Topic Category: Politics

The era of trade liberalization is dead. Yet it could get worse still. Not only have prospects for liberalization over the next few years been dashed, but Congress is considering legislation that could precipitate a retreat from the trade policies and institutions that have served U.S. interests for 60 years.

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America’s growing engagement in the global economy is not just a story of the Fortune 500. Increasingly, small and medium sized U.S. companies are entering global markets not only to sell but also to buy and invest. In response, Congress and the administration can and should do more to open new opportunities for U.S. small businesses to remain competitive in a globalized economy.

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On June 30, 2007, Trade Promotion Authority (TPA) is set to expire, and without it, the Bush Administration will no longer be able to negotiate timely, effective trade agreements.

Legislation to re-authorize TPA would continue the system where Congress votes up-or-down on trade agreements the President secures but cannot amend or filibuster them. Because today’s global economy offers unparalleled opportunities for the U.S., it is in America’s economic interest to continue to expand trade by lowering barriers placed on goods and services. Moreover, freer trade helps spread freedom globally, reinforces the rule of law and fosters economic development in poor countries.

Congress should renew TPA as it is, allowing America to continue reaping the benefits of good policy.

The debate over whether Congress should renew TPA will become a bigger issue—and not just between free traders and protectionists. Within each camp, different ideas for modifying TPA are emerging. Some would leave TPA as it is, some would require additional guarantees and restrictions protecting U.S. workers and firms from foreign trade partners, some would seek to expand the role of Congress in the negotiations process, and some would do away with TPA all together. Because it would hinder the expansion of freer trade, limiting or ending TPA would be a mistake.

TPA Today

Under TPA, formerly known as fast-track authority, Congress can approve or reject an entire trade agreement, but it cannot alter specific provisions in the agreement. In return, the President must fulfill certain criteria specified by Congress in each free trade agreement (FTA).

One of these criteria is consultation with Congress throughout the negotiations process. Additionally, TPA rules require that America’s free trade agreements go beyond winning lower tariffs on U.S. agriculture, manufacturing and services exports. FTAs contain provisions that safeguard investors from discrimination and uncompensated expropriation of property, increase regulatory transparency and eliminate excessive red tape, protect and enforce intellectual property rights, combat corruptive practices, ensure nondiscriminatory government procurement, protect labor rights, and strengthen environmental protections.

The U.S. negotiates agreements that include transparent dispute resolution and arbitration mechanisms to guarantee that the agreements are upheld, along with the rights of U.S. firms and consumers.

Due to the way TPA is implemented, countries are assured that U.S. trade policy commitments in an FTA will not be amended by Congress after negotiations conclude. Consequently, the TPA enhances America’s ability to negotiate trade agreements by ensuring that U.S. commitments are made in good faith. This minimizes the cost and uncertainty associated with the negotiations process.

Each element of an FTA strengthens the transparent and efficient flow of goods, services and investments between member countries. FTAs open markets, protect investors and increase economic opportunity and prosperity. In short, FTAs—and the TPA legislation that defines them—serve to promote U.S. interests, not weaken them.

A Record of Success

TPA has helped the U.S. negotiate and conclude new free trade agreements in an efficient and timely manner. Over the years, the U.S. has implemented 10 bilateral or regional FTAs with 16 countries. Trade liberalization through these FTAs and multilateral channels has resulted in significant benefits to the American economy.

Today’s $12 trillion U.S. economy is bolstered by free trade, a pillar of America’s vitality. The United States is the world’s largest economy and a major exporter. Increases in U.S. exports accounted for about 25 percent of America’s economic growth in the 1990s and 20 percent in 2005, according to the U.S. Trade Representative. Jobs directly linked to the export of goods pay 13 to 18 percent more than the average U.S. job.

Freer trade enables more goods and services to reach American consumers at lower prices, giving families greater power to save money or spend it on other goods and services. The United States is among the most open markets in the world. According to the USTR, The World Trade Organization Uruguay Round and the North American Free Trade Agreement (NAFTA) alone have lowered U.S. tariffs and provided an average savings of $1,300 to $2,000 a year for a family of four.

Freer trade policies have created a level of competition in today’s open market that leads to innovation and better products, higher-paying jobs, new markets, and increased savings and investment. The expansion of international trade has helped make American one of the most productive and wealthy economies in the world.

The TPA Debate

The call for TPA reform reflects a growing sense that TPA legislation is the appropriate vehicle to address the perceived costs of globalization on the U.S. economy. But using TPA to redress the alleged costs of trade is a bad idea for a number of reasons.

First, TPA is not designed to address trade or industrial policy concerns that may be different across trade partners. TPA has two primary roles: to define the basic standards of FTAs and to provide the President the legal authority to negotiate and conclude trade agreements quickly and effectively. TPA sets the foundation from which trade talks start. As negotiations move forward, policy concerns that are unique to the bilateral trade relationship are identified and addressed. Not all trade partners are created equal; TPA should retain the flexibility needed to conclude FTAs that are beneficial to all parties.

Second, implementing more restrictive conditions to the structure of each FTA could eliminate the benefits to partner countries of joining into free trade agreements with America—especially developing countries that use U.S. Free Trade Agreements to help promote development and lessen poverty. The idea that forcing more stringent labor and other standards on potential FTA partners will make freer trade more “fair” for America is false. The major economic benefits of free trade are derived from the differences among trading partners, which allow any country embracing world markets a chance to be competitive. Free trade is fair when countries with different advantages are allowed to trade and capitalize on those differences.

Finally, modifying TPA opens the door to protectionist policies aimed at saving jobs in declining industries. But trade is not the key issue with jobs. Exposing noncompetitive companies to the rigor of serious competition, whether domestic or international, is not the cause of lost jobs. A better policy, then, is to redress the factors that lead to noncompetitive firms that should be fixed. High corporate tax rates, a relatively high minimum wage, weak protections of property rights, corruption, and other policy failures are the real threats to American jobs, and erecting trade barriers will not address these issues. Instead, policymakers should focus directly on these concerns with the appropriate policy tools. America’s competitive advantages in the global market would not be served by making FTAs harder to negotiate but would be improved by healthy debates on U.S. tax and regulatory policy.

Final Thoughts

Trade Promotion Authority is vital to strengthen the hand of the United States at the negotiating table and provide a framework for consultation with Congress at key stages of trade negotiations. The President needs the ability to sign good trade deals that expand U.S. access to overseas markets and strengthen international trade norms. Current TPA rules support the development of effective labor and other economic policies without forcing unrealistic and detrimental regulations on developing economies or significantly undermining the benefits of freer trade.

Congress should insure that TPA legislation is renewed without substantial, restrictive new provisions that define the content of U.S. FTAs. Legislation resulting in TPA provisions that are too costly for the U.S. or erect new barriers to trade would harm Americans and American interests.

Defending free trade and encouraging new trade agreements are central tasks for Congress. Expanding global trade—and America’s role in world markets—is fundamental to building a stronger economy at home and promoting better relationships abroad.

Daniella Markheim is Jay Van Andel Senior Analyst in Trade Policy in the Center for International Trade and Economics at The Heritage Foundation. This article appeared in Impact Analysis, May-June 2007.
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U.S. trade policy is regularly the subject of contentious debate on Capitol Hill, and the 110th Congress promises an even more volatile debate. Although a new study of voting records and campaign platforms released by the National Foreign Trade Council and USA Engage asserts that the overall impact of the elections will result in a Congress only “slightly less supportive” of freer trade polices, even a slight change is meaningful.

In today’s policy world, free trade legislation passes on the margin, and every single vote is critical. The loss of even a few proponents of freer trade policies could result in a costly shift away from the open market policies that have helped bolster America’s economic growth.

Incoming congressional Democratic leaders have promised to work with the Administration on international trade issues. After all, free trade is about beating poverty and expanding economic opportunity—markedly non-partisan issues. Over the coming months, the strength of their promise will be tested repeatedly when many forthcoming pieces of trade legislation are submitted for debate and approval.

In the process of working through the policy proposals, Congress will have the opportunity to advocate free trade and help America and the world reap the rewards that accrue from such policies. Or Congress could choose to isolate and deprive the U.S. of the benefits of leading and engaging the global economy. Prosperity in the U.S. and around the world has a real chance to thrive under the 110th Congress, but only if the Administration and Congress work as partners to advance a sound trade agenda.

Free Trade Is Fair

An artificial distinction has been drawn between “free” trade and “fair” trade. The idea that free trade is only fair if countries share identical labor costs and economic regulations, or if domestic producers are compensated for market losses to more competitive foreign producers, is false. The major economic benefits of free trade are derived from the differences among trading partners, which allow any country embracing world markets a chance at being competitive. Free trade is fair when countries with different advantages are allowed to trade and capitalize on those differences.

Low wage costs, access to cheap capital, education levels, and other fundamental variables all play a role in determining what comparative advantages one country has over another in the global marketplace. To “fairly” equalize those differences—provided those differences are based on a country’s economic and demographic reality—only serves to negate or reduce the ability of a country to benefit from participating in the global trade system.

Such “fairness” also prevents countries from realizing the real gain from freer trade—a more competitive economic environment and better, more efficient domestic resource allocation. This effect drives greater long-term economic potential, creates economic opportunity, and improves living standards at home.

Free trade allows a country to compete in the global market according to its fundamental economic strengths and to reap the productivity and efficiency gains that promote long-run wealth and prosperity. Indeed, there is no distinction between “free” and truly “fair” trade.

Tangible Benefits of Trade

The gains from freer trade are substantial. Today, the $12 trillion U.S. economy is bolstered by free trade, a pillar of America’s vitality. American exports support one in five U.S. manufacturing jobs. Jobs directly linked to the export of goods pay 13 to 18 percent more than other U.S. jobs. Moreover, agricultural exports hit a record high in 2005 and now account for 926,000 jobs.

The service sector accounts for roughly 79 percent of the U.S. economy and 30 percent of the value of American exports. Service industries account for eight out of every 10 jobs in the U.S. and provide more jobs than the rest of the economy combined. Over the past 20 years, service industries have contributed about 40 million new jobs across America.

Because today’s global economy offers unparalleled opportunities for the U.S., it is in America’s economic interest to continue to expand trade by lowering trade barriers in goods and services. Freer trade policies have created a level of competition in today’s open market that leads to innovation and better products, higher-paying jobs, new markets, and increased savings and investment.

Freer trade enables more goods and services to reach American consumers at lower prices, giving families more income to save or spend on other goods and services. Moreover, the benefits of free trade extend well beyond American households. Free trade helps spread freedom globally, reinforces the rule of law, and fosters economic development in poor countries. The World Bank estimates that the continued reduction of tariffs on manufactured goods, elimination of subsidies and non-tariff barriers, and a modest 10 percent to 15 percent reduction in global agricultural tariffs would allow developing countries to gain nearly $350 billion in additional income by 2015. Developed countries would stand to gain roughly $170 billion.

Whether the U.S. pursues freer trade through multilateral negotiations or via bilateral agreements, the result is fair and beneficial for America. Similar to the objectives sought after by U.S. negotiators in the World Trade Organization (WTO), U.S. free trade agreements (FTAs) go beyond winning lower tariffs on American agriculture, manufacturing and services exports. FTAs include provisions that safeguard investors from discrimination, increase regulatory transparency, protect and enforce intellectual property rights, combat corruptive practices, protect labor rights, and strengthen environmental protection. The U.S. Trade Representative (USTR) negotiates agreements that include transparent dispute resolution and arbitration mechanisms to guarantee that the agreements, along with the rights of U.S. firms and consumers, are upheld.

Each element of an FTA strengthens the transparent and efficient flow of goods, services and investments among member countries. Both FTAs and multilateral trade liberalization open markets, protect investors and increase economic opportunity and prosperity. In short, freer trade policies serve to promote U.S. interests, not weaken them or unfairly burden Americans.

A Very Busy Time for Trade

In order to continue reaping the benefits of free trade, the U.S. can make tangible progress in four main areas: bilateral trade deals, global trade negotiations via the WTO, trade preference programs for developing economies, and renewed presidential authority to negotiate trade policy.

Congress should start with vocal support for bilateral free trade agreement negotiations and ratification of concluded agreements. It also should call for help in seeking additional partners to engage via bilateral trade agreements. The Administration and Congress should strive to insure the timely ratification of concluded agreements with Colombia and Peru. FTA negotiations with Panama, Ecuador, South Korea, Malaysia, and the United Arab Emirates are at various stages of progress and would advance the interests of U.S. businesses and consumers and maintain America’s leadership on trade.

U.S. leadership in the WTO and a successful conclusion of the current Doha round of multilateral trade negotiations are essential. Support of USTR negotiations in the WTO and effective reform of U.S. agriculture programs through the upcoming review of the farm bill are important elements of achieving this goal. Congressional approval of most-favored nation status to countries acceding to the WTO, such as Vietnam and Russia, is needed to insure that America benefits from WTO member expansion.

Tariff and trade preferences granted under the Generalized System of Preferences (GSP), Andean Trade Preference Act (ATPA), the African Growth and Opportunity Act (AGOA), and other programs extend market access to countries struggling to develop, and often, reform their economies. Changes made to these programs in 2006 will need to be addressed in 2007 to insure their effectiveness. Continued implementation of these programs is a critical element of any meaningful aid strategy for eligible countries.

Congress should renew Trade Promotion Authority (TPA). TPA is vital to strengthen the hand of the United States at the negotiating table and provides a framework for consultation with Congress at key trade negotiating stages. The President, regardless of political affiliation, needs the ability to sign good trade deals that expand U.S. access to overseas markets and strengthen international trade norms.

A Real Chance

American and global prosperity have a real chance to flourish under the 110th Congress. That chance is dependent upon both the Administration and Congress having the will to work toward solutions on policy differences, rather than using trade as a means to advance a partisan agenda. The economic cost of politicizing trade policy is high; the benefits of evaluating and implementing free trade policy based on its merits are even higher. For over 50 years, the U.S. and the world have reaped the economic benefits of trade and investment liberalization. Congress should continue its liberalization policies and allow Americans to enjoy the wealth and opportunities that come with freeing trade even more.

Daniella Markheim is Jay Van Andel Senior Analyst in Trade Policy in the Center for International Trade and Economics at The Heritage Foundation. This article appeared in Impact Analysis, March-April 2007.
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In an upbeat speech to the U.S. Chamber of Commerce in December 2006, U.S. Trade Representative Susan Schwab predicted that President Bush and a new Democratic Congress would work together in the next two years on a range of trade legislation. Supporters of trade expansion can only hope she is right, but political winds point toward rough waters ahead.

More Trade Skeptics in Congress

Democratic control of the 110th Congress will mean a chilly reception for the Bush administration’s agenda of promoting free trade agreements. According to post-election analysis by The Wall Street Journal, skeptics of trade gained about 16 votes in the House and five in the Senate. Core Democratic constituencies, such as organized labor and environmentalists, will demand opposition to new trade agreements as a reward for their support.

Trade Casualties Will Mount

The first casualty of the new Congress will be trade promotion authority (TPA), due to expire at the end of June 2007. Approved in 2002, TPA authorizes the president to negotiate free trade agreements and present them to Congress for an up-or-down vote without amendment.

Under TPA, Congress approved such deals as the Chile and Singapore free trade agreements in 2003, the Australia agreement in 2004, and the Central American Free Trade Agreement in 2005. Renewal of TPA was doubtful even before the election, given the narrow margin by which it passed in 2002, but the 110th Congress has sealed its fate for at least the next two years.

Anti-trade politicians also have staked out a skeptical line against free-trade agreements still in the pipeline with the United States’ Latin American neighbors Colombia and Peru. The mantra of the party and its organized-labor backers is that these agreements fail to protect the environment and labor rights. Those demands are based on the misguided belief that developing countries will only raise their workplace standards under threat of trade sanctions, when in reality, expanding trade has been a powerful engine to that end.

And Democrats keep raising their own standards for trade agreements. During the last Democratic-controlled Congress in 1993-94, 40 percent of House Democrats voted in favor of the North American Free Trade Agreement, even though it contained few references to labor and environmental standards. A dozen years later in 2005, a mere 15 Democrats voted for the Central American Free Trade Agreement, even though it affected much less trade and contained whole chapters devoted to labor and environmental standards.

The incoming chairman of the Senate Finance Committee, Max Baucus of Montana, consistently supports trade liberalization, but his counterpart on the House Ways and Means Committee, Charles Rangel of New York, has compiled a checkered record. Rangel voted in favor of permanent normal trade relations with China in 2000 and for a few smaller FTAs. Yet he opposed major trade legislation that forms the cornerstone of US trade policy — NAFTA and CAFTA, trade promotion authority, and even the Uruguay Round Agreements Act of 1994 that secured America’s membership in the World Trade Organization. And Rangel is considered a pro-trade policymaker.

Trade Legislation on Cuba May Get Support

The one area where the new Congress may be more pro-trade than the old will be on Cuba. Large majorities of Democrats have voted against the trade embargo and travel restrictions. Rep. Rangel himself has sponsored amendments that would have denied funding for enforcement of the embargo. Unfortunately, President Bush is wedded to defending the failed, four-decade-old policy of trying to change Cuba through economic isolation. The new Congress may chip at the edges but probably will not be able to repeal the embargo.

Protectionist Legislation Unlikely

Thanks to the American system of checks and balances, the 110th Congress will find it difficult to enact outright protectionist legislation, such as sweeping tariffs against goods from China. President Bush does (in theory, anyway) wield the veto pen. In the Senate, Democrats will need to muster a 60-vote supermajority for any trade bills, a real barrier against protectionism in a chamber that is normally more pro-trade than the House. Thus the most likely outcome for the next two years will be a rise in anti-trade rhetoric and proposals coming out of Washington — but no bold changes in actual policy.

Meanwhile, the American people will go on voting with their dollars for more engagement in the global economy. Americans have never earned or spent a higher share of their income in the global economy than they do today. Imports, exports and foreign investment are setting records.

Despite their campaign rhetoric on trade, the Democrats would be wise not to disrupt those positive trends.

This article appeared in Impact Analysis, January-February 2007.
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Susan Schwab began work recently as U.S. Trade Representative (USTR) at a difficult time for free trade. Free traders have promised results for decades, and an honest assessment says they were right. Globalization is enhancing prosperity everywhere, and lowering trade barriers promotes broad prosperity for the poor and rich alike.

But reality and perceptions are far apart in Washington, making the free trade argument tougher than ever. After months of delay, the Senate finally approved Schwab, just as souring economies in Europe may offer yet another obstacle to further trade liberalization.

A Smart Choice

President Bush made a smart pick in Schwab. She is a tough and knowledgeable negotiator, having spent a lifetime working on trade issues in government, academia and private business. An Assistant Secretary of Commerce in the first Bush presidency, Schwab most recently managed European Union and World Trade Organization (WTO) relations as Deputy USTR. She will certainly need that experience to drive the Bush Administration’s free trade agenda.

Schwab was confirmed as USTR in early June by a Senate that is in one of its most protectionist moods of the last 20 years. Support for lower trade barriers—a cornerstone of American freedom and prosperity—has been eroding for the better part of a decade. This is largely due to hysteria over outsourcing, concerns about foreign investment in the United States, and the powerful influence of agricultural and industrial interests.

The net impact hasn’t slowed the USTR’s ambitious agenda, but it has quieted the bully pulpit and diminished America’s ability to push the current WTO round ahead. Farm subsidies remain high globally, while major tariff increases are lurking in the Senate. Two free trade agreements (FTAs) currently before Congress (and another four in the works) will have to be passed by mid-March of 2007, at the absolute latest, if they are to be passed at all. The elevation of Schwab may give America’s foreign economic efforts a much-needed shot in the arm.

As USTR, Susan Schwab must pursue four goals:

1. Don’t let Doha become the walking undead.

The Doha round of WTO trade negotiations is the USTR’s biggest challenge and opportunity, and achieving global consensus will undoubtedly be tougher than ever before.

Some say, “Doha is dead,” but that’s wishful thinking. In fact, the global trade talks risk becoming undead—going through the motions, with no genuine progress. The best solution is to reach an agreement under the auspices of the WTO. The second best solution is to reach agreement with a broad group of nations that excludes those who favor delay and inaction. A deal must be concluded by the end of 2006 so that President Bush can present the bill to Congress before his legal authority expires. The worst possible outcome would be, as Rep. Bill Thomas (R-CA) of the Ways and Means Committee said, for America to “just walk away.”

Schwab must focus on reducing EU and U.S. farm subsidies to jumpstart G-20 interest in Doha. The developing world will open its markets to American service-sector and manufacturing firms, but the U.S. needs to take the first step.

2. Emphasize the importance of global prosperity to the war on terrorism.

Winning the debate at home requires a message that links free trade to the defeat of terrorism. The instinct of terrorists is to resist openness, modernization and all aspects of globalization. Framing the debate in these terms helps voters understand why a vote for trade protectionism is a vote for homeland insecurity. With the argument presented that way, very few politicians would be willing to take the moral low ground, especially relating to bilateral trade opportunities in the Middle East.

3. Push property rights, not exchange rates.

Schwab, along with her Treasury and Commerce colleagues, must resist pressure to rattle sabers on foreign exchange rates, particularly on China’s currency. America can become more competitive and out-produce its rivals without resorting to legislative gimmicks. Artificially lowering the yuan exchange rate will not necessarily improve American trade. What matters more for fair trade is the enforcement of intellectual property rights in China and elsewhere, which should be a diplomatic priority.

4. Advance bilateral FTAs—and get them passed.

FTAs with Oman and Peru, along with Vietnam’s WTO accession, await congressional approval. FTAs with South Korea, Panama, Columbia, and Malaysia are still being negotiated. The dilemma now is how to get them through Congress—put them all up at once or push a few at a time? In an election year, it may be best to give Congress one big push; going through every individual bill one at a time may tax Members’ time and attention.

The free trade road may be rockier than ever, but there are actually many roads to freer trade. Multilateral, bilateral and unilateral trade action are all ways to improve America’s prosperity and security. Schwab has the experience, smarts and tenacity to make the passage, and she deserves the full, vocal support of Congress, Wall Street and the White House.

Tim Kane, Ph.D., is director of the Center for International Trade and Economics at The Heritage Foundation. This article appeared in Impact Analysis, July-August 2006.
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U.S. lawmakers have put off immigration reform for a decade because nobody could agree on how best to regulate the flow. They still can’t, as Washington’s recent scramble to craft a fix attests. But the stark disparity between job opportunities and living standards in America and many poor countries has resulted in such an influx of undocumented aliens (now between 10 million and 12 million, with more than half from Mexico) that Congress and the White House must act.

Helping Citizens at Home

Success in controlling this tide certainly requires better border security, stronger workplace enforcement, and a practical guest-worker process to match prospective laborers with legitimate employment. Yet there’s an equally important—but neglected—need. Developing countries must do more to provide employment opportunities and access to social mobility for citizens at home.

The Case of Mexico

For Mexico, sound fiscal policies including NAFTA and institutional reforms have kept lots of potential migrants from leaving. The bad news is that job growth south of the border hasn’t been fast enough to absorb all the new entrants into the labor force.

Mexican Interior Secretary Carlos Abascal Carranza came to Washington recently with an economic progress report. That is a welcome change from the rhetoric that President Vicente Fox has spouted for the past five years: constant reminders that Mexico should have the right to export its surplus workers to the U.S.

Fox’s first Foreign Secretary, Jorge Castañeda, pushed that absurd message without regard for America’s sovereignty or Americans’ sensitivities. No country exists to take on the problems of others. But internal conditions can have consequences that extend across borders. So it should come as no shock that the U.S. has an interest in Mexico’s economic policies and performance.

Mexico’s Economy Has Improved

Mexico’s economy has improved under Fox. From 2000 to 2005, annual inflation declined by two-thirds, foreign investment grew 74%, and the public deficit dropped to zero. Meanwhile, real wages rose 7%, the sum of Mexicans living under one poverty index fell 23%, 6 million scholarships now help keep more poor children in classrooms through high school, and nearly 577,000 jobs were created in 2005.

Still, almost a million youths enter the Mexican labor force each year; a half million new jobs are simply not enough. Mexico’s minimum wage is $4.50 per day, vs. the minimum $5.15 per hour stateside. And while more Mexican children are attending school, the system is still centralized under an inefficient national ministry and subject to periodic strikes.

Other Countries Are Worse Off

Other developing countries in our hemisphere are in even worse shape. Guatemala and Honduras report poverty rates of close to 75%. In South America’s Andean ridge, from Venezuela to Bolivia, the poor constitute more than half of the population. Except in Colombia, a developing trend is to consolidate power within populist presidencies, ignore the rule of law, and put business under government’s thumb.

The result? Blocked from social mobility at home, Peruvian entrepreneurs already are choosing the U.S. as a haven for business startups. Ecuadorians are stowing away in shipping containers to get to the U.S. or Europe, while one of Venezuela’s most popular Web sites continues to be www.mequieroir.com (“I Want to Leave”).

We Must Encourage Liberalization

Backsliding toward statist economies will only will make matters worse, forcing more workers to migrate. That’s why the U.S. must urge its hemispheric neighbors to liberalize economies, cut regulations and allow prosperity to spread more broadly across their citizenry. Mexico has gone partway. Fox’s four-year-old Rapid Business Start-Up System cut red tape for licensing some small firms from 50 days to just 24 hours. But inefficient state monopolies, high taxes, massive bureaucracy, and a rigid labor code still restrict job growth.

Policymakers Should Not Retreat from Free Market Principles.

U.S. officials should remind candidates for the Mexican presidency and congress this year that any retreat from free-market reforms will limit opportunities for Mexican workers at home and create friction between our nations. Beyond that, U.S. lawmakers should resist the temptation to adopt “silver bullet” reforms like building a border fence or embracing a guest-worker program. While these two tacks may be part of a solution, they alone are not enough. To reduce unauthorized immigration, U.S. policies also must seek reforms abroad.

Stephen Johnson is senior policy analyst for Latin America in the Davis Institute for International Studies at The Heritage Foundation. This article appeared in Impact Analysis, May-June 2006.
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For over 50 years, the U.S. and the world have reaped the economic benefits of gradual liberalization in trade and investment. Recognizing the benefits of open trade, the U.S. government has been a leading advocate of trade liberalization. Today however, the place of free trade in American policymaking is far from secure.

Rising protectionist sentiment in the wake of the aborted United Arab Emirates ports deal, concern about the U.S.-China economic relationship, and frustration over the pace of global trade talks are combining to threaten further trade liberalization, both in America and around the world.

Resisting Protectionsim

In the coming months, Congress must steel itself against protectionism. It should objectively debate and then approve free trade agreements with Oman and Peru, continue to support U.S. leadership and negotiations for new bilateral agreements and in the World Trade Organization (WTO) Doha Round, and resist the temptation of reactionary protectionism. Members of Congress who talk about punitive tariffs or restrictive investment measures without actually intending to enact them still inflame public opinion.

Congress should spend more time recognizing the prosperity that exists in America due to free trade and pushing for further trade reforms.

Opportunity and More Opportunity

As U.S. Ambassador Portman recently said, “We all must fight the protectionist forces with the facts, which show that benefits from trade are substantial. Today, the $12 trillion U.S. economy is bolstered by free trade, a pillar of America’s vitality. American exports support one in five U.S. manufacturing jobs. Jobs directly linked to the export of goods pay 13 to 18 percent more than other U.S. jobs. Moreover, agricultural exports hit a record high in 2005 and now account for 926,000 jobs.

In Colorado, international trade supports one of every 20 private-sector jobs and more than 20 percent of manufacturing jobs. South Carolina benefits from having one of every 10 private sector jobs and more than 25 percent of manufacturing jobs supported by trade. State by state, across the nation, international trade promotes opportunity.

Trade Is a Driving Force

Because today’s global economy offers unparalleled opportunities for the U.S., it is in America’s economic interest to continue to expand trade by lowering barriers to trade in goods and services. Freer trade policies have created a level of competition in today’s open market that leads to innovation and better products, higher-paying jobs, new markets, and increased savings and investment. Small businesses, a critical component of the U.S. economy, create two out of every three new jobs and account for about a quarter of America’s exports.

Trade has been a driving force behind America’s high living standards and promises even more if trade barriers can be broken down further. Gary Clyde Hufbauer of the Institute for International Economics estimates that trade liberalization over the last 50 years has brought an additional $10,000 per year to the typical American household. If all trade barriers were eliminated and global trade and investment became truly free, Hufbauer estimates that American households would gain an additional $5,000 per year.

According to a University of Michigan study, if today’s international trade barriers were reduced by just a third, the average American family of four would enjoy $2,500 per year in additional income.

The Result: A Higher Standard of Living

Freer trade enables more goods and services to reach American consumers at lower prices, giving families more income to save or spend on other goods and services. Moreover, the benefits of free trade extend well beyond American households. Free trade helps spread freedom globally, reinforces the rule of law, and fosters economic development in poor countries. A Center for Global Development study determined that a successful conclusion to the Doha Round would result in an additional $200 billion flowing to developing nations, reducing poverty and economic hardship. The national debate over trade-related issues too often ignores these important benefits.

More generally, economic freedom leads to higher standards of living. According to The Heritage Foundation/Wall Street Journal Index of Economic Freedom, countries with freer trade policies experience higher per-capita economic growth than countries that maintain trade barriers. Countries that opened their trade policies between 1995 and 2004 saw their per capita gross domestic product (GDP) grow at an average compound rate of 2.5 percent. Countries whose trade policies were unchanged experienced an average compound growth rate of 2.1 percent. Finally, countries that increased their barriers to trade managed only a 1.8 percent average compound growth rate.

Still, the Debate Continues

Despite more than five decades of evidence demonstrating the benefits of liberalizing trade, the impact of international trade and open markets on the U.S. economy remains a contentious issue. Fortunately, in past battles, free trade won the day, providing greater economic opportunity to Americans and allowing the U.S. to maintain its role as a leader in the international economic community.

Defending free trade and fighting for new trade agreements are central tasks for Congress this year. Expanding global trade is one of the keys to building a stronger economy at home and promoting better relationships abroad. Trade is one of keys to American prosperity.

Daniella Markheim is Jay Van Andel Senior Analyst in Trade Policy, and Anthony B. Kim is Research Data Specialist, in the Center for International Trade and Economics at The Heritage Foundation. This article appeared in Impact Analysis, May-June 2006.
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Conservative Stephen Harper’s January 23 election victory to become the next prime minister of Canada doesn’t mean that his country’s cool alliance with the United States will automatically warm up—at least, not without some cooperation from Washington.

The Ice Is Thin

Canadians may have voted Conservative to cashier Liberals for a government kickback scandal from a previous administration. To a lesser degree, they may be disenchanted with entitlement programs like socialized medicine, which is so bureaucratic patients flock to U.S. clinics to pay out of pocket for timely service. And there is growing regionalism—Harper represents oil-rich western provinces that favor increased local autonomy.

Still, Conservatives are isolated and vulnerable in a society that tilts toward the welfare state. Out of the four other major parties, the Tories can count on support from none. Yet the Liberals can depend on the kindred New Democratic Party, the Bloc Quebécois, and the Greens for occasional support on social and environmental policy.

While the Conservatives gained 25 seats in the House of Commons, they needed 32 more to obtain a majority. Moreover, the Liberals have been consistent in getting and keeping power, while minority governments have had a hard time lasting beyond two years. That’s thin ice to support big policy changes.

Friendship Matters

Despite constraints, the United States can do business with Harper. He is a thoughtful conservative. Though media savvy, he is less prone to posturing than Paul Martin, who shrunk from leadership on global warming and security and then took up Washington-bashing to look tough in front of TV cameras.

Unfairly painted by the media as a knee-jerk conservative on social issues, Harper has transcended that niche in the gay marriage and abortion debates and will exhibit pragmatic expertise in stewardship of Canada’s larger interests. He knows Canada’s future will hinge on competitiveness with emerging economic giants like China and India, with its contributions including shaping reasoned treaty obligations and regional security.

Like the United States, Canada is both an industrial and agricultural power. And unfortunately, it maintains similar trade barriers on some agricultural products. Both President Bush and Prime Minister Harper could work together to reduce these remaining bilateral constraints and then press other national leaders through the World Trade Organization to follow suit.

As well, Canada’s help in promoting a more competitive business environment in Mexico will bring commerce and jobs to our southern partner, boost trilateral trade against encroachment by Asian giants, and reverse enormous northward migrant flows. Canada is a member of the North American Free Trade Agreement with the United States and Mexico. In blunt terms, Mexico is the weak link.

Canada’s contribution to a more equitable and reasonable approach to global environmental issues would be most welcome. Canadians may be in favor of broad international protections, but Mr. Harper could better inform that concern by explaining why the badly crafted Kyoto accord on global warming is worse that no agreement at all.

Paul Martin’s reduced defense budgets and retreat on supporting U.S. strategic missile defense (which would cost Canada nothing) have put into question Canada’s commitment to the North American Aerospace Defense Command (NORAD) accord—up for renewal in May 2006 and now more important for both countries than ever. Harper could eliminate this uncertainty, to everyone’s benefit.

In facing transnational crime, terrorism, and non-military threats such as natural disasters, the NAFTA partners are equally challenged. But Mexico—looking inward for most of its history—has more work to do than the U.S. or Canada. Like the United States, Canada can help Mexico with training, exchanges, and invitations to exercises—showing initiative toward the shared goal of regional security.

The Bush Administration can improve relations by not treating Prime Minister Harper as if he were in Uncle Sam’s hip pocket. Instead of a gushy embrace, a warm handshake will do.

Consulting Mr. Harper’s government and keeping him informed of pending U.S. policy decisions is crucial. After all, good neighbors talk regularly. Infrequent communication soured relations between Bush and Mexican President Vicente Fox—two conservative cowboys who never figured out how to speak frankly about how each could help solve the other’s problems. Bush kept Fox at arm’s length and thus open to poor advice on migration that eventually sidetracked U.S.-Mexico relations.

The Bottom Line

Canada shares a 4,000-mile border with the United States and is one of America’s top three foreign energy suppliers. It is the 8th largest economy in the world and is America’s largest commercial partner in an increasingly competitive, globalized marketplace.

There is no option other than to have close ties with this important neighbor. Stephen Harper’s election will draw us closer, but Washington can ensure a lasting friendship with progress on trade, multilateral relations, and security, and through respect and frequent consultation on matters involving our two nations.

Stephen Johnson is Senior Policy Analyst in the Douglas and Sarah Allison Center for Foreign Policy of the Kathryn and Shelby Cullom Davis Institute for International Studies at The Heritage Foundation. This article appeared in Impact Analysis, March-April 2006.
Topic: Politics
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It is no secret that world opinion of the United States and its policies is unfavorable. Yet, the Bush administration—with cajoling from Congress—is exacerbating those perceptions with an astonishingly antagonistic trade policy posture. The United States has become an international trade scofflaw.

The Softwood Lumber Dispute

Consider the U.S. position in its long-running softwood lumber dispute with Canada. The United States initially imposed antidumping and countervailing duties on Canadian lumber in 2001. Canada responded by challenging the legal and analytical propriety of those measures in the dispute settlement systems of the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), both bodies whose rules governing trade and dispute settlement were coauthored by the United States.

Canada claimed the U.S. authorities failed to demonstrate that the domestic industry was threatened with injury by subsidized or dumped Canadian imports, and that the subsidy and dumping analyses were both illegal and violated international agreements. A NAFTA panel and WTO agreed.

After exhausting and losing every legal and procedural appeal at its disposal, the United States was handed a final loss by the panel in late 2005. Under NAFTA rules, the United States is expected to revoke the duties prospectively and refund the duties—close to $5 billion—that have been collected in error over the past four years. But how did the world’s richest country and self-proclaimed champion of rules-based trade respond? U.S. officials announced that the lumber duties would remain in place despite the rulings, and that there would be no refunds. So much for the rule of law.

The Bush administration cites a revised injury analysis, issued in November 2004, as the basis for continuing to restrict Canadian lumber and its refusal to refund duties already collected. But that revised analysis is invalid under NAFTA. It was rendered only after the record was re-opened and new information considered—contravening the NAFTA panel’s instructions to render a determination on the original record and explicitly forbidding re-opening of the record.

Under NAFTA rules, the United States is obligated to terminate the restrictions and refund the duties. At the very least, it should refund the duties collected through November 2004 before which there was not even a modicum of justification for the restraints. But such compliance appears unlikely.

The Byrd Amendment

Intransigence on lumber is the latest in an emerging pattern of U.S. disregard and antipathy for the trade rules that are so essential to the global economy. The United States has failed to comply with several other verdicts of the WTO dispute settlement body in recent years, including a 2003 indictment of the so-called Byrd Amendment—until recently. But it’s too late in terms of maintaining any credibility.

A little digging reveals a scandalous relationship between the U.S. positions on Byrd and lumber. The Byrd Amendment, formally known as the Continued Dumping and Subsidy Offset Act, became law in 2000. It mandates distribution of antidumping and countervailing duties collected at the border to the domestic industries that filed or supported the original petitions in the underlying cases. Previously, duties collected were commingled with funds in the general treasury.

Byrd was quickly challenged by several trade partners in the WTO and was ultimately found to violate U.S. trade obligations because it punishes foreign exporters twice—first, by imposing the duties as a remedy to dumping or subsidization (which is acceptable), and then by using those funds to directly subsidize the U.S. producers (which is not). Despite the ruling, the United States failed to repeal Byrd—until last December—and only after the WTO authorized retaliation by the complainants, which included Europe, Canada, Japan and Mexico. Interestingly, although the Byrd Amendment was grudgingly repealed as part of a broader budget reconciliation bill, it will continue in effect until October 1, 2007.

Why is there broad bipartisan support in Congress to keep the Byrd Amendment in place until 2007? Congress was able to dole out $1 billion in subsidies between 2001 and 2004 under Byrd without having to defend or justify the disbursements since the funds don’t come directly from U.S. taxpayers. But that $1 billion is modest relative to the $5 billion at stake in the lumber case. If the United States were to comply with earlier lumber rulings and refund the duties, Congress would lose the opportunity to bestow those massive subsidies on its constituents. Thus, U.S. willingness to blatantly ignore the outcomes in two major dispute settlement cases—inactions that will carry profound costs for U.S. interests—is being driven by the crassest of political considerations. Trade policy be damned.

America’s growing disdain for its international trade commitments is a troubling development. It will now be that much easier for U.S. trade partners to break the rules and disregard their own commitments. Members of Congress who grandstand over Chinese trade and currency policies haven’t a leg to stand on. U.S. credibility on trade issues is waning at a time when strong leadership is desperately needed.

Daniel Ikenson is a trade policy analyst at the Cato Institute. This article appeared in Impact Analysis, March-April 2006.
Topic: Politics
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