Trade

The “strong dollar” has been a mantra for the United States for decades. Recently, as the euro has fallen to an 11-year low against the dollar, Treasury Secretary Jacob Lew has once again been paying homage. “I have been consistent in saying, as my predecessors have said, that a strong dollar is good for the United States.” Really? This week, a slew of blue chip U.S. companies--from Caterpillar to Proctor & Gamble to DuPont--reported a sharp fall in earnings attributed in part to the rising U.S. dollar. While a stronger dollar lowers the cost of imports, which is good for consumers, it hurts U.S. competitiveness. With U.S. companies ever more dependent on exports and overseas sales, a strong dollar means that each sale denominated in weaker currencies abroad returns less to the United States. Doug Oberhelmen, chief executive of Caterpillar, said the surging dollar “will not be good for U.S. manufacturing or the U.S. economy.” For the Obama administration, which has heavily promoted the importance of U.S.-based manufacturing and has made much of the recent small uptick in manufacturing jobs in the United States, a statement like that should be setting off alarm bells. And if that’s not enough, yesterday’s House and Senate hearings on U.S. trade policy should have done the trick. One after another, members of Congress from both sides of the aisle said it was crucial that the administration at least try to address currency issues in the current Trans-Pacific Partnership (TPP) trade negotiations. Yet the U.S. Trade Representative, Mike Froman, repeatedly deferred, saying that currency was a Treasury responsibility. And Treasury’s only response so far has been to say that the surging dollar is just fine. The United States has made this mistake before. In the early 1980s, the Reagan administration whistled as the dollar soared to record levels against the Japanese yen, battering a U.S. manufacturing sector that was already facing an unprecedented competitive challenge from Japan. It happened again in the early 2000s following China’s entry to the World Trade Organization. China had pegged the renminbi to the dollar in the mid-1990s (in part with U.S. encouragement), yet repeatedly refused to adjust the peg even as Chinese productivity soared and left the renminbi seriously undervalued. That currency peg was a major reason that the U.S. goods trade deficit with China rose from $80 billion in 2000 to more than $250 billion by 2007. Again, the major losers were U.S.-based, internationally competitive manufacturing companies and their employees. The companies could respond (and did) by spreading their operations around the world; their employees had no such flexibility. Currency values are largely determined by markets, of course, and Treasury Secretary Lew was correct in noting that the dollar’s surge is being driven by the relatively strong U.S. economy and weaknesses elsewhere in the world. But much as monetary authorities often try to tamp down an overly strong economy to prevent inflation, it makes sense for the United States to at least gently discourage the rising dollar rather than playing cheerleader. Indeed, the danger now is that many countries will go in the other direction and leave the United States in an even worse position. For example Singapore, a free trade agreement partner, this week announced that it would seek to halt the appreciation of its local dollar, and markets immediately drove it down sharply against the U.S. dollar. Other countries are likely to follow. There are tools, if limited ones, to slow the dollar’s rise. Consistent U.S. government pressure on China over the past decade helped in persuading the Chinese to loosen the dollar peg and let the renminbi rise; indeed, with the recent rise in the dollar China has also lost some of its competitive edge in European and other markets. Fred Bergsten of the Peterson Institute, in a recent Foreign Affairs article, called for more determined efforts to stop currency manipulation by U.S. trade partners, including countervailing intervention by the United States is cases where countries are aggressively intervening in markets to hold down their currencies. Some, or all, of these would be inappropriate responses at the moment; much of the dollar’s recent rise has been driven not by government intervention but by European and Japanese efforts to use monetary policy to stimulate their flagging economies. The United States has done the same in the recent past, of course. But clearly the worst thing to do is for the U.S. government to be actively encouraging currency movements that will undermine its own policy of rebuilding American manufacturing, increase protectionist sentiment in Congress, and make it far more difficult to move forward with the TPP and other trade negotiations. At the very least, it is past time for the government to stop talking about how a “strong dollar” is good for the United States.

President Obama urged Congress last night in his State of the Union address to “give me trade promotion authority” to complete “strong new trade deals from Asia to Europe.” If Congress agrees – and it probably will – it will be the first time in his administration that the president has had the authority to move forward on trade. The potential results – a Trans-Pacific Partnership (TPP) with Japan and 10 other countries, and a new Transatlantic Trade and Investment Partnership (TTIP) with Europe – would be the farthest-reaching trade agreements in a generation. It was a courageous moment for the president, pitting him directly against his own Democratic Party, which over the years has grown more and more hostile to additional trade opening. Oregon Democrat Peter DeFazio said that the president’s push for the agreements was “No. 1, No. 2, No. 3 and No. 4” on the list of things Democrats did not like about the president’s speech. The speech captured more clearly than anything I have heard before the conundrum on trade. The story is a fairly simple one. Over the past 40 years, Americans have been working in a far more competitive global economy, one in which many of them – especially in the once higher-wage manufacturing jobs – are competing directly with increasingly skilled workers from across the globe. The only way to succeed in that competition, as the president said last night, is to make sure that Americans are more educated, more able to join the workforce, and better equipped with the latest technology and infrastructure than our competitors. The goal, as he said, is to build “the most competitive economy anywhere, the place where businesses want to locate and hire.” Armed in that way, Americans should readily embrace trade opening because it simply provides more opportunities and more customers, while allowing us to benefit from the best products made anywhere in the world. But the real source of the skepticism on trade is that United States has left far too many of its people unprepared for the rigors of that competition. Our lead in education has vanished, our infrastructure is crumbling, and we do far less than other advanced countries to retrain the unemployed and prepare them for better jobs and careers. As a result, far too many Americans are simply left behind, condemned to lives of marginal employment and low-wage work. Yet even President Obama’s more modest proposals to address these issues – two years of free community college, paid sick leave for all workers, a minimum wage boost that simply restores it to past levels – are derided as partisan schemes that have no chance of passing the new Republican-controlled Congress. Trade does have a chance of passing, and should. The stakes are high. The United States needs to be deeply engaged in Asia in particular to help build an economic future for the region that is not dominated solely by China, and to make sure the United States has the most open access possible to the fastest-growing consumer markets in the world. President Obama, after many years of hedging on trade, has now clearly made that commitment. The White House has set up a whip operation to build support on the Hill, and the president has signaled that he is willing to work closely with Republicans to muster the votes he needs. But there will be minimal support from Democrats. Most of the Democratic opponents are not protectionists wanting to run way from competition. Instead, they see a game being played in which too many Americans have little chance of winning. While highly educated Americans have been enormously successful in the more open global economy, building some of the world’s most innovative and dynamic companies, far too many are simply unprepared for that competition. They are like over-matched boxers who keep getting knocked down, only to be told by their corner that they just have to get back in the ring and keep taking the punches. It would make more sense to pull them out of the ring for a year of training and conditioning before sending them back again. If even some of the proposals that President Obama urged last night were enacted by Congress, it would be far easier to expand support for trade liberalization. An American workforce that was better prepared for the rigors of competition would be far more enthusiastic about taking on new competitors. But until the United States addresses more of its competitive challenges head on – and that means in part new initiatives from the government in Washington -- support for trade will continue to be far weaker than it should be.

For the twenty years since the start of the North American Free Trade Agreement (NAFTA), the United States failed to fulfill its treaty obligations to open its roads and permit safe cross-border services. As part of the original agreement, Mexican trucks were supposed to be able to operate in four U.S. states—Texas, California, New Mexico, and Arizona—by December 1995, and then throughout the continental United States by January 1, 2000. Almost fifteen years later, the vast majority of Mexican trucks are still not allowed on U.S. roads. Mexico retaliated in kind, blocking the movement of U.S. trucks within its borders. In 2009, Mexico also applied retaliatory tariffs on a yearly rotating basis to a variety of U.S. imports, permitted by a favorable 2001 NAFTA dispute settlement panel ruling. To try and comply with the treaty’s obligations while also addressing domestic concerns over road safety, the U.S. government developed a series of pilot programs. President George W. Bush launched the first in 2007, enabling a total of twenty-five Mexican carriers to operate roughly one hundred trucks within the continental United States. These pioneers crossed the border twelve-thousand times in the year-long pilot program (for comparison, some fourteen-thousand thousand trucks cross the U.S. southern border alone each day). Although the program was terminated early (precipitating the retaliatory Mexican tariffs), the U.S. Department of Transportation’s evaluation of the program concluded that the Mexican carriers had better safety records than U.S. carriers. The most recent pilot program began in 2011 and finished this past October. Thirteen Mexican carriers with fifty-five registered trucks crossed the border some twenty-five thousand times during the three year trial period. A joint evaluation by the U.S. Department of Transportation and the Federal Motor Carrier Safety Administration found that Mexican trucks “had safety records equal to or better than the national average for U.S. and Canadian carriers operating in the United States.” Based on these findings, the U.S. Department of Transportation just announced that the pilot program trucks can continue to traverse U.S. roads, and that all Mexican carriers will soon be able to apply to operate in the United States. U.S. Department of Transportation, "North American TransBorder Freight Data: Indexed Data," 2014. This change benefits the United States (and Mexico) in many ways. First, it will end the $2 billion in retaliatory tariffs against U.S. goods sent to Mexico—second in importance only to Canada for U.S. exporters. When fully operational, it will also reduce costs in terms of money, time, fuel, and pollution for thousands of U.S. companies. Approximately two-thirds of U.S. annual trade with Mexico—roughly $335 billion a year—goes by road. More broadly, it is a small but important step toward recognizing the importance of North America for America’s future. Facilitating trade will strengthen the economic production platform that increasingly undergirds U.S. competitiveness and economic growth.

Below is a guest post by Naomi Egel, research associate in the International Institutions and Global Governance program. Though armed conflict endures, 2014 closes with a bit of good news: the Arms Trade Treaty (ATT) entered into force on December 24. Much of today’s global violent conflict is fueled by illicit weapons, which are easily diverted to conflict zones thanks to a vacuum of oversight. Shockingly, the international banana trade is more strictly regulated than the international arms trade. The ATT is an enormous step toward limiting the suffering caused by these illegal weapons transfers. Ratified by sixty-one countries, including five of the top ten arms exporters, this treaty regulates international arms sales from one state to another, in order to prevent small arms and light weapons from being used “irresponsibly” to perpetrate human rights abuses. The ATT merely regulates the legal arms trade: it recognizes that there are legitimate uses for guns and does not seek to ban them. Though the ATT has its shortcomings, it is an important contribution to a growing body of international humanitarian law that limits how humans can kill and maim. The first major call for an ATT came from a group of Nobel laureates, led by Oscar Arias in 1995, which advocated an International Code of Conduct on Arms Transfers. The laureates, joined by many civil society organizations under the banner of the Control Arms campaign, drew explicit causal links between the irresponsible arms trade and human rights violations, demonstrating how the legal arms trade between countries often fueled violence and hindered development. In particular, they emphasized how human insecurity caused by irresponsible small arms transfers hindered efforts to achieve the Millennium Development Goals (MDGs), tying the issue to states’ existing obligations to alleviate poverty and meet basic needs. Article Six of the ATT explicitly prohibits arms transfers in certain situations—including if the exporter knows they would be used for genocide, crimes against humanity, grave breaches of the Geneva Conventions of 1949, attacks directed against civilian objects or civilians, or other war crimes. Where arms transfers are permitted, states must undertake a comprehensive risk assessment and examine the probability that the arms might be diverted. The ATT is also the first treaty to ever include a specific provision on gender-based violence: when deciding to authorize a transfer, a state is required to consider the risk that the arms would be used to commit gender-based violence such as mass rape. By requiring states to track arms exports, it creates a dual responsibility for both arms exporters and importers to prevent diversion or illicit trafficking of arms. The ATT has several shortcomings, however. It does not specifically outlaw any arms transfers or sales. States are only required to conduct an assessment and conclude that the transfer would be responsible. The ATT does not establish any sort of arbitration body to resolve disputes over such self-assessments. Furthermore, it regulates ammunition, parts, and components under export licensing obligations but not under most of the treaty’s other provisions, including those relating to imports, transit and trans-shipment, brokering, and diversion. The treaty also does not cover gifts and loans; only direct arms sales from one state to another. In addition, some argue that since the ATT only covers existing weapons, it is ill-equipped to address new types of weapons or future weapons that may fall outside the stipulated categories. Ultimately, the ATT’s ability to safeguard human life depends on its implementation and ability to adapt. The United States has signed, but not ratified the treaty (to sign a treaty is to declare support for it, but to ratify a treaty is to implement it as domestic law). The country is unlikely to ratify the ATT in the near future, particularly under the new Congress. The National Rifle Association (NRA) and other gun advocates have actively opposed the treaty since the start of negotiations. Painting the UN as a “global nanny,” they claim that the ATT would regulate domestic gun sales and would require a national registry of gun owners. Although the ATT regulates only the international arms trade between countries (not domestic transactions between people) and is silent on individual arms ownership, these arguments have convinced many members of Congress to oppose the ATT. Much of the rhetoric in the U.S. debate over the ATT concerns not the substance of the treaty text, but the symbolism of gun ownership, interpretations of Second Amendment rights, and U.S. sovereignty. Failure to ratify the treaty undermines U.S. credibility in advancing human rights globally. Given that the United States already has in place strict requirements for international arms sales that exceed the standard set by the treaty, perhaps one day the Senate can push past these exaggerated concerns and ratify the treaty. In the meantime, the United States could still further the goals of the treaty by using its diplomatic leverage to pressure other arms exporters to stop funneling arms to states and nonstate groups that commit human rights abuses. Even without ratification by the United States—the world’s largest arms exporter—the ATT can effectively make the international small arms trade more responsible. It can achieve this even without the participation of Russia and China, two of the other top five arms exporters. Much of the ATT’s value stems from its normative role in establishing categories of “responsible” and “irresponsible” arms transfers. In an unprecedented step, the ATT extends culpability for human rights abuses to states that knowingly facilitate human rights abuses by providing the weapons used for such atrocities. The ATT also builds on treaties such as the ban on anti-personnel mines that have emphasized humanitarian effects to limit the use of certain weapons. Though the United States never ratified the Mine Ban Treaty, it has brought itself into compliance with the treaty—except for in the Korean Peninsula—and has made significant contributions to clearing mines globally. Thus, it can mimic this “implementation without ratification” strategy for the ATT, and cite this commitment when pressuring others to follow suit. For their part, even if Russia and China do not ratify or otherwise comply with the treaty, they may find that some of their customers, that themselves have ratified the ATT, prefer to not buy arms—even if for legitimate purposes—from countries that facilitate human rights abuses through irresponsible arms sales. Finally, regardless of the participation of top arms exporters, if a high number of states ratify the treaty, criminal arms traffickers will find fewer countries to use as bases or havens from which to traffic arms illegally. Because states assess their own transfers, however, the treaty is only as strong as states make it. As the largest arms exporters that have ratified the treaty, France, Germany, and the United Kingdom can send a strong signal by reporting comprehensive data on their arms transfers. This will encourage transparency in reporting. Additionally, parties to the Arms Trade Treaty must ensure that its secretariat, not yet in place, obtains the robust mandate and sufficient financial resources it needs to assist states in implementing the treaty. While the ATT is not a panacea to prevent human rights abuses involving small arms violence, it is a starting point. While its potential should not be overemphasized, it should be recognized for what it is: a step forward for international human rights.

It’s been a good month for trade talks with India. On November 14, U.S. Trade Representative Michael Froman announced that a four-month impasse with India concerning food security and the World Trade Organization (WTO) Bali trade facilitation agreement had been broken. A U.S.-India “agreement on trade faciliation” should at last allow the WTO Bali package to advance. It’s most welcome news, especially since India’s refusal to ratify the Bali agreement back in July had resulted in an existential crisis for the WTO. As Froman stated in his speech to Indian industry,  “Some have suggested that the India-U.S. breakthroughs—in Bali and again two weeks ago—may well have saved the multilateral trading system.” On the heels of that progress, Froman traveled to India for a long-overdue (by some four years) meeting of the U.S.-India Trade Policy Forum (TPF). The TPF just completed its sessions, and the joint statement released today suggests positive momentum on the ever-difficult agricultural trade matters. A new technical group will work on issues like food safety, along with plant and animal health. India and the United States also agreed to increase conversation on services and investment, where a great deal of two-way trade already occurs—and not surprisingly, where substantial disagreements have also surfaced. Manufacturing trade and intellectual property also received specific mention, and the joint statement notes agreement to intensify consultation on both. That’s all good news, because on November 21, 2014, Prime Minister Narendra Modi tweeted an invitation to President Barack Obama to visit as India’s official guest for Republic Day on January 26. In a span of an hour—all on Twitter—President Obama (via the NSC Press Twitter handle) accepted. This means the U.S. and Indian bureaucracies have about eight weeks to prepare another summit-level program effectively on the heels of Modi’s visit to Washington that just took place at the end of September. Both governments will need to work overtime to complete preparations—and trade and investment matters will be a boon to the visit if some ambitious goals can be realized. A summit-level meeting will need some accomplishments, or “deliverables,” to announce. After a very rocky couple years on economic matters, November’s trade accomplishments—in the category of overcoming problems—offer scope to move ahead with more visionary targets. Here I would urge the United States government to take a vocal and public stand endorsing India’s candidacy as the next member in the Asia Pacific Economic Cooperation Forum (APEC). I’ve written about this before, and continue to believe that the size of India’s economy along with the importance of India’s economic growth for Asia more broadly makes it uniquely well suited for APEC membership. With a trade-focused prime minister at the helm in New Delhi, there’s no better time to respond to his government’s focus on economic growth by supporting Indian entry into APEC. As a non-binding forum, but one focused on commitments toward free and open trade, APEC membership for India could also provide a mechanism to help bridge some of the difficult trade disagreements still at issue in the U.S.-India bilateral relationship. Of course, we are already too late to be the first mover on getting India into APEC. China, this year’s APEC summit host, stepped ahead in July by offering an unprecedented invitation to Prime Minister Modi to attend the summit. Modi was not able to do so in the end, but the gesture of the invitation implicitly endorsed India’s candidacy for membership. Washington should coordinate with New Delhi on the next appropriate diplomatic steps to get APEC membership on the agenda quickly and acted upon at the next summit next November, when the Philippines will host. The last time President Obama visited India, he endorsed Indian permanent membership “on a reformed UN Security Council.” APEC membership hardly seems as contentious nor as difficult to achieve—but it would have an immediate and positive impact.

The annual APEC summit is underway in Beijing. Perhaps the most notable absentee is India’s Prime Minister Narendra Modi, who received an unprecedented invitation in July from Chinese President Xi Jinping to attend the gathering. Despite growing to become the world’s third largest economy in PPP terms, India is not a member of APEC, and as a result would not normally attend the summit. But this year President Xi used his platform as the summit host to extend invitations to non-members India, Pakistan, and Mongolia. While Pakistan and Mongolia’s leaders made the trip to Beijing for APEC, Prime Minister Modi decided not to do so. It’s a missed opportunity for India’s economic diplomacy at a time it could use a boost. For India, APEC, a grouping of twenty-one member economies across the Asia-Pacific region, has a complicated history on the membership front. Due to a moratorium that ran from 1998 through 2010, the forum did not consider any aspirants for membership during years of strong global economic growth. Following the expiration of the moratorium, APEC discussions on membership appear to be stuck in endless deliberation over regional balance and representation from sub-geographical areas within the forum. The result: in 2014, once again there are no moves to induct new member economies. As I wrote last summer, given the size of the Indian economy—now among the world’s largest by any measure, and dwarfing those of many current APEC members and aspirants—an APEC with India inside the tent makes economic sense. Especially since APEC is not a binding negotiating forum, but rather a community of norms and commitments to free and open trade. So why isn’t India, a $2 trillion economy, on the fast track to APEC membership? Last July, following the news of President Xi’s APEC summit invitation to Modi, I thought the prospects looked brighter than ever in the past. As many have noted, the summit invitation is an implicit endorsement of membership. Having China’s support would seem to be an important step. But other countries, including the United States, have said little to reinforce India’s case and propel its candidacy forward. Unfortunately in this case, it’s all about the politics, and here India’s multilateral economic diplomacy over the summer did not help its case. India’s role in torpedoing the World Trade Organization’s Trade Facilitation Agreement negotiated at Bali created a new and very unfortunate precedent in India’s multilateral track record. As I wrote at the time, it was always possible in the past to say that India upholds its multilateral commitments, but its decision to walk away from the Bali agreement rendered that statement false. The ongoing difficulties in reaching a path forward with India to preserve the Bali agreement have resulted in a crisis within the WTO about not only the limited accomplishments of the Doha Round, but more deeply about the principle of consensus on which it operates. India’s stance has also reinforced the notion among many countries, in both the developed and developing world, that India often plays the spoiler in global trade talks. With the WTO crisis in the foreground, and with India as the key protagonist, it’s no wonder that a groundswell for Indian membership in APEC has simply not materialized. In the longer run, that’s a strategic and tactical mistake, as APEC will benefit from having India inside the trade tent—as will India, from becoming more fully integrated with a forum focused on promoting open trade. But more time will need to elapse—and the Bali agreement will need to be rescued in some fashion—before APEC member economies will likely take up the question of Indian membership. That’s why the Beijing APEC summit would have been a good opportunity for Modi to clarify his views on the open trading system and help keep India on the agenda for expansion. This missed opportunity can be recovered, but it will take time.

With the midterm elections in the United States decisively giving the Republican Party control of the Senate, and a stronger showing in the Republican-controlled House of Representatives, speculation in Washington now centers on what a Republican Congress means for policy. In The Water’s Edge, CFR’s James M. Lindsay argues that Republican control will change foreign policy, but less than many might think. In Foreign Policy, Bruce E. Stokes argues that a more aggressive foreign policy might be on the offing. In the Financial Times, Shawn Donnan reports that Republicans have already offered up trade as an area for cooperation with the White House. So what does Republican control of Congress suggest for India and the U.S.-India relationship? I’ll focus on the Senate here since leadership transitions will take place in January for every committee. Let’s start with security. If, as reported, Senator John McCain will assume the chairmanship of the Senate Armed Services Committee in January, that’s good news for New Delhi. Senator McCain has a long track record of support for a stronger India and a stronger U.S. relationship with it. He’s been a frequent visitor, most recently in July, and has spoken forcefully about American interests in a deeper partnership with India. In September, the senator published an essay in Foreign Policy arguing for a pivot to India, with India at the heart of U.S. interests in Asia. He argued that the United States should be India’s preferred partner on energy, on trade, and on defense. He’s a strong advocate for amending U.S. laws on natural gas to permit more access for partners like India; for a larger economic ambition with India like a free trade agreement (FTA) and the Trans-Pacific Partnership; and a much deeper defense relationship, inclusive of enhanced strategic consultations, more joint exercises, and getting to work on joint development and production of weapons systems. McCain mentioned energy exports for a reason. Greater access to natural gas exports has become an important issue for U.S. policy, not only for India, but for many countries seeking greater energy security and the lower prices of U.S. natural gas. Access to natural gas exports from the United States has been a recurring interest for the Indian government, and two projects have received approval which will supply India’s GAIL. But under U.S. law, exports to non-FTA partner countries require individual review and approval. As McCain noted in his Foreign Policy essay, changing U.S. law to facilitate greater access will be difficult. The likely new chair of the Senate Energy and Natural Resources Committee, ranking member Lisa Murkowski, has a track record on this matter. She has advocated for an expedited process of natural gas exports, not specifically mentioning India, but the principle is the same. Over on the Senate Foreign Relations Committee, ranking member Bob Corker would appear in line to take over as chair, but the Washington Post reports that this isn’t guaranteed. Still, Senator Corker has been a supporter of the India relationship, and has been vocal about the need to reassess U.S. relations with Pakistan, particularly supporting tying U.S. foreign assistance to action against terrorism. He has not, however, been a member of the Senate India Caucus in previous years. Perhaps it’s time to join. If the reports are true that Congress will focus on trade as the common ground to advance with the Obama administration, it’s worth examining the views of Senate Finance Committee ranking member Orrin Hatch, likely to assume the chairmanship. Here, a shift to Republican control may result in a still-watchful eye on Indian trade issues. Senator Hatch has expressed concerns about unfair trade practices in India, as have many members of both houses of the U.S. Congress from both parties. He’s also noted India’s policies toward intellectual property rights as a particular challenge, and was one of the four members of Congress requesting the U.S. International Trade Commission to carry out a second investigation of Indian trade policies, including under the new Modi government. Finally, given the importance that Indian technology companies and the Indian government have placed on greater access to temporary visas for high-skilled workers, the ranking member of the Senate Committee on the Judiciary, Chuck Grassley, could provide a sense of how that committee might see India under Republican control. While he has been an India supporter and member of the Senate India Caucus, Senator Grassley has a strong interest in U.S. immigration policies. Last year, he introduced a bill to reform the H-1B visa program. The Grassley bill would have provided for greater audits of these programs by the Department of Homeland Security and by Labor; a required thirty days of advertisement for open positions in the United States before they could be filled by an H-1B worker; and would have eliminated eligibility for H-1B visas for employers with more than half their workforce already on temporary work visas. So: expect to see continued broad support for India on a bipartisan basis in the United States, with an empowered Senator McCain likely to continue his advocacy for a strong India relationship across the board. Congress may seek to move further on energy policy issues that would benefit India. At the same time, on two issues of high importance to India, U.S. Republicans coming into leadership positions have expressed concerns very similar to those held by Democrats about trade and immigration matters. The Modi government is likely to see a U.S. Congress interested in doing more with India on security, energy, and foreign policy, but still concerned about trade barriers and temporary worker visas. Follow me on Twitter: @AyresAlyssa

Earlier this month, the Pew Research Center released the second of two major reports detailing findings from a global public opinion survey on economic issues conducted last spring in forty-four countries. Read together, the two reports reveal something you might not have guessed: Bangladesh is among the countries most supportive of the free market, and certainly the most free-market, trade-oriented country surveyed in South Asia. At least as far as public opinion is concerned, the People’s Republic of Bangladesh is a capitalist haven. First, the data. The spring 2014 survey asked a variety of questions about the benefits or losses from trade, beliefs about inequality, optimism or pessimism about the future, and support for a free market. A report released last month focused on beliefs about trade, and this month’s looked at inequality as well as beliefs about capitalism and the market. Across all forty-four countries surveyed, Bangladesh emerged as the world’s second most supportive of a free market economy. Eighty percent of those surveyed expressed support. Vietnam was the only country with higher levels of support, with 95 percent of respondents supportive. The next three countries most supportive of the free market were South Korea, China, and Ghana. Source: Pew Research Center, October 2014, “Emerging and Developing Economies Much More Optimistic than Rich Countries about the Future.” In addition, in comparison to the two other South Asian countries included in the survey—India and Pakistan—Bangladesh once again exhibited higher levels of approval for trade and foreign investment. Public opinion in Bangladesh greatly favors open trade, believes trade creates jobs and leads to better wages, and sees foreign investment as a net positive. We hear much more about India’s post-reforms tiger economy, but Bangladeshis are eight percentage points more supportive of the free market than India (72 percent) and eighteen percentage points more supportive than Pakistan (62 percent). When asked for views on growing trade, 91 percent of Bangladeshis surveyed responded that it was either "very good" or "somewhat good," compared to 76 percent of Indians answering in the same way. Bangladeshi public opinion also much more broadly believes trade creates jobs and leads to higher wages in comparison with public opinion in India and Pakistan. The question on which Indian responses exceeded Bangladeshi responses focused on optimism for a better life at home, with 78 percent of Indians surveyed stating that they would recommend staying in India (instead of going abroad for work) for a better life, and 71 percent of Bangladeshis surveyed recommending the same. Source: Pew Research Center, September 2014, “Faith and Skepticism about Trade, Foreign Investment” and Pew Research Center, October 2014, “Emerging and Developing Economies Much More Optimistic than Rich Countries about the Future” For those who follow South Asia these findings make sense. The Bangladeshi economy has benefited greatly over the last two decades from an export-oriented push at the entry level of the manufacturing space—garments. Bangladesh is now the world’s number two garment exporter, just after China. As I have written previously, despite known problems with workplace safety and labor rights in this sector, its more than 5,000 factories employ some four million Bangladeshis, mainly women, and the sector has significantly boosted Bangladesh’s economy. The garment sector is export-oriented, supplying some $20 billion in exports to the world. That Bangladeshis see trade and the free market system in a very positive light, despite the “People’s Republic” of the country’s official name, makes a great deal of sense given the positive impact Bangladesh has seen from trade and the free market. It’s a good news story about globalization that the world often misses. For further reading, see: Pew Research Center, “Faith and Skepticism about Trade, Foreign Investment” and Pew Research Center, “Emerging and Developing Economies Much More Optimistic than Rich Countries about the Future.” Top photo credit: Dhaka, April 2014. Photo by Sharada Prasad CS licensed under CC BY 2.0.  Follow me on Twitter: @AyresAlyssa

How much do Canada and Mexico matter for the United States? Here are a few snapshots illustrating the importance of our combined global heft and influence. North American countries are joined by 7,500 miles of land borders, among the longest in the world. Though comprising less than 7 percent of the world’s population, Canada, Mexico and the United States produce nearly a quarter of the world’s GDP—some 20 trillion dollars. Energy North America is the world’s largest biofuel producer, accounting for nearly half of global ethanol and biodiesel production. The United States, Canada, and Mexico produce nearly 20 percent of the world’s oil and 27 percent of the world’s natural gas. Forty-eight natural gas pipelines connect United States, Canada, and Mexico. In 2012, the region invested more than $250 billion in exploration and production of oil and gas, and experts predict that number could grow to half a trillion dollars annually by 2016. In 2013, Mexico sent 85 percent of its crude oil experts north—making Mexico the United States’ third-largest oil supplier, behind only Canada and Saudi Arabia. Economic Competitiveness Over the last 20 years, North American regional trade grew from $300 billion to $1.1 trillion. Nearly half of all North America’s total exports traded between the three neighbors. Mexico and Canada, in fact, sell more than 75 percent of their exports within North America. The value of U.S. exports to Mexico and Canada is twice the value of exports to the European Union, and five times the value of its exports to China. Since NAFTA’s start, regional trade in services rose by nearly 200 percent—to well over $100 billion a year. The People of North America Some thirty-four million Mexicans and Mexican-Americans, and more than three million Canadians and Canadian-Americans live in the United States. Mexicans and Canadians are the largest groups of tourists entering the United States: a combined 34 million visitors each year contribute an estimated $35 billion to the U.S. economy. In recent years, net migration of Mexicans to the United States has dropped to zero. If you would like to learn more, read CFR’s new Independent Task Force: North America: Time for a New Focus.

Brazilian President Dilma Rousseff won the first–round of the 2014 presidential election yesterday with almost 42 percent of the vote. The real surprise of the contest, however, came in Brazilian Social Democratic Party (PSDB) nominee Aecio Neves’s impressive second place finish, capturing a third of voters and surpassing Marina Silva of the Brazilian Socialist Party (PSB). Although Neves’s polling numbers had risen in the election lead–up, few expected such a strong showing. Neves and Rousseff now turn to the October 26 runoff. For the next three weeks Neves will enjoy equal air time for government–regulated TV and radio advertisements, almost tripling his exposure from before the first round. The domestic and international business communities have already thrown their support behind him, and many hope that Silva will formally endorse him and bring many of her voters (21 percent) into his camp. This is particularly important in the southeast—home to 62 million potential voters (43 percent of all citizens of voting age)—where Silva won 24 percent compared to Neves’s 39.4 percent. A strong showing there could outweigh Rousseff’s strength in the north and northeast of the nation. Still, as James Bosworth has pointed out, only two incumbents in the last thirty years in Latin America have lost their reelection bids, the last being a decade ago in the Dominican Republic. The next president will face substantial economic challenges. Foreign currency holdings, investment, and growth are all down. Inflation and interest rates are up. More structurally, Brazil’s economy is bifurcated between a modern, productive part linked to the world alongside a stagnant, sheltered side (not unlike other emerging economies, including Mexico). Under Rousseff, Brazil has slowed rather than increased in its connections with the world. Trade is down in the face of falling commodity prices and targeted protections. The country has yet to complete its decade–long negotiations with the EU, even as other Latin American nations have signed some thirty free trade agreements since Rousseff entered office in January of 2011. Brazil also stands outside the two largest and most dynamic free trade negotiations involving the region today—the Pacific Alliance and the Trans-Pacific Partnership (TPP). A recent McKinsey report estimates that opening the economy could increase GDP by 1.25 percent per year—four times 2014 projections. This would come primarily from greater pressure to innovate and invest. For Brazil to leverage its many advantages—its natural resources, sizable domestic market, strong banking system, numerous entrepreneurs, and globally competitive companies—it needs to embrace trade globalization. And whether the election run–off brings a Rousseff or a Neves administration, trade should be put at the forefront of the agenda.

The Council on Foreign Relations has released this week the new report of the Independent Task Force on North America, and for anyone familiar with the long history of efforts to deepen economic integration in North America, the adjectives that probably best describe the report are “pragmatic” and “realistic.” The Task Force, co-chaired by Robert Zoellick, the former World Bank chief and veteran of several Republican administrations, and General David Petraeus, the former commander of U.S. forces in Iraq, urges a series of measures to improve security and boost the economic fortunes of all three countries in an increasingly competitive global market. (I served as an “observer” on the Task Force, which meant I participated in the discussions but was not asked to endorse the report or its recommendations.) More striking is what the Task Force did not do. It did not call for a North American customs union with a common external tariff. It did not call for a common currency. It did not even call for a “NAFTA 2.0” that would expand the 1994 North American Free Trade Agreement among Canada, Mexico and the United States. Instead, it quite modestly urges a “new focus” on the importance of North America, with greater cooperation on such issues as energy, border management, trade and law enforcement. Such recommendations are appropriate to the moment and the place. The moment is one in which visionary schemes for regional integration are rather more tarnished than they were two decades ago. The most ambitious project, in Europe, probably went too far for its own good. The creation of a common currency, the euro, has been a boon for the continent’s most competitive economy, Germany, but has harmed periphery economies like Greece and Spain that are now tied to a strong currency even though their own competitiveness would be enhanced by a weaker one. Free movement of people within the European Union has produced a backlash in Great Britain that has led that country to adopt its most restrictionist immigration policies in more than a generation. And the near-miss on the vote for Scottish independence shows the rising popular appeal of disintegration rather than greater integration. The place is a North America whose citizens have never shared the enthusiasm that many Europeans have for a common identity. Having lived for many years in Canada, I can say confidently that Canadians have just as little interest as Americans in some grand unity scheme, and my more limited experience with Mexico suggests that Mexicans would like it even less. As the report puts it: “For reasons of history and political culture, the United States, Canada, and Mexico are each highly protective of national sovereignty and independence.” What the report recommends instead is a focused set of policies that would help all three countries prosper from the competitive advantages of a more cooperative North America. As the late Robert Pastor, who was a member of the Task Force, did more than any scholar to highlight, the costs of inattention to North American competitiveness have been steep. After a surge in cross-border trade and investment in the booming 1990s, the momentum waned in the face of competition from China, new border barriers following 9/11, and the failure of the three countries to cooperate in such area as energy, infrastructure and transportation. Some of the bigger recommendations of the new report include: • New offices with responsibility for North America in the State Department and the National Security Council, and the designation of a cabinet official such as the Secretary of State or Treasury as a “North American champion” to bring a continental perspective to policy-making. • A regional energy strategy that builds on the growing North American advantage as a low-cost energy location. • Speeding up cross-border commerce by building on the U.S.-Canada “Beyond the Border” initiative and the U.S.-Mexico Twenty-First Century Border Management initiative, and working trilaterally wherever possible. • A new North American effort to assist Central America, which has increasingly become the focus of drug cartel activities, and is now the primary source of growing unauthorized migration to the United States. Such cooperation would not weaken the United States or compromise its sovereignty; instead it would enhance the security of all three countries and would strengthen their ability to compete economically with Asia and Europe. And these are all steps that could be taken without revisiting the old hot-button debates, and with a clear eye on advancing U.S. national interests. As the report quite rightly puts it: “Now is the moment for the United States to break free from old foreign policy biases to recognize that a stronger, more dynamic, resilient continental base will increase U.S. power globally.”

Last week, ministerial negotiations on the Trans-Pacific Partnership (TPP) between Japan and the United States ended abruptly after the two sides failed to reach an agreement on key sticking points, including the removal of tariffs on sensitive Japanese farm products. The failure of the talks disappointed both sides, including Prime Minister Shinzo Abe, who has long upheld TPP as a fundamental component of his structural reform agenda. Few, however, were surprised. Japan after all, has always had trouble cracking open its farm sector thanks to opposition from its powerful farm lobby. While it is tempting to assume that this is yet another case of Japanese leaders succumbing to the demands of vested interests, it is important to note that more is going on behind the scenes than meets the eye. Japan’s farm lobby is still a potent force in Japanese politics, but its influence is decreasing, and in ways that should bode well for agricultural liberalization. Until recently, Japanese agricultural politics were dominated by a web of interconnected institutions. At the center of that web was the partnership between the ruling Liberal Democratic Party (LDP) and Japan Agricultural Cooperatives (JA). The latter delivered votes and campaign workers to conservative politicians in return for a protected agricultural market. JA also nurtured a close relationship with the Ministry of Agriculture, Forestry and Fisheries (MAFF), functioning as the ministry’s semi-official arm in the implementation of farm-related policies, including the infamous rice acreage reduction (gentan) program. All the while, JA exercised a near monopoly over the provision of agricultural inputs to farmers and even controlled their access to financial services through its powerful banking and insurance arms. Although by no means omnipotent, this agricultural regime was notoriously unresponsive to demands for policy reform. But Japan’s agricultural regime is now well past its prime. JA’s economic dominance is slipping amid mounting competition from private-sector providers of farm inputs and credit. Its capacity to gather the vote has shrunk in the wake of electoral reform and a declining farm population. Rural politicians, for their own part, are facing strong electoral incentives to diversify their base of support beyond agricultural interests and to champion market-oriented reform. Meanwhile, the MAFF’s jurisdiction has shrunk as a result of the post-Uruguay Round dismantling of the postwar rice pricing system, and its ties to JA are weakening now that it no longer fields its retired bureaucrats to run as the association’s official candidates in upper house elections. Even ordinary consumers are contributing to the regime’s decline; whereas a concern for food safety and security once incentivized consumers to support market protectionism and high prices, consumers in today’s sluggish economy have grown critical of the gross inefficiencies of Japanese farming and of the policies and cozy political relationships that perpetuate them. Perhaps most importantly, Japanese farming itself is changing. As we observed for ourselves during recent fieldwork in the Japanese countryside, more and more full-time farmers are developing new forms of farm ownership and management. Despite lingering barriers to innovation, the rates of farm corporatization and farmland consolidation are slowly increasing. Some farmers are pursuing these changes outside of JA networks, while others are partnering with innovative local coops; in both instances, these farmers are responding more directly to market signals and in ways that benefit consumers. Clearly mindful of the agricultural regime’s waning power, the Abe government is taking steps to accelerate market-oriented trends among local farmers and coops. It has loosened regulations governing the establishment of new coops, farmland consolidation, the corporatization of family farms, and the entry of private-sector firms into farming, and has devoted two of the country’s “national strategic special zones” to agriculture. More dramatically, in late 2013 it announced that gentan would be phased out within five years. This is not to suggest that the tug-of-war between Abe and the agricultural regime is over. Far from it, as the fate of a recent reform initiative illustrates. In May 2014, the government’s Council on Regulatory Reform (CRR) issued a report that among other things recommended the withdrawal of coop status for Zennō, the JA organization that oversees the provision of non-financial services to farmers, and the virtual abolition of Zenchū, JA’s  “control tower.”  Anti-reformist LDP politicians led by Hiroshi Moriyama pushed back, however, and the government softened its stance, postponing JA reform to this fall.  The LDP later appointed Moriyama—a vocal critic of TPP, as chairman of its working group on TPP. Chalk one up for the forces of resistance? Not so fast. The Abe government may have lost ground in the battle over JA reform, but it has made significant progress in its war against the agricultural regime. As agricultural economist Kazuhito Yamashita has observed, for example, the subject of JA reform is no longer taboo. Moriyama, moreover, is not the die-hard anti-reformer that some observers think he is. As the Asahi Shimbun reported on August 13, Moriyama has been deeply mindful of Abe’s popularity among voters and loath to take a position on reform that might alienate his party at the polls.  Moreover, he has some experience with overdoing opposition to a sitting prime minister since he was banned from the LDP in 2005 after opposing then Prime Minister Koizumi’s postal reform initiative. Perhaps unwilling to risk another stint in the political wilderness, Moriyama helped craft a response to the CRR report that while critical, acknowledged the need for JA reform. Moriyama may very well strike a similar chord as head of the TPP working group. Finally, it is important to note that for every LDP politician who opposes agricultural reform, there is at least one who supports it, including such prominent members of the Abe cabinet as Chief Cabinet Secretary Yoshihide Suga, Minister of Agriculture Koya Nishikawa, and Shigeru Ishiba, the minister in charge of those national strategic special zones. Japanese agricultural politics has turned a corner; today, the focus of debate is no longer whether to reform agriculture but rather when and how to do it. What then, is Abe likely to do in the months ahead? Do expect him to keep pushing his TPP agenda; as he stated so unequivocally on numerous occasions during his recent visit to the United States, Abe firmly believes that the pact is key to the long-term health and prosperity of the Japanese economy. But do not expect him to take a page from Koizumi’s playbook and stake his government’s future on the success of agricultural reform and/or TPP. He has far more on his reform plate than Koizumi ever did and is not about to risk it all for these two issues, important though they may be to his personal legacy. Instead, Abe will continue his careful tug-of-war with those “forces of resistance,” pulling a little here, conceding a little there, so that more and more farmers and local coops can free themselves from JA’s stifling embrace and are eased, not thrown, into freer markets. U.S. trade officials may be tempted to throw in the towel after the collapse of talks last week, but it is important to remember that the potential for change in Japanese agricultural politics is now greater than ever. The U.S. can help strengthen Abe’s hand as domestic battles play out by stepping up pressure on Japan to reach an agreement on TPP—an agreement that grants Abe the time and flexibility he will need to open domestic agricultural markets without inciting a debilitating backlash from his opponents. Patricia L. Maclachlan is an associate professor of government and Asian studies and the Mitsubishi Heavy Industry Professor of Japanese Studies at the University of Texas at Austin. Kay Shimizu is an assistant professor in the department of political science at Columbia University.