“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR DECEMBER 10, 2015
Attached is the first half of the December blog post, which covers the collateral damage caused by US Antidumping Orders on downstream US production by the numerous antidumping orders against raw material inputs from China, which directly damage and in some cases destroy downstream US production. The Article describes why the Import Alliance is so important to counter this trend.
The second article is on the Triumph and Tragedy of Trade Adjustment Assistance for Companies, the only truly successful trade remedy the US government has in its arsenal to help US companies injured by imports.
This update goes into detail on the Trans Pacific Partnership (“TPP”) and when it might come up for a vote in Congress, the impact of Presidential politics, especially against Donald Trump, on the TPP, the ITC TPP investigation and the appointment of Congressman Dave Reichert of Washington State as the Chairman of the Subcommittee on Trade, House Ways and Means Committee.
Finally, on December 9th, Senate Finance Committee and House Ways and Means announced Agreement on the Trade Facilitation and Trade Enforcement Act of 2015. Copies of the Bipartisan bill and Conference Report are attached below.
If anyone has any questions or wants additional information, please feel free to contact me.
THE IMPORTANCE OF THE IMPORT ALLIANCE FOR US MANUFACTURING AND PRODUCTION—THE DAMAGE ANTIDUMPING CASES CAUSE TO DOWNSTREAM AND UPSTREAM PRODUCERS
US Law firms representing domestic producers in antidumping (“AD”) cases like to grab the mantle of helping US producers stay in business and saving US jobs. They do not want Congress or the general public to look at the collateral damage created by US AD orders against China on downstream US production. In truth, US AD cases against China have destroyed more jobs than they have saved.
All AD orders can do is delay the decline of the US industry, they cannot save the companies. But in delaying the decline, these same AD orders destroy downstream value added production, where the US is often among the most efficient producers in the World.
These points were made by importers in the Import Alliance at meetings with Congressional Trade Staff and a Congressman on Capitol Hill on November 18th in Washington DC. The Import Alliance has four objectives. The first two objectives are:
(1) Eliminate retroactive liability for US importers and join the rest of the World in making antidumping and countervailing duty orders prospective.
(2) Work for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of US importers and downstream companies.
As of November 17, 2015, as the US International Trade Commission (“ITC”) states in the attached list, NOVEMBER 172015 AD CVD ORDERS, there are 128 outstanding antidumping and countervailing duty orders against China. More than 70 of those Antidumping and Countervailing Duty Orders are against raw material inputs, chemicals, metals and steel, that go into downstream US production.
The outstanding chemical AD and countervailing duty (“CVD”) orders against China cover imported products such as polyvinyl alcohol used to produce adhesives and polyvinyl buturyl for auto safety glass. Another product is sulfanilic acid used to provide Optical Brighteners in the US Dye Industry, which, in turn, resulted in the antidumping order against Stilbenic optical brightening agents. Other chemicals covered by AD and CVD orders are potassium permanganate in place since 1984 used to purify water, potassium permanganate salts, chloropicrin, barium chloride, glycine used to produce the cooling effect in candies, furfural alcohol, persulfates, barium carbonate, Tetrahydrofurfuryl alcohol, Carbazole violet pigment 23, chlorinated isocyanurates used in swimming pool chemicals, certain activated carbon used to purify various chemicals and to produce products used in nuclear plants, certain polyester staple fiber, sodium hexametaphosphate, sodium nitrite, citric acid, xanthan gum, monosodium glutamate, calcium hypochlorite and melamine.
Often these AD and CVD orders cover products that are not even produced in the United States. Because of this situation, many US producers dependent on the raw materials simply close US production and move overseas.
The following Chinese metal products are covered by AD and countervailing duty (“CVD”) orders: magnesium ingots, magnesium, and pure magnesium, magnesium carbon bricks used in downstream magnesium dye casting industry and to produce light weight auto parts. All light weight auto part production has moved to Canada and Mexico because of the antidumping orders on Chinese magnesium. Other Chinese metal products covered by antidumping and countervailing duty orders are silicon metal critical for use in US foundries, silicomanganese, foundry coke, ferrovanadium, and graphite electrodes used in the steel industry and downstream metal production, aluminum extrusions, the order has been expanded to cover many downstream products produced from aluminum extrusions, including curtain walls/sides of buildings, lighting equipment, geodesic domes, refrigerator handles, and subcomponent auto parts, electrolytic magnesium dioxide used to produce batteries, which, in part, led to the closure of Panasonic’s battery plant in the US, and refined brown aluminum oxide.
The Magnesium antidumping order, in particular, has led to enormous job loss in the downstream industries. The Magnesium AD order protects one company in Utah and between 200 to 400 jobs by wiping out thousands, if not tens of thousands of jobs in the downstream industries.
In 2004-2005 43 US companies sold magnesium die castings in the US market. As of two to three years ago, according to National Association of Dye Casters (“NADCA”), less than 12 US companies now produce magnesium die castings in the United States. NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China. US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order. In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs. Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.
Where did the magnesium jobs and companies go? Many companies and projects simply moved to Mexico or Canada. Magnesium is used to produce light weight auto parts. Many OEM magnesium parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton. GM intends to import Buick cars from China into the US. Could the Magnesium AD order be one of the reasons?
After Chinese chemical and metal products, almost every steel product from China is covered by an AD order and often also a CVD order, including carbon steel plate, hot rolled carbon steel flat products, circular welded carbon quality steel pipe, light walled rectangular pipe and tube, circular welded carbon quality steel line pipe, circular welded austenitic stainless pressure pipe, steel threaded rod, oil country tubular goods, prestressed concrete steel wire strand, seamless carbon and alloy steel standard line and pressure pipe, high pressure steel cylinders, prestreessed concrete steel rail tire wire, non-oriented electrical steel, and carbon and certain alloy steel wire. Almost every steel product from China is covered by an AD and CVD orders, except for galvanized steel products and cold rolled steel, which are presently the subject of ongoing AD and CVD investigations.
As one person working in the Trade Adjustment Assistance for Companies program remarked to me, the Antidumping and Countervailing Duty orders against Steel explain why so many companies in the TAA program use steel as an input.
If these Chinese products were truly dumped, then AD orders should be issued. Since Commerce considers China a nonmarket economy country (“NME”) and refuses to use actual prices and costs in China to determine dumping, however, it does not know whether the products are dumped. For more discussion of the 2016 China NME problem, see my last blog post and the dumping canard argument and many other prior posts and my next newsletter.
Congressmen may not care that retail products go up several dollars because of AD orders, but what happens when the AD orders in place injure downstream US producers, sometimes literally closing the companies down and destroying downstream jobs. Does that make a difference to Congress?
Also the AD and CVD orders on Solar Cells and Solar Products has led to problems for REC Silicon in Moses Lake, Washington, which produces the upstream product, polysilicon, used to produce solar cells. China has retaliated against the United States producers by bringing its own AD and CVD cases against the United States for US exports of polysilicon, wiping out the US polysilicon from the China market. As stated in the last blog post, REC Silicon has deferred a $1 billion investment and possibly could close its plant in Moses Lake.
Because of the impact of AD and CVD orders on downstream US production, the Import Alliance has two other objectives:
(3) End user production companies should have standing in antidumping and countervailing duty cases.
(4) The United States should join the rest of the World in antidumping and countervailing duty cases, including Canada, the EC and yes China, and have a public interest test.
This is also why the Import Alliance for America is so important for US importers and US end user companies. The real targets of antidumping and countervailing duty laws are not Chinese companies. The real targets are US companies, which import products into the United States from China or use raw materials in downstream production process.
As mentioned in prior blog posts, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the AD and CVD laws against China for the benefit of US companies.
Ten US Importers have agreed to form the Import Alliance for America. On November 18th, Importers in the Alliance met with a Congressman and Congressional Trade Staff in Washington DC in the first of several meetings to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US AD and CVD laws, on US importers and US downstream industries. For more information, see the Import Alliance website at http://www.importallianceforamerica.com.
THE TRIUMPH AND TRAGEDY OF TAA FOR FIRMS/COMPANIES
But what is the answer to this import problem? What is the answer for US companies caught in the cross hairs of import competition from China and many other countries and facing potential bankruptcy?
Not more protection. Antidumping and countervailing duty cases cannot be brought against the World. As stated in many past blog posts, all antidumping and countervailing duty cases do is slow the decline in the US industry, not cure the disease. A great example of this is the US Steel Industry and the demise of such well-known steel companies as Bethlehem Steel, Lone Star Steel and Jones and Laughlin. Many of these companies have simply ceased to exist despite 40 years of protection from steel imports under the US antidumping and countervailing duty laws.
Instead, I firmly believe the answer lies in the small program—the TAA for Companies (also called TAA for Firms) (“TAAF”). The Triumph of TAAF is that it has been reauthorized for 5 years. The tragedy is that its budget has again been cut to $12.5 million nation-wide.
TAA for Companies (TAAF) is probably the most effective trade remedy the United States has in its arsenal, but it is not given the resources it needs to do the job. I believe in this program and sit on the board of the Northwest Trade Adjustment Assistance Center, the regional office in the Northwest that administers the program. Since 1984, NWTAAC has been able to save 80% of the injured companies that got into the program. For more information see www.nwtaac.org. The big news is that TAAF nationwide recently had a great validation and, at the same time, a bewildering set back.
In case you don’t know about TAAF, this is a program that offers a one-time, highly targeted benefit to domestic companies hurt by trade. The benefit is not paid to the companies, but to consultants, who help the company adjust to import competition. The program is amazingly effective. Between 2010 and 2014, 896 companies with more than 90,000 employees were certified as trade impacted by TAAF after experiencing a 16% drop in sales and 17% drop in jobs. During this 5 year period, participating companies in TAAF increased average sales by 40% and employment by 20%, achieving impressive double-digit productivity gains. Essentially, all of the 15,090 jobs lost to imports before company participation in the TAAF program were regained by creating more than 15,140 new jobs by the end of the five year period, and 75,000 jobs were retained by helping these companies stay in business. These impressive results occurred with TAAF program annual costs of approximately $15.3 million per year.
To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million. The TAA for Worker (TAAW) Program spends roughly $53,000 per year to retrain a single employee AFTER a job has been lost due to trade. The mission for each program is very different – TAAF’s primary mission is to save the company AND the jobs, while TAAW’s mission is to retrain workers after the jobs have already been lost. Now you should ask which is the smarter investment?
Arguments are made that TAAF costs the US government money. When a company adjusts to trade and survives or even prospers, that company and all of its workers pay taxes. The taxes on average wages for about 8,300 jobs would pay for this whole program. Companies in the TAAF program, however, regained 15,000 jobs and retained 75,000 jobs. The real costs to government, however, are when companies don’t survive and good jobs are lost.
In fact, the TAAF program actually saves the US government millions of dollars each year by helping companies stay in business while saving their higher paying manufacturing jobs. For every job saved, resources aren’t wasted on expensive training and other costly benefits, but can instead be used more productively to help trade impacted firms adapt to changes in the global economy as large FTA’s like the upcoming TPP are implemented.
An example using the TAAF program statistics from above describes what happens when TAAF program resources are cut. If workers applied for benefits through the TAA for Workers (TAAW) Program for the 15,000 jobs lost due to imports, it would cost more than $795 million to retrain them using the $53,000 average cost figure. The TAAF program not only saves the company but saves the high paying jobs that go with that company, and keeps tax revenues rolling in to contribute to local and national tax bases rather than acting as a cost burden.
The more stunning fact – if the TAAF program saves just 300 jobs per year on a national basis for which TAA for Worker resources of $53,000 aren’t required for retraining efforts, the program easily pays for itself up to its $16 million authorization level. That is an extremely low bar to set considering that TAAF retained more than 75,000 jobs and created an additional 15,140 jobs during the last five year period. This shows the short sightedness in cutting the program.
For more information, see the TAA video from Mid-Atlantic TAAC at http://mataac.org/howitworks/ , which describes in detail how four import injured companies used the program to change and turn their company around and make it profitable. One of the companies was using steel as an input, and was getting smashed by Chinese imports. After getting into the program, not only did the company become prosperous and profitable, it is now exporting products to China. This is the transformative power of TAA for Companies.
Amazingly, TAAF came into being over 40 years ago, before “globalization” was even a word. On the eve of TPP – it’s never been so relevant. The idea then, and now, is that changes in trade circumstances (often sudden and unpredictable) put U.S. companies and jobs in jeopardy. In other word, government action through trade agreements, such as the TPP, change the US market and the market conditions under which companies operate in the United States. Since government action through the trade agreement has changed the US market, I believe the US government has an obligation to help US companies adapt to the changing US market.
Global trade has evolved over the past 40 years and perhaps it’s time for trade policy to adapt to those changes. The original mission for TAA was more concerned with the impact of increased imports on US workers, and the vast majority of funds have been dedicated to the TAA for Workers program. The landscape has changed as more than 5 million manufacturing jobs have been lost in the last 40 years, and the mission for TAA must now shift to maintaining a robust core of manufacturing companies and jobs. Without a vibrant core of manufacturing firms, the US won’t have the capacity or capabilities to achieve growth through export expansion no matter how many free trade agreements are passed, and all the training in the world is not going to bring back those manufacturing jobs.
Earlier this summer, as explained in detail in past blog posts, Trade, including Trade Promotion Authority (“TPA”) and TAA were the hot topics on Capitol Hill. During this process Congress authorized the TAA program for five years – a length of time and expression of confidence that nobody expected. The series of events in the Congress were highly dramatic – it was a breakthrough in bipartisanship.
Many Senators and House Representatives played a significant role in pushing the trade legislation, including TAA, through Congress. The Senators included Republicans Mitch McConnell and Orrin Hatch and Democrats Ron Wyden, Patty Murray and Maria Cantwell. In the House, Republican Representatives, including Paul Ryan, Dave Reichert, and Jaime Herrera Beutler, voted for the TAA program along with over 90 other Republicans. Democratic Representatives, including Suzanne Bonamici and many from the New Dem Coalition, such as Representatives Ron Kind, Derek Kilmer, Rick Larson, and Suzan DelBene, helped push the TAA and TPA legislation through Congress.
But, in the very next breath Congress cut the program’s appropriations to $12.5 Million. That’s $12.5 Million for the entire country – an investment of only $250,000 per state to help trade impacted manufacturing companies.
A couple of points to make here:
At $12.5M, TAAF will be able to serve less than 1 in 1,000 companies injured by import competition. Does anyone truly believe that import competition is seriously affecting less than one in 1,000 companies, especially with the coming passage of the TPP?
The inequity of funding for TAA programs must be addressed – FY 2015 appropriations for TAA for Workers was $711 million; TAA for Companies was $15 million. Both programs play an important role in trade policy, but does it make sense to use the vast majority of funds for retraining efforts after jobs have been lost? Or, should more of the funding be dedicated to saving both companies and jobs through the TAAF program?
As indicated below, the Labor Advisory Committee to the TPP, which is composed of Unions, estimates that TPP could cost the United States up to 330,000 jobs in the Manufacturing Sector. Although this may be too pessimistic, the TPP will create losers, companies that do not do as well, and without a robust TAAF program how can those companies and jobs be saved?
TAAF has been evaluated repeatedly by GAO, CRS, and various outside evaluators, which conclude that instead of dying, TAAF companies have a 6% annual growth rate. That’s after an at least 5% decline year on year (the threshold for entering the program), which is an impressive turn-around for distressed companies. TAAF has proven its worth, and the basic model is the most effective trade remedy that works in the 21st century. Moreover, the TAAF solution does not change the US market or create the collateral damage associated with US antidumping and countervailing duty cases. Instead, it teaches the company how to change, adapt and swim in the new market conditions caused by imports.
More importantly, TAAF changes the mindset of the injured companies away from Globalization victimhood to being competitive in the international market. One Economic Development Council here in Washington State has the motto Compete Every Day, with Every One in Every Country Forever. That is the type of mindset that turns companies around. That is the type of mindset TAA for Companies promotes.
TPP TEXT AND TRADE ADVISORY REPORTS
On November 5, 2015, the United States Trade Representative Office (“USTR”) released the text of the Trans Pacific Partnership Agreement (“TPP”). This is an enormous trade agreement covering 12 countries, including the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, and covers 40% of the World’s economy. To read more about the TPP and the political negotiations behind the Agreement see past blog posts on this site.
The text of the Agreement is over 6,000 pages. We have downloaded the text of the various Chapters, which are listed below. We have broken the Agreement down into three parts and have added consecutive page numbers to the Agreement in the right hand lower corner to make the Agreement easier to navigate.
For specific tariff changes on specific products, look at attached Chapter 2 National Treatment and Market Access for Goods, Chapters 1 – 2 – Bates 1 – 4115 This is the largest document because it includes all imported items by tariff number. But this is the section that will impact most companies. The other parts of the text covering Chapters 3 to 30 is posted on the blog, Chapters 3 – 30 – Bates 4116 – 5135. along with the Appendices, Annex 1 – 4 – Bates A-1-1074
On November 5th, the Treasury Department released the attached text of the Currency Manipulation side deal, Press Release – 12 Nation Statement on Joint Declaration Press Release – Joint Declaration Fact Sheet TPP_Currency_November 2015
On December 2nd and 3rd, 2015 various trade advisory groups operating under the umbrella of the United States Trade Representative (“USTR”) Group issued reports on the impact of the TPP on various industries and legal areas. Attached are some of the reports, Agricultural-Policy-Advisory-Committee ATAC-Animals-and-Animal-Products ATAC-Fruits-and-Vegetables ATAC-Grains-Feed-Oilseed-and-Planting-Seeds ATAC-Processed-Foods ATAC-Sweeteners-and-Sweetener-Products Intergovernmental-Policy-Advisory-Committee-on-Trade ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-5-Distribution-Services ITAC-6-Energy-and-Energy-Services ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-11-Small-and-Minority-Business ITAC-12-Steel ITAC-14-Customs-Matters-and-Trade-Facilitation ITAC-15-Intellectual-Property ITAC-16-Standards-and-Technical-Barriers-to-Trade Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy Trade-and-Environment-Policy-Advisory-Committee.pdf. All the reports can be found at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/advisory-group-reports-TPP.
Almost all of the reports are favorable, except for the Steel Report, which takes no position, and the Labor Advisory Report, which is opposed because it is the position of the Unions. Some of the relevant reports for various industries are as follows:
For Agriculture, see Agriculture Policy Advisory Committee, Animals and Animal Product, Fruits and Vegetables, Grains and Processed Foods. See also Standards and Technical Barriers to Trade. For Pharmaceuticals and Health Care, see Chemicals and Health Science products, plus Services. For Banking see financial and services. For Energy and Mining, see Energy and Energy Services plus Non-Ferrous Metals. For Intellectual Property, see IP Report and Information and Communications Technologies. For Telecom, see Communication Technologies and also Standards. For Environmental, see Trade and Environment Policy Advisory Committee. For Customs and Trade, see Customs and Trade Facilitation.
TO TPP OR NOT TO TPP THAT IS THE QUESTION
On October 5th, in Atlanta Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Peru, Chile, Brunei, Singapore, Vietnam and Malaysia, reached an agreement on the Trans-Pacific Partnership (“TPP”), which will link up 40 percent of the world’s economy. Some of the key issues in the TPP are:
Cut Tariffs on 18,000 products
New special 2 year safeguard for certain domestic industries that face a surge in imports
State-owned companies with TPP Countries must conduct commercial activities in accordance with market- based considerations
Vietnam must allow formation of independent labor unions
Malaysia will face trade retaliation if it does not improve its forced labor and human trafficking record
Bar countries from requiring the localized storage of data or surrender valuable source codes as condition of market entry
Require parties to commit to sustainable forest management and conserve at risk plants and animals.
On November 5, 2015, the United States Trade Representative Office (“USTR”) released the text and appendices of the Trans Pacific Partnership Agreement, which are over 6,000 pages long and are attached above. The clock has started to run, which means President Obama could technically sign the Agreement 60 days later or on February 3rd,. Potentially Congress could take up the bill 30 to 90 days later.
But the big question is when will Congress take up the Agreement and can it be ratified. Two weeks ago on Capitol Hill in discussions with legislative trade staff, they said the TPP has to start from the House of Representatives. So that means that Paul Ryan, the new Speaker of the House, will probably have the final say, along with Senators McConnell and Hatch.
The new Chairman of the Subcommittee on Trade, House Ways and Means, Congressman Dave Reichert, stated recently that a House floor vote on TPP could be possible in late spring or early summer. Given the timeline established by TPA requirements, the President will be able to sign TPP Feb. 3 and then send the implementing legislation to Congress after March 4. Chairman Reichert stated that Congress would have 90 days to consider the agreement, but he would rather not see the House vote pushed into the end of July, adding that it would be possible for the pact to enter into force by January 2017. Congressman Reichert expressed confidence that sufficient votes would be there to meet the simple majority threshold required under TPA, but he acknowledged that votes on trade agreements are always close. See article below on the appointment of Congressman Dave Reichert of Washington State to the Chairmanship of the Subcommittee on Trade, House Ways and Means.
As Chairman Reichert further stated, “We’re probably looking somewhere around the May time frame—we’re thinking late spring, early summer.” But he also indicated that there were many issues to be discussed before scheduling the vote.
In talking to a number of Congressional Trade Staff two weeks ago, they still have not read the entire 5,000 plus pages of the Agreement and digested it enough to know what is in it.
Reichert also stressed that the timing of any vote would be a leadership decision, stating:
We’re taking a measured approach, we’re studying the document and we’re working with other members of Congress and talking with our constituents to see where the troubles might exist for them on a particular product and also working closely with the ambassador [U.S. Trade Representative] Mike Froman.
Reichert also indicated that the International Trade Commission (“ITC”) report on the impact of the TPP agreement on the U.S. economy, which is due by May 18, would also have an impact on the vote.
Reichert further stated:
We are in study mode and talking with members who have issues and concerns about some of the language in TPP. We’re just going to be moving forward, talking with constituents, talking with members, finding ways we can address these concerns.
Two notable areas of concern are the intellectual property rights protections for pharmaceutical drugs and the carve-out of tobacco from investor state dispute settlement. The TPP has only 5 years of protection for biologic drugs when the Pharmaceutical companies wanted 12 years.
Reichert further stated, “If we lose some votes [because of the tobacco issue], we’ll have to work on our Democrat friends to pull through and support the effort to recover those losses”
As one Republican Trade Staffer, who is very close to the decision-making, told me, “We honestly do not know when the TPP will come up.” The staffer went on to state that before the Agreement was finalized, USTR would state that “Substance drives the timeline.” As the Staffer further stated, now “Addressing members’ [Congressional representatives’] concerns sets the timeline.”
One Democratic trade staffer in the Senate stated that he believes that the Presidential election will have an impact on the timing of a TPP vote in the Congress. If the TPP is looked upon as a positive by the US electorate, the Republicans may want to keep the issue on the table to use against Hilary Clinton in the election. But if the TPP is looked upon as a negative, Congressional Republicans may want the vote to take place in Spring or Summer 2016 to take it off the table in the Presidential election.
Senate Republican trade staffers made the same point to me, “Maybe there will be no vote on TPP in 2016.”
Any issue this big coming up in a Presidential election year is by its very nature political so President politics will have an impact. As indicated below, however, Presidential politics cuts several ways. On the Democratic side, Bernie Sanders is adamantly against the TPP and Hilary Clinton has said she is opposed because she wants the union votes. On the Republican side, all the candidates, except Donald Trump, are in favor of the TPP, but Trump adamantly opposes it.
PRESIDENT OBAMA PUSHES FOR TPP
On November 10, 2015, President Obama made his case for the TPP on Bloombergview.com:
A Trade Deal for Working Families
By Barack Obama
As President, my top priority is to grow our economy and strengthen the middle class. When I took office, America was in the middle of the worst recession since the Great Depression — but thanks to the hard work and resilience of the American people, our businesses have created 13.5 million jobs over the past 68 months, the longest streak of private-sector job creation in history. The unemployment rate has been cut nearly in half — lower than it’s been in more than seven years. We have come back further and faster from recession than nearly every other advanced nation on Earth.
That’s real progress. But as any middle-class family will tell you, we have more to do. That’s why I believe the Trans-Pacific Partnership is so important. It’s a trade deal that helps working families get ahead.
At a time when 95 percent of our potential customers live outside our borders, this agreement will open up new markets to made-in-America goods and services. Today, exports support 11.7 million American jobs. Companies that sell their goods around the world tend to grow faster, hire more employees and pay higher salaries than companies that don’t. On average, export-supported jobs pay up to 18 percent more than other jobs.
These are good jobs — and this agreement will lead to even more of them. It would eliminate more than 18,000 taxes that various countries put on made-in-America products. For instance, last year, we exported $89 billion in automotive products alone to TPP countries, many of which have soaring tariffs — more than 70 percent in some cases — on made-in-America products. Our farmers and ranchers, whose exports account for roughly 20 percent of all farm income, face similarly high tariffs. Thanks to the TPP, those taxes will drop drastically, most of them to zero. That means more U.S. exports supporting more higher-paying American jobs.
At a time when our workers too often face an unfair playing field, this agreement also includes the highest labor standards of any trade deal in history. Provisions protecting worker safety and prohibiting child labor make sure that businesses abroad play by the same kinds of rules we have here at home. Provisions protecting the environment and combating wildlife trafficking make sure that economic growth doesn’t come at the expense of the only planet we call home.
And these commitments are enforceable –meaning we can hold other countries accountable through trade sanctions if they don’t follow through. So, these tough new rules level the playing field, and when American workers have a fair chance to compete, I believe they’ll win every time.
I’ve said many times that the Trans-Pacific Partnership is the right thing for our economy, for working Americans and for our middle class. But I’m not asking you to take my word for it. Instead, I’ve posted the agreement online. If you build cars in places such as Detroit, you can see for yourself how your products will have a better shot of hitting the road in places such as Japan. If you’re a farmer or rancher, you’ll see how your products will face fewer barriers abroad. If you’re a small-business owner, you’ll see how this agreement will mean less paperwork and less red tape.
Along with the text of the agreement, we’ve posted detailed materials to help explain it. It’s an unprecedented degree of transparency — and it’s the right thing to do. Not every American will support this deal, and neither will every member of Congress. But I believe that in the end, the American people will see that it is a win for our workers, our businesses and our middle class. And I expect that, after the American people and Congress have an opportunity for months of careful review and consultation, Congress will approve it, and I’ll have the chance to sign it into law.
Together, we’ve overcome enormous obstacles over the past seven years. We’ve taken an economy that was in free fall and returned it to steady growth and job creation. And we’ve put ourselves in a position to restore America’s promise not only now, but for decades to come. That’s what I believe this agreement will help us do.
UNIONS PUSH AGAINST IT
On December 4th, Union leaders from the United Steelworkers, United Mine Workers of America and the Service Employees International Union, who sit on the president’s Labor Advisory Committee for Trade Negotiations and Trade Policy, came out against the TPP in the report released by USTR, arguing that although the TPP creates some limited opportunities for increased exports, it will also increase trade deficits in several industries — such as auto, aerospace, textiles and call centers — and will kill US jobs. As the Union members on the Labor Advisory Committee state in the attached report, Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy:
The LAC strongly opposes the TPP, negotiated between the United States (U.S.), Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. We believe that the Agreement fails to advance the economic interests of the U.S. and does not fulfill all of the negotiating objectives identified by Congress in the Trade Priorities and Accountability Act of 2015. The threat to future economic gains here in the U.S. and the standard of living of our people will be put in jeopardy by the Agreement. These threats will grow over time based on the potential for open-ended expansion of the TPP to countries ranging from Indonesia to China.
The LAC report goes on to state:
On behalf of the millions of working people we represent, we believe that the TPP is unbalanced in its provisions, skewing benefits to economic elites while leaving workers to bear the brunt of the TPP’s downside. The TPP is likely to harm the U.S. economy, cost jobs, and lower wages. . . .
The LAC entered the TPP process hopeful and optimistic that the TPP would finally be the agreement that broke the elite stranglehold on trade policy and put working families at the front and center. Unfortunately, we believe the TPP fails to strike the proper balance: of course it is difficult to convince Vietnam to implement freedom of association before the TPP enters into force once Vietnam has already agreed to provisions that will force it to pay higher prices for medicines and subject even its most basic laws to challenge by foreign investors in private tribunals. Given the misguided values enshrined in the TPP, it is no surprise that the economic rules it will impose will actually make it harder to create a virtuous cycle of rising wages and demand in all 12 TPP countries.
While the TPP may create some limited opportunities for increased exports, there is an even larger risk that it will increase our trade deficit, which has been a substantial drag on job growth for more than twenty years. Especially at risk are jobs and wages in the auto, aerospace, aluminum and steel, apparel and textile, call center, and electronic and electrical machinery industries. The failure to address currency misalignment, weak rules of origin and inadequate state-owned enterprise provisions, extraordinary rights provided to foreign investors and pharmaceutical companies, the undermining of Buy American, and the inclusion of a labor framework that has proved itself ineffective are key among the TPP’s mistakes that contribute to our conclusion that the certain risks outweigh the TPP’s speculative and limited benefits. . . .
The LAC urges the President in the strongest possible terms to reverse course now. Do not send this TPP to Congress. Instead, the TPP should go back to the negotiating table. We want to work with you and our counterparts in the other TPP countries to create a truly progressive TPP that uplifts working people, creates wage-led growth, diminishes income inequality, promotes infrastructure investment, protects intellectual property without undermining access to affordable medicines, and respects our democracy. . . .
The LAC went on to state with regards to Manufacturing:
The Trans Pacific Partnership will seriously undermine the future of domestic manufacturing production and employment. As was noted in an initial evaluation of the TPP published in the Wall Street Journal, the combined U.S. trade deficit in manufacturing, including automobiles and auto parts, would increase by $55.8 billion under the TPP. Utilizing the conservative estimate of the Department of Commerce that each $1 billion in trade correlates to 6,000 jobs, the TPP will cost, at a minimum, 330,000 jobs in the manufacturing sector. That estimate does not include the indirect cost in terms of jobs or on wages and living conditions of all the primary and secondary workers who will be negatively affected by the agreement. Indeed, we believe that the job loss potential of the TPP is much higher.
The report is one of 27 from various advisory committees on trade policy, environment and industries released by the Office of the U.S. Trade Representative on December 4th, many of which backed the TPP.
Meanwhile on December 4, 2015, the United Auto Workers (“UAW”) called on Congress to reject the TPP, stating that the agreement threatens domestic manufacturing jobs. The international executive board of the UAW, one of North America’s largest unions with more than 750 locals, unanimously voted against the TPP, saying the deal repeats many of the same mistakes as other free trade deals before it, such as the North American Free Trade Agreement, that led to stagnant wages, rising income inequality and plant closings in the U.S.
On November 10, 2015, the Blue Green Alliance, a coalition of labor and environmental groups, continued to attack the TPP as a threat to U.S. jobs and climate change policies. Members of the Alliance include the AFL-CIO, the Sierra Club and the United Steelworkers, each of which has taken a leading role in steering the fight to defeat the TPP. Although the Union attacks are well-known, the Sierra Club Executive Director Michael Brune aimed his attack at the TPP’s investor state dispute settlement mechanism, which he claimed will give corporations even more power to challenge governments’ air, water and climate protection rules.
PRESIDENTIAL POLITICS—WALL STREET JOURNAL GOES AFTER TRUMP ON TPP AND TRADE
Meanwhile, trade issues and the TPP have been the subject of Presidential politics, with George Melloan writing an opinion piece for the Wall Street Journal on November 3, 2015 comparing Donald Trump to Herbert Hoover and the Smoot-Hawley Tariff:
Donald Trump, Meet Herbert Hoover
Today’s ardent foe of free trade has a soul mate in the president who signed Smoot-Hawley into law. Donald Trump sees unpredictability as a virtue, so one can only guess what his policies would be if he makes it to the Oval Office. Yet because he continues to lead the Republican pack with the election only a year away, maybe it’s time to make some guesses. Those guesses may or may not be well-informed by Mr. Trump’s incessant monologues. But if he is taken at his word, he is one of the most ardent opponents of free trade ever to seek high office in the U.S.
Mr. Trump rants that as President he would punish Ford Motor Co. for building a plant in Mexico by slapping a 35% tariff on Ford cars and parts imported from that plant. China and Japan are trade enemies and he would fix their wagons, too, by putting trade negotiations with them in the hands of wheeler-dealer Carl Icahn. His pugnacious hostility toward trading partners could be brushed off, but opinion polls suggest that what he says has a lot of resonance with the electorate. . . .
The tariff act they [Smoot Hawley] wrote was initially meant to benefit farmers. But after the shock of 1929, industry and labor demanded protection as well.
Both Hoover and the Republican Congress were compliant. In its final form Smoot-Hawley covered some 20,000 items. The average tariff on dutiable goods jumped to 50% from an already high 25%. U.S. trading partners responded in kind and world trade began to shut down. . . .
But on June 17, 1930, Hoover, pressured by his fellow Republicans, signed it anyway.
The rest is history, as they say. The combined effects of declining global trade and New Deal experiments with central planning meant that Americans would suffer a decade of hard times. No Republican would man the Oval Office for another 20 years.
Could such a thing happen today? Probably not, at least not in the same way. It is now widely understood and accepted that the well-being of the American people is predicated on the smooth flow of global trade and capital. Almost every product Americans buy, including homes, is a composite of parts made in many places in the U.S. and abroad.
Apparently the only prominent American who doesn’t understand that is Donald Trump. He seems to think, as did many people 85 years ago to their sorrow, that the mutually beneficial exchange of goods and services across borders is a zero-sum game, indeed a form of warfare.
Some of us have assumed that the hotel and casino tycoon’s populist demagoguery will ultimately blow itself out. But what if it doesn’t?
On November 8th, Mary Anastasia O’Grady authored another article for the Wall Street Journal, “Memo to Trump: Nafta Helps Americans”, stating:
Levying tariffs on Mexico to pay for a border wall would launch a trade war. . . .
Without the North American Free Trade Agreement (Nafta), manufacturing would be in even worse shape. But don’t tell Donald Trump that. If elected President, he promises to “make America great again” by, among other things, blowing up the 1994 trade pact. . . .
In other words, Mr. Trump plans to launch a trade war with Mexico. This is as preposterous an idea as it is dangerous. Let’s start with the painfully obvious: A tariff is not paid by the exporter but by the importer, who passes it on to the consumer. . . .
It’s hard to see how any of this could be good for Americans. According to “NAFTA Triumphant,” a report last month by the U.S. Chamber of Commerce, annual U.S. trade with Canada and Mexico is now $1.3 trillion, nearly four times greater than before the agreement. Agricultural exports to Canada and Mexico have gone up by 350%, and U.S. service exports have tripled. More than a third of U.S. merchandise exports are now bought by Nafta partners.
A trade war would hurt American manufacturing because it would fracture the highly integrated North American economy. All three Nafta partners are competitive globally because they are able to allocate capital to its highest use anywhere on the continent. . . .
A September 2010 National Bureau of Economic Research working paper found that 40% of the content of U.S. imports from Mexico is produced by U.S. workers. . . .
Mr. Trump’s plan also fails from a security perspective. Mexican states that are engaged economically with their northern neighbors are growing faster than the rest of the country. They are also creating good jobs and raising living standards, necessary factors to stem the flow of Mexican migrants north. . . .
Mr. Trump’s trade agenda is absurd and would invite a depression. He’s either too uneducated in economics to know that or too cynical to care.
On November 12, 2015, the Wall Street Journal went after Trump again on trade, commenting on the Republican debate:
Mr. Trump called it a “terrible deal,” though it wasn’t obvious that he has any idea what’s in it. His one specific criticism was its failure to deal with Chinese currency manipulation. But it took Rand Paul to point out that China isn’t part of the deal and would be happy if the agreement collapsed so the U.S. would have less economic influence in Asia.
Mr. Trump said on these pages Tuesday that he would label China a currency manipulator on his first day as President, triggering tariffs on thousands of Chinese goods. The businessman thinks economic mercantilism is a political winner, but we doubt that starting a trade war that raises prices for Americans would turn out to be popular. Many of Mr. Trump’s supporters care more about his take-charge attitude than his policies, but GOP voters will have to decide if they want to nominate their most protectionist nominee since Hoover. . . .
On November 12, 2015 in an Editorial, the Wall Street Journal stated:
Donald Trump Is Upset
The candidate says we were unfair to him on trade. . . .
Mr. Trump: “Yes. Well, the currency manipulation they don’t discuss in the agreement, which is a disaster. If you look at the way China and India and almost everybody takes advantage of the United States—China in particular, because they’re so good. It’s the number-one abuser of this country. And if you look at the way they take advantage, it’s through currency manipulation. It’s not even discussed in the almost 6,000-page agreement. It’s not even discussed.”
So when he is asked about TPP, Mr. Trump’s first reference is to China, which isn’t in TPP, and he now says the world should have known that he knows China isn’t part of it because amid his word salad he said that the deal “was designed for China to come in, as they always do, through the back door.” .. . .
Our editorial point was what everyone who understands East Asian security knows, which is that China would be delighted to see TPP fail. China is putting together its own Asian trade bloc, and those rules will be written to its advantage. TPP sets a standard for trade under freer Western rules. China could seek to join TPP in the future, but it would have to do so on TPP’s terms, not vice versa.
TPP would help China’s competitors by giving them greater access on better terms to the U.S. market. Production is likely to shift from China to Vietnam and other countries. In October the Financial Times quoted Sheng Laiyun, the spokesman for China’s National Bureau of Statistics, as saying that, “If the TPP agreement is finally implemented, zero tariffs will be imposed on close to 20,000 kinds of products. . . . That will create some pressure on our foreign trade.” Some back door. ***
As for currency manipulation, we gave Mr. Trump a forum for his views in our pages on Tuesday. He doesn’t understand currencies any better than he does TPP. Currency values are largely determined by central banks and capital flows. If China made the yuan convertible and let it float, the initial result would probably be a falling yuan as capital left the country. A trade deal with a binding currency provision could also subject the U.S. Federal Reserve to sanctions as a “manipulator” every time it eased money in a recession.
All of this bears on Mr. Trump’s candidacy because he is running as a shrewd deal-maker who can get the economy moving again. Starting a global currency and trade war “on day one” would get America moving toward recession—or worse.
IMPACT ON NON MEMBER COUNTRIES
USTR Froman in late October stated the TPP has had a “magnetic effect” on outside parties realizing that the TPP stands to set the rules of the road in the coming years, stating:
TPP was designed to be an open platform that will grow over time and help raise standards across the region and around the world. It’s becoming clear that even nonmembers are going to have to compete in a TPP world and raise their game, and that’s good for everybody.
Froman’s statement came one day after Indonesian President Joko Widodo formally expressed interest in joining the TPP because of his fear of being left adrift in the region.
Assistant Secretary of State Daniel Russel said that the TPP strategy has been to raise trade standards and China could eventually be included in:
The world would be a better place, by far, if China were willing to meet the very high standards of TPP. The broader impact on China is going to drive a virtuous cycle of better regulatory practices, greater transparency and openness of the Internet. What TPP brings to the member countries are things that I believe all people, including Chinese people, want.
During a recent TPP conference here in Seattle, a State Department expert on the TPP negotiations stated that the objective of the TPP is not to block or contain China. Instead, the TPP objective is to entangle China in the higher standards and rules set by the TPP. In other words, to join the TPP, China will have to meet the very high standards and rules set by the Agreement, which could go even higher in future negotiations.
On November 18, 2015, at the first meeting between President Barack Obama and his 11 TPP counterparts since the negotiations were completed on Oct. 5, TPP leaders stated:
“While our focus is on approval and implementation of the results of negotiations with our current partners, we have also seen interest from a number of economies throughout the region. This interest affirms that through TPP we are creating a new and compelling model for trade in one of the world’s fastest growing and most dynamic regions.”
ITC TPP INVESTIGATION
In the attached notice, ITC TPP INVESTIGATION FED REG, on November 17, 2015 at the request of the USTR, the U.S. International Trade Commission (“ITC”) launched its formal investigation to assess the TPP’s overall economic impact, as mandated by the legislation to renew Trade Promotion Authority passed earlier this year. As the Commission states in the notice, the purpose of the investigation is to assess the likely impact of the Agreement on the U.S. economy as a whole and on specific industry sectors and the interests of U.S. consumers.
The important dates during the investigation include a public hearing on January 13, 2016 and pre‐hearing briefs and statements due on December 29, 2015. Post-hearing briefs and statements are due January 22, 2016. The ITC will transmit its report to Congress on May 18, 2016.
CONGRESSMAN DAVE REICHERT OF WASHINGTON BECOMES CHAIRMAN OF THE SUBCOMMITTEE ON TRADE HOUSE WAYS AND MEANS—GOOD NEWS FOR WASHINGTON STATE AND FOR FREE TRADE IN GENERAL
On November 18, 2015, in the attached an announcement, REICHERT ANNOUNCEMENT CHAIRMAN, Congressman Dave Reichert, a Republican from Washington State, made the following statement after being named as the new Chairman of the Ways and Means Subcommittee on Trade:
I am very honored to have the opportunity to lead the Trade Subcommittee and champion some of the issues that have the greatest impact on Washingtonians. Washington State is one of the most trade-dependent states in the country with 40 percent of our jobs and more than $90 billion in annual exports connected to trade. In the Eighth District alone, 77,100 jobs are supported by trade, and our growers, producers, and businesses export approximately $8.6 billion in goods and services each year.
With the release of the text of the Trans-Pacific Partnership and our ongoing negotiations with the EU, this is a critical time for trade. As a longtime advocate of expanding trade opportunities, I will continue fighting on behalf of our workers, farmers, and businesses across the country, because I firmly believe through high-standard trade agreements we see expanded opportunities for all.
Representative Reichert is the first Member of Congress from Washington State to serve as Chairman of the Ways and Means Subcommittee on Trade.
From personal knowledge, I can confirm that the selection of Representative Dave Reichert as Chairman of the Trade Subcommittee, House Ways and Mean, is important for Washington State and for Free Trade proponents and advocates everywhere.
This is a very powerful position in Washington DC in the Trade network. Not only the TPP, but amendments to the US Antidumping and Countervailing Duty law, Trade Adjustment Assistance and the US Customs law go through his Committee. Chairman Reichert was recently named to the Conference Committee with the US Senate on the pending Customs and Trade bill, the Trade Facilitation and Trade Enforcement Act, H.R. 644, presently in Congress. The Conference Committee met December 7, 2015 on Capitol Hill and as indicated below, came to Agreement on the Bill on December 9, 2015 for passage in Congress by the end of the year.
The issue of Retroactive Liability for US importers and market economy treatment for China in 2016 are squarely in the jurisdiction of the Trade Subcommittee, House Ways and Means, which Congressman Reichert now chairs.
Rep. Reichert is co-chair of the Friends of TPP Caucus, member of the President’s Export Council, and founder of the Congressional Freight Caucus. Congressman Reichert also signed the discharge petition, as described in my last newsletter, to move the Ex-Im Bank through the House of Representatives.
On November 25, 2015, in an interview on his new position and the TPP, Chairman Reichert stated that he is focused mainly on making sure that the TPP meets many of the negotiating objectives laid out in the Trade Promotion Authority:
Right now, we are all in the process of comparing TPA language to the TPP language and discussing it with our constituents and getting into more discussions as people learn more and more about what’s actually in TPP.
The Chairman also made clear that he is holding off on a full endorsement of the TPP until he and his colleagues have carried out their analysis:
I am a pro-trade guy, but I am not going to support this agreement until we have thoroughly vetted it. This has to be a deal that protects and creates American jobs and gives us the opportunity to have this global influence.
Reichert said that persuading skeptical Republicans will be a key job to bring the TPP to the Floor, but opposition from heavyweights, such as Paul Ryan or Orrin Hatch, will make it more difficult to get TPP through both chambers of Congress. But Chairman Reichert pointed out that the TPP chapters, which cause some Republicans to oppose the bill, could also yield some unlikely allies from the other side of the aisle:
We may lose those members that are really affected by the tobacco provisions but on the other hand on the Democrat side, we may be able to gain some support for votes that we might lose on the Republican side. There’s a lot of work to do in trying to find a direction through this to ensure that we have the votes to pass it [TPP] when it finally comes to the floor.
CONGRESSIONAL ANNOUNCEMENT ON DEAL FOR NEW TRADE AND CUSTOMS ENFORCEMENT BILL
On December 9, 2015, in the attached announcement, AGREEMENT NEW CUSTOMS BILL, Senate Finance Chairman Orrin Hatch, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Ranking Member, Ron Wyden, announced a final agreement on the Trade Facilitation and Trade Enforcement Act of 2015.
Some of the key provisions of the bills are stringent enforcement measures for evasion of antidumping and countervailing duties. As Senator Hatch stated:
“Strong enforcement is a key element in our trade arsenal and thanks to this legislation the Administration will have a number of new tools to hold America’s trading partners accountable. Even more, this measure promotes legitimate trade facilitation and works to preserve one of America’s most important economic assets: intellectual property, helping to prevent counterfeit and illicit goods from entering our nation. We’ve put together a good package, and I look forward to working with my colleagues to get this report across the finish line and signed into law this year.”
As Senator Wyden also stated:
“This enforcement package is about jobs. Too often, our laws and enforcement policies have proven too slow or too weak to stop the trade cheats before jobs are lost. The Leveling the Playing Field Act Congress passed earlier this year helped ensure that workers and businesses harmed by unfair trade have faster access to relief. This conference report, which includes the ENFORCE Act, will help ensure that this relief is effective and that trade cheats cannot evade the consequences of violating our trade laws. The bill we released today represents bipartisan trade enforcement priorities that were years in the making. It takes trade enforcement to a new level to protect workers and businesses in Oregon and around the country. Congress is now on the verge of passing the strongest package of trade enforcement policies in decades.”
Under the new finalized bill, U.S. Customs and Border Patrol will be held accountable for effectively acting to prevent evasion of anti-dumping and countervailing duties through a new process with strict deadlines and judicial review.
Attached are a copy of the bill, the conference report and summary of the bill, CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015.
If you have any questions about these developments or about the TPP, US Antidumping or other trade laws, trade adjustment assistance, customs, 337, patent, US/China antitrust or securities law in general, please feel free to contact me.