WTO: Should U.S. Sue China Over Trade?

In international trade, Gov. Romney argued in the Republican debates that we have been run over by China. Although he does not want a trade war, he believes we are being used. He said he would issue an Executive Order identifying China as a currency manipulator, because they artificially set the prices of their goods below market levels. He would sue China in the World Trade Organization (WTO), because the Chinese do not play by the rules. He wants to win the right to impose tariffs against them.

Former Gov. Huntsman worried if we won the right to impose tariffs, we would get the same in return, because we manipulate our currency, and a trade war would only hurt our exports. He questioned whether the WTO even allows currency issue disputes.

What would a U.S. complaint in the WTO against China involve?

The WTO, the world’s primary trade organization, with 153 member nations, came into being in 1994. China joined in 2001. Each WTO country has an obligation to conform their laws to the basic agreements that make up the organization. Rules, such as those forbidding unfair trade, are enforced against member states.

Dumping and the providing of subsidies are considered unfair trade practices. Dumping involves bringing goods into a country at less than their normal value. Governmental subsidies that distort product prices are also forbidden. Where there is a violation, states cannot take unilateral action, but must sue.

The WTO, based in Geneva, Switzerland, has a Dispute Settlement Body (DSB) which presides over the resolution of trade disputes between member states. WTO nations agree in advance to submit to the compulsory jurisdiction of the DSB. When one nation files a complaint against another, alleging a violation of WTO rules, they must first try negotiation.

If negotiations fail, the DSB sets up a 3-member ad hoc Dispute Settlement Panel. Each party submits written arguments, known as submissions. Experts are consulted. The Panel considers the facts and then issues a Panel Report in English, French and Spanish, which may include an order to remove inconsistent measures, give the injured country the authority to retaliate with tariffs against certain products, or they may grant restitution.

After the Panel Report is approved of by the DSB, the losing party may file an appeal. The WTO has a standing 7-member Appellate Body drawn from different geographic areas. New facts are not heard on appeal, as reviews are limited to alleged errors of law.

The U.S. would have the burden of proving China engaged in unfair trade practices, such dumping or illegal subsidies. Even if a violation by China was shown, Huntsman is correct, because the Chinese would certainly file a countersuit against the U.S., claiming we provide subsidies and also violate the WTO rules. If China won their case, we would have to prepare for losses in our export businesses, as a result of tariffs imposed against our goods.

Republican Debate New Hamp (10-11-11)

The Republican candidates met in New Hampshire on Oct. 11, 2011 to debate economic issues.

INTERNATIONAL TRADE: Romney said we have been run over by China for 20 years, and he would issue an Executive Order identifying them as a currency manipulator, and then prosecute them in the WTO.  He did not want a trade war, but did not want to let them use us either. Huntsman worried if we apply penalties, we will get the same in return, because we also manipulate our currency, and a trade war would hurt our agricultural exporters.

EURO CRISIS: Gingrich said the Greek economy should not be using the Euro-Zone Currency. Ron Paul uncovered the Federal Reserve sent 5 billion overseas to bail out foreign banks.

DEFENSE SPENDING: Romney will not cut defense spending.

BANKING: If the economies of the entire world were collapsing, Romney would take action. He said we need to prevent a contagion from affecting U.S. banks. President Bush had to take action to keep all banks from closing. Santorum opposed the bailout of the Wall Street banks, and the creation of the Troubled Asset Relief Program (TARP), which Romney, Huntsman, Perry, and Cain supported. Bachmann said the banks cannot grow, because they are being required to comply with new rules. Cain thought the Wall Street protesters should target the government.

FEDERAL RESERVE: Gingrich said the fix has been in since the Bush Administration. Newt said Paulsen, Bernanke, and Geithner are not smart, and he would fire Bernanke and Geithner over the crisis. He singled out Bernanke for spending billions bailing out one group, over another. He said it is wrong for one man to have that kind of secret power. He wants all Fed documents released, so we can better prepare for the next crisis. Romney would also discharge Bernanke. Cain had no objection to a Fed audit. Paul called the Fed the engine of inflation and the source of recessions.

INTEREST RATES: Paul said Greenspan kept interest rates too low for too long. Easy credit caused a bubble and then it burst and now we need a correction. We should not have someone at the Fed deciding what interest rates should be, or how much money we should have. We should go back to the gold standard, Paul said. Because the Fed is setting artificially low interest rates, Bachmann blamed the financial meltdown on the government.

HOUSING: We built too many houses, Paul said, and then the Wall Street speculators got bailed out, but the Middle Class lost homes. Freddie Mac and Fannie Mae caused overbuilding and distortions, and the government must get out of housing. Bachmann said the government pushed housing goals, as Freddie and Fannie put mortgages in a difficult place. Gingrich said the easy ability to buy homes is where we went wrong the last decade. He blamed the Countryside deal on the lobbyists for Freddie Mac.

JOBS: Romney said funds should not have been used to bail out GM and Chrysler. The NLRB should not be telling Boeing it cannot build in a non-union state. He said we borrowed 800 billion for a job stimulus, but didn’t see any jobs. Huntsman would regain our industrial base by lowering taxes and lessening regulations. Santorum said we are uncompetitive, and must reduce corporate taxes from 35% to zero on those who invest in plant and equipment in this country. Perry wants our manufacturing back.

ENERGY: Perry would repeal regulations that interfere with the energy industry. He would put 1.2 million people to work in the industry, so the U.S. can become energy independent. It was wrong, he said, for Obama to invest in Solyndra, a solar energy firm. When asked about doing the same in Texas, he said his legislature had oversight and created 54,000 jobs. Santorum would drill in Pennsylvania, saying it is a gas capital.

HEALTH CARE: Romney said Americans are not satisfied with the status quo. Although he would repeal Obamacare, he asked, what are we going to replace it with? In Mass, he dealt with the 8% who were uninsured. He said Perry has one million uninsured kids in Texas, while Mass has less than 1%. Romney said Obama’s plan raises taxes and spends trillions. Huntsman wants a health care solution that works in the market. He warned the IRS is already gearing up with 19,500 employees to administer the insurance mandate. Santorum would repeal Obamacare, but not by waivers. He would repeal the taxes and spending for it, so the insurance mandate would have no teeth.

MEDICARE: Gingrich was asked: Are the last two years of life under Medicare wasteful spending? He did not want death panels. Bachmann warned Part B for hospitals will be broke in nine years. She thinks Obama would push people out of Medicare into Obamacare, and 15 political appointees will make major decisions for 300 million Americans. Perry says Medicare needs to be block-granted to the states.

BUDGET & DEBT: Cain wants revenues to equal spending. Perry would propose a Balanced Budget Amendment, because we raise taxes, but never get spending reductions. Paul said the debt is a burden on the economy. Bachmann opposed increases in the Debt Ceiling, because she did not want to give Obama another 2.4 trillion. We spend 40% more than we take in, she said, and cut backs on spending would be only part of the answer. Romney said we cannot have more tax revenues, because that would kill jobs.

TAXES: Romney would not raise taxes. We don’t need Cain’s 999 tax plan, said Perry. The last thing Bachmann would do is let Congress impose a national sales tax, a suggested by Cain. Santorum said Cain’s plan would not pass, because no one supports a national sales tax. Huntsman would not do Cain’s tax plan, but instead something doable, like eliminating loopholes and deductions for individuals, as recommended by the bipartisan Simpson-Bowles Commission. Huntsman would also phase out corporate welfare and subsidies. He said he had a flat tax in Utah.

9-9-9 PLAN: Cain would throw out the entire tax code, including the progressive income tax, the capital gains tax, death taxes, and payroll taxes, and he would replace it with a 9-9-9 plan: 9% corporate business flat tax, 9% federal income tax, and 9% national sales tax. He was asked why Americans would be willing to pay more for bread and milk, under his new 9% national sales tax. He gave an incorrect answer, suggesting ordinary people are now paying 15.3%, when in fact they pay only 7.65%. He tried to suggest they would be save 6%. He thought people would have more for sales taxes, since they would pay less in payroll taxes. Cain also appeared ignorant of how Congress works, when he said he would ask them to require a 2/3rds vote before increasing any of his 999 taxes. He would need a Constitutional Amendment.

African Development Is Needed

The African continent, with over 50 nations, needs to eliminate hunger, provide primary education, improve health standards, and develop international trade.

The process of development must start with the Africans themselves. They must establish democratic forms of government, in which representatives are chosen through free and fair elections. They need honest law enforcement officers, who cannot be bribed, and lawyers and judges to protect the rights of the accused. Their import offices, and sea and airport authorities, must be managed fairly. They need building inspectors, and tax collectors, who cannot be corrupted, and competent food inspectors. They must run efficient land title and post offices, and have good city transit systems.

Once the proper infrastructure is in place, the developed nations should then provide teachers to assist in primary education, and in the development of technical skills.

To eliminate hunger, education in food science is the first step. The fishing industry must thrive. Orchards can be planted, so locals have fresh fruit. Dairy farming is needed for milk. Livestock can be raised, using animal feeds. Meat processing and butchering can be taught. Some will need to learn veterinarian science. Crop farming methods must be explained, as to seeds, fertilizers, and irrigation. Grain elevators can be erected. Bakeries can be built. Some will need to learn grocery store management.

To improve health care, training is needed in medicine, nursing, dentistry, pharmacy, eye care, hygiene, and mortuary science. American and European health care professionals should help by training African students in the U.S. and Europe.

The Africans must develop their natural resources, such as oil, so their power plants can run. They need skills in transforming trees into lumber, rubber into tires, and sand and gravel into cement.

They need public utility development, such as electric power. Water and sewer treatment facilities must be built. They must improve waste disposal methods. They need pipelines for water, sewer, and gas. Water-well-drilling techniques must be taught.

The Africans need shipping and transportation, such as modern seaports for ocean-going vessels, and airports with air cargo facilities for intercontinental flights. Rail for freight and passenger trains must be laid. City buses are required for mass transit. Roads must be constructed, and the locals must be taught highway maintenance. They need mechanics for trucks and autos, with people who can fix brakes, mufflers, and transmissions. Tourism can be developed through hotel and resort construction.

Africans need to learn the global methods of money and banking. They must have a supply of trained bookkeepers and accountants.

Technical college training for building construction is needed so they have architects, excavators, carpenters, bricklayers, cabinet-makers, electricians, plumbers, and people to install furnaces, heating ducts, water heaters, and air-conditioning units.

Since communications is now global, they must erect cell phone towers, and cable and Internet lines, and learn laptop computer science, radio and TV broadcasting, and how to write newspapers.

In the retail industry, they must learn to market men’s and women’s cloths, shoes, furniture and bedding, and appliances, such as refrigerators, stoves, microwaves, washing machines, dryers, and electronics, including laptops, TVs, and radios.

Development is not an either or proposition, since all of the things listed above can be worked on simultaneously.

WTO Governs U.S. Economy

The U.S. and 22 other countries signed the General Agreement on Tariffs and Trade (GATT) in 1947 for the purpose of reducing tariffs and trade barriers throughout the globe. Today, the GATT is administered by the World Trade Organization (WTO), and it governs global trade for 146 member states, and 29 observers.

The GATT grants normal trade relations to all members, which means all counties who join are entitled to the same treatment. Nations must treat goods imported from one member, the same as their own. Any privilege extended to one, automatically applies to others. The goal of the GATT, via the WTO, is to repeal all nationally imposed tariffs, quotas, and barriers to trade.

The GATT specifically bars tariffs on imports, in excess of any taxes applied to domestic goods. It prohibits import quotas, quantitative restrictions, the dumping of foreign goods at less than normal value, voluntary export restraints, and technical regulations that discriminate against foreign goods. It seeks to end government subsidies that distort market prices.

During the first 47 years of the GATT (1947-94), their rules were enforced voluntarily, or many times not at all. When the World Trade Organization (WTO) was formed (1994) to enforce the GATT, the most significant change, was the creation of a Dispute Settlement Body (DSB) to try cases and impose sanctions.

Now, member states, usually at the request of private industries, file complaints in the DSB, and allege breaches of the GATT. If the DSB finds a violation of the GATT, it has the authority to order retaliatory sanctions against the guilty states. If the U.S., for example, proved another country discriminated against American exports, they would be allowed to impose tariffs on the violator.

Understanding the nature of the power yielded to the WTO is important, particularly in presidential election years. If candidates are well-read, they avoid promising tariffs to keep Chinese goods out, since they know such barriers would only cause the WTO to allow China and others to retaliate against U.S. exports. Smart politicians know we no longer govern our own economy and that the WTO is in control. In the upcoming presidential race, it’s high time one of them leveled with the American public.

Tariffs: Why We Abandoned Them

Since the U.S. was founded, politicians debated the virtues of free trade versus protective tariffs. Historically, the industrial North manufactured goods and advocated the imposition of protective tariffs to make products made in Europe more expensive than our own. On the other hand, the agricultural South desired reciprocal free trade, because they had no industry to protect, and wanted to export cotton and tobacco, without facing retaliatory tariffs.

Alexander Hamilton argued infant American industries needed protection to give them time to develop and compete against more established European companies. After the American Revolution, President Washington approved a Congressional Act that placed tariffs on foreign goods (1789). Presidents Madison, Monroe, and John Q. Adams, also signed laws protecting American industries.

Southern Democrats were able to lower tariffs, at least before the Civil War. Andrew Jackson was the first President to openly support free trade (1828) and Presidents Tyler (1841-45), Polk (1846), and Buchanan (1857), vetoed and reduced them.

President Lincoln, an Illinois Republican, promoted industrial growth, and favored tariffs in the 1860 election, causing the South to secede, and triggering the American Civil War (1861-65).

After the war, tariffs became the norm in U.S. trade for the next seven decades. President Harrison, a Northern Republican, raised them to new highs, under the McKinley Act (1890). Ohio Republicans, Taft (1909) and Harding (1922) also increased them.

Following the 1929 Stock Market crash, President Hoover, an Iowa Republican, believed more protection was the answer, as he signed the Smoot-Hawley Tariff Act (1930), raising U.S. import duties 60%, to an all-time high. This caused foreigners to impose retaliatory duties, reduced international trade, and exacerbated the Great Depression. When it became clear high tariffs were making the depression even worse, policy makers turned to free trade economists for answers.

Economists explained that tariffs on imported goods caused retail prices to rise, as they were simply added to the cost of the goods sold. Consumers, not foreign manufacturers, ultimately ended up paying tariffs. Economists argued they created a net societal loss.

They also explained that when nations use tariffs, other countries respond by enacting retaliatory tariffs, which negatively affect exports. If for example the U.S. placed tariffs on French wine, and France retaliated by imposing duties on the import of U.S. autos, the export industries in both nations would lose.

Since the Great Depression, the U.S. has been involved in a long march away from protective tariffs and towards free trade. President Franklin Roosevelt set the U.S. on a new course, by signing the Reciprocal Trade Agreements Act (1934), which delegated to him the authority to lower tariffs, product by product.

For the past 75 years, both political parties have embraced free trade, because they fear tariffs decrease international trade, harm national export industries, and hurt domestic consumers, with higher prices. What they have ignored is the other side of the coin. The abandonment of tariffs also explains why U.S. factories have been closing, and why American workers are losing their jobs.

Mexicans Need Jobs, Not Drug Wars

Another 13 dead bodies were found in the State of Tamaulipas, south of Texas along the Gulf of Mexico, and it appears the drug war in Mexico will not be over with any time soon.

Some say it is simple supply and demand and that as long as there is a demand for drugs in the U.S., people will continue to get involved in Mexico on the supply side.

Another explanation is that there are so few good paying jobs in Mexico that the business of selling drugs is one of the only ways for Mexicans to make any money.

Mexico, with a large population of 112 million, has significant economic troubles. Beginning in the 1960s, tourism increased in Cancun, Puerto Vallarta and at other historical sites, but that industry alone could not, and cannot, support Mexico’s economy.

There was hope that reducing barriers to trade would lift Mexico into a more prosperous future, as Mexico and the U.S. signed the North American Free Trade Agreement (NAFTA) (1994) and joined the World Trade Organization (1995), but half of the Mexican work force remains under-employed, and a large number continue to seek jobs in the U.S.

Mexicans have looked for work in the drug trade, because there are few opportunities elsewhere. Conducting a war on drugs without offering alternate employment has not worked and will not work. The war on drugs has been going on a long time. It started when President Nixon first tried to intercept the flow of marijuana from Mexico in 1969, but it did not work. The current phase of the 42-year-old drug war began when Mexican President Calderon took office (2006), but his efforts also will not succeed, since they are not addressing the economic causes of the problem.

When typical Mexican workers begin to have good paying jobs and something better to do than run drugs across the border, the practice of producing and selling them will fade from the scene. The Mexican government should focus on doing something positive, like creating jobs, and when they accomplish that goal, poor young Mexican men may no longer be tempted to turn to drugs as a vocation.

Brazil: Time to Trade in South America

President Obama did the right thing by leading a mission to Brazil for the purpose of improving U.S. trade in South America.

Brazil and the U.S. need to become stronger trading partners.  Brazil has much to offer in terms of natural resources. It is physically the largest South American state. Its width can be pictured by considering the fact that the Trans-Amazon Highway runs 3,400 miles from the Atlantic, in the east, to Peru, in the west. Brazil, with 200 million people, also has a large population. Its customer base is second in the Americas, only to the U.S.

Many Americans still harbor images of Brazil as a military dictatorship. Military juntas ruled from 1930 through 1954 and again from 1964 through 1985. They set aside constitutional law and dissolved political parties. They heard civilian cases in military courts. They denied individual rights. Political prisoners were subjected to torture and death squads.

But the days of military rule are gone. During the Jimmy Carter presidency, Human Rights became an issue worldwide. Brazil implemented reforms in 1979, and ended military rule in 1985, as the people voted again for the first time in decades. Brazil recently acknowledged their history of human rights abuse and moved on. Last year, they elected their first female president. Internationally, they have served on the Security Council 10 times since WWII. If the UN Charter were being drafted today, they certainly would be in line for a permanent seat.

Brazil is now a leading global economy. They joined the World Trade Organization 16 years ago. They are an industrial state that produces cement, steel, iron and vehicles. They are no longer limited to just coffee, corn and rice. 89% of their people are now literate. They host 33% of the top 100 Latin American colleges. Their scientists set off a controlled nuclear chain reaction, 54 years ago already. They launched a rocket into space in 2004.

The U.S. will never again have the preferred trading status it enjoyed during the 25 years following WWII, when Europe and East Asia were flat on their backs. It is a competitive world now and the U.S. must improve trade relations with other nations and particularly with developing states like Brazil.

Cuba: End the U.S. Trade Embargo

The U.S. has had a trade embargo against Cuba since 1962 and it is time to end it. After 49 years, it has no purpose and most people now have no idea why it was imposed in the first place.

The story begins with Gen. Batista, who came to power in a coup backed by the U.S. (1952). He ran a dictatorship that censored the press and suspended constitutional rights (1953). Fidel Castro, a lawyer, led the overthrow of Batista’s regime in the Cuban Revolution (1953-59). While Castro’s dictatorship had some of the same faults as Batista’s, most Cuban people accepted Fidel, because at least he eliminated illiteracy and provided health care.

Anger at Cuba from abroad was not because Batista was removed, but instead due to Fidel’s subsequent confiscation of land from foreigners and the nationalization of U.S.-owned oil refineries, sugar mills, casinos and utilities. What Castro did was not however unique. Scores of nations that declared independence at that time also nationalized their natural resources and industries.

In any event, diplomatic relations with Cuba were severed. When President Kennedy took office, anti-Castro exiles unsuccessfully staged a military invasion at the Bay of Pigs (1961). Once the U.S. banned trade with Cuba (1962), Castro turned to Moscow for help. The Soviets said Cuba had a right to be free of foreign interference and supplied Cuba with weapons for their defense. This is when U.S. reconnaissance observed nuclear weapon sites in Cuba, triggering the Cuban Missile Crisis (1962). Although the weapons were removed when the U.S. Navy blockaded the island, the friction between the U.S. and Cuba continued.

The U.S. now trades with the People’s Rep. of China, Vietnam, and other communist countries. There is no logical reason not to trade with Cuba. Fidel Castro recently turned the presidency over to his brother Raul (2008), and soon both of them will be gone.

Today, the streets of Havana still show the effects of 1962 embargo. Most cars pre-date the 1959 revolution and there are no recreational boats in the harbor. Opening trade would not only benefit the Cuban people, it would create jobs for many U.S. businesses and their employees, particularly here in Florida.