Tag Archive | "fta"

USDA’s FTA Report Repeats Errors of Previous Flawed Studies

The following blog post by Travis McArthur appeared on Eyes on Trade, Public Citizen’s blog on globalization and trade here.

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.

Given that fair trade opponents have touted beef as a major winner in the Korea FTA, a close examination of the USDA’s beef assumptions is warranted. The USDA assumes a very optimistic scenario for beef like the 2007 USITC study, although it is slightly less optimistic. (Who knows? Maybe the next study will have realistic expectations.) The 2007 USITC study assumed that U.S. beef exports would be unimpeded by current Korean regulations prohibiting the import of U.S. beef from cattle older than 30 months and it set the initial beef export level in the model at $1.1 billion, even though actual U.S. beef exports to Korea were tiny at the time the study was conducted. This USDA study assumes that the initial beef export level is $701 million. Actual 2010 U.S. beef exports to Korea amounted to about $350 million, far off the level of these optimistic scenarios. The initial level of exports is one of the primary determinants of the results of the CGE model, and higher initial exports result in greater predicted exports from tariff reductions. With the slightly lower initial beef export assumption, the USDA report projected increased beef exports to Korea of $563 million, compared to the USITC’s projection of $628-1,792 million greater beef exports. Realistic beef export data would result in even lower projected gains.

Finally, even though the report is some fifty pages, the USDA is highly stingy with its presentation of results. It presents the projections on the bilateral changes in trade flows with Korea and Colombia under the FTAs, but not how the FTAs will affect overall U.S. trade with the world. (The projected impact upon overall U.S. trade can be quite different from the bilateral results due to the trade diversion effects of bilateral trade pacts.) The decision to exclude the global results is especially puzzling given that the report focused on the effects of trade diversion in its assessment of the ASEAN-China and ASEAN-Australia-New Zealand FTAs.

It is likely that leaving the global results out of the report conceals the fact that the overall trade balance in several agricultural sectors is expected to worsen under the FTAs. The 2007 USITC report on the Korea FTA, which used the same model as the USDA study, did report both bilateral and global changes and found that several sectors expected to have improved bilateral trade balances would have worsening balances with the world, such as wheat, oilseeds, and miscellaneous crops. The global trade balance is what matters since it indicates the total effect of goods exiting and entering the U.S. upon farmers’ livelihoods. Thus, this USDA report does not contain sufficient information on projected imports and exports to evaluate the effect of the FTAs on U.S. farmers, even in terms of its own flawed CGE model.

In sum, at first glance this report projects significant gains for agriculture from the Korea, Colombia, and Panama FTAs, but a close examination reveals that methodological flaws render the report unreliable. Instead of these predicted gains, we could see a repeat of the NAFTA experience in which U.S. exports of beef and pork to Mexico in the first three years of NAFTA were 13 and 20 percent lower, respectively, than beef and pork exports in the three years before NAFTA was enacted, partly due to currency devaluation.


Posted in TradeComments (0)

Business dials up trade efforts

The following article by Andrew Stiles appeared in The Hill today. See it here.

Free trade advocates are ramping up efforts to win support for deals negotiated by the George W. Bush administration that have been stalled for years.

The Emergency Committee for American Trade (ECAT) will hold a press conference on the Senate steps Wednesday to release a letter from ECAT Chairman Harold McGraw III urging the approval of free trade agreements with South Korea, Colombia and Panama.

Sen. Chuck Grassley (R-Iowa) and Reps. Adam Smith (D-Wash.) and Dave Reichert (R-Wash.) are scheduled to attend, along with Ambassador Han Duk-soo of South Korea and Ambassador Carolina Blanco of Colombia.

The letter is in response to President Obama’s announcement last month at the G-20 summit in Toronto that he would push for congressional approval of the United States-Korea Free Trade Agreement (FTA).

Both countries signed the accord on June 30, 2007, but the deal has been stuck ever since, mostly because of opposition from labor unions and the Ford Motor Co. Democrats have been divided over the deal, and the chairman of the House panel with jurisdiction on trade, Ways and Means Chairman Sandy Levin (D-Mich.), has demanded that the deal be changed to ensure greater access to the Korean market for U.S. auto companies.

Speaking in Toronto last month, Obama said he wanted lawmakers to resolve objections to the agreement before his trip to Seoul in November for the next G-20 meeting, where he hopes to finalize the accord and submit it to Congress in the months that follow.

“It will strengthen our commercial ties and create enormous potential economic benefits and create jobs here in the United States, which is my No. 1 priority,” Obama said.

That could allow a vote on the deal in a lame-duck congressional session, though some business sources are pessimistic Congress would take up the deal after November’s election.

Calman J. Cohen, president of ECAT, said his organization, along with other free trade advocacy groups and business associations, will be working extremely hard in the coming months to help build support for all three trade deals.

“Our job at this point is to explain why these agreements, once implemented, will benefit our economy, our workers, as well as our foreign policy and security interests,” Cohen said.

Advocates tout the economics of the trade agreements, which they say would boost U.S. exports and create new jobs at a time of high unemployment.

A group of 42 agriculture and food groups sent a letter to House and Senate leaders on Tuesday urging lawmakers to approve and implement all three free trade agreements. They predicted U.S. agriculture would lose exports and thousands of jobs if no action is taken.

The American Farm Bureau Federation, Corn Refiners Association, National Association of Wheat Growers and National Cattlemen’s Beef Association are among the groups that signed the letter.

The U.S. Chamber of Commerce said that failure to enact the South Korea agreement would mean the loss of $35 billion in exports and 345,000 jobs.

If approved by Congress, the South Korean FTA would be the largest, most commercially significant agreement of its kind in more than 16 years.

South Korea is the United States’ seventh largest trading partner and has the world’s 14th largest economy.

The U.S. Commerce Department reported on Tuesday that while U.S. exports increased by nearly 3 percent, a jump in imports caused the U.S. trade deficit to grow nearly 5 percent, to $42.3 billion, its highest level in 18 months.

Cohen said approving the free trade agreements is vital to reducing the trade deficit and would go a long way toward achieving Obama’s goal of doubling U.S. exports in five years.

“More will need to be done, but this will make a very important contribution,” Cohen said.

The Colombia and Panama trade agreements have also been held up over objections from Democrats and labor unions. Labor groups argue Colombia has not done enough to stop violence against labor organizers in that country.

Posted in TradeComments Off

Obama Promises Push on Trade Pacts

The following article appeared in The New York Times on July 8, 2010 and was written by Sheryl Gay Stolberg.

WASHINGTON - President Obama, who vowed in his State of the Union address to double American exports over the next five years, said on Wednesday that he would renew his efforts to renegotiate long-stalled free trade agreements with Panama and Colombia and persuade Congress to adopt them.

The two trade pacts, and a third one with South Korea, were negotiated by the administration of former President George W. Bush, but all three have languished in Congress because of deep opposition from Democrats. Mr. Obama said in Toronto last month that he intended to make a new push for the South Korean agreement, and on Wednesday he pledged to press ahead with the two Latin American pacts as well.

“For a long time, we were trapped in a false political debate in this country, where business was on one side and labor was on the other,” Mr. Obama said in the East Room of the White House, at an event intended to highlight his administration’s efforts to promote exports. “What we now have an opportunity to do is to refocus our attention where we’re all in it together.”

Trade is a particularly difficult issue for many Democrats, especially in an election year when jobs are already scarce, because of a widespread view that American workers suffer disproportionately when the United States lowers trade barriers.

On the South Korea pact, for instance, Democrats have expressed concerns about that country’s restrictions on automobile and beef imports from the United States - concerns that Mr. Obama has vowed to address before sending the agreement to Congress for passage.

But Mr. Obama, who has been under pressure from business leaders, does have some Democratic allies on the issue. After the president’s announcement in Toronto, Representative Steny Hoyer, the House Democratic leader, called for Mr. Obama to renegotiate all three stalled pacts and send them to Congress.

The president made his call as part of a broader push to increase American exports under conditions that he said would “keep the playing field level” for American companies that send their products overseas. He appointed 18 corporate and labor leaders - including the chief executives of Ford Motor and Walt Disney - to a council to advise him.

The White House said there has been a 17 percent increase in American exports during the first four months of this year, compared with the same period from last year.

“We’re upping our game for the playing field of the 21st century,” Mr. Obama said. “But we’ve got to do it together. We’ve got to all row in the same direction.”

Posted in TradeComments (1)

“Doubling U.S. Exports” Not a Sufficient Jobs Policy: Not Even Close

The following piece by Leo Hindery, Chairman of the U.S. Economy/Smart Globalization Initiative at the New America Foundation, appeared in the July 12, 2010 issue of the Huffington Post.

In his January State of the Union Speech, President Obama first committed his administration to the goal of doubling U.S. exports within five years. Mr. Obama said that this will “create two million jobs, about the same number that the U.S. manufacturing sector has shed during this economic downturn.” His administration spokesman said just the other day that “the U.S. is on track to hit this export target.”

There are three problems with this pledge. First, doubling U.S. exports would create just 10 percent of the 22 million new jobs we need, and yet, combined with multiple new free trade agreements (FTAs), it seems to be the only specific jobs policy coming from the White House. Second, this strategy wrongly overshadows the more critical imperative of ‘import substitution’. Third, the first three FTAs being proposed — with South Korea, Panama and Colombia — are very poorly negotiated and will cause even more American jobs to be lost overseas.

As the United States Business and Industry Council (USBIC) just concluded:

“the President’s decision to limit his trade-related recovery policies to export expansion efforts is too narrow, since the most promising source of the new orders needed by U.S.-based manufacturers and their workers are home market shares that have been lost to imports.”
And as the economist Clyde Prestowitz has determined, with plenty of supporting evidence, “the more free trade agreements the U.S. has entered into, the bigger America’s trade imbalances have become and the less our allies have seemed to like or pay attention to us”.
To appreciate why doubling U.S. exports and rushing into new FTAs isn’t at all the combined overall trade and jobs policy we require as a nation, all we need to do is look carefully at the pending FTA with South Korea (the ROK), the largest of the three pending FTAs, and do so against the backdrop of the dismal results of NAFTA and China’s entry into the WTO.

The South Korea FTA

The Obama administration says that it has “made new progress” on the ROK FTA first negotiated by the Bush administration in 2007 and is now poised to advance it. Unless, however, “new progress” means a substantial renegotiation of the simply awful version we have in front of us, then the Obama administration will be giving a major unwarranted victory to America’s multinational corporations and Korean workers at the expense of America’s workers. And assuredly down the road, we will see results that track the screw-ups which NAFTA and China-WTO each became, differing only in relative size.

Polls in Korea have shown that South Koreans widely believe that their negotiators bested the U.S. in the 2007 and later negotiations — and they absolutely did, especially in automobiles. The FTA would lock in Hyundai Motor Corp.’s dominance of the South Korea market while locking out American manufactured vehicles. In beef, the U.S. would largely be excluded from exporting all but young carcasses. South Korea currently exports each year to the U.S. about $40 billion of goods and services while we send only $29 billion of our goods to it, and with this already large imbalance it is complete poppycock for the White House to now threaten American workers (and Congress) by saying that without the ROK FTA “we stand to lose about $30 billion in [U.S.] exports”.

As Mr. Prestowitz has noted, America’s trade problems with Korea stem from “its undervalued currency, the inability of its anti-trust regime to discipline the predatory business practices of its giant chaebol whose control of distribution can impede entry of foreign products into the market, the unwillingness of its courts to enforce intellectual property rights for foreign companies, and deeply rooted ‘buy Korea’ attitudes.” The Bush-cum-Obama ROK FTA doesn’t address a single one of these issues.

NAFTA and China’s Entry Into the WTO

In pushing forward the South Korea, Panama and Colombia FTAs, the administration is completely overlooking what happens when FTAs are not fair and balanced and don’t provide clear and measurable benefits for American workers.

When NAFTA was proposed in 1993, five promises were made about the positive effects that were certain to come to the U.S., not one of which has been kept. The two ‘biggies,’ of course, were that (1) “NAFTA will generate a U.S. trade surplus with Mexico of around $100 billion between the years 2000 and 2010″ — in fact, our trade deficit with Mexico for these ten years will be around $527 billion; and (2) “NAFTA will create many new high-wage jobs in the United States” — instead, at least two million American workers have already lost their jobs.

Two recent examples confirm this. First, just this month, we watched Whirlpool completely shut down its once 10,000-worker plant in Evansville, Indiana and move the last remaining operations and jobs to Mexico — when the workers were asked who’s to blame, they said President Bill Clinton for having negotiated NAFTA. Second, and of even greater impact, we’ve learned, also this month, that despite the Obama administration spending $80 billion last year propping up General Motors and Chrysler, the Big Three U.S. auto companies, including Ford, are now intending to put most of their new jobs and plant capacity in Mexico, with NAFTA’s imbalances again ‘setting the table.’

But even more imbalanced has been China’s entry into the WTO, which occurred a decade ago. Back then, President Clinton promised that this would be “a hundred-to-nothing deal for America when it comes to the economic consequences” — instead, our overall trade deficit with China has increased 173 percent since 2000, China is now responsible for around 75 percent of our overall annual trade deficit in manufactured goods, and we’ve lost more than one-third of our manufacturing jobs, mostly to China (and Mexico).

President Obama is not wrong to want to double U.S. exports — with every $1 billion increase in the U.S. trade deficit 10,000 to 20,000 American jobs are lost — but this achievement would, in his words, create only two million new jobs and then only over five years, when we need to create 22 million new jobs now.

There are the five things the President needs to do to bring this all together:

1.    He needs to assert that job creation is the number one objective of his administration’s economic policies. This means, as many of us have been demanding for years, outspokenly ‘valuing manufacturing’ and having a domestic manufacturing policy for America that is as jobs-centric and mercantilist as the policies of our major trading partners.

2.    He then needs to get his entire administration committed to and acting in support of his exports and trade agenda. Right now, this isn’t even close to being the case. For example,

(a) Larry Summers, chairman of his National Economic Council, continues to say that a job is a job, the loss of manufacturing jobs and goods can be offset by the export of movies and management consulting and legal services, and the U.S. economy is strong when GDP grows no matter the real unemployment rate and the magnitude of our trade deficit, all of which is complete BS;

(b) James McNerney, chairman of the President’s Export Council (and CEO of Boeing), says that Mr. Obama’s export goals won’t be met unless the U.S. finalizes those job-eliminating FTAs with South Korea, Colombia and Panama while confidentially telling Boeing’s suppliers that they should begin making parts in Mexico; and

(c) The U.S. Export-Import Bank denied, just last week, loan guarantees to an Indian utility building a power plant poised to buy $600 million worth of US-manufactured mining equipment from Bucyrus International, a South Milwaukee-based company, solely because the project’s “carbon footprint” was deemed too large, even though there are no objective guidelines by which the Bank could make this judgment.

3.    He needs to shift our global trade focus to fair and balanced “bilateral and regional trade agreements,” as the other members of the G-8 just acknowledged in Toronto, which means dropping his commitment to finishing the nine-year-old Doha round of global trade talks, which frankly he should have abandoned the first day of his presidency. In the process, because the proposed FTAs with South Korea, Colombia and Panama are definitely not fair and balanced, they need to be radically amended or we need to start each negotiation over again.

4.    He especially needs to level the trade playing field between the U.S. and China, absent which there is simply no way to double U.S. exports, balance our trade, and create those millions of new jobs. The actions needed remain obvious:

(a) Balance out China’s unfair trade advantages gained through its abysmally low direct labor costs and lack of meaningful environmental and labor standards; and

(b) With tariffs and levies (and a baseball bat if need be) go after China’s currency manipulation, its regulations that block non-Chinese firms from selling their products to Chinese government agencies, its technical standards that prevent or at least greatly hinder the Chinese government and businesses from buying non-Chinese goods, and its rules that force Western companies to give up technological secrets in exchange for access to China’s markets.

5.    He needs to emphasize the primary (not secondary) role of responsible ‘big business’ in creating the bulk of the millions of new jobs we need and stop saying, as he did on June 11, that, “Government can’t create private-sector jobs, but it can create the conditions for small businesses…to grow and hire more people.” This fixation with small businesses started in the Reagan administration, but that was only after what we thought was a largely non-erodible manufacturing foundation had been established with 20 percent of America’s workers in, and 20 percent of GDP coming from, manufacturing. With 50,000 factories having closed in just the last decade, however, the corresponding figure today in each category is 11 percent, and no matter what the theory of “comparative advantage” says, this nearly halving of our industrial base, especially our big-company manufacturing base, means that America, with its very large population, wide geography and great diversity, is destined for economic mediocrity unless we give large American corporations policies and incentives that generally mirror those available to them overseas.

Last Friday, President Obama said, “Make no mistake, we are headed in the right direction [even as] we continue to fight headwinds from volatile global markets.” In fact, we’re not even close to making sufficient progress in reemploying America, and those “headwinds” are actually powerful turbines pointed in our faces by China and Mexico (and India). I can only hope that the continuing depressing trade and real unemployment numbers will wake up President Obama and his economic team to the reality that if they want to reach their export and trade goals and materially reduce U.S. unemployment, they need to materially change course.

So, Mr. President, take the five actions outlined above and there will be ‘prosperity throughout the land’, as they say. Don’t take them, however, and a double dip recession will look like a God-send compared to the extended jobless recovery that will hang around our economy like the plague for years to come.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.

Posted in TradeComments Off

Daily Newsletter Signup