Press Releases 2000

Smaller trade deficit a "lump of coal," rather than a present

Today, the Commerce Department announced that the deficit in trade in goods and services for the month of October fell to $33.2 billion, down from September's record high deficit of $33.7 billion. A smaller deficit and falling imports may be interpreted by some analysts as "good news," but, according to Dan Griswold, associate director of the Cato Institute's Center for Trade Policy Studies and author of several studies on the impact of imports and the trade deficit on the U.S. economy, that interpretation misses the real significance of the deficit:

"Today's news of a smaller trade deficit is more like a lump of coal than an early Christmas present. The most worrisome news in the report is the sharp fall in imports, especially imports of capital goods and industrial supplies and materials. Contrary to the conventional thinking in Washington, imports are not a drag on growth and job creation. Rising imports signal robust consumer and business demand, spur competition and help keep a lid on inflation. In contrast, a sustained fall in imports invariably points to slower growth and rising unemployment. The weakening import numbers strengthen the argument that our economy needs an across-the-board rate cut--interest rates, tax rates and tariff rates."

Griswold can be contacted at 202-789-5260 or dgriswol@cato.org. For more information on Cato's analysis of the trade deficit, please visit the new trade deficit issues page on the CTPS Web site at www.freetrade.org/issues/deficit.html.

October 19, 2000

New antidumping provisions violate WTO and put U.S. leadership in the dumps

Yesterday the Senate passed the FY2001 agriculture appropriations bill, which contains a provision directing assessed antidumping and countervailing duties away from the general treasury and into the pockets of petitioning companies in those cases. The House passed the same measure last week, and the White House has indicated it will sign the bill into law. Consequently, the antidumping law--already one of America's worst trade barriers--is about to become significantly worse.

"This surreptitiously inserted provision is disastrous policy on multiple fronts," notes Dan Ikenson, a trade policy analyst with the Cato Institute. "It will increase the number of cases brought; it will artificially increase the level of industry support for petitions causing otherwise frivolous or unwarranted cases to continue; it will reduce the appeal of settlements; it will put further pressure on the Department of Commerce to exaggerate dumping margins; and, perhaps most significantly, it will demonstrate the United States' disregard for its commitments under the World Trade Organization and encourage other nations to do the same."

On this last point, Brink Lindsey, director of the Cato Institute's Center for Trade Policy Studies and an expert on the WTO dispute settlement process, is firmly convinced that the conversion of antidumping duties into industry subsidies constitutes a violation of U.S. obligations under the GATT and the WTO Antidumping Agreement. "Recently another and little-used U.S. antidumping law, the Antidumping Act of 1916, was found to violate the WTO 'by providing for other remedies than antidumping duties.' According to the dispute settlement panel, which was then upheld by the WTO Appellate Body, 'only measures in the form of antidumping duties may be applied to counteract dumping.' Because the 1916 act contained civil and criminal penalties rather than duties, it violated WTO rules. In precisely the same way, because this new provision contains transfer payments in addition to duties, it violates the WTO as well."

"By flouting its WTO commitments for the sake of a few special interests, Congress has sent a terrible message to the rest of the world," concludes Lindsey. "We will eventually pay the price, not only in the form of copycat protectionism by other countries against U.S. exports, but more broadly through further diminished U.S. leadership within the world trading system."

October 6, 2000

Compensation for antidumping petitioners is dangerous, misguided

On Tuesday, October 10, the Senate is scheduled to vote on the FY2001 agricultural appropriations bill; however, hidden in the "other purposes" section of the bill is a seemingly benign amendment, originally the stand-alone bill S. 61, pushed by Sen. Robert Byrd, which proposes that antidumping and countervailing duties collected by U.S. Customs would be earmarked for distribution to petitioning companies. However, according to Cato Institute policy analyst Daniel Ikenson, head of Cato's new Project on Antidumping Policy, the amendment, in reality, has very dangerous implications:

"The Byrd proposal would stimulate unscrupulous motives by providing greater incentive for cases to be brought, irrespective of the facts. It would encourage other domestic interests, opposed or unsupportive of a petition for sound economic reasons, to factor in the spoils and join or support such a petition. It would pressure the Department of Commerce to find huge margins in cases where they don't exist, leading to unwarranted rejections of respondents' facts in favor of adverse, subjective 'facts available.' It would reduce the appeal of settlement options, namely, suspension agreements, and ensure a burdensome commitment of administrative resources and a prolonging of market-distorting uncertainties. It would further erode U.S. leadership, as our trading partners would rightly contest the practice as WTO-illegal subsidies to specific companies.

"Beyond those principled objections, there is a complete disconnect to the rationale that petitioners should be rewarded the duties collected to compensate for prior sales lost to allegedly unfairly priced imports. Dumping duties collected are in no way reflective of any alleged revenue loss by U.S. companies. Utterly flawed as the methodology is, the duty calculation seeks to determine the difference between a foreign company's prices in the United States and its prices in its home market. That this is even a proxy for alleged U.S. revenue loss is indefensible."

For more information, please contact Ikenson directly at (202) 218-4623 or dikenson@cato.org.

October 2, 2000

Center for Trade Policy Studies launches project on antidumping laws
Effort will detail cost to consumers of protectionist trade retaliation

WASHINGTON--The Cato Institute's Center for Trade Policy Studies announced today the creation of a new project on antidumping policy. Daniel J. Ikenson will join the center as a trade policy analyst to coordinate the project.

"Our new antidumping project marks an important extension of Cato's work to further free and open international competition," said Brink Lindsey, director of the Center for Trade Policy Studies. "Dan's presence will have an immediate impact on the antidumping debate."

U.S. antidumping law is a major trade barrier that penalizes foreign companies for normal business practices routinely engaged in by U.S. companies. Resistance to antidumping reform has alienated the United States from trading partners and undermined U.S. international leadership in the World Trade Organization, contributing to the collapse of the WTO talks in Seattle last year. Dozens of countries have now mimicked the United States and adopted their own antidumping laws, making U.S. exporters among the leading victims of antidumping harassment worldwide. Cato's new research and educational project will examine antidumping policy here and abroad in an effort to promote broader understanding of this potent, but poorly understood, protectionist weapon.

Ikenson, an international trade specialist and former director of International Trade Planning at the accounting and consulting firm of Pannell Kerr Forster, P.C., will coordinate the project. He brings to Cato more than 10 years of experience in the areas of antidumping planning and casework, trade database development, and trade-related quantitative analysis. Ikenson holds a master's degree in economics from George Washington University and a bachelor's degree in political science from Susquehanna University.

Cato's Center for Trade Policy Studies, established in 1998, represents a major initiative on the part of the institute to increase public understanding of the benefits of free trade and the costs of protectionism. With the arrival of Ikenson, Cato's trade center now has five full-time in-house scholars.

July 6, 2000

Trade barriers against Canadian lumber should be allowed to expire
Study says potential home owners, lumber users sacrificed to benefit domestic producers

The United States likes to lecture the world about the importance of free trade but sometimes ignores its own advice. A case in point is the U.S.-Canadian Softwood Lumber Agreement, a little-known trade barrier that imposes steep surcharges on Canadian lumber above preset import limits. In a new Cato Institute study, three trade experts take aim at the SLA, calling it "a boondoggle that benefits a few lumber producers here in the United States at the expense of millions of workers in lumber-using industries--not to mention millions of American homebuyers."

In terms of the value of the trade affected, the SLA is roughly equivalent to steel-quota legislation considered and rejected by Congress last year. The Cato analysis--by Brink Lindsey, director of Cato's Center for Trade Policy Studies; Mark Groombridge, a research fellow at the trade center; and Prakash Loungani, an economist with the International Monetary Fund--examines the impact of the SLA on downstream lumber-using industries and American buyers of new homes and home furnishings. Among the findings:

• Trade restrictions boost lumber prices by anywhere from $50 to $80 per thousand board feet, adding between $800 and $1,300 to the cost of a new home.
• Many Americans who dream of homeownership are priced out of the market. According to the U.S. Census Bureau, for every $1,000 increase in housing prices, an additional 300,000 families are unable to purchase a home. The bulk of those 300,000 are, of course, lower-income families.
• Employees in lumber-using industries such as lumber dealing and home building pay a price for trade barriers, even though they outnumber employees in lumber-producing industries such as logging and sawmills by more than 25-to-1.

The study, "Nailing the Homeowner: The Economic Impact of Trade Protection of the Softwood Lumber Industry," notes that the SLA is scheduled to expire in April of next year. The authors say it should be allowed to do so. "In the end, the claims that Canadian producers enjoy an unfair advantage over their American rivals are not persuasive and certainly are not compelling enough to justify saddling American lumber users with costs artificially inflated by trade restrictions," they write.

Trade Policy Analysis no. 11

June 20, 2000

WTO, globalization do not lead to a "race to the bottom" in labor and environment
Study finds trade liberalization improves the lives of millions of the world's poor

Opponents of free trade argue that globalization forces developing nations to enter a "race to the bottom" in labor practices, environmental quality and wages. In reality, foreign trade and investment have been a blessing for the world's poor, according to a new study released today by the Cato Institute.

In the 50 years since the founding of the General Agreement of Tariffs and Trade, the world economy has grown sixfold, in large part because trade has expanded sixteenfold, says Aaron Lukas, a Cato trade policy analyst. "Globalization, which is furthered by the WTO, has made it possible for more people to lift themselves out of grinding poverty more quickly than was ever possible before," he says.

In "WTO Report Card III: Globalization and Developing Countries," Lukas says the claims of WTO critics such as the AFL-CIO and the Sierra Club do not hold up under scrutiny. For example:

• There is no evidence that a lack of core labor standards in developing countries plays a significant role in attracting foreign investment. On the contrary, there is strong evidence that sustained market-opening reforms improve labor standards in the developing world.
• Serious environmental problems exist in developing countries, but depriving those countries of trading opportunities only keeps them from achieving the wealth they need to tackle environmental problems.
• Although employees of U.S. affiliates in developing countries are indeed paid less than their domestic counterparts, they are paid significantly more than the average wage in the country where they live.

"Those who wish to improve the lives of the citizens of developing countries--both politically and economically--should be thinking of ways to facilitate globalization, not attempting to stop it," Lukas concludes.

Trade Policy Briefing Paper no. 10

May 4, 2000

WTO membership is a wise exercise of U.S. sovereignty, not its surrender
Study finds WTO has no power over U.S. tax, trade, environmental and foreign policy

If the World Trade Organization were in fact dictating the domestic laws and regulations of its members, it would indeed be a threat to U.S. sovereignty, but the WTO can do nothing of the kind, according to a new Trade Briefing Paper released today by the Cato Institute. In "WTO Report Card II: An Exercise or Surrender of U.S. Sovereignty," authors William H. Lash III and Dan Griswold examine the laws and actions of the WTO and find that "membership in the WTO enhances the freedom and the prosperity of Americans without surrendering an inch of national sovereignty."

The paper, second in a series that examines the costs and the benefits of the WTO to the United States and the world, describes the WTO, explains how it works and analyzes the nearly five-year track record of the WTO and its impact on the ability of members to determine their own national policies. Lash, professor of law at the George Mason University School of Law, and Griswold, associate director of Cato's Center for Trade Policy Studies, assert that the arguments of WTO critics like Rep. Ron Paul and Ralph Nader do not hold up under scrutiny. The authors make the following observations.

• The WTO is a contract organization that arbitrates disputes among its members on the basis of rules that all have agreed to follow. Like every other member, the United States has the power to veto any agreement of which it disapproves.
• The WTO wields no power of enforcement. It has no authority or power to levy fines, impose sanctions, change tariff rates or modify domestic laws in any way to bring about compliance.
• The WTO's basic charter contains specific exemptions for broad categories of trade restrictions, allowing members to enact restrictions for reasons of national security, public health and safety, and conservation of natural resources, and to ban imports made with forced or prison labor.
• The WTO does not confer a new "right" to impose sanctions; sovereign nations have always had the ability to impose trade sanctions against other nations for a variety of reasons.
• The same dispute settlement mechanism that can render judgments against U.S. laws has been used effectively to encourage other nations to scrap trade laws that discriminate against U.S. exports.

The authors conclude, "Membership in the WTO is not a surrender of U.S. sovereignty but its wise exercise. The WTO encourages the United States to keep its own markets open for the benefit of U.S. consumers and import-using industries. WTO membership also promotes trade liberalization abroad, which opens markets and keeps them open for U.S. exporters."

Trade Policy Briefing Paper no. 9

April 24, 2000

Granting PNTR is a win-win proposition, and biggest winners are Chinese citizens
Cato study shows PNTR benefits U.S. national interests, most notably Chinese reformers

A congressional vote in favor of extending permanent normal trade relations (PNTR) to China is a vote for reform of the Chinese economy, according to an analysis released today by the Cato Institute.

In "China's Long March to a Market Economy: The Case for Permanent Normal Trade Relations with the People's Republic of China," author Mark Groombridge examines the impact of granting PNTR to China and its subsequent accession to the World Trade Organization and finds that it will "benefit, not only the United States and the world trading system, but most directly the citizens of China, millions of whom are still mired in abject poverty."

Groombridge, a research fellow with Cato's Center for Trade Policy Studies, analyzes historical and economic data and concludes that China's accession to the WTO will dramatically strengthen the hand of elements in the pro-reform leadership. In the study, Groombridge confronts arguments against extending PNTR, most notably that it removes the United States' only leverage against China's economic and political behavior and that U.S. jobs will be lost because of a flood of Chinese imports.

He finds that those arguments ring hollow. First, the annual debate on whether to extend normal trade relations has proven to be neither an effective nor an appropriate tool for influencing China's long-term behavior. "As a WTO member, China will be subject to a multilateral dispute settlement process that is likely to be much more effective than unilateral sanctions imposed by the United States," Groombridge says.

Groombridge also finds that the protectionist, "job-loss," argument against PNTR boils down to the assertion that the commercial interests of textile producers and a few other import-competing industries are more important than the interests of import-using businesses, consumers and U.S. exporters with a huge stake in improved access to the Chinese market.

The correct resolution of the PNTR issue, Groombridge believes, ultimately turns on a straightforward question: "Is it in the U.S. national interest to encourage China to liberalize its economy in a more market-oriented direction?" His answer is yes, and he predicts that the agreement will extend unprecedented opportunities to U.S. industries and consumers, and the greatest rewards will be reaped by "average Chinese citizens struggling to free themselves from the shackles that chain them to China's disastrous socialist legacy--one responsible for the impoverishment and starvation of millions of people."

Trade Policy Analysis Paper no. 10

April 3, 2000

WTO is a "double blessing" for the U.S., benefiting consumers and producers
New Cato study examines costs and benefits of the WTO on the domestic economy

By encouraging trade liberalization, the World Trade Organization promotes more vigorous global competition among producers, leading to lower consumer prices, rising worker productivity and higher living standards, according to a new Trade Briefing Paper released today by the Cato Institute. In "WTO Report Card: America's Economic Stake in Open Trade," author Dan Griswold examines the impact of WTO membership on the U.S. economy and finds that "because of the WTO, Americans are not only better off materially; they're also freer from the power of government to decide what they produce and consume."

The paper, first in a series that will examine the costs and the benefits of the WTO to the United States and the world, analyzes economic trends to test the arguments of globalization's biggest critics. Griswold, associate director of Cato's Center for Trade Policy Studies, writes that the arguments of free trade critics like Pat Buchanan, Lori Wallach and Ross Perot are based on half-truths that "contradict the most obvious facts about the U.S. economy in the year 2000." Findings include:

• The WTO has not made Americans poorer. "During the last five years living standards have been rising for low- and high-income workers alike. More than 80 percent of jobs created since 1993 are in occupations that pay above the median wage."
• The WTO has not eroded the U.S. manufacturing base. "Despite warnings of 'deindustrialization,' manufacturing in America today is thriving. Since 1992, the manufacturing output of the United States has risen by 42 percent, all against a backdrop of record imports."
• The WTO has not caused the "giant sucking sound" of an outward flow of capital to low-wage countries. "The outward flow of investment to China and Mexico has remained relatively small. In fact, 80 percent of foreign direct investment by U.S. manufacturing firms was in other high-wage countries."
• The WTO does not have a significant effect on the U.S. trade deficit. "America's trade deficit is the result, not of unfair trade barriers abroad, but of our continuing surplus of foreign investment."

Griswold writes, "Membership in the WTO has been a double blessing for the United States. The liberalization of markets abroad has created export opportunities for U.S. companies, raising profits, employment and wages. Meanwhile, WTO membership exerts pressure on the U.S. government to keep our own market open to the global economy, which gives American families access to a wider range of affordable goods and services, thus raising the real value of our paychecks."

Trade Policy Briefing Paper no. 8

March 3, 2000

Uncapped immigration of high-skilled workers is key to economic growth
Study shows H-1B workers benefit economy without harming U.S. workers or wages

American industry's explosive demand for highly skilled workers is being stifled by the federal quota on H1-B visas for foreign-born highly skilled workers. Additionally, the quota restrictions are hampering output, especially in high-technology sectors, and forcing companies to consider moving production offshore, according to a new briefing paper released today by the Cato Institute.

In "The H-1B Straightjacket: Why Congress Should Repeal the Cap on Foreign-Born Highly Skilled Workers," authors Suzette Brooks Masters, an attorney and member of the board of directors of the National Immigration Forum, and Ted Ruthizer, professor of immigration law at Columbia Law School and head of the Immigration Law Group at a New York law firm, argue that "H-1B hiring has contributed significantly to the growth and continued good health of our economy and has helped, not hurt the U.S worker." The authors also respond to the major criticisms of the visa status. Their findings include the following:

• "H-1B workers create jobs for Americans by enabling the creation of new products and spurring innovation. High-tech industry executives estimate that a new H-1B engineer will typically create demand for an additional 3 to 5 American workers."
• Reports of systematic underpayment and fraud in the program are false. From 1991 through September 1999, only 134 violations were found by the U.S. Department of Labor, and only 7, and average of less than one per year, were found to be intentional.
• "The lack of widespread violations confirms that the vast majority of H-1B workers is being paid the legally required prevailing wage or more, undercutting charges that they are driving down wages for native workers."
• "Wages are rising fastest and unemployment rates are lowest in industries in which H-1B workers are most prevalent."

The authors conclude by this analysis that the market should determine how many H-1B visas are needed. They argue that Congress should abolish caps on immigration of high-skilled workers and return to U.S. employers, subject to minimal regulation and unhampered by artificially low quotas, the ability to fill gaps in their workforce with qualified foreign national professionals.

Trade Policy Briefing Paper No. 7

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