Some folks thought I was too harsh on the late George H.W. Bush in my USA Today oped and on my Twitter comments. So here’s some of the articles I wrote on Bush’s protectionist debacles in the early 1990s.
[The following piece was reprinted in two economics college textbooks]
Wall Street Journal
Wednesday, September 6, 1989
The Great Ice Cream War
By James Bovard
America was deluged by foreign ice cream last year: 576
gallons came in from New Zealand and 12 gallons from Denmark.
In other words, foreigners “foisted” almost as much ice cream
on “hapless” Americans as a large Safeway sells on a summer
Saturday. Obviously, a crisis was imminent.
While many people relish American-made ice cream with
deliberately foreign-sounding names, few people realize that
the U.S. government restricts ice-cream imports to less than
one-tenth of one percent of U.S. consumption. Jamaica, the
Netherlands and Belgium are the only other countries allowed
to sell ice cream to Americans, and with quotas so low and
transportation costs high, they don’t bother to ship us any
ice cream at all.
The U.S. exports hundreds of thousands of gallons of ice
cream to Canada, yet Canadian ice cream is banned from the
U.S. Canada expressed its appreciation for this treatment
last year by slapping a quota on U.S. ice-cream exports to
Canada. (Dairy trade was exempted from last year’s Free Trade
Across North America, armies of bureaucrats have mobilized
to slug this one out. Officials from the Canadian Embassy met
with U.S. State Department officials to raise the ice-cream
issue last October. Canada filed a formal complaint with the
U.S. government in November. The U.S. Agriculture Department
convened a task force that spent months studying ice-cream
On May 5 of this year, President Bush sent a letter to the
U.S. International Trade Commission demanding an ice-cream
investigation. The ITC has had as many as 30 people dealing
with this project. The ITC made a report on Aug. 28 to the
U.S. Trade Representative’s Office, which is responsible for
forwarding it to the president. According to Claire Buchan,
spokeswoman for the trade rep, “The president has not made a
decision on this, and there is not a deadline.” Doesn’t he
realize the ice cream is melting?
The U.S. ice-cream quotas date back to Dec. 31, 1970, when
President Nixon decreed that future ice-cream imports could
not exceed 431,330 gallons a year. Why? That year, according
to Deputy Secretary of Agriculture Ann Veneman, testifying
this July before the ITC, the U.S. was hit with a “flood of
imports.” This so-called “flood” amounted to barely 1% of
U.S. ice cream consumption.
How did Mr. Nixon decide to limit imports to exactly
431,330 gallons a year? Section 22 of the Agriculture
Adjustment Act allows the U.S. government to protect domestic
price-support programs by restricting imports to 50% of the
annual average imports of a representative period. Ice-cream
imports did not begin until 1969 — so the U.S. government
chose the years 1967, 1968, and 1969. This allowed the
government to slash imports by 95% of their 1970 level and
then tell foreigners that the 5% remaining was their “fair”
Under the “free trade” Bush administration, the
Agriculture Department still has a phobia about foreign ice
cream. Deputy Undersecretary Veneman told the ITC, “We
believe that imports above (the current) level would render
or tend to render ineffective or materially interfere with
the domestic dairy price support program.”
The ice-cream controversy illustrates the meaninglessness
of some of the central terms in our trade law. In 1983, the
Agriculture Department concluded that imports of roughly 160
million pounds of casein, a dairy derivative, did not
“materially interfere with domestic dairy (price) supports,”
even though the casein imports had far greater impact on the
dairy price support program than did ice-cream imports.
This July, when ITC Chairman Anne Brunsdale pushed
Agriculture Department official John Mengel to explain what
had changed between 1983 and 1989, Mr. Mengel sputtered, “I
think, Madam Chairman, that perhaps budget is a stronger
consideration now.” Yet the Agriculture Department a few
weeks later endorsed a $900 million drought bailout to
farmers who had failed to protect themselves by buying crop
Given all this controversy, what was the ITC looking at?
Apparently, it looked only at changing the distribution of
the quota — allowing more countries to compete to sell the
same tiny amount of ice cream to the U.S. Abolishing or
increasing the quota apparently was not even seriously
In this mega-investigation, the U.S. government has
probably already spent more than a thousand dollars in
administrative expenses for each gallon of ice cream imported
into the U.S. last year. International trade disputes are
rapidly degenerating into a full employment program for
Since 1987, the U.S. has been hollering for the abolition
of all trade-distorting agricultural subsidies. But how can
we tell the Japanese to abolish their rice subsidies or the
Europeans to stop dumping wheat when the U.S. is terrified
over a few scoops of ice cream?
The New York Times
January 28, 1990, Sunday, Late Edition – Final
HEADLINE: FORUM; No Justice in Anti-Dumping
BYLINE: By JAMES BOVARD; James Bovard, the author of ”The Farm Fiasco,” is working on a book on ”The Myth of Fair Trade.”
While American politicians lecture the world on fair trade, our dumping laws
are an inquisitorial nightmare for foreign companies, making a mockery of due
process and justice at every turn. In the last 17 years, Congress and the
Commerce Department have repeatedly expanded the definition of dumping. Between 1980 and 1986, the Commerce Department found only 6 percent of all imports it investigated not guilty of unfair trade practices.
Dumping occurs when a company charges a lower price for a product in an
export market than in its home market. But anti-dumping laws are a relic of the
days of fixed exchange rates. The Commerce Department will convict a foreign
company for a price difference as small as one-half of 1 percent between its
American and its foreign prices – yet the dollar routinely fluctuates 10 or 15
percent in value a year. Although Commerce Department officials treat dumping as a self-evident crime, it is often solely the result of fluctuating currency
exchange rates that may be totally unrelated to trade trends.
The Commerce Department allows itself great latitude in how it administers
the dumping law. In 1984, an Italian company was convicted of a dumping margin
of 1.16 percent on its exports of pads for woodwind instruments. The Commerce
Department deduced the 1.16 percent by comparing the prices of a smaller
woodwind pad sold in the United States with a larger woodwind pad sold in Italy.
Since the smaller pad sold for a lower price than the larger pad, Commerce
Department found the Italian company guilty.
Even if a company sells its products in the United States for exactly the
same prices as in its home market, the Commerce Department can nail the company for dumping. How? It compares the average foreign price over a six-month period with individual American sale prices. Naturally, product prices vary over time and in different locales. If any of a company’s American prices fall below the average foreign price, Commerce can slap a duty on all its imports.
In the 1980’s, the Commerce Department has increasingly relied on
cost-of-production proofs to prove that foreign companies are dumping their
products in the United States at below the alleged cost of production. But,
Commerce Department cost analyses are straight out of ”Alice in Wonderland.”
American trade law requires that the Commerce Department always assume a foreign company makes an 8 percent profit. If a foreign company shows a profit of 7 percent, then the Commerce Department convicts the company for selling at a loss of 1 percent.
Once a company is convicted of dumping, the Commerce Department can
effectively keep the company under economic house arrest for the next 15 years.
While Australian and Canadian dumping laws have sunset provisions that
automatically end the protection provided by dumping duties after five years,
the Commerce Department has succumbed to domestic political pressure to
perpetuate dumping orders long after the alleged dumping has ended.
To be hit by a dumping order can easily cripple a foreign company, especially
since the Commerce Department can inflate the dumping margin in an annual
review. In August 1989, the Department announced that a Japanese ball-bearing
company must pay duties of 67 percent – for bearings it exported between 1974 and 1979.
Commerce is judge, jury, prosecuting attorney, and executioner, as Washington
trade lawyer David Palmeter told this author. The Commerce Department can demand practically an infinite amount of information – and any refusal to comply is
taken as a confession of guilt, after which it imposes the highest possible
dumping margins. The Commerce Department collects vast amounts of confidential information from foreign businesses and has frequently allowed this information to fall into the hands of American competitors.
While other nations are calling for a General Agreement on Tariffs and Trade
agreement to trim or gut dumping laws, the American Government is almost alone
in advocating making dumping laws more punitive and protectionist. Yet, outside
the United States, American companies get hit by dumping penalties more than any other nation’s companies. The more oppressive our dumping laws become, the more likely that it is that foreign nations will copy our laws and clobber American exporters.
The Wall Street Journal
Wednesday, March 28, 1990
Our Taxing Tariff Code
Let Them Eat Lobster!
By James Bovard
In 1790, the U.S. Tariff Code consisted of a single sheet
of rates posted at Custom Houses; now, it occupies two hefty
volumes with 8,753 different rates. While the average tariff
now is only about 5%, hundreds of tariffs are still in the
Smoot-Hawley league — with some as high as 67%.
Why the blizzard of discriminations against and among
products? A cynic might say the Tariff Code is devoted to
encouraging the poor to raise their standards of living:
— Mink furs are duty free. With the money a mother saves
on her mink, maybe she can afford a polyester sweater —
which carries a 34.6% tariff — for her baby.
— Lobster is duty free. With the savings, struggling
parents may be able to afford infant food preparations, which
carry a 17.2% tariff.
— Orange juice’s tariff is 36%. But Perrier’s is only 0.4
cent per liter. (If the Customs Service reclassifies Perrier
as benzene, then it can enter duty free.)
— Fresh broccoli carries a 25% tariff. But, happily,
truffles are duty free.
— Footwear valued at not more than $3 a pair with rubber
or plastic outer soles and uppers is tariffed at 48%. If
valued at more than $12, the tariff is only 20%.
Congress also uses the tariff code to deny equal rights to
the malnourished. Vitamin B12, which is no longer produced in
the U.S., is hit with a 16.2% tariff, while vitamin B1
carries a 3.1% tariff. Vitamin C carries a 3.1% tariff —
while Vitamin E is hit with a 7.9% levy.
Some tariffs were raised early last year, when the U.S.
changed its tariff classification system to harmonize with
widely used international tariff categories. In 1988, the
rate on imported jams ranged from zero to 8.5%; now, the rate
varies from 3% on currant jam, to 10% (plus 15.4 cents a
kilogram) on cherry jam, to 20% on peach jam, to 35% on
apricot jam. This is one more telling bit of evidence that
the apricot jam cartel controls Washington.
The U.S. Trade Representative has submitted a plan to
offer tariff reductions during the current Uruguay Round of
negotiations under the General Agreement on Tariffs and
Trade. The Trade Policy Staff Committee, a group of staffers
from various federal agencies, held hearings on tariff reform
in November — and some of the pleadings from protected
industries were especially insightful:
— A producer of pimentos, tariffed at 9.5%, commented,
“The present tariff on pimentos is not an impediment to
imports and any reduction in the tariff would have an adverse
— even a disastrous — effect on the domestic industry.”
— Indiana Glass Co. complained that glasses from Mexican
companies were selling at K mart for $1.99 a set — while
Indiana Glass’s sets were selling at K mart for $3.99. As the
company’s brief noted, “There is absolutely no difference in
quality” between the Mexican product and Indiana Glass’s
product. Indiana Glass concluded that “this evidence of
[foreign] price advantage under current tariffs compels at
least the maintenance, if not increase, of tariffs [currently
up to 38%] on [such] glasses.”
— Bobby McKown of the Florida Citrus League declared:
“Many of our foreign competitors receive important government
assistance. U.S. producers receive none.” Mr. McKown must
have been carried away by his dedication to high tariffs. The
Agriculture Department has showered more than $30 million on
American citrus companies and organizations in recent years
to bankroll their foreign brand-name ads.
— The Committee to Preserve American Color TV gave a
presentation on why the U.S. should retain its 15% duty on
color picture tubes. The person who testified was Joseph
Donahue, a senior vice president of Thomson Consumer
Electronics, a subsidiary of Thomson S.A., the French
corporation that recently bought GE’s TV production
Why does the U.S. have 8,753 tariff rates? Partly because
of the bargaining strategy followed by the U.S. for the past
half-century. As Washington trade lawyer Noel Hemmendinger
notes, there’s been a constant subdividing of tariff
categories to provide special rates for specific products
from nations that were offering to reduce the tariff rate on
some specific American export.
In the current GATT round, many nations favored working
for an agreement to cut all existing tariffs across-the-board
by 33%. But the U.S. preferred that nations haggle out
mutually acceptable tariff-rate cuts on a product-by-product,
Our tariff code is part of our fossilized industrial
policy — perpetuating handouts for the biggest political
contributors to previous generations of congressmen. The
lethargy of our democratic system allows high tariffs to
remain long after the original beneficiaries have turned to
Tariffs are either a bailout to perpetuate uncompetitive
American industries, or a license for efficient American
industries to gouge their customers. It makes no sense for
the government to “improve” a level playing field by randomly
inserting hundreds of bumps, boulders and brick walls.
Regardless of what tariffs another country may have, it is
not in America’s national interest for the Customs Service to
selectively blockade our own ports.
The Wall Street Journal
Thursday, December 13, 1990
By James Bovard
With the GATT talks broken off, agricultural trade
disputes remain at the forefront. Yet, while U.S. officials
busy themselves denouncing foreign farm-trade barriers, a
U.S. trade barrier is devastating many American food
It is easier to import semi-automatic rifles or toxic
chemicals into the U.S. than to import peanuts. Since 1953,
Americans have been permitted to buy only 1.7 million pounds
of foreign peanuts each year. This amounts to roughly two
foreign peanuts per year for each American citizen.
Import quotas help keep U.S. peanut prices far higher than
world prices: The U.S. International Trade Commission
concluded that the quota was equivalent to a tariff of up to
90% on peanut imports in 1988. The import quota, along with
federal price supports and strict federal controls on who is
allowed to grow peanuts, guarantees domestic peanut farmers
generous profits. A 1990 Agriculture Department report noted
that the federal price support was 44% higher than the total
economic costs of peanut production.
This year, a severe drought hit Georgia, where almost half
of all U.S. peanuts are grown. As a result, prices are
soaring far above their usual heights. The Agriculture
Department reported on Nov. 21 that prices for jumbo shelled
peanuts have increased 119% in the past year, to $1.25 a
pound. Peanut prices are now roughly double the federal
High prices and shortages are skewering companies that use
peanuts. Ed Goodrich, president of Plantation Peanuts in
Wakefield, Va., observes, “We are now faced with the
possibility of having to shut down.” The chairman of one of
the nation’s largest nut processors fears that his company
“could be forced out of business” with a resulting loss of
150 jobs. Tasty Fresh Nuts Co. of Ferndale, Mich., reports,
“We have less than half our need contracted for with no
guarantee that we will receive all of these.” King Nut Co. of
Solon, Ohio, complains, “We have been [unable to purchase
any] Jumbo runner peanuts for three weeks.” Even large
companies are suffering: M&M/Mars is seriously concerned over
the peanut shortage.
The Peanut Butter and Nut Processors Association, alarmed
at the skyrocketing prices, petitioned the Agriculture
Department and the ITC to allow 400 million pounds of peanuts
to be imported in the coming months. The petition outraged
Rep. Walter Jones (D., N.C.) wrote to the ITC: “The Peanut
Growers Association has assured me there is no shortage of
peanuts for the domestic market at the present time.” The
American Farm Bureau agreed: “The real argument is not with
supplies but with price.” Perhaps the congressman and the
Farm Bureau believe that as long as there is one homegrown
peanut left in the U.S. (regardless of its price) there is no
real shortage. The fact that peanut prices have doubled does
not indicate any type of shortage, but simply that God
decided to inflict his wrath on American consumers.
Hancock Peanut Co., a peanut-shelling company in
Courtland, Va., argued that no additional peanut imports
should be allowed because “the free market is working.” The
Southwestern Peanut Shellers Association told the ITC that
additional peanut supplies are unnecessary because consumer
demand for peanuts is plummeting (down 14% in September
alone, according to the Agriculture Department). Thus, as
long as government-caused high prices drive consumers out of
the market, the market is doing just fine.
Peanut growers have beseeched Congress for drought relief.
Georgia farmers feel they are entitled to be compensated by
taxpayers for the peanuts that did not grow, and that Uncle
Sam is obliged to keep consumer prices high on the peanuts
that did grow. This is the rural American version of the
doctrine of divine right.
Clayton Yeutter, the secretary of agriculture, could
recommend that the president issue an emergency proclamation
permitting more foreign goobers to invade American stomachs.
But Mr. Yeutter is preoccupied these days with European
import barriers. He is gravely concerned about the current
low price of wheat — but has said nothing about the high
price of peanuts.
The peanut import quota is perceived abroad as the epitome
of U.S. hypocrisy. Japan has made the point that the U.S.
ought to end its peanut import quota before demanding that
Japan remove its rice import ban. The peanut import quota
makes it more difficult for peanut exporters like Argentina
and Brazil to earn dollars to pay their debts to U.S. banks.
And it makes it difficult for low-income Americans to enjoy
that most American of treats — a peanut butter sandwich.
The Wall Street Journal
Wednesday, July 31, 1991
The Customs Service’s Fickle Philosophers
By James Bovard
Few people realize that the U.S. Customs Service is
perhaps the most philosophic of all government agencies.
Customs Service employees routinely wrestle with such age-old
questions as “Is a popcorn popper an electrothermic appliance
or an electrical article?” and “Is a jeep a truck or a car?”
The U.S. has 8,753 different tariff classifications, with
tariffs ranging from zero to 458%. Naturally, tariff
classification rulings are often disputed with a passion that
would have made St. Thomas Aquinas proud.
Take tariff classification ruling 89-27(6), which could
have a major impact on some Americans’ social lives. Customs
decreed in 1989 that condoms imported from Mexico that are
electronically tested must carry a higher import tax than
condoms that are not tested. Customs also ruled that
importers must pay more for condoms that include a spermicide
than they would for condoms without spermicide. (It is not
known whether this decision was part of a secret plan to
boost the revenues of family planning clinics.)
The arbitrariness of such customs decisions can devastate
importers and destabilize international trade. Here are a few
more examples from the Customs casebook:
— Girls’ jackets. The Customs Service in 1988 boosted the
tariff on a shipment of 33,000 girls’ ski jackets to 27.5%
plus 17 cents a pound from 10.6% because the jackets had
small strips of corduroy trim on the sleeves. Customs ruled
that the strips, amounting to roughly 2% of the jacket’s
composition, changed the tariff category from “garments
designed for rainwear, hunting, fishing, or similar uses”
(such as skiing) to “other girls’ wearing apparel, not
Famous Raincoat Co., the importer, appealed the Customs
ruling to the U.S. Court of International Trade. Judge Kenton
Musgrave observed, “During the trial, government counsel . .
. relied on the ‘philosophical’ meaning of the word ‘or’ . .
. as opposed to ‘and.’ ” The judge threw out the government’s
case and ordered Customs to refund the tariff surcharge.
— Shoes. More than 3,600 of the U.S.’s 8,753 tariff
categories are restricted by import quotas. When Customs’
decisions change a product’s tariff classification from
unrestricted to restricted, the ruling can effectively ban
imports. In 1989, a Customs inspector decreed that a box of
athletic shoes could not contain an extra pair of
shoestrings. Shoestring imports are covered by textile import
quotas; Customs’ decision, by requiring importers to have a
federal license to import the extra shoestrings, blocked the
import of tens of thousands of athletic shoes from Asia. None
of the athletic shoe importers were thinking of the extra
shoestrings as anything but part of the athletic shoes, many
of which had eyelets for more than one set of shoestrings.
Customs modified the ruling in 1990, permitting an extra
pair of strings as long as the extra shoestrings were laced
into the athletic shoes and were color coordinated with the
shoe. But Customs warned importers, “We note that where
multiple pairs of laces of like colors and/or designs are
imported . . . a presumption is raised” that the shoelaces
are not actually part of the shoe.
— Lingerie. The U.S. government has been drubbed in
repeated court battles for trying to block imports of
lingerie and nightgowns by claiming that the lingerie is
actually a blouse or long shirt. As the U.S. Association of
Importers of Textiles and Apparel complained in 1988,
“Customs resistance to a decision which distinguished
nightwear from daywear has left importers in limbo. Importers
who believe they are following the dictates of the Court
continue to have merchandise seized as non-complying.”
— Steel. In the 1980s, the U.S. strong-armed 28 nations
into signing so-called Voluntary Restraint Agreements (VRAs)
to restrict their steel exports. Each VRA specified which
tariff classifications of steel would be restrained. Though
happy with the VRAs, the U.S. steel industry was aghast at
the prospect of any freely imported steel remaining and
lobbied Customs to solve this problem.
On Dec. 6, 1988, Customs reversed three previous rulings
dating back to 1974 and announced that it was reclassifying
steel wire rope with beckets from an uncontrolled tariff
category into a tariff classification restricted by the VRAs.
On Aug. 31, 1989, at the behest of Bethlehem Steel, Customs
reversed three rulings since 1978 and moved scroll-cut
tin-free steel sheet into a restricted tariff classification.
— Sweeteners. In the early 1980s, Canadian firms were
exporting sugar-corn-sweetener blends to the U.S. These
blends were 35% cheaper than pure sugar, for which there are
quotas. The U.S. government created a separate import quota
and classification for the blended product in 1985. Even
though the quota limited Canadian sales to 2% of the U.S.
market, the imports still gave heartburn to American sugar
growers. In 1988, the Cane Sugar Refiners Association
contacted its good friend, Sen. Jesse Helms; the North
Carolina Republican repeatedly called his good friend,
Customs Commissioner William von Raab, for sweet talk,
according to Greg Rushford of the Legal Times.
In early 1989, the Customs Service redefined sugar and
banned all Canadian blended imports. The first time Canadian
companies learned of the new sugar definition was when four
trucks carrying their products were stopped at the
U.S.-Canada border and prohibited from entering the U.S. The
Customs’ change in definition devastated an Ohio firm that
relied on the Canadian blend as its primary product, as Mr.
The combination of thousands of tariff categories and
endless redefinitions of products is turning importing into a
crapshoot. Tariff classification disputes are the ultimate
“reductio ad absurdum” of enlightened ‘managed trade.’ If the
government cannot even intelligently decide what an athletic
shoe or an item of lingerie is, how likely is it that
government trade restrictions will actually benefit America
as a nation?
The New York Times
January 7, 1992, Tuesday, Late Edition – Final
SECTION: Section A; Page 15; Column 2; Editorial Desk
HEADLINE: Don’t Brake for Detroit
BYLINE: By James Bovard; James Bovard is author of “The Fair Trade Fraud.”
BODY: When President Bush arrives in Japan today with an entourage of frustrated American businessmen, he will demand that Japan buy more American autos — and pressure the Japanese Government to further restrict Japanese auto sales in the U.S.
For the Americans, the $30 billion U.S.-Japan auto trade deficit is a result of Japanese unfairness rather than superior competitiveness. In June, Robert Mosbacher, the Secretary of Commerce, asserted that “in virtually all cases [U.S. auto parts] have been shown to be just as good as” Japanese auto parts.
American car experts disagree. When Road and Track magazine announced its 10 best cars of 1991, nine were Japanese and one was German. A 1991 Consumer Reports survey gave the highest reliability ratings to Japanese autos. Nearly all the cars with a poor reliability rating were made by the Big Three: General Motors, Ford and Chrysler.
When the Japanese don’t buy sufficient numbers of relatively low-quality American cars, the U.S. Government responds by making it more difficult for American citizens to buy relatively high-quality Japanese cars.
Representative Richard Gephardt, Democrat of Missouri, introduced legislation last month to penalize Japan for its trade deficit with the U.S. Michigan Congressmen are licking their chops over the prospect of new restrictions on Japanese auto imports.
The assault on these imports is also being fueled by the Commerce Department’s recent preliminary finding that Toyota and Mazda have been selling their minivans at unfairly low prices, “dumping” them in the U.S. Senator Donald Riegle, Democrat of Michigan, declared that the minivan case “is an illustration of the systematic pattern of trade cheating by Japan that must be stopped.”
But the findings prove only the absurdity and unfairness of the U.S. dumping law. The Commerce Department found Toyota guilty of selling its minivans for roughly one percent less than the department approved, largely because Toyota was not sufficiently bureaucratic. The U.S. dumping law actually penalizes foreign companies whose administrative costs are less than 10 percent of their production costs.
Mazda was found guilty of a 7.19 percent dumping margin largely because the Government arbitrarily compared the price of 470 vans sold under special circumstances in Japan with the price of 30,000 vans sold by Mazda dealers in the U.S.
The Japanese were not selling their minivans at a loss or for less than they sold for in Japan. If American companies had done what the Japanese companies did, they would never have been penalized. The dumping laws make a mockery of U.S. demands for a level playing field.
Japanese auto exports to the U.S. have been restricted by quotas since 1981, when President Ronald Reagan pressured the Japanese into reducing their exports. A 1987 International Monetary Fund study estimated that the subsequent artificial shortage of cars for sale in the U.S. cost American consumers $17 billion between 1981 and 1984, resulting in an average increase of $1,650 for new car prices (domestic and import) in 1984. Between 1980 and 1989, the cost of a new car rose from 18.7 weeks of the median household’s earnings to 24.7 weeks.
The Japanese Government last month reportedly ordered a further reduction in the number of cars exported to the U.S. Tokyo has successfully pressured companies to buy more American auto parts, even if those parts are of lower quality, and is expected to make further concessions during the President’s visit.
The U.S. auto industry is not a victim of unfair play but rather of its own incompetence. If 10 years of protection did not close the U.S.-Japan auto quality gap, further protection will simply be extortion of American consumers. Neither President Bush nor Congress should be able to nullify the freedom of Americans to choose the best auto they can buy.
The New Republic
June 22, 1992
HEADLINE: Miniban: Detroit’s victory over Mazda; Minivan price gouging cases
BYLINE: Bovard, James
BODY: The U.S. government is on the verge of adding thousands of dollars to the price of new minivans, a decision that could lead to price gouging on almost all automobile sales. Last year Commerce Department officials urged the Big Three automakers to formally accuse Japanese companies of dumping minivans in the United States. On May 19 Commerce pronounced Toyota and Mazda guilty. The U.S. International Trade Commission will rule on June 24 whether American makers have been injured by the dumping.
The U.S. dumping law prohibits foreign companies from selling products in the United States for less than their foreign price or their cost of production. Commerce has rigged this case by manipulating the numbers to boost Mazda’s and Toyota’s apparent production costs–and to lower their foreign cost/U.S. price gap that it cited as proof of unfair trade.
This is a bizarre case. Domestic companies account for more than 90 percent of the minivan market, and Japanese minivans tend to be significantly higher priced (and higher quality) than U.S. ones. Yet, according to the Big Three’s complaints, a trickle of high-priced imports are devastating the U.S. auto industry.
Although the Commerce Department convicts 97 percent of the foreign companies it investigates, it attacked the minivan case with a rare vengeance. At one point it had four verification teams in Japan rummaging through the confidential records of Toyota and its suppliers. Commerce made eleven sweeping demands for information from Toyota; Toyota responded to one with thirteen boxes of computer printouts. The department apparently spent so much money going after Toyota and Mazda that it has almost exhausted its annual budget for import-related computer work and is postponing work on many other dumping cases.
Toyota’s and Mazda’s primary crime was failing to make large profits. U.S. dumping law, inspired by medieval scholastics, requires foreign companies to earn at least an 8 percent profit on their U.S. sales (the average U.S. corporate profit in a good year is 5 percent to 6 percent). Toyota’s “dumping” margin was 6.75 percent and Mazda’s was 12.7 percent. If not for the 8 percent rule, Toyota would be innocent and most of Mazda’s margin would have evaporated. Toyota is also being penalized because some of its operations are not sufficiently bureaucratic; U.S. law declares that foreign companies are cheating unless they spend at least 10 percent of their cost of production on administrative overhead.
Based largely on allegations by Ford engineers, Commerce investigators asserted that Toyota was not paying enough for parts from some of its related companies. Commerce also claimed that Toyota’s current prices did not account for future minivan research and development–a novelty in the annals of cost accounting. Mazda was convicted partly because, in many cases, Commerce compared the cost of building new MPVs in Japan with the sale price of used MPVs in the United States. Mazda was also skewered because Commerce chose an abnormally long period–October 1990 through May 1991, instead of the usual six months–to compare U.S. prices and Japanese costs, and made no adjustments for gyrations in exchange rates during the Gulf war. Deputy Assistant Commerce Secretary Francis Sailer admitted in an August 12, 1991, internal memo that dollar/yen exchange rate fluctuations by themselves would add 1.9 percent to Mazda’s dumping margin.
The case is now before the International Trade Commission, where a peculiar concept of trade law comes in. A foreign company can be convicted of injuring an American company if the latter’s prices would have been higher without foreign competition. So Japanese producers can be found guilty if their minivan sales resulted in “price suppression”–i.e., preventing the Big Three from charging more. This may be the most anti-consumer regulation in the federal statute book.
The U.S. minivan industry has probably been hurt more by Consumer Reports than by imports. Last year the magazine headlined a story on the faulty automatic transmissions used in most Chrysler minivans: “It’s a Lemon–Steer Clear.” It noted that Ford’s Aerostar suffered from “slow and clumsy routine handling; even more sluggish in accident-avoidance maneuvers . . . harsh, bounding ride . . . haphazard controls.” General Motors has foundered partly because of the weird design of its APV minivan; one GM manager told The New York Times that it “looks like a dustbuster.”
Chrysler has dominated the minivan market since 1983, and, according to Chrysler counsel John Greenwald, “We rely on the minivan business for a disproportionate share of our profits.” Ward’s Auto World estimated in 1990 that Chrysler made $ 5,000 gross profit on each minivan it sold. That is a profit ratio of up to 30 percent–which is now being threatened by competition from imports. Chrysler Vice President for Washington affairs Robert Perkins moaned to the ITC on May 21, “I can unequivocally tell you that stiff competition from the new Japanese imports was a very key factor in our decision to [offer consumer rebates] on these vehicles . . . Profits really fell off.”
Perhaps the most creative argument advanced in this case is that Japanese minivan imports somehow destroyed Chrysler’s credit rating. Perkins complained that minivan imports were the key to Standard and Poor’s downgrading Chrysler’s credit rating in 1990: “The loss of our investment grade credit rating has cost us millions, tens, hundreds of millions of dollars in added interest costs.” Greenwald told the ITC, “The impact of competition in the minivan sector on Chrysler’s debt rating dwarfs everything else . . . in terms of palpable injury.” Actually, Chrysler is declining toward a junk bond rating because it has foisted so many lemons on the American public.
There are other twists. More than half the minivans Chrysler sells in the United States are made in Canada. Thus it is arguing the U.S. government should force American consumers to pay higher prices in part because its Canadian operations have lost business to Japanese competition. Though Ford has spent
a small fortune prosecuting this case, it owns 25 percent of Mazda’s stock–and will soon begin selling a new minivan jointly developed with Nissan.
Unfortunately for the Japanese, the ITC is stacked. There are six commissioners and, in tie votes, foreigners are found guilty. This may be the only judicial institution in the government where a deadlock among the judges results in penalties on the accused.
If the ITC finds injury, Mazda will be forced to raise its minivan prices by up to $ 2,700 and Toyota by up to $ 1,700; the Big Three’s prices will assuredly also rise. The Japanese companies’ prices will also be put under the perennial supervision of Commerce bureaucrats devoted to protecting the domestic auto industry. And that’s not all. Red Poling, CEO of Ford, indicated to the Detroit News last month that the Big Three may soon file an anti-dumping suit against luxury car imports. Dumping cases on sports utility vehicles may soon follow. The lesson: buy now. JAMES BOVARD is the author of The Fair Trade Fraud (St. Martin’s Press).
The New York Times
July 12, 1992, Sunday, Late Edition – Final
HEADLINE: FORUM; Big Steel’s Suicidal Attack on Imports
BYLINE: By JAMES BOVARD; James Bovard is the author of “The Fair Trade Fraud.”
BODY: As the Munich economic summit sinks mercifully into oblivion, industrial nations face grave problems from the proliferation of protectionism. American steel producers — in buildup to the summit — deluged the American Government with more than two million pages of allegations of unfair trade against 21 foreign nations. The steel lobby’s legal bombshell will severely disrupt steel trade, hamper American competitiveness and decrease the likelihood of a successful completion of the current General Agreement on Tariff and Trade negotiations.
Within those two million pages were 48 petitions alleging that foreign companies are dumping steel in the United States. Dumping refers to selling for a lower price in America than in the foreign home market, or selling for less than cost of production.
Unfortunately, the dumping law is far more protectionist than it appears, and it ought to be abandoned. The current law was largely written by steel industry lobbyists in 1974; as a result of their strict wording, the Commerce Department now finds 97 percent of foreign companies it investigates guilty of dumping.
Steel companies can reap big profits simply from filing anti-import petitions. Dumping penalties are assessed retroactively — thus creating great uncertainty among steel buyers about possible future penalties they might face. Japan’s NKK Steel and Nippon Steel recently announced that they would cease exporting some steel products to the American market to avoid any possible dumping penalties. That does little to keep costs and steel-producing technology competitive.
But while American steelmakers file lawsuits here, they are massively dumping in foreign markets themselves. An analysis last month by Donaldson, Lufkin and Jenrette, a New York investment banking firm, concluded that “more than 90 percent of the nonspecialty steel exported from the United States since 1990 — over 10 million tons — has been dumped. It is reasonable to estimate that exports have involved losses of more than $100 per ton for most carbon steels.” (The analysis estimated that exports by American mini-mills, in contrast, are profitable). Mexico filed an anti-dumping suit against American steel exports last month, and Canadian companies are expected to soon file a similar suit.
Steel imports have been politically throttled for most of the last 20 years. Steel-import restraints have been perhaps America’s worst anti-industrial policy. A study by the Center for the Study of American Business estimated that import quotas destroyed three jobs in steel-using industries for every steel-making job saved. The Institute for International Economics estimated that steel import quotas cost American consumers $6.8 billion a year, $750,000 for each steel worker’s job saved. A 1984 Federal Trade Commission study estimated that steel quotas cost the American economy $25 for each additional dollar of profit for American steel producers.
In addition to the dumping charges, American steel companies filed 36 petitions accusing foreign companies of receiving Government subsidies. But the American steel industry has also been heavily subsidized. The Economic Development Administration in the Commerce Department loaned $265 million to four struggling steel companies in the late 1970’s; all four — Korf Industries, LTV, Wisconsin Steel and Wheeling-Pittsburgh — defaulted. The federal Pension Benefit Guaranty Corporation has assumed the pension liabilities of several steel companies, thereby providing a benefit of $3.7 billion to the industry. The Canadian Steel Producers Association estimates that the American steel industry has received almost $30 billion in Government subsidies over the last two decades.
Import barriers on foreign steel make less sense now than ever. They hurt the competitiveness of American products overseas and unfairly penalize the auto, construction, electrical and equipment industries by forcing them to use a higher-priced, often inferior product. This nation can no longer afford a trade law that allows one laggard industry to take dozens of other industries hostage.
The Wall Street Journal
Thursday, August 15, 1991
The Mother of All Import Charades
By James Bovard
To reward Turkey for its sacrifices during the Gulf war,
Washington has deigned to allow it to double its apparel
exports to the U.S. And, since one nation is being allowed to
sell more clothes to Americans, the U.S. government feels
obliged to force other nations to sell less clothing to
As a “contribution” to the U.S. war effort, Hong Kong has
been strong-armed into agreeing to slash its textile exports
to the U.S. by the equivalent of 16 million shirts.
Representatives of the Korean and Taiwan governments confirm
that U.S. government officials are pressuring them also to
sanctify America’s victory by sharply reducing textile
exports. The U.S. request has exasperated some Koreans, since
Korea already gave $500 million in cash and in-kind
contributions to help the Gulf War effort.
On July 16, the Office of the U.S. Trade Representative
announced that Hong Kong had agreed to “reduce its access to
the U.S. market by 27 million square meter equivalents as a
contribution” to the U.S. war effort. “Square meter
equivalents” are official estimates of the quantity or
poundage of textile products that different clothing and
textile imports contain. According to the fine print of U.S.
textile restraint agreements, 27 million square meters is
equivalent to 16 million shirts, or 81 million brassieres, or
112 million pairs of cotton mittens. Hong Kong could lose
roughly $125 million in exports to the U.S.
The U.S. is seeking to “compensate” for Turkey’s increased
exports by reducing other countries’ exports. Given the U.S.
government’s method of measuring the textile content of the
hundreds of different products restricted by textile import
quotas, this could lead to some peculiar tradeoffs: If Turkey
exports 50,000 extra pounds of yarns and sewing thread to the
U.S., for instance, Hong Kong could be required to export one
million fewer handkerchiefs. If Turkey exports 100,000 more
pounds of tampons, Korea could be required to cut its fish
net exports by 62,539 pounds. Or, if Turkey exports an extra
20,000 negligees, Taiwan could be pressured to slash its
typing ribbon exports by 10,000 pounds.
Patriotism is the best refuge of a protectionist. Foreign
governments have said nothing publicly to criticize the U.S.
government’s latest anti-import charade because they fear a
backlash from the American public. American importers have
also been uncharacteristically mute on an issue that is vital
to their pocketbooks. Potential critics fear that opposing
the new restrictions on East Asian exports might get them
portrayed as closet Saddam-sympathizers. But the American
public is being hurt by trade restrictions. The President’s
Council of Economic Advisers estimates that trade restraints
boost the price of imported clothing by 50%.
What will the government do next to help Americans
celebrate the mother of all victories? Pressure Mexico to
sell us fewer bottles of tequila? Bludgeon Honduras to stop
sending us bananas? Arm-twist Finland into slashing its
exports of ice-hockey pucks?
A war that was fought to protect America’s ability to buy
imported oil is being perverted to further restrict
American’s freedom to buy imported clothing. Perhaps the
secret goal of U.S. trade policy is to have low-income
Americans wearing clothes that are as tattered as the
refugees from the Iraq war.
The Wall Street Journal
Friday, October 11, 1991
America’s Most Harebrained Import Quota
By James Bovard
The Bush administration may soon announce plans to extend
import quotas on machine tools from Japan and Taiwan for
three more years. These quotas, a so-called Voluntary
Restraint Agreement, are deserving of fame as America’s most
harebrained trade barrier. In the name of preserving a
domestic industry, the U.S. government has hurt some of the
most progressive companies and given a windfall to some of
their foreign competitors.
In May 1986, the U.S. announced plans to impose quotas on
machine tools from Japan and Taiwan. Machine tools are
automatic power-driven tools that are used to cut, drill and
stamp the metal that becomes cars, airplanes, missiles, etc.
Though the machine-tool industry employs roughly 70,000
American workers, while industries relying on machine tools
employ millions of workers, Commerce Secretary Malcolm
Baldrige promised listeners that the trade restrictions “will
certainly increase employment.”
Some American machine-tool makers are world-class
competitors, but many have lagged far behind the
technological breakthroughs of the past 15 years. The import
quotas effectively created a quality bottleneck, holding
American industry hostage to one lagging group of politically
connected companies. The Institute for International
Economics estimated that the import quotas boosted the
profits of foreign machine-tool exporters by $320 million, by
making machine tools more expensive than they otherwise would
In 1989, Caterpillar Inc. needed advanced Japanese machine
tools to produce parts in the U.S. that it was then buying in
Japan. But Caterpillar was stymied because that year’s quotas
had been allocated. It eventually persuaded Japan’s Ministry
of International Trade and Industry to reallocate part of the
quota to Caterpillar’s Japanese supplier.
Bill Lane of Caterpillar observes: “The quotas let MITI
determine which American companies would be winners and
losers. In our case it worked out OK — but, as a result,
some other American company faced delays in getting the types
of machine tools that it needed.” One congressional staffer
suggests other U.S. manufacturers may not have openly
criticized the quotas for fear of retaliation by U.S.
The quotas on Japan’s producers were set at much higher
levels than on Taiwan’s, and are currently not impeding
Japanese exports. (Insiders suggest that Japanese officials
were much more savvy, using 1981 Japanese exports as a
baseline — a year in which a weak yen and surging U.S.
demand resulted in very high exports.)
Many U.S. companies are concentrating on developing
advanced software and computer numerical controls to drive
machine tools, rather than on building the frames, which they
need to import. The quotas have made it harder for U.S.
companies to devote their resources to the area where they
have a comparative advantage.
By disrupting the supply of Taiwanese low-priced, low-tech
inputs for high-tech U.S. machines, the quotas helped
bankrupt at least two American machine-tool makers — Bayer
Industries Inc. of Phoenix and MHP Machines Inc. of Buffalo,
N.Y. And, by boosting the production costs of U.S.
machine-tool makers, the quotas have undercut U.S. companies’
efforts to maximize exports. Brian McLaughlin, chief
executive of Hurco Companies Inc. of Indianapolis, one of
America’s premier machine-tool exporters, estimates the
quotas have cost his company $5 million a year.
Machine-tool import quotas control “the building blocks of
industry,” as Secretary Baldrige observed in 1986. Yet, a
1990 General Accounting Office report noted that Commerce
“does not have written policies or procedures for monitoring
the agreements and does not maintain complete records of the
monitoring it does.” U.S. businesses, desperately trying to
get advanced equipment to enter the computer era of
manufacturing, are at its mercy.
Commerce even has flouted U.S. trade law in its crusade to
slash imports. In 1988, Taiwan began shipping some
machine-tool parts to Israel, where an Israeli company
combined the parts with Israeli products, built the finished
product, and exported it to the U.S. The Customs Service
ruled in 1988 that, since more than 35% of the value of the
finished product originated in Israel, the machine tools were
But Commerce designed its own 12-point test to determine
machine tools’ national origin and then decreed that it would
penalize Taiwan for Israel’s exports. Inside U.S. Trade, a
newsletter, reported on Feb. 16, 1990: “Commerce has
apparently decided to count the Israeli machine tools against
the [Voluntary Restraint Agreement] retroactively from 1989.
. . . As a result, Taiwan has stopped shipping the
machine-tool parts to Israel, and the Israeli company that
made the machine tools has gone out of business.” A recent
U.S.-Israeli panel concluded that Commerce’s action violated
the U.S.-Israel Free Trade Agreement, but the U.S. has
effectively refused to abide by the panel’s decision.
Though the quotas were supposed to be a one-time dose of
protection, the National Machine Tool Builders Association
(ignoring dissent in its own ranks) and 120 representatives
and senators are lobbying to extend the quota beyond its Dec.
31 expiration date. The association warns: “The machine-tool
industry is the belt that holds up the pants of America’s
defense capabilities. A slip of one notch could be enough to
have the United States find itself in a compromising
situation.” But the U.S. government cannot protect the tool
builders without economically exposing all industries that
rely on machine tools.
Several leading machine-tool producers are urging
President Bush not to extend import quotas, in part because
they believe the quotas make it harder for them to compete
with Japanese companies in the U.S. market. Hurco’s Mr.
McLaughlin believes Japan’s MITI is actively lobbying the
White House to extend the quotas.
After years of staunchly pro-free-trade speeches emanating
from the White House speechwriters’ offices, American
businesses will learn whether it is once again safe to read
George Bush’s lips.
The Wall Street Journal
Wednesday, October 23, 1991
LEISURE & ARTS
Bookshelf: The High Cost of Protectionism
By William McGurn
“To introduce a tariff bill into a congress or parliament
is like throwing a banana into a cage of monkeys,” wrote
economist Henry George back in 1886. “No sooner is it
proposed to protect one industry than all the industries that
are capable of protection begin to screech and clamor for
Apparently someone has heard them, judging from the 8,753
different tariffs on foreign goods imposed by the U.S. In
“The Fair Trade Fraud” (St. Martin’s Press, 336 pages,
$24.95), James Bovard notes the restrictions and concludes
that the century since Henry George penned those words has
seen “no significant evolution of the American political
Subtitled “How Congress Pillages the Consumer and
Decimates American Competitiveness,” the book lays bare the
protectionist barnacles that today cost the American family
$1,200 per year: everything from the tariffs that force us to
pay higher prices for the goods we prefer, to the quotas that
limit us further when tariffs don’t do the trick, and the
bureaucratic mummery called “anti-dumping orders” that hits
foreign companies who provide us with real bargains.
To the task of charting these follies, few come better
qualified than Mr. Bovard, a frequent contributor to this
newspaper and a fellow at the Cato Institute in Washington,
D.C. In chapter after chapter, he shows how those crying
loudest about “fair trade” are quick to spot the splinters in
the eyes of our neighbors while blind to the protectionist
beam in our own.
Now, on paper and in Congress, fair trade is not without
its appeal: All we want, the argument goes, is a level
playing field so our companies can compete. The problem is,
the level playing field is a lot like the “frictionless
surface” we learn about in high school physics: an
interesting concept with no resemblance to reality. Those
nations that have done best by their people have done so not
by rigging the home field but by allowing their citizens to
take advantage of whatever low prices come along without
asking too many questions.
Mr. Bovard puts it well: “The benefits of unilaterally
adopting free trade now are greater than the benefits of
multilateral adoption of free trade ten or fifteen or thirty
years from now.” Ask Hong Kong, which has totally shunned
retaliation and not coincidentally has had the highest growth
rate in the world over the past three decades.
The simple truth is that you can’t protect Peter without
punishing Paul. Take the much-heralded Semiconductor
Arrangement we forced Japan to sign in 1987 to protect U.S.
chip makers complaining they weren’t getting their fair share
of the Japanese market. That protection came at the expense
of the U.S. computer industry, for whom cheap chips were
essential; one study estimated the job losses in the American
computer industry at 11,000. Ditto for other areas. When
Jesse Helms or Howell Heflin or George Mitchell come
a-begging for help for their textile manufacturers
(“America’s oldest infant industry,” says Mr. Bovard), what
they’re really doing is robbing the retail industry.
Overall, Mr. Bovard does a fabulous job at showing how
arbitrary and ultimately counterproductive our restrictive
trade practices are. But at times he takes away from his own
case by downplaying the lousy practices of other countries
that do indeed hurt American producers. He uses the word
“alleged,” for example, in talking of foreign steel
Far better to concede the foreign protection and argue, as
he does elsewhere in his book, the costs of retaliation are
just not worth it. “The U.S. Trade Representative retains
thick files on foreign practices that supposedly justify
American retaliation but keeps little or no information on
how American trade retaliations or foreign
counterretaliations have harmed American industries and
consumers,” he writes.
That message could not come at a more opportune moment.
With the collapse of the Evil Empire and the renewed
enthusiam for free markets, we now have the potential for
(dare I say it?) a liberal New World Order the likes of which
we first saw in the Pax Britannica. Already the seeds of such
an order are being sown with the wooing of Mexico (and
ultimately all Latin America) into the North American Free
Trade Agreement, the championing of Taiwan’s entry into the
General Agreement on Tariffs and Trade, and the emergence of
the old Eastern bloc as a capitalist wedge against the
Fortress Europeans to the west. In an ever-larger world
trading order it will become increasingly expensive for
countries to opt out. Maybe then it will begin to dawn on
members of Congress that, to use a quaint, fittingly
old-fashioned analogy, “If your neighbor beats his wife, you
don’t teach him a lesson by beating your wife.”
Mr. McGurn is Washington bureau chief for the National
The Wall Street Journal
Tuesday, November 26, 1991
Torpedo Shipping Protectionism
By James Bovard
The Jones Act of 1920 requires all shipping between U.S.
ports to be carried on American-built, American-owned, and
American-crewed ships. Though this trade restriction
effectively dates back to 1817, a recent proposal by the
Nordic countries to include shipping restrictions under the
proposed GATT Services Code has sparked hope of abolishing
this costly burden on American consumers. (The Bush
administration, the world’s premier free-trade theoreticians,
opposes the Nordic proposal).
Shipping has long been one of America’s leakiest
industries. In the year the Jones Act was enacted, it cost
twice as much to build a ship in the U.S. as in Britain. By
1959, American shipping costs were seven times higher than
some competitors’. The Congressional Budget Office reported
in 1984 that American shipyards charged three times the price
of Japanese and Korean yards and were slower in delivery.
Naturally, the less competitive a U.S. industry, the more
vigilant Congress is to dragoon customers for it.
Since Congress has given U.S.-flag ships a captive market,
congressmen feel entitled to force American shippers to hire
American workers, and strong unions guarantee exorbitant
salaries. U.S. ship crews cost six times more than Third
World crews; American shipmasters routinely cost shipping
companies $300,000 a year. The high pay breeds corruption: An
FBI sting operation recently discovered that shipping jobs
are illegally being sold by one maritime union.
A recent U.S. International Trade Commission study
concluded that abolishing the Jones Act would save consumers
as much as $10.5 billion as a result of lower shipping costs,
while U.S. maritime operators would lose only $630 million in
profits. Thus, the Jones Act could be costing consumers $17
for every $1 of domestic shippers’ profits. Federal Maritime
Commissioner Rob Quartel, who is championing the repeal of
the Jones Act, estimates that the total savings from repeal
could actually be $20 billion or more, as the ITC estimate
did not include the costs of shipping restrictions on Great
Lakes trade, forgone tax revenue, indirect effects on smaller
The Jones Act, by making water-borne transport far more
expensive that it otherwise would be, partially nullifies the
benefits of the Panama Canal for transporting goods from
coast to coast. This makes it more difficult for Pennsylvania
steel producers to compete against Japanese steel in
California, or for West Coast lumber to compete with Canadian
products in the eastern U.S. The ITC estimated that Jones Act
restrictions destroyed over 2,000 jobs in agriculture,
forestry, mining, and other industries.
Sean Connaughton of the American Petroleum Institute
notes, “We are seeing more and more oil imports in the
Northeast, and imports have driven out a lot of the previous
coastwise oil trade from the Gulf Coast. The Jones Act is a
very significant factor in this.” U.S. oil shippers cannot
compete with foreign tankers with far lower operating costs.
According to the General Accounting Office, the Jones Act
restrictions on oil shipping helped cause a serious shortage
of heating fuels on the East Coast during a severe cold snap
in December 1989.
Americans also have minimal opportunities to travel
domestically on passenger ships, largely because of the
Passenger Services Act of 1886, a Jones Act equivalent for
the passenger cruise industry. In a free market, foreign
cruise ships would offer pleasure trips from New York to
Baltimore, Savannah, and Miami, and from San Diego to San
Francisco. But cruise ships are prohibitively expensive
because of federal buy-American and crew-American mandates.
Seattle is especially victimized, as each year, hundreds of
thousands of tourists fly to Seattle for cruises to Alaska —
but then cross over to Vancouver, Canada, in order to catch
the cruise ships. Mark Sullivan of the Port of Seattle
estimates that the restrictions cost Seattle a minimum of $30
million a year in lost tourist business.
Shipping protectionism has been extended to dozens of
types of boats over the years, including Hovercraft, sewer
sludge carriers, and dredging ships. The Customs Service has
even banned whitewater tour companies from using foreign-made
inflatable rubber rafts on American rivers.
The Jones Act is often defended as providing a reserve
fleet for military emergencies. But Commissioner Quartel
notes that of the 400 ships used in Desert Shield by the
Military Sealift Command, only one ship subsidized by the
Jones Act was used. (Jones Act ships tend to be too old or of
the wrong type to aid a war effort).
The Jones Act is supposed to stimulate U.S. shipbuilding.
But, as New York shipping consultant Michael McCarthy
observes, “There is only one commercial ship being built in
the United States today — a fairly small container ship, at
about twice the price of what it would cost to build abroad.”
Thomas Crowley, chairman of Crowley Maritime Corp., believes
that the performance of American shipyards has been ruined
largely by their reliance on government contracts: “Any
shipyard that does Navy work isn’t worth a damn for
Though the Bush administration is demanding that foreign
governments end their shipbuilding subsidies, it refuses to
recognize the implicit subsidy the Jones Act provides to U.S.
shipyards. Deputy U.S. Trade Representative Linn Williams
declared last February that the act does not amount to a
“hill of beans in terms of subsidies” and is a “commercially
meaningless program” because so few commercial ships have
been built in the U.S. in recent years. But, as the American
Petroleum Institute’s Mr. Connaughton observes, “That’s kind
of like saying that because we have destroyed an industry,
let’s make sure it never arises again.”
The Jones Act engenders a chain reaction of extortion —
allowing American shipyards to charge stratospheric prices to
American ship buyers, allowing American-flag ships to charge
shakedown shipping rates to American businesses, and allowing
American congressmen to demand lavish campaign contributions
from the American maritime industry (more than $1 million a
U.S. maritime lobbies have been so generous that three of
the past five chairmen of the House Merchant Marine
Subcommittee have been indicted for criminal links to the
maritime industry, as Congressional Quarterly reported. (A
fourth chairman was indicted for other reasons.) Former Rep.
Thomas Ashley declared that the House Merchant Marine
Committee “sucks from the taxpayer; it sucks from anything
that isn’t nailed down.”
While the Jones Act fleet is relatively small and old,
there are 300 U.S.-owned ships flying foreign flags. If
Congress actually wanted a large U.S.-flag fleet, it could
easily create one almost overnight by abolishing the
build-American and crew-American requirements on U.S. owners
of foreign-flagged vessels who might otherwise choose to fly
the Stars and Stripes. But Congress is more interested in
perpetuating maritime campaign contributions — and those
contributions can be garnered only by federal policies that
continue sabotaging U.S. maritime competitiveness.
The Wall Street Journal
Friday, March 27, 1992
The Custom Service’s Chainsaw Massacre
By James Bovard
In this election year, politicians work overtime to
denounce foreign governments’ unfair treatment of American
exports. But when it comes to arbitrary, unfair treatment,
few foreign governments can beat the record of the U.S.
Customs Service. Customs has conducted a bureaucratic reign
of terror against importers, pilots and boaters and against
the $500 billion in imports that Americans buy each year. In
the process, property rights have been thrown overboard.
Customs has partially reined in its “seizure fever,” in
response to a Ways and Means Committee investigation and
under the leadership of Customs Commissioner Carol Hallett,
who replaced William von Raab in 1989. But as trade lawyer
John Pellegrini observes, “If there is a change at the head
of the agency, it could bring us back to the time when
Customs seized first and asked questions later.”
Unfortunately, the Bush administration is opposing a bill
sponsored by Rep. Barney Frank (D., Mass.) that would end
federal agents’ incentives to destroy private property, no
matter who is in charge.
As the following examples illustrate, some Customs
officials have not hesitated to skewer the Fifth Amendment’s
protection of property rights:
— As a 1990 House Ways and Means Committee report noted,
Customs inspectors in Seattle chain-sawed an imported
cigar-store wooden Indian to prove beyond a shadow of a doubt
that the Indian did not contain any narcotics. Customs agents
also used chain saws to “inspect” a large container tightly
packed with paper products, rubber products and an antique
Chain saws are an attractive, efficient means of
inspecting imports in part because Customs never compensates
anyone for damage it does during inspections. The Ways and
Means investigation concluded, “The U.S. Customs Service has
little or no incentive to avoid damaging cargo during
— On April 9, 1989, Customs officials “inspected” a
sailboat owned by Craig Klein of Jacksonville, Fla., with
axes, power drills and crowbars. By the time the search was
completed, the gas tank was ruptured, the engine was ruined,
15 large holes had been drilled below the waterline, and the
sailboat was worthless. No narcotics were found. Customs
denied any compensation to the boat owner. A Customs agent
later phoned Mr. Klein at home and threatened his life to try
to dissuade him from complaining to his congressman.
— Customs “inspected” one airplane by forcing the owner
to land it — after which Customs officials pulled up close
by in a Black Hawk helicopter, and a prop blast from the
helicopter flipped the plane over and destroyed it. Customs
then arrested the pilot because they suspected he was a drug
smuggler. Customs found no drugs, and the man was later
released. But Customs refused to compensate the man.
— In 1988, the Farm Belt was suffering from a severe
drought, and the dryness of land was causing a larger than
normal number of tractor breakdowns. A Canadian company
shipped several truckloads of tractor parts to American
farmers. At the border near Detroit, a single U.S. Customs
Service official, disregarding previous Customs rulings,
decreed that each individual tractor part had to be stamped
“Made in Canada,” seized the entire shipment and levied a
heavy penalty. While Customs later admitted its error and
released the shipment (although it refused to refund the
penalty), the shipment arrived too late for many farmers.
— Apparel is one of the most frequently seized items. In
1988, an importer had a visa to bring in 204,000 shirts from
Mexico. But a Customs inspector discovered that the shipment
actually contained 204,007 shirts — and seized the entire
— The Customs Service also forces some people to mutilate
their own property. The Customs Service has established
intricate rules for bringing clothing samples into the U.S.
Even if a designer is bringing in only a single dress from
Hong Kong, the Customs Service requires the person to cut a
large hole into the dress in order to destroy any possibility
of its sale.
— Under the 1984 tariff act, Customs can levy heavy
penalties on companies for importing items “contrary to law.”
It now invokes this authority to fine shippers that are
robbed at U.S. airports or ports. If the cargo is stolen
before it clears Customs, then Customs will hit the shipper
with a penalty equal to 100% of the cargo’s value. (The
company is also liable to reimburse the owner of the stolen
property.) Mary McMunn of the Air Transport Association of
America observes: “What are we compensating Customs for? They
don’t own the merchandise.” With this policy, Customs
effectively clobbers private companies for the government’s
own failure to control the high theft rates at areas such as
Kennedy Airport in New York.
Rep. Frank’s bill would permit private citizens to sue to
recover damages from Customs officials’ actions. Deputy
Assistant Attorney General Stephen Bransdorfer, testifying
before the House Judiciary Committee last October, opposed
holding the Customs Service liable for “negligent
destruction” of commercial cargo because “standard marine
cargo insurance . . . is available at readily affordable
rates.” If Mr. Bransdorfer’s doctrine were adopted throughout
the government, federal agents would have a blank check to
destroy any private property for which insurance can be
Rep. Sam Gibbons (D., Fla.) and Rep. Phil Crane (R., Ill.)
have proposed a bill to significantly reduce Customs’
authority to seize imports — but not to allow importers to
sue Customs for negligent damage. After many months of
difficult negotiations between the Hill and the White House,
the Bush administration has grudgingly signed onto the
Gibbons-Crane bill. But this still falls short of what
citizens and property owners deserve.
The Wall Street Journal
Wednesday, April 8, 1992
Congress Says Hard Cheese to Cheese Eaters
By James Bovard
The U.S. dairy program and 100,000 American dairy farmers
may face imminent destruction from a few wheels of Hungarian
cheese — or so you’d think from the rhetoric emanating from
Washington. The supposed threat comes from Goya cheese, a
hard cheese sometimes used as a cheap, lower-quality
substitute for or blended with Parmesan or Romano cheese.
Even though Goya cheese is not and never has been produced in
the U.S., an administration proposal to eliminate the tariff
on Goya cheese from Hungary has produced perhaps the biggest
panic on Capitol Hill since the outbreak of the House Bank
scandal. The unsympathetic House Agriculture Committee has
scheduled a hearing on the Goya crisis for Thursday morning.
The U.S. government has long protected Americans against
foreign cheese. Import quotas permit each American to
purchase the equivalent of only one pound of foreign cheese
per year. The U.S. International Trade Commission estimated
in 1990 that cheese import quotas produce the equivalent of
tariffs as high as 172%. The Agriculture Department estimates
that dairy import quotas and other federal dairy policies
cost Americans more than $5 billion a year in higher prices.
The ITC reported in January, “The U.S. has been a net
importer of dairy products for many years largely because it
cannot compete with New Zealand, Australia, and . . .
There are a few types of cheese, such as Goya, not covered
by import quotas, primarily because the U.S. dairy industry
assumed that they were not worth protecting against.
Currently Goya cheese is hit with a “mere” 25% tariff.
As the history of protectionism has shown, the more
protection an industry receives, the greedier it becomes. The
dairy industry and its congressional agents are no exception.
Here’s a sampling of the rhetoric against the
administration’s proposal to grant duty-free access to Goya
cheese from Hungary:
Sen. Arlen Specter (R., Penn.) warned on Feb. 25 that
allowing duty-free entry of Goya cheese from Hungary would
“devastate the domestic dairy industry.” Sen. Harris Wofford
(D., Penn.) asserted that “many Pennsylvania farmers . . .
will be financially hurt” simply by the White House decision
to consider duty-free access for Goya cheese.
Rep. David Obey (D., Wis.) complained, “For American dairy
farmers, the Goya cheese petition could not have come at a
worse time,” and Rep. Toby Roth (R., Wis.) said, “The
proposed duty-free entry of Goya cheese would result in
unfair competition with our own Parmesan, Romano and other
hard cheeses” — even though the Hungarian government, unlike
the U.S. government, is not drowning its dairy farmers in
Rep. Dave Nagle (D., Iowa) warned, “Iowa’s dairy industry
. . . absolutely will not tolerate the Red Carpet being
rolled out to foreign dairy producers who are already
competitive with their product on the world market.” Rep.
Steve Gunderson (R., Wis.) said, “My farmers and cheese
makers are being put at very serious risk once again because
of international geo-politics over which they have no
control.” Mr. Gunderson added that if Goya cheese is given
duty-free access, “it may very well be time that we in the
Congress put a stake in the heart of what is fast becoming a
monster” and abolish all special duty-free treatment of
imports from Third World nations or emerging democracies.
Some congressmen warn ominously that if Hungarian exports
of Goya cheese are let in duty-free, the same access might be
extended to Goya cheese from Uruguay and Argentina. This is a
red herring. For one thing, the administration could easily
tailor the duty-free treatment specifically for Hungarian
cheese. But even if the tariff were lifted on Uruguayan and
Argentinian Goya cheese too, so what? Total U.S. imports of
Goya cheese from all countries amounted to barely $7 million
in 1990 — less than one-fiftieth of 1% of the total value
($48 billion) of dairy products sold in the U.S. Does Goya
cheese possess some magical property which, even in trace
amounts, can destroy a nation’s dairy markets?
All the righteous indignation against cheese imports is
particularly jarring considering that the U.S. Agriculture
Department is massively dumping U.S. cheddar cheese onto
world markets at a huge loss to American taxpayers.
Agriculture Secretary Edward Madigan last month announced
plans to subsidize the export of 4,700 metric tons of cheddar
cheese, more than four times Hungary’s total annual
production of Goya cheese.
The U.S. may actually be suffering from a shortage of
Italian-type hard cheeses. Christopher Brescia, a lobbyist
for the Hungarians, says, “U.S. production of hard cheeses,
regardless of category, does not meet the market demand.”
Jerome Schuman, a New Jersey cheese importer, observes,
“Prices for Parmesan and similar loaves [wheels] of cheese
have risen approximately 15% to 20% in the last two years —
yet very little increase or no in domestic production of
loaves has occurred.” Jack Schwarz, a New York food broker,
says that the U.S. hard cheese makers have cut back
production of wheels of cheese, producing blocks and barrels
of cheese instead. Many grocery stores strongly prefer wheels
of cheeses but cannot get sufficient supply.
President Bush will likely decide in the next few weeks
whether Goya cheese will receive duty-free access. The
brouhaha over his proposal is just one more example of
Congress’s idea of a level playing field: giving American
farmers a 25% advantage and then letting the “best” farmer
The Wall Street Journal
Monday, June 8, 1992
U.S. Protectionists Claim a Russian Victim
By James Bovard
The Commerce and Energy departments are squandering
millions of tax dollars, hitting consumers with higher
electricity bills, bushwhacking struggling ex-Soviet
enterprises, and perhaps helping some Third World dictators
to build nuclear bombs. And all in the name of “fair trade.”
Late last month, the Commerce Department announced it was
imposing a 115.82% dumping penalty on uranium imported from
six of the nations created by the shattering of the Soviet
Union — Russia, Ukraine, Kazakhstan, Tajikistan, Uzbekistan
and Kyrgyzstan. Uranium had been the third largest export for
the Soviet Union, and Commerce’s decision — which
effectively bans imports — devastates one of the
Commonwealth of Independent States’s most competitive
Secretary of State James Baker declared on April 9 that
“Russia, Ukraine and the other former Soviet republics are
new countries. They should begin their new histories with a
clean bill of health.” But Commerce is penalizing new
governments for the Soviet Union’s pricing behavior from June
through October 1991 — though none of the CIS governments
existed at that time.
Commerce, acting on a complaint by domestic producers and
a labor union, sent representatives of CIS governments a
66-page questionnaire demanding detailed information on their
uranium operations. It failed, in violation of U.S. law, to
provide CIS governments with copies of the full petitions
filed by U.S. industry against them. Commerce has convicted
the CIS governments for not providing thousands of pages of
documentation on operations controlled by the Soviet Ministry
of Atomic Power and Industry. But that ministry was abolished
in January, and most CIS governments have limited access to
information on uranium operations in their territories during
Uranium production, because of its military applications,
is considered top secret by most nations. Commerce has
conceded in previous dumping cases that governments have a
right to refuse disclosure of national security information,
but denies this right to the CIS states. One CIS declared in
Moscow in March that Commerce’s questionnaire appeared to
have been issued by the CIA.
How, then, did Commerce decide that Soviet uranium prices
were unfairly low? In most dumping cases, Commerce judges
foreign company prices by comparing their home market prices
with those they charge in the U.S. But it has special rules
for non-market economies that lack realistic price systems.
Commerce took the unproven assertions it received from the
U.S. producers, juggled the numbers, and then announced that,
if Soviet uranium had been mined with Canadian efficiency,
Portuguese electricity, and Namibian labor costs, it would
have cost 115% more than it actually did.
Because the U.S. industry claimed that Canadian uranium
miners are four times as productive as Czech uranium miners,
and because Czechoslovakia is a non-market economy too,
Commerce simply assumed that CIS mines required four times as
much labor as Canadian. It boosted its dumping margins
accordingly. This method gives new meaning to the old phrase,
“close enough for government work.”
Instead of the concoct-an-imaginary-uranium-producer test,
Commerce officials could have judged Soviet export prices
simply by comparing them to prices of other major uranium
exporters. Commerce officials chose the method that maximized
their arbitrary power over imports.
In most dumping cases, a key issue is whether imports have
injured an American industry. But, in this case, the question
is whether blocking CIS uranium imports can miraculously
resurrect a dead domestic industry. The U.S. Department of
Energy has publicly admitted that the U.S. uranium industry
is not commercially viable. The uranium ore found in the U.S.
is simply of too low quality to compete with ore from Canada
But despite the Energy Department’s admission that the
U.S. industry is hopeless, it is paying $3.3 million to a
Washington law firm to fight uranium imports. Why? Because
the Energy Department owns and operates the only plants in
the U.S. producing enriched uranium — a staple for nuclear
power plants. The Energy Department’s uranium enrichment
plants are technological dinosaurs. The only way that they
can remain competitive in the U.S. is by crippling imports.
The Energy Department’s victory is a disaster for
America’s public utilities and the 50 million Americans who
rely on nuclear power. Commerce’s 115% dumping duty on CIS
imports could mean as much as $300 million in higher utility
bills in New York, Virginia and other states.
Some foreigners will benefit from the tariff on CIS
uranium: Third World dictators seeking uranium to build their
own nuclear bombs. While there are strict international
controls on uranium sales, most CIS states are in desperate
need of hard currency. If the CIS states are banned from the
U.S. market, it is far more likely that uranium will be
diverted to military uses.
This case is another national embarrassment concocted by
bureaucratic hacks at the Commerce Department. George Bush’s
advocacy of free markets is worthless if he cannot prevent
his own administration from wrecking those markets.
The Wall Street Journal
Monday, July 13, 1992
Summer Trade Follies
By James Bovard
The trade bill passed by the House last week is Congress’s latest
attempt to scuttle world trade. The bill is full of damaging
— Car quotas. The bill imposes quotas on Japanese auto imports
until the turn of the century. Several congressmen explained that
the fact that Japanese auto exports to the U.S. are much higher than
U.S. auto exports to Japan proves Japan is incorrigibly
protectionist. The Japanese, like the British, drive on the wrong
side of the road, but the Big Three have refused until very recently
to build cars with steering wheels on the right side for the
Japanese market. Congress apparently thinks that driving on the left
side of the road is an unfair foreign trade practice.
— Super 301. The bill resurrects the Super 301 program, under
which the Bush administration is obliged to proclaim an annual list
of the world’s most “unfair” traders. The real achievement of this
provision is to provide an opportunity for congressmen to get on
national TV to blast administration officials for not denouncing
enough foreign countries’ trade practices. It also allows
congressmen to decree which foreign governments should be presumed
guilty of unfair trade and subjected to a highly confrontational
U.S. government investigation.
For instance, the bill requires the U.S. Trade Representative to
re-investigate Japanese rice import barriers. The Trade
Representative estimates that if Japan opened its rice market to
American farmers, American farmers could sell $656 million in rice
to the Japanese. The House would prefer to deflect attention from
the U.S. Agriculture Department’s handouts to American rice farmers,
which last year added up to $851 million. U.S. taxpayers lose far
more from rice subsidies than American rice growers could possibly
gain from an open Japanese market.
— Wheat police. Rep. Byron Dorgan (D., N.D.) slipped a provision
into the bill to require that all wheat imports have an “end-user”
certificate. Mr. Dorgan says he’s worried about our domestic wheat
industry since wheat imports have risen fivefold since 1983. The
culprit is U.S. farm policy, which drives down world market prices
by subsidizing exports while raising prices at home. Mr. Dorgan’s
plan would create severe paper work burdens for grain traders; the
Kansas Association of Wheat Growers admitted in April that the goal
of the certificate requirement was “to increase costs for imported
grain . . . and provide enough extra work to make imported grain
— Dumping. The bill mandates that the U.S. government make it
less expensive for U.S. companies to file suits against their
foreign competition for “dumping” — that is, charging low prices to
American consumers. But, U.S. companies already have a huge
advantage in U.S. government trade proceedings. A domestic company
can point the Commerce Department like a guided missile against its
foreign competition and let the U.S. government do the rest. For
example, as a result of the dumping charges filed by U.S. steel
makers last month, foreign steel producers may be forced to spend
more than $100 million to defend themselves, four to five times more
than domestic steel producers will spend on the case.
Foreign products may be considered “dumped” if they contain parts
or components that the U.S. thinks are “dumped.” For instance,
because Commerce created a 63% dumping margin on Japanese computer
flat panels last year, the bill could result in $1,000 dumping
tariffs on imports of laptop computers.
— Machine tools. Mandatory import quotas on machine tool imports
from Taiwan are authorized by the bill. Last December President Bush
asked Taiwan and Japan to extend their 1986 quotas on machine tool
exports. Taiwan is balking because it believes the U.S. is imposing
more punitive restrictions on it than on other machine tool
exporters. Maybe Congress’s action will help other nations realize
the real meaning of the word “voluntary” when the U.S. government
invites them to restrict their exports.
— Tariffs. This bill doubles tariffs on some types of steel
pipes and tubes and on a key ingredient for household detergents and
other cleaners. The higher tariffs will cost almost $100 million
between now and 1997, a cost that will be passed along to the
consumer. Foreign governments may retaliate by raising their tariffs
on American exports, a right they have under the General Agreement
on Tariffs and Trade. Thus, the tariff hikes could sacrifice U.S.
exports in order to further protect uncompetitive U.S. industries.
— Dolls. Congress is on the verge of creating a new definition
of stuffed dolls. The ever vigilant House Ways and Means Committee,
author of the trade bill, has decreed that for the purpose of the
U.S. tariff code, stuffed dolls shall henceforth be considered to
include dolls filled with “pellets, beans, or crushed nutshells.”
The bill also mandates refunds for tariffs paid by doll importers
between Dec. 31, 1985 and Oct. 1, 1988. No one has ever revealed how
retroactive tariff reductions spur international trade or help
The floor debate on the bill last Wednesday did nothing to
tarnish congressmen’s reputation for economic omniscience. Rep.
Lucian Blackwell (D., Penn.) offered this concise summary of
U.S.-Japan relations: “Last year the United States compiled a
ridiculous $43.4 billion trade deficit with Japan. That means that
everything was coming from Japan and nothing was going back.” In
reality, the U.S. exported $47 billion to Japan last year. Rep. Gene
Taylor (D., Miss.) edified C-SPAN viewers with the revelation that
“99% of the jobs that are lost in the U.S. are caused by imports.”
Mr. Taylor did not explain how imports caused the 500,000 jobs lost
in construction and 83,000 jobs lost in financial services since
With what can only be considered malicious humor, the House has
labeled its trade bill the “Trade Expansion Act.” Congress should
find some less dangerous way to amuse itself than throwing rocks at
The Wall Street Journal
Friday, July 31, 1992
NAFTA’s Protectionist Bent
By James Bovard
Pandering to protectionists is poisoning the North American Free
Trade Agreement. In its attempt to get a so-called free trade pact
approved, not only is the Bush administration surrendering to
Congress’s demands, but it may be setting a precedent for higher
U.S. trade barriers against scores of other countries. It calls to
mind the Carter administration’s surrender to Soviet demands in the
SALT II talks.
The key protectionist danger in NAFTA lies in its new rules of
origin. Rules of origin are the federal regulations that determine
the national origin of an imported good. For most imports, national
origin is determined by the country in which the product was last
substantially transformed into a “new and different article of
NAFTA will have more protectionist rules of origin for autos,
televisions, and especially clothing. In 1984 the U.S. Customs
Service, at the behest of the domestic textile industry, announced a
much more restrictive rule of origin for apparel, decreeing that the
nation of origin would depend not on where fabric was finally sewed
or assembled, but on the nation of origin of both the fabric and of
NAFTA builds on this precedent to concoct a super-protectionist
rule of origin for apparel. It requires not only that clothing be
sewed in North America from fabric made in North America, but that
the yarn the fabric is made from also be from North America — a
triple rule of origin.
The intent of this “yarn forward” rule is to oblige Mexican and
Canadian apparel makers to buy yarn and fabrics from American
textile mills before being allowed to sell clothing to U.S.
consumers. This makes as much sense as forcing Belgian companies to
use American sugar for their chocolate exports.
Many types of yarn and fabrics are not produced in the U.S. But
Mexican and Canadian companies that must rely on those yarns or
fabrics to produce products for export to the U.S. will have to get
special exemptions from the triple rule of origin. NAFTA will have
byzantine regulations for determining whether specific yarns and
fabrics are in “short supply” in the U.S. And who will likely be the
final judge? The American textile industry’s best friend, the U.S.
Commerce Department. (During the mid-to-late 1980s, Commerce ran a
similar short-supply program for steel products; the General
Accounting Office concluded that Commerce officials “viewed it as
their responsibility . . . to keep foreign steel out of the U.S.”)
The short-supply system could empower U.S. bureaucrats to heavily
influence which fabrics Mexican factories use to produce dresses
that Americans will buy. At a June 29 closed-door meeting,
retailers, importers and apparel manufacturers presented a list of
117 fabrics they considered to be in short supply in North America;
U.S. textile manufacturers responded by insisting that only eight
fabrics are in short supply. Ron Sorini, the chief U.S. textile
negotiator, who was present at the meeting, appears to have accepted
the textile manufacturers’ claims. This means that the U.S.
government is likely to deny short-supply exemptions in the vast
majority of cases.
The short-supply system will also hurt Canadian apparel makers.
Four years after President Reagan signed the Free Trade Agreement
with Canada, the Bush administration is demanding that Canada accept
new restrictions on the number of wool suits it can export to the
U.S. (The U.S. currently imposes no textile import quotas on
Canada.) Wool suits are one of Canada’s most successful garment
exports, and, since Canadian apparel makers import most of their
fabric from Europe, the “yarn forward” rule will throttle their
trade with the U.S.
Israel Shames, president of the Quebec Apparel Manufacturers
Institute, estimates that NAFTA could halve Canada’s exports of some
apparel items. Jack Kivenko, president of the Canadian Apparel
Manufacturers Institute, estimates that NAFTA could result in the
loss of as many as 40,000 jobs in the Canadian apparel industry. Mr.
Kivenko complains: “America is drawing up rules to keep the threat
of a Canadian apparel invasion down to a mere trickle. Every time
the Americans ‘level the playing field,’ we find that Canadians have
higher hurdles to jump.”
Judging from the current negotiation, NAFTA is likely to sow
other seeds of national conflict. Customs Service Commissioner Carol
Hallett told a congressional hearing in May that she presumes that
NAFTA will allow U.S. agents to enter Mexico in search of illegally
labeled goods, as States News Service has reported. (Some
congressmen fear that Mexican companies may purchase Chinese
clothing and attach a “Made in Mexico” label.) Last December, two
busloads of heavily armed Customs agents pulled up outside of the
Empire State Building in New York and ransacked the offices of 20
textile companies, browbeating employees and seizing hundreds of
boxes and computer tapes to investigate whether the companies
complied with U.S. textile import regulations. If U.S. Customs
agents pulled a similar stunt in Mexico City or Toronto,
U.S.-Mexican or -Canadian relations could be devastated.
Mexico currently provides barely 3% of U.S. textile and apparel
imports. Yet the archprotectionist textile rule of origin will
likely be applied to other nations in the future. Textile negotiator
Sorini explicitly declared that the yarn-forward rule will guide
future trade negotiations: “This will be a model for all future free
trade agreements. We feel we have balanced the interests of
Furthermore, the U.S.’s preferential treatment of Mexican imports
could hurt other Latin American nations. If, for example, both
Mexico and Guatemala are shipping lace brassieres to the U.S. and
the U.S. abolishes the 32% tariff for Mexican producers but retains
it for Guatemalan producers, then Guatemalan producers will be left
at a severe disadvantage. Puerto Rican government officials have
warned that eliminating tariffs on Mexican textiles while
maintaining tariffs on Caribbean textiles could torpedo the entire
Caribbean textile industry.
NAFTA will give too much discretion to Customs Service employees,
who have injected protectionist intention into previous trade laws.
This February, for example, Customs bureaucrats bushwhacked Honda
with a profoundly creative, retroactive interpretation of the
U.S.-Canada Free Trade Agreement, ruling that automobile engine
blocks that are cast, shaped, machined and finished at a Honda plant
in Ohio are not made in America. The Honda decision created much ill
will north of the border, making many Canadians suspect that
hypocrisy is now the U.S.’s leading export.
There is also danger in how much political ransom the Bush
administration may pay Congress to get NAFTA approved. Democrats
have already demanded a large increase in spending for government
job training programs to ameliorate the impact of NAFTA. However, as
a recent Labor Department report showed, government job training is
one of the worst things politicians can inflict on young workers.
The Labor Department found that young male trainees in the Job
Training Partnership Act, the nation’s premier job-training program,
have significantly lower earnings than similar youths who were never
trained by the government.
The negotiations are not yet complete. The Bush administration
still has a chance to drop its protectionist stance and make NAFTA a
treaty worth signing. Free trade is not complex; it does not require
an army of bureaucrats to define and re-define it. It is
protectionism that requires endless administrative gimmicks to
camouflage its true nature. With each new politically contrived
definition of fair trade, the NAFTA negotiators are sowing the seeds
of future uncertainty, accusations and ill will.
The Wall Street Journal
Tuesday, September 8, 1992
Bush’s Wheat War Leaves Many Casualties
By James Bovard
President Bush announced plans last week for an additional
billion dollars of wheat export subsidies. His announcement of new
handouts — and his promise to farmers of “keeping the government
off your back as best we can” — may harvest a few Farm Belt votes.
But U.S. farm export subsidies will continue whipsawing world
markets, infuriating our allies and bushwhacking some American
The U.S. government has spent more than $3.5 billion to subsidize
wheat exports since 1985 via the Export Enhancement Program. EEP
effectively subsidizes both foreign buyers and American farmers, but
most analysts believe that the foreign buyers get most of the
EEP’s ostensible purpose is, by subsidizing U.S. exports, to
persuade the Europeans that they should cease subsidizing their
exports. When EEP subsidies began in 1985, farm-state congressmen
and Agriculture Department bureaucrats believed that a few carefully
selected sales would sufficiently intimidate the European Community.
Instead, the precedent of a few U.S. subsidies created the demand
from foreign grain buyers for far more subsidies, and now the U.S.
is paying large subsidies on roughly 80% of wheat exports. The
Foreign Agriculture Service admits that generous subsidies for wheat
exports have displaced unsubsidized American corn exports.
One Agriculture Department study concluded that nine out of 10
bushels of wheat exported via EEP would have been exported anyhow.
The primary effect of EEP was that, instead of exporting for a
profit, the U.S. sold for a loss. Harvard economist Robert Paarlberg
notes, “It would have been almost a dollar a bushel cheaper simply
to buy surplus wheat on the free market and then destroy it, rather
than to give it away under EEP.”
William Pearce of Cargill Inc., the world’s largest private grain
trader, complained to Congress in February: “We have found no
evidence that EEP increased bulk grain exports.” The U.S. will
likely export 20% less wheat this year than it did in 1984, when no
export subsidies were provided. (The U.S. is also providing $2
billion in direct subsidies to American wheat growers this year.)
Mr. Bush, in Wednesday’s speech to South Dakota farmers in which
he announced the subsidy plan, claimed: “My strategy is to
outproduce our competition and beat their socks off in the
marketplace.” But the Agriculture Department is currently rewarding
American farmers not to plant 11 million acres of wheat each year —
as well as paying them to idle more than 40 million acres of land
previously used for other crops. This decrease in wheat production
may have done more than anything else to stifle U.S. exports — and
to indirectly subsidize the European Community’s harebrained farm
programs. Thanks largely to such policies, the U.S. share of the
world wheat market has nosedived since 1981.
Mr. Bush declared in his speech: “The fact is that the prices
farmers are receiving are too low today. And to get the prices up we
must expand demand, and that means an aggressive export policy.” It
is peculiar that Mr. Bush would declare that food prices are too low
— especially since the Organization for Economic Cooperation and
Development estimates that federal farm policies cost American
consumers almost $20 billion in higher food prices last year.
EEP inflates domestic prices by artificially increasing the
demand for U.S. wheat — and decreases foreign prices by offering a
subsidy to foreign buyers. EEP uses tax dollars to drive down the
price for foreign buyers — and to drive up the price that American
consumers are forced to pay. A Congressional Research Service report
estimated that EEP wheat subsidies alone will cost consumers more
than $200 million this year.
Wheat prices jumped by almost nine cents a bushel the day of Mr.
Bush’s announcement. But the more export subsidies drive up the U.S.
price, the less competitive U.S. wheat is on world markets. The
export subsidies widen the gap between U.S. and world grain prices,
thereby producing a vicious circle of decreasing competitiveness and
spiraling federal outlays.
A White House statement indicated that the U.S. will begin
targeting new markets for EEP subsidies — including Pakistan and
South Africa. Australia’s New South Wales Farmers’ Association
estimates that Mr. Bush’s initiative will cost Australian farmers
more than $300 million, and urged its government to sharply increase
the rent it charges the U.S. for military bases in Australia.
Canadian Grains Minister Charlie Mayer declared that Mr. Bush’s
announcement is “tantamount to a declaration of war on Canadian
farmers” because the U.S. is taking aim at such traditional Canadian
grain customers as India, Kenya, Lebanon, Poland and Romania.
Argentine farmers could be hurt because the U.S. is targeting Brazil
— and Brazil has traditionally bought unsubsidized Argentine wheat.
We are more likely to achieve trade liberalization not by
browbeating the Europeans but by deregulating and liberating U.S.
agriculture. A study by Andrew Feltenstein of Kansas State
University estimated that the elimination of agricultural subsidies
in 1986 would have reduced America’s trade deficit by $42 billion,
and a Purdue University study found that eliminating farm subsidies
would boost U.S. exports by $10 billion.
Getting into an export subsidy war is like trying to punish a
foreign government by financially massacring our own citizens.
Rather than caterwauling for higher food prices, Mr. Bush should
abolish farm programs that cripple American competitiveness.
The Wall Street Journal
Tuesday, November 10, 1992
Free Trade, 1990s-Style, Is Anything But
By James Bovard
In the current U.S.-EC farm trade dispute, the European Community
is blatantly in the wrong. It has breached its 1962 commitment, and
has negotiated in bad faith for five years to try to weasel out of
its earlier pledges. The EC is taking its cue from French farmers, a
group that pioneered the art of social protest by setting sheep on
fire. But the only thing worse than the U.S. “losing” this trade
conflict may be winning it.
The issue in the dispute is not whether the EC will cease
distorting international agricultural markets. Rather, it is whether
the EC will sufficiently decrease its trade-distorting subsidies for
one type of farm product — oilseeds — to mollify the U.S.,
Argentina and Brazil. If the EC decides to trim its massive
subsidies for oilseed production, it will be hailed as a victory for
free trade. In reality, it is largely a question of marginally more
managed trade vs. marginally less managed trade: Will the EC agree
to U.S. demands to cut back its subsidized production of soybeans,
sunflowers and rapeseed to nine million tons a year — or just to
9.5 million tons?
So much for free trade in the ’90s.
President Reagan launched the current Uruguay round of the
General Agreement on Tariffs and Trade with a commendable goal back
in 1986 — an international agreement to abolish all
trade-distorting farm subsidies within 10 years. Since Mr. Reagan
announced his goal, American taxpayers and consumers have been
forced to provide more than $150 billion in handouts to American
farmers. As the negotiations have dragged on, the potential benefits
of a multilateral agreement have withered. The last formal proposal
for a GATT agreement in January would have required the U.S. to
reduce its farm subsidies only slightly.
Unfortunately, the current oilseeds dispute could further
politically legitimate American farm subsidies. Congressmen will
almost certainly manipulate the controversy to claim, because
soybean farmers are being victimized, that the U.S. must continue
carpet-bombing rice, cotton, wheat and dairy farmers with more
subsidies. (While soybean production receives minimal subsidies in
the U.S., most soybean farmers receive government handouts for
growing corn or other subsidized crops.) The big issue will not be
why the federal government is harming 250 million consumers and
paying hundreds of thousands of farmers not to work, but why soybean
exports to Europe are lower than they previously were.
American soybean farmers are protected by high U.S. tariffs on
soy oil imports; the U.S. heavily subsidizes most of its soy oil
exports, thereby disrupting world markets. On the flip side, federal
farm policies have done more to hurt some American soybean farmers
than has the EC. Lavish subsidies for sugar beet farmers have
doubled the cost of renting farmland in parts of Minnesota —
thereby driving some soybean farmers off the land.
In the current conflict, U.S. Trade Representative Carla Hills
and chief agricultural negotiator Julius Katz have commendably bent
over backward to follow international rules strictly and to propose
punitive tariffs on a very narrow, targeted list of European
products. Yet, if the EC does accede to the U.S.’s rightful demands,
many congressmen will almost certainly draw the wrong lessons.
American politicians rarely limit their demands for “retaliation”
against foreign countries to cases where the U.S. has actually been
While the U.S. is on the moral high ground on the oilseeds issue,
the U.S. is taking the low road on several other trade issues. Last
month, the U.S. imposed import quotas on uranium imports from Russia
and other former Soviet nations. Kazakhstan, Kyrgzstan and
Uzbekistan have been banned from exporting uranium to the U.S. until
the world uranium price rises at least 20%. The U.S. recently
imposed import quotas for the first time on textiles from Lebanon,
Lesotho and Laos — one of the world’s poorest nations.
The U.S. just initiated an unfair trade practice investigation
against Indonesia because Indonesia imposes high tariffs on its log
exports — even though the U.S. also restricts log exports from
parts of Oregon and Washington state. And a recent dumping duty
imposed on computer memory chips from South Korea is devastating
smaller American computer makers, causing chip shortages and much
higher chip prices.
While many American politicians are demanding new U.S. trade
barriers, foreign politicians are increasingly dismantling their
own. Mexico since 1985 has cut the maximum tariff from 100% to 20%,
and the average tariff from 23% to 10%. In 1986, Kenya reduced many
of its tariffs to zero. New Zealand recently announced a plan to
slash its tariffs, almost all of which will be down to a maximum of
10% by 1996. In late 1990, Hungary proposed reducing duties on 90%
of the country’s imports.
Unfortunately, some American politicians continue to view the
U.S.’s 8,000-plus tariffs and 3,000-plus import quotas as valuable
national assets — bargaining chips to be hoarded and given up only
via negotiations with foreign governments. But the benefits of the
U.S. unilaterally adopting free trade now are greater than the
benefits of the multilateral adoption of free trade 15 or 30 years
Negotiating with the EC to achieve free trade is like negotiating with prostitutes to achieve chastity. The U.S. should
continue vigorously trying to reach a GATT agreement and to settle
the oilseeds dispute. But we should cease allowing our national
self-interest to be held hostage by the most violent group in
Western Europe — French farmers. If the EC continues to refuse to
liberate European consumers, that is no excuse for Washington to
continue shackling American consumers.
The Wall Street Journal
Friday, December 18, 1992
The Great Federal Panty Raid
By James Bovard
Last Friday, Bill Clinton nominated Laura Tyson — one of the
nation’s premier advocates of managed trade and industrial policy —
to be chief of his Council of Economic Advisers. Coincidentally, the
U.S. International Trade Commission on Monday will drop on President
Bush’s desk a textbook case of protectionist industrial policy. The
government is on the verge of devastating dozens of manufacturers in
a vain attempt to compensate two small companies for the fact that
rubber trees do not grow in America.
Rubber thread is a key component of the waistbands of panties and
other underwear, sock tops and bungee cords. The ITC’s three
Democrats — David Rohr, Don Newquist and Janet Nuzum — recently
voted for an added tariff of as much as 25% on rubber thread
imports. Imports from Malaysia, the main supplier, are already hit
by various tariffs totaling 29%; the new levy will raise the tariff
to 54%. The ITC’s three Republicans — Anne Brunsdale (the
Reagan-Bush administrations’ unsung hero of free trade), Carol
Crawford and Peter Watson — voted against providing added
After the two ITC factions forward recommendations to the White
House, the president will have 60 days to decide whether to impose
new barriers. If Mr. Bush passes the buck, Mr. Clinton will have to
decide the case early on.
Rubber thread is composed primarily of latex, and Malaysia
produces most of the world’s latex from its rubber trees. Latex,
which accounts for more than half the cost of producing rubber
thread, is extremely expensive to transport, and Malaysian producers
have many advantages from being next to the rubber plantations. The
ITC concluded that, for 1990, the average cost of producing rubber
thread was $1.79 a pound for U.S. companies but only 77 cents a
pound for Malaysian companies. But, American trade policy makers
refuse to be intimidated by mere facts of geography.
Though rubber thread imports are already heavily taxed, two Falls
River, Mass., companies — Globe Manufacturing Co. and North
American Rubber Thread Co. — want more. Globe and NART petitioned
the ITC to impose more tariffs on Malaysian rubber thread imports to
give themselves a chance to charge higher prices and modernize their
The two petitioners have fewer than 150 workers employed making
rubber thread, while total employment in U.S. companies using rubber
thread is more than 3,000. Thus, additional protection could destroy
20 times as many jobs as it saves.
Globe and NART have been loudly damned by their American
customers. Thomas Butler, president of Norbut Manufacturing Co. of
Falls River, complained to the ITC that his company experienced
“three weeks of constant rubber breaks in our rubber covering
machines” after buying thread from NART. Michael Asheghian of
Elastic West Industries of Los Angeles declared, “Because of late
deliveries and sticky rubbers, the U.S. producers cannot meet
customers’ needs.” Dave Casty, president of Elastic Corp. of
America, the largest purchaser of rubber thread in the U.S.,
denounced the petition at an ITC hearing: The rubber thread industry
“abdicated that whole marketplace years ago.” (Even with high levels
of protection, NART and Globe could not possibly supply American
The 29% tariff on Malaysian rubber thread imports is already
pummeling rubber thread users. John Elliott, president of Rhode
Island Textiles, which produces elastic, complained that his firm
recently lost “a very large customer” in Los Angeles to a Hong Kong
firm that can buy rubber thread at world prices (roughly 30% to 40%
below current U.S. prices) — and must pay only an 8% U.S. tariff on
its elastic exports. The high tariffs are also undercutting U.S.
companies’ efforts to export American-made elastic.
The ITC’s Democrats even propose adding new tariffs on a specific
type of rubber thread not produced in the U.S. Food-grade rubber
thread is used for mesh wrapping for hams and other meats, and
strict production controls are necessary to avoid carcinogens.
Timothy Carroll of C&K Manufacturing of Westlake, Ohio, railed: “I
cannot fathom what the U.S. industry hopes to gain by requesting
additional duties and quotas on this product when they don’t produce
them. . . .” Mr. Carroll also worried about the danger to U.S.
companies of using tainted Americanmade thread: “All we have to do
is have one product not meet the statute, and . . . we are sued and
we are out of business.”
Trade barriers divert capital from more productive to less
productive uses. Globe is reaping large profits from producing
Spandex — a frequent substitute for rubber thread. ITC Commissioner
Nuzum asked Globe’s Bob Bailey: “If you have essentially two
different opportunities and one gives you a better return on your
dollar, why isn’t it that you would continue to devote more
resources towards that more profitable line?” Mr. Bailey replied:
“Because we still want to be a full service manufacturer. We don’t
only want to make Spandex.” But corporate vanity should not drive
U.S. trade policy.
According to U.S. trade law, before the president can impose
these special higher duties, he must conclude that they would
“provide greater economic and social benefits than costs.” The U.S.
government, by trying to forcibly enrich two small companies, could
export a much larger industry. Several manufacturers warned the ITC
that they may move their operations overseas if the ITC imposes new
restrictions on rubber thread imports.
The rubber thread case vivifies the essence of protectionism —
politicians intervening to allow floundering American companies to
take successful American companies hostage. As Mr. Casty of Elastic
Corp. warned, “If we lose that competitive entrepreneuring edge by
actions like this, we just put America 50 leagues behind the rest of