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Corrections to Errors and Omissions in USTR Presentation to Ways and Means Committee

In the wake of the fair trade sweep of the 2006 midterm elections, you would think that the Bush administration would at least be more intellectually honest when facing a Democratic majority Congress. But as the U.S. Trade Representative Susan Schwab’s Valentine Day’s presentation to Congress made clear, it’s stay the course on falsehoods and omissions. Here are some of the errors and omissions in Ambassador Schwab’s presentation to the Ways and Means Committee on Feb. 14, 2007.

Just to keep track with population growth, the U.S. economy must generate nearly 2.7 million jobs every year, as it did during the 1990s. Plus, jobs being created are not new, highly paid, manufacturing jobs; the U.S. economy lost one-in-six of these during the NAFTA-WTO decade, 3 million jobs, much of this from trade. Further, Amb. Schwab did not mention that one-in-six of jobs created in the past year are public, not private, sector.[1]In economic sectors most impacted by trade, the U.S. is losing jobs.

Real wages generally rise rather than lower every year, although several years of the Bush administration were notable exceptions. The issue policy-makers should be concerned with is how much are wages rising, and how closely are they tracking productivity and economic growth. Although productivity has gone up over 80 percent and GDP has gone up over 160 percent since 1973, wages have risen less than 10 percent. In fact, the average worker’s hourly wage has only gone up a nickel from 1973 to 2006. Similarly, since 2001, the U.S. economy has grown 15 percent and productivity 16 percent, while wages have only gone up one percent.[2]Economists and academics generally agree that trade liberalization dilutes and weakens the relative bargaining power of workers and the unions that represent them, making it easier for employers to suppress wage increase demands.

The standard macroeconomic model of the economy taught in introductory economics classes shows that, in the short run, increases in consumption, investment, net government spending, and net exports (exports minus imports) add to growth and employment, while decreases in these variables reduce growth and employment.[3] The unsustainable and increasing near-$800 billion trade deficit (i.e. imports are above exports by that amount) is a drag on economic growth and employment.

Economic projections cited by USTR typically ignore the distribution of the benefits from trade. This is unfortunate, since standard economic theory predicts that the distribution of income worsens with increased trade, as the majority of the labor force faces increased lower-wage competition but the upper income groups do not. If you use even the most conservative estimate of the contribution of increased trade to increased inequality, the losses from trade swamp the gains for the average U.S. worker.[4] In fact, income inequality is at heights not seen since the Robber Baron era, with the top 10 percent of Americans taking half of the economic pie.[5]

USTR CLAIM: “Elimination of global trade barriers could lift 66 million of the world’s poor out of poverty”

FACT: The trade policy that is actually on the table will be a net loss for many developing countries according to very studies Schwab cited to make the opposite point

Studies by the World Bank, Tufts University and the Carnegie Endowment for International Peace all project that developing country gains from the likely outcome of Doha Round of the WTO would be shrinking over time, highly unequal, and even a net negative for the majority of poor countries.[6] These meager and even negative growth projections of the likely Doha Round outcome come on the heels of an increase in poor country poverty[7] and a slowdown in poor country growth rates during the NAFTA-WTO era that is unprecedented in modern history.[8] Furthermore, USTR uses a projection based on elimination of all trade barriers around the world. (Total liberalization is not on the table in WTO negotiations, which will eliminate some trade barriers while raising others, as they did during the Uruguay Round, which expanding protectionism for pharmaceutical companies, costing U.S. consumers over $6 billion.[9]) As the World Bank studies show, under the likely Doha Round outcome, only 2.5 million people would be lifted out of the $1 a day poverty level category – meaning that under an estimate of the effects of the likely Doha scenario by the year 2015, the vast majority of the world’s population (996 of every 1,000 poor people) would remain below the extreme poverty line.[10]

USTR CLAIM: Doha “must deliver new export opportunities for U.S. agricultural producers;” “assure market access not negated by loopholes;” achieve “elimination of tariffs in key sectors”

FACT: These U.S. WTO demands, as they are currently formulated, would doom poor country development and fuel displacement and increased migration

USTR calls for more agricultural and industrial market access under the Doha Round, and a curtailing of the scope of “sensitive products” and “special safeguard mechanisms.” In such technical language, these phrases sound benign. But the history of implementation of these policies shows otherwise.

Under NAFTA, Mexico opened up its agricultural sector and removed safeguards – a move which led to over a million rural peasants being displaced from the countryside and catapulted towards overcrowded cities and the United States.[11] Now, one in ten Mexicans lives in the United States, many illegally.[12] In Mexico, poverty is up and wages are down.[13] The status quo trade model is so discredited that anti-NAFTA candidate Andrés Manuel Lopez Obrador nearly became president in 2006. The Bush administration’s WTO demands would expand the NAFTA disaster to the entire globe. Already, tens of thousands of Indian farmers commit suicide every year due to trade-related economic pressures.[14] Unless the goal of the Bush administration is to create a global refugee and foreign policy crisis, it must back down from its extreme WTO negotiating positions. Similarly, developing country governments are now very reliant on tariff revenue,[15] and utilize selective protective measures to nurture infant industries – strategies that characterized all now-developed countries during their early development stages. Development groups have said the Bush administration’s demands on non-agricultural market access “could deny developing countries a right to a future.”[16]

FACT: The U.S. lost nearly nine in ten cases brought by other countries against U.S. policies

Out of 49 WTO cases brought against U.S. policies, the United States lost 85.7 percent of the time. Out of the 36 WTO cases brought against U.S. anti-dumping and safeguard laws, the United States lost 88.9 percent of the time. Out of the 9 WTO cases brought against U.S., non-trade, public interest policies, the United States lost 77.8 percent of the time.[17]

USTR CLAIM: Fast Track is needed “to implement Doha” and “to negotiate regional and bilateral agreements”

FACT: Hundreds of trade agreements, including several rounds of pre-WTO global trade negotiations and the U.S.-Jordan Free Trade Agreement, were negotiated without Fast Track. Furthermore, from 1995 to 2000, Congress denied the Clinton administration Fast Track authority yet U.S. international trade (exports plus imports) expanded 50 percent.[18]

[1]Christian E. Weller, “How Do We Know When the Job Loss Recovery is Over?” Center for American Progress, April 2, 2004; Heather Boushey, Jobs Byte, Center for Economic and Policy Research, Nov. 3, 2006 and Jan. 5, 2007.

[2]Bureau of Economic Analysis figures: Real Gross Domestic Product, Chained Dollars; Bureau of Labor Statistics Figures: Average hourly earnings of production or nonsupervisory workers on private nonfarm payrolls by industry sector and selected industry detail, seasonally adjusted; productivity in the nonfarm business sector (output per hour).

[3]Rudiger Dornbusch, et. al, Macroeconomics, 7th Edition, (Boston: Irwin McGraw-Hill: 1998), at 26.

[4]Dean Baker and Mark Weisbrot, “Will New Trade Gains Make Us Rich?” Center For Economic and Policy Research (CEPR) Paper, October 2001.

[5]Thomas Piketty and Emmanuel Saez, “The Evolution of Top Incomes: A Historical and International Perspective,” National Bureau of Economic Research Paper 11955, January 2006.

[6]Kym Anderson and Will Martin et. al. “Agricultural Trade Reform and the Doha Development Agenda,” World Bank Report, Nov. 1, 2005; Ackerman, 2005, at 8 and 9.; Sandra Polaski, “Winners and Losers: Impact of the Doha Round on Developing Countries,” Carnegie Endowment for International Peace, 2006; Frank Ackerman, “The Shrinking Gains from Trade: A Critical Assessment of Doha Round Projections,” Global Development and Environment Institute Working Paper No. 05-01, 2005.

[7]Shaohua Chen and Martin Ravaillon, “How Have the World’s Poorest Fared since the Early 1980’s?” World Bank Research Observer, vol. 19, no. 2, 2004, at 152-3.

[8]Mark Weisbrot, Dean Baker, “Scorecard on Development: 25 Years of Diminished Progress,” CEPR Paper, Sept. 2006.

[9]Stephen W. Schondelmeyer, "The Extension of GATT Patent Extension on Currently Marketed Drugs," PRIME Institute, University of Minnesota, March 1995, at 6-7.

[10]The World Bank estimates that the baseline of people in extreme poverty in 2015 to be 622 million people. Under “scenario 7” described by Ackerman in the footnote above, there would be 2.5 million fewer poor people in 2015. Anderson and Martin et. al, Table 12.19 at 382.

[11]John Audley, Sandra Polaski, Demetrios G. Papademetriou, and Scott Vaughan, “NAFTA’s Promise and Reality: Lessons from Mexico for the Hemisphere,” Carnegie Endowment for International Peace Report, Nov. 19, 2003.

[12]Jeffrey S. Passel, “The Size and Characteristics of the Unauthorized Migrant Population in the U.S.: Estimates Based on the March 2005 Current Population Survey,” Pew Hispanic Center Research Report, Mar. 7, 2006, at 9; Jeffrey S. Passel and Roberto Suro, “Rise, Peak and Decline: Trends in U.S. Immigration 1992 – 2004,” Sept. 27, 2005, Pew Hispanic Center, at 39; George J. Borjas and Lawrence J. Katz, “The Evolution of the Mexican-Born Workforce in the United States,” Mar. 2006; World Bank data.

[13]Mary Jordan and Kevin Sullivan, “Trade Brings Riches, but Not to Mexico’s Poor,” Washington Post, March 22, 2003; Carlos Salas, “Between Unemployment and Insecurity in Mexico,” Economic Policy Institute, September 2006.

[14]Somini Sengupta, “On India’s Farms, a plague of suicide,” New York Times, Sept. 19, 2006; Anders Riel Müller and Raj Patel, “Shining India? Economic Liberalization and Rural Poverty in the 1990s,” Food First Policy Brief No. 10, May 2004.

[15]Sam Laird, “Opportunities and Challenges in WTO Non-Agricultural Market Access Negotiations,” United Nations Conference on Trade and Development PowerPoint Presentation, September 2004, At 7.

[16]Ha-Joon Chang, “Why Developing Countries Need Tariffs? How WTO NAMA Negotiations Could Deny Developing Countries’ Right To A Future,” South Centre and Oxfam International, November 2005.

[17]World Trade Organization Dispute Settlement database, accessed Jan. 7, 2007; data on file with Public Citizen.

[18]Bureau of Economic Analysis, International Transactions, imports plus exports, accessed Feb. 14, 2007.

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