One President Away From Disaster
Why the Philippine election threatens to break an economic winning streak.
BY GREG RUSHFORD APRIL 29, 2016
The Philippines offers one of the world’s most heartening economic success stories. Once the “sick man” of Southeast Asia, the country has recently become one of the fastest-growing economies in the region. Over the past six years its annual GDP growth rate has been above six percent.
The credit belongs to President Benigno Aquino.The credit belongs to President Benigno Aquino. Elected in 2010, Aquino promised an honest government, staffed by competent administrators who would start freeing the economy from the shackles of corruption and kleptocracy. He has largely kept his promise: he has awarded public contracts honestly, held corrupt officials accountable, and removed obstacles to much-needed foreign investments. But now Aquinio’s six-year term is nearly over, and the constitution does not allow him to run for president again. As a result, on May 9, voters will head to the polls, when they will pick their new chief executive from a field of five candidates.
The bad news is that none of the frontrunners appears likely to continue Aquino’s reforms, which remain fragile and subject to reversal. In fact, the whole group is downright disturbing — a feeling that will probably be familiar to anyone who has been following the U.S. presidential race.
The frontrunner is a misogynist whose attitude on women makes Donald Trump look like a choir boy, and who has pledged to drown criminals in Manila Bay. Another is dodging criminal investigations that allege money laundering, kickbacks, and bid rigging. Still another is a political neophyte who might be a welcome fresh face, if only she were not backed by some of the worst of the old-style cronies whose main contribution to their country has been to impoverish it. Admittedly, there is one candidate who is widely respected for his personal honesty and wealth of high-level government experience — but he has also earned a reputation for being unwilling to make tough decisions. (The fifth aspirant, Miriam Defensor Santiago, who is polling in the single digits, is not considered a serious contender due to her bout with lung cancer.)
“If this looks like a circus, it’s because it really is,” prominent investigative journalist Marites Vitug told me. In sum, after the new president is sworn in this July, the bad old days, when corrupt politicians were (disastrously) in charge of the economy, could soon come back.
If that happens, the timing couldn’t be worse. The Philippines’ recent progress in becoming a more attractive place to invest has only thrown into sharp relief how much more needs to be done.The Philippines’ recent progress in becoming a more attractive place to invest has only thrown into sharp relief how much more needs to be done. For starters, a whole series of key sectors — ports, shipping, energy, logistics, mining, finance, telecommunications, agriculture, and food — are, one way or another, closed to meaningful competition. To sustain genuine economic growth, the next president will have to take on and break up an array of entrenched cartels, monopolies and duopolies. President Aquino has made a start, but unless these and other structural problems are addressed head-on, the country’s growth is almost sure to slow.
Yet the candidates seem to have other priorities on their minds. The rule of law, for example, is notoriously weak in the Philippines — problems range from poor respect for property rights to a judicial system in desperate need of reform. So it says a lot that the frontrunner is 71-year old Rodrigo Duterte, who for more than two decades has been mayor of the city of Davao on the southern island of Mindanao. He’s known as Duterte Harry, after the Clint Eastwood movie character. That’s because, once a playground for violent criminals, Davao has become perhaps the Philippines’ safest city. The credit for that is widely attributed to death squads, widely viewed to be connected to the mayor, that have taken out an estimated 1,000 street criminals with no semblance of a fair trial.
Whatever the truth, Duterte cultivates his tough-guy image.Whatever the truth, Duterte cultivates his tough-guy image. “If you do not know how to kill people and you’re afraid to die, that’s the problem, you cannot be a president,” he has declared.
If he becomes president, Duterte promises to throw the bodies of thousands of drug dealers into the ocean. “The fish in Manila Bay will get fat,” he boasts. He has also threatened to dissolve the congress and impose martial law as “an extreme option” if corrupt politicians get in his way. Onlookers may cringe, but many Filipino voters, fed up with corruption, applaud.
Duterte’s foul mouth tends to get him in trouble. He has apologized for cussing out Pope Francis in anger after getting stuck in a massive traffic jam during last year’s papal visit to Manila. But he’s never expressed sincere regret for some of his astonishing statements about women. Recently, Duterte recalled a case where an Australian missionary had been gang-raped and killed in Davao in 1989. The rape was regrettable, he said — but somewhat understandable given how “beautiful” the victim was. She was so attractive, Duterte joked, that “the mayor” — meaning himself — “should have been first.” When his insensitivity sparked a flurry of international headlines, Duterte basically shrugged, noting that “was how men talk.”
If elected, the first “big fish” to go to jail, Duterte promises, will be one of his presidential rivals. “I have killed criminals,” the mayor has declared. “But Binay steals from the poor.”
The reference was to current Vice President Jejomar Binay, 73, the former mayor of Makati City, the Philippines’ financial center, who at times has also led the polls. Binay, who ran Makati’s political machine for 21 years, has been accused of amassing unexplained wealth — accusations he has always brushed off as unsubstantiated and politically motivated.
Binay rose from humble beginnings, working his way through law school and into politics, and eventually creating one of the country’s most powerful dynasties. One of his daughters is a senator, another a congresswoman. His son served for a time as mayor of Makati until being dismissed last year to face allegations of corruption.
Meanwhile, a senate subcommittee has investigated allegations that Binay himself indulged in bid rigging during his stint at mayor. The Philippines Anti-Money Laundering Council, an enforcement arm of the central bank, obtained a court order last year freezing more than 200 bank accounts allegedly used for money laundering by Binay and his associates. (His reply was that “allegations are not evidence.”)
Binay has cultivated a base among his poor compatriots.Binay has cultivated a base among his poor compatriots. As mayor of Makati, he generously doled out free scholarships and medical care to his grateful constituents. A video that went viral in Manila showed him handing out what appeared to be small peso bills to a line of grateful constituents — just Christmas presents for the downtrodden, his operatives bragged (without explaining exactly where the money had come from). Binay told one audience last year that poverty, not corruption, would be the number one “moral problem” he would address as president. This, needless to say, offers little hope that he would prove effective at fighting graft, often cited by Filipinos as one of their country’s most pressing problems.
Binay has raised eyebrows by being the only presidential candidate to suggest that, if the price were right, he might agree to let China buy its way out of its maritime disputes with the Philippines in the South China Sea. Chinese naval forces have seized control of some 80 percent of the Philippines’ internationally recognized exclusive economic zone, which includes valuable oil and gas reserves and traditional fishing grounds. To his credit, President Aquino has stood up to the intimidation, even embarrassing Beijing by filing an international legal challenge in The Hague. Chinese officials have made no secret of their hopes to settle the dispute by contributing money for “joint development” projects — if the Philippines will accept that China is entitled to keep control of lucrative resources that rightfully belong to the Philippines. An accommodating President Binay could be just what Chinese officials have been hoping for.
Senator Grace Poe, the adopted daughter of popular movie stars, is the third leading presidential aspirant. At 47, Poe is still considered a neophyte, having only been in the senate for three years. But she does have a team that includes several respected economic advisers who understand that the Philippines will never enjoy sustainable growth without addressing the many structural weaknesses that have held the country back for so long.
Yet Poe, too, comes with baggage that casts doubt on her capacity to sort out her country’s economic problems. Above all, she has close ties to the bad old crowd that created many of the problems that plague the Philippines today. One of her strongest political backers is former President Joseph Estrada, a boozer and womanizer who was hounded out of office in 2001 and convicted of corruption. (He has certainly demonstrated political resiliency, having been elected Manila’s current mayor in 2013.) Estrada is one of Poe’s godfathers, a relationship that has real meaning in the Philippines.
Even more worrisome, another godfather, Danding Cojuangco, is pushing hard for Poe’s election. Cojuangco, one of the country’s most notorious crony capitalists, became one of the Philippines’ richest men (and perhaps the richest) during the old Marcos dictatorship. He was on the plane when Ferdinand Marcos fled the country for Hawaii in 1986. Now chairman of the giant San Miguel conglomerate, Cojuangco has made his corporate aircraft available to fly Poe around the campaign trail.
San Miguel beer holds some 90 percent of the Philippine beer market, and the conglomerate’s revenues are estimated at some 5 percent of the country’s GDP. Besides beer, San Miguel is into chickens, hot dogs, oil refining, insurance, property developments, banks, power plants, and more. If investigators from the new Philippine Competition Commission start asking questions about undue concentration of economic power, where would a President Grace Poe stand?
The good news about Mar Roxas — a viable candidate, although never a frontrunner — is that he’s one of the rare Philippine politicians who has never been tainted with allegations of malfeasance. And although just a couple weeks short of 59, he’s had a wealth of high-level experience: senator, trade secretary, energy secretary, interior, and transportation. But he also has a reputation as a relatively weak administrator. During his stint as transportation secretary, for example, he proved unable to push through plans for a long-overdue international airport project.
Happily, the picture isn’t completely bleak. The Philippines still boasts inherent strengths that could compensate for the possibility of a severe leadership deficit following the presidential election. The country has a high literacy rate and a resourceful and talented workforce. And the country’s 100 million people are in a demographic sweet spot — their average age is in the 20s, making for a youthful, energetic population that can drive consumption and growth.
All this offers at least a faint hope that present growth trends will continue no matter who wins on May 9. Even so, pessimists are entirely entitled to ask why, despite its virtues, the Philippines always seems to be just one president away from disaster.
Let’s cast a gimlet eye on President Barack Obama’s “pivot” toward Asia.
Viewed from important Asian capital cities — Tokyo and Bangkok, Manila and Hanoi, Dacca and Phnom Penh, also Jakarta —the pivot is looking more like a half-pivot. The first half involves U.S. security ties to Asia. The Pacific Command — with its U.S. Seventh Fleet, the Fifth Air Force, and its Special Operations Forces — has been keeping the Pacific, well, pacific, for more than a half-century. In that sense, there is nothing especially new to the Obama pivot, except perhaps the spin. But give the White House credit for supporting officials in the State Department and the Pentagon, as they have been tending to America’s traditional diplomatic and security relationships.
But the same White House has failed to connect U.S. trade policies to the political-military part of the pivot. A search for a coherent U.S. trade policy for the region turns up a series of unconnected ad hoc policies. To the extent there is a common thread, it involves Washington’s familiar double standard. The White House demands that U.S. trading partners summon the political will to open their markets to American exports. But when the foreigners ask for enhanced access to U.S. markets, a tone-deaf Washington barely listens. While this is certainly not a game that Obama invented, it’s fair to say that on his watch, U.S. trading partners are no longer much interested in dancing to the superpower’s tune.
That’s sure not the way the White House wants its Asian policies to be perceived. In a speech to the Asia Society delivered in New York on March 11, Obama’s national security adviser, Tom Donilon, asserted that the pivot — which he preferred to call a “rebalancing” — has been fostering enhanced U.S. security and economic ties with Asia. The next day in Washington, Obama reiterated his administration’s claims that the Trans-Pacific Partnership trade negotiations — the centerpiece of his trade policies in Asia — involves defining new “high standards” that will modernize international trade and “generate billions of dollars in trade and millions of jobs” in the 21st Century.
But as our mini-tour of key Asian capitals helps illuminate, the U.S. rhetoric appears at variance with economic facts on the ground. Already, the consequences of shortsighted U.S. trade policies that provide incentives for Asian trading partners to leave Uncle Sam on the sidelines are showing up.
Thailand, for instance, is a longtime U.S. security ally. But the White House has not worked seriously to welcome the Thais into the Trans-Pacific Partnership preferential trade negotiations. As presently constituted, a successful TPP would divert trade flows away from important Asian countries like Thailand.
When Obama met with Prime Minister Yingluck Shinawatra in Bangkok on Nov. 18, 2012, Yingluck’s declared interest in joining the TPP talks wasn’t even on the agenda, the Thai leader told reporters in Bangkok. In a Nov. 19 joint press release with Yingluck, Obama said that “we’ll work together as Thailand begins to lay the groundwork for joining high-standard trade agreements, such as the Trans-Pacific Partnership.” Translation from the diplomatic politesse: it ain’t gonna happen anytime soon.
Meanwhile, Thailand’s business community is divided on the wisdom of strengthening trade ties with America anyway. The Thais already have cut their own preferential trade accords with China and New Zealand, and are also working to liberalize regional trade within Asean.
In the absence of meaningful TPP talks with the Americans, Yingluck has now decided instead to negotiate another Thai trade deal with the more reliable European Union. So have the Japanese.
Japanese Prime Minister Shinzo Abe is pressing a reluctant Obama White House to stop blocking his country’s entry into the TPP negotiations. Meanwhile, Abe is also talking to the Chinese and South Koreans about creating a three-way Seoul-Beijing-Tokyo trade axis.
Next stop: Tokyo.
The “chicken tariff” does Tokyo
On the security front, the good news is that U.S.-Japanese ties remain solid. And the importance of the U.S.-Japanese security alliance should never be underestimated. There is no more important military alliance for either country. The U.S.-Japan alliance has been marked with new energy on the Obama watch, thanks to mutual concerns over contentious Chinese-Japanese maritime disputes over islets in the East China Sea that, while uninhabited, are rich in fish and potentially so for oil and gas. Give the Obama White House credit for understanding the importance.
But for more than two years, Obama and his top international economic policy aide, Mike Froman — the man who has been doing the most to set U.S. trade policies — have been cool to Japanese participation in the TPP. One would think the White House would have been eager to welcome Japanese participation. After all, without Japan — the world’s third largest economy — the TPP is small ball. While readers will have seen various breathless press accounts that tout the TPP as a “blockbuster” of a trade deal, it is far from that.
The US already has preferential trade deals with Singapore, Australia, Chile, Canada, and Mexico. Nor is the White House eager to liberalize those accords in the TPP negotiations (such as opening the door to increased imports of Australian sugar, a subject which the Americans have so far refused even to discuss). The remaining TPP negotiating partners are four smaller, if admirable, economies: Brunei, Malaysia, Vietnam, and New Zealand. Is that what a “blockbuster” of a trade deal looks like? China, Australia, New Zealand, Japan — they all have, or are discussing, preferential trade arrangements with the entire Association of Southeast Nations.
Consider one of the most important reasons for the White House reluctance to welcome America’s most important Pacific ally into the TPP. This has nothing to do with so-called cutting edge, gold standard, state-of-the-art 21st Century trade rules. It’s all about old-fashioned tariffs. And one protectionist tariff in particular illustrates the White House focus.
Enter the Detroit auto lobby. Ford, General Motors and Chrysler fear they would lose domestic market share to the Japanese in a TPP deal that would get rid of the U.S. 25 percent tariff on imported trucks. Defending that tariff — mainly with Japan, but also regarding Thailand, where foreign auto transplants have set up shop —has become a top White House priority.
The problem is that there has never been any economic justification whatsoever for the 25 percent U.S. tariff on trucks. That tariff dates to late 1963 and a decision made during an unrelated trade spat of that era by President Lyndon Johnson (when Barack Obama was barely two years old).
Angry that the Europeans weren’t buying enough American chickens, Johnson retaliated by imposing the 25 percent tariff rate on trucks — a tenfold increase from the normal 2.5 percent U.S. tariffs on cars. The so-called “chicken tariff” was aimed at punishing Germany’s then-popular exports of the hippie-era vans. To repeat: to this day, nobody in the United States government has ever pretended that the chicken tariff had any economic merits.
Moreover, the protectionist truck tax has “worked” over the decades much as the U.S. trade embargo against Cuba has succeeded in ousting the Castro brothers. Toyota and other Japanese automakers — who weren’t competitive threats during Lyndon Johnson’s time — simply have gotten around the tariff by producing their trucks in U.S. states like Texas, where tariffs can’t be applied. Detroit and the United Autoworkers remain furious that the Japanese have created a non-unionized (and well-paid) segment of the “American” auto industry. Obama now has become the eighth American president after Johnson to defend the economically indefensible tariff.
But wait, it gets worse. For another example of how shortsighted auto policies risk Uncle Sam’s increasing marginalization, let’s head to Jakarta.
Indonesia: driving on without the Americans
Indonesia, where Obama lived for several years as a youngster, was supposed to be the beneficiary of enhanced Washington-Jakarta trade ties. Nobody’s talking like that now. Obama has shown no interest in including Southeast Asia’s biggest economy in the TPP. Nor have the Indonesians — who have recently fallen into the trap of economic nationalism — indicated they much care what the Americans think.
Channel NewsAsia, a Singapore-based television news organization that is widely watched throughout the region (and beyond, thanks to channelnewsasia.com); reported on March 17 that Indonesia hits imported autos with a 40 percent tariff. Yet Toyota, Nissan, Mitsubishi, and Daihatsu “supply around 95 percent of Indonesia’s car market,” the report noted. No wonder. Japanese auto imports, thanks to a preferential trade deal Japan has with Indonesia, are duty free.
The rightly concerned European Union is talking with the Indonesians about a preferential trade deal with the Indonesians “to allow European firms to compete on a level playing field” there, the report added.
ASEAN is also busy negotiating new trade rules that will facilitate the auto trade across Southeast Asia.
Meanwhile, the Obama White House, having put all of its negotiating chips in the TPP basket, is left on the outside. China, which has already cut its own preferential trade deal with ASEAN — as well as Australia and New Zealand — is well-positioned to further deepen trade ties with Indonesia also.
Next stop: Manila — to see more missed American trade-policy opportunities to be generous to an old friend.
The next Asian tiger
Perched along key Pacific trading routes, the Philippines — population approaching 100 million, the world’s third largest English-speaking populace — is rich in what economists call “human capital.” So relations with Manila would be important to any American president, even if the former U.S. colony weren’t one of America’s oldest treaty allies.
To its credit, the Obama White House has encouraged the Pentagon and the State Department to strengthen existing political-military relations with the government of President Benigno Aquino III, who was elected in 2010. Dubious Chinese claims to parts of the South China Sea that are clearly within Philippine waters have also underscored the continued importance of close U.S.-Philippine security ties. (Policy paralysis is not only an American disease, to be sure. One wonders if China’s new leadership appreciates the fact that Beijing’s clumsy maritime provocations would remind any Philippine government of the importance in sticking close with their historic friends the Americans.)
Once Asia’s second-largest economy, after only Japan, for most of the last half century the Philippines — mired in cancerous corruption and inward-looking economically — has conspicuously lagged behind its neighbors. But now, Aquino has gotten his country on the move, sparked by a crackdown on corruption that former U.S. diplomat John Forbes admiringly calls “truly unprecedented in scope.”
(Forbes is the principal author of Arangkada, a publication of the Joint Foreign Chambers of the Philippines (www.arangkada.com). Arangkada, which means “move twice as fast” in Tagalog, is full of solid economic prescriptions for what the former “sick man” of Asia can do to become economically healthy again.)
Indeed, under Aquino’s leadership, the Philippines has come out of intensive care.
Philippine GDP growth last year was 6.6 percent and is projected to top 7 percent this year — the highest in Southeast Asia. Construction cranes dot Manila’s skyline. The area just north of Manila that once housed major U.S. military bases at Clark Field and Subic Bay is booming. Clark International Airport — where more birds used to land than airplanes just a few years ago— has taken off, with passenger arrivals skyrocketing from 50,000 in 2004 to 1.3 million last year. Korea’s Asiana, Malaysia’s Air Asia, Hong Kong’s Dragonair, are flying passengers to the Philippines from all over Asia. Emirates will launch daily flights from Clark to Dubai later this year. For anyone looking at the beneficial advantages that happen when foreign investments that foster Philippine economic growth are welcomed, this is it.
Indeed, the former American bases have become models of the benefits of attracting foreign investment. Yokohama Tires and Texas Instruments have billion-plus dollar investments at Clark; Samsung also has an important semiconductor operation there. Korea’s Hanshin has the world’s fourth-largest shipyard at Subic Bay. In their Cold-War heyday, the former U.S. bases employed perhaps 40,000 Filipinos. Now, under Philippine management, the number of jobs in Clark-Subic corridor has shot up more than fourfold — more than 160,000. I don’t think there has been a better time for the Philippines than today,” says Dennis Wright, a dynamic former U.S. Navy captain who is now developing a $3 billion industrial park at the former Clark Field for a group of Kuwaiti investors.
Aquino, as mandated by the Philippine constitution, has one six-year term that will expire in 2016. Now is the time, the reformers stress, for urgency in locking in as many reforms as possible. After 2016, Aquino’s successor could well be another politician mainly interested in lining his (or her) own pockets.
Here’s where the half-pivot part comes in. While the White House has supported enhanced U.S.-Philippine security ties, Washington has not put serious energy into deepening trade ties.
The Obama administration has not welcomed the Philippines into the TPP negotiations. The European Union is interested in negotiating a preferential trade agreement with the Philippines; the White House is not. Washington has no present plans to engage Manila seriously to promote trade liberalization anytime before 2016, when neither Obama nor Aquino will be in office.
The Filipinos have noticed. Last September, speaking to an influential audience in Washington that was convened by the U.S.-Philippines Society and the respected Center for Strategic and International Studies, Finance Secretary Cesar Purisima lamented that his country was not wanted in the TPP. That trade deal as presently constituted, including some Asian countries and ignoring others, the secretary explained, would distort regional trade flows and thus “hinder” the laudable goal of promoting genuine trade expansion.
Meanwhile, where the Philippines is concerned, the USTR is in full “enforcement” mode.
On March 28, the USTR’s trade police will preside over a hearing into complaints of labor-rights abuses from 2001– 2007 that were perpetrated on former President Gloria Arroyo’s watch — murders of union organizers, and such. The implied threat is that if President Obama personally determines that Aquino has not been diligent enough by way of cleaning up the mess he inherited, Obama could yank the Philippines’ duty-free privileges pursuant to the Generalized System of Preferences program.
That would, of course, be ridiculous. After all, Aquino has put Arroyo — who never lost her GSP privileges when she ran the Philippines — under house arrest while she faces graft charges. Aquino’s labor secretary, Rosalinda Baldoz, is widely respected for her integrity and dedication in addressing the Arroyo-era abuses. Nobody, either at the USTR, or with the International Labor Rights Forum, which filed the original complaint, wants or expects Obama to humiliate Aquino. The Philippines has been “making progress” on labor-rights,” notes Jeff Johnson, who heads the International Labor Organization’s Manila office.
Why would the USTR be holding such a hearing that by its nature is demeaning to an important American ally? While it’s tempting to blame the bureaucrats, the trade cops are essentially playing out their intended roles of “enforcement” oversight that Congress mandated in the GSP legislation. Countries like the Philippines that sign up for the GSP program must agree to submit themselves to such oversight from Washington, notwithstanding the indignities. That’s one of the main reasons why the U.S. Congress likes the GSP program — there is always an implicit understanding that economic privileges granted, can also be taken away. And no American president has ever complained that the generous GSP program is also a diplomatic lever that can always be pulled, if necessary to keep allies in line.
The GSP program isn’t particularly generous to the Philippines anyway. To cite just one example: Philippine canned tuna exports are not eligible for the duty-free treatment, as they are politically “sensitive.” The sensitivity involves American Samoa, which is an American territory.
Official U.S. policy has long discriminated against Asian tuna exporters like the Philippines, Thailand, and Indonesia. The Asian tuna exporting countries face protective U.S. tariffs of up to 12 percent. But American Samoa, because it is officially U.S. territory, can export its canned tuna to the U.S. mainland duty free. Without the protective tariffs, the Samoans could not compete. (For further details, see: Charlie the Tuna’s Troubles in Pago Pago, July 12, 2010, posted on www.rushfordreport.com).
Obama inherited the economically indefensible U.S. tuna tariffs from his predecessor, George W. Bush, who inherited them from his predecessors. Bush rebuffed Gloria Arroyo when she sought their removal. It’s safe to say that Obama will also kick the tuna-tariff can down the road.
Onto Dacca, Phnom Penh, and Hanoi
Speaking of unjust American tariff barriers that U.S. presidents have passed along to their successors, who defend them more or less automatically, let’s head to the final three Asian stops, beginning with Dacca.
Bangladesh will also be in the dock at tomorrow’s USTR enforcement hearing. Unlike the Philippines, Obama really is considering yanking Dacca’s GSP preferences. And no wonder, considering Bangladesh’s dismal record over the years of cracking down on human rights abuses in its garment industry. The latest tragedy happened just last November, when at least 112 clothing workers were killed in a factory fire that should never have been allowed to happen.
But hold on. Garments and footwear are not eligible for duty-free treatment in the GSP program, anyway. (That decision that dates to President Richard Nixon and his national security adviser, Henry Kissinger, who framed the original political blueprint for GSP in the 1970s. Nixon and Kissinger faced a U.S. textile lobby that had considerable political clout in those days. Now Obama has the old protectionism still running on autopilot — even though very few items of clothing and footwear are still made in the U.S. and the diminished U.S. textile lobby no longer has the votes to defeat important trade legislation.
As viewed by developing countries that have women who want to sew their way out of poverty, the high U.S. tariffs — hovering generally around 12 percent, but which can be more than twice that for some items — are cruel.
Bangladesh’s exports to the U.S. totaled $4.9 billion last year. Of that, $4.4 billion was clothing, and thus not eligible for GSP. Put another way, 91 percent of what Bangladesh sells to the United States is excluded from the GSP’s duty-free privileges, notes Washington trade analyst Edward Gresser. “This not particularly generous,” he observes.
Gresser further points out that while U.S. tariffs hit poorer countries’ exports of clothing and footwear hard, the higher-end products that wealthy European countries sell to the United States — airplanes, electronics, automobiles and such (except for trucks) — face low tariffs. Last year, for example, Cambodia and Bangladesh exported $7.6 billion in goods to the United States, mostly clothing. These exports faced U.S. tariffs of 16.9 percent and 15 percent, respectively. U.S. Customs collected combined Cambodian and Bangladeshi tariffs amounting to $1.1 billion. German exports to the U.S. totaled $96 billion, and were taxed at only 1.4 percent — amounting to just $1.4 billion. This is “unfair” to two of the world’s most impoverished countries, Gresser reasons. No comment from the White House.
Does it make sense for Obama to take away Bangladesh’s GSP benefits when more than 90 percent of that country’s exports to the U.S. aren’t in the GSP program? Ask the Cambodians about such things.
When Bill Clinton was president, Cambodia agreed with the demands brought by U.S. organized labor to open its sweatshops to international labor inspections. It worked. Today, the International Labor Organization, through its Better Factories Cambodia program (www.betterfactories.org) conducts vigorous and effective oversight of that country’s garment industry.
Yet even though the Cambodians have done everything they could to meet the demands of the AFL-CIO, neither Obama nor his predecessors since Clinton, has been willing to give Cambodian clothing and footwear exports duty-free treatment. The Obama White House — now in its fifth year — has consistently refused to take questions on the subject.
Yes, Dacca ought to agree to open its sweatshops to ILO inspections. But from Dacca’s point of view, why should they, since the Americans wouldn’t give them any economic carrots for doing such anyway?
There’s a lot more of the same, as we end the tour in Hanoi.
As with the Philippines, the Obama administration is working with Vietnamese authorities — who also have good reason to fear Chinese aggressive moves in the South China Sea — to strengthen security ties. While Washington has welcomed Vietnam’s participation in the TPP trade talks, those negotiations have stalled. It’s a familiar story to regular readers of this journal (see: Imperial Preferences, www.rushfordreport.com). In short, the White House has held up the TPP negotiations by stonewalling Vietnamese requests to be granted more market access to the high-tariff U.S. clothing- and footwear markets. (The most recent protectionist move that Washington has inflicted upon Vietnam: hiking anti-dumping tariffs on imports of Vietnamese catfish (called Basa, or Tra, in Vietnamese) a whopping 79 percent, per kilo. Top leaders in Hanoi are very angry, because they have reason to believe that the U.S. Commerce bureaucrats deliberately crunched the numbers to punish Vietnam’s seafood industry — hardly for the first time.)
If there is a hint of more positive news to report, it’s that the more enlightened segments from the U.S. business community are becoming more outspoken about the need for a more effective U.S. trade policy.
Let’s end our tour back in Washington, D.C. by noting some basic insights offered by Rick Helfenbein and Harold McGraw III.
Helfenbein is the vice chairman of the American Apparel and Footwear Association. “For those of us engaged in the pursuit of trade, and for those of us who believe that a robust trade policy is essential to the enhancement of the U.S. economy, the last four years have been disappointing,” he recently wrote in an internal AAFA publication. “Both the Obama Administration and the U.S. Congress have demonstrated that talk about trade policy is simply a form of floating non-productive rhetoric, despite the positive economic growth that comes from achieving a robust trade policy. It makes one wonder as to how such a worthy group of elected officials can work so hard at talking a good game, yet fail to perform.”
McGraw, also one of of Washington’s most influential figures on the trade scene, chairs the Emergency Committee for American Trade. President Obama “should lead by example,” McGraw wrote in a March 7 op-ed column for Politico. “Unfairly restricting access to our market sends the clear message to other governments that they can do the same. Regressive U.S. tariffs on clothing and footwear, trade restrictions on sugar and dairy products and other barriers end up imposing significant costs on U.S. businesses and consumers and must be addressed,” the ECAT leader added.
“We can’t ask others to let us fully access their markets when we don’t let them fully access ours.”
Meanwhile, perhaps Obama might reflect upon the irony that because he has not connected the economic side of his Asian pivot to the political-military side, U.S. economic ties throughout the region could diminish on his watch.