'Nuff said

(Taking context-optional note of thought-provoking quotes)

The NAFTA panel ruling in Stainless Steel Sheet appears contrary to previous decisions of the U.S. Court of Appeals for the Federal Circuit and arguably undermines the role of Congress and the Administration in implementing adverse rulings in WTO disputes. The panel’s reasoning may be affected by future pronouncements by U.S. courts on Charming Betsy and related issues.

-- Dr. Tania Voon (above left), Associate Professor of Law at the University of Melbourne and former Legal Officer of the Appellate Body Secretariat of the World Trade Organization, in an ASIL Insight entitled "NAFTA Chapter 19 Panel Follows WTO Appellate Body in Striking Down Zeroing." Haven't read the underlying 3-2 decision by the panel, which was adjudicating pursuant to NAFTA, the North American Free Trade Agreement. Am struck nonetheless by the majority's apparent treatment of the statement by John Marshall, Chief Justice of the United States, in Murray v. The Charming Betsy (1804) ("An act of Congress ought never to be construed to violate the law of nations if any other possible construction remains...") as something more substantial than a canon of statutory construction.

The Great Race: Mexico, Trucks & Pigs

Despite global warming, the Gulf Oil spill, and the high price of gasoline, Americans remain obsessed with the idea of hitting the open road. But if you've ever driven off into the sunset with young ones, you know the call to adventure can quickly dissolve into a back seat screaming match or invoke the one question guaranteed to put any parent in a straight jacket: "Are we there yet?" Nowadays, the modern parent has all sorts of sophisticated distractions--from iPods to personal DVD players--to help keep the little tykes from suffering the dreaded, automobile-induced boredom blues. But in my day (you know, back when horse-drawn carriages shared the open road :) our pleasures were more modest. License plate bingo was a great way to wile away the time as we headed out to Bear Mountain or other wild places in New York state. For the uninitiated, here is a short but sweet explanation of the game.
Driving on the California road the other day, en route to my own driving adventure, I started to think about the way in which globalization might change that childhood game of license plate bingo -- if Mexico has its way.
When the North American Free Trade Agreement (NAFTA) came into existence in 1994, it contained a small provision allowing trucks loaded with goods from Canada and Mexico free access to U.S. highways, provided they followed all U.S. rules and regulations -- including safety regulations. For businesses, whether Canadian, Mexican or American, this represents a healthy cost savings. No longer would time be lost transferring goods from a Mexican truck onto a U.S.-owned truck at the border; breakage would be reduced, as would time to market; and it would be easier to keep track of inventory (less opportunity for goods to "fall off a truck," for example.) The measure seemed relatively uncontroversial on its face, and indeed for Canada it was. The U.S. has for years allowed Canadian trucks onto U.S. highways. Despite the Agreement to allow Mexican trucks onto highways in states near the Mexican border by December 1995, and throughout the United States by January 2000, however, Mexican trucks have been barred.
In 2001, Mexico filed a NAFTA Chapter 20 state-to-state dispute settlement claim against the United States arguing the ban treats U.S. truckers more favorably than Mexican truckers, which violates NAFTA’s national treatment provision (Article 1202); moreover, the ban favors Canadian truckers over Mexicans, violating NAFTA's most favored nation obligation (Article 1203). The panel in In the Matter of Cross-Border Trucking Services took issue with the United States' ban because such a complete restriction did not permit those Mexican trucking companies that did meet U.S. safety regulations access to U.S. highways. In other words, all Mexican trucks and truckers were banned even if they had exemplary health and safety records. The panel concluded:

It also is clear that the United States was well aware during NAFTA negotiations that the Mexican truck regulatory system was deficient in many respects in the U.S. view, and that many changes would be required to improve it significantly. The United States and Mexico have undertaken a cooperative program aimed at improving Mexico’s truck and driver regulatory system. While the United States contends that insufficient progress has been made to lift the moratorium, the U.S. obligations under [NAFTA] are not conditioned on a certain level of progress by Mexico in improving Mexico’s truck safety regulatory system. It is unclear when, if ever, the United States will be satisfied that the Mexican regulatory system is adequate to lift the moratorium with respect to all Mexican providers of trucking services.

Even after losing a NAFTA case, the United States refused to implement its obligation. As late as April 2010, a bipartisan coalition of 77 House members sent a letter to U.S. Trade Rep. Ron Kirk and Transportation Secretary Ray LaHood imploring them to renegotiate the NAFTA provision allowing Mexican trucks full access to U.S. roadways. But NAFTA authorizes a winning party to take retaliatory action where a losing party refuses to conform to the terms of the agreement. Thus, Mexico has for years raised tariffs against U.S. imports to the tune of millions of dollars hurting many American farmers in the process. Just last week, Mexico raised the stakes again by increasing tariffs on such politically sensitive products as U.S. pork. And like magic, pork producers have chimed in urging the U.S. to meet its NAFTA obligations to Mexico. A spokesperson for the National Pork Producers Council had this to say about the matter:

“Mexico’s retaliation against U.S. pork will have negative economic consequences for America’s pork producers,” said NPPC President Sam Carney, a producer from Adair, Iowa. “We are extremely disappointed that our top volume export market has taken this action, but we’re more disappointed that the United States is not living up to its trade obligations.”

What's so fascinating about this cat-and-mouse play between the U.S. and Mexico is the way in which it has changed the terms of the game. The United States may be considerably more wealthy and powerful than Mexico, but NAFTA offers up an opportunity to level the playing field in some way. Mexico is savvy enough to pit one group of U.S. stakeholders against another (on the other side of the controversy are The Teamsters who would lose out on well-paying jobs if their truckers were displaced by Mexicans). With mid-term elections fast approaching, the Mexican trucking crisis takes on political overtones. Given Obama's strong emphasis on export-led growth to leverage the United States out of the recession, taking a hit on a major export commodity will hurt. Or perhaps we'll begin to see some movement on this intractable issue.
And maybe even the venerable old game of license plate bingo will have to change to accommodate Mexican trucks.

On January 6

On this day in ...
... 2006, the woman known publicly only as Comandante Ramona (below right) died from kidney disease in Chiapas, the highland state of Mexico for whose independence she had fought. Born in 1959, she drafted a Revolutionary Law on Women in 1993, and a year later drew global attention. London's Independent wrote of this indigenous woman:

[I]t was Ramona who led the rebels into the town of San Cristóbal de las Casas on New Year's Day 1994, demanding greater rights for the indigenous people of Chiapas and protesting at Mexico's involvement in the North American Free Trade Agreement (Nafta) which came into force that day.

Thus began a rebellion that "effectively ended after 12 days of fighting, in which around 150 people died." Then Ramona initiated peace talks. In subsequent years she, her subcomandante, Marcos, and their Zapatista organization would remain "a powerful lobby group." Dolls were made of her, and she attained prominence particularly among Chiapas' women:

'Es una mujer de mucha enagua,' they would say. She's a woman with a lot of petticoat, equivalent to saying a man has a lot of cojones.

(Prior January 6 posts are here and here.)

On December 8

On this day in ...
... 1993 (15 years ago today) , the North American Free Trade Agreement was signed into U.S. law by President Bill Clinton. The tripartite treaty known as NAFTA, subject of many IntLawGrrls posts, eliminated nearly all trade restrictions among the United States, Canada, and Mexico.

... 1953 (55 years ago today), U.S. President Dwight D. Eisenhower delivered to the U.N. General Assembly in New York what came to be known as the "Atoms for Peace" speech, in which he proposed that countries with nuclear programs should give fissionable materials to nonnuclear countries in order that the technology be put to use for peaceful purposes. The marked-up text of his speech is here.

The Return of Austan Goolsbee

Last February, University of Chicago Economics Professor Austan Goolsbee got caught in the cross-fire of the Democratic primaries as Clinton and Obama ran as far as they could from NAFTA and other free trade agreements. Just a few days after Obama declared in a national debate he would "renegotiate NAFTA," Goolsbee, an Obama policy advisor, allegedly told the Canadians Obama's words were “more reflective of political maneuvering than policy.” (I wrote about it here). After that, Goolsbee receded from the limelight, and Obama appointed a new economic adviser, Jason Furman. But now, Goolsbee is back. He recently appeared on Fox TV and Charlie Ross, and he authored an op-ed in the Wall Street Journal defending Obama's tax policies.

I can't help but wonder (and hope) whether Goolsbee's re-emergence signals trade will once again take center stage in the 2008 election? And if so, will Obama's shift towards the middle continue (I wrote about Obama's "backtracking" on trade policy here)? I certainly hope so. In a recent interview, Goolsbee's had this to say on the question of why trade seems to have taken a back seat lately:

Q: Why has the campaign gone quiet on trade issues?

A: The biggest issue by far is taxes, alternative energy, health care and then if there's a fourth, it's probably issues with housing, the credit crunch and how to get the economy moving again. You might be putting excess importance on just trade. It's falling into the Republican trap to say that this involves trade agreements. It is more critical for us to address our fundamentals than arguing about whether we should sign a free trade agreement with Panama. That is an issue of symbolic importance.

As for whether Obama's views on NAFTA were moving toward the middle, Goolsbee seems to have learned his lesson well--the response was much more equivocal:

Q: Why does Obama want to amend NAFTA?

A: NAFTA's many things. It's a thousand pages long, it's riddled with loopholes. There are parts of it that are good. So his view from the outset is not that we should abolish NAFTA but that we should put environmental and labor agreements into the core of the agreement. NAFTA is not a state-of-the-art treaty. The most vocal proponents vastly overstated what it would do … rebuild manufacturing in the U.S., reduce illegal Immigration. If you're not going to open up the dialogue to all sides and take into account the people left out, you're not going to do any favors to the cause of open markets.

It seems reports of Obama's pro-NAFTA transformation (or at least rescission of his anti-NAFTA stance) have been greatly exaggerated?

Is Obama "Backtracking" on NAFTA?

"I will make sure that we renegotiate [NAFTA]"
--Barack Obama (Feb. 26, 2008)

The Talking Heads are buzzing over a Fortune magazine interview with Barack Obama. What's all the excitement about? During the democratic primaries, Obama famously called North American Free Trade Agreement "devastating" and "a big mistake," and he promised to renegotiate the agreement. But in the Fortune interview, Obama allegedly said "Sometimes during campaigns the rhetoric gets overheated and amplified . . . Politicians are always guilty of that, and I don't exempt myself."

So is the presumptive Democratic nominee backtracking on his anti-NAFTA stance? You would think so from the hue and cry coming from the left. The Nation immediately published a story proclaiming "Obama Goes Soft on Free Trade." Columnist John Nichols wrote "All that is required is that Barack Obama campaign as a critic of the North American Free Trade Agreement and other deals that have battered workers, farmers, communities and the environment ... Unfortunately, [Obama], who sent so many smart signals on trade issues when he was competing with Hillary Clinton . . . appears to now be backtracking toward the insider territory occupied by McCain."

I'm not sure how a comment that politicians sometimes indulge in hyperbole (big surprise!) somehow translates into a wholesale rethinking of trade policy, but if it is true that Obama is backtracking I for one would applaud the move. In an op-ed published a few months ago, I noted Obama's (and Clinton's) I-hate-NAFTA-more rhetoric is dangerous. It is dangerous for precisely this reason. Once a candidate flirts with the radical edge of the anti-free trade camp, it is really hard to come back to the middle path without being accused of "backtracking."

I had always found Obama's claim that he would renegotiate NAFTA suspect. Having been involved in a number of trade deals while I was at the Office of the U.S. Trade Representative, I know first-hand that negotiating an agreement as complex as NAFTA is no easy task. There are constituencies from all possible sides: those who want us to get greater concessions from our partners so they can export more goods; those who want fewer restrictions so they can import more goods; those who want an agreement vastly different from what's on the table; those who want no agreement at all; and those who just want to be ornery. And what about our trading partners--do you think maybe they might have a thing or two they would like to renegotiate if the opportunity arose? Satisfying those competing interests is next to impossible, and once you finally get a deal that everyone can sign on to (even if no one is optimally happy), you don't go opening up the same can of worms again.

Besides, Obama has never styled himself a true anti-free trade crusader. He has on a number of occasions noted there are both costs and benefits to free trade. Even in the language I quoted above, Obama did not call for a wholesale dismantling of NAFTA but rather advocated that "we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced."

Both Obama and economic advisor Austan Goolsbee were ridiculed in the press when Goolsbee went to the Canadians shortly after the Cleveland debate to reassure them that his boss' rhetoric was "more reflective of political maneuvering than policy." Perhaps I am a cynic, but I was surprised that so many failed to make a distinction between political speeches and trade policy. Trade policy is a dirty job of political maneuvering, horse trading, and rejoicing in incremental achievements. But like planting seeds in a vegetable garden, the end result of all that dirty work is lots of edible goodies, which are mostly good for you (although they are sometimes bitter).

If Candidate Obama is doing a bit of shuffling in order to return to middle ground, all I can say is "Shuffle on!"

(Cross-posted at Trade Voices.Com)

3 Things I Learned Writing an Op-Ed

Diane asked me to post some thoughts on writing an op-ed piece. I claim no particular expertise—the piece I had published last week was my first one—but I’m happy to pass on some thoughts. So, here’s what I learned on the way to writing an op-ed piece:
Topic: Choosing a topic is of paramount importance, of course, given the hyperactive speed of the news cycle. The submission had to be “current,” which seems to mean only two or three days removed from the front page. For me, that meant I had to turn my post into an op-ed piece within one day (It was already Wednesday, and I wanted a shot at getting into the Sunday papers). It was really helpful that I had laid out my thoughts in long form right here on the Intlawgrrls blog. The one part I needed to add was a “local interest” component—I spent some time reflecting on how NAFTA impacted California (my home turf) and made sure to feature that prominently in the op-ed.
Drafting: Probably the most difficult part for me was the drafting. I had to reduce about 1200 words of what I believed was a nuanced approach to a difficult question to just over 700 words. Seven hundred seems to be the magic number. The first thing that had to go was nuance and subtlety. I pride myself on being able to see multiple sides—at least on the trade issue, but it makes it difficult to fashion an opinion piece, at least in 700 words. The marketing folks at my school have a motto: “the more nuanced the piece the more obscure the journal we can place it in.” Enough said.
Marketing: If you are like me, the marketing part is probably the step you dread the most. Articles I’ve read lay out an intricate process of query letters and follow up phone calls and interminable waiting. Fortunately, op-eds apparently have an abbreviated process, and all the major papers have online submission processes. My lucky day was when I discovered my university’s own marketing department could help navigate me through the process. All I had to do was produce. So before setting off on your own, see if anyone in your institution can help you find your way. The only thing left to say is just do it!

NAFTA: Take Two

I had originally planned a discussion of the treatment of oil and water under the WTO, but after watching news reports today I cannot resist one more post on NAFTA. The story of the day is that one of Sen. Barack Obama’s top advisors, Professor Austan D. Goolsbee (below right) of the University of Chicago (photo credit), met with Canadian diplomats to reassure them Obama’s stand on NAFTA was “more reflective of political maneuvering than policy.” Goolsbee is reputed to have said Obama’s language “should be viewed as more about political positioning than a clear articulation of policy plans.” Hmmm. So, let me get this straight . . . we are not walking away from NAFTA after all? Did anyone actually believe we would? I have never considered myself a NAFTA cheerleader. As those who read my previous posts know, I have both a philosophical and economic preference for multilateral agreements. (In fact, we are currently in the midst of a multilateral round of negotiations right now—the Doha Development Round—although you wouldn’t know it given the singular lack of media coverage of the Round). But I find it hard to remain silent in the face of the careless and hyperbolic discussion on trade I see occurring in public discourse. Can we all just agree the debate on NAFTA was fought and won back in 1994? We entered the agreement fully aware it would have some impact on our economy, but the impact would be relatively minor. And that is exactly what happened. When I say “minor,” I do not mean to dismiss the thousands of families who have lost their livelihoods in the wake of NAFTA. But NAFTA does not exist in a vacuum, we are signatories to a host of multilateral and regional agreements. Will we bow out of those as well? Job losses occur for many reasons—including technological innovation. Producers of horse carriages experienced large-scale displacement when the automobile became widely-available, but no one would suggest a return to the horse-and-carriage regime. The job losses from NAFTA can and should be addressed. We should be exploring the candidates’ proposals on job creation, their support of innovation, and tax incentives—all of these contribute to the creation of new possibilities for displaced workers.
Moreover, NAFTA is not just about job losses, we have also gained a great deal. Mexico and Canada are now the United States’ top trading partners, and consumers, workers, entrepreneurs, the Tax Man, we all benefit from that relationship. Are we prepared to give up those gains? What the NAFTA debate has shown in stark relief is that the benefits and harms of the agreement are not evenly distributed. Border states like Texas benefit from NAFTA—in terms of exports, jobs and investment to list just a few examples. Other states, like Ohio, suffer the harm of job losses. We need a real plan to balance the benefits/detriments equation. It is a discussion that cannot be achieved through snippets, accusations and sound bites. We have done an abysmal job of creating a place for the candidates to relate their true position—in all of its nuance, caveats and uncertainties. Perhaps a Mexican government official put it best when he said “we are convinced that what North America needs is more integration and not less integration. North America needs to look to the future and not return to the past.”

What’s Wrong With NAFTA?

Several weeks ago, I noted presidential elections seldom turned on a candidate's trade policy (post). But this campaign is shaping up to be all about trade! One newspaper recently claimed “If there is a sleeper issue with the potential to catapult Barack Obama past Hillary Rodham Clinton in the remaining delegate-rich Rust Belt states, it is the North American Free Trade Agreement . . . ” I wish I could say the debate between Obama and Clinton was a substantive one, but sadly I cannot. In a campaign where the candidates’ policies admittedly are more similar than different, they seem to be drawing distinctions based on who dislikes NAFTA more. Clinton’s now infamous “shame on you, Barack Obama” speech was in response to Obama mailers claiming she once touted NAFTA as “a boon for the U.S. economy.” Despite the fact the agreement was implemented under her husband’s watch (though partly negotiated by the first Pres. Bush), Clinton now questions NAFTA’s benefits and has called for a "time out" on future trade agreements. Obama too has adopted an anti-NAFTA stance; he claims the regional trade agreement was oversold to the American people and that his administration would fix NAFTA. So, how did NAFTA become the political hot potato for the Democratic party? What’s so wrong with NAFTA?
First off, I must admit I generally prefer multilateral arrangements like the WTO Agreement to bilateral or even regional trade agreements (“RTAs”) like NAFTA. RTAs create trade diversion. An example will help illustrate the point: Imagine Belgium is the most efficient producer of chocolate bars, and it has traditionally been the top supplier to the U.S. market. The United States subsequently enters into a trade agreement with Canada, who also produces chocolate bars. Canadian bars are less efficiently produced and therefore more expensive, but under the new trade pact Canada receives a tariff preference not granted to Belgium (as would be required under a multilateral agreement). Once the pact is signed, the lower tariff means Canadian chocolates become cheaper in the U.S. market—not because of increased efficiencies on the part of Canadian producers, but exclusively because of the negotiated preference. So now, U.S. imports of chocolate bars are diverted from Belgium, the efficient producer, to Canada.
The WTO does recognize RTAs, but GATT Article XXIV calls for these regional arrangements to liberalize substantially all trade among members, a requirement that is rarely satisfied in practice; RTA members invariably set up “carve-outs,” or specific goods and services that will not be liberalized (or that will be liberalized very slooow-ly). Moreover, there is a great imbalance in bargaining power when smaller economies negotiate individual agreements with powerful trade players like the United States or the European Union. In my view, the best trade deals—best for the United States, the world economy, and developing countries—are those that arise from the give-and-take of multilateral negotiations. Indeed, U.S. trade policy for a long time disfavored these regional arrangements. When NAFTA was signed in 1994, the United States had only two other bilateral arrangements—with Israel and Canada, neither one of which caused the firestorm of protest NAFTA did. (U.S. policy has now taken a drastic turn in favor of these RTAS, and a confusing array of regional arrangements are concluded seemingly every other day. But I save that discussion for another day.)
Alas, the strong criticism and opposition leveled at NAFTA has little to do with a philosophical debate between multilateral vs. regional trade liberalization. In a word, opponents of NAFTA are primarily concerned with jobs—or job losses to be more precise. Ross Perot once promised NAFTA’s implementation would bring “the giant sucking sound” of good manufacturing jobs leaving the United States in pursuit of lower wages in Mexico. Opposition to NAFTA plays well in states like Ohio that have lost a significant number of such jobs in recent years. But is NAFTA’s reputation as a stinker among Democrats well-deserved? Are Obama and Clinton’s efforts to distance themselves from NAFTA—and to one-up each other on the anti-NAFTA rhetoric—justified?
Understanding that statistics are “lies, lies and damn lies,” it is hard to look exclusively to empirical evidence for an answer. It is a first step, however. The studies I have seen show that NAFTA’s impact on U.S. jobs has been relatively small. One study looked at 10 years of data and concluded NAFTA-related job losses in the United States amounted to an average of 37,000 per year; during the same period, the U.S. economy was creating over 200,000 jobs per month. Another concluded “NAFTA has had relatively small positive effects on the
U.S. economy” (though it has had relatively large positive effects on Mexico). But NAFTA has created adjustment costs—and some argue those costs are disproportionately borne by certain industries and certain groups of Americans.
A report by the well-known Public Citizen (who is unabashedly anti-NAFTA) concluded that NAFTA-related job losses disproportionately affected Latinos. Citing U.S. government statistics, Public Citizen asserts “In 1999, an astounding 47 percent of the total number of workers who received federal assistance under a program for workers certified as having lost jobs as a direct result of NAFTA were Latino.” Apparently, Latinos are disproportionately represented in some of the industries most affected by NAFTA, such as textiles and apparel. But it has proved difficult to measure the specific effects of NAFTA on specific industries. There seems to be some general agreement that in addition to textiles and apparel, the automotive industry has experienced the greatest change in trade flows, which presumably has affected employment in those sectors. Some of those changes are due to events other than NAFTA, however—such as the Mexican devaluation of the peso. Undoubtedly, NAFTA has had both good and bad affects on the U.S. economy (and on Mexico’s economy, for that matter). But the mainstream studies indicate NAFTA’s impact in the United States has been relatively minor because trade with Mexico represents a small portion of U.S. GDP—less than 3 %. While some workers in some sectors have seen significant job losses, NAFTA contains two employment adjustment assistance programs meant to provide retraining to such workers. Of course no politician wants to tell her constituents that their good paying jobs are being exchanged for a social welfare program, but the long-feared “giant sucking sound” of massive job losses has yet to materialize.
What’s wrong with NAFTA? If we are expecting benefits without any burdens, then NAFTA—and the plethora of regional and bilateral agreements we have negotiated since—will prove a disappointment. There are costs to trade. We must determine whether those costs outweigh the benefits. It is too easy to set up NAFTA and free trade as the straw man upon which we heap all of our fears and anxieties, but trade has proved beneficial to the United States time and again. If the Democratic Presidential candidates are truly arguing that NAFTA’s costs outweigh its benefits, they would do well to provide substance and context to their arguments. The chest-thumping I-dislike-NAFTA-more approach does not serve the American people well.

This I believe

National Public Radio resurrected a segment recently called “This I believe.” People from all walks of life recite essays in which they articulate—in a clear, strong and decisive voice—exactly what they have come to know of the world. The first time I heard the broadcast, I was overwhelmed with envy. It was well into the night, and I was driving aimlessly in my car with my two long suffering (but ever-forgiving) daschunds in search of a firm set of beliefs about my project. At the time, I was researching the implications of U.S. national security measures on trade in developing countries. I couldn’t figure out what my position should be: On the one hand, I recognized the need for greater security in the wake of September 11. On the other, I was troubled by the knee-jerk reaction of the Bush Administration that typically separated the world into rich/poor only to privilege the former. The NPR commentator droned on while I listened in awe at the absolute conviction with which she spoke.
It seems I am in a perpetual search for certainty in my life. There was the time in college when I joined a cult. Ok, my friends called it a cult because the members smiled vacuously, lived and prayed together (constantly), and went to church all day on Wednesdays and Sundays—which, for a lapsed Catholic like me, was probably the most onerous requirement. I wasn’t interested in drinking the Kool-Aid, but boy did I want their conviction! While I struggled to make sense of how I felt about the feminism/race divide (are black women first women or black?) and fought both the peace loving exhortations of Dr. King and the defiant militancy of Brother Malcolm, those folks had answers. They knew, for example, that if you do not belong to the one TRUE church, you are going to hell. They were certain that if you don’t accept Jesus Christ as your Personal Lord and Savior, the devil would leave the lights on for you. I admired their firmness, their constancy, their smugness. And I wanted a bit of that just for myself. I lasted all of one week—well, five days if you don’t include the two they spent trying to bring me back into the fold before realizing the sad truth: There was nothing to be done. I was going straight to hell.
I feel the same sometimes when I talk to the various camps about free trade: There is something of a Baptist Revival spirit to their beliefs. Most people seem rather single minded in their stance, utterly convicted as to the truth of their position while I stagger around in an unending search for meaning. My hairdresser is certain that trade is the root of all evil. She lost a job to NAFTA once (exactly how she knows this, I dared not ask) and now curls her lips at the slightest mention of trade agreements. They are tools of the rich to subjugate the poor. Unbeknown to her, she shares the view of the Soviets who negotiated GATT in the 1940s; they proclaimed non-discrimination—the hallmark of free trade—“a device of the devil to ensnare and enslave small countries.” Equally adamant are my economist-type friends who think any disparagement of trade is the result of a kindergarten-level IQ. Now that WTO members have liberalized the services trade and their jobs too are ripe for outsourcing, their opinion may shift slightly. What I admire about these two camps of course is their certainty. I’d really like to join them, but I am challenged. I am challenged by that uneasy sense of “yeah, but . . .” I get every time I try to corral my slippery sense of certainty. I decided to put together this post as an exercise in hope: Could I come up with a set of beliefs to which I too could swear allegiance? Well, I did manage to come up with something. True to form absolute conviction escapes me, but I decided to lay out my credo anyway. This I believe: There is much good to come from free trade. Where would the world be without Belgian chocolates, Rwandan coffee beans or the Italian Lamborghini? Seriously, the great economist Amartya Sen tells us that development is about far more than producing wealth or income; it is truly about freedom. Well, trade is a part of that equation. Trade is not really about producing the cheapest toy or all the Ramen noodles you can eat for a dollar. The end goal is to grant us freedom. Freedom from what? From scarcity, from want, from the tedium of our own limited potential. Trade allows us to produce the best we are able, and in a dance of mutual reciprocity, exchange that for the cultivated achievement of another. We are not all consigned to producing the basics for survival. We can focus on growing cotton in exchange for fluffy white t-shirts, towels, and those heavenly 600 thread count bed sheets. Let others produce the grapes while we give the world a rich merlot or the lusciousness of a peanut butter and jelly sandwich. Those who are so inclined can invent computers, software and social network sites, but when they need a place to rest, Fiji’s tourism trade might be just what the doctor ordered.
But here’s the rub: What happens when your very best—your “comparative advantage” in trade parlance—consigns you to the world’s raw materials supplier? What happens when opening up to trade leads to large-scale trade deficits that bring an avalanche of “significant economic dislocations”? Developing countries deal with the former question every day, while rich countries like the United States utter quarterly gasps at their rising trade deficits. Interestingly, both respond to the challenge in the same way—with a call to curb the “negatives” of trade. Are they wrong for employing the breaks to free trade by imposing measures like safeguards, quotas, high tariff walls, protection for infant industries, and balance of payment provisions, to name just a few? Economists call many of these tools “protectionist,” but aren’t governments supposed to do exactly that—protect us from certain preventable harms?
The virulently nationalistic Lou Dobbs once said “free trade has been the most expensive trade policy this nation has ever pursued.” While I can hardly watch one of his broadcasts without throwing my shoe at the (imported) television set, I must agree that free trade comes at great cost. We have to manage those costs, and if that means occasionally straying from the path of absolute openness, than so be it. Of course “the devil is in the details.” When do we adopt such protections and how (and what is our response when others employ the same tools) are difficult questions that politicians and trade officials have routinely bungled. Protecting an inefficient steel industry because it is a significant campaign contributor, for example, would not be a permissible reason to close the door to free trade. My point, though, is that free trade is not a religion. We do not get into heaven based on the purity of our adherence to dogma. Trade is a tool we must manage in pursuit of the ultimate aim of freedom.

What if I’m wrong? Well, then I guess I’m going to hell.

Trade policy & the 2008 Presidential campaign

Few presidential campaigns have been won or lost on the candidate’s trade policy position, but one thing is clear: U.S. trade policy may look very different depending on who sits in the White House. In honor of Super Tuesday, I’ll delve briefly into the candidates’ posture on trade. Sadly, I will limit my comments to the Democratic candidates for two reasons: the 1st, very simply, is time (I have to prepare for class tomorrow). 2d, as a Democrat I am personally more interested in the Democratic candidates’ positions. We Dems have long viewed trade as both a blessing and a curse—and Democratic trade policy reflects that push-me-pull-you sensibility. Fairly articulating the Democratic candidates’ position provides more of a challenge for a (modified) free trader like me.
Ever since Adam Smith (middle right) and David Ricardo (left) alerted us to free trade’s benefits, economists have been nearly uniform in their support. But the idea that trade between England and Portugal benefits both countries (Ricardo’s famous example), while true, tells us little about the inevitable economic dislocation within England and Portugal. In other words, in a mythical world in which the two countries can produce computers and bottled water but England can produce computers more cheaply and Portugal is more efficient in bottled water what should they do? It will always make sense for England to produce computers and import its bottled water from Portugal, while Portugal will do well to import its computers and focus production on water, thus creating win-win in the aggregate for both sides. But what happens to the workers and producers of bottled water in England and would-be computer makers in Portugal? Democrats have traditionally focused on the half-empty glass of the workers, while Republicans tout the half-full glass of business. That is a gross generalization to be sure; no elected official—Democrat and Republican alike—wants to deliver the news to furniture producers in North Carolina or assembly-line workers in Michigan (and now software engineers in Silicon Valley) that their job has fled abroad as a result of trade, but that it is all “for the greater good” (see here for a call to reconsider traditional free trade dogma in the face of outsourcing and here for a rebuttal). No matter their political stripe, Democrats and Republicans have adopted “protectionist” measures that shield domestic jobs and inefficient producers from international competition.
So what would the trade policy of an Obama or Clinton Presidency look like?
Barack Obama (left) advocates “fair trade,” a term that easily encompasses both good and evil. Broadly speaking, Obama pledges to “fight for a trade policy that opens up foreign markets to support good American jobs.” He favors updating the much ballyhooed but poorly-funded Transition Assistance Program for displaced workers whose jobs have been outsourced overseas. Transition assistance is meant to educate and retrain such workers, and Obama promises to create flexible education accounts and provide retraining for those in vulnerable sectors even before they lose their jobs. Obama also favors adopting sound labor and environmental policies as part of the package of rights and obligations negotiated in trade agreements. More ominously, Obama “believes that NAFTA and its potential were oversold to the American people.” He promises to work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers.
Few would quarrel with Obama’s basic position. Who wouldn’t want all of the benefits of free trade without any of the attendant challenges? But opening up to free trade inevitably brings both reward and retribution. Many of us will experience some of the significant ill-effects of free trade. I would like to see Obama adopt a more robust Transition Assistance Program that gives workers both adequate time and resources to adjust to trade competition (read: the program needs more money!). I’m also troubled that Obama has said little about the current WTO negotiations—the so-called “Development Round.” The Development Round is historic in focus; it is meant to at last address some of the inequalities poor countries have faced on the road to development through trade. Right now, the round is moribund—although there are hopeful signs of a re-birth. We need American leadership, both on substance and vision. I for one would like to know more of what a President Obama might do to bring the negotiations to a fruitful close.
Finally, I dislike the vague reference to a broken NAFTA that needs significant overhaul. In the age of an ever-expanding European Union, I cannot imagine it would be to America’s economic benefit to jettison NAFTA (although I don’t believe Obama is advocating that). Obama says leaving out labor and environmental standards from NAFTA was a mistake. In truth, NAFTA was the first agreement to ever link trade with workers rights in a major way. Yes, it is true that the North American Agreement on Labor Cooperation (NAALC) was a “side agreement” (negotiated by the Clinton Administration), and the signatories for the most part pledged to enforce their own labor standards (instead of creating a whole range of new “core” standards). But the agreement adopted basic standards on a range of issues, including a prohibition on forced labor, and protections for women and children. Ditto for environmental policy. We can talk about whether the enforcement mechanisms under NAALC (and the environmental agreement) are adequate, but it is simply wrong to suggest that labor and environmental standards were somehow overlooked in NAFTA.
Hillary Clinton (right) advocates "smart trade," a term which she has defined as championing "labor rights, the environment, and our economic standing in the world." She pledges to appoint a trade enforcement officer and double the enforcement staff at the office of the United States Trade Representative to ensure our trade partners are living up to their agreements. She also promises to review every trade agreement to ensure that it is delivering benefits to American workers. Finally, Candidate Clinton promises to expand the Trade Adjustment Assistance program so that workers negatively affected by the global economy get the help they need. Clinton's trade policy presents more of a known commodity, which can both help and hurt her. On NAFTA, for example, Senator Clinton has distanced herself from the pro-NAFTA position adopted by First Lady Clinton based on her assessment that NAFTA hurts workers (a position her own husband has said is “wrong”). Obama has characterized the change as yet one more example of a “flip-flop”, and a Washington Post editorial decries it as “opportunism,” claiming “there’s little chance that her position reflects any deeply held principle.” In truth, Hillary Clinton’s current position stands in marked contrast to President Bill Clinton’s trade policy. Bill Clinton had to fight against his parties own powerful constituencies (the trade unions for one) as well as Big Business—who did not want an agreement “bogged down” with labor and environmental standards—to successfully pass NAFTA. Hillary Clinton, despite voting in support of a number of bilateral free trade agreements in the Senate (Singapore and Chile, for example), has called for a “time out” on further trade agreements. While her position is likely to play well with rank-and-file Democrats, it comes with significant costs—economic and otherwise. The trade merry-go-round is simply not going to stop turning while we try to make up our minds.

Loewen, behold

This week marks the 12th anniversary of the initial jury verdict in the amount of $500 million handed down by a Mississippi state court against The Loewen Group, Inc. and Raymond L. Loewen.
Devotees of the television program Six Feet Under will recognize Loewen (pronounced LO-en) as a major Canadian funeral home operator, rivaled only by the former Texas giant SCI Corporation. Devotees of investor-State arbitration will recognize The Loewen Group Inc. & Raymond L. Loewen v. United States as the 1st case filed against the United States under the investment chapter of the North American Free Trade Agreement, known as NAFTA (logo at left), which took effect among Canada, Mexico, and the United States on January 1, 1994.
The Loewen case precipitated the formation of a new division within the Legal Adviser’s Office of the Department of State, which hired 5 attorneys to defend the United States against the claims in Loewen and the other cases that it seemed likely would follow. (Full disclosure: I was one of the 5, and I've written about the case here.) The United States won Loewen on what many argued were highly technical points that betrayed arbitrators more concerned about the political backlash should the United States lose a highly visible and contentious case rather than about awarding justice to a wronged Canadian company.
Notwithstanding these criticisms, the world of investor-State arbitration is thriving, with over 250 cases having been filed as of the end of 2006. The United States is indeed the defendant in several more cases, although its track record so far is perfect: it has prevailed in all cases that have so far gone to decision, and even won attorneys’ fees of several million dollars in the Methanex case.

Global ... is

From the wings, a retort of sorts to our call for a fair, humane, and global policy on immigration. The bill withdrawn from Senate consideration last week is said to be "part of a larger agenda of a large slice of America’s economic and political elite":

They have a vision of a world where not only capital and goods but people move freely across borders. Indeed, borders disappear. It is a vision of a ‘deep integration’ of the United States, Canada and Mexico in a North American Union, modeled on the European Union .... It is about the merger of nations into larger transnational entities and, ultimately, global governance. ....
It is about globalism – and about greed. But they have a problem. The nation has begun to awaken to the reality that the vision of the global corporation and the transnational elite cannot be realized without the death of the American republic. And so they are in a fight that is long overdue.

It’ll surprise few to learn that the author is erstwhile Republican presidential candidate Patrick J. Buchanan. (The column appeared in hard copy in today's San Francisco Chronicle, but only self-identified conservative sites've put it online.) That Buchanan so easily pushes nationalist hot buttons -- "European Union," "global governance," and "transnational elite," not to mention an omitted passage about "bright kids" from "Asia" who’ll take jobs from "middle-age U.S. workers" -- deserves attention.
The costs and benefits of economic integration measures – NAFTA, for instance – indeed ought to be examined, and appropriate adjustments ought to be made. More fundamental is the need to address what Europeans well know to be, as Francesca E. Bignami among others has analyzed, the problem of democratic deficit. Essential sooner than later are examination and adjustment of how integration happens – assurances that the persons who "govern" new transnational institutions can be identified with the same ease that a citizen identifies her elected representatives, that decisions are made by an open and transparent transnational politics, and that the makers and implementers can be held to account by those in whose name they do their work. (As discussed below, the World Bank might be a good place to start.)
In writing of "global-ism" Buchanan implies that goods and people are moving across national borders in service of an ideology against which battle can be won. That sentiment has an ironic resonance with the "anti-globalization" critique of the wing well opposite Buchanan. The premise of both is, at best, dubious. Globalization is. Technology’s advanced to a degree that goods, people, and ideas move whether some "elite" likes it or not. The question, then, is not whether there ought to be such movements, but rather how such movements ought to occur. What is needed is not nihilist fueling of fear, not calls to a combat that cannot be won, but rather an other-globalization -- work toward fairer, more open, and more democratic ways for the world to move together.

On June 12, ...

... 1967 (40 years ago today), in Loving v. Virginia, the U.S. Supreme Court overturned the criminal conviction of Mildred Jeter and Richard Loving (left), and in so doing held that a statute forbidding interracial marriage violated the Equal Protection Clause of the 14th Amendment to the Constitution. An examination of "The Legacy of Loving," by Hofstra law professors Joanna Grossman and John DeWitt Gregory, is forthcoming in Howard Law Journal.
... 1991, Canada, the United States, and Mexico began negotiations that would lead to adoption of a trilateral North American Free Trade Agreement. Representing the United States was Trade Representative Carla A. Hills.
... 1941, U.S. Rep. Lucille Roybal-Allard (D-Cal.) was born in Los Angeles.