Our Health and Free Trade: Tobacco and TPP

As we near the end of 2014, it looks as if we will conclude yet another year without having finalized the Trans-Pacific Partnership (TPP) trade negotiations. Nevertheless, the negotiations are still moving along slowly. Negotiators are scheduled to meet this month. One top issue pertains to tobacco.

This is a case in which international trade and public health clash. How would you balance: 1) measures designed to protect citizens’ health, 2) the interest in expanding business opportunities to other markets and 3) the need to enforce global trade rules, i.e., not violate World Trade Organization trade rules?

Cigarette Butt hin255

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The next round of TPP negotiations between 12 countries throughout the Asia-Pacific region are scheduled for October 25th in Sydney, Australia. According to bilaterals.org, the United States does not plan on putting forth a new tobacco proposal although its August 2013 proposal sparked a backlash.

The most recent U.S. tobacco proposal includes the following:

• The TPP agreement will, like other trade agreements, contain a general exception for matters necessary to protect human life or health. We will propose including a provision indicating that the TPP Parties understand that general exception applies to tobacco health measures.

• We will also propose adding a provision requiring that before a Party initiates a challenge through TPP dispute settlement to another Party’s tobacco regulatory measure, the health authorities of the concerned Parties shall meet to discuss the measure. These two elements work together to preserve the right to regulate tobacco products domestically.

• Finally, the market access element of the proposal will remain unchanged, consistent with long-standing trade and agriculture policy. As we do for other products, we will continue to press for the elimination of tariffs on U.S. agriculture exports, which, by their very nature, discriminate against American farmers.

Here are some issues that have arisen during the discussions surrounding including tobacco in the TPP negotiations:

  • Whether or not tobacco regulations should be exempt altogether from trade rules so that regulations put in place to protect public health are not labeled as non-tariff barriers to trade or a form of protectionism, both of which violate the rules established under the WTO (Malaysia, one of the TPP countries, continues to push for a complete exemption for tobacco from the TPP as it seeks to enact World Health Organization measures on tobacco control.) 
  • The concern that countries will use strict tobacco policies and regulations for the purpose of discriminating against and restricting the entry of foreign tobacco products to protect domestic tobacco producers instead of public health
  • The degree to which last year’s proposal by the United States will result in the ability of tobacco companies to use trade rules to challenge another country’s tobacco policies and regulations designed to protect public health

Since scientific studies have shown the harmful effects of tobacco, it is difficult to argue, in this case, that the need to protect human health are exaggerated and outright false. Many countries, including the United States, have taken serious domestic measures to limit the sale of tobacco, regulate advertising and encourage transparency about the health risks associated with the use of tobacco. Therefore, it is not just a question of tobacco control measures designed to protect domestic producers from foreign competition, as we may see in some cases in other industries. Rather, there is a human health component that must be taken into account even within the free trade framework.

What do you think?


**Photo courtesty of hin255/freedigitalphotos.net 


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Dr. Jackson’s Work on Industry Competitiveness Published in Journal

Publishing Stuart Miles

My research article on industry competitiveness in specific markets has been published with the Journal of Competitiveness Studies (formerly Advances in Competitiveness Research).

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The abstract is below.

Industry competitiveness studies emphasize global competitiveness. These studies fail to examine factors contributing to globally uncompetitive industries’ ability to compete in specific markets. This study focuses on the factors that allow industries to become highly competitive in specific foreign markets, as with the U.S. textile industry in the Dominican Republic market. This article uses the path dependency framework to argue that critical junctures create a market for U.S. textile producers that they would not otherwise enjoy. The argument is based on interviews with Dominican apparel producers. 

The article is the basis of the current book that I am working on, which is currently under contract with a publishing company.



Note: Photo courtesy of Stuart Miles at freedigitalphotos.net

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Three Things You Need to Know About the United States’ Number One Port

One argument for taking advantage of free trade agreements is that businesses will benefit from duty-free access to other markets. Duties are taxes placed on foreign imports. For example, U.S. products can enter the Mexican and Canadian markets without having taxes placed on those products in either market as a result of the North American Free Trade Agreement (NAFTA).

However, U.S. businesses can also save on import and export costs by making use of foreign trade zones. Three key things are worth noting about the foreign trade zones affiliated with the largest port in the United States.

Port of LA 2

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The Port of Los Angeles, based in San Pedro, CA, operates Foreign Trade Zone (FTZ) 202. Foreign Trade Zones are industrial parks or warehouses that lie outside of U.S. customs territory and are located near a port of entry. Foreign goods that enter the FTZs are exempt from duties, quotas and customs procedures. Consider these three things when assessing your import and export costs:

Port of LA

1. The Port of Los Angeles is the #1 port in the United States both in cargo value and volume. In 2013, total trade in goods through the Port of Los Angeles reached close to $286 billion and 7.9 million twenty-foot equivalent units (TEUs). The Port of Los Angeles has maintained the number one position since 2000.

2. You can save money. FTZ savings include, among other things, duty exemption, duty deferral, and inverted tariff. An inverted tariff allows an importer to decide whether to pay a duty on material parts or on the finished product, whichever offers the largest cost savings.

3. You can save time. According to Port of Los Angeles data, transit time by vessel to Asia is 7-10 days faster than from the East Coast. Additionally, transit time by train to the Midwest is 4-5 days compared to the East Coast, which takes 6-7 days.

How can you take advantage of foreign trade zones? Check out the Global Research Institute Newsletter for specific tips (click here for more).

Do you have any story ideas that you would like to either write on or see covered in ITE? If so, please send an e-mail to internationaltradeexaminer@gmail.com.

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Possible Reauthorization of the Ex-Im Bank Past September Deadline

UPDATE on Sept. 19, 2014 at 5:23 a.m. PST: Reauthorization of the Ex-Im Bank has been approved. However, rather than being a five year extension, the Ex-Im Bank has been reauthorized until June 2015

Re-authorization of the Export-Import Bank (Ex-Im Bank) may extend past the September 30th deadline, per public reports. The length of that extension remains unclear. The Ex-Im Bank has been instrumental in helping businesses, including small businesses, minimize the risks associated with exporting overseas. Even with a slight extension, more work still needs to be done to ensure the Ex-Im Bank’s full re-authorization. Additionally, rather than eliminating this institution, it would be useful to discuss ways in to reform the Ex-Im Bank to address some of the challenges that it has faced.

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History and Purpose

The Ex-Im Bank was created in 1934 as a part of Franklin D. Roosevelt’s New Deal program and to help carry out his foreign policy goals. Eight decades later, the Ex-Im Bank assists small businesses through its export credit insurance to cover lack of payment from the buyer in a foreign market,  credit program for international buyers of U.S. goods and services, loans, and other financing programs for foreign buyers seeking to purchase U.S. capital goods and services. The Ex-Im Bank offers loans that other banks would not offer due to the high risks involved in exporting. With these lofty goals, the effectiveness of the Ex-Im Bank is under scrutiny.

The last effort to hinder reauthorization of the Ex-Im Bank was in 2012, which ultimately failed. The Ex-Im Bank’s contract ends on September 30th. If reauthorized, the contract will be renewed for another five year period.

Arguments Against Reauthorization

Opponents of reauthorization argue that the Ex-Im Bank is just another form of corporate welfare. For example, Forbes contributor Dan Ikenson writes:

The collective evidence demonstrates…that Ex-Im largesse serves the interests of some U.S. companies at the expense of other U.S. companies.  Ex-Im facilitates exports and job creation for some U.S. companies, but inhibits exports, domestic sales, and jobs at other U.S. companies…It has possibly affected a reshuffling of jobs between industries and firms, but taking resources from one pocket of the economy and putting them into the other pocket does not create jobs or growth.

According to a CBS news report, Enron received over $650 million on overseas projects from the Ex-Im Bank. When the company went bankrupt, it reportedly owed the Bank $512 million.

Support for Reauthorization

Proponents of the Ex-Im Bank claim that this institution creates jobs without relying on U.S. tax payer dollars. Instead, according to proponents, the Ex-Im Bank actually generates revenue for U.S. tax payers.

President Obama said in 2012:

By reauthorizing support for the Export-Import Bank, we’re helping thousands of businesses sell more of their products and services overseas, and, in the process, we’re helping them create jobs here at home. And we’re doing that at no extra cost to the taxpayer.

According to Ex-Im Bank data, its services have generated $2 billion for US taxpayers.

Even Sallie James, a Cato Institute policy analyst who opposes Ex-Im Bank reauthorization, admits that the Bank does not waste tax payer money.

It is true that the Ex-Im Bank has not imposed a net burden on taxpayers in recent years. It has used revenues from fees and premiums to fund its
activities. Congress allows the Ex-Im Bank access to interest-free funds from the Treasury for program and administrative expenses, with the expectation that offsetting collections will repay the Treasury in full.

As a matter of fact, the Ex-Im Bank only assists two percent of  annual U.S. exporters.

Another argument in favor is that foreign countries subsidize their exporters far more than the United States, which gives U.S. exporters a competitive disadvantage. While governments throughout Asia provide guarantees, loans and insurance to exporters ranging from $24 to $111 billion, the United States only provides $15 billion.

Is the Ex-Im Bank Government Waste?

No. As the figures show, the private sector still provides the majority (98%) of loans and other financial resources that U.S. exporters need. The Bank accounts for the remaining two percent. The Ex-Im Bank does not rely on U.S. tax dollars to function.

The examples of Enron as well as Boeing and Solyndra really just plays to people’s fears of big government and wasteful spending. However,  pointing to these companies as examples merely ignores the number of successful exporting companies that have actually benefitted from the Ex-Im Bank. For this reason, there is a strong push back from business associations and their members.

Lastly, because so few people are aware of the Ex-Im Bank, it is just an easy target. During this mid-term election year, opponents can attack such a small portion of export financing and pretend that the end of the Ex-Im Bank will have huge implications. Failure to reauthorize the Ex-Im Bank will only result in a number of small business owners being locked out of the international market.

That is why U.S. business owners should pay attention to the political angle of international trade and get involved.

Do you think that U.S. Congress should reauthorize the Ex-Im Bank?

See GPS’ Fareed Zakaria’s take from Sunday, July 6, 2014 at http://globalpublicsquare.blogs.cnn.com/2014/07/07/why-the-export-import-bank-matters/

Additional readings:



 *This post is an update of the original version posted on July 10, 2014.

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Russia to Appeal to the WTO against US, EU Sanctions

WTO Headquarters, Geneva, Switzerland

WTO Headquarters, Geneva, Switzerland

In response to the U.S. and EU sanctions that have been put in place since March, Russia is now considering appealing to the World Trade Organization (WTO). On what grounds?

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On Friday in Brussels, Russian Minister of Economy Alexei Ulyukayev said that the latest round of sanctions imposed by the United States and the European Union violate the terms of the WTO. In other words, they are illegal, at least according to Ulyukayev. He went further to say that Russia will appeal to the WTO. His statement comes in response to the new round of U.S. and EU sanctions in the energy, finance and defense sectors, which were published in the EU Official Journal on Friday morning.

According to the U.S. Treasury Department:

Today’s step, which complements Commerce Department restrictions and is similar to new EU measures published today, will impede Russia’s ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on U.S. and western technology…While these sanctions do not target or interfere with the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country, they make it difficult for Russia to develop long-term, technically challenging future projects.

The latest round of sanctions also prohibit any financial transactions with Russia’s largest bank, Sherbank of Russia. Within two weeks, all current contracts with the bank must come to an end.

Following 18 years of negotiations, Russia finally joined the WTO in August 2012 as the organization’s 156th member. WTO members agree to liberalize their trade policies and allow for the free flow of goods and services across their borders. Trade liberalization is characterized by the reduction of tariffs and other barriers to trade.

Any attempts to block trade through the restriction of imports, high tariffs, and trade discrimination violate WTO rules. However, the WTO allows for exceptions, in which a member can impose tariffs on exports from another member country that has been proven to engage in unfair trade practices. In addition, there must be evidence that those unfair trade practices harm the local industry in the importing country. WTO members must file a dispute settlement case, during which the WTO determines whether or not a member country can restrict trade to protect its domestic producers.

For example, following an investigation, the WTO ruled that the United States could place tariffs as high as 35% on Chinese tires that were flooding the U.S. market at below market value. Selling tires in the U.S. market at below market value gives China an unfair advantage and harms the U.S. tire industry.

China retaliated by placing tariffs on large U.S. cars and sports utility vehicles entering its market. The WTO ruled that these tariffs failed to comply with WTO rules, since there lacked substantial evidence showing that U.S. car and SUV exports caused harm to China’s local industry.

Russia would have to file a dispute with the WTO. However, it is unclear on what grounds Russia would successfully appeal. These types of economic sanctions are not within the purview of the WTO dispute settlement process. Article XXI of the General Agreement on Tariffs and Trade (GATT) allows exceptions for security reasons.

Nothing in this Agreement shall be construed

(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or

(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests

(i) relating to fissionable materials or the materials from which they are derived;
(ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment;
(iii) taken in time of war or other emergency in international relations; or

(c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

It will be difficult for Russia to successfully appeal given that the WTO permits exceptions for security reasons.



Ukraine and Russian Sanctions – US State Department 

Ukraine Crisis: Russia and Sanctions 

See earlier blog posts:

*Photo courtesy of ILO Historical Photo Archives

Do you have any story ideas that you would like to either write on or see covered in ITE? If so, please send an e-mail to internationaltradeexaminer@gmail.com.

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