WTO

“Leveling the playing field” with border taxes (read “bring down the economy”)

by Fran Smith on June 25, 2009 · 1 comment

in Energy, Environment, International

In Washington, beware any proposal that attempts to “level the playing field.” What is usually meant is hobbling competition with restrictive rules and regulations that often raise costs for consumers. On the international playing field, such “leveling” can have broader disastrous consequences.

That’s likely to be the case with the House Ways and Means’ misguided proposals to impose carbon taxes on imports from countries that haven’t taken stringent measures to control greenhouse gas emissions.

It turns out that the huge and complex energy bill – the Waxman-Markey bill – is scheduled to be voted on Friday. It sets up a “cap and trade” system by setting a limit on carbon emissions and issuing tradable allowances. The bill got some carbon-intensive industries realizing the high costs they would have to pay under the program and then pass on to their customers. They and environmental groups eager to suppress energy use talked about “leakage,” that is, firms in countries that didn’t have strict emission standards would be able to offer lower prices, and other firms might move to those countries as well. Their solution? Hit those foreign imports with a hefty tax too, and Ways and Means is figuring out a way to do that.

China, India, and other powerhouse developing countries are the main bugbears. Yet going down that road to protect domestic industries could put our fragile economy in a tailspin. CEI and others have written about the increased costs to consumers from suppressing the use of fossil fuels that supply more than 80 percent of U.S. energy. At a time when many families are struggling with bills, adding these new costs will be a hefty burden. Assessing carbon taxes on imports from certain countries would mean that consumers would get no relief from those increased costs.

Perhaps the main threat, however, is to the whole economy of the U.S. Countries like China and India won’t sit back and take this blow to their exports. They will likely retaliate with trade measures against the U.S. possibly affecting a broader range of products. In fact, China’s top climate change official Li Gao had suggested that countries importing goods from China might themselves pay for the emissions created in their production. Those large developing countries point out that they have only recently been experiencing rapid industrialization and economic growth, in contrast to the developed world, and do not want to be penalized and have their growth curtailed, as millions of their people are still living at a subsistence level.

The U.S. border measures – and perhaps the free allowances offered under cap-and-trade –will undoubtedly face challenges in the World Trade Organization, which can go on for years and further disrupt the world trading system.

Also, the threat is real that retaliation might be initiated outside the trading system. Currently, China holds almost one-quarter of all U.S. debt held by foreign countries. Suppose China threatened to dump some of its holdings?

Let’s hope policymakers have more sense than to vote “yea” for this economically destructive bill.

Energy bill — “first shot” in carbon trade war?

by Fran Smith on April 1, 2009 · 2 comments

in Economy, Energy, Environment, Global Warming, International, Trade

In the wake of the release of the Waxman-Markey energy bill, many commenters have pointed to the drastic restrictions on domestic energy use to address greenhouse gas emissions, while some, like CEI, have pointed to the huge economic costs that would result — costs that would be paid for by consumers and in terms of reduced manufacturing and jobs.  Few have noted a further economic consequence — the possible disruption of the world trading system because of the bill’s endorsement of carbon border taxes on imports from countries that don’t have an energy-repressive regime.  Here’s what CEI’s Iain Murray has to say about that:

The bill as drafted clears the way for carbon protectionism.  It envisages “rebates” to companies that have to pay higher costs than their international competitors, which amounts to illegal state aid under WTO rules.  Further, it directs the President to institute what is laughably called a ‘border adjustment’ program requiring foreign companies to pay for the cost of carbon.  This is nothing more than a tariff aimed at eliminating the competitive advantage of other nations.  Taken together, these provisions represent the first shot in what is likely to prove a disastrous carbon trade war.

Margo Thorning of the American Council for Capital Formation and Bill Kovacs of the U.S. Chamber of Commerce provide hard and realistic criticism of carbon border taxes in National Journal’s Experts Blogs this week.

No “hysteria” about trade — just some facts

by Fran Smith on March 19, 2009

in Odds & Ends

I admire Dan Ikenson’s work on trade issues at Cato. Usually I agree with his views. A notable exception is his post yesterday on Cato’s blog – “Too much hysteria about trade.”

No, Dan wasn’t hitting the current climate of China-bashing or the Teamsters’ on-going campaign against Mexican trucking and NAFTA or the “Buy American” provisions in the stimulus bill. Dan instead was taking to task newspapers like the Washington Post that have been warning readers about the rising tide of protectionism in this world economic downturn.

He writes:

The fact of the matter is that there isn’t any discernible trend toward protectionism in the United States or in the world right now. World leaders issue warnings about the consequences of protectionism, but there are not trends. There are incidences, but no trends.

He uses now-US Trade Representative Ron Kirk’s Senate testimony as evidence of the Obama Administration’s support for open trade and for enforcement of trade rules.

I beg to differ. Kirk’s testimony, of course, reiterates President Obama’s Trade Agenda, which, while including some good rhetoric about the importance of open trade, strongly endorses the need to focus on non-trade issues in trade agreements, such as those involving labor and the environment. Here’s what Kirk said:

I respectfully submit that two strong steps toward restoring domestic confidence in open markets are a real and renewed commitment to enforcement of our trade rules, including those addressing labor and the environment,

And –

. . . to ensure that the way we promote trade reflects our country’s values about economic progress and justice, including through the advancement of internationally recognized labor and environmental standards.

Such issues, as Jagdish Bhagwati has often written, really act as non-tariff trade barriers and force poorer countries to adopt our regulatory schemes in these areas (to “level the playing field”) even when they don’t have the resources.

Dan may not realize that U.S. policymakers such as the Energy Department Secretary and others are seriously considering imposing carbon tariffs on countries (read China and India) that aren’t taking appropriate steps to restrict carbon emissions. Again, that would be a good way to level the playing field and improve U.S. competitiveness. Not protectionism?

Food safety is another area where protectionism may rear its ugly head under the guise of protecting consumers but actually setting detailed standards that may rely more on procedures than the safety of the end product. A bill recently introduced in the House could easily be used to block foreign competition.

And let’s not forget the stimulus package and the infamous “Buy American” provisions, which mandate that any company receiving government funding has to use “made in America” goods, such as iron and steel. The stimulus legislation also restricts companies receiving bailout funds from hiring foreign workers and restricts those firms receiving Trouble Assets Relief Program (TARP) funds from hiring foreign nationals holding H-1B visas unless they can prove they could not hire U.S. citizens instead.

The Obama Team’s emphasis on enforcement issues seems benign to Dan. But take a look at what Rep. Sander Levin, head of the trade subcommittee of the House Ways and Means Committee is cooking up on trade enforcement. Besides promising lots more WTO complaints, the legislative plan is to put back in place provisions on U.S. antidumping and countervailing duties that were changed under President Bush because they weren’t WTO-compliant. But don’t interpret that as protectionism, Levin was quoted as saying, since its purpose is to “enforce the rule of law and the openness of markets.”

“Hysteria” about trade protectionism?  Think it’s not coming from the media, Dan, but from trade protectionists.

To world leaders: halt the spread of protectionism

by Fran Smith on December 8, 2008 · 1 comment

in International, Trade

It’s timely and needed — a new publication gives leading trade economists’ views on “What world leaders must do to halt the spread of protectionism.” In the publication by VoxEU.org (run by The Centre for Economic Policy Research), all of the experts caution that in times of recession, countries often attempt to fend off competition by trade protectionism; to do so, however, would be a huge mistake and plunge the global economy further downward, particularly hurting developing countries.

Instead, these experts argue, deal strongly with domestic economic problems, while taking steps to further the multilateral trade talks in the World Trade Organization’s Doha Round.

It’s well worth a read — short chapters are by such trade notables as Jagdish Bhagwati and Arvid Panagariya, Gary Hufbauer and Jeffrey Schott, and the publication’s editors, Richard Baldwin and Simon Evenett.

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