Greg Mastel

The Trade Adjustment Assistance Reform Act: Two Years Later

Communications — Tue, 05 Oct 2004 12:00:00 -0400

A New America Event
10/05/2004 - 12:00pm

In 2002, Congress passed the most far-reaching reform and expansion of Trade Adjustment Assistance (TAA) since the program was established more than 40 years ago. Now, two years later, it is time to ask, how successfully have these changes been implemented and how effective is TAA in addressing the needs of workers and communities facing severe dislocations as a result of changes in international trade and investment?

The Trade Adjustment Assistance Coalition is a non-profit 501(c)(3) public policy organization, housed… more

Keeping our Commitments to American Workers on International Trade

Cecille Isidro — Thu, 11 Mar 2004 00:00:00 -0500

In 2002, after a nearly decade-long deadlock, Congress passed the most sweeping international trade legislation in 15 years.

By giving the president authority to negotiate new trade agreements, the United States has begun negotiating free-trade agreements with more than a dozen countries. President Bush has already signed free-trade agreements with Chile and Singapore, and he expects to sign at least two more this year.

In exchange for trade negotiating authority, Congress and the administration committed to assist those workers who lose their jobs due to increased imports and shifts in production. Unfortunately, our commitment to these workers has not received the energy and priority it deserves.

Expanded trade creates new jobs and provides consumers with greater choices at lower cost. At the same time, however, increased imports and the movement of factories from the United States overseas can cost some American workers their jobs.

Many of the more than 3 million manufacturing jobs lost since 1998 can be attributed to increased competition from abroad. But the costs associated with international competition are no longer limited to traditional manufacturing jobs.

Recently, even IBM moved some of its computer programming jobs -- once seen as the "safe jobs" in the new economy -- out of the country.

For those workers and thousands of others, the knowledge that the economy as a whole benefits from trade provides little solace. The inability or unwillingness of the government to respond to the needs of those workers is undoubtedly one reason that Americans appear doubtful of the benefits of free trade.

To address the legitimate and often overlooked needs of workers adversely affected by trade, the authors of the Trade Act of 2002 proposed to revise, expand and reinvigorate Trade Adjustment Assistance (TAA), the nation's largely moribund worker adjustment program. TAA was established 40 years ago, and its record has been spotty, due in large part to its limited resources.

The Trade Act of 2002 expanded TAA eligibility to include workers who lose their jobs due to shifts in production, workers who produce inputs into final products facing international competition, farmers and fishermen. Another important change was the provision of a refundable tax credit to help offset the cost of maintaining health insurance during the period of unemployment. Workers around the country have unanimously praised this provision.

The legislation also launched an innovative approach known as wage insurance. Older workers who qualify for wage insurance can receive half of the difference between their new and old wage. Wage insurance should help workers return to work at a lower cost than current programs. More important, it enables workers to get on-the-job training, which experience demonstrates is the most effective form of training. Wage insurance is a promising new idea in a field largely devoid of innovative thinking.

However, much of the promise of these reforms is yet to be realized. To its credit, the Bush administration requested nearly a tripling of funds for worker adjustment last year, but only a fraction of that amount has been spent. At the same time, numerous states, such as Pennsylvania and Massachusetts, experienced shortfalls in training funds. The healthcare tax credit is in place, but some states have made it difficult for workers to receive it.

A lot more needs to be done to ensure that workers who lose their jobs due to increased imports or shifts in production receive the assistance they need. The nation's ability to pursue further trade liberalization depends on our willingness to provide assistance to all workers who need it. Fully implementing the TAA reforms may cost money. Breaking our commitment to workers may cost the economy the benefits of future trade liberalization.

The TAA reforms adopted in 2002 are slowly being implemented. The administration and the states must move beyond bureaucratic roadblocks and strive to insure that all workers get the assistance they need. Perhaps if TAA received the same priority as new free-trade agreements, workers who lose their jobs because of shifts in international trade and investment would receive meaningful assistance and might be back at work, earning paychecks once again.

Regrettably, free trade and workers' needs are often presented as opposing interests.

An effective worker-adjustment program could go a long way toward reducing worker anxiety over foreign trade. This, in turn, could reduce the opposition to free trade, open the door to new trade agreements, spur new economic growth and ultimately ensure that the benefits of free trade are fairly shared. The first step should be to keep the commitments we made to American workers in the 2002 Trade Act.

Rebalancing China, Taiwan

Cecille Isidro — Sun, 01 Feb 2004 00:00:00 -0500

The Bush administration has a strong record of working to establish democracy abroad. The invasions of Afghanistan and Iraq were motivated by several factors, but in both cases an authoritarian regime was toppled and a foundation laid for a new democratic government.

This record made it all the more striking when President Bush recently seemed to side with the authoritarian Chinese government over the democratic Taiwan. The president's statements discouraged Taiwan from moving toward independence and even indicated displeasure with Taiwan's move to measure public sentiment on Chinese missiles aimed at Taiwan through a ballot referendum in the upcoming election.

The diplomacy across the Taiwan Straits is complex. Still, it is impossible to reconcile the Bush administration's fervent support for democracy over tyranny in the Middle East and President Bush's seeming support for authoritarianism in Southeast Asia. Fortunately, the United States has the opportunity in 2004 to establish a morally consistent, diplomatically sound, and economically beneficial position vis-a-vis Taiwan and China.

The complex history of U.S. relations with Taiwan and China literally fills volumes, but the present state of affairs is clear. Mainland China is ruled by an authoritarian regime, which has built an impressive record of economic success, but an equally troubling record of human rights abuses on a grand scale -- Tiananmen Square Massacre, the domination of Tibet, etc.

Until a decade and a half ago, Taiwan was also ruled by an authoritarian regime, but in 2000 it completed the transition to a full-fledged democracy, elected a president from the opposition party, and peacefully transferred power.

On its face, the choice between perhaps the world's most renowned authoritarian regime and a vibrant democracy would seem an easy one, but such is not the case. Taiwan is an island off of the Chinese coast that was controlled by the remnants of the Chinese Nationalists after they fled the Mainland after the communist revolution.

Despite the island's de facto independence for half of a century and its completely independent political system, economy and population of 23 million people, China continues to insist Taiwan is part of China.

But many in Taiwan tire of this obvious fiction. Taiwan's current president and his followers make Beijing nervous by continuing to hint they may declare "the emperor has no clothes" and formally proclaim Taiwan an independent country.

This certainly puts the United States as the world's foremost democracy and the historic defender of Taiwan in an uncomfortable situation. If Taiwan pursued and independent course it could force, at best, a nasty diplomatic row between Washington and Beijing and, at worst, spark a military conflict that could draw in the United States.

This is why President Bush chose to caution Taiwan against moving toward independence and even against condemning China's missile deployments directed at Taiwan through a referendum.

The current Bush position goes too far, however, and is fraught with problems in addition to the obvious moral inconsistency. It makes the United States appear to be kowtowing to China's unreasonable stance on Taiwan. This will likely be recognized throughout Asia as evidence the United States is largely ceding its role in Asia, making it all the more likely countries in the region will scramble to curry favor with Beijing regardless of U.S. interests.

More threateningly, by seeming to bow to China just as more independently minded forces are on the rise in Taiwan, the move risks tempting China to think the United States may not defend Taiwan if Beijing chose to forcibly assert its territorial claim.

In short, the Bush action to preserve an increasingly out-of-date status quo may actually destabilize the balance of power in the region rather than maintain it.

All is not lost, however. The core of U.S.-Taiwan economic relations for three decades has been a thriving economic relationship. The United States has almost a dozen Free Trade Agreements [FTAs] -- agreements to eliminate tariffs and trade barriers on a bilateral basis -- under negotiation around the world.

Taiwan has indicated it desires an FTA with the United States and it offers a larger trading relationship than any of the FTA partners currently negotiating with the United States. The U.S. International Trade Commission has concluded such an agreement would benefit both Taiwan and the United States.

A U.S.-Taiwan FTA would be an economic plus for both Taipei and Washington and simultaneously send an unmistakable U.S. signal of support for the struggling democracy. Certainly, China would not be happy to see such an agreement, but under the World Trade Organization such a pact is clearly permissible.

This is an election year in both the United States and Taiwan. It would provide a golden opportunity for two democracies to demonstrate the strength of their relationship. Such an agreement may not please China, but there must be as clear limit on how far the United States goes to appease China.

Hands off . . . or hardball with Beijing?

Cecille Isidro — Thu, 25 Sep 2003 00:00:00 -0400

On the just completed trip of Treasury Secretary Snow to China, the focus was not upon human rights, North Korea, or any of the topics that have become the core of U.S.-China relations. Rather the discussion was on China's currency -- the reminimbi or Yuan -- and its peg or government set exchange rate with the U.S. dollar.

This may sound like the dry minutiae only of interest to bankers and Treasury officials, but the peg is an important reason for the more than $100 billion annual Chinese trade surplus, with the attendant tens of thousands of lost U.S. jobs -- many in the high-paying manufacturing sector. Fortunately, this is a problem -the United States can begin solving, provided the Bush administration has the political will to play hardball with Beijing.

To understand the issue of the Chinese exchange rate, it is important to first look at U.S.-China trade. Over the last decade, the U.S. trade deficit with China has exploded -- growing from about $20 billion in 1992 to a whopping $100 billion in 2002 -- a fivefold increase. It is no surprise then that China has replaced Japan as the leading source of the U.S. trade deficit.

To put these numbers in context, the Commerce Department and others have used a rule of thumb that every $1 billion improvement in the U.S. trade deficit created more than 10,000 new U.S. jobs. Using that standard, the trade deficit with China could explain the loss of well more than 1 million U.S. jobs. In the latest economic downturn, the U.S. has lost more than 2 million manufacturing jobs.

Admittedly, the relationship is complex, with a number of factors to be considered, but -- since the overwhelming majority of U.S.-China trade is in the manufacturing sector -- it is certain the loss of many of those manufacturing jobs is linked to the trade imbalance with China.

Of course, by itself a trade deficit -- particularly with just one country -- must be interpreted with caution. Global trade figures are more relevant. China has a trade surplus with the world, but a relatively modest one of around $20 billion, especially in comparison to the mammoth surplus with the United States. China, however, has grown strongly in recent years while most of the world -- the United States, Europe, and Japan -- have battled recession.

Under these conditions, one would expect the fast-growing economy to outstrip domestic production and begin drawing in imports probably resulting in a trade deficit. Far from falling into a trade deficit, however, China has expanded its trade surplus with the world in recent years.

How has China managed to swim against the economic tide? Again, there are many factors, including domestic consumption and trade barriers, but unquestionably one central factor has been China's insistence on retaining an exchange rate vs. the dollar and other major currencies that is fixed and does not respond to changing economic conditions.

Other major currencies are traded on a global market, which means their relative value is constantly shifting in response to economic conditions, including trade flows. Conventional economic wisdom holds that a trade surplus would lead to a stronger [more valuable] currency compared to other currencies.

This, in turn, would make imports less expensive and exports more expensive and, thus, move the trade account back toward balance. Thus, by stubbornly holding its exchange rate in place, however, China is insulated from this adjustment and effectively imposes a tariff on all imports and subsidy on all exports.

This is why a coalition of U.S. businesses has joined Japan's leaders and others around the world in arguing that China's currency may be undervalued by as much as 40 percent and demanding action to put things right. Belatedly, responding to these concerns, the Bush administration began criticizing China's currency peg.

Not surprisingly, Beijing turned a completely deaf ear to these complaints. China has long pursued a policy aimed at building a trade surplus. Allowing its currency to appreciate will force China to adjust as its trade balance shrinks; it is not a step Beijing will take without pressure. Failing to press for change, however, would mean allowing China's pegged currency to continue to distort trade with the world and impose a burden of unemployment on its trading partners, most notably the United States.

The polite criticism of Treasury Secretary Snow is a start. But much more dramatic action is called for from the United States. The U.S. should seek to organize all of China's major trading partners to press Beijing to allow the market, not government bureaucrats, to set its exchange rates. Action through the International Monetary Fund and the World Trade Organization [WTO] should be considered.

And, if all that fails, the United States should consider restricting China's exports to the United States -- a measure allowed under the terms on which China joined the WTO a few years ago -- until China trades fairly. Of course, all these steps may have a cost, but so does tolerating an enormous trade deficit and the tens of thousands of lost jobs that go with it.

Taiwan's FTA Prospects

Communications — Fri, 22 Nov 2002 11:00:00 -0500

A New America Event
11/22/2002 - 12:00pm

A New Chance to Kill Lumber Subsidies

Cecille Isidro — Fri, 15 Dec 2000 00:00:00 -0500

The United States and Canada have been locked in a protracted battle over softwood lumber subsidies for two decades. With newly elected governments in both countries, the time has come to end the conflict by finally doing away with lumber subsidies.

A wide range of analysts, from independent Canadian forest product experts to the U.S. Commerce Department, conclude that Canada's provincial governments have heavily subsidized lumber production, selling timber to Canadian lumber companies for as little as one-quarter of its market value to encourage harvesting. Those in the United States who want the subsidies to continue --primarily the housing industry and other users of cheap Canadian lumber --brand U.S. government measures to keep out subsidized imports as 'taxes on consumers.'

In the mid-1980s, the Reagan administration negotiated an agreement with Canada's federal government that gave Canada's provinces this choice: Sell trees on Crown land at a price closer to its market value or the Canadian federal government will collect a tax on lumber exports to the United States that offsets the value of the subsidy. In response, some provinces reduced their subsidies, while others chose to simply pay the tax. That same basic arrangement continues today.

A recent study from the Washington-based Cato Institute, which portrays itself as a defender of the free market, claims this export tax effectively taxes U.S. consumers, raising the price of the average new home by around US$1,000. The economics of this estimate are dubious, since lumber prices are now near record lows, the tax is currently collected on less than 2% of the lumber sold in the United States, and lumber represents only 3% of the price of the average home. But the Cato claim suffers from a more fundamental problem.

The World Trade Organization, the North American Free Trade Agreement and U.S. trade law condemn subsidies such as those granted to Canadian lumber, for good reason. The very same economic models that equate duties on imports with taxes on consumers demonstrate that subsidies similarly distort markets, contribute to inefficient consumption of resources and penalize taxpayers, among other ill effects. After Canadian subsidies on lumber exports were curbed, US softwood lumber production rose by nearly 20% compared with the pre-agreement level.

More importantly, at least from the perspective of restoring the free marketplace, the anti-subsidy stand has let forest products be priced to reflect their true costs, not sold at an artificially low price. Eliminating or offsetting the subsidy encourages rationalization of the forest products industry in North America and discourages environmentally devastating over harvesting of Canadian forests. This restoration of the free market's operation is a policy that free market purists such as the Cato Institute should applaud, not castigate.

The stopping of uneconomic harvesting explains why a number of leading US and Canadian environmental groups, including the Natural Resources Defense Council and the Defenders of Wildlife, have backed the efforts of American lumber companies to eliminate Canadian lumber subsidies. Because of the subsidies, old-growth Canadian forests have been needlessly slashed.

The subsidy battle strongly demonstrates why one should be wary of those who present themselves as advocates of the American consumer in international trade matters. Revealing the wolf in sheep's clothing, two of Canada's leading newspapers recently reported that the US lobbying campaign to 'protect American consumers' by eliminating the U.S.-Canada agreement on lumber subsidies is actually largely funded by the very Canadian lumber companies responsible for the over logging.

Unquestionably, consumer interests should be a concern in making trade policy decisions. However, the actual interests involved are often quite different than they appear, and the economic calculations used to make their case are, at best, half-truths. When considering the claims of advocates who rail away at efforts to counter unfairly traded imports as 'taxes on consumers,' it is important to know who is making the case, and to remember that low prices often come at very high costs -- in this case, the fleecing of Canadian taxpayers, the devastation of North American forests and the loss of jobs in the US timber industry.

Now that elections have concluded on both sides of the border, the two countries' leaders can put this problem to rest permanently by ending both subsidies and duties on timber and lumber throughout North America.

China's Trade Hostage

Cecille Isidro — Tue, 05 Dec 2000 00:00:00 -0500

At his recent meeting with Asian leaders, President Clinton made news by meeting with China's president and once again calling for a rapid conclusion of China's long march toward membership in the World Trade Organization. But despite the presidential cheerleading, as 2000 runs out there are increasing doubts as to whether China will complete the membership process this year; in some circles, there are even questions about the level of China's interest in WTO membership.

There is no doubt, however, that the "other China"--Taiwan--is ready to join. The United States and the rest of the WTO have effectively given Beijing a veto over Taiwan's membership--a veto that increasingly works against U.S. interests.

For more than two years, Taiwan has waited patiently for membership in the organization. It has agreed to shoulder all of the trade disciplines applied to developed countries. Taiwanese officials have systematically negotiated bilateral agreements to address key concerns with interested WTO members. Early in the application process, Taiwan even headed off diplomatic tensions by applying for membership as the customs territory of Taipei rather than as the Republic of China.

Why, then, is Taiwan not already a WTO member? The delay has nothing to do with concerns over international trade policy--the ostensible focus of the WTO. All WTO members seem to agree that Taiwan is qualified for membership and has offered a significant package of trade concessions to more than earn the right to join the WTO. Beyond that, there is consensus that Taiwan maintains an impressive market economy, has a good record of keeping international commitments, and would generally be a positive addition to the organization.

The only reason Taiwan is not already a WTO member is that Beijing has opposed its membership based on its expanding interpretation of the so-called one-China policy. Obviously, this is a bold stand for a country that is not itself a WTO member, but the WTO has thus far been willing to yield to the People's Republic of China. China has reportedly agreed not to oppose Taiwan's WTO membership assuming that it--China--was allowed to join first.

Although this bargain is strange and somewhat offensive in principle, it seemed acceptable, since Beijing finally appeared ready for WTO membership a year ago. Unfortunately, as is often the case with diplomacy with the People's Republic, the deal was not as complete as it seemed. In the past year, Beijing has dragged its feet in negotiations and has seemed to back away from--or try to redefine--the agreement that seemed nearly complete in late 1999. China has even raised some concerns about Taiwan's application. The result is that membership talks with Beijing may well continue for some considerable time.

The delay of Taiwan's application has been too long. Taiwan's membership should be pursued expeditiously, regardless of Beijing's application. It is incumbent upon the United States, as the most influential member of the WTO, to take the lead in this effort. Surprisingly, the United States actually exports more to Taiwan than to the PRC. In 1999 U.S. exports to Taipei were $ 6 billion greater than exports to Beijing. In 2000, U.S. exports to Taiwan are running ahead of the 1999 pace. Once Taiwan becomes a WTO member, the resulting cuts in Taipei's trade barriers should result in dramatic increases in U.S. exports of products from agricultural produce to semiconductors.

What's more, the United States worked hard to build the WTO into an organization capable of applying trading rules and arbitrating disputes in a credible manner. Allowing the People's Republic of China to turn the WTO into yet another forum to battle over its pet political issue risks undermining the credibility of the WTO and undermining what the United States and other members of the organization have achieved.

This matter is bigger than Beijing's feelings. China should be allowed to join the WTO once it agrees to meet its requirements, but it should not be allowed to block Taiwan's membership for fear of being embarrassed. The People's Republic has already been given more than enough opportunity to join the WTO and save face on this matter. Certainly, it will be difficult to win immediate WTO membership for Taiwan, but it's time for the United States to throw its energy into the task for the sake of Taipei, the WTO and itself.

Labor Getting Its Way in Pacts

Cecille Isidro — Sun, 15 Oct 2000 00:00:00 -0400

Although the issue has not gotten as much attention as tax cuts and Social Security reform, the 2000 elections present voters with a sharp contrast on the future of international trade agreements. Vice President Al Gore favors addressing labor rights and the environment in trade agreements; Texas Gov. George W. Bush calls such measures a needless bow to protectionists. But there is far more to this issue than campaign rhetoric would suggest. Rather than being a barrier to free trade, the full integration of labor rights and the environment into trade agreements may not only provide an avenue to advance those issues around the globe, but also may be critical to forging a domestic consensus in favor of future trade pacts.

There is fairly wide recognition that at least some environmental issues need to be addressed in trade negotiations, especially when international environmental agreements may conflict with trade agreements. Labor rights, however, have been widely painted, in discussions under the aegis of the World Trade Organization, as a "deal breaker" that cannot be addressed in trade agreements.

This is actually an old debate. Since the creation of the world trading system after World War II, the appropriate link between labor standards and international trade has been debated. Many developed countries, including the United States and the nations of Western Europe, historically favored some linkage. Developing countries stridently opposed it, contending that it was nothing more than an attempt by developed countries to deny them their rightful economic advantages. The issue still has resonance. One of the reasons the World Trade Organization meeting broke down in Seattle last year was that developing countries violently opposed even the establishment of a working group to consider the relationship between trade and labor rights.

Many opponents blasted the Clinton administration for considering linkage. In their view, the effort was tantamount to imposing a global minimum wage or converting the WTO into a worldwide OSHA. In fact, the Clinton administration's objectives were more modest. The U.S. effort in trade negotiations, with some support from the European Union, has focused on core labor rights, including prohibitions against slave and child labor and the right to organize unions. The International Labor Organization (ILO) has long recognized these basic rights, and most countries at least claim to support them. Thus, this is not an example of the United States trying to impose American values, but an attempt to support universally recognized objectives.

Although it is not widely recognized, the effort to link labor rights to trade agreements has already gone well beyond the drawing board. During its tenure, the Clinton administration has negotiated two trade agreements with significant labor-rights provisions and may be on the verge of striking a third. The North American Free Trade Agreement was actually negotiated by the Bush administration, but upon taking office. President Bill Clinton called for the negotiation of side agreements on labor and the environment. The record of these agreements is mixed, and critics have rightly pointed out that they have not done enough to raise environmental standards and labor protections in Mexico. That said, they have at least provided a forum for continuing discussions of these issues and spotlighted particular abuses.

In a more ambitious achievement, the United States recently struck a textile trade pact with Cambodia that conditioned expanded access to the U.S. market upon Cambodian observance of basic labor rights. To facilitate this agreement, the ILO agreed to monitor Cambodia's progress and report the results to U.S. officials. It is too early to evaluate this agreement, but it includes several features that could be a model for future agreements, including the role of the ILO as a neutral reporter on labor rights.

In this vein, the Clinton administration is seeking to strike free-trade agreements with Jordan, which is said to include significant labor-rights provisions. There appear to be an excellent chance that negotiations could be concluded this fall, setting up a potentially heated trade debate when the agreement comes up for congressional approval.

These. initial, tentative steps to integrate labor rights into trade negotiations have considerable potential. If large markets like the United States begin to link the trade benefits they grant to observance of basic labor rights, the working conditions of many in developing countries could be improved. This could likely be done without any significant disruption of commerce. Enforcing a global prohibition against child labor, for example, is likely to prove no greater burden upon the world trading system than a similar ban the United States places on interstate commerce.

Just as important, the inclusion of basic labor rights in trade negotiations could go a long way toward reestablishing the political consensus that has allowed the United States to pursue freer global trade. Since World War II, the United States has led the global effort for free trade. As last year's street demonstrations in Seattle demonstrated, that consensus has largely disappeared. If the United States is to again play a leadership role in expanding trade and reaping the benefits that can flow from it, a new consensus that explicitly recognizes the appropriate roles of labor rights and environmental protections in trade negotiations must be forged.

It is unrealistic to expect trade agreements to address all labor problems around the world. Some differences are the result of differing levels of development, and tying trade too closely to labor rights might make it impossible to reach new trade agreements. Linking observance of basic labor rights, however, to access to major markets is an achievable and valuable goal. Linking observance of such rights to international trade agreements may also improve working conditions around the world and nurture a political consensus on new trade agreements in the developed world, a true win-win proposition.

China's Trade Status is not a Magic Bullet

Cecille Isidro — Mon, 02 Oct 2000 00:00:00 -0400

In the recent Senate debate on extending permanent normal trade relations, or PNTR, to China, passage was often portrayed as the solution to everything from U.S. trade problems with China to Beijing's intolerance of dissent. In fact, these expectations are grossly unrealistic. PNTR may be a modest improvement in U.S. trade policy toward China, but it is far from a panacea for U.S.-China problems.

Beginning with the Tiananmen massacre in 1989, the United States and China have had 11 years of tense relations. Bilateral disputes have covered topics from the protection--or lack thereof--of intellectual property in China to the status of Taiwan. Since the demise of the Soviet Union, the United States has a longer list of bilateral disputes with China than it has with any other country.

Proponents of PNTR seem to believe that it will solve or help to solve many of these problems. In particular, permanent normal trade relations is painted as a solution to the rapidly expanding bilateral trade imbalance with China and billed as a revolutionary improvement in U.S.-China trade policy. If--in connection with the granting of PNTR--China joins the World Trade Organization and opens its markets to U.S. exports, the bilateral trade imbalance could be reduced in the long run.

That, however, is an enormous if. Despite expectations of a quick settlement, the final negotiations on China's accession drag on in Geneva. Once they are completed and China becomes a WTO member, China is unlikely to become an open market overnight. In fact, the forces of protectionism are deeply entrenched in China and have repeatedly demonstrated their political power. In large part because of their actions, there have been serious compliance problems with every trade agreement the United States has negotiated with China. The WTO certainly does not provide a magical solution to these compliance problems. Given the opaque operations of the Chinese bureaucracy and its weak rule of law, it is entirely possible that the WTO--which is premised upon transparency and the rule of law--will prove unable to enforce its rules on China.

PNTR is particularly unlikely to reduce the U.S. trade deficit with China any time soon. As the U.S. International Trade Commission noted last year, China's accession to the WTO would also obligate the United States to rapidly open its textile and apparel market to China. In the estimation of the commission, this is likely to sharply increase imports from China and expand the bilateral trade imbalance, at least in the short term. A number of other economic estimates have reached similar conclusions.

Proponents also argue that PNTR will result in a rising middle class in China, and increased contact with Western business will democratize and liberalize China. This is a long-term hope, but there is little evidence of this democratizing effect in recent years. China has taken in more foreign direct investment than any other country aside from the United States and become one of the world's leading trading powers. Still, based on the U.S. State Department's annual report on human rights in China, respect for human rights has not noticeably improved since Tiananmen Square. Intolerance of dissent and repression of religion is still the norm. It may be that economic contact will ultimately bring change in China, but that change may well be very long in coming.

Other problems between the United States and China, such as the status of Taiwan, sales of dangerous weapons, proliferation of missiles and the status of Tibet, are extremely unlikely to be resolved by PNTR. The increasing success of true democracy in Taiwan, in particular, seems to decrease the likelihood of peaceful reunification between Taipei and Beijing any time soon--a democratic people seem unlikely to willingly place themselves under totalitarian control. The flowering of democracy also increases sympathy and support for Taiwan in the United States. This could well lead to increased conflict between the United States and China over Taiwan in coming years.

Despite the sometimes-exaggerated claims of proponents, PNTR is not a solution to U.S.-China problems. It is true that the annual threat of withdrawing normal trade status from China had lost credibility with Beijing and served no real purpose. It is also true that Chinese membership in the WTO creates an effective obligation on the United States to extend permanent trade status. Even with PNTR, however, the trade problems, human rights abuses, military competition and foreign policy disputes that have created tensions between Washington and Beijing are as likely to grow worse as they are to fade in the coming years.

Stopping the Giveaway of Canada's Forests

Economic Growth — Sun, 01 Oct 2000 00:00:00 -0400

Canadian provincial governments have a long-standing policy of subsidizing their lumber mills, to the detriment of the U.S. lumber industry, U.S. landowners and the environment. Recently, a coalition of Canadian lumber companies, some lumber consumers, and others have aimed to change the longstanding U.S. policy of combating those subsidies. Under the veil of protecting consumers, this group aims to terminate the current U.S.- Canada agreement, which contains the damage from Canada’s forestry regime, and ensure that no action is taken to offset the subsidies. With the U.S.-Canada Softwood Lumber Agreement (SLA) due to expire in March of 2001, a spirited debate on Canadian lumber subsidies and the measures taken to counter them is likely in the coming months.

Although it has garnered limited attention in the United States, this dispute is nearly two decades old. In 1986, to counter subsidies, the United States imposed a 15 percent duty on Canadian softwood lumber imports. Subsequently, the U.S. and Canadian governments reached a series of agreements designed to offset these subsidies. The most recent of these is the 1996 SLA.

At the heart of this dispute are different means of charging for the use of forest resources. In the United States, timberlands are held by private landowners and state and federal governments. The right to cut timber from public and private land is sold at auction or through other competitive means. Though there are some restrictions on log exports from public lands in the Pacific Northwest, the United States is the world’s leading exporter of logs and unprocessed timber.

In Canada, the vast bulk of timberlands are owned by Canadian provincial and federal governments. The prices for the right to cut timber from this land -- known as stumpage fees -- are set administratively. These Canadian stumpage rates are set very low - only one-third to one-fourth of the market value of the rights -- in order to subsidize the Canadian lumber industry. To further boost production, Canadian companies are obligated by their government licenses to cut trees even when prices are low.

For the complete document, please see the attached PDF version.