Obama: Back on the Campaign Trail

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Obama: Back on the Campaign Trail

 The “Made in America” president got back on the campaign trail last week.

Barack Obama’s name, of course, will not be on anyone’s ballot come the Nov. 4 mid-term congressional elections. But the president, fearing he could become a politically impotent lame duck during his last two years in the Oval Office, is naturally keenly interested in doing whatever he can to head off any possibility that the Republicans could control both the House of Representatives and the Senate.

A key part of Obama’s current politicking portrays congressional Republicans as uninterested in using sensible government leverage (and a few tax dollars) to keep what the president calls good “middle class” American manufacturing jobs at home in a competitive global economy. It is a continuation of a successful political formula based on patriotic-sounding Buy American rhetoric that has helped an inexperienced junior senator from Illinois win two terms in the White House. The Republicans have never figured out an effective response to Obama’s economic nationalist rhetoric.

But while his politics have been savvy — or at least smarter than his political opposition —Obama’s grasp of global economic realities remains uncertain. He’s been missing a simple insight that is at the core of International Econ 101. Nearly four years ago, then-WTO Director General Pascal Lamy began issuing repeated — and well-publicized — reminders to World Trade Organization member countries why open international trade flows are so important. Thanks to the rapid development of modern global supply chains, the WTO chief explained, manufactured products are no longer made in just any one country. Rather, they are assembled from components and raw materials that are “Made in the World.” Put another way, countries that pursue inward-looking policies pressed by parochial politicians who play to protectionist-minded lobbies — whether Buy America, or Buy India, or Buy China — are going to be left behind.

The WTO’s cutting-edge economic research continues under Roberto Azevedo, Lamy’s energetic successor from Brazil. Obama, however, remains a Made in America politician — and bases his economic policies on such. Over the last year, Obama’s top trade negotiator, Michael Froman, has declined to respond to persistent inquiries as to whether the White House would care to associate itself with the WTO’s Made in the World educational endeavors. But that background gets ahead of the facts that drive this story, which begins on Jan. 15, when Obama flew to North Carolina’s celebrated Research Triangle Park.

Some 170 companies conduct advanced high-tech research and development in the Triangle. Some of the biggest names that are associated with modern technological advances —- think America’s IBM, Intel, Microsoft, Biogen, and Cisco; and also BASF, Ericsson, Sumitomo and even China’s Lenovo — have made the Raleigh-Durham-Chapel Hill area a living illustration of American technological innovation at its best.  Last week, Obama singled out one particularly admirable company to visit, the research and development offices of Vacon Inc.  The president’s idea was to explain how federal subsidies for such praiseworthy private-sector innovators could help keep manufacturing jobs in America.

Never heard of Vacon? Well, this smart company is in everyone’s daily lives, one way or another. Vacon makes something called AC drives. While AC drives are hardly household words, they are highly useful things. Essentially, they use software attached to electronic boxes to make electric motors run more efficiently. Vacon’s clean-energy drives lower costs for a great many useful things that help make the American economy run more efficiently: including elevators, escalators, fans, pumps, compressors, you name it. Vacon’s biggest customers include the likes of giants like Honeywell and Eaton. As Obama rightly noted, Vacon’s innovations tell a very “good news” story.

Vacon is one of 18 corporations that are participating in a federally supported consortium of six universities led by North Carolina State that aims to come up with even more advanced clean-energy ideas. Obama’s Energy Department has pledged to support the hub with $70 million over five years, drawing on funds that the president says he has the existing executive authority to spend. The White House says it has another $130 million available to launch two more so-called “manufacturing hubs” that have yet to be announced.

In his 2013 State of the Union address, Obama said he would ask Congress for $1 billion to create a nationwide network of 15 manufacturing hubs. But unsurprisingly, the idea stalled on Capitol Hill. This election year, the president has doubled down politically, saying that what he’d really like is congressional authorization to subsidize 45 public-private manufacturing institutes. While this is hardly likely to happen, Obama at least has the more opportunities to criticize a do-nothing Congress between now and the Nov. 4 vote. And that’s exactly what he did (with tub-thumping relish) in North Carolina last week. “Where I can act on my own, without Congress, I’m going to do so,” Obama declared on Jan. 15. “And today I’m here to act,” Obama said to applause.

The president’s message was delivered to an enthusiastic audience of some 2,000 at North Carolina State: Smart spending of tax dollars is what it takes to promote an American manufacturing renaissance that will keep good “middle class” jobs at home, rather than continue to ship them overseas, Obama declared. “So the reason I came here today is because we’ve got to do more to connect universities like NC State with companies like Vacon to make America the number-one place in the world to open new businesses and create new jobs,” Obama declared. “We want to do that here in North Carolina, and we want to do this all across America,” Obama vowed.

The president recalled how North Carolina had seen textile- and furniture-making factories “closing their doors down” while “jobs were getting shipped overseas.” More federal support for such “good news” success stories like Vacon, Obama said, will keep the jobs of America’s future here at home. “I don’t want the next big job creating discovery, the research and technology, to be in Germany, or China or Japan; I want it to be right here in the United States of America,” Obama said.

The following six sentences about Vacon from Obama’s Jan. 15 speech are worth quoting in their full context, as they clearly illuminate the president’s view of what international economics is all about: “So this company is making these engines and these systems more efficient, saving businesses big bucks on energy costs, improving the environment. Those savings get passed on to customers, puts money in people’s pockets.  And growing companies that need the products that Vacon makes, they’re benefitting enormously.  So it’s a good-news story.  But in a global economy, that company, just like every company in America, has to keep inventing and innovating in order to stay on the cutting edge.  And that’s where all of you come in.”

And that’s where the Made in the World trade flows enter this story. Obama was certainly correct in portraying the innovative Vacon as an entrepreneurial success story. But the praiseworthy entrepreneurial energy came from — Scandanavia. Vacon Plc is headquartered in Vaasa, Finland. Its U.S. operations are only a small (if important) part of the Finnish company’s international business strategies.

Yes, it stands to follow that Vacon’s factory workers in America will benefit from whatever technological advances come from the tax dollars that Obama will channel to the North Carolina manufacturing hub. But that’s only part of the story. Vacon also has factories in Europe and Asia, as well as R&D operations in other countries. So any high-tech breakthroughs that are made in the Triangle will also help Vacon’s workers around the world, including, you guessed it…China.

A quick look at how Vacon is thriving in a competitive global marketplace easily explains.

In 1993, thirteen engineers who worked for the ABB Group in Vaasa, Finland, faced an uncertain future when the giant Swedish-Swiss conglomerate decided to shut down its Finnish lab. At the time, Finland’s economy was in the tank, suffering from a lingering economic hangover after the collapse of the neighboring Soviet Union. Still, the intrepid Finns bravely struck out on their own, launching Vacon Plc. They risked their job security, their homes, their families’ welfare, and took all the other usual risks that aspiring entrepreneurs do as they summon the inner strength to endure. But the geeks believed in the strength of their ideas.

Today, this fine Finnish company that figured out smarter software to transform the ways that electrical energy is processed holds about 5 percent of a worldwide $11-plus billion AC Drive market. Company revenues were over $500 million in 2012. Altogether, Vacon employs about 1,500 people worldwide. Some of these work in the United States.

Vacon employs nearly 20 highly motivated workers in the Research Triangle. (The words “highly motivated” explain why innovators from around the world find the Triangle attractive.) Another 100 Americans work in Vacon’s factory in Chambersburg, Pa. The company’s U.S. headquarters are in Milwaukee, with support offices in Chattanooga and Houston. They have reason to be enthusiastic about the possibilities of the manufacturing consortium that Obama is pushing — as do Vacon’s factory workers in Suzhou, China, and also in Europe.

Vacon’s website notes that the Finnish company sees its “focus of growth” in six other countries besides the United States: Germany, Brazil, Canada, India, South Korea, and China. Vacon’s website notes that it’s “focus of production is moving to Asia.” Vacon, like other globally competitive corporations, has a natural economic incentive to be near to its growth markets, whether they are in Chambersburg, Pa., or Suzhou.

Moreover, all of Vacon’s factory workers, no matter which country they live and work in, are dependent upon international trade flows across borders, which give them the necessary components they must have to assemble their AC drives. Without access to the imports, all of the factories would fold.

According to Import Genius, an authoritative private research firm that tracks U.S. Customs’ records online, Vacon’s U.S. operations import key parts such as frequency connectors from Finland, valves from China, and control modules from Mexico. Likewise, the workers in Vacon’s factory in China could not assemble their Made in China AC drives without the necessary imported components from various countries. As Karl Marx might put it if he were alive in the 21st century: Workers of the world, you really are united.

But when the president of the United States talks of promoting an American manufacturing renaissance, he is loath to mention that imported components help sustain American manufacturing jobs. The protectionist-minded labor unions that heavily influence the Democratic Party’s trade policies don’t much like to talk about such things.

The puzzle is why the Republicans — who have allowed themselves to be the Fall Guys in Obama’s successful economic morality play — have never figured out how to deflate the patriotic sounding presidential rhetoric. Especially as evidence they would need to put Obama on the defensive is right under their noses.

Remember Obama’s much-touted pledge, first uttered in 2010, that he would move heaven and earth to double U.S. exports between 2009 and 2014? Obama said his White House had a Five Year Plan, which he called the National Export Initiative? It sure had a nice ring to it during the 2012 presidential campaign.

Last week in North Carolina, Obama — who now has new buzz words for job creation, like “manufacturing hubs” — didn’t mention his so-called National Export Initiative. No wonder, considering the numbers.

In 2009, during the economic whirlwinds created by the Great Recession struck, U.S. exports of goods and services totaled $1.5 trillion. But by 2012, the 4th year, U.S. exports had only risen to $2.2 trillion. The numbers aren’t in for all of 2013 (they will be released on Feb. 6.). But it looks like last year was about the same as 2012. So U.S. exports, instead of doubling in five years, have risen by only about one third. To reach Obama’s goal of doubling in five years, U.S. exports this year would have to reach a little over $3 billion. It’s not likely.

But that’s only part of the story. It turns out that there is one existing federal program that actually has an enviable track record of sustaining American jobs — a government program that has steadily been helping exports skyrocket for many years. The reference is to the nationwide network of highly successful U.S. Foreign Trade Zones, which are administered by the Commerce and Treasury departments.

Some 2,800 corporations employ more than 340,000 American workers in FTZs located in every state of the Union, plus Puerto Rico. Manufacturers in these special zones are allowed by the federal government to import the raw materials and components they need to manufacture the finished products, without initially paying import duties. If the goods are sold in the United States, they pay the lower U.S. duty rate for the finished product. Or they could be exported, paying only whatever tariffs buyers in foreign countries are subject to.

The FTZ’s performance clearly illustrates the benefits of a duty-free world. From 2004–2008, the value of exports from FTZs more than doubled, from $19 billion to $41 billion. Since 2009 they have been up more than 80 percent. Last year the department reported that exports from the zones reached a record-high of $54 billion in 2011, a 56 percent increase from fiscal year 2010. (These are the most current numbers the federal government has published.)

Dan Griswold, the president of the National Association of Foreign Trade Zones, has observed that the export numbers “confirm that companies operating through the FTZ program are contributing more than their share toward meeting the president’s National Export Initiative goal of doubling U.S. exports between 2009 and 2014.”  Yet the Obama White House, far from putting FTZs at the center of the president’s National Export Initiative, basically has talked about the free-trade zones as little as possible. The economically thriving zones have been about as far from the center of the president’s National Export Initiative as the White House can keep them.

During the 2012 presidential contest, neither Obama nor his Republican challenger, Mitt Romney, visited a Foreign Trade Zone to tout the benefits of a zero-tariff world. In fact, in more than a quarter century of covering the politics of international trade, memory does not recall any example of a presidential candidate of either party who ever trumpeted the jobs-creating virtues of FTZs.

Still, such export success stories are dotted all over the U.S. BMW has exported more than one million spiffy roadsters and four-wheel drive vehicles from the company’s zone in Spartanburg, S.C. since 1994. Mercedes exports its M-Class SUVs and other luxury cars from a duty-free zone in Alabama. Toyota has announced it will be selling its Kentucky-made Venza Crossover to customers in Russia and Ukraine.

Another shining FTZ success is found in Elkton, Va. (pop. 2,700), nestled in the Shenandoah Valley about 100 miles southwest of Washington, D.C. There, pharmaceutical giant Merck operates a sprawling factory that, according to the company’s federal filings, makes drugs to treat diseases ranging from HIV to river blindness to Parkinson’s to cervical cancer. Workers in Elkton make their pills without Merck’s paying U.S. tariffs on imported raw materials (various chemicals, gums, resins) that otherwise would be subject to duties. Free trade is what Elkton, Va. is all about — ask the Merck workers whose jobs depend upon it.

Or take Caterpillar Inc.’s operations in a Foreign Trade Zone in Victoria, Texas, where it makes its iconic yellow excavators and frame assemblies. There is a very long list of imported parts that Cat brings in duty free to keep its Texas workers busy: including various rods and tubes, hoses, fittings, seal strips, clamps, caskets, glass, ceramics, and many more.

There’s another company that has been creating American jobs in a place where they are much needed, but which isn’t in a Foreign Trade Zone. A commendable start-up named Shinola has started putting Americans to work making fine watches and bicycles in bankrupt Detroit. “We know there’s not just history in Detroit, there’s a future,” the company declares on its website.

Hopefully, savvy risk takers like Shinola will become shining successes, inspiring other intrepid entrepreneurs to start re-building Detroit — a sad city that is perhaps the nation’s number one example of the consequences of unenlightened economic policies. (The AFL-CIO’s unions and the old-line U.S. auto manufacturers bear the responsibility for this, but prefer to blame import competition.)

And of course it happens that Shinola’s prospects for success turn on the ability of this entrepreneurial-minded company to benefit from global trade flows. Shinola sources its bike frames and fork tubing from Mississippi, the chainstay plates from Wisconsin, spokes from Colorado — but also imports other necessary parts from Asia and Europe. And the Shinola workers who assemble watches in Detroit, make them from Swiss movements, and also cases, dials, hands, crystals and buckles from China. So this success story is Made in the World, not Made in America.

Given his attitude towards import competition, Obama is not likely to go to Detroit and call for economic policies that would make the entire city a free-trade zone. Nor have prominent national Republicans expressed any such interest.

While American politicians of both political parties remain intellectually trapped in their insular Made in America mentality, other countries — China, for instance — are thinking of better adjusting their economic policies to fit Made in the World economic realities.

Last summer, with the apparent endorsement of Chinese Premier Li Keqiang, Beijing announced plans to make parts of Shanghai a free trade zone. As the South China Morning Post, the respected Hong Kong daily newspaper, has observed, this will be the “first Hong Kong-like free trade area in mainland China.” And according to various recent news reports, Beijing is also considering creating another dozen such duty-free zones around the country. They include Guangdong, which is economically close to Hong Kong, the port of Qingdao, and Hangzhou, home of the e-commerce giant Alibaba. While the Chinese plans’ implementation are still works in progress, at least Beijing’s leaders are asking the right questions.

As for Obama, it might help if the president would spend less time thinking about effective campaign rhetoric, and more effective governance. After all, it’s the latter that eventually determines presidential legacies.

 

 

 

 

 

 

 

 

Obama’s “Deja vu” Vietnam Diplomacy

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Obama’s “Déjà vu” Vietnam Diplomacy

 A high-stakes diplomatic drama is playing out between the United States and Vietnam. While the focus is on enhancing bilateral economic ties in the ongoing Trans-Pacific Partnership negotiations, the economics are also related to broader security- and human rights issues. This article has some fresh news to report on what’s going on behind the scenes: What the ruling Politburo in Hanoi has decided about deepening its economic ties with the major powers. What Vietnamese President Truong Tan Sang and U.S. President Barack Obama had to say to each other during their July 25 White House meeting in the Oval Office. Who else was in the room — and why that was important.

There is also background information to report that sheds light on the intense pressures that U.S. Trade Representative Michael Froman has been bringing to bear on Vietnam, notably last week in Bandar Seri Begawan, Brunei. On Aug. 22-23, Froman had private talks with his Vietnamese counterpart, Vu Huy Hoang, on the sidelines of the 19th round of the TPP trade talks, which are continuing this week in Brunei. Washington has been playing an intimidation game, pressuring Hanoi to accept an economic deal that is clearly not in Vietnam’s best interests — and just might get away with it.

But it’s not the hard news that captivates, but rather, the déjà vu feeling of another historical turning point in U.S.-Vietnamese relations. On Aug 30, 1945 — 68 years to the day, it turns out, that the TPP’s 19th round of negotiations will conclude this Friday in Brunei — Ho Chi Minh wrote the first of several letters to U.S. President Harry Truman. Uncle Ho sought Truman’s support for Vietnamese aspirations to gain independence from French colonial rule. The letters went unanswered, as the Truman administration’s higher priority involved helping the French recover from the devastations of World War II.

“In historical terms, it was a monumental decision by Truman, and like so many that U.S. presidents would make in the decades to come, it had little to do with Vietnam herself — it was all about America’s priorities on the world stage,” historian Fredrik Logevall has observed in his acclaimed Embers of War. The concerns of more enlightened observers in the U.S. State Department and in the intelligence community, who worried about the consequences of getting on the wrong side of the battle against colonialism, were overridden.

When they met in the Oval Office last month, President Sang displayed a keen sense of history when he gave Obama a copy of one of Uncle Ho’s letters to Truman. Hanoi has good reason to worry that the top Obama White House priority, once again, is not really focused on the Vietnamese economy.

In the TPP trade talks, the White House has been fighting tooth and nail on behalf of the protectionist U.S. textile lobby — Obama’s loyal allies who have supported him in his two successful presidential races. The top priority of the (globally uncompetitive) U.S. mills is denying Vietnam more access to protected U.S. clothing and footwear markets in a TPP trade deal.

As in the late 1940s, a few enlightened U.S. diplomats (quietly) and intelligence officials (very quietly) have now let their concerns be known around Washington. But Washington’s seasoned Asia hands find themselves basically sidelined by the White House domestic political priorities, much as their predecessors were nearly seven decades ago.

Meanwhile, President Sang, on behalf of the ruling Politburo, had his own message to deliver to Obama last month.

To better understand the nuanced blend current spot news and history, let’s begin with that White House meeting.

Spinning Oval Office diplomacy

When it comes to diplomacy, sometimes what the public sees is true — just not the whole picture. Consider the video that the White House posted on its website on July 25. Viewers see Sang and Obama meeting alone in the Oval Office, sitting in armchairs in front of a fireplace, each wearing appropriate dark power suits with muted ties. The image that the White House spinmeisters — who also put the video on You Tube — intended to convey recalls famous historical one-on-one diplomatic talks at the highest level: Nixon with Mao, or Roosevelt and Stalin.

But the Obama-Sang meeting was hardly a Roosevelt-Stalin like moment. It was a scripted, ceremonial occasion, typical of how American presidents have come to host visiting foreign dignitaries in recent years.

An unpublished photo shot by someone else in the room with a wide-angle lens shows that Sang had nine men in the Oval Office with him. Trade Minister Hoang was there, along with Agriculture Minister Cao Duc Phat and the head of Vietnam’s presidential office, Dao Viet Trung. Vietnamese Ambassador to the United States Nguyen Quoc Cuong also was present, as was Lt. Gen. To Lam. Gen. Lam is the deputy minister of Public Security, and formerly headed the ministry’s counter-intelligence department. Lam is also a member of the Communist Party’s Central Committee.

With so many watchers — not all of them necessarily loyal to President Sang’s own supporters in the Politburo — no Vietnamese president would be positioned to engage in substantive bargaining.

A sense of history

Perhaps the three most interesting Vietnamese officials present were the translator, Pham Xuan Hoang An; Foreign Minister Pham Binh Minh, and Colonel General Nguyen Chi Vinh, the deputy minister of national defense. These men carry a sense of history with them — and a longstanding serious professional interest in U.S.-Vietnamese diplomacy. To experienced Vietnamese watchers, the news that An, Vinh and Minh were in the Oval Office will convey a sense of Vietnamese seriousness.

Interpreter An’s father, Pham Xuan An, was perhaps the most important communist spy during the Vietnam War. An’s cover was as a reporter for western news outlets, including Reuters and Time magazine. This complicated man was made a general after the North Vietnamese victory in 1975. But then Gen. An was also detained in a camp for “reeducation” for a year, because he was suspected as being too close to the Americans.

In fact, An loved America (he helped one of the CIA’s most important assets escape when the communists took Saigon). But after the war, the spy explained to his American friends that his top priority had always been working for his country’s independence. An’s double life was the subject of Larry Berman’s fascinating Perfect Spy, published in 2007. Now, An’s son, translator Pham Xuan Hoang An, works in Vietnam’s consulate in San Francisco. Like his father, the younger An is a man who knows both countries very well.

While Colonel Gen. Nguyen Chi Vinh is hardly a household name in America, he is well known to Vietnamese watchers. His father, Gen. Nguyen Chi Thanh, was Vietnam’s second-ever general, after Vo Nguyen Giap. Gen. Thanh was the mastermind of the coordinated uprisings in nearly every major South Vietnamese urban center during the Tet Lunar New Year festivities in January of 1968. The Tet Offensive did not succeed in a military sense. But it is credited with being the proverbial last straw for the fed-up American public, which realized that the White House claims that the communists were on the verge of defeat were false.

Vinh is a member of the Communist Party’s Central Committee, and formerly headed the military intelligence department known (and feared) as Tong Cuc 2. Veteran Hong Kong-based foreign correspondent Greg Torode has called Vinh Vietnam’s wily “Old Fox,” a man who is generally regarded as “Vietnam’s shrewdest strategic thinker.”

Vinh has been a key actor in Vietnam’s delicate balancing act involving major powers with security interests in the Pacific. He has been an important player in a variety of sensitive issues: countering Chinese intimidation in the South China Sea while simultaneously establishing military ties with Beijing; submarine and other weapons purchases from Russia; and also increasing U.S.-Vietnamese military cooperation. Vinh, who is well known in both Washington and Beijing, also showed up earlier this month for private talks with senior defense officials in Tokyo (who also have good reasons to worry about Chinese continuing aggressive moves in the Pacific).

Foreign Minister Pham Binh Minh also has a famous father. Nguyen Co Thach was Vietnam’s foreign minister from 1980 – 1991, where he worked unsuccessfully to normalize ties with the defeated Americans. Like his father, Foreign Minister Minh has a reputation as being keenly aware of the strategic importance of developing closer ties with the United States, by way of countering undue Chinese influence.

Minh related candidly at a Council of Foreign Relations event in 2011 that he had been full of “hatred” during the war, when as a child he endured the U.S. bombing of Hanoi. But ever since he joined the Vietnamese diplomatic service after the 1975 communist victory, Minh — like his father — has focused his own career upon finding ways to forge closer ties with Vietnam’s former war enemy.

Obama’s Diplomatic Team

While the July 25 Sang-Obama White House meeting was a tightly scripted affair, there was at least one moment of spontaneity, where Obama briefly reached out to strike a personal rapport with his Vietnamese guest. When U.S. and foreign “pool” journalists were admitted to the Oval Office for the usual photo opportunity, they shouted some questions to the two presidents. Obama ignored them, but was overheard whispering to Sang, “reporters are the same everywhere.”

A White House press aide declines to discuss who else was in the meeting on either the Vietnamese- or the American side. Pool reporters who were let in for the photo ceremony saw two U.S. officials besides National Security Adviser Susan Rice: Commerce Secretary Penny Pritzker, and U.S. trade negotiator Froman.

Pritzker, an Obama fundraiser from Chicago, is new to foreign affairs. Her Commerce Department is the agency that is widely resented in Vietnam for inflicting protectionist anti-dumping tariffs on the Vietnamese shrimp and catfish industries. And Froman, although also close to Obama, brings more of a domestic political focus to his job than genuine foreign policy experience. (Any diplomatic heavy lifting that was done would have been done a few blocks away from the White House, at Secretary John Kerry’s State Department. Kerry, a Vietnam War veteran, hosted the Vietnamese presidential delegation on July 24. He was in New York when the Vietnamese visitors met with Obama the next day.)

Scripted or not, still, important signals were sent by both presidents.

A Message from the Politburo

The Vietnamese delegation made it clear to Obama — as they had a day earlier in a meeting with trade negotiator Froman — that they were sincere about attaching a very high priority to advancing economic ties with the United States in the TPP negotiations, according to well-informed Vietnamese officials and also senior U.S. diplomatic officials who asked not to be identified.

Carlyle Thayer, a respected Vietnamese watcher who has excellent high-level connections in Hanoi, explains. Thayer, who is affiliated with the Australian Defense Force Academy, says he has seen a copy of an April 10 resolution drafted by the ruling Politburo, which has not yet been publicly released. “It makes economic integration with all the major powers Vietnam’s top priority, over all other forms of integration, including security,” Thayer reports.

In the Oval Office, President Sang stressed to Obama what Vietnamese officials have been saying for the last three years: that if the TPP negotiations are to succeed, Vietnam will need economic incentives — mainly substantial additional access to U.S. clothing- and footwear markets, which are currently encumbered with high tariffs. Vietnam’s main problem with the TPP is that for the same past three years, the White House has held up progress in the negotiations by refusing to make serious tariff-slashing offers.

White House press officials decline to discuss Obama’s response to Sang. For public consumption the two presidents agreed to put out a (bland) public statement noting that they would instruct their aides to do their utmost to complete the TPP by the end of this year. (The White House said the same thing last year, and also in 2011. Froman has been telling people that this time, the administration really means it.)

Signals from Washington

What little detail is known about what Obama said during the meeting has been revealed by U.S. Ambassador to Vietnam David Shear, who spoke to a high-powered Vietnamese-American gathering in Washington, D.C.’s Virginia suburbs on August. 16.  Shear said that the Obama administration considers the TPP negotiations to be “extremely important.” But without “demonstrable progress on human rights” by Hanoi on human rights, “we will not be able to generate congressional support” for a TPP deal, the ambassador added.

Shear related that human rights had come up twice in the Obama-Sang meeting. The first, he said, was part of a general reference linking human rights as the key to enhanced economic and security ties.

According to the ambassador, the second reference to human rights came after Sang expressed Vietnam’s desire to purchase U.S. “lethal” weapons. “If you want to do that,” Shear said that Obama replied, “you’ve got to improve your human-rights practices.” (A full transcript of Shear’s remarks has not yet been posted on the U.S. embassy’s website.)

As Hanoi’s human-rights record is currently being compared unfavorably to Vietnam’s Asian neighbors — even notorious Cambodia has held elections, while Myanmar has been busy freeing its political prisoners — Obama’s point is well taken. The Politburo must be asking itself these days what benefits the country is getting by continuing to imprison more than 160 peaceable political prisoners, whose “crimes” were merely exercising their rights to free political speech and peaceable assembly.

But the same Politburo members who are on the defense on human rights must also be asking why they should sign onto a TPP deal that would offer Vietnam dubious economic benefits.

Secret “21st Century” negotiations

Some parts of the TPP negotiations, to be sure, would clearly be aimed at boosting the Vietnamese economy. Vietnam has been struggling with the politically difficult task of reforming the country’s famously inefficient state-owned enterprises for some two decades.

Vietnam’s SOEs basically are secretive black holes and a drag on more than a third of the country’s economy. When the Obama White House spins the TPP deal as a “high-standard, 21st century” deal that will set an enviable template for trade in the Asia-Pacific region, SOE reforms come immediately to mind.

But other than the self-serving slogans, the White House has been refusing to explain to the watching publics any details of what the Vietnamese are being asked to do. Ironically, the White House is demanding that the Vietnamese economy become more open to market-oriented economics, while classifying what that might entail as a state secret.

Enter “Yarn Backward”

What Hanoi wants most in the TPP is for the United States to slash its high tariffs on imported footwear and clothing. There is a sort of role reversal here. The commies in Hanoi are pressing for free-market access to protected American markets. The Americans are demanding state control. The economic notion is called “yarn forward,” but the economics are hardly forward looking.

As I’ve previously reported, the French 19th century colonialists required that their Vietnamese subjects supply the mother country with textiles. Such imperial preference schemes supported France’s economic domination of Indochina — and inspired Vietnam’s independence movement.

Now the Americans are demanding the same sort of arrangement in the TPP. Vietnam would only qualify for duty-free treatment on its clothing- and footwear exports to the United States if it bought yarn and fabrics from another TPP country — translation: from the declining mills in the U.S. South, not non-TPP countries like China.

It doesn’t take an economics degree to see the flaws. Nobody — beyond insular-looking U.S. mills that long ago lost their competitive edge in global markets — pretends it makes economic sense. Why would any White House pressure the likes of Levis or Gap to buy their (heavy) denim from U.S. suppliers and ship it across the Pacific to Southeast Asia? Why would Obama even think of trying to force giant underwear manufacturer Hanesbrands to stop supplying its Vietnamese manufacturing from Hanes’ established suppliers in China or Thailand? Why would any White House insist that it has the right to disrupt the global supply chains of such respected major American corporations?

U.S. Trade Representative Froman has refused repeated requests to explain exactly why “yarn forward” would be in Vietnam’s best economic interests.

I have also asked U.S. Ambassador Shear if he was able to point to any economic benefits to Vietnam in the yarn forward notion. Shear has been put in the diplomatically awkward position of defending the White House position on yarn forward to the Vietnamese. Shear declined to defend yarn forward’s economic rationale publicly. The ambassador referred the question back to trade negotiator Froman, who again declined comment.

[Ambassador Shear has a reputation as a thoughtful diplomat, albeit something of a team player. His deliberate non-answer could be interpreted as a diplomatic wink, conveying his distaste for the whole business. In private meetings with U.S. corporate executives, Shear has toed the Obama line, but his body language has suggested his discomfort.]

Meanwhile, the White House has been demanding that American clothing manufacturers turn over confidential information on how their global supply chains operate. Intimidated, the companies have mostly knuckled under. The Office of the U.S. Trade Representative even has a special web site for the companies to divulge their business secrets to the government. This access to the private proprietary data has given Froman and his aides the means to instruct the domestic industry where it can source their materials (the U.S. South) and where they can’t (China).

The American clothing importers are now scrambling behind the scenes to receive special exemptions for themselves from the White House. The corporate lobbyists are looking to protect at least parts of their global supply chains from White House interference.

Of course, even with the limited TPP carve-outs that the feds may grant, the rules would always still be subject to sudden change, depending upon unpredictable bureaucratic whims. The American companies could stop the whole business if they had the nerve to stop groveling — which they have never quite summoned in previous U.S. trade negotiations.

China Bashing

The White House unconvincingly denies that the TPP is part of an anti-China economic encirclement strategy. Yarn forward was first included in the U.S. preferential trade deal with Mexico in the early 1990s, and then to other Latin American countries. The idea then, as now, was to hold back Chinese and later, other Asian imports.

It has failed. The rules are so cumbersome that only about 17 percent of Latin American trade goes through the “yarn forward” rules. Companies mostly prefer to pay the tariffs rather than suffer the paperwork.

Relief for Africa

When the Africans were negotiating the Africa Growth and Opportunity Act with the United States in the 1990s, the congressional Black Caucus vehemently objected to yarn forward rules because the principle offended them. Congressmen like Charles Rangel, a Democrat who represents New York’s Harlem neighborhood, fumed that yarn forward reeked of colonialism. Moreover, Rangel protested, such rules were even racist. Consequently, the AGOA trade deal allows the Africans to buy their cotton and other fabrics from China, or anywhere, as long as the final clothes are “cut and sewn” in Africa. In the TPP negotiations, anything short of clean “cut and sew” rules for clothing would hold back Vietnam’s export potential.

Another bitter irony for Vietnam: These days Rep. Rangel and other African-American lawmakers are lobbying for Obama to force upon Vietnam the same yarn-forward rules they formerly attacked as colonial and racist. And Central American countries like the Dominican Republic, who aren’t in the TPP and want to keep Asian competitors at bay, are also piling on Vietnam.

Undeterred, in Brunei last week, trade negotiator Froman still insisted that strict yarn forward rules remained at the “core” of what the U.S. wants in the TPP. He continued to withhold from the public any real details of what was in the TPP, other than the spin that it would be a “high standard, 21st Century” trade template.

The smart money would bet that the Vietnamese will end up swallowing hard and accepting a watered-down TPP deal, giving them modest increased market access for shoes and clothes, while making minimal market-opening concessions to the Americans. Call that TPP Light.

But perhaps the shrewd Politburo operatives in Hanoi, or at least enough of them, have the same sort of determination as did their fathers’ generation. After all, the Vietnamese negotiators should understand that Obama is the one who needs a TPP deal most. Could the American president really allow the TPP to fail, just because the Vietnamese want to sell Americans more pairs of underwear, blue jeans, and sneakers?

Talk about a déjà vu feeling. In the 1940s, President Truman ignored prescient warnings from U.S. intelligence and diplomatic officials that it would be a big mistake for the United States to get on the wrong side of the struggle against colonialism. Now, President Obama pays little heed to warnings that it is unwise to risk important trade talks with Vietnam — and America’s standing in Asia — for parochial domestic politics.

Some people never seem to learn their history.

Shrimp Wars

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by Greg Rushford

Aiming to peel back imports of America’s most popular seafood, the floundering United States shrimp industry launched a legal assault on six Asian and Latin American shrimp-exporting countries in 2003. After two years of maneuvering, the American shrimpers won the battle: federal regulators imposed tariffs ranging from 4 percent to more than 100 percent on imports from Thailand, Vietnam, Brazil, Ecuador, China and India. But now, though the battle wages on, it is clear that the Americans are stuck in a holding action, with little or no hope of ultimate victory.

True, the tariffs have inflicted pain, and not just on the exporters they were aimed at. Importers’ supplies were disrupted until they established new supply chains. Predictably, some of those new sources were found in places like Indonesia and Mexico, where shrimp exporters who were not subject to the punitive United States duties have since enjoyed the windfalls from reduced competition. Thus, despite the tariffs, United States shrimp imports, which totaled around $3 billion a year before the litigation, now exceed $4 billion.

The American shrimp fishermen, who entered the 21st century unable to compete in the global marketplace, are still struggling. No real surprise there: the shrimp farms of Asia and Latin America can supply the product at lower cost in whatever quantities and sizes customers demand. What’s more, further Congressional action designed to protect the fisherman would almost certainly be subject to sanctions by the World Trade Organization. Thus to survive, shrimpers in the United States must serve niche customers who de- mand wild shrimp and are willing to put up with the vicissitudes of ocean catches.

The shrimp war deserves a closer look. In the course of covering it, I met intrepid entrepreneurs from the Gulf of Mexico to the Gulf of Thailand. Their economic fate is largely being driven by basic laws of competition. But these are not theoretical people, and their stories – particularly those of the Cajun shrimpers in the Louisiana bayous, who are being left behind for cultural as well as economic reasons – are compelling.

I believe there is room for sympathy for all parties in the rough and tumble of global markets – all, that is, except for politicians on Capitol Hill who follow the money, and the bureaucrats at the Department of Commerce and the Customs and Border Protection Agency who invent their own rules as they go along. The only wrongdoing of those who have been penalized for trafficking in foreign shrimp has been to bring affordable seafood to Americans’ dinner tables.

have been penalized for trafficking in foreign shrimp has been to bring affordable seafood to Americans’ dinner tables. But before ex- plaining the how’s and why’s, it is worth examining the conflict through the eyes of people who make a living (or would like to) in the shrimp business.

Capitalist Heroes

One of the heroines is Kim Chauvin, a determined entrepreneur from the bayous of southern Louisiana. I visited her at her home in the eponymic town of Chauvin, La. (pop. 3,075) in the summer of 2003. Kim’s husband David, a fourth-generation shrimp fisherman who, with his father, had built his own 73-

foot boat, the Mariah Jade, was threatened with bankruptcy by falling prices for wild- caught shrimp. Indeed, many of David’s peers had already given up and were looking for other jobs.

So Kim Chauvin got busy learning how to add value to the wild-caught shrimp through savvy marketing. A high school graduate and a mother of two, she took a 10-week class at a local university where she learned marketing, financial management and the fundamentals of business planning.

Chauvin started by selling fresh shrimp by the roadside. Four years of perseverance later, the Chauvins now own three boats and sell some 10,000 pounds of Louisiana shrimp a week via the Internet, as well as to restaurants as far away as Minnesota – niche markets that didn’t exist until the Mariah Jade Shrimp Co. created them.

Kim Chauvin likes foreign competition as much as Rush Limbaugh likes feminazis, and adamantly refuses to sell imports. But while she has supported the antidumping litigation, Chauvin spends less time complaining and more time developing market opportunities. She has learned that because wild-caught shrimp from the Gulf of Mexico taste better than farmed shrimp – the one fact that all parties seem to agree upon – there are more niche markets waiting to be developed by domestic entrepreneurs wielding Cajun spices.

Another heroine is Christine Ngo. Her family also became economic risk-takers be- cause life offered them few alternatives. In 1978, her father, Hua Ngo, piled her, her brother and mother into a boat and fled their native Vietnam. The Ngos made it to a refugee camp in Malaysia, and the family was re- located in San Francisco the next year. Hua Ngo, who never had had the opportunity for much schooling during the Vietnam War (in which he lost three brothers), worked as a $4.24 an hour laborer for a couple years, be- fore he started peddling fish on the streets of Chinatown.

Fast forward to 2007. Christine, a 34-year- old college graduate and Los Angeles resident, plays a key role in managing H&N Seafoods, which imports shrimp and other seafood from all over the world and last year generat- ed $250 million in revenues. The Ngos also buy domestic seafood, including some wild- caught shrimp from Louisiana. Coping with the various legal and financial uncertainties that came with the antidumping litigation was “a headache,” Christine relates. “But we worked around it.”

Or consider Choopong Luesukprasert, the managing director of Marine Gold Products Ltd. Seven years ago, Choopong’s mother began Marine Gold, located about a 45-minute drive south of Bangkok. At the time, Thailand was still reeling from the Asian financial crisis of the late 1990s. Choopong was 26 and not long out of college. “We didn’t know any- thing then,” he recalled, when I recently visit- ed his operation. “We almost went out of business after the first two years.” But the family persevered.

Now, Choopong is the managing director of Thailand’s ninth-largest seafood exporter. Marine Gold supplies shrimp to Japan, Eu- rope and Canada, as well as to major American retailers including Costco – more shrimp than the entire American shrimp industry could deliver. The bright-eyed young women I saw peeling and packaging shrimp at Marine Gold worked like demons in the sparkling clean modern plant, for roughly $300 a month. Choopong told me that next year, Marine Gold will employ at least 2,500 workers. Despite the headaches and expenses of litigation, Choopong said, the United States tariffs of 6 percent have only been a distrac- tion. “They have made me a better competitor,” he concluded.

Choopong also pointed out that Marine Gold, like virtually every other shrimp pro- cessor in the world, buys peeling and cooking equipment from Laitram Machinery Inc. Laitram manufactures both at its Louisiana head- quarters and at a subsidiary in Denmark. Choopong said that he could understand why the United States government would want to help American shrimpers. But what would happen to other American companies like Laitram, he asked, if Washington put their customers out of business?

Troubled Shrimp Waters and Cultural Icons

When I visited isolated Terrebonne Parish, some 70 miles south of New Orleans, in 2003, it quickly became evident that Cajun fisher men in the bayous of southern Louisiana had been happily oblivious to the march of technology and globalization. “This is not just an industry, this is a culture,” Bobby Bergeron, the parish president, explained at a meeting of shrimpers. “It’s where I come from. It’s who I am.” Bergeron was rightly proud of his gentle and tolerant Cajun culture and its people.

“I sit back, turn on the music, and steer with my toes, feeling happy,” one of the Cajun cultural icons added the next day, while demonstrating at dockside how he does just that. This is a Bubba Gump lifestyle that shrimpers learned from their daddies, most of whom never had much opportunity for, or interest in, book learning.

I met a 25-year-old shrimper named Benji and his girlfriend, who was pregnant. Benji, who said he had left school after the eighth grade, knew he was in trouble. “I’ve been trolling a week and a half, and I’ve only made $400 so far,” he said. “Trolling is fun. All I ask is bring the price back where it used to be,” Benji declared – not realizing that the laws of supply and demand will never allow that to happen.

I also visited a dock used by Vietnamese- American shrimpers, former “boat people” who fled to the bayous after the fall of Saigon in 1975. A pleasant-looking white man, who happened to be leaving the dock as I arrived, smiled and waved. I learned later that he was from a Texas bank, looking to seize a boat from one of the many owners who had fallen into arrears on loans.

But these Vietnamese-Americans are not likely to share the fate of their Cajun counter-parts. A man who introduced himself as Captain Nguyen explained that two of his children were in college, one of whom plans to be a physician. Despite the difficult shrimp economics, at the end of the day the Vietnamese exile community is going to make it, one way or the other.

Lagniappe from Senator Byrd

The one competitive advantage that the American shrimpers have enjoyed in recent years was a gift from Senator Robert Byrd. In October 2000, the venerable senior senator from West Virginia slipped a rider into an agricultural appropriation. Known as the Byrd Amendment, the law makes domestic petitioners (rather than the U.S. Treasury) the recipients of tariffs collected in antidumping litigation. The idea was to tax the foreigners twice – first by making them pay the tariffs, and second by handing their money to their American competitors.

There had been no public hearings, and no opportunity for more objective heads to point out that the measure would likely run afoul of U.S. obligations as a member of the World Trade Organization. This is, in fact, what a WTO dispute-resolution panel determined in 2003. Congress eventually voted to scrap the measure, but delayed the date until October 2007 – giving antidumping petitioners an extra four years in which they could keep the fruits of their legal efforts.

The idea of the Byrd Amendment was to tax the foreigners twice — first by making them pay the tariffs, and second by handing their money to their American competitors.

Who’s Dumping on Whom?

Last year, U.S. Customs handed over $101 million in Byrd Amendment cash to the do- mestic shrimp industry. Kim Chauvin, who says that her share amounted to around $72,000, told me that she couldn’t understand why people regarded the Byrd Amendment as double taxation. Since the foreigners’ “unfair” shrimp dumping had hurt shrimpers like her, Chauvin reasoned, it was only fair that injured Americans should be compensated for their losses. That, however, doesn’t square with the reality of how the American anti- dumping laws are administered.

For openers, U.S. trade laws create economic rules for foreigners that don’t apply to their domestic counterparts. Consider the loss leaders often prominently displayed in supermarket aisles, or for that matter all the cars sold by Detroit at prices that may cover the costs of materials but not the companies’ considerable overhead. As this discounting is not part of a predatory pricing scheme to put rivals out of business, ruthless price-cutting – Coke versus Pepsi, Wal-Mart versus Target, for example – is regarded as a sign of healthy competition. Within domestic borders, pricing according to demand in various places and segments of the market is entirely legal, even when it doesn’t cover the full costs of production. But when goods come from other countries, price discrimination is called dumping and subject to punitive duties calculated by hostile paper-pushers.

Cutting to the chase, United States anti-dumping laws have nothing to do with free-market economics and everything to do with interest-group politics. Indeed, the laws have deliberately been crafted to give federal officials sufficient discretion to find almost every foreigner at fault. The antidumping case for shrimp was typical: the Commerce Department rounded up the usual suspects and pronounced them guilty of unfair pricing.

Consider how American officials “investigated” Vietnam and China. The Commerce Department categorized both as “non-market” communist economies that are not disciplined by market forces. And this non-reality allowed the department to determine the cost of foreign production from comparable free-market economies, rather than from the actual accounts of the foreign producers who were charged with dumping.

Was the price of water used by Chinese shrimp farmers “fair” or “unfair” in 2003? The Commerce Department looked up the average price of water in four cities in India in a 1997 edition of the Asian Development Bank’s Water Utilities Data Book. For Vietnam, the officials looked at the six-year-old published rates for water in two cities in Bangladesh. Commerce played the same pretend game to find “fair” prices for ice, electricity, factory overhead costs and so on. They found that a tariff of 112 percent was needed to bring Chinese shrimp prices up to real costs. For Vietnam, the tariff was calculated at 93 percent.

When pressed in formal legal proceedings, U.S. officials finally conceded that the 21 Vietnamese and 24 Chinese shrimp exporters charged with dumping did, in fact, operate in “market driven” environments Still, it was de- cided that, market or no market, all were sell- ing below cost, a decision that puzzles Choopong, the Thai exporter. “Why would I be in business to lose money?” he asks. The duties were recalculated at 16 percent and 49-98 percent for the Vietnamese and Chinese, respectively.

Heads I Win, Tails You Lose

In the case of Ecuador, the bureaucrats used an outrageous methodology called “zeroing,” in which the numbers-crunchers eliminated high-priced imports in calculating the aver- age price of imports in order to justify a 4 percent antidumping tariff. But zeroing has been declared a violation of World Trade Organization protocols. And Washington is being pressed to drop the tariffs on Ecuador.

That, however, doesn’t exhaust the protectionists’ bag of dirty tricks. U.S. Customs officials who collected the tariffs came up with a creative accounting idea for increasing the amount of money an importer must deposit as a contingency against tariffs and other fees collected at the border. When the National Fisheries Institute took Customs to court over the issue, Judge Timothy Stanceu of the U.S. Court of International Trade ruled that the agency had been motivated “by domestic political pressures to take action directed against the shrimp-importing industry.” As one Cus- toms memo that was never supposed to see the light of day candidly put it, “The domestic petitioners in this case are from South and South- eastern states that have Congressional representation” on key committees. “The importers are not as geographically concentrated.”

Beating the System

Fatima Satya, who runs a California-based importing firm called Pacific Supreme Company, has learned a thing or two about coping with such dirty tricks. Pacific Supreme’s survival was imperiled when its major supplier in China was hit with nearly 100 percent antidumping duties on shrimp. So Ms. Satya (and many other importers at risk) went “tariff shopping,” shifting to suppliers from countries yet to be targeted by domestic shrimpers. Last year, shrimp imports from Indonesia rose by 15 percent, from Bangladesh by 30 percent, and from Malaysia by 17 percent. And that more than made up for the decline in imports from India and Vietnam.

The lessons for the struggling American shrimp industry seem clear: Instead of resist- ing globalization, embrace it. Don’t resent the success of Thai entrepreneurs like Marine Gold’s Choopong; emulate it. There is a lot of money to be made by Cajuns who can add value to imported shrimp with Louisiana-style cooking and recipes. Learn more about the smart marketing of tasty wild American shrimp into niche markets, following the lead of entrepreneurs like Louisiana’s Kim Chauvin. And learn from Vietnamese-Americans like Captain Nguyen in Louisiana, whose daugh- ter is in medical school. Learn, too from Hua Ngo, who refused to be defeated when life dealt him a wretched hand.

In seafood markets – for that matter, in virtually every global market – the winners are those who learn to swim faster.

GREG RUSHFORD edits the Rushford Report (www.rushfordreport.com), an online newsletter that analyzes the politics of international trade and finance.