International Economic Law and Policy Blog

Trade in Last Night's Debate

From the transcript (nothing really new here, but I'll post it anyway):

McCain: ...

By the way, when Sen. Obama said he would unilaterally renegotiate the North American Free Trade Agreement, the Canadians said, "Yes, and we'll sell our oil to China."

You don't tell countries you're going to unilaterally renegotiate agreements with them.

Obama: ...

Now I just want to make one last point because Sen. McCain mentioned NAFTA and the issue of trade and that actually bears on this issue. I believe in free trade. But I also believe that for far too long, certainly during the course of the Bush administration with the support of Sen. McCain, the attitude has been that any trade agreement is a good trade agreement. And NAFTA doesn't have -- did not have enforceable labor agreements and environmental agreements.

And what I said was we should include those and make them enforceable. In the same way that we should enforce rules against China manipulating its currency to make our exports more expensive and their exports to us cheaper.

And when it comes to South Korea, we've got a trade agreement up right now, they are sending hundreds of thousands of South Korean cars into the United States. That's all good. We can only get 4,000 to 5,000 into South Korea. That is not free trade. We've got to have a president who is going to be advocating on behalf of American businesses and American workers and I make no apology for that.

Schieffer: Senator?

McCain: ...

Now, on the subject of free trade agreements. I am a free trader. And I need -- we need to have education and training programs for displaced workers that work, going to our community colleges.

But let me give you another example of a free trade agreement that Sen. Obama opposes. Right now, because of previous agreements, some made by President Clinton, the goods and products that we send to Colombia, which is our largest agricultural importer of our products, is -- there's a billion dollars that we -- our businesses have paid so far in order to get our goods in there.

Because of previous agreements, their goods and products come into our country for free. So Sen. Obama, who has never traveled south of our border, opposes the Colombia Free Trade Agreement. The same country that's helping us try to stop the flow of drugs into our country that's killing young Americans.

And also the country that just freed three Americans that will help us create jobs in America because they will be a market for our goods and products without having to pay -- without us having to pay the billions of dollars -- the billion dollars and more that we've already paid.

Free trade with Colombia is something that's a no-brainer. But maybe you ought to travel down there and visit them and maybe you could understand it a lot better.

Obama: Let me respond. Actually, I understand it pretty well. The history in Colombia right now is that labor leaders have been targeted for assassination on a fairly consistent basis and there have not been prosecutions.

And what I have said, because the free trade -- the trade agreement itself does have labor and environmental protections, but we have to stand for human rights and we have to make sure that violence isn't being perpetrated against workers who are just trying to organize for their rights, which is why, for example, I supported the Peruvian Free Trade Agreement which was a well-structured agreement.

But I think that the important point is we've got to have a president who understands the benefits of free trade but also is going to enforce unfair trade agreements and is going to stand up to other countries.

...

McCain: Well, let me just said that that this is -- he -- Sen. Obama doesn't want a free trade agreement with our best ally in the region but wants to sit down across the table without precondition to -- with Hugo Chavez, the guy who has been helping FARC, the terrorist organization.

Free trade between ourselves and Colombia, I just recited to you the benefits of concluding that agreement, a billion dollars of American dollars that could have gone to creating jobs and businesses in the United States, opening up those markets.

So I don't -- I don't think there's any doubt that Sen. Obama wants to restrict trade and he wants to raise taxes. And the last president of the United States that tried that was Herbert Hoover, and we went from a deep recession into a depression.

I admire McCain's determination to support free trade, although I do wonder whether he thinks this is a good way to pick up votes.  Free trade is not really very popular these days.

I'm also curious to hear what McCain thinks of the provisions in FTAs that do not deal with tariffs (e.g., investment and IP).  I've never heard him mention those.

Blustein Reimagines Global Trade, without Bilateralism

Brookings just issued a report entitled "Top 10 Global Economic Challenges Facing America's 44th President."  The introduction and one of the chapters were written by Lael Brainard (who has been mentioned as a possible U.S. Trade Rep. in an Obama administration).  One of the chapters in the report is by Paul Blustein, and is called "Reimagining Global Trade."  I was struck by some of the prescriptions he sets out there:

The new U.S. administration should make it clear from the outset that its trade policy will be multilateral in focus; this can—and should—be coupled with a shift away from bilateralism:

>> Shoring up support for trade: Perhaps most important of all, the new president must shore up support for trade, both in Congress and in the public at large; otherwise, no new trade agreements of any kind may be possible. This will entail bridging gaps on Capitol Hill over the key issue of whether trade agreements must contain enforceable standards for workers’ rights and environmental protection. But much stronger steps will also be required on the domestic front, to expand the social safety net and health care. Mitigating Americans’ legitimate worries about the disastrous impact of job losses is essential to turn the debate away from NAFTA’s revision and toward enhancing the system that has underpinned the expansion of global trade for the past 60 years.

>> Breathing new life into the Doha Round: The new president will have a historic opportunity to breathe new life into the Doha Round by proposing to broaden the negotiating agenda to include issues such as the food crisis and climate change. It is conceivable, of course, that such an approach will encounter such stiff opposition from other nations that it will prove impractical; if so, the administration should not turn to bilaterals and regional deals as an alternative but instead should pursue agreements in particular sectors (such as services) under WTO auspices with countries that are willing to liberalize.

>> Proposing a moratorium on bilateral trade agreements: In addition, the president could propose a moratorium on bilateral trade agreements, a step that would be welcomed by many poor countries, which fear being marginalized in an increasingly splintered world of trade.

Bhagwati aside, it's rare that I see such a strong condemnation of bilateralism.  These statements seem particularly significant given Lael Brainard's association with the report and her role as an Obama adviser.  Would an Obama administration put the brakes on bilateral trade agreements?

Trade Policy: Obama vs. McCain

WITA had a recent event on the trade policy differences between an Obama and a McCain administration.  Lael Brainard represented the Obama campaign and Phil Levy represented the McCain campaign.  The event was not available online as far as I could tell, but a couple news organizations covered it.  Here's what I was able to piece together from their reports:

-- Obama would put pressure on China and other countries that violate trade rules and put less emphasis on cutting new trade deals ... "We have to see a material shift in resources within USTR (the U.S. Trade Representative's office)" toward more trade enforcement, said Brainard.

-- Levy questioned whether the number of WTO cases filed each year was the best way to measure enforcement.

-- McCain's top trade priorities would be to conclude the long-running round of world talks, win approval of free trade agreements with Colombia, South Korea and Panama and work in a bipartisan fashion to restore support for trade in Congress and the American public.

-- Brainard criticized the Bush administration for repeatedly failing to label China as a currency manipulator.

-- Levy agreed that China's currency is undervalued and a long-term problem for the United States. But given the global financial crisis it is "a bit of an odd time time to be punishing the Chinese for sending capital our way," he said.  "I think there's room for negotiation there. I think what Sen. McCain would do is try to take action that would be effective for the American people. Starting a trade war with China probably doesn't meet that bill," Levy said.

--  Obama is against scheduling a congressional vote after next month's election on a free-trade agreement with Colombia.

-- a McCain administration would back continuing negotiations in the Doha Round of the World Trade Organization and bilateral trade deals.  As part of a WTO deal, ''we need a president willing to push changes to expensive agricultural subsidies, subsidies we can't afford.'

-- McCain also would seek to expand aid to workers who lose their jobs because of overseas competition, and move to subsidize the salaries of older workers forced to take lower-paying replacement jobs.

-- Brainard said that Obama would ''update'' the North American Free Trade Agreement to include tougher labor and environment provisions.

-- The Bush administration began negotiations this year for separate treaties with India and China that would govern how foreign investors are treated. While those efforts garnered strong support from U.S. businesses, both Brainard and Levy said a new administration would re-evaluate them.  Brainard said Obama is skeptical of initiatives by the Bush administration to negotiate investment treaties with China and India.

After writing this, I saw that Ben Muse did a post of his own on this.  He also linked to this article about possible U.S. Trade Representatives in an Obama or McCain administration: http://news.yahoo.com/s/cq/20081005/pl_cq_politics/politics2971172_5  Muse's summary:

McCain might keep Susan Schwab, or turn to Grant Aldonas or Jim Kolbe.

Obama might turn to Cal Dooley, Daniel Tarullo, or Lael Brainard.

Obama's Latest Trade Comments

In a Q & A with the Detroit Free Press, Obama explains that he is for free trade, but he wants the U.S. to do a better job negotiating and he wants labor and environment standards included in trade agreements:

Q: You’ve been accused of flip-flopping on the issue of free trade. Some key advisers of yours — Bob Rubin, Jason Furman — have some strong pro-NAFTA, pro-free trade histories, yet you’ve said some pretty harsh anti-NAFTA things in the primaries and made what you said was a protest vote on CAFTA. … What specifically can and should the country do to distribute what you call the costs and benefits of globalization more equitably?

A: That last point you made is exactly where I stand about free trade. I am a free trade proponent. I strongly believe in it. But I also believe that my job as president is to promote free trade as a tool of American prosperity, and not simply assume that every free trade deal is a good deal for America. It’s not.

If South Korea is sending 400,000-500,000 cars into the United States and we are selling 4,000 (there), that’s not because South Korean cars are so superior to U.S. cars; it has to do with the fact that they are blocking access to their markets. China has consistently stolen our intellectual property. It has not abided by basic copyright protections. … Their manipulations of the currency have made a difference in terms of our trade deficit. So I want trade with China, but I don’t want us to be taken to the cleaners. …

I have a twofold complaint about our trade agreements.

No. 1 is that we just aren’t very good bargainers. I think it partly has to do with we still think this is the 1960s, and we’re such a mammoth market all of these countries out there are sort of vassal states and they are just sending stuff into our country, and it isn’t going to be that big of a deal.

Well, China, Brazil, India and South Korea, these are major competitors, and our trade negotiators have to be tough enough to say there is going to be reciprocity. If you guys want to sell here, then we’ve got to be able to sell there. And, we are going to enforce those trade deals.

Point No. 2, I do believe that our trade agreements should embody labor agreements and environmental standards. Not because I expect that wages in Malaysia are suddenly going to be identical to wages here, but because it sends a message that we are going to try to raise living standards, that we are going to try to expand the scope of environmental protections so that our workers aren’t undermined. But also so other people’s workers are finding themselves with a better quality of life and, over time, become better markets for our goods and services.

The last point I would make about trade. … It is very hard for us to make an argument for free trade if all the benefits go to Silicon Valley or Wall Street or some distant places, and you have the entire heartland being hollowed out. And nobody is really spending time thinking about what is happening to those communities.

Everybody will say, well, we’re going to retrain them. But the truth is, we’ve never been as serious as we need to be about retraining. We’ve never been as serious as we need to be about planning ahead. … What are the new jobs of the future? Where can we start directing our community colleges and our resources so that we are starting to prepare people for these new lines of work?

What kinds of research and development would allow us to take advantage of new areas like nanotechnology or energy? We don’t to that. We haven’t. … As Americans, we have an obligation to think about the losers in trade as much as the winners. They are not disposable. The communities aren’t disposable. These workers aren’t disposable. And that is how they have been treated for too many years. And I intend to stop that.

With regard to the point about getting better deals, is there any basis for this or is it just campaign rhetoric?  Has anyone tried to quantify which countries get the best trade deals, and examined whether the U.S. is doing poorly in this regard?  I have not heard about it if they have.

On the labor and environment point, here's my question for Obama (which I don't really expect him to answer): if these two are in, and intellectual property is in as well (Obama mentioned it in his answer), what else should be in?  What are the boundaries for the subjects that should be included in trade agreements?

Battles over Buy American

First John McCain brags about buying American, rather than foreign, cars.  Then Barack Obama puts together a TV ad alleging that McCain lied and actually owns several foreign-made cars.  You can see the ad, which includes the McCain statement, here:  http://my.barackobama.com/page/community/post/amandascott/gGg9HV

I was hoping trade policy would play a role in the election, but this was not what I had in mind.

Russia's WTO Accession and the U.S. Presidential Election

How would Russia's WTO accession progress under an Obama-Biden administration?  Everyone is talking tough about Russia right now in relation to the Georgia situation, but Joe Biden has an actual trade dispute with them:

United States Senator Joseph R. Biden, Jr. (D-DE) today issued the following statement after learning that Russia will start banning chicken imports from 19 plants in the United States beginning on Monday. Two Delaware plants, operated by Mountaire Farms in Selbyville and Millsboro, are included in this ban.

Sen. Biden's full statement is below.

"Russia is once again using non-tariff barriers as an excuse to close its markets to American poultry.  I am concerned about the effect of this action on Mountaire, a major employer and integral part of our state's agricultural production.  Other local poultry processing plants may be targeted.

"Russia has repeatedly shown that it is not ready to abide by the rules of international trade.  Let's not forget this is part of a bigger picture in which Russia has failed to behave as a responsible member in the international community.  Until Russia reverses their recent actions -- both big and small - its application to join the World Trade Organization should remain on hold.

"The United States must take immediate and necessary steps -- just like we did in 2002  -to restore access to this market, which is critical to Delaware's farmers, Delaware's poultry industry and Delaware's economy, which relies heavily on the agricultural industry."

McCain On NAFTA "Harmonization"

More from the WSJ trade discussion between Obama and McCain advisers.

Question #4: ... For the McCain camp: Nafta came into effect 14 years ago. What parts aren’t working well? Would you look to remake parts of the pact?

...

Philip I. Levy advises the McCain campaign on international trade and development issues. Click here for Levy’s full bio.

...

Going forward, the U.S., Canada, and Mexico can build on Nafta — perhaps even in as large a multilateral context as that proposed by President Clinton’s Free Trade Area of the Americas — to achieve needed harmonization, while continuing on a bilateral basis to address border security.

I'd like to hear more about the "harmonization" that McCain might have in mind here.  Harmonization is something that liberal groups like Global Trade Watch are up in arms about, but NAFTA can be controversial on the right as well in relation to its impact on sovereignty, and I supect that proposals for harmonization could cause concerns there.

Obama's Views on NAFTA Investment Rules

The WSJ has a nice question and answer / debate on trade issues between leading Obama and McCain advisers.  Here's Obama adviser Dan Tarullo's response to a question about what exactly Obama does not like about NAFTA:

Question #4: Sen. Obama has said he would renegotiate Nafta. For the Obama camp: What specifically would you like changed? Are you concerned that the talks will worsen relations with America’s two neighbors? ...

* * *

Daniel K. Tarullo:

Sen. Obama supports adding binding labor and environmental standards to Nafta. As he has said on numerous occasions, he would work with the governments of Canada and Mexico to achieve this objective. These provisions will benefit workers and the environment in all three North American countries by ensuring that workers are not mistreated, and the environment not despoiled, by firms seeking a trade advantage. As demonstrated by experience with the changes made in the Peru trade agreement, the inclusion of basic labor and environmental standards is eminently feasible.

There is also a broader cooperative agenda that the three countries should pursue in the economic area, including such matters as energy management. As he explained in his speech setting forth his plan for renewing U.S. leadership in the Americas, Sen. Obama is committed to policies that will promote opportunity and bottom-up growth with equity.

What struck me about this answer was that there is no mention of investment.  In the primary, the Clinton team expressed a lot of concern about investment rules; Obama mentioned it as well, but to a lesser extent, and thus I wondered what his full views were.  Now, in response to a direct question as to what Obama dislikes about NAFTA, his adviser did not even refer to it, which perhaps suggests that it is not something they plan to pursue strongly.

Obama on the Doha Round

Well, one of Obama's advisers, anyway:

Democratic presidential candidate Barack Obama wants a successful end to long-running world trade talks, but will closely review any deal reached by the Bush administration, an Obama adviser said on Wednesday.

"Sen. Obama believes we need to change our trade focus from the Bush years so there is a true focus on workers, jobs, farmers and on ensuring that we are lifting standards of living overseas," Jason Furman, Obama economic adviser said in a statement in response to request by Reuters.

"That is the focus that as president he would bring to seeking completion of a successful Doha round," Furman said.

Furman issued the remarks before a meeting later this month in Geneva that World Trade Organization Director General Pascal Lamy has described as the "moment of truth" for the Doha round, which was launched nearly seven years ago.

"While (Obama) would be skeptical of any agreement done by the Bush administration -- especially in the last few months -- it would be premature to comment until there was an agreement and details to review," Furman said.

Of course, this may all be moot, because it's not clear a deal is coming at all.  Still, this statement does not sound particularly positive (he is "skeptical" of any deal that Bush might conclude).   Without any specifics on what he would want to see in a trade deal, though, I'm not quite sure what to make of it.   

Obama's Reaction to the Proposed Budweiser Deal

From Reuters:

Democratic presidential candidate Barack Obama weighed in Monday, saying it would be a "a shame" if the iconic American brewer was acquired by a foreign company.

"I don't think we can pass a law to prevent Budweiser's shareholders -- Anheuser Busch's shareholders -- from selling their company. That's part of the free market system," Obama said.

"I do think it would be a shame if Bud is foreign owned. I think we should be able to find an American company that is interested in purchasing Anheuser Busch if in fact Anheuser Busch feels that it's necessary to sell."

Hmm.  We could, in theory, pass a law preventing the sale of Budweiser to a foreign company.  The question I have for Obama is, should we?  The latter part of his answer hints that he thinks something along those lines would be a good idea.  Or perhaps he just wants to mobilize American investors to offer more money.

Obama on NAFTA in Fortune

There's an upcoming piece on Obama in Fortune magazine, where he talks about trade issues. Here are some snippets about it on Fortune's web site.  Fortune characterizes his views as "NAFTA not so bad after all."  A lot of people are talking about it already (here's a criticism of what's currently posted about the interview on the Fortune web site, saying that Fortune has distorted his views).  The Obama campaign has issued its own response to the Fortune article as well. Here's a quote from the campaign's version of what Obama said:

"But from a pure economic, you know if you're just an economist looking at this in an abstract way you would say well a more efficient producer displaced a less efficient producer in Mexico, there's nothing wrong with that. As a practical matter those are millions of people in Mexico who are displaced. Many of whom now are moving up to the United States, contributing to the immigration concerns that people are feeling. And so, those human factors should be taken into account. They may not override or every single decision that we make in respect to trade, but to pretend those costs aren't there, that those costs aren't real, and my job as president to take those into account, I think, does no service to free trade. And its part of what has fed the protection incentive and the anti-immigration incentive that is out there in both parts and you know I think that if we manage trade more effectively, if we're better partners, if we are thinking about the dislocations that occurs as a consequence of it, if were true to our belief that labor and environmental standards should be a part of raising living standards around the world instead of a race to the bottom, then we can have free trade and it will be sustainable and we will have political support over the long run."

The NY Times had a piece on both candidate's trade views.  I found this last bit interesting:

Gov. Ted Strickland of Ohio, a Democrat, was asked whether Mr. Obama, if elected, would have the United States withdraw from Nafta if he were not satisfied with any renegotiated deal. “That’s just not going to happen,” he said. “It’s beyond the realm of any real possibility that people are going to stomp away from the table and one of the countries is going to walk away from Nafta.”

Obama on Ethanol Tariffs

Via Peter Gallagher, I saw this NY Times article on ethanol subsidies, which referred to an old Obama speech where he said the following:

Greater Brazilian production of renewable fuels could boost sustainable economic development throughout Latin America, and reshape the geopolitics of energy in the hemisphere, reducing the oil-driven influence of Venezuela's Hugo Chavez. The more inter-hemispheric production and use of ethanol and other biofuels occurs, and the more such indigenously-produced renewable fuels are used to replace fossil fuels, the better it is for our friends in the hemisphere.

As it relates to our country’s drive toward energy independence, it does not serve our national and economic security to replace imported oil with Brazilian ethanol. In other words, those who advocate replacement of US-based biofuels production with Brazilian ethanol exports however well intentioned they may be, are both misunderstanding our long term energy security challenge and ignoring a valuable foreign policy opportunity. The U.S. needs to dramatically expand domestic biofuels production, not embrace a short term fix that discourages investment in the expansion of the domestic renewable fuels in industry. Also, accelerating technology advances and transferring the technology to our neighbors in the Caribbean and South America will help them employ their own resources to produce environmentally clean ethanol to reduce their imported oil bill, thereby promoting economic stability in the Caribbean and South and Central America and strengthen the U.S.-Brazil relationship.

So imported Brazilian sugar-based ethanol is bad because it undermines U.S. corn-based ethanol.  But as the NY Times article says:

Corn ethanol generates less than two units of energy for every unit of energy used to produce it, while the energy ratio for sugar cane is more than 8 to 1. With lower production costs and cheaper land prices in the tropical countries where it is grown, sugar cane is a more efficient source.

Here's what I'd like ask Obama:  How much will it cost U.S. consumers to keep a permanent system of protection in place to allow corn-based ethanol to compete with more efficient sugar-based ethanol?

Obama on Chinese Steel Duties

From an Obama press release:

U.S. Senator Barack Obama today released the following statement after the International Trade Commission (ITC) concluded that Chinese pipe producers have injured U.S. manufacturers for several years by dumping circular welded steel pipe exports into our market - a practice which has been enabled through Chinese pipe producers receiving illegal government subsidies.

"I appreciate and support the ITC determination. This is the first case in the history of U.S. trade agreement enforcement involving subsidies in China that has resulted in the imposition of countervailing duties by the U.S. Department of Commerce.

"A month ago, the Department of Commerce determined that the actual rates of Chinese dumping range from 69 to 85 percent and that the actual illegal subsidies range from 29 to 615 percent. These are egregious and outrageous violations of fair trade, and the ITC's determination today was the only responsible response.

"The United States must always use the full range of multilateral and bilateral tools to insist that China and all other nations abide by the rules that govern the economic policies of nations. Our trade agreements must provide for fair competition and for fair treatment of American workers, and then they must be fully enforced as Congress intended them to operate."

I'm not too surprised that he supports this particular result.  What I'd be more curious about is how he would react to a WTO ruling finding an ITC decision like this one in violation of WTO rules.  Would he instinctively criticize it as undermining U.S. trade laws?  Or would he praise the international rule of law?  I'm guessing the former, but I'm not absolutely sure.

McCain on NAFTA

From a McCain speech in Ottawa last week:

We must also work to ensure reliable energy supplies and increase sources of renewable energy. As you all know, Canada is America's largest energy supplier. Not only does Canada have the second largest proven oil reserves in the world, 60 percent of the energy produced in Canada is hydroelectric, clean energy. We stand much to gain by harmonizing our energy policies, just as have gained by cooperating in trade through NAFTA. Since NAFTA was concluded, it has contributed to strong job growth and flourishing trade. Since the agreement was signed, the United States has added 25 million jobs and Canada more than 4 million. Cross-border trade has more than doubled since NAFTA came into force. We have established North America as the world's largest economic market and the integration of our economies has led to greater competitiveness of American and Canadian businesses. Because of our common market, our workers are better able to compete, and to find opportunities of their own in the global economy.

There is still more work to do. Complying with NAFTA's rules of origin can be cumbersome and costly. Border delays can pose a serious impediment to trade, the equivalent of a tariff. And even now, for all the successes of NAFTA, we have to defend it without equivocation in political debate, because it is critical to the future of so many Canadian and American workers and businesses. Demanding unilateral changes and threatening to abrogate an agreement that has increased trade and prosperity is nothing more than retreating behind protectionist walls. If I am elected president, have no doubt that America will honor its international commitments -- and we will expect the same of others. We will strengthen and extend the open and rules-based international trading system. I aspire to lead a proud, outward-looking America that deepens its partnerships throughout the hemisphere and the world.

The part about "Complying with NAFTA's rules of origin can be cumbersome and costly" amused me a bit.  I suppose rules of origin can be better or worse, depending on how they are crafted.  But isn't the problem of "cumbersome and costly" rules of origin something inherent in bilateral/regional FTAs?  If he was really concerned about problems with rules of origin, he might want to emphasize multilateral trade agreements over regional or bilateral FTAs.

Speaking of the downside of FTAs, Jagdish Bhagwati will have some things to say at an upcoming AEI event enitled Termites in the Trading System: How Preferential Agreements Undermine Free Trade.

Do Prizes Constitute Subsidies?

I meant to post on this a while back, but never did (I don't see any record of it anyway).  Suddenly, I find myself with a good opportunity.

Last year, in response to this NY Times article, there was some talk in the blogosphere about the merits of using prizes (such as large sums of money), rather than typical subsidies, to spur innovation (see Dan Drezner's post here, Jonathan Adler's post here and Robin Hanson's post here).

John McCain seems to have been listening.  In a speech today, he says:

I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars. This is one dollar for every man, woman and child in the U.S. -- a small price to pay for helping to break the back of our oil dependency -- and should deliver a power source at 30 percent of the current costs.

I don't have strong opinions on the relative merits of prizes versus normal subsidies in terms of their effectiveness, but I wondered whether using prizes rather than subsidies would allow a government to avoid violations of the SCM Agreement.

Starting with the definition of a subsidy, assuming the terms of the prize competition are met and the money is paid out, you would pretty clearly have a "financial contribution" and a "benefit" under SCM Agreement Article 1.

However, applying the specificity requirement to this situation is a little more complicated.  The government offering the prize could argue that the prize is not specific because it is open to anyone, and thus not "specific to an enterprise or industry or group of enterprises or industries."  In this regard, it could invoke Article 2.1(b), which provides:

"Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification."

Now, a lot depends, of course, on how exactly the prize competition is written.  However, I can see how the rules could be drafted carefully so that the competition might meet these requirements.  In this way, it is possible that specifity could be avoided.

Article 2.1(c) may also be relevant here.  This provision states in part:  "If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered."  However, the other factors listed relate mostly to use by certain enterprises, which wouldn't necessarily be the case with a prize competition (either in the sense that it is open to all enterprises, or there could be a number of prize competitions under the same program and thus many enterprises get the money).  Of course, the program couldn't be a sham.  For example, a prize for a domestic company that could build a jumbo aircraft would pretty obviously be intended for certain enterprises.

So, overall, I think there is a chance that prize competitions like the McCain one could be considered non-specific under the SCM Agreement.  Have I missed anything here?

McCain Adviser Calls Obama Protectionist

From a recent speech by Obama:

But even as we welcome competition, we need to remember that our economic policies must be supported by strong and smart trade policies. I have said before, and will say again – I believe in free trade.  It can save money for our consumers, generate business for U.S. exporters, and expand global wealth.  But unlike George Bush and John McCain, I do not think that any trade agreement is a good trade agreement. I don't think an agreement that allows South Korea to import hundreds of thousands of cars into the U.S., but continues to restrict U.S. car exports into South Korea to a few thousand, is a smart deal.  I don't think that trade agreements without labor or environmental agreements are in our long term interests

If we continue to let our trade policy be dictated by special interests, then American workers will continue to be undermined, and public support for robust trade will continue to erode. That might make sense to the Washington lobbyists who run Senator McCain's campaign, but it won't help our nation compete. Allowing subsidized and unfairly traded products to flood our markets is not free trade and it's not fair to the people of Michigan. We cannot stand by while countries manipulate currencies to promote exports, creating huge imbalances in the global economy. We cannot let foreign regulatory policies exclude American products. We cannot let enforcement of existing trade agreements take a backseat to the negotiation of new ones. Put simply, we need tougher negotiators on our side of the table – to strike bargains that are good not just for Wall Street, but also for Main Street.  And when I am President, that's what we will do.

I didn't see much new here.  Just the usual generalities.  I hope some day soon to get a clearer picture of what Obama wants to do on trade (for example, what parts of NAFTA does he dislike?  what does he want the rules to say?), but this seemed like the standard line he always gives.  So, I was a bit surprised by this reaction:

Following Sen. Barack Obama's speech on competitiveness in Flint, Mich., McCain adviser Carly Fiorina blasted the Illinois senator's trade positions in a conference call with reporters.

"Competitiveness requires competing, and competing means that we must be a nation that engages fully in free trade. Many have called Barack Obama the most protectionist candidate that the Democratic Party has ever fielded, and indeed his record supports that charge. He has said on numerous occasions that we should unilaterally renegotiate NAFTA. He voted against free trade agreements with our friends and allies like Colombia and South Korea. Fairly clear, from the reality of his record, if you set aside his rhetoric, Barack Obama does not believe that Americans can compete with anyone in the world."

That all seemed a bit over the top to me.  Take the Korea FTA example.  If you vote against it because you think the U.S. did not get a good enough deal, as Obama appears to believe, are you protectionist or are you devoted to the most free trade that the U.S. can possibly get?  OK, that's probably a bit over the top as well, but the point is just that these "protectionst"/"free trade" labels need to be used carefully.

Obama's New Economics Adviser

How much do a candidate's advisers matter?  I'm not sure, but there has been some concern expressed on the left about a new economics guy hired by Obama:

Sen. Barack Obama, D-Ill., underscored his affinity with Democratic centrists this week when he tapped Jason Furman, who worked closely with former Treasury Secretary Robert Rubin, to be his director of economic policy.

But the selection is now drawing criticism from some on the left who are wondering if the presumptive Democratic nominee will challenge corporate power and make good on his promise to renegotiate the North American Free Trade Agreement (NAFTA). 

"When people see someone like Barack Obama promise change and then see that same person make their first move the hiring of a Wall Street economic team, that’s what sows disengagement and cynicism in the public,” said David Sirota, a one-time backer of former Sen. John Edwards, D-N.C., who is the author of “The Uprising: An Unauthorized Tour of the Populist Revolt Scaring Wall Street and Washington."

More here:

Lori Wallach, a lawyer and leading opponent of free-trade policies, said the appointment was jarring from a policy and a political perspective.

"Furman seems like a liability, given his anti-worker writings and statements about Wal-Mart, fair trade and other middle-class issues," said Wallach, director of Public Citizen's global trade watch division.

And some commentary on what Furman thinks about trade issues:

1) Furman is no protectionist. He understands the benefits that open trade brings America, such as low-priced goods at Wal-Mart and the intense competition that leads to innovation. The Hamilton Project, the program he ran at Brookings, is all about making sure the benefits of trade are more widely dispersed and the losers from trade taken care of—not scrapping NAFTA or the World Trade Organization. Here is what Furman told me back in 2007:

Jason Furman, director of the Hamilton Project, a centrist economic group, thinks there will be plenty of China-bashing rhetoric and talk of trade barriers—like one proposal to slap a 27.5 percent tariff on Chinese goods because of the weak yuan--over the next few years, not to mention a pause in new trade agreements. But in the end, he speculates, Democrats will mostly push for greater social insurance, such as vastly increased unemployment benefits. "Social insurance," he says, "can lead to a more dynamic society by letting people feel more comfortable taking risks."

Here is something else I wrote about Furman:

In the past, I have differentiated—using an idea stolen from economist Jason Furman at the Hamilton Project-between "pretax Democrats," who want to alter the trade environment such as reopening NAFTA, and "after-tax Democrats," who want to mostly deal with any negative trade effects after they happen, such as through an expanded social insurance program that might include wage insurance for displaced workers.

In other words, Furman would rather see expanded unemployment insurance, wage insurance, and more education for workers rather than trade barriers to protect their jobs. Unions tend to dismiss those sorts of policies, "burial insurance."

It's amazing what a fine line politicians have to walk in trying to create a majority coalition.  It seems that at any moment, parts of it are ready to revolt.

McCain on NAFTA and Trade Agreements

In a recent speech, John McCain was unequivocal in his support for trade agreements:

Unfortunately, Senator Obama has a habit of talking down the value of our exports and trade agreements. He even proposed a unilateral re-negotiation of NAFTA -- our agreement with Canada and Mexico that accounts for 33 percent of American exports. But we have a sharp disagreement here that I look forward to debating. If I am elected president, this country will honor its international agreements, including NAFTA, and we will expect the same of others. And in a time of uncertainty for American workers, we will not undo the gains of years in trade agreements now awaiting final approval.

Apparently, McCain is on his way to Canada (perhaps followed by Mexico and Colombia) to talk about the benefits of free trade.

I think I read somewhere that Obama might have something to say on trade next week.

McCain on Other Benefits of Trade Agreements

Trade talk would be much more straightforward if trade agreements were only about trade, but things are never that simple.  Here John McCain points out one of his non-trade reasons for supporting the Colombia FTA:

The strategic implications of rejecting this agreement are profound. Colombia is a beacon of hope in a region where the Castro brothers, Hugo Chavez, and others are actively seeking to thwart economic progress and democracy. Delaying approval of the Colombian Free Trade Agreement will not create one American job or start one American business, but it will divide us from our Colombian partners at a time when they are battling the FARC terrorists and their allied drug cartels. It will undercut America's standing with our allies in a critical region and across the world, at a moment when rebuilding these relationships has never been more important. It will set back the goal of deepening relations with our neighbors to the south and enhancing the stability, peace, and prosperity of our hemisphere.

There's a part of me that resists these considerations, preferring to focus on what makes for good economic policy.  But there's another part of me that recognizes that economics is not the only consideration.  I'm not sure how I come out on the issue with respect to the Colombia FTA, but I can see why people want to take these kinds of issues into account.

McCain Goes After the Free Trade Vote

I'm not sure how big that voting bloc is anymore, but in a speech today, Sen. McCain has a lot to say on trade.  If this is a sign of things to come, trade is going to be a hot issue in the Presidential campaign.

First, he goes at Sen. Obama pretty hard:

For his part, however, Senator Obama has a habit of talking down the value of our exports and trade agreements. He even proposed a unilateral re-negotiation of NAFTA – our agreement with Canada and Mexico that accounts for 33 percent of American exports, and 17 billion dollars’ worth of exports last year just for Illinois. As you may recall, the Senator’s senior economic advisor told a representative of Canada to pay no attention to this anti-trade rhetoric from Senator Obama – it was all just, quote, “political positioning” for the primary elections. But for those of us who were paying attention, what we heard was not impressive. It was bad judgment and a bit inconsistent. Senator Obama is fond of scolding others for engaging in the “old-style politics,” but when he plays on fears of foreign trade he’s resorting to the oldest kind of politics there is. It’s the kind of politics that exploits problems instead of solving them, that breeds resentment instead of opportunity.

If I am elected president, this country will honor its international agreements, including NAFTA, and we will expect the same of others. And in a time of uncertainty for American workers, we will not undo the gains of years in trade agreements now awaiting final approval.

I'm not sure his description of what Obama's adviser said is accurate.  I never felt completely satisfied with the explanations that were given, but from what I recall, it may not be correct to say that "the Senator’s senior economic advisor told a representative of Canada to pay no attention to this anti-trade rhetoric from Senator Obama" and that it was just "political positioning."

Then, McCain also goes hard at U.S. protectionism, in agriculture specifically:

It is a longstanding goal of American trade policy – and a goal I share – to open foreign markets across the world to American farmers. But the biggest obstacle is not to be found in any foreign market, or in the policies of any other government. It’s right there in the Congress of the United States, in the billions of dollars in subsidies served up every five years to corporate farmers. The original idea was to provide a buffer to small farmers in tough times and to assure a stable supply of food for our country. But nowadays, the small farmers have been forgotten, and instead the Congress sends a steady supply of subsidies to agribusiness.

It would be hard to find any single bill that better sums up why so many Americans in both parties are so disappointed in the conduct of their government, and at times so disgusted by it. Here we are at a time when food prices are at historic highs, and farm income is up by 56 percent in just the past two years. Yet even now, the Congress has voted to give billions of dollars in subsidies to some of the biggest and richest agribusiness corporations in America – many of which are heavy political contributors to members in both parties.

Even as American workers and taxpayers struggle to buy food, because of rising prices, the Congress refuses to place real limits on farm subsidies. Most of the subsidies are going to large commercial farms with an average income of two-hundred thousand dollars, and an average net worth of two million dollars. And, of course, along with the subsidies comes the usual harvest of tax breaks, bailouts, and other forms of corporate welfare. To take just a few examples, the thoroughbred industry hit it big this year with 93 million in tax breaks for race horses. The timber industry made off with 260 million dollars in tax breaks. And then there’s a company that describes itself as, quote, “the largest and most geographically diverse land owner in the nation.” That doesn’t sound like a hardship case to me. But the Congress has just voted to give that same company 250 million dollars in public money.

I don't know how this message will play politically, in terms of how many votes it gains and how many it loses, but I do give McCain credit for speaking out like this. 

Next, he talks about poor people in developing countries.  Again, I'm not sure how much benefit he will see politically (the Oxfam vote can't be that big!), but nevertheless I'm impressed that he is saying it: 

Lost in all of this deal-making and money-grabbing in Washington is not only the common good in our own country, but a concern for other people across the world – people who look to us for an example of fairness and honesty. When the United States and Europe subsidize our biggest agricultural producers, we distort global prices and we hurt the world’s poorest farmers in Africa and elsewhere. These men and women wonder how our government can live with such policies, even at the expense of our own citizens. They believe that our massive subsidies to American producers are a form of protectionism, helping already rich companies at the expense of people and nations in need. They think that these corporate subsidies are inconsistent with our own standards and ideals, and with the good heart of America. And my friends, they are right.

And here is his conclusion:

If I am elected president, I will seek an end to all agricultural tariffs, and to all farm subsidies that are not based on clear need. I will veto any bill containing special-interest favors and corporate welfare in any form. We’re going to base our farm policy on the common good, with policies that help our small farmers to succeed, and our rural communities to survive and flourish once again. We’re going to help American producers large and small to compete in foreign markets – because we know they are up to the challenge, without need of unfair advantages and billion-dollar favors. We’re going to help developing countries in every way we can – by sharing our technologies, by supporting micro-credit banking programs in Africa and elsewhere, and above all by setting an example of fair dealing with other nations.

I don't think he can be much clearer than this!  There are still some nuances, of course, such as how he feels about investment expropriation rules, but he has now laid out his vision pretty strongly.  I suspect (and hope) that Sen. Obama is preparing a response.

How Would a President Obama Govern on Trade?

Bob Davis of the Wall Street Journal is skeptical of Obama's free trade credentials:

Since at least John F. Kennedy, presidential candidates have campaigned as tough on trade and then governed as free traders. Some business leaders are expecting the same if Barack Obama makes it to the White House.

Don't count on it.

Sen. Obama, the Democratic party frontrunner, and his rival, Sen. Hillary Clinton, have expressed some support for trade liberalization during their careers, as public opinion and congressional politics have shifted markedly against free trade. A coalition of anti-free trade activists and labor unions also has used the long primary season to wring commitments from the two candidates on an astonishingly detailed list of trade issues, making it hard for them to reverse course.

More at the link.

I suppose this issue depends in part on what you mean by "govern as a free trader."  Obama might look more like Bill Clinton than like George Bush on trade issues, but he's clearly no Ross Perot.

Obama on Prying Open Foreign Markets

At a recent town hall meeting:

Democratic presidential hopeful Barack Obama urged Japan and South Korea on Friday to scrap all their controls on U.S. beef imports and fully open their beef markets.

"You can't get beef into Japan and Korea, even though, obviously, we have the highest safety standards of anybody," he told a town hall meeting in Watertown, South Dakota. "They don't want to have that competition from U.S. producers."

"So we've got to have a president who's a tougher negotiator and, when we have tougher negotiations, that means that other countries are going to have to allow us to sell into their markets," he said.

Obama and McCain on Farm Subsidies

The U.S. Senate approved the farm bill today.  The bill is now off to the President for an expected veto, but there appear to be enough Congressional votes to override the veto.

What do the candidates think of it?  Well, neither McCain nor Obama was there for today's vote, but here is what they have said on the issue:

-- From McCain:

"I have to give you a little straight talk about the farm bill that is wending its way through Congress," McCain said Thursday at the Polk County Convention Center in Des Moines. "I do not support it. I would veto it," he said. "I would do that because I believe that the subsidies are unnecessary."

-- As for Obama, I haven't found anything specific he said recently, but late last year he was supportive of the overall package as it stood at the time.  See here and here.  Here's an excerpt:

I was disappointed to see that important improvements and solutions for our family farmers in this bill fell victim to partisan politics and obstructionism. Those who stood in the way of this bill stood against our farmers and a clean energy future. While the bill that passed committee didn't include everything I would have liked, including specific reforms to help family farmers instead of big agribusiness, it did take much-needed steps to invest in conservation, nutrition, specialty crops and rural development. It provided funding for renewable energy and recognized farmers who are working to reduce our dependence on foreign oil. And it included a packer ban, which is so important for market transparency.

More on what's in the bill here: http://ap.google.com/article/ALeqM5hKiCUGVmDQJYT51475bq5PwW3aXwD90LMH2G0

ADDED:  I spoke too soon.  Here is an Obama press release from today:

"I applaud the Senate's passage today of the Farm Bill, which will provide America's hard-working farmers and ranchers with more support and more predictability."

"The bill places greater resources into renewable energy and conservation. And, during this time of rising food prices, the Farm Bill provides an additional $10 billion for critical nutrition programs. I am also pleased that the bill includes my proposal to help thousands of African-American farmers get their discrimination claims reviewed under the Pigford settlement."

"This bill is far from perfect. I believe in tighter payment limits and a ban on packer ownership of livestock. As president, I will continue to fight for the interests of America's family farmers and ranchers and ensure that assistance is geared towards those producers who truly need them, instead of large agribusinesses. But with so much at stake, we cannot make the perfect the enemy of the good."

"By opposing the bill, President Bush and John McCain are saying no to America's farmers and ranchers, no to energy independence, no to the environment, and no to millions of hungry people."

ADDED #2:  And more from McCain:

“The American taxpayer has been told before that Farm Bills and their thirst for subsidies were a necessary evil to provide our county—and the world—with affordable, abundant food. Today, as food prices reach historic highs, they’re being told the same thing. We must challenge that notion as grocery bills soar, food banks go bare, and food rationing occurs on a global scale. We must question policies that divert over 25 percent of corn out of the food supply and into subsidized ethanol production. Do Americans really want a support system that costs consumers $2 billion annually in higher sugar prices? Will we truly reduce our dependency on foreign oil by extending tariffs that make it too expensive to invest in sugar ethanol production? Can we honestly demand fair and free trade at Doha while domestic cotton growers dump subsidized cotton on the world market?

“The Farm Bill conference report is expected to cost taxpayers around $289 billion dollars. According to the Congressional Budget Office, this bill will exceed the government’s budget by $10 billion. But the Administration points out that with clever accounting made famous by Congressional budget dodgers, the real cost of the bill will exceed the government’s budget by about $18 billion. And even though Democrats and Republicans in both chambers have promised to rein in pork barrel spending, this bill betrays that promise. Buried within its hundreds of pages are special favors like:

§ $170 million dollar bailout for the West Coast salmon industry included at the insistence of the Speaker of the House.

§ $93 million in special tax treatment for race horses.
$260 million in tax cuts for the timber industry.

§ $15 million for asparagus growers. During debate on the Senate farm bill last year, my colleague Senator Gregg offered an amendment, which failed, to strike this provision. This is a crop that has never before received farm subsidies.

§ $175 million would be transferred to Bureau of Reclamation for activities at three Nevada lakes.

§ $500,000 to the Walker River Paiute Tribe for legal and professional services in support of settling tribal water claims. Other tribes have dealt with water rights without a half million dollar earmark.

§ $5 million for joint planning and development activities for water, wastewater, and sewer facilities by the city of Fernley, Nevada, and the Pyramid Lake Paiute Tribe.

§ The bill authorizes a myriad of grant programs including grants for research into pig genetics, grants for the preservation of historic barns, and $300 million for the Sun Grant Program, which provides grants to 6 universities and science centers that conduct bioenergy research.

§ $20 million goes to the collection and storage of seeds for research purposes.

§ $75 million for a crop research facility in El Reno, Oklahoma.

§ $35 million to promote the production of “hard white wheat.”

§ A $4 billion dollar disaster assistance package on top of an existing crop insurance program that’s subsidized by the federal government.

John McCain's Trade Vision for 2013

In a speech today, John McCain took "a little time to describe what [he] would hope to have achieved at the end of [his] first term as President."  Here's the trade part:

New free trade agreements have been ratified and led to substantial increases in both exports and imports. The resulting growth in prosperity in countries from South America to Asia to Africa has greatly strengthened America's security and the global progress of our political ideals. U.S. tariffs on agricultural imports have been eliminated and unneeded farm subsidies are being phased out. The world food crisis has ended, inflation is low, and the quality of life not only in our country, but in some of the most impoverished countries around the world is much improved.

Americans, who through no fault of their own, lost jobs in the global economy they once believed were theirs for life, are assisted by reformed unemployment insurance and worker retraining programs. Older workers who accept lower paying jobs while they acquire new skills are provided assistance to make up a good part of the income they have lost. Community colleges and technical schools all over the country have developed worker retraining programs suited to the specific economic opportunities available in their communities and are helping millions of workers who have lost a job that won't come back find a new one that won't go away.

Obama and McCain on Cap-and-Trade

Via Peter Gallagher, I came across the following from Obama adviser Jason Grumet:

To be unequivocally clear, Sen. Obama believes that the United States must and will act to put a mandatory limit on our domestic greenhouse-gas emissions. That is a predicate for us leading the world to enact a truly equitable and global program in which China and India and Brazil and all the major emitting countries also put legal limits on their emissions. The story of this country has not been waiting to be led by others to address global challenges.

...

Ultimately the solution to global climate change is going to be mediated through the lens of global trade. Sen. Obama has been supportive of mechanisms that have the U.S. take a first step, and if after a period of years other nations are not acting in what is deemed to be a commensurate responsible manner, look to our trade laws to try to ensure that there's no inequity or competitive disadvantage imposed on U.S. businesses. The idea that was initiated by the International Brotherhood of Electrical Workers, in which importers of energy-intensive products would be required to purchase permits for the carbon embedded in those products -- the details need to be fleshed out, but that seems to be a reasonable approach to level the playing field, if we get there.

But Sen. Obama also has faith in the intellect of others. While he believes the United States has a vital role to play in leading this discussion, he does not believe we are going to have to bludgeon other countries into appreciating their own self-interest. Climate change is a real problem. The Chinese are going to suffer the impacts of it much more harshly and immediately than we will. The Chinese and the Brazilians and the Mexican government and others read the same scientific reports as we do. They recognize that the exacerbating cycles of flood and drought will be devastating for countries trying to support billions of people on smaller amounts of arable land, who don't have the same kind of water-handling and -treatment systems. It is the wealthy nations who are in many ways the most hedged and capable of adapting early on.

Here's how I interpret Obama's views based on these statements.   As President, Obama would first take action to limit U.S. carbon emissions through a cap-and-trade program.  Then, he would try hard for an international agreement on the issue, with the goal of including the developing countries which so far have been reluctant to sign on.  But if it becomes clear that some countries cannot be brought into an international agreement, he is willing to act unilaterally to impose equivalent burdens on imports from these countries.

As for McCain, here's something from his recent speech on climate change:

If the efforts to negotiate an international solution that includes China and India do not succeed, we still have an obligation to act.

In my approach to global climate-control efforts, we will apply the principle of equal treatment. We will apply the same environmental standards to industries in China, India, and elsewhere that we apply to our own industries. And if industrializing countries seek an economic advantage by evading those standards, I would work with the European Union and other like-minded governments that plan to address the global warming problem to develop a cost equalization mechanism to apply to those countries that decline to enact a similar cap.

This wasn't quite as specific, but that's to be expected given that it was the candidate's own speech rather than a Q & A with an adviser, as with Obama.  Nonetheless, it seems that McCain's views are similar to Obama's:  International rules are preferred, but we will act unilaterally, if necessary, to impose similar burdens on countries that do not act.

Of course, within those broad principles, there is a lot of room for disagreement, both on cap-and-trade generally and the international trade component specifically.  No doubt these disagreements will get fleshed out a bit more in the coming months.

(Notice that I've created an Obama vs. McCain '08 category for this post.  I may be jumping the gun a bit here, but this matchup has begun to look inevitable.)