State and Local Officials Conference Call with Sebastian Mallaby

State and Local Officials Conference Call with Sebastian Mallaby

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Listen to Sebastian Mallaby, director of the Council's Maurice R. Greenberg Center for Geoeconomic Studies, discuss U.S. trade policy as part of CFR's State and Local Officials Conference Call Series.

Learn more about CFR's State and Local Officials Initiative.

IRINA A. FASKIANOS: Good afternoon and welcome to the Council on Foreign Relations State and Local Officials Conference Call Series. As many of you know from having been part of these calls, our goal is to provide a nonpartisan forum for discussion of pressing international issues that affect the priorities and agendas of state and local government.

Today we are pleased to have Sebastian Mallaby lead the discussion on current issues in U.S. trade policy and what we can expect looking forward. Mr. Mallaby is the Council's director of the Maurice R. Greenberg Center for Geoeconomic Studies, the deputy director of studies, and the Paul A. Volcker senior fellow for international economics, a very long title. As many of you know he is also a columnist for the Washington Post and prior to joining the Council he served on the editorial board there. He has a long bio which all of you have in front of you so I will just stop by saying he is the author of The World's Banker, a history of the World Bank under James Wolfensohn, as well as After Apartheid: The Future of South Africa. Sebastian, thanks for being with us. It's great to have you here.

SEBASTIAN MALLABY: Great to be with you.

IRINA A. FASKIANOS: We have seen since the mid-term elections, a trend of protectionism in Congress. Can you put that in context and should we be worried about where we are going?

SEBASTIAN MALLABY: Sure. Thanks. I mean I think one way to put this in context and just to understand what's going on is to think back to 9/11, a sort of turning point for lots of things and various foreign policy and in fact in economic policy I think and right after 9/11, Bob Zoellick, who was then the U.S. trade representative, wrote an op-ed piece saying, okay, we now see that failed states have the potential to really damage us and we need to do things economically to make the risk of state failure less likely, and one of the things we should do is use trade as a foreign policy tool to spread the chances of countries to export their way out of poverty. So that was right after 9/11. Zoellick capitalized on the sort of political momentum coming out of that catastrophe and that is why by the end of 2001, in other words within about three months or three and a half months of the terrorist attacks, two really big things have happened in trade policy. The first was the launch of the Doha round of trade talks, specifically the development round aimed at helping developing countries, and the second thing was the passage of Trade Promotion Authority through the Congress, giving the president the right to go and negotiate trade deals with other countries and to submit them to Congress for an up or down vote rather than through a series of amendments by which Congress could pick apart any trade deal. And to just understand those two things were quite a big deal. You have to remember that both the idea of launching a trade round and getting that authority from Congress had been around for several years before. In the second half of the 1990s under the Clinton administration, they had tried to launch a new global trade negotiation and what happened was the Seattle disaster where there were protests in the streets, the antiglobalization movement was basically launched there and no global trade round got off the ground. The present administration has tried twice as well to get authority from Congress to negotiate to get the Trade Promotion Authority, or what it was called then, Fast Track, and again they had failed. So there hasn't been much momentum in trade politics in the late 1990s and this was really, in 2001, after 9/11 and with the momentum created by 9/11, a complete change of the landscape. So it's a big success.

Now, fast forward six years or five and a half years; what's happened to that post 9/11 trade policy momentum? Well, first of all, the Doha Round, which initially was launched with the promise that it would be completed within three years, has instead fizzled out over the course of five and a half years. There is no deal. If you speak to people in the U.S. administration or for that matter, as I have done recently, to other G7 countries and the advisers to the prime ministers or finance ministers there, you get people saying yes, we still think we can pull a Doha deal out of the hat, we can still get this global trade round concluded, but frankly as an outsider I've been hearing these kinds of expressions of optimism from the insiders for a while and I might be proven wrong, I hope I am proven wrong, but I am skeptical that they can actually get the deal done multilaterally. I don't think the Doha round is going anywhere anytime soon. So that's one of the big hopes of the post-9/11 movement which seems to have been proven empty for the moment.

And the second thing is that the Trade Promotion Authority, which as I said moved through the Congress in the end of 2001, has now, is now due to expire and it's expiration initially. You know, in the early part of this year there were hopes of extending it and renewing it. Again, it might happen but I am not seeing many hopeful signals so far. So both in terms of U.S. domestic policy and in terms of what's going on in the international negotiation world, trade policy is, I think, running out of steam. What's going on as well is there's been a few smaller, bilateral deals negotiated by the Bush administration. There's one with Peru, there's one with Colombia, there's one with Panama, and there's a bigger one with South Korea, and all these bilaterals have been negotiated in principal. They still have to pass through Congress and they've been held up by the Congress, and mind you they were held up also by the previous Congress. The South Korea deal is the only one of those which is a new one. The Peru deal, the Colombia deal, the Panama deal predate the November midterm elections and so the Republican-dominated Congress could have passed them, just as the Democratic-controlled government could now pass them, so this not a sort of partisan point necessarily. This is to say that both parties have had trouble stepping up to the plate and getting these deals ratified. And the thing about trade policy to remember is that when you get a blockage like you've got now, it's not just that the thing stands still, you can actually by standing still fall over. This is the bicycle theory of international trade progress. If you are not actually going forward you lose your balance and you wind up with your head in the street because the reason is that there is always pressure from industries that feel affected by trade negatively and political pressure of all kinds to sort of nip away at any open trading system, you're going to get industries saying, you know, we need special protection because the other guys are cheating and they are dumping goods in our market and so let's have an antidumping suit, let's have a countervailing duty suit, let's have other - some kind of special provision and over time you get an accumulation of these antitrade initiatives and they add up to a sort of retreat and so by standing still, as I say, you actually retreat in trade and we've been seeing some of that just recently, most notably on China where the U.S. has decided to bring some WTO cases about China, complaining about Chinese practices. This could be a very good thing if it persuades the Chinese to open up their markets, it could be a less good thing from the trade point of view if the consequence is that the WTO says, you know China is not in line with the rules, therefore the U.S. has the right to retaliate by putting protective tariffs to punish China and so those protective tariffs would be imposed and you know, from a fairness point of view that might be okay, but from a sort of increasing trade point of view it's obviously not okay and then even less encouraging is where the other states have chosen, without going to the WTO, just on its own initiative, to put up tariffs and they have done that on paper products, again, saying that imports from China are somehow unfair.

So this is all just to show that when you're not going forward, you're actually falling over or going backward and I worry that there's an issue even beyond that which is that for the last ten or twelve years, the international trading system has been stabilized by this ability to go to the World Trade Organization and bring your dispute to an impartial tribunal that will say whether your complaint about another country is true or not true. So you have this third party impartial arbiter who can adjudicate these disputes.

If you go back in history before this dispute settlement mechanism was created in 1995, if you go back to the 1980s and early 1990s, what you see is that when the United States was having a trade row with another country such as Japan, there were a lot of unilateral trade remedies, in other words sort of voluntary export restraints, forced upon the Japanese and sort of threats of various kinds of sanctions if the Japanese didn't do XYZ and so the dispute became bilateral and as somebody who was actually based in Japan, writing for the Economist magazine in the first half of the 1990s, I can tell you that the consequence of that trade fight, which was very bilateral because you couldn't go to any WTO dispute settlement mechanism, was that it didn't just mess up trade, it messed up diplomatic and even military relations too and so in 1995, the biggest demonstration in the streets in Japan in twenty-five years was about getting U.S. troops out of Japan and ending the U.S.-Japan military alliance and the reason - I mean there was a sort of spark which was the rape of a Japanese schoolgirl in Okinawa in the southern island of Japan, but the reason it got out of hand and got to that level was that nobody in the Japanese political leadership was willing to stand up and defend the need for the U.S.-Japan military alliance because precisely that every interaction with the United States in the last two or three years had been about trade fights, you know, trade disputes and that had just eroded all the goodwill between Japan and the U.S. so that even military allies were at a point where they were questioning the value of their alliance.

Now, if you think about what's going on today, a lot of the heat in trade is taken out by the fact that you can go to this dispute settlement mechanism at the WTO but there's a danger that if negotiations at Doha have stalled, as I think they have, and countries cannot get access to markets that they want by negotiating it through the Doha global round of trade talks, what they're going to do instead is they're going to litigate for access. That means they are going to take more disputes to the World Trade Organization's dispute settlement mechanism. You're going to get this build up of complaints and people are going to say, you know, if there were too many rulings for example that go against the United States, people in Congress are going to say well we don't like this dispute settlement mechanism. It's ruling against us too much and maybe this isn't such a good idea to have some sort of unelected judges sitting out there in Geneva telling us what our trade rules should or should not be. So you can easily imagine a sort of thing where not only as I said before does, you know, trade - when it doesn't go forward, you can fall off your bicycle or go backwards, but you could go really seriously backwards if a sort of breakdown in progress in trade negotiations leads to many, many more cases at the WTO which in turn leads to a backlash against the WTO which then leads to a sort of questioning of the legitimacy of the whole system and we, in fact, at the Council, if any of you are interested, have a study that we've recently published by Professor Robert Lawrence of Harvard which is about exactly this issue, the World Trade Organization's dispute settlement mechanism, how it works, what it is, why it's good for the interests of the United States and why nonetheless it's sort of fragile given the current state of trade politics.

So - and finally, I'm going to wrap up fairly soon but I do want finally to come to the question of, you know, if trade politics are sort of stuck right now and that's worrying and you could actually go backwards, what should one do about it? What's the way out of this cul de sac, and I'll talk here mainly about the domestic political angle, the question of why do these deals not go through Congress. Why in fact do we see the reluctance to renew the Trade Promotion Authority, and I think what's frightening about the way the debate is unfolding in Congress is that it's sort of about a phony kind of shadow issue, namely the argument is should there be better protection for workers and for the environment in the countries that we do trade deals with. So especially in the case of Peru, Colombia, there is pressure from the Democrats especially to say look, if we are going to do this deal, if we are going to let this deal be negotiated, go through Congress, then what you need to give us is you have to promise us that we're going to get more protection for workers in Peru otherwise they'll be competing unfairly with us by underpaying their workers, exploiting them and that's not really fair trade competition. Now there's a couple of things to be said about that argument and one is that I think it's sort of wrong on the economics and on the development theory in the sense that frankly the best way to improve the prospects for workers in Peru is to create more jobs there and trade will create more jobs there, so to hold up a trade deal that is going to wind up meaning that there are less jobs in Peru, it doesn't matter what the labor standards say on the books, it's not likely to help people, and if you doubt that, I mean, just consider the fact that even in a really developed country which believes in the rule of law like the United States, it's tough to enforce rules against for example sweatshops. There are sweatshops in the New York area, in LA, it's difficult to close them down because they just reestablish themselves someplace else. So it's tough to impose labor standards, to raise the standards of people's pay and conditions simply by issuing legislation to do that, and the real way to improve people's conditions it to have economic growth and so I think, you know, trade promotes economic growth. Every cross country study of trade agrees with that. There's some debate about how much it might increase economic growth, but the idea that it's a positive contributor I think is undisputed by just about every academic economist out there. So I think it's perverse on the policy argument to be saying to Peru, look, you know, we're holding up your trade deal until you have better legislated labor standards, but not only is it perverse in the policy sense, it's perverse in the political sense because frankly I don't think that the members of Congress who are worried about trade deals are worrying really about the condition of workers in Peru. What they care about is the condition of workers in their own districts and they ought to be concerned about the condition of the workers in their own district because that's who voted for them and that's who they are supposed to be representing. But instead of making an honest argument saying, look, you know, I'm really concerned about the people in my district, often the argument, not always but often, it comes out as a sort of, well, we're not really talking about our own people, we're talking about the Peruvian workers, which I just think kind of confuses the issue, and what we need to do I believe, to make progress on this, is to recognize that there is in fact a reason why trade is unpopular politically within the United States and that is that the fruits of economic growth over the last twenty-five years or so, since about 1980, have not been evenly distributed. This is not really just an opinion, if you look at the data you can see that there is basically two data series that the government produces to look at the distribution of income in this society. One is wage data for individuals and the other is household income data for families, and you can look at one and you can look at the other and one of them includes health insurance and other forms of compensation, the other one is only just pay and salary and wages, so they're a little bit different but the basic point is that people in the bottom half of the work force since around 1980 have made either almost no gains after inflation, you know, or actually no gains, so you could look at different theories and get slightly different results but it's frightening how little progress people in the bottom half of income distribution have made. And it's not just, as I say, it's not just the bottom 10 percent, it's not the bottom 20 percent, it's been the bottom 50 percent, and what's more, if you look at the numbers since about 2000, it's not then the bottom 50 percent or the bottom 60 percent, it's actually more like the bottom 95 percent have not made gains. And one of the authorities on this is Professor Matthew Slaughter from Dartmouth University who has just become an adjunct fellow at the Council on Foreign Relations, having served as a member of the President's Council of Economic Advisors in the White House, so he was an appointee by President Bush. He is, therefore, you know, a Republican appointee, not necessarily keen to talk about inequality, if you were just looking at his, you know, partisan affiliation, but he looked at the data and he, you know, these are his numbers that about 95 - I think he actually said 97 percent of the people, of the households, have not made gains since 2000, and so people naturally say look, we are in a globalizing world, we see more and more trade but we don't see that it's helping our households, our lives, or our paychecks so we're not sure we like this, and that's a perfectly rational position for people to hold because although it's true that in aggregate, the economy as a whole is getting richer because of trade, these extra riches are basically flowing to a very small group of people at the top of the society and so I think the real key to unlock this debate about globalization and trade and in the long term to make progress on getting the agenda unstuck is essentially to accept it and to think about policies, whether they are through the tax code or through retraining people, investing more in the public school system, maybe bringing about a more potable and inclusive health insurance system, these are the kinds of things that are going to reduce the insecurity felt by a lot of American families, are going to make more families feel like they are sharing in the gains of globalization and that, over the medium term, is the best way to reconstitute the political constituency for trade.

I'll leave it there and enjoy your questions. Thank you very much.

IRINA A. FASKIANOS: Sebastian, that was terrific. Let's open it now [operator], to questions and comments and, of course I just want to emphasize that we would welcome your comments and things that you are working on in your states. So let's go to the questions.

OPERATOR: Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touch-tone phone now. Questions will be taken in the order which they are received.

QUESTIONER A: Yes, you touched on the fair trade versus free trade, you certainly made a very nice argument for the - on the labor side but I didn't catch anything on the environment. Is it not somewhat - because environmental issues are worldwide; if a factory is polluting say in the United States, is it right to - for us to do that when they aren't in Europe for example. I don't want to pick on any developing economies, but I think you understand what I am saying.

SEBASTIAN MALLABY: Yes, that's a good question. I mean, I think that you are right, I left that out - and you're right that I left it out because it is actually a more subtle argument on that than on labor. It seems to me that on labor, as I said before, the way that you improve workers' pay and conditions is by economic growth really.

QUESTIONER A: I think that's clear cut, yeah.

SEBASTIAN MALLABY: Yeah. Now, on the environment on the other hand, it's a murkier and more subtle story because of course I think it is the case that one of the things that can improve, you know, environmental outcomes is if the economy is developed they become less manufacturing intensive and people become richer and your citizens start pressing for more environmental protection because they've had the growth, they've got the basics that they need and now they are concerned about the quality of the air that they are breathing, you know, and of the water that they're drinking and so you get naturally more environmental concern and more environmental protection as economies get richer.

I was really struck when I went to China about a year and a half ago that if you go to the sort of more affluent coastal cities around Shanghai and on that sort of heavily developed coastline, what you find, I went to a small town called - a medium-sized town called Ningbo and met with the mayor and some of the city officials. I mean, politics there is entirely about air quality, water quality, urban congestion, you know, what - so environmentalism is sort of naturally coming up as a political concern in countries as they become richer. So I think there is that, but at the same time of course, you know, if you want to protect the environment you do need regulation. And so it's not going it alone, I would never claim that, so I think that it's true that, you know, there's more of a case for cross-border environmental rules and saying that, you know, don't race to the bottom by means of dumping pollution but I think that, you know, it's not clear that, you know, given that you would give up a lot on the trade side because you would simply not be able to get this through a multinational negotiation. You would give up a lot of gains in trade for some uncertain benefits on the environment side if you link the two explicitly. So I am more in favor of having a sort of separate track where you pursue environmental issues, particularly ones who have cross-border implications, and you do it vigorously but you don't necessarily hold up trade deals while you are doing that.

QUESTIONER A: Thank you.

IRINA A. FASKIANOS: Thank you, next question.

OPERATOR: Thank you.

QUESTIONER B: Hi Sebastian. My question is I have legislators asking me over and over and my staff on the Utah International Trade Commission and one of the biggest issues we have, you know, we have some international trade so we see some benefits from it but they're worried about sovereignty, not just on the gambling issue, but of course that's one of them and what are some of the things that, in your view, states can maybe do to alleviate some of these concerns without maybe unduly stepping in and burdening things?

SEBASTIAN MALLABY: Well, on sovereignty, aside from gambling, what other issues are you thinking of?

QUESTIONER B: Well, there are some concerns that some of the new proposals on lease (inaudible) and some kind of test and things like that might impact some of our hazardous waste regulation, there's the old government procurement issues and things like that.

SEBASTIAN MALLABY: Yeah. I mean it's true that if you sign up for any kind of international deal you are constraining, you know, your policy freedom at home and, you know, countries have to make a choice about whether that's a good deal for them. I think that, you know, part of I guess my view on the environment, to get back to the previous question for a second, is that you know, environmental protection represents a tough trade-off between, you know, how much do you want in terms of cleaner air versus how much do you want of something else and in trying to impose that internationally, you know, countries will say hey, my sovereignty is being violated here because somebody else has decided for us where that trade-off should be.

But I think when it comes to reducing tariffs to take the most basic form of trade, you know traffic trade diplomacy, it's not really, I mean, the worries about sovereignty violation strike me as unpersuasive because basically if you reduce your tariffs it's going to be good for your economy and so what are you really getting out. I think what you're getting out is the trade policy has sort of morphed from being just a reduction of tariffs to being actual sort of regulatory things about, you know, whether you can or cannot have a certain sort of gambling (inaudible), yeah, exactly and they do get into sort of social policy choices about what is a society to do about gambling. You know, there's disputes about, you know, different people draw the line on when is somebody an adult, is it eighteen years, twenty-one years. I mean - so I think you're right that these - I understand why these questions about sovereignty come up a lot. There is no kind of silver bullet way of solving that issue. It is a trade-off but basically I think what people have to remind themselves is that there are benefits to joining these international regimes because it facilitates cross border commercial activity and you gain from that. Sometimes you'll be giving something up because there will be a domestic policy which gets kind of precooked for you and that's a trade-off you're going to have to make case by case as to whether it makes sense to you.

QUESTIONER B: Thank you.

IRINA A. FASKIANOS: Thank you. Next question, comment?

OPERATOR: Thank you.

QUESTIONER C: Hi, can you hear me?


QUESTIONER C: Great. I just wanted to go back to something that you had mentioned in your talk and also had - also published in your articles before about dealing with the sovereignty issue. You mentioned that these cases could stilt protectionism. I think the quote that you had in the Washington Post column was the worry is that a series of verdicts against the United States could stilt protectionism, Congress (inaudible) about unelected foreign judges trampling U.S. sovereignty and I think [the earlier questioner] just mentioned some of the concerns that legislators have and I just wanted to add that, you know, state attorneys general, state supreme court justices, you know, state officials from (inaudible) to regulatory staff are all concerned about these sovereignty issues and it seems a little bit like you have sort of dismissed the impact of that and I would just want to bring that back and, you know, given that this is a call for state and local officials, how would you address that sovereignty issue in a more substantive way in terms of, you know, whether or not these rules are really the appropriate venue for making those sorts of regulatory decisions?

SEBASTIAN MALLABY: Well I guess my view is that, you know, it is a trade-off between the benefits from trade and the benefits from regulatory harmonization which facilitates, you know, cross border commercial activity, which is basically good for growth and good for the United States. You know, that's the benefit. Now the cost is, you know, we may give up some leeway to pursue the social policies or the regulatory policies that we would have preferred.

Now if somebody shows me, you know, I'm sure there are cases but I haven't seen a lot of concrete examples of regulatory intervention in the affairs of states which really do seem like a big, big price to pay for the trading system and I mean, actually I can think of one more in the opposite direction, namely that the United States in its trade deals has often required countries to adhere to a regulatory regime for patent protection, which is probably tougher, more protective of patents than really makes sense for a developing country because developing countries don't have a big interest in protecting intellectual property because they don't have much of it. They do have an interest in not protecting it because they'd like to use it cheaply and so, you know, you could view that as a U.S. invasion of regulatory space by trading partners, and so I am open to the argument that this does exist. But the cases that are cited in the opposite direction, I mean, there's a whole sort of class of them around Chapter 11 cases where environmental regulations have been challenged under Chapter 11 in NAFTA, protecting foreign investors from discrimination, and to my knowledge most of those cases, which sound very dramatic when they are filed and look as if it's an invasion of U.S. sovereignty actually, you know, the way they've turned out in the end has been that these apparent invasions of U.S. sovereignty have not been upheld by the judges. So again, if I am missing an example of a real invasion of sovereignty I am happy to look at it, but you know, perhaps you can tell me of specific examples where there has been an invasion that one should be concerned about?

QUESTIONER C: I think the gambling case has been the one that a lot of legislators have been concerned about, given some of the variety of gambling laws from state to state as well as the federal law and, you know, that kind of gives us insight into how WTO jurisprudence might play out for future cases. Certainly the fact that there hasn't been, you know, more than a couple of cases under some of these agreements at the WTO, like the general agreement on trade and services, you know, that that is no indication that there won't be additional challenges in the future as we continue to pursue increased liberalization and integration. And so I mean, I certainly think that there are cases where it goes in the opposite direction, but legislators here are also concerned that it could - we are indeed exposing ourselves and not safeguarding, taking appropriate safeguards to protect our own sovereignty and regulatory authority here.

SEBASTIAN MALLABY: Well, I agree with you that it is something that needs to be watched and that if the direction of WTO jurisprudence did lead to further, you know, undermining of regulatory preferences in the United States then the backlash would be, you know, not only likely but also possibly, you know, defensible. But, you know, until we see that, until there is this, you know, further line of WTO decisions going in that direction, I wouldn't want to shoot the messenger or shoot the institution before it's sinned and I think it's worth remembering, you know, the benefits that the WTO does bring and so we should just - I would just be hesitant to condemn it in advance of actual sin.

QUESTIONER C: Okay. Thank you.

IRINA A. FASKIANOS: Thank you. Next question, comment?

OPERATOR: Thank you.

QUESTIONER D: Yeah, hi, I was wondering if you wouldn't mind briefly discussing your outlook on developing alternative energy markets or bilateral climate partnerships as a mean to expedite the Doha Round, save democratic protectionism, save labor complaints, and save the president's TPA.

SEBASTIAN MALLABY: Well that would be not just a two-fer but a three-fer, four-fer, I lost count there.

QUESTIONER D: That's right.

SEBASTIAN MALLABY: Yeah, you know, that's an interesting area. I mean, clearly the Doha Round has been, you know, blocked in part at least by the fight over farm subsidies and to the extent that, you know, the prospect of biofuels gives another market for some products, some of these subsidies may become economically unnecessary and so then you could get rid of these subsidies, which are one of the sticking points of the WTO because you don't need them anymore because the farmers are happy producing ethanol basically. I think that's the line of argument and then that's what basically changes the game and we'll see that potentially in the farm debate coming up, now that the farm bill has to be reauthorized in Congress. I had a meeting a few months back with Tom Harkin who talked about, you know, re-titling the farm bill as a sort of rural energy bill, with ethanol as the centerpiece. So I think there are - you're right, there are interesting possibilities there and it, you know, the sort of pessimistic side to it is that the, you know, the sort of calendar is such that we're not going to get a farm bill resolution in time before TPA runs out and some of the focus on the Doha Round has gone and so, you know, whether there'll be the political will to go back to the trade agenda after the farm bill is wrapped up is a big question.

IRINA A. FASKIANOS: Terrific. Next question?

OPERATOR: Thank you, just a reminder, if you would like to ask a question please press star one on your touch-tone phone. Okay ma'am, there are no further questions at this time.

IRINA A. FASKIANOS: Sebastian, we're almost out of time. It might be great if you could wrap up with just talking a little bit about the Geoeconomic Center at the Council and the work that you hope to accomplish.


IRINA A. FASKIANOS: At the center.

SEBASTIAN MALLABY: Sure. Well at the Council on Foreign Relations we have this - the Geoeconomic Center and everyone says to me what the heck is that? Basically geoeconomics is our way of talking about the interaction between foreign policy on the one hand and international economic policy on the other, and the idea is obviously that there are lots of issues, whether it's trade fights that can have both a commercial and economic consequence on the one hand and also a foreign policy consequence as I was describing with Japan, and then there are, you know, things like energy policy which has a security dimension as well as an economic dimension and there's immigration, another classic one which has both economic and sort of political sides to it.

So you know, the Council on Foreign Relations is primarily a foreign policy think tank but we reckon that within that we need a sort of economic component which builds in the trade, the energy policy, the, you know, something about international capital flows and brings that into our thinking, broadens our thinking about foreign policy. So some of the things that we have going on now, I mentioned I think the report that we have on the World Trade Organization dispute settlement mechanism, that's on our website. We have a new paper we just released on immigration, particularly on low-skilled immigration, which points out that some of the benefits of immigration from Mexico almost come precisely because it's illegal. It's kind of a counter-intuitive argument but, you know, the reason why low skilled immigrants can contribute to the economy is partly because they are flexible. They can move from one industry to another industry. They can come to the United States when the economy is growing a lot and there are lots of jobs but they don't have to come when there aren't so many jobs, the economy isn't growing so fast and the danger with Congress simply expanding the number of visas, which is what it is not contemplating without reforming the system, is that you create more visas but they are sort of inflexible. They don't allow you to come when the job is free, they don't allow you to shift from the farm job that you have when the harvest is finished and move to construction. They have put all this red tape in the way and so the consequence potentially is that although you have created more visas, people will simply ignore them and prefer to come in illegally and so that is a sort of - that's another paper we've just published by Professor Hanson and I think it makes a provocative read whether or not you agree with the line of argument.

IRINA A. FASKIANOS: Well thank you for that and thank you to all of you for your participation today and your insights. We are trying to engage all of you in a conversation. If you have ideas for future calls please let us know, send an email to [email protected] and as Sebastian mentioned, our next State and Local Officials Conference Call will actually be with Gordon Hanson, the author of that Council Special Report on immigration. It will be on Tuesday, May 22. We will be sending out the report in advance of the call, a hard copy as well as copies of the WTO report so you should look for that in the mail and I hope you will join us on May 22 and Sebastian, thanks very much, we look forward to seeing the work that you head up here at the Council.

SEBASATIAN MALLABY: Great to be with you and thanks for the good questions.

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