One issue that may be controversial in the US-EU trade talks is intellectual property, which has increasingly caused tension in trade negotiations. Many in the U.S. will argue that any such agreement should have “high standards” in this regard. Along these lines, this is from Senator Orrin Hatch:

There also remains some serious question as to whether the administration will even pursue an intellectual property rights chapter in our negotiations with the European Union. 

This is incredible.

The U.S. has the highest intellectual property rights standards in the world. 

Intellectual property is our competitive advantage.

It is our economic future. 

Once you set the precedent of substantively carving out intellectual property rights from a trade agreement, every other country we negotiate with is going to demand the same treatment. 

Now here’s the European Commission on IP issues:

Intellectual Property Rights: Both the EU and the United States are committed to maintaining and promoting a high level of intellectual property protection. Given the efficiency of their respective systems, the intention is not to strive towards harmonisation, but to identify a number of specific issues where divergences will be addressed. For the EU side, Geographical Indications (GIs) are of particular importance in that context. During the negotiations, we therefore intend to present specific ideas for ensuring adequate protection of GIs.

So everyone agrees: The standards should be “high”.

But wait, there’s also this from Senator Hatch:

As the U.S. and EU are the two most innovative economies in the world, any successful agreement between us must promote the highest standards of intellectual property protection. … It is also critical that the United States strongly promote the interests of U.S. businesses, farmers, ranchers, and workers with respect to EU policies, including geographical indications, that impede their ability to compete. (emphasis added)

So, both sides definitely want “high” IP standards in any US-EU trade agreement. But, on the other hand, they disagree on what are the appropriate standards are for geographical indications. The EU says they are important and need protection; Senator Hatch says they “impede the ability” of U.S. business to compete.

What I take from this is that we can’t really use “high” and “low” in the context of IP protection. The real question is, what is the appropriate level of protection for each particular kind of IP? Longer protection doesn’t necessarily mean a better policy, as I think Senator Hatch’s statements about geographical indications acknowledges.

In practice, unfortunately, what the two sides seem to be doing is promoting what they think is in the interests of their producers. Perhaps it would be better if everyone took a step back on IP, and thought about what was in the interest of society more generally.

Egypt is racing toward dictatorship. But Washington always has been more interested in maintaining influence than encouraging democracy or promoting development in Egypt. That’s why the U.S. provided more than $75 billion in “aid” over the years. 

In fact, the cash bought little leverage. Hosni Mubarak spent decades oppressing Egyptian citizens and persecuting Coptic Christians despite Washington’s contrary advice. Israel’s military superiority, not America’s money, bought peace. 

Unfortunately, as elsewhere in the Third World, foreign “assistance” hindered economic development by effectively subsidizing Cairo’s inefficient dirigiste policies. A decade ago the government finally decided to open the economy. 

Reforms including lower tariffs, enterprise privatizations, and regulation reductions. Meredith Broadbent of the Center for Strategic and International Studies also cited corporate tax reductions and insurance regulation modernization. 

However, Egypt soon began to fall behind other reformers. For instance, Broadbent pointed to the survival of “significant elements of a heavy-handed statist bureaucracy.” The banking system was opaque, monopolistic, and inaccessible. A joint report by the Carnegie Endowment and Legatum Institute cited the need to give poor Egyptians clear title to their property, reform the bankruptcy law, and reduce costs of opening, operating, and closing businesses.

Corruption was pervasive, with commerce dominated by cronyism and privilege. The military controlled anywhere between 15 percent and 40 percent of the economy. 

The most serious economic hindrance was expensive consumer subsidies, particularly for food and fuel. Most of the benefits did not go to those in most need. Moreover, the cost today accounts for roughly a third of the government’s budget and 14 percent of Egypt’s GDP. 

Thus, even after the Mubarak reforms unemployment and inflation remained high while Cairo ran large deficits. The situation worsened after the 2011 revolution. Uncertainty and insecurity discouraged investment and the public deficit increased to 11 percent of GDP. 

The coup was another step backwards. The government is focused on suppressing the Muslim Brotherhood and reconstituting old political and economic relationships. Reported the Washington Post: “now some businessmen and officials implicated in post-uprising corruption probes are again in positions of power and influence, including in the cabinet appointed last summer by the military.” 

The prime minister said the government plans to “rationalize” the subsidy, but economic reform appears to be a low priority. In September the regime launched a “$4.2 billion program for “economic development and social justice,” the sort of big spending initiative which has not worked elsewhere. 

As I point out in my new National Interest article:

Military rule could offer a form of stability. However, Gen. al-Sisi’s brutality, including the slaughter of Brotherhood protesters in Cairo in August, has encouraged increasingly violent opposition. Policemen are regularly being killed, and both auto and suicide bombings are on the rise.

Such violence could frighten off investors and tourists. 

In this environment American financial assistance would be even more harmful than before. The massive aid coming from Saudi Arabia and other Gulf states—given purely for the political purpose of combating the Brotherhood—reduces any financial pressure on the regime to streamline economic policy. 

In contrast, freer trade would be a positive good. Meredith Broadbent proposed negotiating a free trade agreement—previous talks left off in 2005—and updating the bilateral investment treaty. The Institute for International Economics once projected that an FTA would increase Egypt’s GDP by three percent annually.

A new accord also would benefit U.S. firms which have been left at a disadvantage by the EU-Egyptian FTA. Such agreements, Broadbent argued, “can serve as systemic tools to help pry open closed government regulatory processes.”

Absent an inclusive political process, Egypt likely faces an unstable and violent future. However, economic reform also is necessary. That is unlikely to come from lectures and money from foreign governments. But the prospect of increased participation in international commerce would offer a far more powerful and direct incentive for action. Washington should propose that the two governments free up investment and trade.

I was among the many who misted up at the gentle, lyrical “America Is Beautiful” Coca-Cola commercial last night, but it turns out to be controversial in some circles. Former U.S. Representative Allen West called it “truly disturbing” and thinks it indicates the nation is on the “road to perdition” because it shows various participants singing portions of the song in languages other than English. He goes on to quote Theodore Roosevelt — a President closely associated with the Progressive movement, and no hero to me — that “we have room for but one language here” in America.

One irony here is that the cause of English-language assimilation is doing way, way better today than in the days when bossyboots Progressives like Teddy Roosevelt were banging on about it. It used to be that it would take three or more generations to melt away the language isolation of Finns or Norwegians in the upper midwest, Czechs in Nebraska, Quebecois in upper New England, or Deutschlanders in the parts of Pennsylvania and Maryland where German remained the predominant language long into the nineteenth century. Today, modern popular culture being the force it is, the American-born kids of native Bengali or Ukrainian speakers are likely to enjoy perfect fluency in English. 

Meanwhile, a writer at Breitbart is also upset at the ad, which not only uses “several foreign languages” but “also prominently features a gay couple.” Please no one tell him about the 25-year “Boston marriage” of Katharine Lee Bates, author of “America the Beautiful.”

Cato Institute scholars Alex Nowrasteh, Aaron Ross Powell, Trevor Burrus, Benjamin H. Friedman, Simon Lester, Neal McCluskey, Mark Calabria, Dan Mitchell, Justin Logan, Patrick J. Michaels, Walter Olson and Jim Harper respond to President Obama’s 2014 State of the Union Address.

Video produced by Caleb O. Brown, Austin Bragg and Lester Romero.

Congress is gearing up to pass the first big farm bill since 2008. The logrolling between farm interests is nearing completion, the Republicans have given up on making substantial food stamp cuts, and the Treasury stands ready to borrow another $1 trillion. We are all set to go.

It looks like the final farm bill will be expected to cost about $950 billion over 10 years. CRS has details on bill versions from the Fall, but I adjusted those numbers based on the reported GOP cave-in on food stamps.

If the final number is $950 billion, the 2014 farm bill will cost 48 percent more than the $640 billion farm bill passed in 2008. Farm bill supporters claim that the new bill includes “savings” and “cuts,” but that is a myth created by the rising CBO baseline. The reality is that Congress is set to impose a huge, damaging, and unaffordable burden on taxpayers and the economy.

With the Trans-Pacific Partnership negotiations allegedly near completion, the transatlantic talks kicking into higher gear, and debate in Congress over U.S. trade policy objectives about to intensify, 2014 is shaping up to be the most consequential year for the trade agenda in a long time. Whether real free traders should rejoice over these developments depends on the emerging details, as well as the ability to avoid making the perfect the enemy of the good.

Real free traders abhor domestic trade barriers and want them removed regardless of whether other governments remove their own barriers. The benefits of trade are the imports we obtain, not the exports we give up. The immediate benefits are measured by the value of imports that can be purchased for a given unit of exports – the more, the better – and domestic barriers reduce those terms of trade. Of course, there are also the secondary benefits of imports, which include greater variety, lower prices, more competition, better quality, and the innovation spawned by those and other factors.

The process of U.S. trade policy formulation has never been particularly accommodating of free traders’ perspectives. Free trade views have been marginalized by their being subsumed within a broader category of views labelled “pro-trade,” which is dominated by business lobbies and other “pro-export” mercantilists. As the definition of free trade has been expanded to mean pro-trade, the definition of protectionism has been narrowed to exclude views, such as: “I’m not a protectionist; I just want a level playing field,” or; “I’m for free trade, as long as it’s fair trade.” Those are the clichés of protectionists, who are now popularly grouped under the pro-trade umbrella.

So, today’s trade debate (framed as it is by media, lobbyists, and politicians) does not feature free-traders on one side and protectionists on the other. Instead, one is either pro-trade or anti-trade, supports corporations or their workers, and believes free trade agreements are either good or evil. In a world with these binary choices, nuance gets squeezed out. Where do you fit if you support the tariff reductions in a trade agreement, but are unhappy with the corporate welfare it bestows on particular industries? What if you know that trade liberalization is good for both corporations and their workers alike? What if you’re pro-market, but not pro-business?

Given these and other ambiguities, should free traders support free trade agreements? Let me lay down a marker for free trade – “real” free trade, that is.

Free markets are essential to our prosperity, and free trade is the extension of free markets across political borders. Making markets freer and expanding them to integrate more buyers, sellers, investors, and workers deepens and broadens that prosperity. When goods, services, capital, and labor flow freely across borders, Americans can take full advantage of the opportunities of the international marketplace. Free trade provides benefits to consumers and taxpayers in the form of lower prices, greater variety, and better quality. And, it enables businesses and workers to reap the benefits of innovation, specialization, and economies of scale that larger markets afford. Countless studies have shown that economies that are more open grow faster and achieve higher incomes than those that are relatively closed.

The mission of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies is to increase the public’s understanding of the benefits of free trade and the costs of protectionism. The focus of most of our work over the years has been on U.S. trade barriers, which we have identified and criticized as costly forms of corporate (and other special-interest) welfare that can never be justified by the existence of trade barriers abroad. U.S. trade barriers hurt U.S. citizens, as consumers, taxpayers, workers, producers, and investors. Removing U.S. barriers to trade is a purely domestic decision, which answers the question of whether policymakers think U.S. citizens are worthy of the freedom to make their own economic choices. It is a reform to which all free people are entitled, and can be achieved without need of any foreign government’s consent.

Since the founding of Cato’s trade center, our scholars have argued consistently that Americans would be better off if we simply undertook our own reforms – on tariffs, regulations, and other artificial impediments to commerce – without regard for what other government’s do. Free trade is about the freedom of people to transact as they wish, when they wish, with whom they wish, and without politicians and bureaucrats as gatekeepers.

There is generally broad agreement among economists and think tank scholars that free trade is a good thing. Many even call themselves “free traders.” But in too many cases, what these self-identified free traders mean is that they support free trade over there, in other countries, but not really over here in the United States. In other words, they are not free traders at all. They are mercantilists. They see increasing “trade” and increasing “exports” as synonymous. They are the trade establishment, routinely reinforcing the myth that imports are a drag on the U.S. economy and that existing U.S. barriers are not impediments but, rather, excellent leverage for securing better market access abroad through negotiations. Regrettably, this view remains fairly strongly entrenched in Washington.

Despite what we call them, free trade agreements are not really about free trade at all. Rather, they are institutions of managed trade, premised on assumptions that are anathema to real free traders. At the most fundamental level, free trade agreement negotiators see imports as the price we pay for exports, while free traders consider exports the price we pay for imports. Negotiators treat production as an end in itself (maximize exports over imports), while free traders see consumption as the sole purpose of production (maximize imports over exports). Managed trade is about the proliferation of often labyrinthine rules intended to benefit chosen producers, labor unions, and other NGOs, while free trade is about removing impediments that benefit some at the expense of others so that each of us individually has the fullest battery of choices to decide how best to use our own resources.

In many respects, free trade agreements give free trade a bad name. But does that mean free traders should oppose them?

Despite their flaws, free trade agreements have helped reduce domestic impediments to trade, expand our economic freedoms, and lock in positive reforms, even if only as the residual byproduct of an ill-premised mercantilist process. Ultimately, free trade agreements have delivered freer trade. Is that not good enough?

The question of whether free traders should support free trade agreements, then, hinges upon whether they can see past these shortcomings and inconsistencies to the end result. If one’s fealty is to the logic of free trade and its underlying assumptions, then those characteristics of trade agreements are not shortcomings, but fatal flaws. But if one is more concerned with the end result – the expanded economic liberties and the bounty of its promise – then that free trader might be more inclined to forgive the indiscretions and support an imperfect trade agreement.

Over the years, the default position of Cato’s trade scholars – more or less – has been the latter view. We have identified the flaws in the assumptions underlying mercantilist reciprocity, assailed the corporate welfare it bestows, and advocated for unilateral free trade, while still finding our way to supporting free trade agreements because, warts and all, they still increased economic liberty. That said, not all free trade agreements are the same. Ideally, the texts would be short, sweet, and unequivocal: “There shall be free trade among the parties.” But, regrettably, it’s more complex than that. So the devil is in the details.

What were once primarily rules addressing border issues, trade agreements nowadays penetrate much more deeply into traditionally domestic policy areas. The demand for trade rules in these areas has followed the proliferation of cross-border investment, global production and supply chains, and intermediate goods trade. (Ironically, these manifestations of globalization weaken the links between companies and their original home countries, yet trade agreements are negotiated by governments on behalf of these companies, as though it were a national imperative to guard their interests.) But as trade governance bumps up against issues of domestic sovereignty, the potential downside risks of trade agreements increase.

Consider the Trans-Pacific Partnership. The TPP is the largest free trade agreement to date – in terms of the volume of trade and share of global output represented by the 12 countries involved. Though the agreement has not been concluded, nor has any “official” draft text been released, the public has a decent idea of the deal’s coverage, if not its specifics.

The agreement (should one be had) will likely include 29 chapters dealing with traditional issues, such as: market access for goods, services, and agricultural products; rules of origin, and; other customs-related issues. It is also expected to include rules that discipline competition policy, government procurement, regulatory coherence, intellectual property, investment policy, labor policy, environmental policy, and others. It is this second grouping of negotiating areas that is fertile ground for potentially objectionable provisions – rules that might undermine the exercise of domestic sovereignty.

There has been a great deal of opposition expressed by certain civil society groups over various aspects of the TPP. Much of it is hyperventilation, stoked by interest groups like the AFL-CIO and Friends of the Earth, who oppose the agreement for other reasons and have no qualms about scaring people to their cause. Nevertheless, there is legitimate concern about potentially overreaching provisions on labor and environment, as well as on intellectual property and investment, which could threaten the exercise of domestic sovereignty in the United States and in the other member countries. And that would be something to weigh against the likely benefits of liberalization in the agreement.

Where there are provisions that undermine economic freedom or domestic sovereignty, expect Cato’s trade scholars to criticize and recommend changes, as we have. But an agreement that is clearly a net positive on all of the relevant factors is likely to have our support.

A Washington Post editorial today pushes back against the argument that a Trans-Pacific Partnership agreement would exacerbate income inequality. Amen, I suppose. But in making its case, the editorial burns the village to save it by conceding as fact certain destructive myths that undergird broad skepticism about trade and unify its opponents.

“All else being equal,” the editorial reads, “firms move where labor is cheapest.” Presumably, by “all else being equal,” the editorial board means: if the quality of the factors of production were the same; if skill sets were identical; if workers were endowed with the same capital; if all production locations had equal access to ports and rail; if the proximity of large markets and other nodes in the supply chain were the same; if institutions supporting the rule of law were comparably rigorous or lax; if the risks of asset expropriation were the same; if regulations and taxes were identical; and so on, the final determinant in the production location decision would be the cost of labor. Fair enough. That untestable premise may be correct.

But back in reality, none of those conditions is equal. And what do we see? We see investment flowing (sometimes in the form of “firms mov[ing],” but more often in the form of firms supplementing domestic activities) to rich countries, not poor. In this recent study, I reported statistics from the Bureau of Economic Analysis revealing that:

Nearly three quarters of the $5.2 trillion stock of U.S.-owned direct investment abroad is concentrated in Europe, Canada, Japan, Australia, and Singapore. Contrary to persistent rumors, only 1.3 percent of the value of U.S.-outward FDI [foreign direct investment] was in China at the end of 2011.

Meanwhile, the United States (not China or Mexico) is the world’s #1 destination for FDI:

With a stock valued at $3.9 trillion, the United States is the top single-country destination for the world’s FDI outflows. There are plenty of reasons for that being the case, including the facts that the United States is the world’s largest market and has a sound legal system and a relatively transparent business environment. More than $4 out of every $5 of that stock (84.2%) is owned by Europeans, Canadians, and Japanese, with the U.S. manufacturing sector accounting for a full third of its value, making it the primary destination for inward FDI.

Are BASF, Michelin, BMW, Siemens, Airbus, InBev, Honda, Kia, Ikea, Shuanghui (recent Chinese purchaser of Smithfield Hams) and thousands of other foreign-headquartered companies invested here because labor is cheapest in the United States? They are here because firms conduct value-added activities wherever it makes the most sense to do so, given all of the considerations and restrictions that affect costs. For so many reasons, the United States is still the top destination for investment in manufacturing and most services industries. 

So stop. Just stop.

The editorial also indulges the most persistent myth of all, that increasing exports while minimizing imports is the purpose of trade agreements. As I’ve written on countless occasions in numerous different ways, increased imports are the real benefits of trade. Our exports are what we use to pay for our imports. If you prefer paying less for your products at the grocery store, you should prefer exporting less for the products you import. And for those concerned about income inequality—the editorial’s presumed audience—it is worth understanding that import competition increases choices and reduces prices, which means imports increase real incomes. 

The editorial concedes that imports from Vietnam may increase under the TPP (“suppose [the bilateral deficit] were to double”), but that the deficit “would still be tiny relative to the overall U.S. trade balance.” Instead of apologizing and rationalizing, as though this development were a cost, why not point out how lower-income Americans, in particular, would experience a lower cost of living because trade would reduce the cost of their clothing and footwear?

We need to do better a job explaining how trade does not lend itself to sports metaphors. Exports are not our “points.” Imports are not “their” points. The trade account is not a scoreboard. It is not Team America against the world. Trade is about mutually beneficial exchange between individuals in different political jurisdictions, and to the extent that those kinds of transactions are subject to the whims of politicians, more and more resources will be diverted from economic to political ends.

Though it may have had good intentions, the Washington Post should know better than to perpetuate simplistic myths spun by well-compensated K Street consultants on behalf of the business, labor, and environmental interests that benefit financially from restrictions on trade and investment.