October 2018 Newsletter:

NAFTA 2.0:

The U.S. Mexico Canada Agreement is a Fraud

By Joel D. Joseph, Chairman, Made in the USA Foundation

Like Trump University, the U.S. Mexico Canada Agreement is a massive fraud.  It is NAFTA light.  The USMCA was negotiated badly, but will be promoted by the White House to claim that the  President achieved another goal, the end of NAFTA, the North American Free Trade Agreement.

Meanwhile, NAFTA is still in force.  The renamed trade agreement, the USMCA, won’t start until 2020 at the earliest, because of all of the signatures and approvals the deal needs from leaders and legislators.  It may not even pass Congress.  Under the Constitution, all treaties must be approved by a two-thirds vote in the Senate.   Make no doubt about it, the USMCA is a treaty, an agreement with foreign nations that will last many years.  Nonetheless,  the Trump Administration will bypass the Treaty Clause and just seek a majority vote in both chambers, ignoring the Constitution.

Of ten major problems with NAFTA, the Trump Administration addressed only two of the issues, and even those two areas, cars and dairy, the agreement significantly fails to achieve the goal of leveling the playing field.

Cars

Starting in 2020, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States, a substantial boost from the current 62.5 percent requirement.

There’s also a new provision that a significant percentage of the manufacturing of the car must be completed by workers earning at least $16 an hour, or about six times what the typical Mexican autoworker makes. Starting in 2020, cars and trucks are required to have at least 30 percent of the labor on the vehicle done by workers earning $16 an hour. That percentage gradually moves up to 40 percent for cars by 2023.

The problem with this mandate is that most of labor for $16 an hour will be done in Canada.  Remarkably, Canada and Mexico each produce more cars per capita than the United States. Cars are manufactured in Canada because of the weak Canadian dollar and because Canada has a government health insurance program that gives our northern neighbor a $1,500 advantage per car.  Cars are made in Mexico because of its cheap labor.  Neither the Canadian advantage nor the Mexican advantage were addressed in NAFTA 2.0.

And this is the best part of the new trade agreement.

Dairy

The new NAFTA deal gives U.S. farmers access to only 3.59 per cent of the Canadian dairy market. Canada now has a punitive 300% tariff on dairy products from the Untied States.  Canada agreed to provide new tariff rate quotas for U.S. dairy products, which, in most cases, after reaching designated levels by year six of the agreement, will be raised 1% each year for 13 years. The result is the United States may have access to about 3.6% of the Canadian dairy market, and that is for skim milk solids, not whole milk, not cheese, not ice cream and not yogurt.  Ben and Jerry’s will still be banned in Canada.

Meat

Canada and Mexico challenged the U.S. Country of Origin Labeling Act (COOL) for meat before the World Trade Organization. The WTO ruled that the U.S. law requiring meat labeling was a non-tariff barrier and had to be eliminated.  Congress caved in and dropped meat labeling from the law costing American meat producers $20 billion a year because Mexican beef could be mixed with American meat and consumers would be ignorant of the source of their hamburgers.  American cattlemen supported Trump because they believed that he would reinstate COOL in the NAFTA negotiations.  Trump failed to negotiate on the meat issue.  So much for a tough negotiator.

Trade Disputes

Canada and Mexico’s grievances about our meat labeling law should have been handled via a NAFTA dispute panel.  The new NAFTA 2.0 should have required that any dispute among the parties to the agreement be settled via the agreement, not by going to an outside organization like the WTO.

Canadian Film Subsidies

Did you ever wonder why so many films and television programs are being produced in Canada?  Canada has been illegally subsidizing their film industry with billions of dollars in tax credits for more than a decade.  In response, some states, including California and Louisiana, have enacted their own illegal subsidies to get film production there. NAFTA 2.0 should have dealt with film subsidies and outlawed all of them.  Films should be made where the conditions and economics make sense, not because of some tax scheme that distorts the free market.

Who Loves Beer?

Trump supporters, including Justice Kavanaugh, love beer.  But American beer companies have been banned from selling their brews in Canada.  On the other hand, Canadians are free to sell Molsons, Labatt and Moosehead lager in the United States.  Why did NAFTA 2.0 fail to deal with the unfair ban on American beer?

Currencies

When NAFTA 1.0 was signed in 1993, there were three Mexican pesos to the dollar.  Now there are 19.  Mexicans could not, and still cannot, afford most American products.   It is exceptionally difficult to compete against a third world country with a weak currency. That is why the European Union created the Euro, so that the poorer countries like Portugal and Estonia, will not be operating with a weak currency.  NAFTA 2.0 does not touch currencies.  The three countries could have used the opportunity to create the North American Dollar that would have stabilized trade amongst the three nations, but failed to do so.NAFTA 2.0 is a slight improvement over the original.  But in the main, the Trump Administration substnatially failed to negotiate an agreement that will level the playing field and bring jobs back to the USA. It is a promise made by the President that was broken by NAFTA 2.0.

September, 2018 Newsletter:

Is the WTO, the World Trade Organization, Unfair to the United States?

By Joel D. Joseph, Chairman, Made in the USA Foundation

President Trump has argued that the WTO rules against the United States 90 percent of the time.  Bob Woodward responded that the United States actually wins 85 percent of the cases that it brings at the WTO.  Who is right?  Both are right to some degree.  The United States is sued more often than any other WTO member. Since it was set up in 1995, members have filed 150 complaints targeting U.S. policies 78 percent more than there have been against the European Union and more than triple those against China.

Dan Ikenson, director of Cato’s Center for Trade Policy Studies, reviewed  WTO trade disputes for a twenty year period. He found that the U.S. prevailed in 90 percent of cases that it brought against other countries.  However, he also found that  “When the United States is a respondent it has lost on 89 percent of adjudicated issues.”

The WTO Needs to Be Reformed

The World Trade Organization sounds like a real international organization, but it is not.  The WTO operates in secret, by hand-picked delegates from around the world.  Cases are determined by “judges” selected for one case even if they have conflicts of interest.  WTO decisions make a mockery of U.S. and European laws designed to protect the health of consumers and the environment.  The WTO is unfair, unethical and undemocratic and needs to be overhauled.

The United States passed three laws in recent years that the WTO has ruled violated principles of free trade.  One is the Country of Origin Labeling Act (COOL) that requires all grocery stores in the United States to label the country of origin of fresh vegetables, fruit, chicken, beef, pork and seafood. The purpose of the law (and in the interests of full disclosure, I worked on writing the law and lobbied for seven years for its passage) was to inform consumers where products came from so that they could make informed decisions.  If there were contaminated raspberries in Guatemala, consumers could avoid them.  If mad-cow disease was found in Canadian cows, consumers could avoid Canadian beef.

Another American law that ran afoul of the WTO was the Dolphin Safe Tuna Act.  This law was passed to allow tuna fisherman to use a “Dolphin-Safe” label on its cans of tuna fish so that consumers could, if they so desired, purchase tuna fished in a more humane manner.  Nothing in this law was designed to harm fisherman from other countries.  The labeling by fisherman was voluntary, but those using the Dolphin-Safe label had to meet strict standards.

The third U.S. law to be outlawed by the WTO prohibited flavored cigarettes.  The purpose of this law was to prevent children from getting hooked on cinnamon, bubblegum or lemon flavored cigarettes.  Indonesia challenged this law because the law prevented clove cigarettes being sold in the United States.
The World Trade Organization has four critical flaws:

  1. The WTO does not have a Permanent Judiciary;
  2. The WTO does not have Conflict of Interest or Ethical Rules;
  3. WTO Panels Operate in Secrecy; and
  4. WTO Panels Do Not Allow for Participation by Corporations and Non-Profit Organizations.

Creating a Permanent WTO Judiciary
The most pressing matter is that the WTO should develop a permanent independent court system to decide disputes with judges who have tenure, not ad hoc appointees for one case.  The creation of a permanent court system will give the WTO more credibility and respect.

Susan Esserman, former general counsel to the U.S. Trade Representative and Robert Howse, law professor at the University of Michigan wrote that the WTO should create a permanent judiciary:
The manner in which the WTO’s panelists are chosen also needs to change. At present, selection is ad hoc and often not based on expertise in trade law. As long as that remains the norm, the Appellate Body will continue to revise extensively the rulings of the lower panels, all but ensuring that the Appellate Body continues to be accused of inappropriate activism. …Reliance on a professional corps of panelists also might help prevent rulings that disregard international law and WTO precedent. “The WTO on Trial,” Foreign Affairs Magazine, January/February 2003, Vol. 82, Num. 1.
I propose that the highest appellate body, the WTO Supreme Court, should have nine members, like the U.S. Supreme Court. The judges should be confirmed for a fixed term by a majority of the nations in the WTO. This will give the judiciary independence.
The WTO Supreme Court could then create lower courts to hear trade disputes.  Lower court judges should be appointed by the Supreme Court.

The WTO does not have Conflict of Interest or Ethical Rules
WTO rules should prohibit judges with conflicts of interest from ruling in a case that involves their interest. As mentioned above Mexico and Canada filed complaints with the WTO challenging the U.S. Country of Origin Labeling Act. The WTO panel ruled against the United States finding that COOL was a non-tariff trade barrier. One of the “judges” on the case was an attorney from Mexico who had represented Mexico in trade disputes. This obvious conflict of interest weakens respect for the World Trade Organization. No court in the United States would allow a partisan to be a judge in a case involving his or her interests.
WTO Courts Should Be Open to the Public and
Allow Participation by Interested Parties

President John F. Kennedy said, “The very word ‘secrecy’ is repugnant in a free and open society;  and we are as a people inherently and historically opposed to secret societies, to secret oaths, and to secret proceedings.” “The President and the Press: Address before the American Newspaper Publishers Association.” April 27, 1961.

WTO proceedings are now secret.  This is repugnant to those living in free and open societies.  No members of the press or outside parties are allowed to watch or listen to court proceedings.  WTO proceedings should not be secret, they should be open to the public as courts are in most advanced democracies.

In WTO proceedings, non-profit organizations and corporations are not allowed to participate even if the case involves the organization.  In the European Court of Justice, non-governmental organizations can intervene in cases before the court.  Similarly, in all states of the United States, there is a provision for intervention by non-parties.

President Trump is right that the WTO is often unfair. The world does need an independent arbiter of the rules of trade.  But we should reform the WTO  to make it work more fairly rather than abolish it.

Henry Ford Would Fire

Ford CEO Jim Hackett

By Joel D. Joseph, Chairman, Made in the USA Foundation

Henry Ford helped build Detroit into a great city and would be heartbroken by its current appalling, rundown, dilapidated condition.  Detroit looks like a war zone in many areas, with buildings rusting in place, badly leaking roofs and crumbling walls.  And Henry Ford would be astonished that Ford Motor Company is not helping to rebuild Detroit.  Jim Hackett, Ford’s current and hopefully not future CEO, is spearheading the dismantling of Ford’s U.S. auto production.

Hackett is importing into the United States the first vehicle made in India, the Ford Ecosport.  The car may be well-suited to India, with its tiny body and a three-cylinder engine, but it is not made in or for the USACar and Driversaid about the Ecosport, “Truthfully, the tiny ute is neither very economical nor very sporty.”  Consumer Reportschimed in, “the $28,000 as-tested price for our EcoSport SES has us wondering what else could be bought for that money: a mildly optioned Ford Escape . . . come(s) to mind.”  The Ford Escape is made in Made in the USA.  Ford is cannibalizing its own models, hurting U.S. sales with its lame imports taking sales away from its made in the USA models.

Henry Ford said, “The genius of the American people is Self-Reliance.” Ford News,
Februrary, 1925.  It is not self-reliant to import a cheap car from India and then slap a Ford badge on it.  Henry Ford also said,“A big business never becomes big by being a narrow society looking after only the interests of its organization and stockholders.”(Moving Forward by Henry Ford and Samuel Crowther, 1931.)  Henry Ford started the venerable Ford Foundation in 1936 to promote public welfare and scientific studies. Ford Motor Company has previously been a good corporate citizen, caring about the overall economy and Detroit in particular.  Ford Motor Company provided seed money for the Made in the USA Foundation in 1989 and many other non-profit organizations.  I call upon the Ford Motor Company to once again be a good public citizen, help rebuilt Detroit and bring manufacturing back to the United States.

GM and Chrysler are Not Role Models Either

General Motors and Chrysler were both bailed out by U.S. taxpayers in 2008.  Neither GM nor Chrysler paid taxpayer back in full and have now shown how ungrateful they are by moving production offshore.  As a condition for their bailouts, the U.S. government should have required GM and Chrysler to keep manufacturing in America.  Taxpayers did not bailout the auto companies to make cars in China, South Korea and Europe.

GM shocked the auto world last year by importing the first vehicle from China, the Buick Envision.  Now, out of eight Buick models, only three are made in the USA, the rest are made in Poland (Cascada), China (Envision), Germany (Regal Tour), Canada (Regal), and South Korea (Encore).

Chrysler decided to start making Jeeps in Italy (Jeep Renegade) and shipping them back to the United States.  Previously all Jeeps were made in the USA, mostly in Toledo, Ohio.  Chrysler also announced that it will stop making cars in the United States, and will now only manufacture trucks and SUVs in this country.

A New IDEA

Ford is running television ads for the Ecosport touting its fuel-efficiency, but has failed to mention that it is made in Chennai, India.  The Made in the USA Foundation is proposing new federal legislation call IDEA, the Import Disclosure and Education Act.  This proposed law would require country of origin disclosure in all advertising for all products, on television, radio, cable, on the Internet and in print. American consumers have a right to know where their products are made and this law would only provide people with information. Would consumers rush out to buy the Ecosport if the ad said, “Made in India?” Or a Cascada if it announced that it was made in Poland?

 

The Made in the USA Foundation was supported by the Ford Motor Company when it proposed the American Automobile Labeling Act (AALA) in 1992 when it was passed into law.  The AALA requires that all new car price stickers include country of origin information including where final assembly took place, what the U.S. content is, and where the engine and transmission were made.  This law has helped consumers make informed decision about car buying.  The IDEA legislation will increase consumer knowledge and exposes car companies who import cars from countries not known for their automotive excellence.

Made in the USA Reports

A Publication of the Made in the USA Foundation

Vol. 30 No. 1 © Made in the USA Foundation—January, 2018

Levi’s Has Returned to USA

Levi’s, the inventor of blue jeans in San Francisco in 1872, has started to make some of its classic jeans in the United States at reasonable prices. Levi’s legendary 501 “made in the USA” jeans are selling for $88. Many other “designer” jeans sell for $200. Levi’s is also making 505, 511 and 541 jeans in the U.S., in regular, slim and athletic fits.

President Trump’s Made in the USA Report Card

By Joel D. Joseph, Chairman, Made in the USA Foundation

President Trump has been in office for one year: It is now time to grade his achievements. “Probably one of the major reasons I’m here today –

trade,” Trump said two months after taking office. The President also campaigned on a promise to negotiate “better deals” with China and Japan and to hire Carl Icahn to conduct these negotiations. But Carl Icahn quit soon after being appointed and has not been heard from since. The President did hire Peter Navarro and Robert Lighthizer, two solid “Made in the USA” negotiators. But their hands have been tied by other factions in the White House including Gary Cohn and Steven Mnuchin, two globalists from the Goldman Sachs academy of unfettered international free trade.

China— D

Is President Donald Trump a “paper tiger” when it comes to trade, as some have suggested? He did not keep his campaign pledge to name China as a “currency manipulator” on his first day in office, and he left currency rates out of his executive orders on investigating why America runs chronic trade deficits with certain countries. And Trump said he might postpone talk of tariff threats vis-à-vis China to his second summit with Chinese President Xi Jinping. Reports say he will take action on steel “dumping,” but he has not yet acted on steel imports from China.

Just recently, the President did impose tariffs on imported Chinese solar panels, allowing him to earn a barely passing grade.

 

Japan— F

Candidate Trump labeled Japan a “currency manipulator” and unfair trading nation, but has done nothing at all to negotiate a new trade agreement with Japan. The President has done “nani mo” (nothing in Japanese) to improve our trading relationship with Japan.

MexicoF

During the campaign, the President promised to rip up NAFTA, the North American Free Trade Agreement, if he were elected, on day one. It has been one year and the U.S. is still negotiating with Mexico. We have not seen 35% tariffs as proposed by candidate Trump. They are a figment of the President’s imagination, like his border wall.

South Korea—C

The U.S.-South Korea deal, which was reached in 2007 and went into effect in 2012, reduces trade barriers between the two countries. Critics charged that South Korea has reaped a greater share of the benefits of the deal, an allegation Trump has personally echoed multiple times since his election while calling for changes to the deal. South Korea is the sixth-largest goods trading partner with the United States, accounting for $112 billion in two-way trade last year, according to the U.S. trade representative. U.S. companies exported $42  billion in goods to South Korea and imported $70 billion in goods last year, leaving a trade deficit of $28 billion. President Trump has imposed tariffs on Korean washing machines made by LG and Samsung. This should be effective in creating more jobs in the United States as both LG and Samsung announced they will be manufacturing washing machines in the USA. The fact that Trump did this even when North Korea is threatening the planet with nuclear weapons, earned him a passing grade.

Europe—F

Mr. Trump has complained that Germany is an unfair trader, but has done nothing but verbally complain to German Chancellor Angela Merkel. The President also promised a new trade deal with Great Britain that has yet to materialize. We do, in fact, have a massive trade deficit with Germany. It was nearly sixty-five billion dollars last year—second only to our deficit with China, which was three hundred and fifty billion dollars. The total European Union

trade surplus with the United States was $146 billion, 44% German, 24% Irish. Ireland has stolen most of the U.S. pharmaceutical industry causing this massive deficit with a country that has a population of less than five million people, about the population of Maryland. The reason U.S. pharmaceutical companies have set up shop in Ireland is because the Irish corporate tax rate is 12.5%. Trump’s corporate tax reduction to 20% will not have the incentive for these companies to come back home.

Buy American—F

Mr. Trump is a Johnny-come-lately to buying American-made products. His suits, shirts and ties are all made in China. After his Palm Beach wedding in 2005, Mr. Trump and his bride jumped into a Mercedes Maybach limousine. He also bought a limited-edition silver Mercedes SLR McLaren roadster, with a supercharged AMG V8 engine for $465,000. Mrs. Trump had her own Mercedes at the time.

Mr. Trump campaigned on building the Keystone Pipeline with American Steel. The Made-in-America Keystone Pipeline was a big fat lie. Most of its pipes had already been manufactured, a fact the White House grudgingly admitted when it exempted the project from any new Buy American rules a few months later. While some of Keystone’s pipes were made in the U.S., at least a quarter of them came from a Russian steel company whose biggest shareholder is an oligarch and Trump family friend. The company, Evraz North America, supplied Keystone and for years has lobbied in Washington against Trump-style protectionism.

A year after his Keystone event, Trump has yet to deliver on his pledge to boost the fortunes of American steel. Two self-imposed deadlines for trade action, one in June and one in July, have since come and gone. Meanwhile, the prospect of tariffs has led to a surge of cheap foreign steel into the U.S., with imports rising 24 percent in 2017, the fastest increase in years.

The Defense Department continues to buy Chinese-made rocket propellant, and the Army and Navy Pxs are stocked with imported clothing and other goods. I personally communicated with the buyers at these stores with offers from U.S. suppliers of American-made clothing, but was told, “we are going to continue to buy from overseas.” I mentioned President Trump’s executive order on buying American, one of those leather-bound orders that the President holds up in show and tell session with the press. The Army and Navy buyers said that they will continue to buy imports and have continued to ignore the President’s executive order.

Evaluation—Year One

Mr. Trump’s bad behavior and failure to play well with others has negatively affected trade relationships between the United States and other countries. For example, President Trump is not welcome in Britain because of his crass behavior. Britain has long been one of our most significant trading partners. His alarming tweets aimed at North Korea have hurt his leverage to extract concessions from China and South Korea. He has not accomplished any significant goals on trade and I recommend that he be held back and not be allowed to advance to another grade level.