Press Releases 2003

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December 4, 2003

Bush Administration Repeals Steel Tariffs
All well and good, says trade expert, but it's only a start

Today the Bush administration announced its decision to repeal the trade barriers it imposed against imported steel in March 2002. The tariffs and quotas were implemented pursuant to a U.S. International Trade Commission investigation under Section 201 of the Trade Act of 1974, known more commonly as the "safeguard" law.

"Better late than never," said Dan Ikenson, a trade policy expert at the Cato Institute. "While the decision to revoke these measures was the right one both economically and politically, a great deal of damage has already been done - to U.S. steel-using businesses, and to American credibility on trade issues. The tariffs were a terrible, shortsighted, politically motivated decision that backfired, plain and simple."

The U.S. Trade Representative, Robert Zoellick, once characterized the tariffs as "one step back for two steps forward," implying the measures were the price for trade promotion authority. "There can be no doubt that that one step back left a big footprint," Ikenson asserted.

The decision to impose restraints in March 2002 was immediately challenged by several key trade partners under the WTO dispute settlement process. In September, a WTO dispute panel report was issued finding the ITC's analysis inconsistent with the terms of the WTO safeguard agreement. After a U.S. appeal, on November 10 the WTO Appellate Body published its report largely upholding the findings of the initial dispute panel.

The persistence of this protection for 21 months inflicted significant losses on U.S. manufacturing industries that make products containing steel. It has also undermined U.S. economic leadership by exposing U.S. calls for open markets abroad to charges of hypocrisy.

"The steel tariffs certainly energized protection-seeking constituencies in the U.S. and around the world," Ikenson explained. "And the fact that the administration was deliberating about whether to even abide by the Appellate Body's ruling - going as far as floating a compromise proposal after that body found no justification whatsoever for any tariffs -- suggests at best a sketchy U.S. commitment to its trade agreements. This is hardly a recipe for encouraging other countries to remain steadfast to their own WTO obligations."

"In the end though, the administration did the right thing," Ikenson concluded, "but there is still much more work to be done. The administration's trade leadership credentials will be tested again as we begin the 2004 election cycle."

Ikenson is author of the trade briefing paper "Steel Trap: How Subsidies and Protectionism Weaken the U.S. Steel Industry."

November 20, 2003

Alan Greenspan Denounces Protectionism
Fed Chairman says emerging protectionism must be "thwarted and reversed"

Speaking at the Cato Institute's 21st Annual Monetary Conference today, Federal Reserve Chairman Alan Greenspan spoke of America's current account deficit and the dangers of protectionism.

Not only did Greenspan dispute the idea that protectionist measures can be a solution to America's trade imbalances, he stated that protectionism could actually harm attempts to defuse current account imbalances. Greenspan stressed "the necessity of containing the forces of protectionism to ensure the flexibility needed for a benign outcome of our international imbalances."

Greenspan expressed further concern about the prospects for free trade in the future. "Some clouds of emerging protectionism have become increasingly visible on today's horizon," he said, adding that "the costs of any such new protectionist initiatives...could significantly erode the flexibility of the global economy."

Greenspan concluded his speech by declaring that "it is imperative that creeping protectionism be thwarted and reversed."

November 18, 2003

Textile Decision is Another Step Back on Trade
CITA approves China textile safeguard petitions

Yesterday evening (November 17) the U.S. Commerce Department's Committee for the Implementation of Textile Agreements [CITA] voted to support three safeguard petitions against Chinese exports. The cases against knit fabrics, dressing gowns and brassieres were brought in July by trade associations representing U.S. textile producers. The petitions were filed under the textile and apparel safeguard provision of China's WTO Accession Agreement. Subsequent to these rulings, import volume of the subject products will be capped, while U.S. officials attempt to reach a more formal agreement with China.

"The rulings, unfortunately, were not surprising," said Cato trade policy analyst Dan Ikenson. "They are just further evidence that the administration is unprepared to curtail protectionism at home as it unabashedly preaches free trade abroad."

Ikenson stated, "New trade restraints - on top of 40 years of quotas and high tariffs -- will do nothing to save textile industry jobs. They will, however, raise prices for consumers and harm trade relations with China. Considering that China is our fastest growing export market and a country we want to see overcome its own protectionist lobbies and comply with its own WTO commitments, CITA's ruling will prove adverse to U.S. interests throughout the economy."

October 22, 2003

"Think Tank with Ben Wattneberg"
Immigration: Curse or Blessing?

"Give me your tired, your poor, your huddled masses yearning to breathe
free..." those words, written by the poet Emma Lazarus, and inscribed at the base of the Statue of Liberty, declare that America is a nation of
immigrants. But as long as we have had immigration, we have had heated
debates about immigration policy. Today is no exception. What rights should illegal immigrants have? How many immigrants should America accept? From where? How do we remain a beacon of freedom and protect our national security at the same time?

To find out, "Think Tank" is joined by George Borjas, Professor of Economics and Social Policy at the John F. Kennedy School of Government, Harvard University and author of Heaven's Door: Immigration Policy and the American Economy; and Dan Griswold, associate director of the Cato Institute's Center for Trade Policy Studies and author of the study Willing Workers: Fixing the Problem of Illegal Mexican Migration to the United States.

Air Times in Major Markets:

Washington, DC: WETA Ch. 26, Sunday, 10 AM
Washington, DC: WHUT Ch. 32, Sunday, 11 AM
New York, NY: WNET, Saturday, 9 AM
Chicago, IL: WYCC, Sunday, 6 PM
Los Angeles, CA: KCET, Saturday, 2:00 PM
San Francisco, CA: KRCB, Sunday, 8:00 AM
and Fridays at 8 and 9:30 PM on PBS-You Satellite TV

If your area was not listed, check the "Think Tank" website for local listings. http://www.pbs.org/thinktank/index.html

October 15, 2003

Threadbare Excuses
The textile industry's campaign to preserve import restraints.

On January 1, 2005, the textile and apparel quota regime, administered under the World Trade Organization's Agreement on Textiles and Clothing (ATC), is slated to terminate. After decades of protectionist exceptions, textile trade finally will be subject to the same rules that govern international trade in other manufactured products.

But in "Threadbare Excuses: The Textile Industry's Campaign to Preserve Import Restraints," Cato Institute trade policy analyst Daniel J. Ikenson warns that "the next 15 months promises to feature a rearguard campaign to preserve and expand barriers to trade in those industries." Recently, the textile lobby's campaign for new import restraints has become more vocal. New requests to block Chinese imports are under consideration by the Commerce Department. And the textile lobby has hinted that it is considering launching a barrage of antidumping and countervailing duty cases against imports from a variety of sources.

If the United States fails to deliver real liberalization in textile and apparel trade, says Ikenson, "America's role in encouraging economic liberalization abroad will be needlessly compromised." Ikenson says the administration should liberalize certain quotas ahead of schedule to address a quirk in the system that will limit imports and raise prices in the final year of the ATC. Also, the administration should deny the industry's unwarranted request for new restrictions on Chinese textile and apparel imports and extend a moratorium on the use of antidumping measures.

Ikenson points out that the ATC was designed as a gradual phase out of quotas to allow the U.S. textile and apparel industries and their workers time to adjust to the inevitable: that lower cost imports should and will displace U.S. production. If those workers have not planned for increased competition by now, they have nobody but themselves and their political and business leaders to blame.

Textile and apparel protection constitutes a $13 billion drag on the economy each year. And that cost is borne primarily by lower-income Americans, who spend a higher proportion of their income on clothes. Furthermore, textile and apparel production is one of the few viable manufacturing alternatives in many of the world's poorest countries. Denying their exporters access to our markets keeps them poor and resentful. Hence, as Ikenson says, "textile trade liberalization is a relatively easy tactic to simultaneously advance the administration's national security and trade policy objectives."

Trade Policy Analysis no. 25
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August 5, 2003

Combating Terrorism with Open Markets
Expert says free-trade area of the Middle East a good idea - but not enough.

Washington - To combat terrorism and the Islamist extremism that underlies it, President Bush in May announced plans to create a U.S. - Middle East free-trade area within a decade. Free-trade agreements in the works with Bahrain and Morocco - along with the Jordan FTA now in its second year - will serve as building blocks for the regional accord.

So far so good, says Brink Lindsey, director of the Center for Trade Policy Studies at the Cato Institute. In his new paper, "The Trade Front: Combating Terrorism with Open Markets," Lindsey states that "the Bush administration should be congratulated for opening a trade front in the war on terrorism." He stresses, though, that "the effectiveness of FTAs depends heavily on how the agreements are written." In particular, agreements should avoid long phase-out periods and restrictive rules of origin, and they must go beyond simple tariff cutting to encompass non-tariff barriers and restrictions on competition in services.

But FTAs alone are not enough. Lindsey points out that "a U.S. - Middle East free-trade area, however desirable, is a policy goal for the long term." The author makes the case for trade policies that will have a more immediate effect in the region, and would include a larger pool of countries. Specifically, the Bush administration should endorse legislation that would grant temporary, duty-free, quota-free access to the U.S. market for exports of selected Muslim countries. "The unilateral elimination of U.S. trade barriers would give tangible, dramatic proof of U.S. commitment to the region, thereby providing a jump-start for the longer, arduous process of negotiating FTAs," says Lindsey. Speedy liberalization is also important because 2005 marks the removal of U.S. textile quotas, and Muslim nations need to be on an equal competitive footing with the Caribbean, Andean, and African countries that already enjoy duty-free access to the U.S. market.

Ultimately, he argues that "the Bush administration should supplement its pursuit of FTAs with an initiative that is simultaneously broader in scope and capable of generating immediate results." The challenges will be formidable, but, as Lindsey concludes, "if the task is daunting, the potential rewards are surely worth the effort."

Trade Policy Analysis no. 24
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July 24, 2003

The Emperor's Old Hat
New import restrictions against China are not justified, says trade expert

Earlier today, trade associations representing U.S. textile producers filed a request for a new batch of restraints against certain textile and apparel imports from China. It is the first case of its kind, brought under the textile and apparel safeguard provision of China's World Trade Organization Accession Agreement. The products named in today's petition were knit fabrics, dressing gowns, brassieres, and gloves.

"I'm not surprised that they brought their case," said Dan Ikenson, a trade policy analyst at the Cato Institute. "Not only have they been signaling their intentions for over a year, but it's really the only business strategy they know how to use. What's so troubling about this approach, though, is that it yields no winners. New import restraints would bring higher prices for U.S. consumers and would discourage China from resisting its own protectionist pressures. But it would not save a single U.S. textile job. Forty years of massive protection hasn't reversed the industry's natural decline.

"Unfortunately for American consumers, CITA [the Committee for the Implementation of the Textile Agreements] will oversee the process," asserted Ikenson. "Historically, there hasn't been much daylight between the domestic industry's quest to squelch imports and CITA's willingness to oblige. Unless CITA has adopted a new sense of virtue and recognizes that its decisions affect millions of American consumers and the Administration's ability to conduct trade policy and negotiations, this will be nothing more than a kangaroo court."

Under the law, import growth can be capped at 7.5 percent of the previous year's figures if it is determined that Chinese imports are, due to "market disruption," threatening to impede the "orderly development" of trade in these products. "The standard in these cases is at best vague, and thus provides cover for arbitrary, politically-motivated determinations," explained Ikenson. "According to my reading of the regulations, Chinese imports don't even need to cause or threaten market disruption. There simply has to be market disruption, however CITA chooses to define that term in this inaugural case. And how can one define 'orderly development of trade' in a market that has been dammed up by quotas for 40 years? Removing quotas naturally encourages production to return to where it is optimal. Yes, Chinese imports have increased in certain, recently unrestrained categories, but only at the expense of imports from countries where production arose because of the Chinese restraints. It hasn't displaced imports from countries-- primarily in Latin America-- where the petitioners' customers are located.

"Under any reasonable interpretation," Ikenson summarized, "the facts of this case do not justify new import restrictions."

July 10, 2003

Steppingstones to Free Trade
Bilateral agreements advance U.S. interests, says trade expert

To maximize the benefits of free-trade agreements, the U.S. government should focus negotiations on countries whose producers are most likely to enhance competition in our own market and provide new opportunities for U.S. exporters. That approach requires that U.S. negotiators not duck politically sensitive sectors such as textiles and farm goods through exemptions or long phase-in periods. The benefits of such a policy are analyzed in the new Trade Briefing Paper, "Free-trade Agreements: Steppingstones to a More Open World," by Daniel T. Griswold, associate director of Cato's Center for Trade Policy Studies. He specifically assesses the U.S.'s completed free-trade agreement (FTA) negotiations with Chile and Singapore, and looks at promising free trade candidates.

The primary benefit of free-trade agreements to the United States is that, when properly designed, they strengthen the economy by injecting new import competition into domestic markets. FTAs produce the largest benefits when focused on countries whose producers would be most likely to enhance U.S. competition. Failing that, the targets of FTAs should be those that are moving toward free markets and representative government, and can serve as models encouraging others to embrace market liberalization. Griswold judges that the FTAs proposed by the Bush administration meet those criteria and should be pursued.

In answer to the idea that bilateral agreements come at the expense of the multilateral process, Griswold shows that the opposite happens: FTAs provide institutional competition to keep multilateral talks on track. Also, by participating in more bilateral agreements, the United States will help level the playing field for American exporters. FTAs spur regional integration and the locking in of economic reforms and they can "blaze a path for wider negotiations," providing creative solutions to problems that can be adapted to larger agreements. From a political perspective, they can be a potent foreign policy tool, cementing ties with allies and encouraging countries not to stray from economic and political reform.

Griswold concludes: "Despite their peculiarities and incremental nature, free-trade agreements can serve the cause of freedom and development by breaking down barriers to trade between nations. If crafted according to sound principles, free-trade agreements can serve America's economic and foreign policy interests."

Trade Policy Briefing no. 18
(/pubs/briefs/tbp-018es.html)

June 18, 2003

Light Trucks, Heavy Tariff
Ideal time to eliminate gratuitous trade barrier, new Cato study finds

Forty years ago the United States slapped a whopping 25 percent tariff on imported light trucks. At the time, the tariff served as retaliation against the European Economic Community for its decision to increase tariffs on imported chicken. The original purpose of the truck tariff has long since ceased to exist, but the tariff remains.

In his latest study, "Ending the 'Chicken War': The Case for Abolishing the 25 Percent Truck Tariff," Daniel Ikenson, policy analyst for the Cato Institute's Center for Trade Policy Studies, concludes that the only plausible explanation for the tariff's existence today is that it is perceived to be useful negotiating leverage in ongoing trade negotiations. Ikenson explains how such thinking is misguided and advocates elimination of the tariff.

"That modest step would do no cognizable harm to any U.S. interest. It would, however, help to restore U.S. leadership on trade in its strongest and most durable form--leadership by example," Ikenson asserts. Elimination of the 25 percent truck tariff is a unique opportunity to demonstrate the benefits of unilateral liberalization without significant political obstacles. U.S.-based truck producers dominate the American market and thus have nothing to fear from foreign rivals. Ikenson explains that the major foreign pickup truck producers already manufacture in the United States, and still the "Big Three" U.S. auto manufacturers produced about 87 percent of light pickup trucks purchased in 2001.

"The truck tariff is all the more egregious because of the total absence of even a fig leaf of justification for its continued existence," Ikenson maintains. He argues that the tariff works to weaken the U.S. bargaining position by undermining the credibility of overall U.S. trade policy.

Ikenson concludes: "Maintaining a tariff peak of 25 percent--almost 10 times the average U.S. tariff--is unfair to consumers and is jarringly inconsistent with the general U.S. commitment to open trade and ongoing reduction of trade barriers. The truck tariff should be eliminated as soon as possible."

Trade Briefing Paper no. 17
(/pubs/briefs/tbp-017es.html)

May 9, 2003

An Economic Overture to the Middle East
Free Trade will bring hope, opportunity to millions of people, Cato scholar says

In a speech today at the University of South Carolina, President Bush proposed removing U.S. trade barriers currently imposed on many countries in the Middle East. Recognizing the importance of trade in fostering peace and economic prosperity, the President recommended the creation of a Middle East free trade area within the next decade. Daniel Griswold, associate director of the Cato Institute's Center for Trade Policy Studies, had this comment:

"President Bush's proposal today for free trade with the people of the Middle East would bring a fresh breeze of freedom to that part of the world. More trade would bring new ideas and competition to the region's stagnant economies, raise living standards and till the soil for more civil freedoms and representative government.

"Free trade won't be a magic bullet for what ails the Middle East, but it will bring more hope and opportunity to millions of people. Much frustration exists in that part of the world, especially among young people, because of dysfunctional and isolated economies. The Arab world's share of global trade and investment has been in decline for two decades. The president's proposal for a free trade area would be an important step in reconnecting the people of the Middle East to the global community."

Griswold is author of the recent article, "Commitment to Free Trade Critical to Recovery of Iraq," available at: /pubs/articles/dg-4-25-03.html.

May 6, 2003

Coffee Industry Schemes Poorly Brewed
Industry ignoring market realities, new Cato study finds

Each day, millions of Americans bemoan the cost of their morning indulgence, a cup of store-brewed coffee. But if the anti-globalization crowd had its way, satisfying that craving would be even more expensive. In recent years, market critics have been attacking coffee roasters and retailers, accusing them of profiting at the expense of poor coffee-bean farmers. In response to what they see as failures of free markets, anti-market activists have proposed several ill-conceived ideas to restrict the international trade of coffee, thereby increasing the cost to consumers. In the Cato Institute's new trade briefing paper, "Grounds for Complaint? Understanding the 'Coffee Crisis'," author Brink Lindsey, director of Cato's Center for Trade Policy Studies, analyzes the real causes of the coffee-bean price slump and critiques the interventionist "solutions."

"The fact is that the current glut is ultimately the result of the coffee market doing what it is supposed to do: improve productivity and reduce costs," Lindsey explains. Most important, low-cost suppliers in Brazil and Vietnam have been expanding production by leaps and bounds. At the same time, technological advances on the demand side make it possible to use cheaper coffee beans while still maintaining quality.

Lindsey then examines the proposals offered by the anti-market activists, revealing that "although it does help a few lucky farmers, the 'fair trade' campaign could end up inadvertently harming many others." In addition, the plan to impose minimum quality standards would advantage some producer and seller interests at the expense of poor coffee farmers in Africa and Asia. And further, a return to the old system of export quotas, as suggested by Oxfam, would primarily benefit government treasuries and bureaucrats rather than struggling farmers.

"Those who single out particular companies as scapegoats and advocate various half-baked schemes to prop up prices may have the best of intentions, but they are not really helping," Lindsey asserts. "The coffee slump need not be faced with passive resignation. There are a variety of strategies for responding constructively to the current difficulties. But all of those strategies have this in common: They work with the market forces rather than railing against them."

Trade Briefing Paper no. 16
(/pubs/briefs/tbp-016es.html)

March 3, 2003

Standing at the Crossroads of Global Trade
New Cato study looks at the progress of the WTO in the current Doha Round

The World Trade Organization is at a crossroads. More than a year into the Doha Round of multilateral trade negotiations very little progress has been made. Launched in November 2001, the Doha Round saved the international trading system from two years of post-Seattle stagnation. Negotiators had high expectations of embarking on a new course, taking the WTO into uncharted territory. But is the new round living up to those expectations? Where does the WTO stand? In the Cato Institute's new study, "Whither the WTO? A Progress Report on the Doha Round," author Razeen Sally explores these questions. "The new round presents great opportunities," he states, "but it also creates new risks for world trade."

Sally analyzes the roadblocks to success by placing the WTO in the context of wider trade policy developments in the world economy and surveying the political forces surrounding the organization. He begins by identifying three adverse trends, evident in the WTO since its founding, which have gained strength in recent years and could prove costly in this round. "Alarm bells toll on the following counts," he explains, "standards harmonization, legalism, and politicization." He then looks at what has happened since the ministerial meeting at Doha. The terrorist attacks of September 11 rejuvenated efforts to liberalize international trade to promote global cooperation and economic growth. But progress has slowed since the launch, in part because of ongoing conflicts between the United State and the European Union.

After identifying several general areas for opportunity and potential danger, Sally then moves to specific elements of the new round--such as market access, rule making, and developing-country issues--that will harshly divide the trading partners and could destroy chances for progress. Finally, he looks at the political situation influencing the WTO, arguing, for example, "The necessary but not sufficient condition for success is for the major players, the U.S. and the EU, to contain domestic political difficulties, defuse bilateral conflicts, and cooperate intensively."

"Looking ahead, the round could follow three divergent scenarios: a focus on market access and trade barrier reduction; an effort to turn the WTO into a lumbering regulatory agency; and a U.N.-style future with deep divisions and blanket exemptions for developing countries," Sally concludes. "A Bush administration leading from the front, notwithstanding protectionist blemishes at home, must forge issue-based and across-the-board alliances with market-access-oriented WTO members, especially within the developing world. Only then will the WTO head in the right direction."

Trade Policy Analysis no. 23
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January 30, 2003

Free Trade Had Few Real Advocates in 107th Congress
Cato study finds only 37 members support trade without barriers or subsidies

Only 15 House members fit the category of free traders in the Cato Institute's free trade ratings of the 107th Congress, released today. Among current members, Reps. Jeff Flake (R-Ariz.), Charles Bass (R-N.H.), Judy Biggert (R-Ill.), Phil Crane (R-Ill.), and Jim Ramsted (R-Minn) gained the highest marks for consistently voting against government intervention in the form of both trade barriers and subsidies. For other House members, 70 voted as internationalists, nine as isolationists, and 36 voted as interventionists. The other members had mixed records. House Republicans were far more inclined to vote against trade barriers than Democrats, but they were equally as unlikely to vote against trade subsidies.

In the Senate, 22 members voted as free traders, 12 as internationalists, two as isolationists, and 22 as interventionists. Current senators with perfect free trader voting records include Sens. Sam Brownback (R-Kan.), Mike DeWine (R-Ohio), Richard Lugar (R-Ind.), John McCain (R-Ariz.), Don Nickles (R-Okla.), and Rick Santorum (R-Penn.). The partisan differences were glaring in the Senate. Republican senators voted against trade barriers an average of 86 percent of the time compared to a 31 percent average among Democrats. Republicans voted against trade subsidies 62 percent of the time compared to 26 percent among the Democrats.

In "Free Trade, Free Markets: Rating the 107th Congress," Daniel Griswold, associate director of Cato's Center for Trade Policy Studies, finds that "well-worn labels such as 'internationalist' and 'isolationist' do not fully capture the policy choices lawmakers face when deciding international commercial policy. The choice is not between engagement and isolation but between the free market and all forms of government intervention, including both barriers and subsidies to trade."The paper examines 30 key trade votes in the 107th Congress and finds that on the basis of their voting records, legislators can be classified into four categories: free traders, who oppose both trade barriers and subsidies; internationalists, who oppose barriers and support subsidies; isolationists, who support barriers and oppose subsidies; and interventionists, who support both barriers and subsidies.

When weighing policy toward the international economy," Griswold concludes, "members of Congress do not need to choose between anti-trade, anti-subsidy isolationism and pro-trade, pro-subsidy internationalism. They can choose to vote for a coherent program to liberalize trade and eliminate subsidies--in sum, to let Americans enjoy the freedom and prosperity of a seamless free market undistorted by government intervention." The complete report contains detailed data on each congressman and senator, their respective votes, and the issues upon which they voted.

Trade Policy Analysis no. 22
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