Last Friday, over 100 House Democrats including nine committee chairmen signed on to new draft legislation that would require President Obama to submit a plan to Congress to renegotiate the North American Free Trade Agreement (NAFTA) and other trade deals.

The Trade Reform, Accountability, Development and Employment (TRADE) Act of 2009, tabled on June 26, calls on the president to create a plan that would address, through renegotiations, gaps between existing deals, as well as benchmarks Congress would set on core labour and environmental standards. (”Core labour standards” are defined as minimum wage, hours of work and occupational health and safety standards.) The U.S. trading partner would adopt and maintain these core standards in return for access to the U.S. marketplace. And the bill would require that any existing trade agreements (such as Nafta) be reworked to reflect these principles.

Which, of course, is going to be interesting, given Canadian labour and environmental standards mirror and in some cases exceed U.S. ones.

As with Waxman-Markey, it’s important to stress that it remains doubtful whether this bill will actually get so far as becoming law. Right now, it is draft legislation only. But given the mood in Congress these days, all bets are off. And if TRADE ‘09 does make it into some form of law, it strikes me Canada should seize the opportunity to do a bit of renegotiating of its own, once we have a leader whose idea of a foreign and trade policy involves a bit more than simply following the Americans, as they make 180 degree turns on everything from energy to market access.

A congressional super committee, to be chaired by the House Ways and Means and Senate Finance committees, would formulate the plan. It also calls for a new “fast-track” law that would require Congress to vote in favor of a new trade agreement before the president offers his signature.

According to a report in TheHill.com, primary sponsor Rep. Mike Michaud (D-Maine), described it as “consistent with what the president said he would do before he was elected.”

Oops. Guess this is what happens when politicians use fiery election rhetoric without considering the consequences.

The new trade legislation is similar to a 2008 bill, but that measure attracted only 74 co-sponsors and did not make it out of committee. The rising number of co-sponsors on the legislation reflects both the larger Democratic majority in the House and increasing skepticism about trade amid a global recession.

Among the bill’s less obvious opponents, curiously, is the Washington, D.C.-based National Association of Manufacturers, a manufacturing lobby group.

On Friday June 26, National Association of Manufacturers (NAM) Vice President for International Economic Affairs Frank Vargo issued the following statement:

The anti-trade legislation introduced in the House on Wednesday would subvert our nation’s historic commitment to international commerce and wreak havoc in major parts of our economy at a time when we should be doing everything we can to encourage growth and job creation. The architects of this extremely unwise proposal would do well to remember that the U.S. exports about $80 billion in manufactured goods each month and that millions of American jobs depend on those exports.

We have had time enough to review the impact of free trade agreements, and the verdict is unequivocal: we have a trade surplus in manufactured goods with free trade nations. The sum effect of free trade agreements is to give U.S. exports the same access to foreign markets that their manufacturers have to our domestic market. Approval of the pending free trade agreements would lead directly to more U.S. exports to those countries, and hence more jobs in the U.S. One can reasonably ask why the sponsors of this legislation are opposed to creating jobs in the U.S.

Good question. More to follow…

]]> http://blog.canadianbusiness.com/new-trade-bill-would-require-obama-to-renegotiate-nafta/feed/ 0 http://blog.canadianbusiness.com/obama-speaks-out-against-tariff-approach-in-waxman-markey/ http://blog.canadianbusiness.com/obama-speaks-out-against-tariff-approach-in-waxman-markey/#comments Mon, 29 Jun 2009 14:33:04 +0000 Rachel Pulfer http://blog.canadianbusiness.com/?p=2972 On Sunday, President Obama told Waxman-Markey-bill drafters that he likes the vision of a clean green economic future in their sights, but wants them to lose the tariff approach they’re currently favouring to get there.

Finally.

“At a time when the worldwide economy is still deep in recession and we’ve seen a significant drop in global trade,” Mr. Obama said, “I think we have to be very careful about sending any protectionist signals out there.”

He’s referring to a provision in Waxman-Markey, which passed the House on Friday. It would penalize exports from countries that do not accept limits on global warming pollution by requiring the president to impose a “border adjustment” or tariff on certain goods from countries that do not act to limit global warming emissions.

The provision was, natch, designed to appease Rust Belt state lawmakers concerned about job losses in their high-carbon industries. (The New York Times reported the provision was “inserted at midnight the day before the bill passed.” That doesn’t give the full picture. Though the specific wording may have gone in at that time, aspects of this kind of thinking have been in place since this bill was first drafted, back in March of this year.)

Even if Obama has to spend a bit of political capital here, he’s smart to finally speak out against this particular bill’s efforts to move the goalposts on trade. Such barriers are designed to help American high-carbon industries adjust to a low-carbon future, largely at the expense of those who export to the U.S. Should the bill pass the Senate with this provision intact, it would wreak serious havoc on the business models of most high-carbon industries exporting to the U.S., upending global export flows at just the moment recovery is starting to kick in.

But perhaps it’s finally dawning on Obama that the optics of pulling this kind of trick could destroy America’s credibility as a global leader. It’s beyond absurd for the world’s second biggest polluter – and the country that uses up 24% of the world’s resources annually – to make this kind of move, now that it’s finally decided it wants to go green.

Of course, cautions about sending out protectionist signals come a tad too little too late for this President, given his decision to allow Buy American riders in stimulus spending to be enforced at the state and local levels of government back in February is now inspiring retaliatory measures around the globe. (Canada’s anti-Buy American effort, details of which I’ll be covering off in the upcoming issue of the print edition of Canadian Business, is relatively mild in comparison with the Buy China trade bazooka that that country pulled out a week and a half ago.)

However, given what’s at stake here, Obama’s action Sunday is better than nothing.

“I think it’s terrible,” Immelt said, before speaking at the International Economic Forum of the Americas here. “In the end, protectionism is not a philosophy—it’s a cry for help. It’s a sign of weakness.

“That’s not the face that America should want to project. The face we should want to project is, ‘We can compete with anybody, anywhere, anytime.’”

Canadian policymakers and exporters have, of course, been deeply concerned by the Buy American provisions, which limit or prohibit the purchase of foreign goods in projects that receive U.S. stimulus funding.

GE—one of the world’s largest companies, with interests including financial services, manufacturing and technology—has publicly opposed Buy American, along with heavy equipment maker Caterpillar Inc. and other US-based companies, for fear it will spark retaliation from other countries, hindering exports. GE earns half its revenue outside the United States.

Some might see an irony in the fact that Immelt, 53, sits on Obama’s Economic Recovery Advisory Board. But even given the opposition to Buy American, the CEO said business leaders need to be involved in the discussion around policymaking.  “Look, I’m a Republican, so President Obama got elected without my vote,” he said. “But he wants to get different voices inside the administration. I think he’s a good listener.”

On Obama’s recovery plan, Immelt said, “I can’t say I agree with it philosophically every step of the way… But we’re in a period when business has to engage with government in order to get our voice heard, because the status quo is not going to be tolerated by the population.”

Immelt pegged the rise of protectionism as part of a growing anti-business sentiment in the US. “I think the man on the street would say that this recession was created by ‘business,’ quote-unquote, because we all get cast under the same banner,” he said. “I think there’s particular anger right now.”

(Look for more from my interview with Immelt in an upcoming  issue of Canadian Business magazine.)

The issue du jour? How protectionism has crept into draft climate change legislation in the United States. How it’s likely to affect Canada. And how best to head it off—before it becomes law, and real damage is done to our economy.

Last week, Page’s round table released a new report on how Canada needs to tackle the issue of climate change. Entitled Achieving 2050—A Carbon Pricing Policy for Canada, it sensibly rejected much of the Canadian federal and provincial governments’ efforts to date—including the piecemeal provincial approach and the federal government’s favouring of “intensity” targets on only the largest emitters.

Instead, Page’s report favours one clear national standard to price carbon across the country. (This is a solution Canadian Business’s editorial board has long preferred.)

Page has been at pains to stress that Canada’s future economic health depends on making these changes—as quickly as possible. And it comes not a minute too soon.

Like Page, everyone who exports energy and manufactured goods to the U.S. should be paying close attention to the wording of draft legislation tabled by Congressmen Henry Waxman of California and Edward Markey of Massachusetts on March 31 of this year.

That’s because the current wording of the new bill, titled the American Clean Energy and Security Act 2009, has major implications for Canada.

Under the segment titled Transportation Efficiency, for example, the bill proposes what amounts to a low-carbon fuel standard across the United States. If implemented in current form, that move would likely cut exports of oilsands syncrude out of the U.S. marketplace.

Worse yet, says Page, is the creeping protectionism embedded in the bill’s current wording—particularly the segment titled Ensuring Domestic Competitiveness. “The gist of the bill is that if any U.S. company complains that this program puts them at a competitive disadvantage, it will become eligible for rebates from the U.S. government that will allow it to continue to compete,” Page explains.

The bill goes on to state that if…

….the President finds that these rebates do not sufficiently correct competitive imbalances, he would be directed to establish a “border adjustment” program, under which foreign manufacturers and importers would be required to pay for and hold special allowances to cover the carbon contained in U.S. bound products.

What this amounts to is new tariffs on goods from countries whose climate change legislation is deemed by the U.S. to be somehow inadequate to its own standards. Explains Page: “This represents both a direct threat for products from the oilsands, and a threat to any Canadian product that represents a high fuel intensity — steel, cement, auto parts.” You can read a draft summary of the bill here.

Page acknowledges that we don’t yet know what kind of an economic hit this legislation is likely to represent. And it’s also important to stress that the legislation remains in draft form. Powerful entrenched constituencies in the United States — ranging from the coal mining industry, to advocates for those on low incomes, to consumer groups, to the Department of Defence—will be working overtime to get these bills changed.

But Page insists that the threat is real. “The protectionist elements of this are really aimed at China,” he says. “Canada’s getting caught in the downdraft.”

In Page’s view, the best way to head off the impact of this legislation is by bringing Canada’s climate change legislation in line with what the U.S. is considering. But that, of course, is likely to mean major economic pain and dislocation for businesses and consumers right across the country. So his report recommends a series of measures to offset that pain.

For example, it suggests the government continue with an idea Alberta is already implementing: that the proceeds from the sale of pollution credits at auction go towards a technology fund. That fund would then invest in technologies—carbon capture and storage, thermal power, energy-efficient technologies and renewables—that can help bring down the carbon content of Canada’s fuels and products.

Another likely offshoot: spiking oil prices, as high-carbon fuels are legislated out of the fuel supply. So Page’s report recommends some funds from the sale of credits be spliced off to help low-income Canadians most at risk from higher oil prices.

As for possible job losses: though the report doesn’t comprehensively tackle job training, Page says his group is closely following initiatives such as the Green Jobs corps currently championed by the White House’s green jobs czar Van Jones (see yesterday’s blog post—Meet Mr. Jones.) “The infrastructure program in the last federal budget should be looking at the green jobs area,” Page says.

Toronto-based cleantech investor Andrew Heintzman has also been watching these developments. He applauds Van Jones’ green jobs training idea in theory, but points out “you can’t put training for green jobs in place without clear markets for those jobs in the first place.” That’s why he’s been investing in cleantech start-ups.

Heintzman also serves on Ontario Premier Dalton McGuinty’s task force for greening Ontario’s economy. He acknowledges when it comes to finding clear leadership on climate change policy, Canada’s approach has been a bit of a mishmash. Ontario has feed-in tariffs to encourage the use of renewable energy. B.C. has a carbon tax. Alberta’s working with a form of cap-and-trade — capping emissions on the largest polluters and investing the sales of pollution credits into a tech fund. And as for booming Saskatchewan, well, according to an article published this morning in the Globe and Mail, that province’s environment minister Nancy Heppner said recently that it just doesn’t make economic sense for the province to attempt to meet its climate change targets— at least not for this year.

It adds up to a policy of madly off in all directions. And with Canada’s greenhouse gas emissions continuing to skyrocket, it clearly isn’t working.

“What amazes me is that we aren’t further along with this process yet,” Heintzman says. “We’ve known this was coming.”

Pragmatists hope that Page’s recommendations—which some in the oilpatch applaud for their clarity—will help Canada get its act together on the climate change file. For as Page sees it, some form of emissions reduction is going to have to happen in Canada, and it’s going to be painful anyway. Might as well figure out a clear policy now, to help businesses and consumers mitigate the pain—before the economy gets slammed with new green tariffs down south.

• A good piece by Anthony Faiola on the trade implications of the “Buy American” provisions in the various versions of the stimulus bill in the US Congress right now. http://www.washingtonpost.com/wp-dyn/content/article/2009/01/28/AR2009012804002.html?nav=hcmodule
The Senate version of the bill would limit stimulus funding only to projects with US-made equipment and goods. This is the dark side of fiscal action on the economy—protectionism in the guise of stimulus. A byproduct of measuring economic success by jobs instead of productivity. Trade disputes and retaliation in the form of protectionist measures elsewhere seem to be the likely outcomes—which will only aggravate the global slowdown.

• A Moody’s Investors Service report, out yesterday, on budget deficits and Canada’s government bond ratings. Upshot: even with a three-percentage-point increase in federal debt to GDP in 2009-10, to 31.6%, will not likely affect the Aaa rating.

• An article from NRC Handelsblad that spells out how the Dutch government is backing ING, the Netherlands’ biggest bank and insurer, to the tune of 21.6 billion euros—about $34 billion Canadian. The reason: to cover ING’s exposure to U.S. mortgage-backed securities that, a year ago, the company characterized as minimal.

On Dec. 1 International Trade Minister Stockwell Day and Agri-Food Minister Gerry Ritz announced Canada is asking for consultations regarding COOL under the World Trade Organization’s dispute settlement process.

Some background. The mandatory country labelling of all beef, pork, lamb, chicken and goat meat and “certain perishable commodities” sold in U.S. stores was implemented on Sept. 30, 2008 as an interim final rule (this, according to Foreign Affairs and International Trade Canada, means there is a “six-month non enforcement transition period.”)

So essentially, in order for these products to be considered a product of the U.S., each stage of their growth and processing has to have occurred on U.S. soil, or in the case of fish or shellfish, which were covered under earlier legislation, U.S. waters. Otherwise, for example, if a cow was born in Canada but raised and slaughtered in the States, the label of the sirloin cut that comes from the cow must now indicate its path from Canada to the U.S.

Canada’s issue with the COOL rules, also according to DFAIT, is this:

“Canada is concerned that the legislative requirement to separate products into three categories based on the country or countries where they were produced will impose additional costs at each stage of the process (for example, feedlots, processing and packing, and retail). Processors, for instance, may need to segregate animals at their facilities, which will generate additional costs. These additional costs could create a disincentive to purchasing Canadian animals. Processors may choose not to buy Canadian animals or may buy them at a discounted price.”

After all, these talks, which were supposed to define the development agenda of the WTO, have been going, going, going, but not quite gone, almost since they started seven years ago. Two years ago, a previous last-ditch attempt at reaching “modalities” (trade-speak for agreements among the 150-odd member countries on ways to move forward) failed in Geneva (see my column from summer 2006).

Yesterday, renewed talks in Geneva failed after India—a newish power in the developing country camp—squashed the negotiations on agriculture (which are linked to negotiations on services and manufactured goods) when it refused to give in on its demand for significant “emergency” powers to prevent a flood of cheap food imports damaging its farming sector. India’s chief negotiator, Kamal Nath, claimed to have the support of dozens of other developing countries in standing firm on such “special security measures,” or SSMs, against demands to water them down from the United States.

Much chatter out there seems to be about whether this spells the end of the Doha round. (If you want to hear WTO director general Pascal Lamy’s inimitably dry take on the collapse, check this out.) I attended the Hong Kong ministerial meeting back in December 2005, and my sense (for what it’s worth) is that it ain’t over till it’s over. They’ll talk again, and will creep towards a resolution. The question is, will any resolution even matter by the time they get around to one?

I’m not going to get into the obvious merits of free trade in agriculture, services and goods here. I’ve done it before ad nauseam, as have many people who are smarter than me. (For instance, see Andrew Coyne’s recent post at macleans.ca, which lists some of Canada’s more egregious transgressions against the free trade cause.)

Let’s just for the moment point out some ironies. For one, what’s the logic of defending a farming community against cheap food imports, all in the name of food security, in a nation that cannot feed its people? According to the UN World Food Programme, India is home to nearly half of the world’s hungry; more than a third of the population consumes less than 80% of minimum energy requirements—a threshold below which the WFP considers people to be, ironically, “food-insecure.”

On the other hand, what’s the logic of going to the wall over what is, from the U.S. point of view, clearly a minor point of principle, when so much else is at stake in terms of opening up important markets to American goods and services? It makes no sense—unless, as a cynic might charge, the point is to maintain the politically expedient but economically appalling level of farm support in the States, as embodied in the most recent U.S. Farm Bill?

The convenient myth among politicos and some trade-watchers is that Doha doesn’t matter, that it’s just a bunch of bureaucratic polyannas getting together to discuss how many modalities can dance in a blue box. But the inconvenient reality is that real people (consumers here, the poor around the world) pay dearly for the protectionism that keeps free trade an elusive dream—and the Doha round always having to come back from the dead.

Well, recent toy recalls from companies like Mattel, over the use of lead paint in toys produced in China, have contributed to what were already long-standing suspicions about the safety and quality of products produced in the Middle Kingdom. No doubt, such findings haven’t done much to repudiate the fearmongerering of those here in Canada and the United States who would like to see trade with China shut down, for their own reasons.

In response to all this, the Chinese government has vowed to clean up the offending factories and, well, get the lead out by Christmas. It has also urged greater co-operation with western governments to normalize product safety standards.

This is all good, of course. But I wonder how much of the burden the world should place on China in all this.

After all, is it really any surprise to anybody that such mishaps occur in a country where manufacturing costs are so low, where plants and workforces are so flexible, and where domestic environmental standards in general are so poor?

More to the point, should it be any surprise to the Western companies that manufacture over there? Surely, those companies have a duty to their customers to spend the extra dough and ensure their Chinese plants, and Chinese-made products, meet the safety standards of the countries in which their customers live. It is, in short, their ultimate responsibility. To expect government in China to do this legwork for them is simply naive.

And Western-based companies outsourcing to China have an added reason to enforce product standards there: instilling, among the businesses and business people they work with, a concern for product safety and a respect for environmental considerations. As lawsuits pile up and customers question product integrity, this is purely a matter of self-interest.

Granted, the Chinese government in typical high-profile fashion is cracking down on companies that pollute. But this is the heavy hand. A better long-term solution is for western companies is to see to it that their Chinese partners recognize the need for best practices–and start to use them.