On getting even more "competitve" (behind a few doors in "free trade" land)

By Lee Russ

Monday, July 03, 2006 at 04:34 PM

Whenever I hear some folks in suits and ties talking on television about getting, maintaining, or enhancing our "competitiveness," I wince.  I know how these not-so-hardworking clowns define "competitive."

All it means to them is that some poor shmuck (like me, like you, like most of the people other than the well dressed talking heads) is working harder, for less money, or--BONUS, BONUS--both harder and for less money.

So it was with great trepidation that I read the headline UNITED STATES, CANADA AND MEXICO LAUNCH NORTH AMERICAN COMPETITIVENESS COUNCIL.

Here's the press release from our government, working overtime to keep and protect us:

U.S. Secretary of Commerce Carlos Gutierrez, Mexican Secretary of Economy Sergio Garcia de Alba and Canadian Minister of Industry Maxime Bernier meet with North American Business Leaders

Washington, DC - U.S. Commerce Secretary Carlos Gutierrez, Mexican Economy Minister Sergio Garcia de Alba and Canadian Minister of Industry Maxime Bernier today met with North American business leaders to officially launch the North American Competitiveness Council (NACC). In March, U.S. President Bush, Canadian Prime Minister Harper, and Mexican President Fox, announced the creation of the NACC as a priority to their commitment to the Security and Prosperity Partnership of North America (SPP).

"Today is a continuation of President Bush's strong commitment to our North American partners to focus on North America's security and prosperity," said Commerce Secretary Carlos Gutierrez. "The private sector is the driving force behind innovation and growth, and the private sector's involvement in the SPP is key to enhancing North America 's competitive position in global markets."

The NACC is made up of high level business leaders from each country. Each country's council consists of ten members who will meet annually with the SPP Prosperity and Security Ministers to provide recommendations and priorities on promoting North American competitiveness globally. In addition, the governments of North America will work with the NACC to remove barriers in order to increase the competitiveness of North American firms in the global marketplace and spur economic growth.

Also today, the SPP Prosperity Ministers, Secretary Gutierrez, Secretary Garcia de Alba and Minister Bernier, met to take stock of progress on the Prosperity component of the SPP. The SPP Security Ministers, Homeland Security Secretary Michael Chertoff, Canadian Minister of Public Safety Stockwell Day and Mexican Secretary of Interior Carlos Abascal, are also taking stock of progress on the Security component with a view to releasing a report in July. The Security and Prosperity Ministers will hold a meeting with the NACC in early fall 2006 to discuss their priorities. They will also discuss updates to the work plans and consider new initiatives.

On March 23, 2005, leaders of North America launched the SPP. This initiative is meant to reduce trade barriers and facilitate economic growth, while improving the security and competitiveness of the continent. The leaders of North America affirmed their commitment to the SPP when they met on March 31, 2006 in Cancun, Mexico.

The SPP is built on the North American Free Trade Agreement between the United States, Canada and Mexico (NAFTA) which entered into force on January 1, 1994. NAFTA created the world's largest free trade area, which now links 435 million people producing $13.8 trillion worth of goods and services. Total trade among all three NAFTA partners has grown from $296.7 billion in 1993 to $807.4 billion in 2005, an increase of 172 percent. The dismantling of trade barriers and the opening of markets has led to economic growth and rising prosperity in all three countries.

Frankly, since I feel overwhelmed by the number and seriousness of attacks on all things formerly thought to be "American,"  I'm sorry to say that this was the first time I came across the concept of a Security and Prosperity Partnership of North America (SPP).  Fortunately for me, the same day that the NACC was announced, the SPP issued a "Recent Accomplishments" press release, providing the basics of the SPP (emphasis added):

At their meeting today, U.S. Commerce Secretary Carlos Gutierrez, Mexican Economy Minister Sergio Garcia de Alba and Canadian Minister of Industry Maxime Bernier reviewed progress since the Leaders met in Cancun, including the following accomplishments:

To enhance the competitive position of North American firms while maintaining high standards of health and safety, officials from the regulatory, trade, and oversight agencies from all three countries met for the first time on April 18-19, 2006 and identified a core set of elements for the Regulatory Cooperation Framework to include coordinating joint work on regulatory processes, promoting best practices, and enhancing information sharing throughout the regulatory process.  [Now that's the kind of concrete, specific articulation that brought us the response to Hurricane Katrina]

Ongoing liberalization of rules of origin help improve the competitiveness of our industries by reducing transaction costs, facilitating the cross-border trade of goods, and making it easier for exporters to qualify for duty free treatment. In May, our three countries agreed to a third round of changes affecting over $30 billion in trilateral trade with an implementation goal of 2007.

Energy Ministers agreed to develop recommendations to further align and strengthen energy efficiency standards; identify gaps in the research and innovation chain for key technologies; develop, with the private sector, recommendations to address barriers to the expansion of clean energy supply and deployment of technologies; and, to develop a trilateral legal instrument on energy science and technology collaboration.

A Coordinating Body of senior officials from the three North American countries has been established, in order to develop cooperative activities in all stages of avian influenza and human pandemic influenza management.

A task force of senior officials from the three North American countries has been established to develop a coordinated strategy aimed at combating counterfeiting and piracy. The next meeting to discuss the strategy will take place in the summer.

These initiatives build on the accomplishments identified by President Bush, President Fox and Prime Minister Harper at their meeting in Cancun, on March 30, 2006:

To enhance growth and competitiveness in a key sector, the North American Steel Trade Committee developed a new strategy aimed at reducing market distortions, facilitating trade and promoting overall competitiveness through innovation and market development.

To speed up response times when managing infectious disease outbreaks, save lives, and reduce health care costs, the United States and Canada signed an agreement to enable simultaneous exchange of information between virtual national laboratory networks (PulseNet).

To make consumer goods safer, save lives, and prevent injuries, the United States and Mexico signed an agreement for advance notifications when consumer goods violate one country's safety standards or pose a danger to consumers. Canada and the United States signed a similar agreement in June.

To promote prosperity by reducing the costs of trade, the United States and Canada decreased transit times at the Detroit/Windsor gateway, our largest border crossing point, by 50 percent.

To increase border security, Mexican and U.S. agencies are harmonizing risk assessment mechanisms, exchanging information, and establishing protocols to facilitate detection of fraud and smuggling.

There's an equally uplifting release on the 2005 accomplishments, which includes the following:

Expanding Duty Free Treatment by Liberalizing the Rules of Origin

*  Ongoing liberalization of rules of origin will help improve the competitiveness of our industries by reducing transaction costs and facilitating cross-border trade in goods. Building on the work of our three countries in implementing changes to rules of origin agreed under the first round of negotiations, we have agreed to a second round of changes and commit to complete negotiations on an ambitious third round of changes by May 1, 2006. This will expand duty free treatment through rules of origin liberalization, covering at least $30 billion in trilateral trade by 2007.

Okay, you may be asking, but what the hell are "rules of origin" and why should I give a damn if they are "liberalized?"

Well, According to one web site on free trade agreements:

According to the WTO website: ""Rules of origin" are the criteria used to define where a product was made. They are an essential part of trade rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti-dumping actions, countervailing duty (charged to counter export subsidies), and more."

Because the preferential treatment provided for in a free trade agreement is usually granted only to products originating from members of that FTA, rules of origin are important. These are the criteria which determine the national origin of a product. The country of origin of a product is usually seen as the countrywhere the last substantial transformation took place.

Enforcing and defining rules of origin for goods or services poses major problems.This issue has been very controversial in a number of agreements and trade unions and other critics have campaigned to highlight the ways in which rules of origin can be used and abused by governments and corporations alike. In particular there are concerns about the ease with which goods processed partly or fully in a third country can get duty-free access under a bilateral agreement by being re-exported with just enough processing to satisfy rules of origin requirements.

This is further complicated by the fact that different bilateral free trade agreements use different criteria to set rules of origin.

In other words, a free trade agreement between two countries applies only to goods "made" or "originating" in those two countries.  If there's an agreement between India and the U.S., the U.S. wouldn't want India to be able to just purchase a bunch of Chinese goods at a discount, then ship them into the U.S. under the favorable tterms of the agreement.  So they need rules to figure out which goods are within the terms of the agreement, and which goods are, essentially, attempts to unilaterally expand the agreement.

How do they figure this out?  Well, an Op-Ed in Financial Express, Delhi, 10 May 2004, available online here, describes the process this way:

Rules of origin need proper perspective under trade pacts
by Ram Upendra Das
...
Whether or not a product has originated in a particular country is decided if the product has undergone substantial transformation. There are three major ways of determining this:

First, the change in tariff-heading test, implying that the tariff-heading of the final product is different from the tariff-headings of its inputs.

Second, a percentage test is applied, according to which a minimum percentage of total value addition should be achieved with the help of domestic inputs.

Finally, specified process tests require a product to undergo certain stipulated processes.

That's pretty much in line with actual U.S. rules on determining "origin" for purposes of a free trade agreement with Morocco (emphasis added):

CHAPTER FIVE RULES OF ORIGIN

ARTICLE 5.1: ORIGINATING GOODS

Except as otherwise provided in this Chapter or Chapter Four (Textiles and Apparel), each Party shall provide that a good is an originating good where it is imported directly from the territory of one Party into the territory of the other Party, and

(a) it is a good wholly the growth, product, or manufacture of one or both of the Parties;

(b) for goods other than those covered by the rules in Annex 4-A or Annex 5-A, the good is a new or different article of commerce that has been grown, produced, or manufactured in the territory of one or both of the Parties; and the sum of (i) the value of materials produced in the territory of one or both of the Parties, plus (ii) the direct costs of processing operations performed in the territory of one or both of the Parties is not less than 35 percent of the appraised value of the good at the time it is imported into the territory of a Party; or

(c) for goods covered by the rules in Annex 4-A or Annex 5-A, the good has satisfied the requirements specified in that Annex.

And finally, why do/should you care?  Well, because the easier it is for a "free trade" partner to ship a certain type of goods in under the terms of the FT Agreement, the more likely it is that those goods will no longer be made in the U.S.  If the rules of origin, for example, allow a kind of goods to be shipped in under the FTA when only 10% of the value is added in a country that is a party to the agreement, rather than requiring 35% of the value to be added in that country, a whole lot more goods are likely to enter the U.S. under the favorable terms of the agreement.  And, of course, this encourages more of the production in really, really cheap labor countries.  And, of course, a whole lot less of those goods are likely to be produced, in whole or in part, in the good old US of A.  Which pretty soon is going to stand for United States of Attrition.

Just thought you might want to know what your government is up to in a few of those back rooms with the really nice furniture (produced elsewhere) and the catered lunches (with those great imported ingredients).