Impatience With Obama Trade Policy Grows

By THE ASSOCIATED PRESS

Published: November 25, 2009

WASHINGTON (AP)- The third anniversary of the signing of the U.S.-Colombia free trade pact came and went this month with the Obama administration still negotiating the fine print, Congress showing little interest and business groups frustrated by the lack of action on trade deals.

''For most of 2009 we were willing to sit on our hands'' as the new president struggled with the recession and health care, said Bill Lane, a government affairs official for Caterpillar Inc.

''We can't maintain that anymore. It's time we started moving forward,'' said Lane, who is also corporate co-chairman of the Latin American Trade Coalition.

Critics of President Barack Obama's trade policy point to the failure by Congress to act on the three bilateral free trade agreements -- with Colombia, Panama and South Korea -- signed during the George W. Bush administration.

They say delays in implementing those pacts, under which those three countries would cut tariffs and remove barriers to U.S. goods and services, have cost the United States billions of dollars and hundreds of thousands of jobs.

Lane said the United States has paid Colombia $2.3 billion in tariffs since the agreement was reached three years ago. A report prepared for the U.S. Chamber of Commerce estimated that 383,400 American jobs could be affected if the U.S. continues to do nothing while the European Union and Canada proceed with trade agreements with Colombia and South Korea.

''The U.S. risks getting stuck on the outside looking in,'' said John Murphy, the chamber's vice president for international affairs

The last free trade agreement approved by Congress was (To read the full article, click here).

Foreign Direct Investment in Pakistan Fell 53.2% in Four Months

By Farhan Sharif

Nov. 18 (Bloomberg) -- Overseas direct investment into Pakistan dropped 53.2 percent in the first four months of the fiscal year that started July 1, the central bank said.

Investment in July-October period fell to $621.8 million from $1.33 billion a year ago, according to an e-mailed statement from the Karachi-based State Bank of Pakistan. Global funds bought $288.4 million more Pakistani stocks than they sold in the four months, compared with net sales of $173.9 million a year earlier, the central bank said.

Pakistan needs overseas investment to (To read the full article, click here).

Business this week

Nov 19th 2009
From The Economist print edition

Ben Bernanke remarked that the Federal Reserve was “closely” watching currency markets, and that the central bank would “help ensure that the dollar is strong." The weak dollar has caused commodity prices to nudge up, a potential inflationary threat. Any opinion from the chairman of the Fed regarding the value of the greenback is controversial because the Treasury handles exchange-rate policy.

Dominique Strauss-Kahn, who heads the IMF, called on China to let the yuan appreciate, “the sooner the better”. China tightly controls its currency by pegging it to the dollar—benefiting domestic exports—and has so far resisted pleas to allow it to rise. See article on China's Yuan Strategy.

Opening the vault

Around 14,700 people disclosed their foreign holdings to the Internal Revenue Service under a recent amnesty, twice as many as expected. Meanwhile, the procedure for selecting which “secret” accounts at UBS are to be disclosed to American authorities was made public. Americans with at least SFr1m ($991,000) in accounts suspected of being used for tax evasion at the Swiss bank between 2001 and 2008 will have their names handed over, as will those with lesser amounts but where a “scheme of lies”, such as using fake documents, has been used to open an account.

Lloyd Blankfein, the chief executive of Goldman Sachs, apologised for his bank’s part in fuelling the market for cheap credit that led to the financial crisis. To aid the recovery, Goldman launched a scheme to help 10,000 small businesses, to which it will donate $500m over five years. Some were left unimpressed; Goldman pulled in at least $100m on 36 separate trading days in the third quarter and on 46 days in the second quarter. It has set aside $16.7 billion for pay and compensation so far this year.

Mitsubishi UFJ unveiled plans to raise up to ¥1 trillion ($11.2 billion) through a sale of common stock, the biggest ever share sale undertaken by a Japanese financial institution. Its plans to merge with Morgan Stanley’s Japanese unit were also scaled back.

The euro zone exited recession in the third quarter when its economy grew by 0.4%, after contracting for more than a year. Among the big economies that (To read the full article, click here).

Pakistan-Turkey Trade Relations; Pakistan's Trade Deficit

Pakistan and Turkey agreed to initiate the process for finalizing the Free Trade Agreement (FTA) as the two countries remain keen on increasing trade revenues to $2 billion by the end of 2012. Bilateral trade between the two countries increased 25 to 30 percent in the last five years, but are currently slowed due to the global fiscal crisis. The two nations concluded their talks at the 13th session Pak-Turkey Joint Ministerial Commission (JMC), October 14, 2009. After signing a memorandum of understanding (MOU), Commerce Minister, Makhdoom Amin Fahim, and Turkish Minister of State for Science and Technology, Mehmet Aydin, stated that the two countries would vigorously pursue the negotiations to finalize the FTA as early as possible.

The JMC also decided to expedite the initiatives of the Pakistani-Turkish Business Council. The Council would meet in 2010, underlining the necessity of producing effective private sector platforms to facilitate bilateral trade. Pakistan and Turkey also emphasized the importance of enhancing trade through regional organizations such as the Economic Cooperation Organization (ECO) and the Organization of Islamic Conference (OIC).

Turkey is in need of raw materials, which are imported from Pakistan. In exchange, Turkey will invest in Pakistan with its specialized expertise in the construction, agriculture, energy and mining sectors. Current trade volume between Turkey and Pakistan totals $740 million. Turkish exports to Pakistan are $155 million, while Pakistani exports to Turkey amount to $585 million.


Pakistan’s September Trade Gap Narrows By 55.9%

In related trade news, Pakistan’s trade deficit narrowed by 55.9 percent in September as imports declined at a faster rate than exports.

According to data by the Federal Bureau of Statistics in Islamabad, the trade gap narrowed to $897.9 million in the third month of the fiscal year, from $2.03 billion merely one year ago. Overseas sales fell 14.2 percent to $1.52 billion, while imports fell 36.4 percent to $2.42 billion.

Pakistan’s trade deficit narrowed 18.5 percent to $17 billion in the fiscal year ended June 30, from $20.7 billion in the previous 12 months. Exports fell 6.7 percent to $17.8 billion and imports dropped 12.9 percent to $34.8 billion.

Pakistan is seeking to boost exports to sustain growth in a country where the World Bank estimates two-thirds of the population of 160 million people survive on less than $2 a day.

U.S. Trade Representative Ron Kirk Praises Action Against Airbus

In a high-profile legal battle regarding European support for aircraft manufacturer Airbus, U.S. Trade Representative Ron Kirk praised U.S. efforts to declare such support illegal under world trade rules, despite the World Trade Organization ruling that the European loan mechanism, challenged by the United States, was legal.

Still, Kirk emphasized that "[t]his agency has worked long and hard to make the case that the loans and other subsidies provided to Airbus are inconsistent with WTO rules." Not in a position to offer details, Kirk further stated in a letter that "[t]he administration is not in a position to disclose publicly the content of the interim report in this dispute."

While Kirk did not explicitly character the WTO decision as a U.S. victory, Senator Patty Murray took it a step further. "This ruling is much more than a confirmation that Airbus has been breaking the rules. It is a victory for American workers who have been producing the best planes, but have been fighting an uphill battle."

Murray, whose state is home to Boeing's biggest manufacturing facilities, said she has urged President Barack Obama "to take the strongest possible actions to prevent European governments from providing Airbus further with an additional illegal trade-distorting subsidy."

The Stomp of the Chicken Feet

After President Obama's decision to levy tariffs on Chinese tires, chicken feet became the latest focus in the escalating U.S.-China trade war. The Chinese announced that they were considering import taxes on automotive products and chicken meat, a development that some trade experts feared could grow into a full-blown trade war in the midst of the Great Recession.

American executives expressed concern about losing what recently has become the largest export market for their chickens, one that is expanding rapidly as the Chinese population grows more affluent and consumerist. However, the executives also expressed relief Chinese importers are wanting to maintain current import levels to satisfy large consumer demand.

At a time when feed prices are high and domestic chicken sales to restaurants are down because of the recession, the Chinese market is important to the industry. Exports of American poultry totaled $4.34 billion last year, out of which, $854.3 million worth of chicken meat, less than 2 percent of total revenue by the American chicken industry was exported to China and Hong Kong. While the sum may seem miniscule, the U.S. industry emphasized that exports to China are very profitable.

About half of the chicken parts sold to China are wings and feet, which are worth only a few cents a pound in the United States. As delicacies in China, they fetch 60 cents to 80 cents a pound, a price that no other foreign market comes close to matching, according to industry experts.

China appeared to be ready to cut off imports of American chicken products in July, and American poultry producers said the issuance of import permits slowed temporarily, only to pick back up since then.

In an effort to calm Beijing's retaliatory mood, American poultry producers have emphasized that they have nothing to do with the Congressional import ban and say they do not fear competing with Chinese canned or frozen chickens.

“We believe in free and open trade and we feel our industry has a lot more to lose by being an obstructionist in trade than in supporting China’s position,” said James H. Sumner, president of the U.S.A. Poultry and Egg Export Council.

Two weeks ago, Mr. Sumner’s group and the National Chicken Council joined other American food organizations in sending a letter to Ron Kirk, the U.S. trade representative, warning that action against Chinese tires could lead to retaliation, stating that “[f]or some, the Chinese market is the difference between profitability and possible bankruptcy.”

Now that the Chinese are threatening retaliation, industry officials remain hopeful, taking into account the insatiable Chinese demand for chicken feet.

The U.S.-China Debacle: A Looming Trade War?

On September 11, the Obama Administration imposed tariffs of 35% on vehicle tires imported from China. Obama defended the tariffs, justifying them on the basis of enforcement of existing trade treaties between the two nations, arising under international trade law. A safeguard petition was filed to protect U.S. tire producers from surging imports from China. Observers in the trade and business industries consider the act to be purely political. Obama promised trade protections to various interest groups, including the steelworkers union, a key political ally of Obama and representing 15,000 employees at 13 tire plants in the United States. Supporters of the petition argue that Chinese manufacturers are pricing their tires far below market rates, thus harming U.S. manufacturers.

The U.S. International Trade Commission (ITC) recommended that Obama impose tariff duties for three consecutive years, commencing at 55%. A tariff this high would effectively block tire imports from China. According to the ITC however, all of the U.S. tiremakers have operations in China, and none of the companies have publicly supported the steelworkers complaint. Further, Chinese officials and lobbying groups for multinational companies such as Microsoft Corp., Citigroup, Inc., and Caterpillar, Inc., have pressed Obama to resist imposing tariffs, stating that it would result in a "downward protectionist spiral." Additionally, Chinese tires amount to 17% of all tires distributed in the U.S. and are lower-priced, causing concern among businesses and consumers alike.

China responded swiftly to the U.S. decision by filing a complaint with the World Trade Organization. China also commenced an investigation alleging dumping of U.S. auto and chicken products in the Chinese market, a prelude to what will likely be the imposition of tariffs on the sale and distribution of such goods.

Whether this debacle will serve as the prelude to a trade war remains to be seen. One one hand this episode may simply serve as bargaining positions at the G-20 trade meeting in Pittsburgh. On the other hand, it may be a genuine disagreement over China's manipulation of its currency. Still, as two economic powerhouses with deeply intertwined economic interests, the U.S. and China cannot afford to let political shortsightedness obstruct sound economic policy.

In related news, the U.S. House has narrowly passed environmental legislation which would impose tariffs on Chinese environmental goods. The American Clean Energy and Security (ACES) Act would require the U.S. to cut greenhouse gas emissions 17 percent by 2020 and 83 percent by 2050. The legislation would establish a "cap-and-trade" system that would put a value on emissions permits, giving industries an incentive to cut pollution. A specific provision in the legislation would require the U.S. Environmental Protection Agency to calculate "appropriate amounts" of emissions "allowances" for cheaper imports from countries that do not impose greenhouse gas limits. In effect, the result would be a tariff on Chinese goods if the country continues to resist mandatory caps on emissions. Supporters argue that an "equal-playing field" should exist between the U.S. and China with regard to emissions. Opponents argue that such legislation, if passed, will only compel China to impose retaliatory measures while avoiding any cuts to its emissions.

The question of tariffs is particularly sensitive when considering China's relentless purchase and investment of U.S. Treasuries, debt financing, corporations and domestic real estate. With the economic health of both nations interdependent, an exchange of tariffs is viewed as moot.

Sheheryar T. Sardar, Esq. is a Partner at Sardar Law Firm LLC. He can be reached at 631.838.0178 and sardar@sardarlawfirm.com.