Guest Contributor William Krist with Dani Litovsky: LNG – to export or not to export, that is the question

The United States is rapidly moving from being dependent on imported fossil fuels to becoming a major world producer.  We’re sitting on vast supplies of natural gas, and recent technological innovations have made it possible to tap previously unattainable resources.  So what should we do with these new-found riches?  Producers of natural gas, by and large, want to be able to sell where they can get the best price, and often that will mean selling overseas.  But consumers oppose exporting our natural gas, arguing that keeping these supplies to ourselves will keep the price here in the U.S. lower than the world price, and that this will give them a competitive advantage.  They believe this will add more value to the economy and trade account than exporting LNG.  And some environmentalists oppose exports because they believe this would raise the price of natural gas and thereby encourage more production.

From an economic perspective, allowing exports would lead to some increase in domestic prices, but the price of natural gas in the U.S. is far lower than in many other markets, for example, $2.66 per thousand cubic feet on average in the U.S. in 2012 compared to some $10 in the U.K. Somewhat higher prices in the U.S. because of exports would encourage greater U.S. production, but prices in the U.S. would still be lower than in most markets because of transportation costs, and this would continue to give manufacturers that use natural gas a cost advantage.  From an environmental perspective, natural gas is less polluting than other fossil fuels.  Until renewable energy such as wind and solar can meet the world’s energy needs – a prospect that is likely to be at least a decade away – encouraging the use of natural gas probably has a positive environmental impact.

From a trade policy perspective, restricting exports would likely run afoul of World Trade Organization (WTO) rules, and it would weaken our complaints about other countries’ export of vital minerals, which many believe is an attempt by China to gain a competitive advantage at its trade partners’ expense.

The economic impact of allowing natural gas exports is likely to be small, as is the environmental impact.  So perhaps this debate is more like “much ado about nothing.”

(Click here for a paper that sets out these issues in more detail.)

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment.

Do traditional measurements misinterpret global trade?

As the world economy becomes more interconnected, it has become clear that import/export trade figures by themselves do not fully capture how much the US contributes to global commerce. Imports and exports merely measure the trade in completed products between nations and present a flawed picture. On the other hand, metrics such as US foreign affiliate sales provide information on longer-term investment and entrenchment in foreign markets, thereby giving a substantially different, and perhaps more accurate, look at what the US provides in goods and services.

Taking a look at exports trade data, a country like Ireland looks inconsequential to US trade with only $7,276 million (USD) in exported goods. However, Ireland is actually an important hub for transnational companies, and rakes in huge amounts of investment as shown by the foreign affiliate sales which puts Ireland at around $171,895 million, a number that eclipses Mexico at $143,478 million. Using only exports, Mexico is our number two trading partner for exports, but when we use the Sales/Export ratio, Mexico stands at 0.9, whereas Ireland is at 23.6.Without accounting for foreign affiliate sales, policy makers would have no idea of the importance of Ireland to US commerce. In addition, using foreign affiliate sales sheds light on other trade relationships, including Germany a country that many policymakers are worried about due to our supposed trade imbalance. In actuality, while US exports with Germany are only at $48,161 million, the US foreign affiliate sales are at $244,785 million and a ratio of 5.1. This means that the US is very much invested into Germany and the trade imbalance is not as nearly as significant when looking at both sets of metrics. This also presents an interesting note on the relative significance of trading partners. Policy-makers often stress the importance of China to US trade, but when looking at foreign affiliate sales, China is only at $138,991 million compared to Germany’s $244,785 million. This has the implication that the US actually has more trade interests in Germany, which is something that is completely unacknowledged when measuring using only export trade.

Using only export numbers presents an incomplete depiction of US trade. It is very difficult to make smart policy that improves US trade potential if the true trade relationships between the US and foreign countries are not understood. In terms of trade importance to the United States, opportunities lie with the newly proposed Trans-Atlantic Trade Agreement at almost $1,473,483 million in foreign affiliate sales. The United States must begin to rely more on foreign affiliate trade data or at least use it to supplement traditional import/export measurements to get a more accurate representation of US trade interactions.

Posted by: Matthew Goldberg

Sources: U.S. International Trade Commission, Vox, OECD, U.S. Census Bureau

Global Trade and the State of the Union

Unsurprisingly, the State of the Union address focused primarily on the domestic economy. President Obama emphasized issues such as the looming sequester and the need for immigration, entitlement, and tax reform. In terms of major announcements on the international trade front, the President revealed that the US aims to start talks with the EU towards creating a “comprehensive transatlantic trade and investment partnership.” This is a significant development for a multitude of reasons. A free trade partnership between the US and the EU would streamline trade by reducing regulatory barriers and tariffs, thereby expanding the already huge amounts of exchange. Not only would a transatlantic free trade agreement heighten the interconnectedness of these two massive markets, it would drive growth, deflect increasing competition from China, and would help reestablish the authority of the United States and Europe as leaders of the global economy.

The President also announced that the US is on course to finish negotiations over the Trans-Pacific Partnership, an agreement that will substantially increase US trade presence in the Pacific. There was no date given about when the talks would be complete, but it appears that things are falling into place. In addition, the President outlined some domestic economic policies that were relevant to global trade issues. For instance, President Obama’s unveiling of the “Fix-It-First” program, which intends to put people to work on urgent infrastructure repairs, could improve US trade performance through more efficient and faster travel times. Smart Grid enhancement would make the US a more appealing place to do business and it would protect vital information trade-lanes from cyber disruptions. The energy boom, both through enhanced fossil fuel production and clean energy development, will allow the US to dramatically increase its energy exports and could fundamentally transform the global energy trade. Through the creation of innovation centers, President Obama wants to accelerate the continuing trend of re-shoring in order to increase US export trade.

While domestic issues were clearly the main theme of the address, it is vital that President Obama address the larger context issues of global trade to enact policy that will take advantage of new economic opportunities. It would also be a mistake to underestimate the potential of trade as a key engine of economic growth for the US and the global community. A secure and healthy global economic structure is important in order to maintain further international stability.

Posted by: Matthew Goldberg

Sources: Wilson Center, United States Trade Representative, ABC News, Department of Energy

Photo Credit: Presidential Seal courtesy of flickr user Dave Newman

Guest Contributor William Krist: Negotiations for a Trans-Pacific Partnership Agreement

The only major current trade negotiation that the U.S. is engaged in at this time is the negotiation for a Trans-Pacific Partnership (TPP) Agreement with eight other nations in Asia and the Americas.  And Canada and Mexico are expected to join the negotiations in December.  If successful, the resulting free trade area would include Australia, Brunei Darussalam, Canada, Chile, Mexico, New Zealand, Peru, Singapore, and Vietnam, as well as the U.S.  With multilateral negotiations in the WTO now stalled, the TPP offers the best opportunity for additional trade liberalization.  More importantly, if done right, this agreement could provide a template for future WTO negotiations and for a broad agreement with the 21 member nations in Asia Pacific Economic Cooperation (APEC) forum, a group of 21 Pacific Rim countries that includes China, Indonesia and Russia.

Negotiators made progress in the most recent round of negotiations held in San Diego from July 2 to 10, although there are a number of controversial issues that remain.  The next negotiating round is scheduled for September 6 to 15 in Leesburg, Virginia, although it is unlikely that negotiators will resolve the critical issues until after the U.S. presidential election.

Click here to view a background paper on the TPP and key issues.

 

 

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment.  Anthony Gausepohl is his Research Assistant at the Woodrow Wilson Center.

Guest Contributor William Krist- Obama’s Goal to Double Exports: A Midterm Analysis

Today’s report on the U.S. trade performance for May 2012 shows that the Obama Administration is roughly on track to achieve the President’s lofty goal of doubling U.S. exports over the five year period ending in 2014.  President Obama made this commitment, which would mean increasing exports from the 2009 level of $1.56 trillion to over $3 trillion, in his 2010 State of the Union address.  The objective of expanding exports is to promote U.S. employment, particularly in high paying manufacturing jobs.

To put this goal in perspective, exports just barely doubled in the ten years from 1999 to 2008. In fact, exports have not doubled over a five year period since the 1970s, and even then the doubling was mostly due to inflation.

Shortly after his 2010 State of the Union speech, Obama created the National Export Initiative and an Export Promotion Cabinet by executive order, giving them the responsibility of increasing U.S. exports.  While the Administration deserves a lot of credit for progress made to date, it needs to be noted that it is difficult to untangle the effects of U.S. export promotion activities from other uncontrollable effects such as changes in foreign demand and global business cycles, and the import policies of other countries.

Additionally, even as our exports have increased rapidly, U.S. imports have grown at an even faster rate. This means that the overall net effect of trade on our economy continues to be negative.  While doubling U.S. exports is a worthy goal, a better goal would be to achieve a balance of our exports and imports over the course of the business cycle.

For a more in-depth analysis of the Administration’s export initiative click here.

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment. Anthony Gausepohl is a Research Assistant at the Woodrow Wilson Center.

Our New Trade Frontier: The Asian-Pacific Rim

In May the 12^th round of talks on the Trans-Pacific Partnership (TPP) took place in Dallas, Texas where officials from the nine countries– United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam– met to discuss what could become the single largest jolt to the American economy since the Recovery and Reinvestment Act in 2008. If agreed upon, the free trade agreement would strengthen economic relations with a region that currently serves as the fourth largest trading market for the United States.  Also, the TPP could significantly widen what is already an emerging market for NAFTA partners. In 2010, trade with the Asia-Pacific region totaled $775 billion, and accounted for 72% of all U.S. agricultural exports to the world marketplace.

The Obama Administration has made the TPP a central item to its trade agenda for the upcoming election, and has marketed its potential impact as being an “economic stimulus package that doesn’t require the federal government to spend more money (or go deeper into debt). The agreement would formalize trade in traditional sectors such as industrial goods, agriculture, and textiles between the United States and its Asian-Pacific partners, as well as develop universal guidelines to defend intellectual property rights, regulate trade barriers, and enforce labor laws and environmental standards. Additionally, the TPP will address trade and compliance issues to better monitor foreign investment in products and services, streamline the exchange of digital technologies, and allow for the competition of state-owned enterprises with the private sector to protect against American economic disenfranchisement.

Since its conception, there have been strong, varying opinions of the TPP. Some contend that the TPP is just an extension of corporate greed and western expansion, like the Citizens Trade Campaign who argued that passage of the TPP will “do everything from hurt public health to accelerate global warming.” While many in Washington on both sides of the isle see the TPP as a catalyst for building and maintaining the types of jobs Americans need most to remain competitive in the technology and manufacturing industries.

Posted By: Jonathan Sherman

Sources: The Washington Times, Forbes Magazine, Office of the U.S. Trade Representative

Photo credit: Jefe de Estado participó hoy en la Reunión de Negociaciones del Acuerdo de Asociación Transpacífico (TPP) courtesy of flickr user Presidencia Perú

Guest Contributor William Krist: Implement the US-Colombia Free Trade Agreement

President Obama announced this weekend that the U.S.-Colombia Free Trade Agreement will finally go into force this coming May 15^th, more than five years after the agreement was originally signed in November 2006 by U.S. and Colombian trade negotiators.  This agreement is very much in both our commercial and foreign policy interests.  We have kept this important friend waiting long enough and it is now time to move forward.

From a commercial perspective, Colombia, which is the third largest economy in South America, already has free trade agreements with some of our trade competitors including Canada and Mexico.  With average tariffs of 17.2% on agricultural goods and 11.8% on non-agricultural goods, U.S. exporters would be at a substantial disadvantage vis-à-vis exporters from these countries.  However, as a result of this agreement, Colombia will immediately eliminate duties on over 80 percent of imports from the U.S., putting us on a level playing field with these countries, and giving us preferred access vis-a-vis other countries, such as India and China, that do not have free trade agreements with Colombia.

Our foreign policy interests may be even more important than our commercial interests, and it is very important to us that Colombia grow economically.  Colombia is one of the major suppliers of cocaine to the U.S. and an important tool in curbing this trade is to provide alternative livelihoods to drug trafficking.  Additionally, Colombia has been facing an insurgency from the Marxist Revolutionary Armed Forces of Colombia (FARC), and the pro-American government needs our support in this fight.  Finally, Colombia is the sixth largest supplier of oil to the U.S.  and so far this year there have been more than 15 attacks by FARC and the drug cartels on the oil pipelines needed for exporting Colombia’s oil.

The AFL-CIO has been adamantly opposed to this agreement and has successfully demanded that Colombia reduce murders of labor organizers and implement improved labor standards.  The AFL-CIO continues to oppose implementation, arguing that improvements to date are inadequate.   AFL-CIO President Richard Trumka notes that some two dozen trade union leaders were killed last year.  But this is only a small percent of the more than 15,000 murders.  The AFL-CIO’s concerns are important but should not hold up implementation.  Instead, the U.S. should vigorously use the dispute settlement mechanism in the agreement to press for continued improvements and should provide funding for building the capacity of Colombia’s government to reduce violence and improve labor standards.

Sources: White House, AFL-CIO

William K. Krist is a Senior Policy Scholar at the Woodrow Wilson Center.  He is a former Senior Vice President of the American Electronics Association.  He has written extensively on trade, development, and the environment. Takanori Hayashi is a Research Assistant at the Woodrow Wilson Center.

You Are Invited–PAKISTAN-INDIA TRADE: WHAT NEEDS TO BE DONE? WHAT DOES IT MATTER?

                 

The Wilson Center’s Asia Program and Program on America and the Global Economy along with the Fellowship Fund for Pakistan Present:

 Pakistan-India Trade:

What Needs to be Done? What Does it Matter?

  Monday, April 23, 2012, 9:45 A.M.- 4:15 P.M.

5^th Floor Conference Room

CONFERENCE AGENDA

9:45     Registration and coffee

10:00   Introduction

Robert M. Hathaway, director, Asia Program, Woodrow Wilson Center

10:15   Panel I: Moving forward on MFN

Ijaz Nabi, visiting professor, Lahore University of Management Sciences, and Pakistan country director, International Growth Centre

A view from Pakistan

Sunil Kant Munjal, Chairman, Hero Corporate Service (invited)

A view from India

Ishrat Hussain, dean and director, Institute of Business Administration (Karachi)

Dissenting views             

12:30   Luncheon

1:00     Luncheon keynote address

Zafar Mahmood, commerce secretary, government of Pakistan

2:00     Panel II: Broadening the debate

Amin Hashwani, founder, Pakistan-India CEO’s Business Council

Social issues, civil society, and security

Nisha Taneja, professor, Indian Council for Research on International Economic Relations (ICRIER)

Non-tariff barriers, infrastructure deficiencies, and high transaction costs

Ejaz Ghani, economic adviser for South Asia, World Bank

Regional implications

4:15     Adjournment

 

*RSVPs are required. Please RSVP to asia@wilsoncenter.org*

 Please allow time for security procedures when you arrive at the Wilson Center. A photo ID is required for entry. The Center is located in the southeast wing of the Ronald Reagan Building, 1300 Pennsylvania Ave., NW, Washington, DC. Please see http://www.wilsoncenter.org/directions for complete information. The closest Metro station is Federal Triangle on the blue or orange line. Parking is available in the Reagan Building basement, but because of security delays we recommend coming by cab or Metro.
 

This conference has been made possible through the generosity

 of the Fellowship Fund for Pakistan.

Event Report: Game Change in the Asia-Pacific: The South China Sea and TPP

Game Change in the Asia-Pacific: The South China Sea and TPP

March 27, 2012

Organized by the Asia Program and cosponsored by the Kissinger Institute on China and the United States and the Program on America and the Global Economy

Speaker: Takashi Terada, Wilson Center Japan Scholar; Professor of International Political Economy, Waseda University

 

China has recently been a major force in political games in the Asia-Pacific. According to Wilson Center Japan Scholar Takashi Terada, speaking at a March 27 Asia Program event, cosponsored by the Kissinger Institute on China and the United States and the Program on America and the Global Economy, Beijing has succeeded in partly disengaging the United States from the trade framework in Southeast Asia by promoting “low quality” Free Trade Agreements (FTA) in the region. China has also viewed the ASEAN Regional Forum (ARF) and East Asia Summit (EAS) as convenient non-binding and consensus-based arenas that allow Beijing to avoid dealing with hard issues such as maritime disputes in the South China Sea.

The Obama administration’s much-discussed “Asia Pivot,” according to Terada, is an attempt to reinsert the United States into regional political games, as evidenced by a change in the focus and nature of different international arrangements. This shift is perhaps most evident in the administration’s focus on the Trans-Pacific Partnership (TPP) multilateral FTA. The attempt to create a high-quality regional framework consistent with World Trade Organization standards on intellectual property and labor stands in stark contrast to the proliferation of bilateral arrangements, promoted by China, that focus on tariffs and are riddled with exemptions and exceptions.

America’s involvement in the regional order and its preference for standardized rules-based agreements is also evident in changes in Asian security architecture. Previously, regional discussion on security focused on “soft” or non-traditional security issues through a pattern of dialogue stressing consensus and non-interference in sovereign affairs. Since the end of the Bush administration, however, the United States and other democratic nations in the region have begun to construct a rules-based framework that tackles traditional “hard” security issues, such as territorial disputes. This has been marked by a shift away from a focus on the ARF, which has the reputation of being more a discussion session than a meeting with clear political goals, and greater emphasis on more substantive deliberations at the EAS, in which the United States is now a full participant.

Such a shift is a concern for Beijing, which has significant territorial claims in the South China Sea. The body of water is an important fishing ground that has an estimated 23-30 billion barrels of oil under its floor. It is therefore, according to Terada, no wonder that Beijing, thirsty for fuel, sees the sea as an area of strategic interest. China’s claims are contested by numerous states in the region, and Beijing has usually stressed its position on the South China Sea in bilateral talks with these nations. The White House’s insistence on using the EAS to “address strategic and security challenges” by reaffirming “international rules and norms in these areas,” thus poses problems for Beijing’s approach to these disputes. China is therefore engaged is subtle attempts to resist greater U.S. engagement in the region.

These attempts include trying to influence Tokyo’s approach towards regional integration. Japan’s economy is twice the size of the accumulated current membership of the TPP, which does not yet include the United States. Japanese and American membership in the agreement would therefore make the TPP greatly attractive to other potential members, further strengthening American engagement in the region. According to Terada, Tokyo’s interest in the TPP has resulted in a more flexible Chinese stance towards Japan, designed to present Tokyo with alternative options to TPP ascension and other developments that China views in the context of American attempts to enter the region. China has recently been enthusiastic about proposals from Tokyo to discuss, along with Seoul, an investment treaty as part of a broader trilateral FTA, a framework that Beijing previously resisted. China has also been more amenable to Japanese preferences for regional dialogue, as Beijing moves away from its insistence on discussions that include the ASEAN countries and only Korea, Japan, and China (the ASEAN+3 model) and moving towards a broader model, which, in addition to these countries, incorporates New Zealand, Australia, and India (or ASEAN+6). Despite these concessions, Japan is, according to Terada, still committed, particularly in the security arena, to a rules-based order in Asia that includes the United States as a key player.

A complete video of this event can be found here.

By Bryce Wakefield

Robert M. Hathaway, Director, Asia Program

You Are Invited: Game Change in the Asia-Pacific: The South China Sea and TPP

  THE ASIA PROGRAM, THE KISSINGER INSTITUTE ON CHINA AND THE UNITED STATES, and

THE PROGRAM ON AMERICA AND THE GLOBAL ECONOMY

 Present

 Game Change in the Asia-Pacific: The South China Sea and TPP

 Tuesday, March 27, 2012     4:00 p.m.–5:15 p.m.

5th Floor Conference Room

 Speaker:

 Takashi Terada, Professor, Doshisha University; Wilson Center Japan Scholar

 China has recently been a major force in political games in the Asia-Pacific. For example, it has succeeded in partly disengaging the United States from the trade framework in Southeast Asia by promoting “low quality” Free Trade Agreements in the region. China has also viewed the ASEAN Regional Forum and East Asia Summit as convenient non-binding and consensus-based arenas that allow Beijing to avoid dealing with hard issues such as maritime disputes in the South China Sea. The Obama administration’s much-discussed “Asia Pivot” is an attempt to reinsert the United States into regional political games and is perhaps most evident in the administration’s focus on the Trans-Pacific Partnership multilateral FTA. How is the United States’ reemergence as a regional player changing the existing components of the political game? What trade and strategic initiatives is Washington undertaking? How will other regional players, such as Japan and India, respond to American and Chinese moves?

Media organizations are requested to contact the Asia Program in advance at 202/691-4020 or asia@wilsoncenter.org. Otherwise, RSVPs are NOT necessary.  Please allow for routine security procedures when you arrive at the Center. A photo ID is required for entry. The Center is located in the southeast wing of the Ronald Reagan Building, 1300 Pennsylvania Avenue, NW, Washington, D.C. The closest Metro station is Federal Triangle on the blue and orange lines. For detailed directions, please visit the Center’s website, www.wilsoncenter.org/directions.