Don’t Blame (Just) Obama
As anyone who has even casually skimmed recent headlines would already be aware, President Barack Obama’s international trade agenda is basically stuck. Blame Washington, D.C.’s familiar political gridlock. As the incumbent president, Obama, who has never made trade a high priority, naturally is getting the lion’s share of the blame. But while the president is hardly beyond criticism, don’t just blame him. Trade became a wedge issue long before Obama became president. And many of the dubious policies that Obama is being criticized for endorsing — protectionist Buy America laws, complex and basically unworkable special rules for textiles, regressive high U.S. tariffs on shoes and clothing, and so forth — were inherited from his predecessors of both political parties.
So anyone who really wants to play the blame game — and in Washington, D.C., who doesn’t? — would be well-advised to look beyond the White House to both sides of the aisle on Capitol Hill.
Scratch deeply enough into any policy failures in Washington, and Congress is usually the culprit. On trade, Senate and House Democrats are basically controlled by the party’s union-dominated protectionist wing that fears global competition as a threat to American jobs. The more encouraging news should be that most Republican lawmakers’ instincts are that trade expansion and free markets are good things. Still, Republican leadership on trade has become an oxymoron, as a look at the recent record of the House Ways and Means Committee reveals.
To take a glimpse into how U.S. trade politics are (not) working in Obama’s Washington, the story begins with the unfortunate recent headlines.
In his Jan. 28 State of the Union 2014 message Obama asked Congress to pass legislation giving him so-called Fast Track trade promotion authority (fast track is sometimes called by the acronym TPA, for the latter three words). This would allow the president to negotiate trade-liberalizing pacts with the European Union and important Asia-Pacific trading partners. Fast Track legislation would require Congress to vote either Yea or Nay to any trade deal that Obama would submit for ratification. Such a special rule would bypass the inevitable crippling amendments that lawmakers would offer on behalf of protectionist constituencies — crippling because the amendments would undo the carefully crafted negotiations.
But the next day, Sen. Majority Leader Harry Reid (NV) warned Obama “to not push this right now.” The feisty Reid, who controls the senate calendar, bluntly said that Fast Track would not be on it. Within days, other influential leaders of the Democratic Caucus like Sen. Richard Durbin (IL) weighed in. Their clear message: we have zero interest in forcing Democrats to approve Fast Track — and thus offend the party’s protectionist wing — before the November midterm elections.
The White House protested, sort of, with spinmeisters insisting to reporters that the president still hoped to get Fast Track, sometime anyway, in an unspecified future. When Obama met on Feb. 3 with Reid and the chairman of the Democratic Senatorial Campaign Committee, Sen. Michael Bennet (CO), the president never mentioned trade, according to a report by New York Times reporters Peter Baker and Ashley Parker that the White House did not dispute. Instead, Obama, Reid and Bennet talked about the upcoming November congressional elections, and how Obama might help raise money for the party’s coffers. (Reid is perhaps the most implacable opponent of international trade on the Hill. In 1994, he even voted against legislation that ratified the so-called Uruguay Round of multilateral trade liberalization that created the World Trade Organization.)
House Minority Nancy Pelosi and other prominent Democratic trade skeptics also were not shy about saying they also didn’t want to see a Fast-Track vote before the midterm elections. On Feb. 14, Vice President Joe Biden met with House Democrats and said that he “understood” their political concerns, according to other authoritative news accounts. No president has had Fast Track negotiating authority since 2007, when Pelosi, then House Speaker, killed it. Three preferential trade deals (with South Korea, Colombia, and Panama) that had been signed by Bush were not ratified by Congress until 2011, after the Republicans had won control of the House.
Stalled in Singapore
Predictably, Obama’s trade agenda stalled in Singapore on Feb. 25, after several days of talks between U.S. trade negotiators and their official counterparts in the 12-nation Trans-Pacific Partnership talks. U.S. Trade Representative Michael Froman had hoped to seal the deal in Singapore. But when he arrived in Singapore, Froman quickly learned that his counterparts were not willing to reveal their bottom lines. “If I were a minister from one of the TPP countries, I would be extremely reluctant to put my most sensitive items on the table,” explains Deborah Elms, a respected American trade watcher who is based in Singapore.
Elms and other veteran trade watchers point out that it would be foolish for any country to try to negotiate an end game with U.S. trade negotiators, knowing that without Fast Track, the U.S. Congress is poised to move the goal posts that would undo any “binding” trade deal that Obama might cut. Until this is fixed, the Obama trade agenda will remain stuck: no TPP deal, and no trade agreement with the European Union, either.
There will be geopolitical consequences. The longer Washington’s isolationist international trade gridlock lasts, the more other countries will move on without American participation. That has, in fact, been the trend for several years. China, Canada, Japan, the European Union, Singapore, the Association of Southeast Asian Nations, Hong Kong, New Zealand, Australia and others have all been busy enhancing their economic ties with selected trading partners, while Uncle Sam has been sidelined. The latest news on that front came on March 11, when Canada and South Korea announced that they had concluded a preferential trade deal. The United States is the one country that once did the most to foster multilateral trade liberalization. But nowdays, memories of the terrible tit-for-tat protectionism of the 1930s that contributed to the devastation of World War II have faded in official Washington. The emerging 21st century story line is how America is being left behind.
Froman goes to Capitol Hill
In recent weeks, U.S. Trade Representative Michael Froman has been prowling the corridors of Capitol Hill, doing everything he can to persuade reluctant congressional figures to grant the president the necessary Fast Track negotiating authority. While Froman’s meetings have been held behind closed doors, by all accounts the USTR has changed few if any (closed) minds.
Froman is considered an able man, and his political strength is anchored to his close relationship to Obama that dates to their days at Harvard Law School. That’s always valuable currency in Washington. But neither Froman nor the president has the stature to cajole, pressure, intimidate and otherwise move difficult members of Congress than the late Robert Strauss memorably displayed, when he served as the chief U.S. trade negotiator in the late 1970s.
Consider Froman’s recent efforts to reason with Rep. Rosa DeLauro (CN), a member of the House Democratic leadership. DeLauro’s basic view of international trade blames China for stealing American jobs. She has lined up 151 Democratic lawmakers who say they will not support Fast Track legislation. A few weeks ago, Froman was observed talking with DeLauro in the halls. When he tried to reason with her, the congresswoman subjected the USTR to a shrill earful about how trade deals like the TPP were only going to “kill” more American jobs. The likes of DeLauro would never have dared to speak to Bob Strauss that way.
(DeLauro represents New Haven, an important U.S. port that brings thousands of jobs to her district. The port makes a lot of money from traffic that comes through the Panama Canal, yet DeLauro voted against the U.S.-Panama preferential trade agreement.)
Froman’s efforts to try to reason with Democratic senators have not been much more rewarding. The man he’s got to deal with first-and-foremost is Sen. Ron Wyden (OR). Wyden assumed the chairmanship of the Finance Committee in February, replacing Max Baucus, who is now the U.S. ambassador to China. (Wyden has also chaired Finance’s trade subcommittee, a position he is holding onto.)
Before he left the senate, Baucus had worked successfully with pro-trade Republicans Orrin Hatch (UT), the Finance Committee’s top Republican, and House Ways and Means Chairman Dave Camp (MI), to come up with a bipartisan Fast Track bill. But while Wyden has a history of generally supporting trade deals, he has been lukewarm at best to the carefully-crafted Baucus-Hatch-Camp compromise.
At a March 13 hearing, Wyden highlighted his declared economic priorities, which he said were to come up “innovative approaches to strengthen and expand the middle class.” His priorities involved “education,” “savings,” “tax reform,” “health care,” “strengthening the social safety net” and raising the “minimum wage.” Expanding international trade flows and passing Fast Track legislation were not mentioned.
Railing against Secrets
Wyden has developed a certain style since he was first elected to the House 33 years ago (he became a senator in 1996). Whatever the issue, he’s always looking out for ways to rail against government secrecy, while at the same time never making much effort to dig deeply.
As a member of the Intelligence Committee, Wyden frequently rails against alleged CIA secrecy abuses — as least when the cameras are around. In 2007, Wyden played a leading role in killing the nomination of John Rizzo to become the general counsel of the Central Intelligence Agency. Anyone who wants a glimpse into what it is like to deal with the senator from Oregon might want to read Rizzo’s riveting account of his thirty-plus years in the CIA, Company Man. Rizzo relates that he learned only by reading an account in the New Yorker that Wyden had put a hold on his nomination in August, 2007. Rizzo wrote that he had never spoken with Wyden. He further related that the senator had declined a routine personal “courtesy” pre-hearing meeting.
But when the CIA lawyer’s public confirmation hearing was held in September, Wyden asked Rizzo a series of questions about classified CIA operations. Rizzo understandably demurred, saying that he could not respond fully in a public setting. “With everyone watching, he wagged his finger at me and vowed to get deeply into these issues at the closed session,” Rizzo relates of Wyden. Yet when the cameras were turned off, and that closed session was held, Wyden— along with Sens. Diane Feinstein (CA) and Carl Levin, who had also helped trash Rizzo’s nomination — failed to show up. In the face of such shabby treatment to a civil servant who had served his country for three decades, the White House ultimately was forced to withdraw Rizzo’s nomination.
Wyden has also been a vocal critic of the TPP trade talks, on grounds the White House has been negotiating the details in secret. So it raised some eyebrows on March 10, when this champion of openness in government called a “Senators’ Meeting” to talk about the TPP with USTR Mike Froman — behind closed doors. When he came out of the secret meeting, the senator wasn’t particularly forthcoming to reporters about what had transpired. “This was the first of what is going to be a series of discussions on the committee on a bipartisan basis,” he told Politico’s Doug Palmer.
While Wyden criticizes the White House’s secrecy on the TPP talks, there is nothing to prevent the senator from holding a number of informative hearings that would illuminate in great detail what’s at stake in each of more than 20 TPP chapters — without ever getting into classified U.S. negotiating positions. But that would take a certain amount of intellectual effort — and a close attention to the sort of details that all successful trade agreements turn on.
A Stacked Subcommittee
Beyond the lackluster Wyden, the Finance Committee’s trade subcommittee is stacked with anti-trade Democratic stalwarts. There’s Sherrod Brown (OH), a union ally and economic nationalist who basically speaks for the interests of the insular-looking western parts of his state. Debbie Stabenow (MI) watches out for the Detroit auto lobby. Chuck Schumer (NY) is mainly interested in punishing China. Jay Rockefeller (WVA) has long been the senator from the steel lobby. And there is Michael Bennet, the Colorado elections strategist who does not want to force Democrats to vote on Fast Track before this November’s congressional elections. Imagine being a U.S. trade negotiator who has to try explaining the benefits of trade liberalization to such a crowd.
Which brings us to the Republicans, who are generally pro-trade, pro-Fast Track, Pro-TPP and pro-T-TIP (the acronym for the Trans-Atlantic U.S.-EU trade talks that Obama has launched.) Here’s where the news should become more positive — but it doesn’t.
The Republicans control the House of Representatives, with a 33-seat advantage over the Democrats. Speaker of the House John Boehner (OH) has the votes to pass Fast Track. But when the president asked for that two months ago in his State of the Union address, Boehner’s reaction was tepid — while the Democrats started immediately building up a political head of steam to kill the idea.
On Jan. 29, the day after Obama’s declaration he was committed to Fast Track, Boehner said that while Republicans would support the idea, it was really up to the president to lead. “We cannot pass this bill without his help,” the Speaker said of Obama. “If this is one of his own priorities, you would think that he would have the Senate Majority Leader working with him to pass Trade Promotion Authority in order to expand opportunities for our fellow citizens.”
By passing the buck, Boehner has — so far at least — been passing up a wonderful opportunity to demonstrate real bipartisan leadership. If House Republicans were to move aggressively to pass Fast Track, Republicans would demonstrate that they will support the president on a matter of great economic importance to the country. The political beauty is that forcing the Democrats to vote for Fast Track would split the opposition party in an election year. Such opportunities for Republicans to do the right thing for the country, while embarrassing the Democrats, don’t come along every day in Washington.
Boehner, a decent but sad-looking man — perhaps because of his well-known inability to control the intransigent tea party Republicans — has had other “fast track” legislative priorities. On March 12, the Speaker pushed through by a 233-181 vote a bill that would expedite congressional lawsuits to sue Obama for failing to enforce certain federal laws. One of those, predictably, was Obama’s health-care law. The others, noted AP reporter Donna Cassata, involved steps the president has “taken to allow young immigrants to remain in the United States and the administration’s resistance to defend the federal law banning gay marriage.”
Ways and Means: No Way
Meanwhile, the Republican-led Ways and Means Committee (the House Committee that has jurisdiction over trade) hasn’t been able to pass legislation that even the Democrats also support. It’s difficult to be worse at one’s job than that.
Consider the Miscellaneous Tariff Bill. For three decades, Congress has approved bills allowing American manufacturers to import raw materials and components they need to make products without paying tariffs. The MTBs have traditionally been so devoid of controversy that they used to be passed unanimously. And why not, as the duty-free imported components are reserved for products not manufactured in the United States. There are no domestic protectionist lobbies to appease, as MTB is only aimed at helping American manufacturers become more efficient.
The previous MTB authority that allowed duty suspensions on more than 600 products expired at the end of 2012. There had been very influential warnings all year that Congress should not let such a thing happen.
Throughout 2012, the National Association of Manufacturers, saying that the absence of tariffs supported some 90,000 American jobs, repeatedly urged passage of a new MTB bill. NAM pointed out that paying duties on items that are not available in the United States constitutes an unnecessary tax on American manufacturers. On April 20, 2012, Auggie Tantillo, the top executive of the American Manufacturing Trade Action Coalition, announced that 65 Republican freshmen members of the House supported prompt passage of an MTB renewal bill. “Plain and simple, the MTB is a trade bill that is a job creator for U.S. manufacturing,” Tantillo noted. The American Apparel & Footwear Association also registered its strong support. “By reducing or suspending duties on certain imports that are not found in the United States, the MTB lowers costs for U.S. companies that depend on those imports for their competitiveness,” the AAFA reasoned in a press release on May 10, 2012. “It’s that simple.”
Despite such broad support, the MTB authority expired on Dec. 31, 2012. On July 17, 2013, Dave Camp, the Republican from Michigan who chairs the Ways and Means Committee, and also the committee’s top Democrat, Sandy Levin (also of Michigan), introduced a bill to extend the MTB on July 17, 2013. They were joined by other key lawmakers from both parties. The Camp-Levin extension proposal to extend MTB has gone nowhere.
There’s more bad news. The Generalized System of Preferences legislation that provides duty-free access to U.S. markets for 123 U.S. trading partners, some of them among the world’s poorest countries, expired in July, 2013. In 2012 American companies imported some $19 billion worth of products covered by GSP — many of them necessary components that U.S. workers needed to manufacture products. Although both the Republican and Democratic leadership of Ways and Means have strongly supported GSP’s renewal, it hasn’t happened. Estimates are that the costs to U.S. manufacturers, who now have to pay the (unnecessary) tariffs, has been more than $750 million. Congress has been willing to let this happen.
The Ways and Means trade subcommittee held only three hearings last year: covering U.S. trade relations with Brazil, India, and the European Union. The full committee called USTR Michael Froman, who had just assumed the office, to a hearing in July. The questioning was light.
This year Chairman Dave Camp has issued 49 press releases on various topics ranging from healthcare to taxes. Two of them were about international trade. On Jan. 9, Camp noted that he had introduced Fast Track legislation, along with Sens. Max Baucus and Orrin Hatch. And on March 4, Camp issued a release commenting on Obama’s trade agenda. “TPA is my top trade priority,” he insisted. Rep. Devin Nunes, a California Republican who chairs the trade subcommittee, added: “TPA must be enacted immediately.”
In the past year, a Ways and Means Committee that was on top of its job might have held at least a dozen in-depth hearings that would have better informed the American public — and many of us in the press — on a variety of interesting international trade issues. The committee could have highlighted the stakes involved in pressing countries like Vietnam, Malaysia, and China to bring their state-owned enterprises more market-oriented. It could have highlighted what intellectual property issues in the TPP talks are all about. It could have highlighted the important contribution that imports make to sustaining American manufacturing jobs. It could have highlighted the World Trade Organization’s ongoing efforts to expand international support for multilateral trade liberalization. But the Ways and Committee has chosen to highlight —- nothing.
Blame Obama for his own contribution to the stalled U.S. trade agenda, if you will. But don’t just blame him.
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.
By Greg Rushford
During her successful campaign to become South Korea’s first female president, Park Geun-hye projected intelligence and a calm strength under pressure. She’s sure going to need those qualities.
Imagine walking into such a job. Since her December election triumph, the Korean won has appreciated so much vis a vis the Japanese yen that the value of Korea’s exports — which amount to about a third of Korea’s GDP — could fall this year by six percent, or even more. Projections on new Korean domestic job creation this year are pessimistic. Not to mention the continuing threats from a hostile, impoverished North Korea, which announced earlier today that it had successfully tested a “miniaturized atom bomb,” while working on missiles that could reach the U.S. west coast. It’s a good guess that Park, who turned 61 last week, has been way too busy to enjoy a proper birthday party.
Too busy, perhaps, to think everything through properly. Even before the president-elect will be sworn into office on Feb. 25, she has run into several political controversies. The Korean press has criticized her presidential transition committee for being overly secretive. Her first choice for prime minister had to step down when questions were raised about his ethics and finances. And President-elect Park has set off a firestorm in the National Assembly by picking a fight with Korea’s respected Ministry of Foreign Affairs and Trade. This fight with Mofat’s diplomats — which is widely interpreted overseas as both unnecessary and unhelpful — has caused great consternation. Indeed, Park has given worried Korean trading partners good reason to ask whether South Korea’s trade relations under her administration will be headed, well, south. Read the rest of this article »