partners such as China and Mexico that have retaliated against some U.S. protectionist policies may encourage other countries to take action.  Tit-for-tat trade remedies won’t improve U.S. competitiveness, but can undermine the international trading system.

Tricks Against Trade

by Fran Smith on September 15, 2010

in International, Trade

Public Citizen’s Global Trade Watch is up to its tricks against trade again.  Noted for its past expertise in destroying the Seattle WTO negotiations, the group is now taking a new stance against free trade agreements (FTAs), though not by their usual rhetoric that they cost jobs and a “race to the bottom.”  Their new approach is that FTAs actually lower exports. The group just published a “study” purportedly showing that exports to countries that have free trade agreements with the U.S. showed less export growth than did exports to countries that don’t have FTAs.

I guess they are saying that even though these pacts lower tariffs and other trade barriers on many goods and services–making U.S. products and services cheaper for trade partners to import–they have a negative effect on U.S. exports.  A bit counter-intuitive, but theirs is not to reason why — Public Citizen states that quite clearly — but to show that past and, of course, future trade agreements will harm rather than help the U.S. economy.

“It is beyond the scope of this paper to explore in detail why the United States has had lower export growth with FTA partner countries: the central point is that the claim that export growth to FTA partners has been higher than export growth to non-FTA partners is not supported by the actual U.S. government trade flow data.”

In a quick perusal of the 42-page report, what I found most interesting is that the FTA countries were listed in numerous charts and graphs, but nowhere could I find a listing or a mention of which non-FTA countries were included in the analysis.

Isn’t that a somewhat basic analytic flaw — to have specifics about one group you’re analyzing and to use aggregate numbers for the group you’re comparing?

Here are a few more quick observations on the study.  Nowhere do the authors discuss other factors that might explain lower exports than expected in FTA countries.  What was happening in the specific countries?  Could the fact that Mexico had a devastating currency crisis in 1994 — right when the North America Free Trade Agreement went into effect — have anything to do with their diminished ability to import goods and services from the U.S.? After all, Mexico’s GDP declined approximately 7% in 1995.

Also, is China included in the non-FTA countries? If so, then that country’s phenomenal growth over the past 10 years would almost by itself affect the results.  In 2009, China had an 8.7 percent GDP growth rate and imported $69.6 billion of goods and services from the U.S.  The global financial crisis affected U.S. exports to China much less than those to other important markets feeling the brunt of the economic downturn.

In addition, of the top ten countries in terms of U.S. exports, only two have free trade agreements with the U.S. But, of course, since we don’t know which countries Public Citizen used for its “non-FTA” group, there’s no way of knowing if some or most of the top ten were in the list or of analyzing their economic conditions.

Despite what I consider are considerable problems with this report, it’s bound to be used by the anti-trade forces arming themselves for future battles on the pending FTAs with South Korea, Colombia, and Panama.  Betcha too the report will be used in the lead-up to the November elections, as trade-bashing seems to be becoming one of the defining Democratic issues.

Mexico’s Retaliation — A Good Idea?

by Fran Smith on August 17, 2010 · 1 comment

in International, Legal, Trade

Cato’s Dan Ikenson posted today in favor of the trade retaliation measures announced by Mexico in response to the U.S. refusal to open its market to Mexican trucks, as the U.S. had agreed to do under the North America Free Trade Agreement.  Dan details the 15-year history of U.S. intransigence–which involves labor unions, environmental groups, and Congress putting up road blocks.  This recent move by Mexico expands the list of products that will have punitive duties imposed, since their earlier imposition of tariffs didn’t get the U.S. moving.

As a general rule,  I don’t support trade retaliation for a host of reasons — the first being that the measures end up harming people, the consumers in Mexico who have their choices restricted or face rising prices on those goods, and the U.S. exporters, who likely will face falling Mexican demand for the affected goods. Retaliation may also harden the opposition to free trade in the U.S., especially among the NAFTA-haters — the labor unions and environmentalists.

Trade retaliation also can escalate in a tit-for-tat fashion.  “We’ll find something we can get you on,” whether it be a pseudo-phyto-sanitary standard or some other non-tariff approach.

In favor of the Mexican retaliation, a solid argument could be made that the U.S. has acted egregiously in not living up to its NAFTA commitments over a 15-year period.  And Dan Ikenson has made a convincing case. A trade agreement is a contract, with procedures included for settling disputes relating to the agreement.  Mexican followed the rules, brought its complaint, and a NAFTA panel unanimously ruled in favor of them in 2001.  But, the U.S. delayed and tried to wiggle out of its commitments. So Mexico does wear the “white hat” in this dispute, and its actions are justified in the context of NAFTA.

What I’m concerned about is how the labor unions will use this and spin it — with calls of  “unfair” and “unsafe”– to further undermine support for free trade.  Already, the Teamsters’ Jim Hoffa has asked the president to challenge Mexico on the tariffs and said the only way to solve the problem is to not to open the U.S. borders to “unsafe” Mexican trucks but to “renegotiate” NAFTA.  And the labor unions have been running the trade show in Washington, with Congress’ advice and consent.  They have held up the three pending free trade agreements with Panama, Colombia and South Korea, and labor unions’ latest trade attack is focused on Guatemala for not abiding by their labor commitments in the Central America Free Trade Agreement.  They are flexing their muscles for the battles to come.  And it doesn’t bode well for progress on free trade.

USDA may increase sugar quotas

by Fran Smith on April 14, 2010

in Agriculture, International, Trade

The Wall Street Journal reported today that the U.S. Department of Agriculture may increase the import quotas for sugar to address a tightening supply and possible shortages.  Currently, about 40 countries can export a specified quantity of sugar to the U.S. under what’s called a tariff rate quota (TRQ).  TRQ sugar has low or no tariffs, while above those amounts, sugar is subject to stiff tariffs. Only one country, Mexico, under the North America Free Trade Agreement, is not under the quota system.

Under the 2008 Farm Bill, the USDA had to wait until April 1, 2010 to decide whether to increase the quotas.  Last week, the U.S. Trade Representative announced that it was reallocating some of the 2010 quota amounts that hadn’t been used by certain countries to quota-holding countries that are exporting sugar to the U.S.   Brazil, the Dominican Republic, the Philippines, and Australia received the bulk of the reallocations.

The TRQ system is part of the U.S. sugar program that keeps the price of U.S. sugar generally twice as high as the world price through domestic supply constraints, import restrictions, and price supports for U.S. producers. It’s a central planning approach that raises the cost of sugar and sugar-containing products for consumers, causes job losses as confectionery firms are hit by higher costs, and harms poor sugar-producing countries that can’t compete with U.S. “subsidized” sugar.  See some CEI ideas for terminating this program.

U.S. avoids Brazil’s retaliatory tariffs — for now

by Fran Smith on April 7, 2010

in Agriculture, International, Trade

With Brazil poised to retaliate against the U.S. for its cotton subsidies that were deemed unfair by the World Trade Organization, the two countries announced on April 6 that they had reached an agreement to forestall Brazil’s announced actions to slap tariffs on about 100 U.S. products imported by Brazil, including several products relating to intellectual property.  The tariffs and countermeasures were to go into effect today.

In making the announcement U.S. Trade Representative Ron Kirk and U.S. Secretary of Agriculture Tom Vilsack said that the agreement takes steps to recompense Brazil  over the shorter-term while continuing discussions regarding how to eventually resolve the cotton dispute through further negotiation and the 2012 Farm Bill.  Under the WTO’s finding in the cotton dispute brought by Brazil, that country was entitled to impose about $820 million in countermeasures.

The USTR press announcement detailed that the U.S. will establish a fund of approximately $147.3 million per year on a pro rata basis to provide Brazil with technical assistance and capacity building.  The U.S. will also modify its Export Credit Guarantee Program, and make a risk-based determination whether fresh beef can be imported from Brazil while preventing the introduction of foot-and-mouth disease in the U.S.

One can only hope that the fix the U.S. found itself in as a result of giving in to cotton producers and other special interests in the 2008 Farm Bill will make policymakers realize that providing subsidies and hand-outs to special groups can be costly for other producers and consumers.  But don’t bet on that.  Farm bills are one of the worst examples of bi-partisan lawmaking, with politicians ever ready to provide  pork for their farm constituents – with taxpayer money that they think of as their own.

Defending free trade: the pending FTAs

by Fran Smith on October 15, 2009

in Economy, Employment, International, Trade

The pending U.S. Free Trade Agreements with South Korea, Panama, and Colombia are languishing in limbo, despite the fact that all three agreements will improve the flow of goods and services, foster economic growth and create jobs, and enhance the close relationships between the U.S. and those countries.   That was the theme of the panel of speakers at The Heritage Foundation’s seminar today, “Getting America’s trade agenda back on track.”

The panel featured H.E. Han Duk-soo, Ambassador of the Republic of Korea; Francisco Álvarez de Soto, Vice Minister for International Trade Negotiations, Republic of Panama; and Ricardo Triana, Director, Colombian Government Trade Bureau.  The speakers pointed principally to the FTAs’ benefits to the U.S., not only in economic terms but in its national interests.  Ambassador Terry Miller, the moderator, noted that the three countries are entering into trade agreements with other major trading partners, while the U.S. holds up action on their trade pacts. That disadvantages the U.S., which can’t yet take advantage of significantly lower tariffs on exports of numerous goods and services that the FTAs include.

Representative Bob Goodlatte (R-VA) rounded out the presentations by emphasizing the benefits of free trade, especially in the current downturn, when increased trade can lead to more vibrant economic growth and job creation.  In his closing remarks, Goodlatte hit the cap-and-trade bills currently being considered for the job losses they will create.  He also noted that the proposed sanctions on imports from countries that don’t enact a CO2 repression regime would be a huge mistake and a blow to the world trading system.

Another Hoover on trade?

by Fran Smith on September 15, 2009 · 1 comment

in Economy, International, Trade

President Obama’s slapping of tariffs on tires imported from China is the latest in a series of protectionist moves by the U.S. that threaten the world trading system, risk retaliation by the U.S.’s largest foreign creditor, and ultimately harm consumers.  A Wall Street Journal editorial today titled “A Protectionist President” points out that Obama’s trade stance could be following in the disastrous footsteps of President Hoover.

The reality is that without the U.S. leading by example, the world trading order is likely to deteriorate into every country for itself. This is especially dangerous amid a global recession in which world merchandise trade volume fell by roughly 33% from the second quarter of 2008 to June 2009. Reviving trade flows is crucial to restoring global growth.

Mr. Obama may not intend to start a trade war, but then Hoover didn’t set out to pick one either. His political abdication is what made it possible, however, and trade passions once unleashed can be impossible to control. On his present course, President Obama is giving the world every reason to conclude he is a protectionist.

The Chinese have said they may retaliate on the tire tariffs by restrictions on U.S. chicken and auto parts.  That indeed could escalate to the detriment of U.S. manufacturers and producers and the jobs they maintain.  But U.S. consumers, especially lower-income consumers, could face immediate and substantial increases on lower-cost tires, many of which come from China.  Some tire distributors estimate that the cost of a $50 tire could rise to $85.  Since U.S. manufacturers mainly produce higher-priced tires, this protectionist move will do virtually nothing  for U.S. jobs in the tire industry, except perhaps appease the trade unions, especially the United Steelworkers, which have been clamoring for more protection.

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