Archive for the ‘Trade’ Category

High-Performing Port and Workforce Training Drive Global Manufacturing in South Carolina

Tuesday, October 17th, 2017

Last week I had the opportunity to spend two days visiting the Charleston, South Carolina metro area as the guest of the Charleston Regional Development Alliance (CRDA).  Claire Gibbons, Director of Global Marketing & Communications, was my hostess, and told me that if you drew a line along the 32nd parallel across the U. S. from San Diego, you would wind up at Charleston.  Like San Diego, Charleston is a major port, being the deepest port along the south Atlantic coast, able to handle ships with up to 48 ft. draft, depending on tides. Charleston is about 50% lower in population than San Diego (761,000 vs. 1.407 million (2016), but is growing 3X faster than the U.S. average (14.5% vs. 4.7%).

Charleston is a military town like San Diego and is home to Joint Base Charleston, one of twelve joint facilities operated by the Department of Defense; the U.S. Space & Naval Warfare Systems Center Atlantic (SPAWAR), one of the Navy’s only two cyber mission engineering centers; and nearly all U.S. Dept. of Defense and Dept. of Homeland Security agencies. These facilities represent more than 23,000 active duty, civilian and contract civilian personnel.

Our first stop on my visit was the South Carolina Ports Authority (SCSPA), where we met with James Newsome, III, President and CEO.  He said “Charleston meets the needs of today’s global shipping industry, particularly as large vessels are deployed to East Coast trade routes. Our South Atlantic location is a significant driver of the Port of Charleston’s above-market average cargo volume growth, offering proximity to the fastest growing population in the U.S., as well as a booming manufacturing economy.”

He said, “We just received approval to dredge to 52 ft. depth to be able to handle the new, larger container ships that are coming online.  Two new taller cranes just came online (155 ft. vs. 115 ft.), and we have two more on order to install in 2018. We are also raising four existing cranes, for a total of eight cranes offering 155 ft. of lift height. We have three active cargo terminals now, and a new terminal is in development on the former Navy Base.

One of our terminals is a drive off terminal for automobiles, and the other two handle container ships. The new terminal will also handle container ships. The larger container ships are 13,000 TEUs in capacity. We also built a new rail connection from Charleston to the Inland Port in Greer to able to reduce truck congestion at the port and expedite rail shipments out of the region. “

As we drove around the terminal that has the new cranes, I was dismayed to see thousands of containers from Chinese and German shipping lines, but was encouraged when Mr. Newsome said that according to the latest report, Charleston is the port that is the most balanced in terms of imports and exports on the Atlantic coast. The port is also seeing good growth in exports of manufactured goods. The three terminals turn over the entire number of containers every 7-10 days.

Mr. Newsome said, “Charleston ships more tires than any other port in the United States.  Michelin came in the 1970s and has invested $6-7 billion in their manufacturing facilities. BMW came in 1994 and has invested about $10 billion in their facilities. About 70% of BMWs are shipped out of the Charleston port from the entire line made in the U. S. Boeing built a plant in 2009. Mercedes-Benz Vans is building their new Sprinter vans here. Volvo will open a new $500 million facility near Ridgeville in 2018. Five companies represent about 70% of our shipping volume.”

After I returned home, I found this important data on the Port’s website: “A 2015 study by the University of South Carolina’s Darla Moore School of Business concluded that the Port’s statewide impacts include:

  • $53 billion in annual economic activity
  • 187,600 jobs
  • $10.2 billion in labor income
  • 10 percent of total annual gross state product
  • $912 million in tax revenue”

Besides cars, tires, and other manufactured goods, Mr. Newsome said that the major products shipped out of Charleston are: agricultural (soybeans, grains), forest products (including diaper pulp, poultry, and pork.

According to the SCSPA website, the five fast-growing business sectors for the Port are:

  • Automotive manufacturing
    •Consumer goods distribution
    •Refrigerated/frozen exports
    •Transloading resin & grain
    •Tire manufacturing & distribution

Charleston shares some of the same industry clusters that San Diego has:  Aerospace, Information Technology, and Life Sciences. Their other two largest industry clusters are automotive and logistics. The following chart derived from data on the CRDA website shows the top ten manufacturers ranked by number of employees:

Company Products Employees Nationality
The Boeing Company
Aircraft manufacturing 7,400 American
Robert Bosch LLC Antilock brake systems, fuel injectors 1,800 German
SAIC Electronic security and communications systems 1,500 American
BlackBaud Inc Specialty computer software 1,300 American
Kapstone Charleston Kraft LLC Specialty paper & packaging 1,000 American
Nucor Steel Carbon & alloy steel 1,000 American
IFA North America LLC Automobile drive shafts 600 German
Mahle Behr Engine cooling systems 375 German
BAE Systems Electronic security and communications systems 350 British
V. T. Milcon Fabrication & assembly of communications systems 275 British

On our drive to our next appointment, I asked Claire to fill me in on the South Carolina business climate, so I could understand why so many foreign companies have established plants in the state. She said, “South Carolina offers a strategic location, particularly for companies based in Europe, and a business-friendly climate. We are a “right to work” state with one of the lowest corporate income tax rates in the south.” There are other benefits shown on the CRDA website: “no state property tax, no local income tax, no inventory tax, no sales tax on manufacturing machinery, industrial power or materials for finished products, no wholesale tax, and no unitary tax on worldwide profits.”

Claire added that another big advantage is that when a company relocates or expands to South Carolina, they can get training at little to no cost for their employees through readySC™, a division of the South Carolina Technical College System.  ReadySC’s mission is to “To promote the economic and workforce development of the state of SC. We provide customized training for new and expanding business and industry in the state of SC…”

Later in the day, I had the opportunity to visit the Mercedes-Benz Vans Training Center, where I met with Terrance Rivers, Area Director of readySC™, Susan Pretulak, V. P. Economic Development of the SC Technical College System., and Alyssa Bean, responsible for communications at Mercedes-Benz Vans manufacturing plant.

Ms. Pretulak said, “The Division of Economic Development works to not only attract new and expanding companies to the state but also provide the workforce development tools necessary to make certain they grow and prosper in South Carolina over the long term. The division is touted as providing a comprehensive solution for companies looking to grow their workforce in South Carolina. Housed within the division are the System’s nationally renowned statewide programs — readySC™ and Apprenticeship Carolina™.”

She explained, “Training is state-funded and is open to companies who will hire 10+ new, permanent, full-time employees with benefits.  There is a simple two-page agreement to participate in the program.  We have 16 technical colleges in our system, and each college has a readySC™ group. We are working with 89 companies at present.  We have two programs: (1) Pre-hiring Training, which is an unpaid training experience to provide potential employees for a company client and (2) Post-hiring Training, which is job specific training, such as welding, machining, assembly, etc.”

I asked if they have developed their own curriculum or do they use the SME ToolingU curriculum, and she said, “Some of both.” Mr. Rivers said. “We have a three-phase program:  Design, Discovery, and Delivery to customize the training to meet a company’s needs. Daimler was one of our first clients before they switched their name to Mercedes-Benz Vans. They make the Sprinter van at their plant.”

The readySC website expands on the requirements to participate in the program, specifying: To qualify, we require that:

  • Jobs projected must be permanent.
  • Pay represents a competitive wage for the area.
  • Benefit package must include health insurance.
  • Number of jobs created must be sufficient enough to allow readySC™ to provide training in a cost-effective manner.

Ms. Pretulak informed me that the SC Technical College System is also responsible for the Apprenticeship Carolina™ program, which “works to ensure all employers in South Carolina have access to the information and technical assistance they need to create demand-driven registered apprenticeship programs. At no cost to the employer, apprenticeship consultants are available to guide companies through the registered apprenticeship development process from initial information to full recognition in the national Registered Apprenticeship System.

The program started with 90 apprenticeship programs in 2007, and now has 918 programs today, representing 14,475 apprentices. One in three participating employers offer programs in more than one occupation.  The target industries are:  advanced manufacturing, construction technologies, energy, health care, information technology, and tourism and service industries. The total number of apprentices trained to date is 26,864, and the program is averaging more than 120 new apprentices per month.

At dinner that evening, I met Robin Willis, Associate Vice President, Talent Pipeline Strategies for the Charleston Metro Chamber of Commerce.  She said, “We are very proud of the growing number of Youth Apprenticeship students and their hosts in our region. We feel strongly that this program provides life changing experience for students and helps companies fill their critical Talent needs, so much so we have funded the program in its entirety. There are 105 Youth Apprentices currently in the workforce – 66 new ones that started in August 2017 and 39 who started their 2nd year in August 2017 and will complete the program in June 2018.

I told everyone that I haven’t visited any other state that has such comprehensive training and apprenticeship programs, and I am very impressed by what South Carolina has to offer to existing and relocating companies. It is no surprise that so many foreign companies are choosing South Carolina to establish or expand their U.S. presence. Other states (particularly California) would be smart to emulate the business incentives and training programs offered by South Carolina.

CPA Releases Competitiveness Strategy for the United StatesCPA Releases Competitiveness Strategy for the United States

Friday, November 20th, 2015

For several years, organizations and elected representatives in Congress have proposed developing a national manufacturing strategy. For example, the Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” in April 2011 and the Alliance for American Manufacturing has repeatedly put forward a “Plan to Save Manufacturing,” calling for a national manufacturing strategy to reverse the decline in U.S. manufacturing and the good jobs that come with it. Bills sponsored by Illinois Rep. Dan Lipinski (D) have even passed the House of Representatives, but have died in the Senate.

On November 11th, the Coalition for a Prosperous America (CPA) released “A Competitiveness Strategy for the United States – America at a Crossroads,” which addresses other sectors of our economy in addition to manufacturing.

“America needs to start winning again,” said Michael Stumo, CEO of CPA. “That is why the mission of the Competitiveness Strategy is to:

‘Win the international competition for good jobs, sustained real economic growth and prosperity with a national strategy to counter foreign mercantilism, balance trade and grow strong domestic supply chains.’”

“Across the USA, localities and states employ plans to attract jobs,” said Brian O’Shaughnessy, CPA Chief Co-Chair and Chairman of Revere Copper Products. “Other countries have sophisticated national strategies to acquire industries and bring good paying jobs to their countries. The USA has no comprehensive national strategy for domestic production and good paying jobs to guide trade negotiators and administration officials.”

CPA’s Competitiveness Strategy argues that:

The United States is losing an economic competition against other nations whose mercantilist strategies are destroying our manufacturing jobs, critical industries, our standard of living, our national security, the security of our food supply, and our children’s futures.

The threat to the U. S. economy and national security is grave. Other trading nations are using comprehensive strategies to import jobs across all economic sectors, but are particularly focused on strategically significant technologies and industries. American companies in these sectors face not only wide-ranging mercantilist practices and non-tariff trade barriers such as currency manipulation, tariffs and subsidies, but also much more sophisticated and specific strategies aimed at identifying, acquiring, or otherwise controlling critical technologies.

CPA’s strategy holds out the promise that the U. S. is in control of its own destiny and can re-assert itself as a great manufacturing and producing nation with a rising standard of living for all. We can develop and implement a comprehensive strategy that retains and reinforces our leadership in innovation, locates investment and production in the United States, and raises employment by creating good paying jobs.

The ultimate mission of the strategy is to win the international competition for good jobs and sustained economic growth. The mission recognizes we are in competition with other countries. The Competitiveness Strategy includes nineteen action steps focused upon three interrelated goals:

  1. Identifying and countering foreign mercantilist strategies that grow their economies at the expense of other countries through achieving a persistent trade surplus
  2. Balancing the national trade deficit
  3. Growing domestic supply chains

“All three goals are interrelated and must be pursued together,” continued Stumo. “The President rightfully created the National Network for Manufacturing Innovation to grow domestic supply chains, but the effort cannot succeed unless we combat powerful foreign tactics to take those industries away. Further, a new effort to counter foreign mercantilism and trade cheating is essential, but must have the goal of balancing trade to be fully effective.”
“Additionally, balancing trade is essential, but merely exporting raw materials is insufficient. American must grow and retain a diverse array of industries that add value to our products and create good jobs, with special attention paid to advanced and critical industry supply chains,” Stumo concluded.

CPA’s competitiveness strategy shown below is succinct, yet comprehensive:

“Identify and counter foreign mercantilist strategies that grow their economies at the expense of other countries through achieving a persistent trade surplus

  1. End both currency exchange rate imbalances and the accumulation of excessive US dollar holdings by non-US public and private entities.
  2. Impose offsetting tariffs to neutralize foreign government subsidies to industries and supply chains that compete with ours.
  3. Counter foreign government policies that force offshoring by conditioning access to their markets on transfers of technology, research facilities and/or production to their countries, as well as compliance with export performance and domestic content requirements, while their exporters have access to US markets without these conditions.
  4. Ensure that foreign greenfield investments in the US and acquisitions of existing US companies provide a clear “net benefit” to the US with special scrutiny in cases of state influenced foreign entities.
  5. Protect US food security from foreign government tactics to seize markets.

Balance trade

  1. Offset cumulative trade deficits of recent decades and excessive accumulations of dollar reserves through sustained trade surplus to ultimately achieve a long term overall trade balance.
  2. Insure that the composition of trade includes a substantial trade surplus in high value added and advanced manufactured goods.
  3. Make the US workforce more cost competitive by promoting fair pay, rising living standards and safe working conditions for workers everywhere.
  4. Reduce US producers’ trade disadvantage through tax reform which finances the reduction of payroll taxes and health insurance costs with a border adjustable consumption tax in a revenue and distribution neutral manner.
  5. Lower corporate tax rates and end corporate inversion and profit shifting tax avoidance by taxing the income of unitary business groups, whether domestic or foreign, based upon proportion of global sales in the US.

Grow Domestic Supply Chains

  1. Preserve and develop domestic manufacturing and agricultural supply chains to maximize value added production in the US.
  2. Develop, build and maintain a world-class land, water, air, communications and energy infrastructure.
  3. Safeguard our military strength and national security by insuring that critical technologies, weapons & IT components are developed and manufactured in America by American controlled companies.
  4. Develop, commercialize and retain strategic and economically significant advanced technology and grow their manufacturing supply chains in the US.
  5. Increase public support for, and incentives for private investment in, basic and applied research, infra-technologies and new product and process technologies.
  6. Continually raise the competitiveness of American workers by improving Science, Technology, Engineering and Math (STEM) education available at all levels, systematically enhance lifelong learning for existing workers, and fostering a national system of apprenticeship and paid internships through collaborative public-private endeavors that are connected to actual opportunities in the labor market.
  7. Raise the competitiveness of small and medium sized domestic enterprises by increasing long-term private sector financing, the sharing of research on common issues and the diffusion of new technologies and production methods.
  8. Preserve our right to adopt and enforce domestic policies that insure the quality of our food and goods, and protect the health, safety and general welfare of our citizens without restrictions from international trade agreements.
  9. Ensure that domestic manufacturing and agriculture benefit fully from an expanded supply of low cost US produced energy”

Anyone involved in efforts to revitalize American manufacturing already has a bookshelf full of books, studies, and reports containing recommendations on a national manufacturing strategy. My book, Can American Manufacturing Be Saved? Why we should and how we can has a chapter on “How Can We Save American Manufacturing?” that contains a summary of the recommendations of many organizations as well as my own recommendations, which I incorporate into articles and presentations whenever possible. As chair of the California chapter of CPA, I plan to incorporate this competitiveness strategy into future articles and presentations whenever possible.

The brilliance of CPA’s strategy is that it is not limited to manufacturing and is not a “to do list” of actions to take. The Competitiveness Strategy will work best when pursued as a whole. The three objectives are interrelated because, for example, we cannot balance trade without growing domestic supply chains to produce more, and add more value in the U. S. We cannot grow domestic supply chains unless we neutralize foreign mercantilism (trade cheating) that offshores otherwise competitive industries that we started and developed in the U. S. We cannot address foreign mercantilism without the guidance of a balanced trade objective.

Businesses must have a strategic plan to start and grow. This strategic plan guides the business with regard to product development, finance, marketing, production, procurement, etc. Many other countries have an economic strategy to grow their economy. A country’s strategy guides their economic, fiscal, trade, innovation, finance and monetary policy, so that they all work together to enhance their competitiveness as a nation.

The United States has no comprehensive strategy ? just a hodgepodge of laws and rules. Trade negotiators have had no strategic plan to guide them, and neither do the administrative agencies relevant to manufacturing, agricultural, and use of natural resources. The United States needs a comprehensive competitiveness strategy that clearly expresses exactly what we want to achieve for our country… not for an industry or special interest… but our country as a whole.

We do not have to “keep reinventing the wheel.” It is time for our leaders to “stop fiddling while Rome burns” and show some real leadership. Action, not lip service is what we need now!

Would the Trans Pacific Partnership really be Free Trade?

Tuesday, May 5th, 2015

Free trade ? what does this mean? Businesdictionary.com defines it as “The interchange of goods and services (but not of capital or labor) unhindered by high tariffs, nontariff barriers (such as quotas), and onerous or unilateral requirements or processes.” By this definition, would the Trans Pacific Partnership really be free trade?

Last week, Congressman Tom McClintock (R-CA) gave a speech in support of passing the Trade Promotion Authority aka “Fast Track Authority” saying, “Every nation that engages in trade prospers from it. Every nation that fails to trade, fails to prosper…It is freedom that produces prosperity – the free exchange of goods between people and between nations for their mutual betterment. The greater the freedom, the greater the prosperity.”

This is only true if the nation benefits from the trade by exporting more than it imports. In 2014, the U. S. imported $2.34 trillion in goods compared to exporting $1.62 trillion in goods, resulting in a trade deficit of $721.6 billion. Because we have a surplus in exports of services, our total trade deficit was reduced to $505 billion. It seems to me that we are not benefitting from our current trade agreements as we should and that another trade agreement with 11 more countries would only make our trade deficit much worse.

Rep. McClintock argued that “…since the 1930’s, Congress has chosen to exercise its responsibility by establishing the broad terms of the agreement it seeks and then giving explicit instructions to our negotiators at the beginning of the process. IF, and only IF, these objectives are advanced in the agreement, Congress will then consider it as a whole package and either approve it or reject it.

McClintock said, “That process is now called ‘Trade Promotion Authority. It has stood the test of time, has been used to the great benefit of our nation in the past and has never been controversial until now… It is precisely because of this mistrust that the Trade Promotion Authority sets forth some 150 objectives that must be advanced before Congress will even consider the resulting agreement. And once those objectives are attained, a majority of the Congress must still approve it.”

What is wrong with this argument is that the Trans Pacific Partnership Agreement has been in negotiation for five years without any involvement by Congress; it is not at the beginning of the process. Rep. McClintock seems to mistakenly believe Congress retains the power to direct the President’s negotiations when in fact there is only one more round of negotiations scheduled.

Rep. McClintock wrongly asserts that Congress set forth 150 negotiating objectives in the TPA that the President “must” comply with. This statement is not true. None of the objectives are binding and most are simply vague aspirations of global goals. Indeed, the House Ways and Means Committee firmly rejected any efforts to make the negotiating objectives binding.

The President also is empowered to unilaterally draft “implementing legislation” that will change U.S. laws and regulations to comply with the agreement he negotiated. Through the TPA, Congress even limits its own ability to debate and prevents its ability to amend the implementing legislation.

The Obama Administration made the draft text of the agreement classified and has kept it hidden from public view, making it illegal for the press, experts, advocates, or the general public to review the text of this agreement. Even Congressional members can only view it at the office of the U. S. Trade Representative without pen, pencil, paper or a camera to take picture of any pages. They are also prohibited by law from discussing the specifics of the text in public.

This is why on April 25th Senators Sherrod Brown and Elizabeth Warren wrote President Obama a letter stating, “We write to request that you promptly declassify the latest bracketed negotiating text of the TPP and release it publicly before asking Congress to vote on “fast track” authority to facilitate the TPP’s ratification.”

They add, “Because the negotiations are largely complete, there is no reason the TPP must remain secret from the American people before Congress votes on fast track authority. In 2001, President George W. Bush made public a draft of the scrubbed bracketed text of the Free Trade Area of the Americans (“FTAA”) agreement several months before Congress granted partial fast track authority to facilitate ratification of that deal.”

They conclude, “We have an additional concern: the fast track legislation currently under consideration goes far beyond the TPP. Fast track, as currently written, would preclude Congress from amending or filibustering any trade agreement submitted to this Congress or any future Congress—potentially through 2021.”

Their concerns are shared by Congressman Dan Lipinski (D-IL) who has introduced “the Truth, Transparency, Accountability, and Fairness in Trade Act to protect American workers being harmed by foreign trade agreements.” His bill would require “the Executive Branch to review and report on the operation of existing trade agreements to determine whether American jobs and exports are being negatively impacted. If negative impact is found, any Member of Congress would have the right to submit a “termination bill,” which would have expedited consideration and allow for the cancellation of some or all of the trade agreement causing damage. After passage of a termination bill, any renegotiated agreement would be barred from being considered under Trade Promotion Authority (the fast-track process).”

It is not just Democrats that are opposed to the Trade Promotion Authority bill. Senator Jeff Sessions (R-AL) expressed his concerns about the Trade Promotion authority in an interview on the John Fredericks Radio Show on Thursday, 4/23. (WHKT, AM 1650, and a Network of AM Stations across Virginia.) He subsequently released a critical alert of his Top Five Concerns with Trade Promotion Authority.

Conservatives like Reps. Walter Jones and Duncan Hunter have said they oppose the measure, wary of giving the White House any more authority. At the end of last year, 19 House Republicans signed a letter calling on their colleagues not to pass TPA in the lame-duck session.”

At www.obamatrade.com, you can listen to videos of several conservatives urging Republican Congressional Representatives to oppose the Trade Promotion Authority, including TV host Lou Dobbs, Frank Gaffney, President of Center for Security Policy, former UN Ambassador Alan Keyes, Niger Innis, Executive Director of TheTeaParty.net, Richard Manning, President of Americans for Limited Government, and Sandy Rios of American Family Association. The American Family Association is part of a broad coalition of conservative organizations urging Congress to reject granting President Obama so-called “fast track” power. Author, talk show host, and defender of the Constitution Mark Levin says no conservative should support Fast Track “Trade Promotion Authority.”

Michael Stumo, CEO of the Coalition for a Prosperous America, stated, “The minority staff of the House Ways and Means released a side by side comparison of this week’s Fast Track bill with the bill from January 2014. Basically it is more of the same. Will they never learn? From CPA’s perspective, the new bill is a failure.”

The new bill does not have any enforceable provision to address foreign currency manipulation. It does not address the foreign border adjustable taxes (VATs), which are tariffs by another name. It has insufficient language to address the problem of government subsidies to state owned enterprises. It allows the Investor State Dispute Resolution to be handled by the foreign tribunals without providing a rationale as to why the U. S. court systems are not good enough.

For these reasons and other reasons mentioned in my previous article, “What would be the Impact of the Trans Pacific Partnership Agreement,” this Agreement is the opposite of free trade. It is government controlled trade and is so overreaching on non-trade issues that it would control many aspects of the lives of all Americans, not just businesses.

The Trade Promotion bill passed the House Ways and Means Committee and the Senate Finance Committee on April 22nd and 23rd. It could be brought up for a vote in the full House and Senate any time after Congress gets back from this week’s recess. Time is of the essence! Don’t give up your freedom! Tell your representatives in Congress to vote NO on Fast Track.

What would be the Impact of the Trans Pacific Partnership Agreement?

Monday, April 20th, 2015

Last Thursday, Senators Hatch, Wyden, and Ryan introduced “The Bipartisan Congressional Trade Priorities and Accountability Act of 2015,” which is the Trade Promotion Authority bill that would grant President Obama “fast track” authority for the Trans Pacific Partnership Agreement.

The TPP agreement has been in negotiation since 2010 between the United States and 11 other countries around the Pacific Rim: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The TPP would cover 792 million people and 40% of world’s economic activity. It is a “docking agreement” so other countries could be added, and India, China, and Korea have expressed interest in joining the TPP.

There has been no involvement by Congress in the writing of the Agreement; instead, 600 corporate advisors have worked with the U. S. Trade Representative and his staff to write the more than 1,000 pages of the Agreement. Members of Congress did not even have access to view the Agreement until last year, and they cannot take any staff with them and are not allowed to take pen, pencil, paper, or a camera when they go view it at the U. S. T. R.’s office.

This Act would give Constitutional power over trade to the President and take it away from Congress. It would allow the Executive Branch to conclude negotiations and sign the Agreement before a vote by Congress. It allows only 45 days for committee analysis and only 15 days to bring it up for floor vote. It allows only 20 hours of debate by Congress and eliminates amendments, filibuster, and cloture. It requires only simple majority vote in the Senate and House whereas the U.S. Constitution Article 1, Section 8 Treaty clause requires 2/3 vote of Senate. The TPP would remain in effect until 2018, but could be extended to 2021.

What is missing in the TPP

 The TPP does not address any of the “predatory mercantilist” actions that our current trading partners are using that have created the enormous trade deficit that I wrote about a few weeks ago. These policies are: currency manipulation, “border adjustable” taxes called Value Added Taxes (VATs), which are a tariff by another name, government subsidies for State-Owned Enterprises, and “product dumping” by manufacturers in one country at below their cost to produce to destroy competition in another country.

Over 20 countries, representing 1/3 of global GDP, are engaged in currency wars” by undervaluing their currency. These governments work with their central banks to manipulate the currency value in order to provide a competitive advantage to boost exports and impede imports. China’s currency is estimated to be 25-40% undervalued. As Paul Volcker, former Secretary of the Treasury, has explained, “In five minutes, exchange rates can wipe out what it took trade negotiators ten years to accomplish.” Foreign government intervention in foreign exchange markets is manipulation, not free trade.

Value Added Taxes (VATs) range from a low of 10% to a high of 24%, averaging 17% worldwide. The U. S. is one of a handful of 159 other countries that do not charge a VAT. This means that American products that are exported are an average of 17% more expensive when imported by a country that adds a VAT. In reverse, foreign imports are an average of 17% less expensive because the U. S. does not charge a VAT. Thus, we reduce tariffs through our trade agreements only to have our trading partners add a tariff by another name to the cost of our products that we export. This gives other countries an unfair competitive advantage in the global marketplace.

We have all read news stories about “product dumping” cases against U. S. industries, such as the tires, steel, and solar panel industries. With regard to government subsidies, the best example is how Foxconn was able to get Apple’s business for manufacturing the iPhone, iPad and now the iWatch because the Chinese government gave them the land and built the building for them.

What is wrong with the TPP?

 The TPP overrules prior acts of Congress and destroys our national sovereignty. For example:

 Buy American Act made Null and Void: For the manufacturing industry for which I play a role, the most adverse effect would be that the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to bid on government procurement contracts at the local, state, and federal level. There are many companies that survived the recession and continue in business today because of the Buy American provisions for defense and military procurement. The TPP could be a deathblow for companies that rely on defense and military contracts, such as the U. S. printed circuit board industry. Most of the commercial printed circuit manufacturing was already offshored to China and South Korea years ago.

Product Labeling: Country of Origin Labeling, labeling of GMO products, and “organic” labeling could be made illegal because of being viewed as an “illegal trade barrier.” Even the health warnings on tobacco products could be viewed as an “illegal trade barrier.”

Many TPP countries are farm-raising seafood using chemicals and antibiotics that are prohibited in the U. S. and farmed seafood from China is being raised in water quality equivalent to U. S. sewers. According to Food & Water Watch, around 90% of the shrimp and catfish that Americans eat are imported. They warn, “The TPP will increase imports of potentially unsafe and minimally inspected fish and seafood products, exposing consumers to more and more dangerous seafood.”

Bill Bullard, CEO of R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) has stated “that fast food restaurants are not required to disclose the origins of their beef and even when restaurants say the beef is “U.S. Inspected,” it is as likely as not to be imported.” When we were in Washington, D. C. together last month, Mr. Bullard told me that the increased importation of sheep and lamb from Australia and New Zealand could wipe out the American sheep ranching industry.

The California Farmers Union recently sent a letter to Rep. Davis Valadao (R-CA) stating, “Passage of the TPP would lead to a flood of dairy imports from New Zealand chronically depressing U. S. dairy producer prices…Agricultural imports will rise dramatically under the proposed agreement…The Agreement further poses a threat to the food security that we have long enjoyed as a nation because imports will replace U. S. produced agricultural products.”

Investor State Dispute Resolution: ISDR is designed to allow foreign corporations to bypass the domestic legal system to use to fight laws they don’t like. International Tribunals, not U.S. courts, would decide on lawsuits between “investor” companies in member countries and the U. S. Foreign “investors” could file lawsuits against city, state, and federal agencies for laws and regulations that may infringe on their “expected future profits.” They can also sue for compensation for the loss of these “expected future profits.” Thus, the TPP would infringe upon states’ rights as state and local governments have the constitutional authority to enact rules governing many areas covered by the TPP. But, they will no longer have the freedom to do so in the many regulatory areas covered by the TPP.

The TPP includes hundreds of pages that govern the policies of states concerning non-trade domestic policy and state and local officials would be bound to comply with much of the Agreement’s rules and regulations.

Space doesn’t allow me to cover all of the things that are wrong with the TPP with regard to non-trade issues, such as patent and copyright laws, land use, as well as policies concerning natural resources, the environment, labor laws, health care, energy and telecommunications.

Except for the large multinational corporations that participated in writing the Agreement and are its beneficiaries, there is something for everyone to hate. Opposition to the TPP cuts across party lines ? there are Democrats, Republicans, and Libertarians opposed to many of the “leaked” provisions of the TPP. Organizations from the left to the right are opposed to the TPP as negotiated. It will hurt the 98-99% of American manufacturers who had no place at the table in writing the Agreement. It will hurt American consumers and American workers of all ages. It will harm our environment and put our food and water safety at risk. But, most of all it will destroy our national sovereignty. Now is the time for you to write, call, or email your Senator and Congressional representative to urge them to vote “no” on granting Fast Track authority.

Why We Must Stop the Fast Track Authority in the “Lame Duck” Session

Tuesday, November 18th, 2014

The rumors in Washington, D. C. are that granting President Obama Fast Track Authority under Trade Promotion Authority will be brought up in the “Lame Duck” session, perhaps as an addition to one of the bills extending certain tax credits, called “Tax Extender bills.”

Simply put, granting Fast Track Authority to the president means:

  • Choice of countries is delegated to President
  • Executive Branch negotiates and signs a trade agreement before vote by Congress
  • Allows only 20 hours of debate by Congress
  • Forbids any amendments to the trade agreement
  • Requires only a simple majority vote in each House violating U.S. Constitution Article 1 Treaty clause giving the Senate authority to approve a treaty by a supermajority.
  • Gives Constitutional power over trade to President and takes it away from Congress
  • Usurps Constitution and is dangerous to give this much power to the Executive Branch

There are two trade agreements that have been in secret negotiations since 2010. The first is the Trans-Pacific Partnership. Eleven nations have participated in the negotiations: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Japan announced its intention to join the agreement last spring. However, the TPP is intended as a “docking agreement,” so other Pacific Rim countries could join over time, and the Philippines, Thailand, Colombia, and others have expressed interest. Even China could join the TPP at a later date without suffering any disadvantage though this would negate the original reason for the TPP as a counter to China’s hegemony in the Pacific.

The TPP is much more than a trade agreement; it is a Trade and Global Governance Agreement because only five of the 30 chapters relate to tariffs and quotas. The other 25 chapters cover such topics as: domestic regulation: food & product safety, financial regulation, investor states’ rights, immigration, intellectual property, federal, state and local laws on taxes, patents, copyrights, trademarks, immigration, environment, labor standards, among many other issues. Clauses in these chapters may even overrule prior acts of Congress without new legislation being introduced, passed in Congress, and signed by the president.

Most dangerous of all, International Tribunals, not U.S. courts, would decide on lawsuits between companies in member countries and U. S. In a commentary article on October 15, 2013, Lt. Col (Retired) Allen West wrote, “TPP would subject the U.S. to the jurisdiction of foreign tribunals under the authority of the World Bank and United Nations. These unelected, unaccountable panels would constitute a judicial authority higher than the U.S. Supreme Court. They would have the power to overrule federal court rulings and order payment of U.S. tax dollars to enforce the special privileges granted to foreign firms that would be exempt from EPA and other regulations that strangle American firms.”

In addition, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. There are many companies that survived the recession and continue in business today because of the Buy American provisions for defense and military procurement. The TPP could be the death knoll for these companies!

The other trade agreement is the Transatlantic Trade and Investment Partnership (TTIP) also known as the Transatlantic Free Trade Agreement (TAFTA), which is a proposed free trade agreement between the European Union and the United States. The Obama administration considers the TTIP a companion agreement to the Trans-Pacific Partnership, and it is similar in scope and nature to the TPP, incorporating all the same global governance chapters.

In the last 20 years, the U. S. has made trade agreements with 20 nations, of which the major trade agreements are:

  • NAFTA
  • Created the World Trade Organization & let China join
  • Panama Free Trade Agreement
  • Central America Free Trade Agreement
  • Colombia Free Trade Agreement
  • Korea Free Trade Agreement

What have been the consequences of these past trade agreements? One consequence is an increasing trade deficit. In 2013, our total trade deficit in goods was $688.4 billion, of which China represented 46% at $318.4 billion. Our top six trading partners of Canada, China, Mexico, Japan, Germany, and South Korea represent 64% of our total trade deficit.

Another serious consequence is the loss of American jobs. From 2000 to 2010, the U. S. lost 5.8 million manufacturing jobs and 57,000 manufacturing firms closed. Where did most of the jobs go? U.S. Department of Commerce data shows that “U.S. multinational corporations… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.” Millions of people have lost their jobs because corporate CEOs concluded, “It’s cheaper to manufacture where they pay 50 cents/hour and let us pollute all we want.”

As a result, the real unemployment rate is 16.1%, and there are still nearly 2 million less jobs than there were at the start of the Great Recession in December 2007!

The TPP and TTIP/TAFTA are bad for American companies, American workers, and American consumers. What good does it do to have cheaper consumer goods if you don’t have a job?

I urge everyone to Contact your Congressman to ask them to vote no on granting Fast Track Authority!

 

Trade Deficit Would Shrink with Stroke of a Pen

Tuesday, July 15th, 2014

Since NAFTA went into effect in 1994, the U. S. has generated the highest trade deficit in the world and the largest in the world’s recorded history. If you add the annual trade deficit in goods as shown on the Census Bureau website, the total is a staggering figure of -$10.347 trillion.

The United States now has a trade deficit with 88 countries according to data in the book, Buying Back America. Some deficits are small, but some are enormous. Our top six trading partners of Canada, China, Mexico, Japan, Germany, and South Korea represent 64% of our total trade deficit. In 2013, our total trade deficit in goods was $688.4 billion, of which China represented 46% at $318.4 billion. However, our 20-year total trade deficit with China since 1994 is a staggering -$3.287 trillion.

Now, the current Administration wants to cover up the evidence of the damage to our economy by changing the rules of how a manufacturer is defined instead of responding to the American public’s demand to know where products are manufactured so they can have the freedom to choose whether or not to buy “Made in USA” products.

On June 24, 2014, Robert E. Scott, Director of Trade and Manufacturing Policy Research for the Economic Policy Institute, conducted a webinar for the Coalition for a Prosperous America: “The Factoryless Goods Production Controversy (Foreign Goods Production) – How proposed government rule changes would classify foreign goods as U.S.-made.”

He explained that an Economic Policy Classification Committee (ECPC) formed by the Office of Management and Budget is proposing a Factoryless Goods Production (FGP) and Global Value Chain (GVC) rule to artificially inflate manufacturing production and reduce the trade deficit. This change would result in shrinking our trade deficit and growing our manufacturing output with the stroke of a pen, without adding any more real jobs or production.

The ECPC was formed to make recommendations for revising the North American Industrial Classification System (NAICS), created in 1997 as a unified Industrial classification system for the U.S., Mexico and Canada.

Traditionally, all production chain tasks were performed in one factory, in multiple factories of one firm, or by subcontract suppliers to that firm, as is the case for companies like Northrop Grumman that makes Unmanned Aircraft Systems in San Diego.

In the last 20 years, improvements in communications, technology and transportation, as well as global trade agreements and foreign investment in plants haveallowed product design, development, and manufacturing to be performed in different locations, including offshore in China and other Asian countries.

This has enabled a company to control production without directly performing any manufacturing process or transformation task in one of their facilities; e.g. Apple, Nike, AMD, and fabless semiconductor manufacturing. In fact, the top five semiconductor firms in 2013 were fabless companies: Qualcomm, Broadcom, AMD, Mediatek, and Nvidia. These companies focus on innovation, product development, marketing, and sales rather than manufacturing tasks.

There are currently three types of establishment classifications:

Type of Establishment Characteristics  
Integrated Manufacturer (IM)  Performs all the tasks of the production chain
Manufacturing Service Provider (MSP) Performs transformation tasks but does not perform production management tasks (may purchase inputs) 
Factoryless Goods Producer (FGP) Does not perform transformation tasks but performs all production management tasks (may or may not own parts)

These current classifications require the statisticians to choose where to put the FGPs and how to count production. They now have the choice of classifying them as wholesalers, manufacturers, or split based on the location of the transforming company.

Currently, Apple and Nike are classified as wholesalers since they do not perform any manufacturing transformation tasks in the U.S. This accurately reflects the fact that both Apple and Nike have offshored their manufacturing to China.

Under current policy, when a company like Apple ships component parts to China to be assembled in a Chinese factory (e.g. Foxconn) and then sends the product back to the U.S. to be sold here, the value of the imported iPhone minus the value of the exported parts counts as a net U.S. import of manufactured goods.

Under the ECPC proposal, Foxconn, now called a “manufacturing services provider,” would not be described as having manufactured the iPhones but as having provided services to Apple.

An additional concern is that the ECPC proposes to treat some goods exported by foreign factories as U.S. manufactured exports. For example, currently, when Apple ships iPhone parts to China to be assembled by Foxconn and then ships the finished product to another county, Apple’s export of these parts to China counts as the only U.S. export.

But, the ECPC proposed rule would classify the engineering, marketing and profit to Apple as U.S. production. A fully assembled iPhone sale to another country, such as Japan or a European Union country, would count as a “U.S. manufactured goods export,” less the cost of any imported parts.

The justification for this is that while China manufactured and exported the iPhones, they count as U.S. manufactured exports because they were under the control of a U.S. brand. This would create an artificial increase in U.S. manufactured exports and cover up the real U.S. manufacturing trade deficit.

Thus, if a U.S. based company offshores manufacturing work, much of it would be classified as U.S. production. Further, imported products from foreign contract manufacturers hired by a U.S. company will no longer be a “goods import” but rather a “manufacturing services import.” This means that products from Flextronics in Mexico, which makes components in Mexico for U.S. firms that are shipped to the U.S., would no longer be considered a “goods import” but a “services import.”

In addition, the ECPC proposal would result in a miraculous overnight increase in the number of U.S. “manufacturing” jobs. White-collar employees in firms like Apple would be re-branded as “factoryless goods producers” and counted as “manufacturing” workers. The change would also create a false increase in manufacturing wages, as many of the new-to-be-counted “manufacturing” jobs would be designers, programmers and brand managers at “factoryless goods producers” like Apple. As a result, reported manufacturing output would jump, as revenues from firms like Apple would be lumped in with the output of actual U.S. manufacturers.

This proposal would deceptively shrink the size of the reported U.S. manufacturing trade deficit while artificially inflating the number of U.S. manufacturing jobs. It would obscure the erosion of U.S. manufacturing, undermining efforts to improve the trade and economic policies for our country.

This proposal is fraudulent and would distort U.S. trade, labor, and gross domestic product statistics that show the need for a developing a manufacturing strategy in the U.S. The offshoring of U.S. manufacturing under years of bad trade policies should not be undone with a data trick.

The proposal from the Economic Classification Policy Committee (ECPC) to redefine U.S. manufacturing and trade statistics must be stopped. Only manufacturing performed within the U.S. should be considered U.S. goods production. If manufacturing occurs in another country, it simply is not U.S. production.

On May 22, 2014 the Office of Management & Budget solicited comments on these proposed revisions. You also can view the notice for this proposal in the Federal Register. The comment period ends July 21, 2014. You may email your comments today to John.Burns.Murphy@census.gov to keep the “factoryless goods” proposal from becoming a reality. Or, to make taking action even easier, you can click here to customize and submit a pre-drafted comment provided by the Coalition for a Prosperous America.

CPA’s Legislative Fly-in was a Resounding Success!

Tuesday, March 18th, 2014

Last week, I attended the annual Coalition for a Prosperous America’s legislative fly-in to Washington, D.C. for the second time. My fellow CPA members and supporters came from California to New England and from Washington State to Florida, and we met with over 100 Congressional and Senate offices. As chair of the California chapter, I headed up one of the two teams from the western United States, and my team met with Congressional staff and one Congressmen at a dozen offices. It was obvious that CPA’s influence is growing as we had more scheduled appointments than last year, and our appointment times were twice as long.

We delivered the message that balanced trade needs to be at the forefront of our national strategy. We now have a trade deficit with 88 countries, and our trade deficit with every one of our trading partners is worse than it was prior to concluding trade agreements with these countries. In 2013, we had a trade deficit in goods of $703.2 billion and services, but because we still have a trade surplus in services, our deficit in goods and services went down to $471.5 billion. One problem with services is that many of the services we now export are services being performed for American manufacturers that have set up manufacturing plants in other countries. An additional problem is that over 40% of our trade deficit is with China alone, and this is unsustainable.

Since our U. S. Gross Domestic Product (GDP) is the sum of Consumption plus Investment plus Government Procurement plus Net exports (exports – imports), our trade deficit reduces our GDP. For example, in 2011, our GDP was $15,094.4 trillion, and our trade deficit shaved 4% off our GDP (14% share of GDP for exports minus 18% share of GDP for imports.)

“Our members reported a major improvement this year in congressional willingness to reconsider bad trade policy,” said Michael Stumo, CEO of the Coalition for a Prosperous America. “We were effective in countering the relentless efforts by the wealthy special interest groups who work hard to offshore our industries, our jobs and our sovereignty. The Administration’s efforts to push outdated, economy-killing concepts of trade policy has been stonewalled by the left and the right in Congress. Now they are in disarray.”

“It has become impossible to defend the current neo-liberal trade policy which ignores balance of trade,” continued Stumo. “We will start pushing that concept harder this year as we work with Congressional allies.”

I was happy to see that Congressional offices showed a heightened sensitivity to preserving states rights, American national sovereignty, and legislative branch authority over trade. The Trans-Pacific Partnership (TPP) being negotiated would allow foreign tribunals to pass judgments on “investment agreements” between the U. S. federal government and investors from TPP nations. This would make the laws and policies of the 50 states to be subject to  international tribunals rather than our Congress and judicial system.

Also, the TPP would create binding policies on future Congresses as it pertains to patent and copyright laws, land use, food and agriculture, and product standards. It would also govern our nation’s policies concerning natural resources, the environment, labor laws, and government procurement policies, along with financial, health care, energy, telecommunications and other service sector regulations.

“Congress is increasingly loathe to transfer its authority over trade and domestic policy to the executive branch and give up its right to full transparency and amendments,” said Stumo. “Trade negotiators have steadfastly refused to pursue balanced trade, a fix for currency manipulation, and multiple other changes to fix the mistakes of the past.”

I have written the following four articles in the past year that were published on the Huffington Post regarding the dangers of the TPP as currently negotiated:

The Trans-Pacific Partnership Would Destroy our National Sovereignty” (March)

Why the Trans-Pacific Partnership Would Hurt American Manufacturers” (May)

The Trans-Pacific Partnership Trade Agreement Would Harm Our Environment” (July)

Why we must stop Fast Track Authority from being granted” (January 9, 2014)

In addition to pointing out the harm that has been caused by our current trade policies and what is wrong with the TPP, we presented CPA’s “Principles for a 21st Century Trade Agreement:  Fixing Past Mistakes,” which advocates trade strategies that would create “Smart Trade not Dumb Trade.” Congress should require that future trade agreements provide:

Balanced Trade:  Trade agreements must contribute to a national goal of achieving a manageable balance of trade over time.

National Trade, Economic and Security Strategy: Trade agreements must strive to optimize

value added supply chains within the U.S. – from raw material to finished product – pursuant to a national trade and economic strategy that creates jobs, wealth and sustained growth. The agreements must also ensure national security by recapturing production necessary to rebuild America’s defense industrial base.

Reciprocity: Trade agreements must ensure that foreign country policies and practices as well as their tariff and non-tariff barriers provide fully reciprocal access for U.S. goods and services. The

agreements must provide that no new barriers or subsidies outside the scope of the agreement nullify or impair the concessions bargained for.

State Owned Commercial Enterprises: Trade agreements must encourage the transformation of state owned and state controlled commercial enterprises (SOEs) to private sector enterprises. In the interim, trade agreements must ensure that SOEs do not distort the free and fair flow of trade –

throughout supply chains – and investment between the countries.

Currency: Trade agreements must classify prolonged currency undervaluation as a per se violation of the agreement without the need to show injury or intent.

Rules of origin: Trade agreements must include rules of origin to maximize benefits for U.S. based supply chains and minimize free ridership by third parties. Further, all products must be labeled or marked as to country(s) of origin as a condition of entry.

Enforcement: Trade agreements must provide effective and timely enforcement mechanisms, including expedited adjudication and provisional remedies. Such provisional remedies must be permitted where the country deems that a clear breach has occurred which causes or threatens injury, and should be subject to review under the agreements’ established dispute settlement mechanisms.

Border Adjustable Taxes: Trade agreements must neutralize the subsidy and tariff impact of the border adjustment of foreign consumption taxes.

Perishable and Cyclical Products: Trade agreements must include special safeguard mechanisms to address import surges in perishable and seasonal agricultural product markets, including livestock markets.

Food and Product Safety and Quality: Trade agreements must ensure import compliance with

existing U.S. food and product safety and quality standards and must not inhibit changes to or improvements in U.S. standards. The standards must be effectively enforced at U.S. ports.

Domestic Procurement: Trade agreements must preserve the ability of federal, state and local

governments to favor domestic producers in government , or government funded, procurement.

Temporary vs. Permanent Agreements: Trade agreements must be sunsetted, subject to renegotiation and renewal. Renewal must not occur if the balance of benefits cannot be restored.

Trade negotiators agree to language based upon expectations and judgment in pursuit of national goals.

Labor: Trade agreements must include enforceable labor provisions to ensure that lax labor standards and enforcement by contracting countries do not result in hidden subsidies to the detriment of U.S.-based workers and producers.

We CPA members also delivered a petition signed by over 80 liberty groups across the country objecting to Fast Track and the Trans-Pacific Partnership on constitutional grounds. “Tea Party and other liberty organizations have learned how American sovereignty is at risk as we transfer domestic authority to international governance systems and tribunals,” continued Stumo. “They are not fooled by phony free trade claims as a rationale to permanently give up our sovereignty.”

After this legislative fly-in, the outlook is more promising that CPA will be successful in forging a new consensus on trade and economic policy that balances trade, creates jobs, grows our economy and protects American sovereignty. It was a pleasure to take advantage of my rights as a citizen to express my opinions and those of an organization of which I am a member to our elected representatives. You can help ensure that this success happens sooner than later by supporting the Coalition for a Prosperous America.

Has NAFTA Benefited Americans?

Tuesday, January 28th, 2014

By this question, I mean the American people, not America, our country, nor American corporations. There can be diplomatic benefits to trade agreements, such as strengthening our relationships with countries that are allies in the world’s political arena. There can be benefits to American-based global corporations to open doors to new markets in specific countries. These are two of the reasons touted by “free trade” proponents as benefits to negotiating trade agreements.

To discern the answer to the title’s question, let us examine whether the North American Free Trade Agreement (NAFTA) has benefited Americans as a whole. NAFTA was negotiated under President Bill Clinton and went into effect in January 1994. The agreement was supposed to reduce market barriers to trade between the United States, Canada and Mexico to reduce the cost of goods, increase our surplus trade balance with Mexico, reduce our trade deficit with Canada, and create 170,000 jobs a year. Twenty years later, the fallacy of these supposed benefits is well documented.

According to the report “NAFTA at 20” released this month by Public Citizen’s Global Trade Watch, “More than 845,000 specific U.S. workers have been certified for Trade Adjustment Assistance (TAA) as having lost their jobs due to imports from Canada and Mexico or the relocation of factories to those countries.”

Major corporations such as General Electric, Caterpillar, and Chrysler announced they would add jobs for increased sales to Mexico; instead they eliminated jobs. For example, General Electric testified before Congress saying, “We are looking at another $7.5 billion in potential sales over the next 10 years. These sales could support 10,000 jobs for General Electric and its suppliers. In reality, “General Electric has eliminated 4,936 U.S. jobs since NAFTA due to rising imports from Canada and Mexico or decisions to offshore production to those countries.”

The report also documents the fact that “the small pre-NAFTA U.S. trade surplus with Mexico turned into a massive new trade deficit and the pre-NAFTA U.S. trade deficit with Canada expanded greatly.” According to Census Bureau data, in 1993, the non-inflation adjusted U.S. trade surplus with Mexico was $1.6 billion, and in 2013, the U. S. trade deficit had grown to $50.1 billion. The non-inflation adjust U. S. deficit with Canada grew from $4.4 billion in 1994 to $7.4 billion in 2013. Together the Mexico and Canada inflation-adjusted trade deficits “have morphed into a combined NAFTA trade deficit of $181 billion.”

Most people do not understand how trade deficits hurt them. They do not realize that when our country imports more goods than it exports, we go in debt as a country to pay for these goods. We then have to borrow money or increase taxes to have enough money to run our government. This is why we now have a nearly $17 trillion national debt. As individuals, we would soon go bankrupt if we did not earn enough money to pay our bills and had to keep borrowing money, but the government can just keep printing money. The problem with printing more money is that the value of the dollar keeps going down, so each of us has to work harder to make more money to try to keep our pay equal to what we earned previously.

According to the Coalition for a Prosperous America, trade deficits also diminish the U. S. Gross Domestic Product since GDP equals the sum of Consumption, Investment, Government Procurement, and Net Exports (Exports – Imports). Our trade deficit in 2011 alone shaved an astounding 4% from overall U. S. GDP.

Our efforts to keep our earnings of equal value have not succeeded because the report states, “NAFTA has contributed to downward pressure on U.S. wages and growing income inequality.” What this means is that as Americans lost their higher paying manufacturing jobs, they had to compete with the glut of other Americans for the non-offshorable, lower paying, low-skill jobs, in retail, hospitality, and food service. “According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent.” The result is an increasing gap between the rich and the poor and a shrinking middle class.

Manufacturing jobs are the foundation of the middle class; these jobs raised the average daily wage between 1900 and 2000 from $2.50 a day to $96.00 a day. If we lose the majority of our manufacturing industry, we will lose our middle class.

We were supposed to realize the benefits of lower prices as consumers, but in contrast, the report states, “Despite a 188 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal price of food in the United States has jumped 65 percent since the deal went into effect.”

As a result, our “average annual U.S. agricultural trade deficit with Mexico and Canada under NAFTA stands at $800 million, more than twice the pre-NAFTA level.” American ranchers and cattlemen have been hurt by the 130 percent increase of beef imports from Mexico and Canada since NAFTA took effect, “and today U.S. consumption of “NAFTA” beef tops $1.3 billion annually.” U.S. food processors moved to Mexico to take advantage of low wages, resulting in a loss of jobs for Americans at U. S. food processing plants.

The report was a revelation to me about an unintended consequence of NAFTA ? the dramatic increase of illegal immigrants to the U. S. in the past 20 years. According to the report, the increased export of subsidized U. S. corn to Mexico resulted in the destruction of “…the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture.”

The report quotes an exposé, “Trade Secrets,” by John Judis in the April 9, 2008 issue of New Republic, which stated. “Wages dropped so precipitously that today the income of a farm laborer is one-third that of what it was before NAFTA. As jobs disappeared and wages sank, many of these rural Mexicans emigrated, swelling the ranks of the 12 million illegal immigrants living incognito and competing for low-wage jobs in the United States.”

As a result, “The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.”

Prior to NAFTA, jobs at maquiladora factories were responsible for a growing middle class in cities such as Tijuana and Tecate in Baja California, Mexico. The report states that “Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods as on the day that NAFTA took effect.”

The lower wages at Mexican maquiladoras since NAFTA explains why Mexico is now benefitting from “nearsourcing,” which is returning manufacturing from China where wages have risen 15-20% year over year for the past five years. Taking into consideration the other costs and hidden costs of doing business offshore that comprise a Total Cost of Ownership analysis; Mexico is now more competitive than the coastal areas of China’s manufacturing industry.

Of course, the influx of illegal immigrants from Mexico is another factor in the downward pressure on wages in the United States. Today, only 1.9 million hourly workers make $20 per hour, which is a marker for jobs that provide a middle-class standard of living, down 60% since 1979, according to the Bureau of Labor Statistics.

In conclusion, we can clearly see from the well-documented evidence that NAFTA has not benefited the American people. It may have benefited American corporations that expanded their sales in Mexico or moved manufacturing to Mexico to increase their profits. However, I am sure that none of the American company owners of the more than 60,000 manufacturing firms that have closed since 1994 or the nearly one million American workers who lost their jobs because of NAFTA would say they benefited from this trade agreement.

The last thing we need is another free trade agreement such as the Trans-Pacific Partnership Agreement that has been negotiated behind closed doors by the Obama Administration for the past three years. We can’t afford the loss of more American jobs. What we need are trade policies that will help American manufacturers and address the predatory mercantilist policies of China, Japan, Korea, and other countries with regard to government subsidies, currency manipulation, product dumping, and intellectual property theft. We need to have balanced trade as recommended by the Coalition for a Prosperous America (CPA) in their issue paper, “21st Century Trade Agreement Principles.” As chair of the newly formed California chapter of CPA, I would welcome your support and involvement to rebuild American manufacturing, create more higher-paying manufacturing jobs, and reduce our trade deficit and national debt.

We Must Stop Fast Track Trade Authority from Being Granted!

Tuesday, January 7th, 2014

President Obama had hoped to be able to announce that he had been granted Fast Track Authority before the Asia-Pacific Economic Cooperation (APEC) meeting in Bali, Indonesia on October 8, 2013, but due to budget issues and the government shutdown, the bill wasn’t introduced and approved in the fall. He had also hoped to complete negotiations for the Trans-Pacific Partnership (TPP) Agreement at this meeting, but no agreement was reached by the countries involved. For the last three years, the Obama administration has conducted negotiations behind closed doors through the offices of U.S. Trade Representative Ron Kirk without any involvement with Congress.

Eleven nations have participated in the negotiations: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Japan announced its intention to join the agreement last spring. Because the TPP is intended as a “docking agreement,” other Pacific Rim countries could join over time, and the Philippines, Thailand, Colombia, and others have expressed interest. China could join the TPP at a later date without suffering any disadvantage even though this would negate the original reason for the TPP as a counter to China’s hegemony in the Pacific.

Reliable sources have revealed that a bill to grant the president Fast Track Authority under the Trade Promotion Authority will be introduced on January 8th in the Senate Finance Committee and the House Ways and Means Committee. It appears that there is sufficient support to pass these bills out of the committees for a vote on the floor.

Earlier this year, I published three blog articles on the dangers of the Trans-Pacific Partnership agreement and granting the president Fast Track Authority:  “The Trans-Pacific Partnership Would Destroy our National Sovereignty;” “Why the Trans Pacific Partnership Would Hurt American Manufacturers;” and “The Trans Pacific Partnership Trade Agreement Would Harm our Environment.”

In my first article, I commented on the many articles that Lori Wallach of Public Citizen had written about the Trans-Pacific Partnership:  “Ms. Wallach opines that U.S. multinational corporations have the goal of imposing on more countries a set of extreme foreign investor privileges and rights and their private enforcement through the notorious “investor-state” system. ‘ This system elevates individual corporations and investors to equal standing with each TPP signatory country’s government- and above all of us citizens.’ This would enable ‘foreign investors to skirt domestic courts and laws, and sue governments directly before tribunals of three private sector lawyers operating under World Bank and UN rules to demand taxpayer compensation for any domestic law that investors believe will diminish their ‘expected future profits.’”

With regard to “Buy American” laws in my second article, I wrote, “What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries.”

I also noted that as far back as May 3, 2012, a letter from Rep. Donna Edwards (D-Md.) and 68 other Congressional Reps to President Obama stated in part, “We are concerned about proposals we understand are under consideration in the Trans-Pacific Partnership (TPP) agreement negotiations that could significantly limit Buy American provisions and as a result adversely impact American jobs, workers, and manufacturers…We do not believe this approach is in the best interest of U.S. manufacturers and U.S. workers. Of special concern is the prospect that firms established in TPP countries, such as the many Chinese firms in Vietnam, could obtain waivers from Buy American policies. This could result in larger sums of U.S. tax dollars being invested to strengthen other countries’ manufacturing sectors, rather than our own.”

In a commentary article on October 15, 2013, Lt. Col (Retired) Allen West wrote, “TPP would subject the U.S. to the jurisdiction of foreign tribunals under the authority of the World Bank and United Nations. These unelected, unaccountable panels would constitute a judicial authority higher than the U.S. Supreme Court. They would have the power to overrule federal court rulings and order payment of U.S. tax dollars to enforce the special privileges granted to foreign firms that would be exempt from EPA and other regulations that strangle American firms.”

He added, “We’re also told TPP shows our Asian allies we’re serious about confronting China. But it would actually weaken the U.S. As the Chinese People’s Liberation Army uses every means possible to infiltrate our command and control systems, TPP bans Buy American policies that require crucial equipment for our troops be produced in the U.S. We don’t need TPP to stop China’s military expansion – we need to tell the same crowd pushing TPP to stop transferring their capital and technology to that communist dictatorship.”

In a commentary on the Economy in Crisis website, economist Pat Choate outlined the reasons why we should oppose President Obama being granted Fast Track Authority:

  • Allows the President to select countries with which to enter into trade agreements, set the substance of the talks and then sign those pacts without prior Congressional approval.
  • Allows the President to negotiate and include in these trade agreements not only tariffs and quotas, but also changes in federal, state and local laws on taxes, food and health safety, patents, copyrights, trademarks, immigration, Environment, Labor standards, and Buy America provisions, among many other issues.
  • Creates a Presidential advisory system, comprising 700 industry representatives appointed by the President. These advisors have access to confidential negotiating documents that are kept secret from most members of Congress and the public.
  • Empowers the President to draft the agreements to implement legislation without Congressional input.
  • Requires House and Senate Leaders to introduce the President’s bill on the first legislative day following the President’s submission.
  • Requires that the legislation be discharged from Committee 45 days after submission.
  • Requires a floor vote 15 days after the bill is discharged from Committees.
  • Allows only 20 hours of debate in each House.
  • Prohibits any amendments either in Committee or during the floor debate.
  • Eliminates several floor procedures, including Senate unanimous consent, normal debate and cloture rules, and the ability to amend the legislation.
  • Prevents a Senate filibuster.
  • Requires only a simple majority vote in each House for enactment.

In conclusion Mr. Choate states, “These trade pacts will have the effect of a treaty, though the Constitution requires a two thirds majority vote by the Senate for the United States to enter into a treaty.”

It is precisely this sort of amassing of powers that defines a dictatorship. Our Founding Fathers wisely chose to keep governmental power separated in a system of checks and balances, but by utilizing the Fast Track Authority, our Constitutional system of checks and balances would be destroyed and our national sovereignty would be given to foreign nations and multinational corporations in the name of “free trade.”

A letter addressed to President Obama, signed by 24 Republican Representatives in the House, stated, “Under Fast Track, the executive branch is empowered to sign trade agreements before Congress has an opportunity to vote on them, and then unilaterally write legislation making the pacts’ terms U.S. federal law. Fast Track allows the president to send these executive branch-authored bills directly to the floor for a vote under rules forbidding all floor amendments and limiting debate. And by requiring the House to vote on the bill within a preset period of time, it takes the floor schedule out of the hands of the House majority and gives it to the president.

Given these factors, we do not agree to cede our constitutional authority to the executive through an approval of a request for “Fast Track Trade Promotion Authority.”

The signatories were:  Jones, Bachmann, Joyce, Gohmert, Cook, McKinley, Jimmy Duncan, Stockman, LoBiondo, R. Bishop, C. Collins, C. Smith, Rohrabacher, Bentivolio, Grimm, Mica, Broun, Brooks, D. Young, Jeff Duncan, Gibson, Denham, Hunter and Fitzpatrick.

On the Democrat side of the aisle, Representatives Rosa DeLauro (D-CT) and George Miller (D-CA) took the lead in getting a total of 151 Democrats in the House to oppose the use of “Fast Track” procedures that usurp Congress’s authority over trade matters. Their opposition stands for both the Trans-Pacific Partnership (TPP) agreement and any future trade agreements. The letter in part states, “Congress, not the Executive Branch, must determine when an agreement meets the objectives Congress sets in the exercise of its Article I-8 exclusive constitutional authority to set the terms of trade. For instance, an agreement that does not specifically meet congressional negotiating objectives must not receive preferential consideration in Congress. A new trade agreement negotiation and approval process that restores a robust role for Congress is essential to achieving U.S. trade agreements that can secure prosperity for the greatest number of Americans, while preserving the vital tenets of American democracy in the era of globalization.”

If Fast Track Authority is approved, it would allow President Obama to essentially have dictatorial control over the country in many respects. Fast Track Authority gives the executive branch legislative powers, something expressly forbidden by the Constitution. We must deny the President Fast Track Authority. If this is granted, it will be even more difficult to stop the Trans-Pacific Partnership from being approved.

It would be the final nail in the coffin for U.S. sovereignty. Contact your Congressional representative and urge them to oppose the Fast Track Authority and forward this article to your friends and ask them to do the same!

Chinese Innovation Mercantilism is Hurting American Manufacturers

Tuesday, December 11th, 2012

On Wednesday, December 5, 2012, Robert D. Atkinson, President of the Information Technology and Innovation Foundation (ITIF), testified before the House Science Committee Subcommittee on Investigations and Oversight in a hearing on “The Impact of International Technology Transfer on American Research and Development.” His testimony was based on his book, Innovation Economics: The Race for Global Advantage (Yale University Press, 2012) and the ITIF report, “Enough is Enough:  Confronting Chinese Innovation Mercantilism,” released February 2012.

Atkinson began his testimony by stating, “A nation’s investments in research and development (R&D) are vital to its ability to develop the next-generation technologies, products, and services that keep a country and its firms competitive in global markets. Until recently, corporate R&D was generally not very mobile, certainly not in comparison to manufacturing. But in a “flat world” companies can increasingly locate R&D activities anywhere skilled researchers are located…. the United States has seen its relative competitive advantage in R&D and advanced technology industries decline. While the United States still leads the world in aggregate R&D dollars invested, on a per-capita basis it is falling behind.”

He testified that the “decline in America’s innovative edge is due to a number of factors, not the least of which are failures of federal policy, such as an unwillingness to make permanent and expand the R&D tax credit, limitations on high-skill immigration, and stagnant federal funding for R&D. But the decline is also related to unfair practices by other nations that collectively ITIF has termed as ‘innovation mercantilism.’”

The ITIF report cited above states that these policies “include currency manipulation, relatively high tariffs (three times higher than U.S. tariffs), and tax incentives for exports.” In addition, “some policies help Chinese firms while discriminating against foreign establishments in China. These policies include “discriminatory government procurement; controls on foreign purchases designed to force technology transfer to China; land grants and rent subsidies to Chinese-owned firms; preferential loans from banks; tax incentives for Chinese-owned firms; cash subsidies; benefits to state-owned enterprises; generous export financing; government-sanctioned monopolies; a weak and discriminatory patent system; joint-venture requirements; forced technology transfer; intellectual property theft; cyber-espionage to steal intellectual property (IP); domestic technology standards; direct discrimination against foreign firms; limits on imports and sales by foreign firms; onerous regulatory certification requirements; and limiting exports of critical materials in order to deny foreign firms key inputs.”

The report explains that “in the last decade China has accumulated $3.2 trillion worth of foreign exchange reserves and now enjoys the world’s largest current account balance. In 2011, it ran a $276.5 billion trade surplus with the United States. This ‘accomplishment’ stems largely from the fact that China is practicing economic mercantilism on an unprecedented scale. China seeks not merely competitive advantage, but absolute advantage. In other words, China’s strategy is to win in virtually all industries, especially advanced technology products and services… China’s policies represent a departure from traditional competition and international trade norms. Autarky [a policy of national self-sufficiency], not trade, defines China’s goal. As such China’s economic strategy consists of two main objectives: 1) develop and support all industries that can expand exports, especially higher value-added ones, and reduce imports; 2) and do this in a way that ensures that Chinese-owned firms win.”

The report states that “because China is so large and because its distortive mercantilist policies are so extensive, these policies have done significant damage to the United States and other economies…The theft of intellectual property and forced technology transfer reduce revenues going to innovators, making it more difficult for them to reinvest in R&D. The manipulation of standards and other import restrictions balkanizes global markets, keeping them smaller than they otherwise would be, thereby raising global production costs…if Chinese policies continue to be based on absolute advantage and mercantilism…the results will be more of the same: the loss of U.S. industrial and high-tech output, and the jobs and GDP growth that go with it.”

Chinese mercantilist policies are unprecedented in their scope and size. Atkinson testified, “A principal arrow in China’s innovation mercantilist quiver is to force requirements on foreign companies with respect to intellectual property, technology transfer, or domestic sourcing of production as a condition of market access. While China’s accession agreement to the WTO contains rules forbidding it from tying foreign direct investment to requirements to transfer technology to the country, the rules are largely ignored.”

He added, “Rather than doing the hard work to build its domestic technology industries, or better yet focus on raising productivity in low-producing Chinese industries, China decided it would be much easier and faster simply to take the technology from foreign companies… China’s government unabashedly forces multinational companies in technology-based industries—including IT, air transportation, power generation, high-speed rail, agricultural sciences, and electric automobiles—to share their technologies with Chinese state-owned or influenced enterprises as a condition of operating in the country.”

The ITIF report explains that in 2006, “China made the strategic decision to shift to a “China Inc.” development model focused on helping Chinese firms, often at the expense of foreign firms. Chinese leaders decided that attracting commodity-based production facilities from multinational corporations (MNCs) was no longer the goal…The path to prosperity and autonomy was now to be ‘indigenous innovation’…”

The document “advocating this shift was ‘The Guidelines for the Implementation of the National Medium- and Long-term Program for Science and Technology Development (2006-2020)’…to ‘create an environment for encouraging innovation independently, promote enterprises to become the main body of making technological innovation and strive to build an innovative-type country.’”

Some 402 technologies, from intelligent automobiles to integrated circuits to high performance computers were included so that China could seek the capability to master virtually all advanced technologies, with the focus on Chinese firms gaining those capabilities through indigenous innovation.

However, China is not alone in trying to force the transfer of technology and R&D from foreign multinationals ? Indonesia, Malaysia, India, Portugal, and Venezuela have the same goal.

Why do so many nations engine in innovation mercantilism? Atkinson testified that there are two principle reasons. “First, these nations have embraced a particular and fundamentally limited model of economic growth that holds that the best way to grow an economy is through exports and shifting production to higher-value (e.g., innovation-based) production. Moreover, they don’t want to wait the 20 to 50 years it will take to naturally move up the value chain through actions like improving education, research capabilities, and infrastructure, as nations like the United States did. They want to get there now and the only way to do this is to short-circuit the process through innovation mercantilism. This explains much of China’s economic policies. The Chinese know that to achieve the level of technological sophistication and innovation that America enjoys will take them at least half a century if they rely on only their own internal actions. So they are intent on stealing and pressuring as much of American (and other advanced nations’) technology as they can to their own companies. If you can’t build it, steal it, is their modus operendi.”

Atkinson added that the second reason why these nations do this is because they don’t believe in the rule of law and the principles of free trade like Western nations and much of Europe do. These nations also “work on the ‘guilt’ of Western, developed nations. The narrative goes like this: the West has used its imperialist powers to gain its wealth, including at the expense of poor, developing nations and now it wants to “pull the ladder” up after it. This means turning a blind eye to intellectual property and giving our technology, including pharmaceutical drugs, to nations almost for free. After all, we are rich and they are poor because we are rich.”

The reality is that forced technology transfer is enabling China and other nations to gain global market share. It is doing “considerable harm to U.S. technology companies and to the U.S. economy, if for no other reason than reducing their profits and ability to reinvest in the next wave of innovation.”

Atkinson posed the question, “So what should the U.S. government do? He responded that “this is a difficult question because if there were easy solutions, they would have been done by now.” He recommended the following actions:

  • Try to do more through conventional trade dispute channels and expand funding for the U.S. Trade Representative’s Office (USTR) so it can do more.
  • Ensure that future bilateral trade and investment treaties (BIT) contain strong and enforceable provisions against forced technology and R&D transfer.
  • Congress should make it clear that it will not judge any administration by whether a BIT with China is concluded, but rather by if the United States made a strong effort to conclude a treaty that provided full protection against mercantilist practices like forced transfer of R&D.
  • Congress should pass legislation that allows firms to ask the Department of Justice for an exemption to coordinate actions regarding technology transfer and investment to other nations.
  • Congress should exclude mercantilists from the Generalized System of Preferences (GSP).

Finally, he recommended that the United States actively explore alternatives to the WTO and  pursue a two-pronged trade strategy, continuing as best it can to improve conventional trade organizations like the WTO, but also creating alternative “play-by-the-rules” clubs of like-minded countries.

He concluded his testimony stating, “Pressured or mandatory technology transfer by other nations has, is, and will continue to negatively impact American R&D and innovation capabilities. It’s time for the federal government to step up its actions to fight this corrosive mercantilist practice.”

Curbing Chinese mercantilism must become a key priority of our trade policy if we want to address this serious threat to American manufacturers and the U. S. economy.