Category Archives: Trade Policy

GSP Time Again

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Seventy U.S. senators and more than 300 members of the House of Representatives voted for it the last time around. That is about as bipartisan as you can get in Washington – and yet renewal of the Generalized System of Preferences (GSP) is always a slow and “iffy” thing. GSP, of course, is the U.S. version of a worldwide program to help developing countries use trade to move their economies and their people out of poverty. We have had the GSP program since 1976, so you would think Congress would get used to re-authorizing it. The U.S. Congress always seems dilatory about re-approving our GSP program and then, when all the arguing is done, GSP gets passed overwhelmingly. Go figure.

For those unfamiliar with GSP, the U.S. version allows duty-free entry for close to 5,000 products from 127 developing countries and territories. All the other developed countries have similar GSP programs. GSP is the primary exemplar of the much vaunted “trade – not aid” approach to economic development.

Office of the US Trade Representative. Note: Argentina's GSP benefits have been suspended.

Office of the US Trade Representative. Note: Argentina’s GSP benefits have been suspended.

Our current GSP program expires on July 31. If nothing is done before then, the zero duties now granted to developing countries automatically go up to the full value that applies to any other country around the world. That could very well happen because GSP votes are often delayed well past the expiration of the previous authorization. Our politicians love to fight about which countries should get GSP treatment or even which products, because you can be sure that some member of Congress is going to go to the mat to protect some constituent’s factory. Amazingly few of our elected leaders seem to realize that the GSP program doesn’t just help developing countries. It also lowers prices for American consumers and provides jobs at factories dependent on imported parts and materials. In fact, in 2005, the U.S. Chamber of Commerce estimated that GSP helps support 80,000 American jobs.

The last time GSP was up for renewal, in 2010, Congress dithered for ten full months before voting overwhelmingly for the program. That delay cost American importers (and consumers and workers) $2 million every day in additional customs duties – that’s a tax increase if any Republicans are reading this. That led some companies to reduce worker benefits, freeze salary increases or even lay American workers off. All just for a delay on the vote.

The Coalition for GSP, a grouping of American companies (small and large), chambers and trade associations is launching a lobbying campaign this coming Monday to make sure that GSP is renewed on schedule. You can join the push here. GSP saved American companies $742 million in 2012. Don’t let Congress screw it up again.

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You may have noticed that posts have been sparser than usual. Combine my retirement with a lengthy visit from my 3-year-old grandtwins and that is what you get. I will post intermittently and likely shorter than usual whenever I get a chance to concentrate.

Swiss Cheese & Chocolate

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Cheese is a problem. Switzerland produces wonderful cheeses and chocolates, but protects its farmers to the max. That’s one of the few hits that Switzerland took in its Trade Policy Review last month in the World Trade Organization. Since Switzerland is the WTO’s home and several Swiss have headed up either the WTO or its predecessor, the GATT, one might think that Switzerland would be the epitome of the open economy. One would be wrong. They are good, but not a shining example.

The review covered both Switzerland and Liechtenstein, since they have a customs agreement, an open border and most foreign trade issues are handled in Berne, not Vaduz. There are a few minor differences, but we’ll get to those. For the most part, just assume that anything said about Switzerland applies to Liechtenstein, too.

The really strange thing – in this world of percentage ad valorem customs duties – is that Switzerland doesn’t use them. At all. The Swiss are the only WTO members to exclusively use specific duties, generally a set number of Swiss francs per weight of the item being imported. This means that the ad valorem equivalent can go up or down, depending on what is happening with exchange rates. Without changing a single customs duty, Switzerland’s average tariff in ad valorem terms climbed from 8.1% in 2008 to 9.2% in 2012 – running against the grain of what has happened in most countries. Those specific duties amounted to only 2.3% for non-agricultural products in 2012, but averaged a whopping 31.9% for agricultural goods. See what I meant amount protecting farmers?

Many tariff items carry zero duty rates, and others are so low that Switzerland has become known for its nuisance duties. More than 40% of its tariff items carry duties that are equivalent to less than 2%. These can’t contribute much to national tax revenues and are surely a nuisance to importers.

Given the technical excellence that Switzerland is known for, I am not surprised that the country has 23,080 product standards. Luckily for traders, 95% of these are recognized international standards that your products are likely to already meet. And, if your product is already cleared for sale in the European Union, Switzerland is likely to permit free sale in its territory under the so-called “Cassis de Dijon principle” without further technical checks.

Liechtenstein belongs to the European Economic Area (the EU, Liechtenstein, Iceland and Norway) and Switzerland does not, so there are a few things that require adjustment between Liechtenstein and Switzerland. A few products (e.g., fish) face different customs duties and others (e.g., some telecom equipment, salt and pharmaceuticals) encounter different non-tariff restrictions.

Chocolate factory outside of Gruyères

Chocolate factory outside of Gruyères

The big issues are that strange reliance on specific duties and going way overboard on protecting farmers and agricultural manufacturers. Equivalent duties on meat and dairy products average over 100%. One of the agricultural duties is the equivalent of 1,676%! There is a super complex tariff quota system for agriculture with 28 tariff quotas divided into 58 sub-quotas and aggregated with 80 bilateral preferential-tariff quotas. Follow that? I didn’t.

Much of the focus of the comments and questions from Members was on agriculture. Clarification was sought … on tariff peaks and complex variable tariffs, the justification of classifying certain measures in the Green Box, the difference between the system of “observed prices” and “administered prices” in price support measures, ending the compulsory levy on milk, and plans for phasing-out export subsidies entirely.
~ Concluding remarks by the TPR Chairperson, 4/25/2013

Switzerland is plagued by agricultural surpluses (small wonder, given how they are protected) and provides export subsidies to get those surpluses down on dairy products, flour and other milled products that go into food products. The subsidies partially compensate food manufacturers, such as Swiss chocolate makers, for the high prices they have to pay for domestic ingredients.

Did The Wrong Man Win?

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Roberto Azevedo

Roberto Azevedo

News broke yesterday that the new Director General of the World Trade Organization will be Roberto Azevedo, Brazil’s current ambassador to the WTO in Geneva. Ambassador Azevedo certainly knows how the WTO works and what its strengths and weaknesses are, so I have no problems with his experience and expertise. What concerns me is that he is from Brazil, arguably one of the most protectionist of the major trading countries in recent years. I have no way of knowing if Azevedo agrees with his country’s approach to trade, but it does give me pause. Perhaps, once he is Director General, Azevedo will reveal himself as a staunch proponent of getting rid of trade barriers. He will presumably be trusted by most developing countries as one of their own and may thus be able to prod them into making their economies more open. One hopes.

The opposite could happen. Just at a time when public opinion in the United States and Europe may (that’s a BIG “may”) be coming around to lowering trade barriers to benefit consumers, a Director General who truly believes in Brazil’s approach to trade could push in the opposite direction, encouraging more import substitution by developing countries. We’ll have to wait and see.

Much of the trade press appear to think that Azevedo’s main task will be to perform magic tricks to revive the Doha Round and declare it a success. I disagree. It would certainly be nice to say we had a success, but it may be better just to kill the thing and move on. Ambassador Azevedo would be wise to try to save a few agreements from Doha that do seem ripe for conclusion, but the round should otherwise be allowed to fade into oblivion.

I am more concerned that the WTO needs to come up with a way to integrate the many regional and bilateral trade deals that are being negotiated (or have been done over the past decade). I don’t know if this is possible, but is there a way to bring, say, the Trans Pacific Partnership to the WTO and negotiate to spread its benefits globally? Some way to start negotiations on a regional level and then grow them until you have the kind of results we used to get from a formal round of multilateral negotiations? It is always easier to reach initial agreement among fewer parties, but how do you then include those who weren’t at the negotiating table?

Few in the press seem to understand that the WTO’s work is more than just negotiating rounds. Many pundits say that without a successful negotiating round the WTO will lose its relevance, piling pressure on Azevedo to somehow pull Doha out of a hat. I submit that the WTO is relevant even if for its dispute settlement regime alone. Did you ever stop to think how countries solved their trade disputes before the WTO and the GATT came along? Too often, it was by sending one country’s young people out to kill another country’s young people. The WTO is worth it just for that. Not to mention all its other programs, providing training for developing countries, engendering calm rational discussion of trade issues, and maintaining dozens of trade agreements that have been negotiated over more than six decades. But the mainstream press doesn’t know all that stuff.

I wish Ambassador Azevedo the best. And I pray that he is not captive to his own country’s trade policies. The WTO needs an independent actor as Director General who will try to do what is right for worldwide economic development.

The Battle Of The Sun

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Is it environmental one-upsmanship or old-fashioned protection of an infant industry? India’s Jawaharlal Nehru National Solar Mission (NSM) was created to boost domestic production of solar cells and solar modules – clearly a good idea for the environment, right? The rub is that this is done by requiring that Indian solar projects buy their solar modules, cells or thin film technologies only from Indian factories – effectively banning foreign competition for solar power gear from Indian soil. It is a tad subtler than an outright ban. An Indian solar project can use foreign kit, but they won’t get the sweet power purchase deal from the national power monopoly. Washington started asking questions in the WTO a few months back, saying that Indian policy is a local content requirement that violates multiple international agreements. I posted about it because it is a traditional trade spat, but in new bright green environmental clothing.

Please, local marble only.

Please, local marble only.

New Delhi struck back a couple of weeks ago. Not by defending itself, but by arguing that the United States also has illegal local content requirements (who knew?). The Indian argument seems to be “you do things wrong, so you can’t complain when we do things wrong“. That’s often a good political, but is not a recognized defense in international law. Quite the contrary. Canada is in the process of losing a WTO case brought by the European Union and Japan against local content requirements used for renewable energy projects in Ontario.

There is substance to India’s case, which relies on the concept that defeated the Canadians: national governments are responsible for what their state, provincial or local governments do that violates international obligations. India has now raised questions about water utilities, for instance, in New England, Pennsylvania, West Virginia and South Carolina that impose local content rules on iron pipes and fittings used in water projects. New Delhi sees discriminatory local content rules being used in solar and renewable energy projects in Michigan, California and Texas. And pipe procurements in Alabama, South Carolina and Florida that are restricted to local products. This kind of puts Washington between a rock and a hard place, because there is long precedent for asserting the legal primacy of international treaties over local or state law, going back at least to a case brought by Japan against “Buy America” procurement legislation in Mississippi in the 1970s.

This is all part of a larger picture. As customs duties have come down across much of the world, local content requirements have become a favored tool for restricting foreign competition. U.S., European and Japanese companies often find themselves the victims of local content rules, so their trade agencies are waging an aggressive campaign against such rules wherever they are found. There have been complaints against similar practices in Indonesia, Brazil, Russia and the Ukraine – and we are likely to hear about more.

For better or worse, India is telling us that perhaps Washington should make sure its own house is in order. Not a bad idea. But just try selling that to local and state politicians egged on by local producers. In any country.

WTO Members Grilled On Import Licensing

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The Import Licensing Committee of the World Trade Organization (WTO) met last week to watch member countries trade barbed questions about import licensing requirements. Licensing, while it can be used for legitimate consumer protection, can also be employed to keep foreign competition out in favor of local producers. The Import Licensing Committee tries to resolve disputes before they become official cases in Geneva, but there have been 39 often raucous dispute settlement cases since 1995.

The WTO Import Licensing Agreement aims not only to prevent licensing requirements from being used to discriminate against foreign products, but also – realizing that uncertainty stops trade – to encourage countries to be transparent about their licensing practices. Member countries are often reluctant to give information about import licensing to each other or to the WTO secretariat. The WTO conducts an annual licensing survey that all of its 159 members are supposedly required to fill out. I haven’t seen the results for 2012 yet, but only 43 of the members bothered to complete the 2011 survey. Hardly a strong vote for transparency, is it? One has to assume that the 116 non-responding countries are up to something sneaky.

Russia only joined the WTO last year, but Moscow has already missed its first deadline for the import licensing survey and many countries want to hear what the Russians have to say. Canada, the European Union, Japan and the United States all asked questions about Russia’s practices, and were joined by Norway, Switzerland and Australia in expressing concern about the missing questionnaire. The Russian delegation answered some specific questions – describing its licensing rules as mostly applying to alcoholic beverages, drugs and drug precursors, toxics, medicines and radio-electronics – but gave the excuse of a re-organization of its trade agencies as the reason for its non-response to the annual questionnaire. Wonder if we will see a response to the 2013 questionnaire?

Vietnam was congratulated by the United States and the European Union for its decision to temporarily waive some of its import license requirements. That done, Washington complained that Vietnam has been a WTO member for six years now and still hasn’t presented – as required – a list of what products are actually subject to import licenses. The new waiver would have been more impressive if we had been sure of what was covered in the first place.

The United States, the European Union, Japan and South Korea are all worried about import licensing requirements in Indonesia. Seems Jakarta has imposed new rules requiring licenses for food and beverages, traditional medicine and food supplements, cosmetics, ready-to-wear clothes, electronics, footwear, children’s toys, mobile phones and other information technology products – but hasn’t bothered to tell anybody about it. The Indonesian delegation to the WTO must have been embarrassed when forced to admit that their bosses in Jakarta hadn’t filled them in either. The Indonesia delegates admitted that the new rules had caused “delays” in processing imports, but – in a CYA moment – tried to justify the regs as complying with technical regulations and human health and food safety requirements. Without knowing what the new regs are. Diplomacy has its humorous moments.

Perhaps not the right "ghost company"?

Perhaps not the right “ghost company”?

Switzerland raised a question about Brazil‘s RADAR import authorization requirements that are said to combat fraud by “ghost companies“. Brazil said we’ll get back to you, perhaps an admission that these rules had been off their radar. (Anybody out there know what these rules are or what a “ghost company” does?)

That wasn’t all, but you get the drift. Australia had questions for the European Union about licensing for motor vehicles and animals (not together). The United States jumped on St. Lucia about poultry and pork licenses. Washington and Brussels asked questions about coke and coal licenses in the Ukraine. India got questions from Turkey about marble, and from the United States about boric acid. The Turks raised the same question about marble with Thailand, and the EU pressed the Thais on nitrocellulose.

This is the sort of stuff that rarely makes headlines, but can kill or slow trade.

Coming Attractions In Congress

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IMG_0007Playing with numbers seems irresistible to most governments, but today I’m not talking about the sort of shenanigans that, say, Beijing plays with growth and trade figures. No, it is the peculiar way the United States has of designating which Congress did what. We can’t just say that Congress passed some bill in 2011. That may be accurate, but the official designation is that the bill was passed in the 112th Congress – which means nothing to most Americans, even less to those of you beyond our shores. You see, Congresses are numbered according to the 2-year terms of the House of Representatives. So if something happened during the 112th Congress, that could be in 2011 or it might be in 2012. That’s a long-winded introduction to a discussion of the trade issues likely to be taken up, for better or worse, by the 113th Congress that began earlier this year. That is, issues that could come up either in 2013 or 2014. Confused yet?

The Congressional Research Service (CRS), part of the Library of Congress, functions as an in-house consulting firm for Congress, responding to requests for information from any senator or member of the House. CRS reports may be indicative of the interests and bills likely to come up in the near future. The CRS website (www.crs.gov) was down when I worked on this post, but the Department of State provides a convenient list and copies of the CRS reports that impact international affairs, most of which concern international trade or investment. It is somewhat comforting that our Congressional leadership is asking about so many international issues.

CRS published a report a couple weeks back titled “International Trade and Finance: Key Policy Issues for the 113th Congress“, a forecast of what is coming in the next two years. It provides background material for Congressional staffers to use to educate their bosses and to draft bills, but also tells us which trade and investment issues are top-of-mind.

The 112th Congress (2011-2012), frankly, didn’t do much on trade. Sure, they passed the free trade agreements with South Korea, Colombia and Panama (leftover business from the Bush Administration) and finally authorized permanent normal trade relations (PNTR) with Russia, but most of their activity was simply maintenance issues for trade agencies and legislation. The CRS list for the new Congress is more ambitious. I am having a lazy morning with coffee on my lanai in the sun, so I will take the easy way out and quote the CRS’s own summary of the issues likely to grab Congress’ attention in the next couple years. Take a look at the full report for more details.

Among the more potentially prominent issues are:

1. Negotiations for comprehensive reciprocal trade agreements with major trading partners, including the Trans-Pacific Partnership (TPP) with 11 countries from the Western Hemisphere and Asia, and new negotiations with the European Union for the Transatlantic Trade and Investment Partnership (TTIP) Agreement;

2. Possible renewal of Trade Promotion Authority (TPA), allowing the President to enter into reciprocal trade agreements, and providing trade negotiating objectives and expedited legislative procedures to consider trade agreement implementing bills; …

3. U.S.-China trade relations including investment, intellectual property rights protection, currency reform, and market access liberalization;

4. International finance issues including implications of the ongoing Eurozone debt crisis for the U.S. economy, oversight of international financial institutions, and negotiations to conclude new bilateral investment treaties (BITs);

5. Oversight of the stalemated World Trade Organization (WTO) Doha Round negotiations and separate new trade negotiations (e.g. services) that some members of the WTO have undertaken;

6. Review of the President’s export control reform initiative and possible renewal of the Export Control Act (EAA), and review of trade sanctions;

7. Oversight of the President’s request for new authority to reorganize and consolidate the business- and trade-related functions of six federal entities; the Export-Import Bank, and the Administration’s National Export Initiative;

8. Reauthorization of U.S. Customs and Border Protection (CBP) and expiring trade preference programs (e.g., the GSP and the Andean Trade Preference Act).

Renewal of GSP and the Andean program needs to be done before July 31, 2013. Anybody’s guess as to when or in what form the others will come up.

Can You Hear Me Now?

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Many Americans don’t travel outside their country and, thus, have the ignorance to assume that everything in the United States is the best in the world. We see that in our Congress almost daily in things such as the refusal to consider health practices in places that have better outcomes then we do. One area we like to assume we own is telecommunications equipment and services. A symptom of that attitude is the requirement, annually since 1988, for the Office of the U.S. Trade Representative (USTR) to prepare the so-called Section 1377 Review about barriers in other countries to our telecom services and gear. USTR is not required to consider U.S. restrictions. If you have lived or worked overseas, you know that the United States is neither the best nor the worst when it comes to telecoms.

The 1377 Review is still a useful look at places that manage the industry worse than we do. But it is too bad that the Congress doesn’t require that the review look at best practices around the world, but only at the negative stuff. You can read the latest full review here, but I’ll give you some teasers.

Recent years have witnessed a growing trend among our trading partners to impose localization barriers to trade designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property (IP) at the expense of imported goods, services, or foreign-owned or developed IP – and this trend is evident in the telecommunications sector. This year’s 1377 Review highlights the concern that U.S. equipment manufacturers may be disadvantaged by the growing use of local content requirements in countries such as Brazil, India, and Indonesia. It also outlines a range of other telecom barriers that USTR has spotted and intends to tackle with increased monitoring and enforcement in the coming year.
~ Acting U.S. Trade Representative Demetrios Marantis, 4/3/2013

Among the measures that USTR is concerned about, in no particular order:

* Local content requirements in Brazil as a condition for winning new mobile telecom licenses.

* International termination rates for long-distance calls. This means that foreign telecom operators charge an inflated rate to the U.S. supplier for calls to their country. Of course, those added charges get passed on to American consumers. The review lays into Pakistan for this, but also names El Salvador, Ghana and Jamaica.

* Worldwide concerns about restrictions on cross-border data flows and Internet-enabled trade in services.

* China may be the most egregious example, but USTR is concerned that too many countries do not have effective telecom regulators that are fully separated from the interests of their telecom operating entities.

* Many countries impose limits on the percentage of equity in local operators that can be owned by a foreign company. The 2013 review emphasizes China in this respect. Canada and Mexico get kudos for progress on their foreign investment rules.

* State-owned or state-favored competition is always a concern. This year’s review focuses on China, Colombia and Mexico.

* China and India are particular concerns for U.S. satellite operators trying to sell in their markets. A common complaint is that governments force foreign satellite companies to sell capacity only through their state-owned telecom companies, not directly to the private sector.

* India gets mixed reviews for its handling of submarine cable landings. Access for users has been greatly improved, but there are still questions about fees levied on foreign telecom companies using the cables.

* Trade in telecommunications equipment has long been plagued by differing product standards which, when combined with testing and certification regimes, can slow down market entry or simply make it not worth the cost of entering some markets.

* Brazil, India and Indonesia each maintain local content requirements for telecom equipment.

* China has extreme security requirements (including incorporation of a Chinese encryption algorithm in some equipment), and redundant and less-than-transparent testing rules and product standards. India, though not as bad, is right behind the Chinese.

* Mandatory certification and local testing requirements are problems in China, Brazil, Costa Rica and India.

All this gives USTR’s trade negotiators plenty to do and think about during the coming year.

Of course, USTR’s mandate is to look at restrictions that other countries impose on trade and investment – not at U.S. practices. That falls to the Federal Communications Commission, which may or may not have any interest in liberalizing U.S. regulations. Things have loosened on possibilities for foreign companies to buy a controlling interest in American telecom companies, but foreign investors must be vetted by the FCC. I am not sure what other U.S. practices might attract the ire of foreign suppliers. It is up to them to figure that out and then try to open negotiations with Washington.