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Linda Dempsey

How Scott Garrett’s Nomination to Lead the Ex-Im Bank Is Already Putting Taxpayers at Risk

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We already knew confirming Scott Garrett to lead the U.S. Export-Import (Ex-Im) Bank would be a terrible trade deal for American manufacturing workers. But now we’re learning even before he has had his nomination voted on in committee, Garrett is already causing problems for the agency and potentially putting taxpayers on the hook, too. As The Wall Street Journal reports today:

C.J. Hall, the government agency’s acting chairman, who is stepping down Saturday, said in an interview that the bank will likely become a drain on U.S. taxpayers next year if the Senate doesn’t act to fill its board, because it has stopped bringing in enough revenue through the fees it charges to guarantee financing deals for U.S. exporters.

The negative fiscal impact of not having a fully functioning Ex-Im Bank is deeply concerning and underscores why the agency cannot be led by someone like Garrett, who spent years trying to shut the bank down. The Wall Street Journal report also notes that Garrett currently does not have the votes to advance his nomination. So here’s the bottom line: Garrett’s toxicity is holding the confirmation process up and literally exposing taxpayers to increased federal deficits.

Given this fiscal reality and the apparent lack of votes to get Garrett’s nomination out of committee, it’s time for a new nominee to lead the Ex-Im Bank who believes in the agency’s mission and can rightfully earn senators’ support.

We need to have a stable, fully functioning Ex-Im Bank and the jobs and revenue that come along with it. A fully functioning Ex-Im Bank is good for manufacturers, good for workers and good for American global competitiveness. When fully functional, the Ex-Im Bank is a model agency that actually returns a surplus to the U.S. Treasury. As The Wall Street Journal notes:

The bank’s revenue comes primarily from its largest deals. If no such new deals are approved, the bank likely won’t be able to cover all of its expenses. Without a quorum, taxpayers also could lose out on about $492 million in surplus funds the bank projected it would otherwise send to Treasury.

That’s why the National Association of Manufacturers has steadfastly opposed Garrett’s nomination from the start and has also supported the president’s other four nominations to the Ex-Im Bank, who share the administration’s vigorous and outspoken support of American manufacturing workers and the agency.

Click here to learn more about Garrett’s reckless opposition to the Ex-Im Bank that has put manufacturing jobs in America at risk.

Why America and American Manufacturers Need a Pro-Investment and Pro-ISDS Enforcement Strategy

By | General, Shopfloor Policy, Trade | No Comments

Rules relating to investment overseas and the investor-state dispute settlement (ISDS) are back in the news. This morning, I had the opportunity to join several experts to explain some basics that seem to get lost in debate that seems to suggest that the sky will fall any day now:

1. Businesses invest at home and abroad to reach customers and participate in international projects. Most investment by U.S. companies is in fact domestic, helping companies reach customers here in the United States, the largest consumer market in the world. But 95 percent of the world’s consumers and more than 80 percent of global purchasing power is outside the United States. And that is why U.S. businesses invest not just here at home but in overseas markets to reach foreign customers. Indeed, investing close to your customers (as foreign companies do here in the United States) is often the best way to make a sale, including through activities to set up dedicated distribution networks and to tailor products to local consumer tastes.

In some areas, such as energy, natural resources or foreign infrastructure development, foreign investment is the primary way American manufacturers can participate and grow opportunities because that is where the resources and activities must take place.

The actual data collected by the Commerce Department’s Bureau of Economic Analysis confirms this basic, but often overlooked, fact: Year after year, decade after decade, the vast majority of sales by U.S. foreign affiliatesmore than 90 percentare made to foreign customers not returned to the United States.

2. The United States, its workers and businesses benefit enormously from U.S. investment overseas. U.S. companies that invest overseas are outsized participants in the U.S. economy and are stronger because of their access to foreign markets that help grow economies of scale and boost U.S. activity and wages here at home. The facts are clear. U.S. companies that invest overseas are America’s:

  • Largest exporters, exporting 47 percent of all U.S.-manufactured goods sold overseas ($660 billion in 2014);
  • Biggest producers, accounting for $1.363 trillion or nearly 65 percent of all U.S. private-sector value-added manufacturing output in 2014;
  • Most important innovators, expending nearly $269 billion on research and development in the United States in 2014 (of that, 68 percent (or $183 billion) was expended by manufacturers in the United States);
  • Largest investors in capital expansion, expending $713.5 billion or 24 percent of all investment in new property, plants and capital equipment in the United States in 2014; and
  • Highest-paying employers, paying U.S. manufacturing workers on average $96,030, or about 18 percent more than average U.S. manufacturing wages in 2014.

3. Having strong legal protections, backed up by ISDS, helps America win in a highly competitive global economy. For more than 30 years, U.S. administrations and Congress have strongly supported a pro-investment and pro-ISDS policy because it helps America, its businesses and its workers win. The investment rules—taken right out of the U.S. Constitution and other baseline U.S. laws for the protection of private property against discriminatory, unfair, expropriatory government action—set the basic rules to combat against foreign government market-distorting activities. For example, prohibitions on government forced localization measures and incentives (e.g., government mandates to buy local products or transfer technology in exchange for allowing an investment) help ensure that U.S. investment overseas can continue to support the growth of U.S. exports and jobs. And when governments violate these basic rules, ISDS is critical so that companies have access to a neutral venue to seek compensation.

4. The same anti-ISDS critiques have been leveled for decades, and the sky has not yet fallen. Those opposed to ISDS have been rehashing the same tired, false and discredited critiques for years, and they continue to be rejected by policymakers, including most recently in 2015 when a bipartisan majority strongly rejected Sen. Elizabeth Warren’s (D-MA) amendment to eliminate ISDS from Trade Promotion Authority; Consider the main critiques:

  • Types of cases: The vast majority of cases are about individual permit authorizations and the treatment of individual investors, not broad public interest regulation.
  • Types of claimants: Most claimants are individuals and small and medium businesses.
  • Impact on government regulation: ISDS panels can only order compensation, not a change in government policy. And not one case has ever found a violation of the investment rules through a nondiscriminatory, broadly applied public interest regulation.
  • Number of cases: Less than 20 cases have been filed against the United States in more than 20 years, even though the United States is the largest destination for foreign investment. Loud claims that the Korea–U.S. trade agreement would lead to hundreds of cases against the United States, for example, have continued to fall flat; not one case has been brought against the United States in the five years that agreement has been in force. Contrast that experience to the tens of thousands of cases filed in U.S. Federal Claims court every year on similar property claims.
  • Alternatives: Political risk insurance is a highly limited approach, far too expensive for small business and does not even begin to combat the broader investment rules that are vital to discipline foreign government market-distorting forced localization and other measures. When official government risk insurance is used, it would be the U.S. taxpayer, not the foreign government, bearing the cost of a foreign government seizure of America’s own property.
  • ISDS arbitrators: Arbitrators are chosen collectively by both sides in a dispute, are respected experts and held to strict ethical standards. If there is a bias, it is in favor of governments that win the vast majority of cases.

And as for letters, let us take a look at some from those who are experts in this field. Take a moment to look at this letter from academics whose actual expertise is in international law, arbitration and dispute settlement that strongly support the ISDS system. Or consider this statement of the International Bar Association, the world’s leading organization of international legal practitioners, bar associations and law societies, that felt the need to correct the record on ISDS because “erroneous information is subverting debate.”

As more than a hundred business groups representing millions of small, medium and large companies across every sector of the economy recently explained, investment rules and ISDS are very much in America’s interest as we all seek to grow manufacturing, well-paying jobs and U.S. competitiveness in the global economy.

More Than 100 Groups Agree: Administration Has Opportunity to Boost Enforcement

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America exports a lot, particularly to our border neighbors, Canada and Mexico, which alone purchase more manufactured goods from the United States than the next 10 foreign countries combined. They purchase almost as much from the United States as we buy from them, even though together they are less than one-sixth of the size of the U.S. economy.

But beyond the cars and corn, the tractors and trailers and the steel and soybeans, America has also been exporting its most basic Constitutional values. Through the original NAFTA Chapter 11, the United States sought to guarantee many of the same basic private property protections that we honor in our own country—due process, equal protection and compensation when a government seizes or “takes” private property. Those core provisions of the U.S. Constitution and U.S. law are part of the original NAFTA and have helped protect U.S. property in both countries when their governments have treated American businesses unfairly.

Since these provisions are not fully part of Canadian or Mexican law, NAFTA also established a neutral enforcement mechanism, known as investor-state dispute settlement (ISDS), to ensure that individuals, nonprofits and businesses could all have the ability, as we have in the United States, to recover damages when those governments harm U.S. property. This enforcement mechanism is a neutral, internationally recognized arbitration found in more than 3,000 agreements worldwide and more than 50 other agreements signed by the United States.

Manufacturers, service providers, energy, technology and food and agricultural producers and their workers all have a stake in ensuring that these basic property protections and enforcement tools are not weakened in the upcoming NAFTA talks. To the contrary, the Trump administration has an important opportunity to improve the coverage of these rules so that all forms of U.S. property, including major resource and infrastructure contracts and intellectual property, are fully protected and that the ISDS enforcement tool is strengthened. For that reason, the NAM was joined by 112 groups representing millions of businesses across the manufacturing, services, technology, energy and food and agricultural sectors of the U.S. economy to urge the Trump administration to maintain and upgrade these basic provisions of the NAFTA.

Why does this matter for workers and businesses in the United States? Consider one early case already decided under NAFTA Chapter 11—Metalclad Corporation v. Canada. In 1993, California-based Metalclad Corporation invested more than $20 million to clean up and operate a waste facility that had more than 20,000 tons of hazardous waste contaminating local water supplies. Metalclad’s investment in Mexico included support from American workers and U.S.-produced materials.

Mexican federal and local officials supported Metalclad’s investment before the purchase and Metalclad received all the necessary Mexican federal authorizations and permits following government review and an environmental audit. Just before opening the facility, however, the local Mexican government blocked Metalclad from opening. Metalclad filed an ISDS case after which the local authority filed a so-called “ecological decree” to prevent the site from operating. An ISDS panel and later a Canadian court enforcing the award found that the Mexican government’s failure to allow Metalclad to operate the facility was in violation of one of the most basic property protections—that governments must compensate private property owners when they seize their property, as found in the Takings Clause in the Fifth Amendment to the Constitution. As a result of the ISDS claim, Metalclad was awarded compensation for a significant part of the investment that it had made.

There are many more instances of foreign governments that have wholly seized U.S. property and turned it over to local competitors or that have lured millions of dollars in infrastructure development, only to refuse to honor the contract to the detriment of U.S. businesses and their workers.

The Trump administration’s focus on ensuring fair treatment by foreign governments is a critical part of a robust U.S. trade agenda and maintaining and improving ISDS enforcement and the protection of U.S. property overseas is a critical tool in the toolbox. Businesses across the United States agree.

Manufacturers Work to Improve Climate for International Commerce

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Improving the international climate for trade and commerce is an immediate focus for world leaders, with major discussions at the recent Hamburg-hosted G20 summit and within the Trump administration. The National Association of Manufacturers (NAM) and its members strongly agree: with more than half of the U.S. manufacturing workforce dependent on customers outside the United States, boosting the global economy (and addressing market barriers) is a vital focal point for manufacturers big and small across the United States.

Given the outsized role of international commerce for manufacturing in the United States, I traveled to Europe last week to press both U.S. and international stakeholders for action on international commercial issues that make a difference for manufacturing growth and competitiveness. My meetings included senior U.S. government officials on the frontlines of the global economy, leaders of important global institutions, such as the World Trade Organization (WTO) and Organisation for Economic Co-operation and Development (OECD), and international business partners.

In Paris, I met with OECD Secretary-General Angel Gurria and his senior leadership to discuss the OECD’s work on a range of issues, such as international trade, investment, science and innovation, labor and health. I introduced the OECD to our new Engaging America’s Global Leadership (EAGL) coalition, which seeks to ensure that the OECD and other global institutions operate within their mandate, are transparent and accountable to their members and follow best practices in consultations with the private sector and other stakeholders and in the development of analyses and recommendations. Those productive discussions have already spurred follow-up opportunities to engage OECD officials on these issues in both Paris and Washington.

July 10, 2017
NAM Vice President of International Economic Affairs Linda Dempsey at OECD headquarters in Paris.
Photo by Julien Daniel/OECD

In Geneva, I met with senior WTO officials, introducing the new EAGL coalition and also discussing a number of other key manufacturing trade priorities in advance of the upcoming WTO Ministerial Conference in Buenos Aires.

In both cities, I met with senior officials at the U.S. Missions to the OECD, the United Nations and WTO who work tirelessly with these institutions to move forward American priorities and defend American interests. We discussed the important role these institutions can and should play in creating a more fair and open international economy in which manufacturing can thrive. I also had the opportunity to meet with NAM members and international business leaders to discuss common challenges and new opportunities to band together to improve the international commercial climate to grow manufacturing and good-paying jobs.

Since its founding, the NAM has been committed to open and fair trade and constructive engagement with global institutions that are pillars of the international trading system. That commitment has never been stronger. From our work here at home seeking a strong and pro-growth outcome to North American trade negotiations to our work across the globe, the NAM is at the frontlines on the core international issues that are critical to support a strong, growing and competitive manufacturing sector in the United States.

New State Department “Investment Climate Statements” Serve as Important Resource for Businesses and Roadmap for Governments to Grow

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The U.S. State Department just released its annual “investment climate statements” that examine trade, investment, rule of law and related issues for more than 170 foreign markets. As I explained at an event organized by the Center for Strategic & International Studies (CSIS), these statements provide invaluable information for U.S. manufacturers and other businesses that seek access to foreign markets through exports, investments and other partnerships.

International commerce and investment are critical to manufacturers in the United States. Exports support the jobs of more than half of America’s 12 million manufacturing workers, and foreign investment by U.S. companies spurs those exports.

Foreign investment and U.S. exports work hand-in-hand to benefit U.S. companies, consumers and workers. Indeed, U.S. companies that invest overseas are outsized participants in the U.S. economy and are stronger because of their access to foreign markets. In fact, the primary reason that companies invest abroad is to sell to foreign consumers and bolster their U.S. operations.

Based on the most recent data available from the U.S. Bureau of Economic Analysis, consider that U.S. companies that invest overseas are some of America’s:

  • Largest exporters, exporting 47 percent of all U.S.-manufactured goods sold overseas ($660 billion in 2014). More than 40 percent ($269 billion) of those manufactured exports go to the overseas operations of American companies to help promote U.S. products in foreign markets.
  • Biggest producers, accounting for nearly $1.4 trillion, or almost 65 percent, of all U.S. private-sector value-added manufacturing output in 2014.
  • Most important innovators, expending nearly $269 billion on research and development in the United States in 2014. Of that, 68 percent (or $183 billion) was spent by manufacturers.
  • Largest investors in capital expansion, investing $713.5 billion, or 24 percent, of all spending on new property, plants and capital equipment in the United States in 2014.
  • Most generous employers, paying U.S. manufacturing workers on average $96,030, or about 18 percent more than average U.S. manufacturing wages in 2014.

For manufacturers and other businesses seeking foreign customers, identifying the most promising foreign markets is a difficult, time-consuming process that requires extensive knowledge. The State Department “investment climate statements” provide a valuable resource to businesses, offering detailed information on many of the critical factors they need to understand, including:

  • Openness to trade and investment, market barriers and business requirements;
  • Rule of law, including transparency, impartial rulemaking, corruption and the legal system;
  • The protection of private property (foreign and domestic), including innovation and intellectual property, the sanctity of contracts and land rights;
  • Competition policy, including with respect to state-owned enterprises,
  • Political risk; and
  • Digital policy trends.

Manufacturers welcome this year’s analysis of digital issues, including regulations on cross border data flows and the localization of information and communications technology infrastructure. As manufacturers implement technology and data in overseas sales, production and product usage, these issues have become increasingly important.

These investment climate statements also aid foreign countries looking to bolster their commercial climate. Many of manufacturers’ strong concerns with barriers, distortions and weak standards that are limiting U.S. growth appear in these statements.

Given the significance of international commercial engagement to the U.S. economy, manufacturing sector and workforce, the National Association of Manufacturers advocates open markets overseas, robust standards of governance and the protection of property. This includes investment and intellectual property as well as strong enforcement mechanisms like neutral investment dispute settlement mechanisms to prevent foreign country mistreatment or theft of U.S. property.

To learn more, read about or listen to the discussion at the launch of these statements at the CSIS event.

Manufacturing, Trade Deficits and Opportunities for Growth

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As part of President Donald Trump’s March 31 executive order on trade, the Commerce Department and Office of the U.S. Trade Representative are examining the role trade deficits play in key trading relationships. The National Association of Manufacturers (NAM) provided this detailed submission last week, and I am testifying today about opportunities and challenges that trade presents for manufacturing in the United States.

For those seeking the Readers Digest version, consider the top four takeaways.

    1. Exports are critical to today’s manufacturing success. Indeed, U.S.-manufactured goods exports now represent more than half of U.S.-manufactured output, supporting more than 6 million manufacturing job across the countryjobs that pay substantially more than non-export-related jobs. The U.S. manufacturing sector must have opportunities to expand salesat home and abroadto continue to add jobs.
    2. Manufacturing is growing around the world, creating new middle-class consumers and new partners, but also new competitors. More than $11 trillion in manufactured goods are traded annually as markets have been opened and trading costs reduced. In some cases, imports compete directly with manufacturers in the United States, just as U.S. exports compete with manufacturing overseas and many manufacturers require inputs not domestically available. Unfortunately, however, some import competition is fueled by foreign market-distorting and discriminatory trade practices that create unfair advantages for foreign manufacturing production at the expense of manufacturers, workers and communities in the United States. Under these circumstances, the NAM has long supported robust U.S. government action to address the underlying causes of the distortions and full enforcement of trade agreements and trade rules.
    3. The trade deficit arises as a result of several factors. Overall domestic economic conditions and standards of living, domestic consumption and purchasing compared with savings rates, the price of goods in the market, exchange rates, domestic structural issues (e.g., taxation, regulation) and openness to international trade all impact the trade deficit. In the United States, trade deficits expand as the U.S. economy grows and fall during periods of economic weakness. At the same time, however, when the U.S. economy expands, more workers are employed and unemployment falls, we see that the trade deficit actually increases.
    4. As manufacturers see it, many indicators are relevant in assessing the strength and weaknesses of U.S. trading relationships with particular markets. These factors include the existence and implementation of trade agreements, the size of the trading relationship compared to the size of the foreign economy, the growth of exports over time, the U.S. share of the country’s worldwide imports, foreign direct investment, U.S. content in imports into the United States and overall tariff rates. The chart below shows that Canada and Mexico are outsized purchasers of U.S.-manufactured goods compared to other sources of imports and given the size of the countries’ economies.

 

 

Conclusion:

As the administration considers next steps, the NAM urges that it prioritize work to address existing distortions and barriers to improve U.S. competitiveness globally through (1) the negotiation of advanced trade agreements that open markets and set strong rules; (2) the modernization of U.S. trade tools to boost U.S. global competitiveness, from improving export financing options to eliminating self-inflicted barriers that impede U.S. manufacturing; and (3) the implementation of more robust trade enforcement consistent with the international rules system to ensure that trade agreement commitments are honored, our innovative technologies are not stolen and U.S. trade rules are effectively enforced. Where trade agreement rules are not keeping up with new challenges and distortions, manufacturers urge U.S. leadership and efforts to develop new internationally agreed-upon rules and frameworks to raise standards and promote a more open and competitive market-driven global economy.

Learn more about manufacturers’ priorities for trade policy here.

NAM, UK Manufacturers Seek Greater Collaboration

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Today, Jay Timmons, president and CEO at the National Association of Manufacturers (NAM), and Terry Scuoler, CEO at EEF, the UK-based manufacturers’ organisation, signed a Memorandum of Understanding that seeks to promote greater collaboration and partnerships between the two organizations and to promote the NAM and EEF’s respective missions to strengthen and grow manufacturing in the United States and the United Kingdom. The agreement sets forth a number of activities, ranging from information exchanges on policy, economics, business trends and government regulations to potential joint work on international trade, skills development and other issues.

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New Report on Trade Barriers Shows Path for Stronger Trade Enforcement

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China, India, Indonesia and the European Union were among the top targets in a new Office of the U.S. Trade Representative (USTR) report that identifies top trade barriers facing U.S. companies around the worlda report that could support greater action from the Trump administration to boost trade enforcement. In an increasingly competitive global economy, the National Association of Manufacturers (NAM) calls on the Trump administration to use this report to target market-distorting practices by other countries that harm manufacturers and workers in the United Statesand on the Senate to confirm Ambassador Robert Lighthizer as USTR to ensure that the administration has the personnel in place to advance that agenda. Read More