Policy Experts

Happy Fifth Birthday, CAFTA!

By | Policy Experts, Trade | 2 Comments

The Central-American Free Trade Agreement, or CAFTA, was signed into law five years ago today, August 2, 2005, (later expanded to include the Dominican Republic to become CAFTA-DR). Facing vicious opposition from labor, the anti-trade Global Trade Watch, and others, the agreement had passed Congress by just two votes. Opponents vilified the agreement, predicting it would hurt American manufacturing.

Global Trade Watch’s Lori Wallach, for instance, called CAFTA a “catastrophe”, “a moldering corpse waiting to be buried,” and confidently predicted U.S. deficits and job losses. The U.S. International Trade Commission, the National Association of Manufacturers and other responsible organizations, on the other hand, predicted the agreement would spur U.S. exports and result in significantly stronger growth.

The record shows how wrong Wallach and other trade detractors were. As is clearly shown in the inserted graph, far from greater deficits, the CAFTA-DR agreement has changed deficits to surpluses. In the years prior to CAFTA, American manufacturers ran deficits with the CAFTA countries averaging $1.1 billion a year. After CAFTA went into effect, those deficits quickly turned to surpluses that have averaged $3.5 billion a year.

The improvement in the trade balance with CAFTA-DR occurred because the dollar value of U.S. manufactured goods exports grew faster than imports. In the years prior to the agreement, U.S. manufactured goods exports to the region grew less than 5 percent a year. In the years immediately after the agreement, they soared almost 14 percent a year.  And even after the global trade collapse in 2009, manufactured goods exports to CAFTA-DR so far this year have boomed 30 percent, much faster than the 22 percent increase of U.S manufactured goods globally.

It is time for Lori Wallach to stop talking about a “failed CAFTA trade policy.”  The only thing that is failing here is her rhetoric.

Sen. Dodd’s Financial Regulatory Plan Casts Too Wide of Net

By | Economy, Policy Experts, Regulations, Taxation | One Comment

The Restoring American Financial Stability Act of 2010 unveiled this afternoon by Senate Banking Committee Chair Chris Dodd (D-CT) raises more questions and concerns for U.S. manufacturers. For one, manufacturers are disappointed that the new proposal does not make it clear that only businesses that are “predominantly engaged” in financial activities are covered by the overall reform.

Even though the thrust of the reform measure is to restore responsibility and accountability in the nation’s financial system, broadly worded definitions in the bill arguably could pull some non-financial companies into the new regulatory regime. Covered companies are defined as those with “substantial” financial activities and the Federal Reserve Board gets to decide who falls into the definition. Manufacturers that engage in routine financial activities as a small part of their main business, e.g., a global manufacturer that manages a foreign exchange trading operation, an equipment manufacturer that provides financing for customers, are concerned that they could be pulled into the systemic risk regulatory regime, drawing needed capital from their businesses and imposing new administrative burdens.

On the derivatives front, manufacturers were pleased to see that the definition of a “major swap participant” excludes OTC derivatives used to hedge business risk. Unfortunately, because it is not clear that business end-users who do not pose risks to the financial system are excluded from the definition, some manufacturers are concerned they could be considered a major swap participant. Another concern for manufacturers are requirements that they post margin on bilateral, customized derivatives contracts. End-users like manufactures do not pose a threat to financial stability and should be able to continue to access OTC derivatives without tying up valuable working capital.

On a brighter note, there may be more changes on the derivatives provisions during the Committee’s markup session, which could happen as early as next week. In comments this afternoon, Sen. Dodd noted that Sens. Judd Gregg (R-NH) and Jack Reed (D-RI) are working on a revised derivatives section that the committee could vote on next week.

Dorothy Coleman is vice president for tax and domestic economic policy at the National Association of Manufacturers.

Report from Geneva: Brazil — We’d Rather Posture than Negotiate

By | Labor Unions, Policy Experts, Trade | No Comments

(Frank Vargo, the National Association of Manufacturers’s vice president for international economic affairs, is blogging from Geneva this week at the ministerial meeting of the WTO. )

The WTO 7th Ministerial Meeting opened yesterday afternoon, with Director General Lamy calling for unity (remarks), and minister after minister urging that the Doha Round conclude in 2010. U.S. Trade Representative Ron Kirk told the gathering not to confuse process for substance and urged countries to call for a round that would generate greater market access for all. (Kirk’s remarks.) There were some signs of support for this, with some ministers referring to ambition and balance, and some suggesting that we should consider different approaches, since we really hadn’t gotten very far. But despite these welcome signs, there has not been what one could call a rising tide demanding a stronger outcome.

Instead of unity, the gulf between those who want a strong outcome and those who want to hold back became even more obvious. Rather than offering any indications the time had come to begin serious negotiations, Brazil’s Minister Amorim instead chose to come out attacking the United States and re-writing history. Amorim accused the United States of “delaying the conclusion of the round because they want to have some few dollars more in some specific sections.” Wrapping Brazil in the flag of the least developed countries, he said that reducing trade barriers would hurt tariff revenues in the poorest countries and impair their ability to cope with climate change obligations. (Reuters coverage.)

What’s wrong with this picture? Well, first, once again Amorim implied that the least developed countries will have to cut their tariffs, which is untrue. Aside from the advanced developing countries like Brazil that have become global export figures, the developing countries don’t have to do anything in the Round.

Second, Amorim again is seeking to promote his revisionist view of Doha history by stating the United States is asking for new concessions, ignoring the multitude of negotiating sessions over the past eight years in which the United States has consistently said the industrial package had to be viewed as a whole – the tariff cutting formula, sectoral agreements, and exceptions from tariff cuts.

There is nothing new here. The United States has pressed consistently for both industrial and advanced developing countries to cut their barriers, while Brazil has wanted to keep its tariff protection. Amorim expressed horror that the United States thinks the Doha Round is about opening markets.

Third, Amorim stated that under what’s on the table now, Brazil is already committed to cut its applied tariff rates more than the United States, so “it is unreasonable to expect that concluding the round would involve additional unilateral concessions from developing countries.” That’s not so.

WTO data show that the formulas would have the United States cut its applied tariffs in half, while Brazil would cut its applied tariffs only by about 1/8 – from an average of 11 percent to about 9.7 percent. Moreover, Brazil’s tariffs would stay at an average of 11 percent for nine years, and only ten years out would fall to 9.7 percent. And, get this – even then only about 40% of Brazil’s tariffs would take any cut at all. What kind of market access is that?

This is what caused former Deputy U.S. Trade Representative Peter Allgeier to once quip that he finally understood what NAMA (Non-Agricultural Market Access) stood for – it meant “No Additional Market Access.”

It is time for Brazil to stop the rhetoric, show the leadership worthy of a major global player, and sit down and negotiate a deal that will have Brazil grant significant new market access and get significant new market access in return – and do this in services as well. You think? Read More

GAO Study Confirms NAM’s Argument: Trade Agreements Work!

By | Policy Experts, Trade | No Comments

The just-released Government Accountability Office (GAO) in-depth study of the effect of U.S. Free Trade Agreements (FTAs) provides official confirmation of what the National Association of Manufacturers (NAM) has been saying: FTAs work for America. The GAO says that FTAs have largely accomplished the U.S. objectives of achieving better access to markets, strengthening trade rules, and have increased trade. Moreover, the FTAs have resulted in a larger share of foreign markets for many leading agricultural and manufactured goods.

The NAM has been pointing out to all who will listen that, contrary to what anti-trade agreement legislators assume, FTAs have not been responsible for the large U.S. trade deficit. U.S. Census Bureau trade data show that overall manufactured goods trade with NAFTA, CAFTA, and the other U.S. FTAs was never more than about 10 percent of the deficit, and that figure has been shrinking steadily. By 2007 it was 5 percent of the deficit – and last year our manufactured goods trade with FTA partners moved into surplus.

Yes, in 2008, U.S. manufactured goods trade with FTA partners – far from being the cause of our deficit – was in surplus by $21 billion. At the same time, though, our manufactured goods trade with countries that have not agreed to enter into trade agreements with us was in deficit by $477 billion. China accounted for $277 billion of the deficit, and the European Union accounted for nearly $100 billion.

Check the data for yourself. The NAM has started providing the data on our website at The data are updated every month to provide year-to date figures. Through June 2009, the surplus with our FTA partners was twice as large as it was in the first half of 2008!

The graph below says it all: It’s time to dispel the myth that FTAs cause our trade deficit and recognize what the GAO has confirmed – FTAs work for America.

China Takes a Hit at the WTO

By | intellectual property, Policy Experts, Trade | No Comments

The World Trade Organization (WTO) sided with the United States Wednesday and slapped China for its restrictions on selling copyrighted U.S. films, music, books and other media. (WTO report.) China has been forcing companies to route imports through Chinese state-owned or controlled enterprises, while restricting reading material and music. The U.S. argues that this opens the door to the vast amount of Chinese counterfeiting in these media. And we’re talking about real money for U.S. producers –$3.6 billion lost sales in China of legitimate media in just 2008 alone.

A very important case filed by the U.S. and the European Union in June of this year against China for restricting exports of raw materials is still in the early stages. The U.S. is concerned that the Chinese export restraints hurt U.S. “downstream producers” of goods by limiting access and raising world market prices for the raw materials, while lowering the prices that domestic Chinese producers have to pay. The case covers nine materials: bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc. (USTR news release.)

The National Association of Manufacturers has long supported the use of WTO cases as a legitimate trade enforcement tool after negotiations fail. The seven cases brought against China since it joined the WTO in 2001 have produced results in areas like semiconductors, foreign financial information suppliers, packaging paper and auto parts. Although it is always preferable to avoid a litigation process, the use of WTO cases doesn’t mean the U.S.-China trade relationship is crumbling – it’s the way trade disputes between mature trading partners are settled – without a costly trade war.

More …

(Pat Mears is the NAM’s Director for International Commercial Affairs)

June Data Confirms Manufactured Goods Trade is Stabilizing

By | Policy Experts, Trade | No Comments

The sharp decline in U.S. exports and imports of manufactured goods appears to be stabilizing, according to the National Association of Manufacturers’ (NAM) analysis of the June trade data released today by the Department of Commerce. (Commerce factsheet)

Manufactured goods exports were $67 billion in June, seasonally adjusted, marking the fourth month in a row of exports being at about $67 billion after falling sharply late last year and early in 2009. Seasonally-adjusted imports were $93 billion, also in line with the average for the past four months.

The manufactured goods balance was stable as well, about at the -$25 billion average deficit for the past four months. That marks a sharp improvement from the roughly -$45 billion peak monthly deficits in 2006, as is apparent in the graph below. The sharp improvement has resulted from exports performing better than imports – in part because of the drop in U.S. demand for automobile and consumer goods imports.

While there is hope the stability in U.S. trade marks the end of the sharp decline in U.S. exports, which are off 25 percent from a year ago, signs of significant growth are not yet apparent. For example, in the critical capital goods sector that normally accounts for half of U.S. manufactured goods exports, only 14 of the 32 product groups showed growth in June.

We’re All in This Together

By | Economy, Policy Experts, Taxation | No Comments

While promises to increase taxes on businesses, particularly those with operations overseas, may play well on the campaign trail, it’s clear that, when the dust settles, the rhetoric has no basis in reality. 

In today’s Washington Post, columnist Geoff Colvin does a good job of dispelling any notion that U.S. corporations are up to no good when it comes to the tax code.  In fact, the tax changes proposed by the Administration represent a major change in long-standing tax policy designed to “level the playing field” in a global economy where most countries tax business income at a lower rate.  At the end of the day, these proposals amount to a hefty tax increase on U.S. multinational companies.  The international tax changes, combined with other tax increases like the repeal of “LIFO” and the new carbon “tax and trade,”  are bad news for all of us.  As any economist knows, corporations don’t pay taxes, we—customers, shareholders and workers— do.

To WTO or Not to WTO?

By | Policy Experts, Trade | No Comments

The United States and the European Union today initiated World Trade Organization (WTO) dispute settlement procedures against China for it trade-distorting export restrictions on critical raw materials. Those materials, such as coking coal, are vital inputs to U.S. and other manufacturing, and China’s action has hiked world prices for those inputs while holding China’s internal prices down. That gives China an unfair competitive advantage and is directly contrary to the promises that China made when it joined the WTO. (See Ambassador Kirk’s statement, USTR materials.)

America’s manufacturers have been hurt by these practices, and the National Association of Manufacturers (NAM) has pressed the U.S. Government to take action to get China to stop. As our press release today indicates, we strongly support the action taken today.

I am surprised, though, at some of the press reaction feeling this is a negative step. For example, the Guardian’s website has a headline screaming, “China and U.S. head for trade war.” Ridiculous. The WTO dispute settlement mechanism is in effect the international trade court for the world — the impartial place you go to resolve trade disputes so you don’t have to have a trade war.

While I am sure China will say they haven’t done anything wrong and will contest the charges before the WTO, China’s past record on settling and complying with WTO cases has been pretty good. I expect that they will abide by whatever decision the WTO makes this time, though it would be really good if China recognized they are in the wrong and voluntarily came into compliance.

Pressing the Chinese on Currency Valuation, Effectively

By | Economy, Policy Experts, Trade | No Comments

It was important for Treasury Secretary-designate to flatly state that China is manipulating its currency. Everyone knows China’s currency is being held at an artificially low level, and it is necessary for the United States Government to acknowledge this in order to be able to approach the problem realistically. (See New York Times and WSJ stories.)

The next step is more difficult – how to get China’s currency appreciating again. The currency appreciated 21 percent against the dollar through July 2008 and then went flat as Chinese authorities decided they were concerned about China’s slipping export performance in the slowing world economy. The fact of the matter is that China’s continued currency manipulation is hurting their own economy and making their transition away from export-led growth more difficult. Yuan appreciation can be win-win.

The Treasury Secretary-Designate is properly concerned with China’s currency and as the next step needs to work within established international means to find a solution. During the campaign, then-candidate Obama saw the importance of a change in China’s currency practices and said he would use all the diplomatic avenues available to seek such a change. Certainly the International Monetary Fund can play a stronger role than it has in the past.

Geithner’s statements showed he wants to get China’s currency moving, but without precipitating a new global financial crisis. Global financial stability and further appreciation of China’s currency can and should go hand in hand, but all this needs to be done carefully and in a way calculated to achieve both objectives and contribute to a lessening of global imbalances.

The yuan per dollar graph below shows how China’s currency was moving until July 2008, and then was held flat.




Anti-Counterfeiting Law Signed; Pirates Up In Arms.

By | General, intellectual property, Policy Experts, Technology, Trade | No Comments


</Start Rant>

Amongst the many erudite thoughts to drip from the quill of Thomas Jefferson, only one has ever gotten me hot under the collar:

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.

Well, that’s all fine and dandy if your estates keep you rolling in tobacco so you can crank out political philosophy all day (lifted, by the way, from the likes of Locke, Rousseau and Machiavelli), but if you’re the taper-maker, you’re going to be a little miffed if someone’s knocking off your products to the point that you’ve got to lay off your workers and people are suing you blind because fugazi tapers with your logos are burning down houses.

</End Rant>

This Monday, the White House signed into law the PRO-IP Act, which will go a long way in helping to curb the problem of counterfeit goods.  Unfortunately, what most folks who watch this area of the law see is a piece of legislation to loathe as much as they loathe the music industry, as something that might impede them from enjoying the media they want, regardless of whether they paid for it or not.  So whineth the pundits at

But how much will the new law, the PRO-IP Act, actually do to combat digital piracy? Is it the silver bullet the music business needs to save an industry that is shrinking by hundreds of millions of dollars per year? My answers: Not much, and no.

Nay, nay, dear heart: lift your angry eyes from your iPod and see that this legislation is much bigger than Britney.

This legislation isn’t to save the record industry; it’s to make sure the government is doing it’s job to protect consumers.  It’s to make sure that the replacement parts in your car are legit, and don’t end up causing horrific accidents.  It’s to make sure that the medications you take are legit, and don’t end up killing you.  Most importantly, it’s about saving American jobs (I put concern of country above my own personal well-being, but that’s just me).

Luckily, there are folks out there that get it.  Stephen Koff of the Cleveland Plain Dealer reminds us of the stakes:

Ohio companies including Gorman-Rupp Co., a Mansfield pump manufacturer, and Dana Corp., a Toledo maker of auto parts, could benefit if the bill stops foreign companies from stealing their engineering, packaging and sales literature.

So could Ford, Bendix and smaller companies such as Will-Burt Co. of Orville, whose sales of a lighting system in China declined from $1 million in 2001 to less than $250,000 in 2004 after a Chinese company that was supposed to market Will-Burt products there started selling Will-Burt knockoffs instead.

The bill, pushed by Ohio Republican Sen. George Voinovich for several years, grew out of complaints by businesses that found themselves competing with illegal, foreign-made products that looked just like their own — down to the UPC codes in some cases.

Well, we’re thankful for heroes like Sen. George Voinovich who are looking out for American manufacturers and workers, as well as Sens. Leahy, Specter and Bayh, who also were the original champions of the legislation.  They understand that it’s about protecting the small and medium businesses that keep our families employed and our economy going – despite the best efforts of mortgage speculators.

As for Mr. Jefferson?  Ironically enough, he was our first pirate hunter, going after the Barbary Pirates.*  So I guess he did know the value of property and commerce.

* Being a Trekkie geek from Boston, it titilates me to no end that he sent both the USS Constitution and the USS Enterprise to throw a Bean-Town beat-down on the Pasha of Tripoli.