Press Releases 1998

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November 24, 1998

Opening U.S. Skies Would Lower Costs and Yield Greater Choice of Carriers
Current aviation policy denies American travelers benefits at home and abroad

The study also highlights the hypocrisy of the U.S. government's call for more international air transport liberalization. "The U.S. government preaches the blessings of open markets and competition abroad," Button writes, "while maintaining the largest protected domestic market in the world." The U.S. lags behind the European Union in international airway liberalization. Any E.U. airline can now fly between member states and between cities within member states without restriction, and ownership of E.U. carriers within member states is permitted.

Although the international airline market remains largely restricted, Button argues that "it makes no sense for the United States to deny itself the benefits of more competition in its domestic market just because other nations with much smaller markets have denied themselves the same benefits."

"For American air travelers," the author concludes, "opening U.S. skies would yield a greater choice of carriers and lower fares, both at home and around the world."

Trade Policy Analysis no. 5

September 11, 1998

Time has come for a change in strategy for free traders, Cato study says
Unilateral elimination of trade barriers represents best policy option

"The rising tide of 'globalphobia' in the midst of unrivaled prosperity demonstrates that free traders are doing something wrong," according to a new study from the Cato Institute's Center for Trade Policy Analysis. "Free traders should expand beyond their traditionally exclusive reliance on negotiated liberalization and launch a campaign for the unilateral elimination of specific U.S. trade barriers."

In "A New Track for U.S. Trade Policy," Brink Lindsey, director of Cato's Center for Trade Policy Studies, notes that, for decades, "free traders in this country have pursued trade liberalization through a strategy of diversion and appeasement: diverting attention from opening the U.S. market by focusing on exports and foreign policy goals, and appeasing protectionists at home with 'fair trade' policies in the hope of preventing even worse import barriers."

But the end of the Cold War meant that this strategy no longer worked well. "In this new environment, continued reliance on diversion and appeasement has actually become self-defeating," Lindsey says. His prescription is "a campaign to eliminate U.S. trade barriers unilaterally--that is, regardless of whether other countries make similar reforms." Among his specific targets:

• the antidumping law, which is "the single most effective tool for erecting new protectionist barriers against foreign goods";

• high tariffs, through which the United States still imposes restrictive duties on many products, especially textiles and apparel;

• sugar, peanut and dairy programs, which force Americans "to pay prices far above world levels"; and

• the Jones Act, a 1920 law that requires all merchandise shipped between U.S. ports to be carried on U.S.-owned vessels. The International Trade Commission estimated that repeal would drop the price on affected shipping services by 26 percent.

"Free traders today are in that happy circumstance when holding to their ideals is the most intensely practical thing they can do," Lindsey concludes.

Trade Policy Analysis no. 4

August 6, 1998

State and local laws aimed at Burma are un-constitutional, study finds
Three major constitutional principles violated by anti-Burma laws

Efforts by Massachusetts and at least 20 local governments (including those of New York City and San Francisco) to impose sanctions against companies that trade with Burma violate three major constitutional principles, according to a study published today by the Cato Institute. Authors David R. Schmahmann and James S. Finch note that the Supreme Court has repeatedly and emphatically struck down similar laws. In "State and Local Sanctions Fail Constitutional Test," Schmahmann and Finch describe in detail the three fundamental constitutional provisions that bar state and local governments from targeting companies that invest in or do business with countries like Burma.

• Only the federal government is constitutionally empowered to make foreign policy. "In domestic matters, the Framers granted only narrow, enumerated powers to the federal government, and reserved the rest to the states and the people. With respect to foreign affairs, however, the situation is reversed: the Constitution gives the federal government broad authority, and imposes strict prohibitions on the states."
• Local anti-Burma laws violate the Commerce Clause of the Constitution. Article I, Section 8, of the Constitution prohibits states and localities from passing laws that burden foreign commerce by creating "discriminations favorable or adverse to commerce with particular foreign nations." The "anti-Burma laws, which are by definition designed to have a foreign effect," amount to a "shredding of the commerce clause."
• Local anti-Burma laws violate the Constitution's Supremacy Clause. Local government sanctions collide head-on with 1997 federal law that regulates trade and investment with Burma. The ordinances are "an attempt to implement through local action a policy expressly considered and rejected by the Senate." Under the Constitution's Supremacy Clause, federal law must always preempt state law where the two conflict in an area of legitimate authority for the federal government.

The Massachusetts law is being challenged in U.S. District Court in Boston, in a lawsuit brought by the National Foreign Trade Council. An initial hearing in the case is set for September 23, 1998. David R. Schmahmann is a partner in the Boston law firm of Nutter, McClennen & Fish. James S. Finch is a partner in the international law firm of Russin & Vecchi and its resident partner in Rangoon, Burma.

Trade Briefing Paper no. 3

July 31, 1998

Fans of "Japan, Inc." turn out to have been dead wrong
Johnson, Prestowitz, Fallows urged U.S. to adopt Japanese model now in ashes

"Revisionist" supporters of the "Japan, Inc." economic model, who "argued in the late 1980s and early 1990s that the United States could not compete with Japan's unique form of state-directed insider capitalism . . . were dead wrong, both in their assessment of the Japanese 'threat' and in their recommendations for U.S. policy." Their prophesies of doom, and the realities that proved them wrong, are described in detail in a new Cato Institute study released today.

In "Revisiting the 'Revisionists': The Rise and Fall of the Japanese Model," Brink Lindsey and Aaron Lukas of the Cato Institute's Center for Trade Policy Studies examine the fawning praise, dire predictions and policy prescriptions of such well known fans of Japan, Inc. as Chalmers Johnson, Clyde Prestowitz, James Fallows and Karel van Wolferen.

They cite numerous examples, such as Prestowitz's praise for the "Japanese juggernaut" in his book Trading Places: "Japan has created a kind of automatic wealth machine, perhaps the first since King Midas." But the "wealth machine" met an unhappy end. "Prestowitz was referring to the gravity-defying rise of the Japanese stock and real estate values during the late 1980s. That phenomenon is now known as the 'bubble economy,' and its collapse has left Japan economically crippled."

Lindsey and Lukas note that today, "the 'Japan, Inc.' model has not eclipsed Western-style capitalism; instead, there is an emerging consensus on both sides of the Pacific that the Japanese model has failed. Countries up and down the Pacific Rim are embracing market-oriented reforms in the wake of an economic crisis blamed widely on Japanese-style 'crony capitalism.'"

The Cato study concludes that the failure of the revisionists to see the flaws in the Japanese model is easily understood. "All their errors trace back to a common source: an inability to understand and appreciate the power of free markets. Suffering from what Nobel Prize-winning economist F. A. Hayek termed the 'fatal conceit,' they believed that a handful of government planners could outthink millions of private decision-makers--could pick 'strategic' industries, allocate capital in defiance of market signals, and prop up the stock market and real estate values. Like so many others before them, they prided themselves as sophisticated realists, yet in fact their faith in bureaucratic miracles was hopelessly naive."

Trade Policy Analysis no. 3

July 17, 1998

Sirico: sanctions against China will do nothing to improve human rights
Christian conservatives who back sanctions don't understand role of trade

"The best policy for promoting freedom and human rights remains economic and moral engagement," the Rev. Robert Sirico writes in a new Trade Briefing Paper from the Cato Institute's Center for Trade Policy Studies. With Congress considering whether to continue most favored nation (MFN) trade relations with China, Sirico reminds Christian conservatives that "trading with a country is not the same thing as placing a moral imprimatur on the government of that country."

In "Free Trade and Human Rights: The Moral Case for Engagement," Sirico, a Catholic priest who heads the Acton Institute for the Study of Religion and Liberty, argues that the situation in China is a "far more complex reality" than opponents of MFN assert. "Members of the American business community who frequently deal with China--among them Christians who devote their lives to serving others through economic endeavors--are dismayed at what is being written and said by some conservative Christians involved in the debate. An economic miracle is taking place--a historic chance that the Chinese people will be made permanently free to pursue their individual dreams," he writes.

Sirico quotes Pope John Paul II, who told the Vatican Diplomatic Corps that "the embargo in particular, clearly defined by law, is an instrument that needs to be used with great discernment." An embargo inflicts "grave hardships upon the people of the countries at which it is aimed. . . . Before imposing such measures, it is always imperative to foresee the humanitarian consequences."

Sirico is also critical of "those in favor of free enterprise [who] have turned a blind eye to human rights abuses for fear that mentioning them might endanger the growth and expansion of trade." And he says that "the Clinton administration's dealings with China have been characterized by a moral blindness to the reality of suffering and persecution in China." But he says that the way to deal with such countries is to cut off aid from agencies such as the Export-Import Bank, the Overseas Private Investment Corporation and the World Bank. "For any true free trader, such tax-funded interventions and distortions are anathema. I support the immediate cutoff of all IMF loans and the abolition of all government programs that subsidize foreign trade, beginning with regimes that engage in political and religious persecution, but certainly not limited to them."

Trade Briefing Paper no. 2

April 24, 1998

America's trade deficit is a sign of "strength, not weakness," analyst says
Trade deficits mean more foreign investments and greater purchasing power

"No aspect of international trade is talked about more and understood less than America's perennial trade deficit," argues Daniel T. Griswold in a new study from the Cato Institute. In "America's Maligned and Misunderstood Trade Deficit," Griswold demolishes four myths of the trade deficit and demonstrates that the trade deficit is linked to many aspects of a healthy economy, such as rising employment, consumer spending, and manufacturing and production.

Myth 1: U.S. exporters face unfair trade barriers. A careful analysis of trade statistics shows that there is no relationship between protectionist barriers and trade deficits. Canada and Mexico, which are quite open to U.S. exports, are among the countries with which the United States has the largest bilateral trade deficits, while protectionist Brazil supplies America's third largest bilateral surplus.

Myth 2: America is losing its competitiveness. America has now enjoyed seven consecutive years of noninflationary growth coupled with historically large and rising trade deficits. "Meanwhile," Griswold notes, "Japan and Germany, the two export-driven juggernauts that were supposed to eclipse the United States in the 1990s, have struggled with slow growth and rising unemployment."

Myth 3: Trade deficits mean lost jobs. "In reality, larger trade deficits correlate positively with falling unemployment." Griswold demonstrates the close relationship between foreign investment and domestic employment, noting that "the unemployment rate fell in all but 2 of the most recent 14 years in which the trade deficit grew."

Myth 4: The trade deficit is a drag on economic growth. In fact, Griswold argues, without a trade deficit we would have to finance domestic investment exclusively from domestic savings, which would force up interest rates. "Attempts to reduce the trade deficit through government intervention would reduce our economic efficiency, slowing investment and growth."

The new Policy Analysis on the trade deficit is the second to be issued by Cato's new Center for Trade Policy Studies, where Griswold is associate director.

Trade Policy Analysis no. 2

March 26, 1998

Unilateral U.S. sanctions against Burma have been a "comprehensive failure"
Main victims are the Burmese people themselves, study finds

In the final analysis, U.S. policy toward Burma is irresponsible moral posturing," according to a new Trade Policy Analysis from the Cato Institute. "The sanctions policy against the government in Rangoon never had any chance of working because of the refusal of ASEAN, Japan, China, and the European Union--Burma's largest trading and investment partners--to support it."

The paper, "U.S. Sanctions against Burma: A Failure on All Fronts," by Leon T. Hadar, notes that in recent years unilateral trade sanctions "have become a staple of U.S. foreign policy." "Sanctions are an inherently flawed strategy," Hadar explains, "because the kind of regime likely to become the target of U.S. sanctions--an authoritarian regime in a less developed country such as Burma--is also the least sensitive to unilateral U.S. economic pressure."

In the case of Burma, America's potential leverage "has always been marginal at best. The United States is only the fifth largest foreign investor in Burma," and "in 1994 the United States accounted for about 1 percent of Burmese imports and took in about 7 percent of that country's exports. . . . Cutting U.S. economic ties with Burma will only reduce the already limited leverage the United States has on Rangoon."

Moreover, there is no consistent standard applied when the United States attempts to impose unilateral sanctions. "The notion that diplomatic and economic relationships with a decaying communist regime in Hanoi are proper from a moral perspective, while similar ties with a military junta in Rangoon are not smacks of hypocrisy," Hadar declares.

"When it comes to advancing political and economic reforms, U.S. companies in Burma are part of the solution, not the problem," Hadar maintains. "They promote democratic values, set a positive example, and improve the general quality of life by providing fair pay, safe working conditions, and health and education benefits."

Leon Hadar is an adjunct scholar at the Cato Institute and a Washington-based journalist who covers international politics and economics with a special interest in East Asia and the Middle East. His paper is the first to be issued by Cato's new Center for Trade Policy Studies, which opened earlier this year.

Trade Policy Analysis no. 1

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