The most important piece of trade legislation Congress has dealt with in years was introduced in the House and Senate last week. The “Bipartisan Congressional Trade Priorities Act of 2014” sets out the parameters for renewing trade promotion authority (TPA), originally known as “fast track,” in order to ease eventual passage of the Trans-Pacific Partnership and other agreements through Congress. There will be a lot of debate in the coming months about what U.S. trade policy should look like, and this TPA bill will do a lot to establish the agenda.

The new bill largely mirrors the last TPA grant in 2002. The basic idea of fast track is that Congress agrees to hold an up-or-down vote on any trade agreement submitted by the president, while the president agrees to adopt a series of negotiating objectives laid out by Congress. 

I’ve explained before why I think TPA is not necessary right now to get agreements through Congress and why it could even make the TPP negotiations more difficult. However, that argument is temporarily moot since this TPA bill is on the table and will apply not only to the TPP but to the U.S.-EU trade agreement and any World Trade Organzation negotiations for the next four years. 

Defeat of this bill could quite possibly kill any chance the president has to conclude trade agreements before the end of his term. Also, the negotiating objectives included in the new bill are not as bad as I had feared.

At this point, we should be talking about what’s in the new TPA bill and how it might change as the debate heats up.

For starters, the bill’s weak language on currency manipulation is particularly encouraging. American automakers and their allies among House Democrats have made “misaligned” foreign currency their number one trade issue and have insisted on very strong language in TPA. The administration, however, has stated that it does not want the issue addressed in the TPP agreement, as other countries in the negotiations are strongly opposed to the inclusion of currency rules. 

The current text of the TPA bill calls out currency manipulation as a problem but leaves the president a lot of discretion. The political cost of that discretion has been a complete lack of support from House Democrats. Dan Ikenson has explained the troubling politics of this situation and calls for the president to take a tougher stance against Detroit if he wants to make progress with his own trade agenda.

On labor and the environment, the new TPA bill maintains the status quo in U.S. trade policy. The language requiring our trade partners to abide by specific international labor and environmental agreements was not included in the 2002 TPA but reflects a compromise reached in 2007, when Democrats took control of the House. Despite the fact that Republicans have regained their majority, many were worried that the new TPA would impose even stronger objectives on labor and environmental requirements. 

If support from House Democrats is already lost because of the currency issue, Republicans may want to consider whether there’s any room to roll back the objectives on labor and environment. Free trade should not be contingent on the adoption of foreign labor and environmental standards. As Dan Griswold succinctly explained when Congress was debating another fast track bill fifteen years ago:

This debate is not about worker rights or a cleaner environment. It’s about the freedom of people in America and abroad to engage in mutually beneficial trade. In the real world, the international standards and trade sanctions that opponents of fast-track insist upon could in fact slow progress toward better living standards in poor countries.

Now fast track imposes those very same standards and sanctions, but opponents are still not satisfied. Perhaps this Congress in 2014 is incapable of imbuing the trade agenda with much-needed faith in the free market, but there’s little to lose from trying.

The new TPA bill also continues the past policy of promoting strong intellectual property rules through trade agreements. This is an area where the United States has to expend a considerable amount of negotiating capital to get marginal changes in foreign IP laws that benefit a handful of U.S. industries. 

IP has also become a focus of domestic opposition to the U.S. trade agenda, as copyright and patent reform advocates recognize the dangers of locking-in bad policy through international agreements. Like labor and environmental targets, the IP component of the trade agenda is an issue where congressional consensus exists despite a pressing need for serious debate.

Finally, some separate trade initiatives may get tied-in to the passage of TPA.

Democrats are certain to insist on an extension of the Trade Adjustment Assistance program before supporting TPA. Trade Adjustment Assistance provides greater welfare benefits to people who can tie their job loss to import competition. It is an entitlement program whose primary purpose is to demonize trade while assuaging anti-trade constituencies. In truth, these jobs are lost due to economic growth and trade is only one of many ways to ensure a dynamic and competitive economy.

Also, the Generalized System of Preferences program that grants tariff-free treatment to imports from poor countries could be extended in conjunction with passage of TPA. The program, though it has its faults, helps many consumers and producers in the United States and creates economic opportunity for people who desperately need it. Despite being generally popular in Congress, the program expired last year.

TPA offers Congress an opportunity both to support and to shape the U.S. trade agenda. Perhaps the current set of negotiating objectives is the best that can be done with this particular Congress this year. But, this is a good time to have a debate about the goals of U.S. trade policy: to consider ways to make it better and, especially, to keep it from getting worse.

The Wall Street Journal’s Mary O’Grady put out an excellent column yesterday expressing skepticism about the trade agenda in 2014. I agree with almost everything in the piece, with one major exception. Contrary to the prevailing conventional wisdom, the lack of “fast track” trade promotion authority has not been and will not be an obstacle to completing the Trans-Pacific Partnership negotiations. 

Her concern about the lack of fast track relates to the willingness of other countries to negotiate when the president has not secured trade promotion authority:

Mr. Obama’s trade team has been working on [the TPP] for years. But U.S. negotiators still don’t have “trade promotion authority” (TPA) from Congress. This means there really hasn’t been much negotiating at all because the U.S. team still doesn’t know how much flexibility it has from Congress to cut final deals on sensitive areas of trade. That will come with TPA, which sets “objectives” that the administration must meet. No U.S. trading partner is going to talk seriously unless the president has it.

I strongly disagree with this characterization. For the last three years, countries have been knocking down the door trying to get into the TPP negotiations. They have done this even while knowing that the TPP will inevitably be a vehicle for pushing U.S. economic and strategic priorities at their expense. These governments see the economic benefit of access to the U.S. market and have shown no reluctance to engage in negotiations despite the Obama administration’s apparent disinterest in securing fast track authority from Congress.

If you believe the administration’s claim that the TPP negotiations are in their closing stages, then the impact of fast track could be especially counterproductive. It is true that a bill from Congress laying out its sensitivities will better inform and ensure foreign negotiators, but it will also reduce the flexibility of U.S. negotiators to make the concessions needed to get the deal completed. 

The real danger that fast track helps alleviate is not completion of the negotiations, but passage of the agreement through Congress. In the past, it made sense to impose Congress’s negotiating objectives through a fast track bill because Congress was unlikely to ratify an agreement that didn’t meet their demands.

But today, trade agreements are passed through Congress on largely partisan lines regardless of what’s in them. As O’Grady notes, House Democrats are not even involved in crafting the fast track bill because nothing in the bill will convince them to support the TPP when it finally comes up for a vote.

We shouldn’t forget that those same House Democrats, when they were in charge in 2007, ignored the previous fast track arrangement, demanded major changes to already completed agreements, and refused ever to hold a vote on agreements with Colombia, Korea, and Panama. As O’Grady explains:

Mrs. Pelosi didn’t want the Colombia FTA to go to the floor for a vote because it had enough support to pass. So even though the law instructed her to send it, she refused and stuck it in a drawer. That amounted to double-crossing the best ally the U.S. has in Latin America.

So if trade promotion authority convinces U.S. trading partners that Congress won’t obstruct or meddle with the agreement, they haven’t been paying attention. Senate Democrats are much friendlier toward trade and Republicans hold a majority in the House. It’s hard to imagine this Congress refusing to hold a vote on the TPP even without trade promotion authority.

Unfortunately, while fast track is neither necessary nor sufficient to get agreements through Congress, it is certain to reduce the value of the TPP as a vehicle to liberalize trade. Any fast track bill coming out of Congress this year is bound to contain demands to include harmful rules in the TPP related to labor and environmental protection. Republicans are so eager to see progress on trade that they appear ready to accept these restrictions without a fight. 

O’Grady also hits the nail on the head with this observation about the inevitable inclusion of currency rules in the fast track bill:

It also may contain a provision aimed at allowing the U.S. to accuse countries of “currency manipulation” and apply “safe-guards,” i.e. protection. Given the resistance to this concept among many U.S. trading partners, completion of the TPP would become more difficult.

All of the observations O’Grady makes about the sad state of the TPP negotiations and trade politics in Washington right now are the very reasons why fast track is not only useless but harmful to the advancement of free trade.

Over the last few months, the media and the policy world have discovered that America’s archaic crude oil export restrictions are really bad policy. Two new and important developments give this welcome and growing movement even more momentum:

• In a much-publicized speech yesterday, Sen. Lisa Murkowski (R‑AK), ranking member of the Senate Energy Committee, advocated modernizing U.S. export restrictions on energy products, particularly natural gas and crude oil. Accompanying her speech was a new white paper on the same topic, which (i) highlights the serious economic problems caused by the current crude oil export licensing system (which is effectively a ban on exports to all countries except Canada); (ii) confirms the widely held view that oil exports won’t cause higher gas prices; and (iii) recommends that the president, the Commerce Department, or–if they continue to do nothing–Congress relax the export ban. Just as importantly, Murkowski’s views were recently echoed by Sen. Mary Landrieu, (D‑LA) who stands to take over the Senate Energy Committee this year. Thus, there could be bi-partisan support for easing the U.S. crude oil ban on the Senate committee arguably most integral to any such reforms.
• Also, today, the American Petroleum Institute’s president and CEO Jack Gerard reiterated his organization’s support for lifting the crude oil export ban:

API’s Jack Gerard on US crude exports: “action should be taken” to free oil trade. “It’s time for a change of mentality” #SOAE2014

— Ed Crooks (@Ed_Crooks) January 7, 2014

Gerards’s formal announcement echoes a few previous statements from folks at API (which is the largest U.S. energy trade association and a big player on Capitol Hill) and is a good sign that they’re going to push harder on this issue in the future. (API’s related blog post, which calls the crude export ban “obsolete,” certainly indicates as much.)

These two developments should be welcome news for anyone concerned with free markets, economic growth, and well-functioning energy markets. As I argued in a February 2013 Cato paper (and subsequent podcast), the crude oil export restrictions–and the similar, more well-known restrictions on U.S. natural gas exports–raise a host of economic, legal, and policy concerns. These restrictions should be replaced with a simple, transparent, and automatic licensing system for all exports of U.S. energy goods (not just fossil fuels).

Does this week’s news and the growing momentum for reform mean that the U.S. crude oil export ban will finally die the fiery death that it deserves in 2014? I’m a bit pessimistic for two reasons. First, Sen. Murkowski is not calling for a complete overhaul of the crude oil export licensing system (or its natural gas cousin): her white paper merely recommends that the Commerce Department or the president exercise their discretion within the current system and thereby approve crude exports to countries other than Canada (which, as noted above, enjoys a presumption of approval). And, according to the Financial Times, Murkowski stated today that any legislation from her on this issue would be “small, targeted bills” to “move the ball forward”–clearly not the systemic reform (or total elimination) that free traders, supporters of U.S. energy production, and America’s trading partners would ideally want. Indeed, the maintenance of an ad hoc discretionary export licensing system for crude oil would do little to provide energy markets with the consistency and predictability that they need to operate most effectively. Additionally, such a system wouldn’t quell concerns that the export restrictions violate World Trade Organization rules.

Second, while API’s support is obviously important, there will undoubtedly be intense opposition to any reform efforts. As National Journal reported yesterday, some uninformed U.S. politicians and certain domestic refiners–who benefit greatly from the ban–have already come out against reform. Combine that opposition with the inevitable push-back from fossil fuel-averse environmentalists–who have a new and sympathetic ear in the White House in John Podesta–and you have a recipe for a big political battle in Washington and diminished hopes for any quick resolution to this problem. (That Podesta’s former digs immediately “blasted” Sen. Murkowski’s remarks may be a good indication of his position.)

In short, crude oil exports could end up being like KeystoneXL or natural gas exports all over again–a frustrating and cripplingly slow process that’s subject not to rational market forces but the mercurial whims of our political class.

And, make no mistake, the crude oil situation really is a problem. As I detailed in June, beyond the legal and policy issues, the export restrictions harm U.S. producers and workers, and even worse problems are on the horizon:

[B]y curtailing exports and subjecting license approvals to the whims of bureaucrats, the current system slows domestic production, breeds economic distortions, discourages investment and destabilizes energy markets.

U.S. oil producers, for example, lose an estimated $10 billion a year due to their inability to sell crude in foreign markets. They’ve also spent hundreds of millions of dollars building “mini-refineries” in the Midwest and Gulf region to circumvent the current restrictions and export a slightly processed, cheaper product — leaving another $1.7 billion in potential profit on the table.

As Rube-Goldbergian as this sounds, producers have few alternatives, given that U.S. oil consumption has collapsed in recent years and building new refinery capacity is virtually impossible in many “environmentally friendly” states. These problems prompted the head of the International Energy Agency to warn recently that U.S. export restrictions put the “American oil boom” at risk.

Unfortunately, the serious oil supply and price disruptions that I contemplated–already experienced for natural gas–could be happening a lot sooner that anyone thought, as a domestic glut of light, sweet crude oil (i.e., the type of oil gushing from U.S. shale finds and spearheading the American energy revolution) finds itself at U.S. ports with literally no place to go.

The obvious solution to this problem is for the U.S. government to completely lift the ban on crude oil exports as soon as possible. Doing so would restore a little sanity to U.S. energy policy (although more definitely needs to be done), avoid global trade conflicts, and provide ample benefits for the domestic economy–all issues that we’ll be discussing at an upcoming Cato forum in February. However, if the aforementioned concerns and the government’s track record with KeystoneXL and natural gas exports are any indication, U.S. energy producers, consumers, and the broader market may endure a lot more pain before any serious, long-term solution is implemented.

If it ever is.

Noah Smith has a piece in the Atlantic in which he tries to revitalize the anti-WTO Seattle protests. We were wrong to mock them, he says. They were “mostly right”! And “on nearly every count”!

All right, I’ll bite. How, exactly, were they right?

His damning evidence against globalization starts with those dastardly “cheap imports,” which supposedly put Americans out of work. He acknowledges that such imports lower prices for consumers, but says those benefits are “spread very thinly.”

There are a lot of ways to refute this argument. I’m going to focus on two.

First, regardless of whether the benefits of low prices are spread thinly, such benefits outweigh any lost jobs arising from foreign competition. That is to say, the benefits of free trade outweigh the costs. Just be clear, this isn’t controversial, and is not contested by the economists he cites. Furthermore, the impact of Chinese and other imports on U.S. workers isn’t really all that great, and imports actually support many U.S. jobs. So, overall, his argument in this respect is a bit underwhelming. Oh, and by the way, if it’s poor Americans you are worried about, they are the ones who benefit most from trade with China.

Second, there is a larger point. Smith wants to present the issue as whether free trade takes jobs from the middle-class in order to give benefits to consumers and the rich. But that’s not the right way to think about things. The better way to understand the situation is the following: Protectionism takes a lot of money from everyone, in order to give concentrated benefits to a small group of politically connected interest groups. This is the kind of policy that is usually condemned by both the left and right. In the case of the trade debate, however, some well-respected opinion leaders seem OK with such policies. Why is that? My best guess is that it taps into an emotional “us versus them” worldview. It isn’t really about economics at all. It’s about patriotism and nationalism. “They” are bad. “We” are good. So let’s punish them, even if in doing so we are really punishing us.

Smith makes several other points: imports can be unsafe, free trade leads to environmental destruction, globalization is bad for poor workers. On the last two, Smith successfully refutes his own arguments, so I don’t need to do any more work here. As for imports being unsafe, just to be clear, WTO rules allow governments to regulate imported and domestic products for safety and health. Smith is free to argue that the U.S. government does a bad job regulating food and product safety. But that’s not the WTO’s fault.

Now, perhaps the Seattle protesters’ real beef was not with the WTO, but with globalization itself. They would rather live in a world where China had not experienced industrialization and rising living standards. In other words, a world where Chinese people are much poorer. But I don’t think the Chinese people want to live in that world, and neither do I. And it doesn’t seem that Smith does either, as he says:

The industrialization of China and (to a lesser degree) India has been the biggest and most effective anti-poverty program the world has ever seen. Capitalism has its flaws, but it works.

It sounds to me like his real conclusion here is that the protesters were, in fact, wrong!

So what is his complaint about the WTO and globalization exactly? He says:

… a WTO-led globalization could have been implemented a lot better.

Could trade rules be implemented better? Sure. But couldn’t everything? That’s not much of a critique. In the end, it turns out he doesn’t have any specific suggestions or proposals, just general angst. Which kind of reminds me of the Seattle protests.

From the Boston Globe, “Virtuoso’s flutes destroyed by U.S. Customs”:

…Flute virtuoso [Boujemaa Razgui], who performs regularly with The Boston Camerata[,] lost 13 handmade flutes over the holidays when a US Customs official at New York’s JFK Airport mistook the instruments for pieces of bamboo and destroyed them. …

“They said this is an agriculture item,” said Razgui, who was not present when his bag was opened. “I fly with them in and out all the time and this is the first time there has been a problem. This is my life.” When his baggage arrived in Boston, the instruments were gone. He was instead given a number to call. “They told me they were destroyed,” he says.

One reader recalled the travel woes of distinguished Polish pianist Kristian Zimerman, as recounted by the L.A. Times: 

Zimerman has had problems in the United States in recent years. He travels with his own Steinway piano, which he has altered himself. But shortly after 9/11, the instrument was confiscated at JFK Airport when he landed in New York to give a recital at Carnegie Hall. Thinking the glue smelled funny, the TSA decided to take no chances and destroyed the instrument. 

Yes, by all means, let’s put federal agencies in charge of as many aspects of our lives as possible.

Some may consider 2013 to mark the beginning of an important new era in U.S. trade policy. The year began with President Obama proposing an ambitious U.S.–EU trade agreement in his state of the union address and ended with progress at the WTO after 12 years of stagnation. But if we look past the hype and grand expectations for the future, we can see that there was only one major change in U.S. trade policy that actually occurred in 2013.

When the Generalized System of Preferences program expired on July 31, U.S. tariffs increased on imports from more than 120 developing countries.

The program would have been extended but for the opposition of Republican Senator Tom Coburn of Oklahoma. You can read news accounts to learn about the saga in greater detail, but let me give you the annotated summary—a Republican senator put a hold on a bill that would prevent a tax increase because it didn’t include enough other tax increases to overcome the “expense” of Congress failing to raise taxes.

Yes, it defies logic. 

Unfortunately, this bizarre incident is more than just a case study into the peculiar facets of American legislative politics, it also brought us the year’s only significant change in U.S. trade law.

But don’t worry. Most observers are confident that Congress will eventually extend the GSP program and retroactively refund all the duties collected since its expiration.

Just so we’re clear, the elected masters of our economy raised taxes on poor people in poor countries (and the Americans those people do business with), but they didn’t mean to and they’re going to fix it. When they get around to that is anyone’s guess.

One of the big Obama administration trade initiatives going on right now is negotiations with eleven countries in the Pacific region, called the Trans Pacific Partnership (TPP). What exactly is being talked about in these trade talks? Is it really about free trade? Based on standard media coverage of the issue, it’s not easy to discern. Here’s an example from the Washington Post.

In the print version of the piece, the title notes that the U.S. is seeking “to shape global trading rules”; and the sub-title says that the goal of the talks is “a freer flow of world commerce.” That sounds free trade-ish. But is it free trade? And if not, what is it?

When you look at the substance that is described in the article, the talks seems much broader, and do not have a very free trade feel. Take a look at these examples:

When Vietnamese officials issued new Internet rules this year, the U.S. tech industry gave a shudder.

The regulations clamp down on political speech, require companies such as Facebook and Google to invest in local computer infrastructure to store information on Vietnamese users, and could force chipmakers to strip standard encryption features from their processors.

Only one of these is about free trade (the local computer storage requirements). The rest are all domestic laws that affect trade. But perhaps more accurately, the U.S. trade goal here is changing other countries’ domestic laws so as to increase US exports, which isn’t free trade at all.

Some of these changes may be good (e.g., taking on speech restrictions); I’m less certain about others, such as the stronger intellectual property rules mentioned later in the article. But the article gives away the real policy goal, when it says:

the more significant fights … are over issues such as the regulation of the Internet and e‑commerce, the rules for the patent and sale of biopharmaceuticals, and the oversight of logistics, consulting, energy management and other service industries where the U.S. holds an edge.

Putting it this way, the talks seem to be about economic nationalism pursued through trade agreements! Make everyone use our rules, which will give our companies an advantage. Along the same lines, the online title of the article is as follows: “Through trade treaty, U.S. hopes rules that favor its companies will become the norm.”

There is real free trade in these talks, of course. There will be lower tariffs and liberalized services trade, and government procurement will be opened up to foreign competition. But the shift to other subjects as the focus, and the emphasis on giving advantages to U.S. companies, has fundamentally altered the nature of these agreements and the debate, and in the process left the media confused about how to talk about free trade and trade agreements. They keep trying to make these agreements sound like they are about free trade, but with the hurdle that much of what’s in them is not.