Sanders elaborates on trade

Bernie Sanders has given at least three indications in the last week of how he would manage the U.S. role in the global economy.

First, in last week’s interview with the Daily News, Sanders said that:

yes, I do understand you can make more profits by paying people in Mexico, or China, or Vietnam pennies an hour, I do understand that. But I believe that people have…and, by the way, I’m not anti-trade. We live in a global economy, we need trade. But the trade policies that we have allowed to occur, that were written by corporate America have been disastrous for American workers.

So I think we need trade. But I think it should be based on fair trade policies. No, I don’t think it is appropriate for trade policies to say that you can move to a country where wages are abysmal, where there are no environmental regulations, where workers can’t form unions. That’s not the kind of trade agreement that I will support…

we have some specificity and it isn’t just us going around denouncing bad trade. In other words, I do believe in trade. But it has to be based on principles that are fair. So if you are in Vietnam, where the minimum wage is 65¢ an hour, or you’re in Malaysia, where many of the workers are indentured servants because their passports are taken away when they come into this country and are working in slave-like conditions, no, I’m not going to have American workers “competing” against you under those conditions. So you have to have standards. And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States.

Mike Konzcal makes a convincing argument that Sanders’ answers on finance are smarter than some have given him credit for. In contrast, the statement on trade is not as sharp as I would expect from someone who has spent his entire career emphasizing his opposition to trade deals. It wasn’t a trick question or an out of the blue inquiry on the part of the newspaper editors. At face value, it would mean no trade deals with countries at lower levels of development and only deals with countries at the same level of development – essentially the opposite of what we’ve done up until now. But then, Sanders also opposed the U.S.-Australia trade deal. Seems like an undercooked answer, but Paul Adler has taken a deeper dive on Sanders’ record and argues that there’s more than meets the eye.

Second, earlier this week, we got another Sanders intervention on trade, this time about Panama:

As president, I will use my authority to terminate the Panama Free Trade Agreement within six months. My administration will conduct an immediate investigation into U.S. banks, corporations and wealthy individuals who have been stashing their cash in Panama to avoid taxes. If any of them have violated U.S. law, my administration will prosecute them to the fullest extent of the law.

This is clear and totally doable. Under Article 22.5.2 of the FTA, “Either Party may terminate this Agreement by written notification to the other Party. This Agreement shall terminate 180 days after the date of such notification.” And unlike some of Sanders’ broader promises to terminate old treaties, this would require no real bargaining or trade offs. There’s not much Panama can demand of the U.S., and the U.S. economy would not feel much adverse impact. It also wouldn’t send much of a signal one way or another to other countries: Canada is not going to worry about how the U.S. treats Panama.

While he’s at it, he could consider terminating the U.S.-Panama bilateral investment treaty, signed by Reagan and updated by the Clinton administration. That’s a little trickier, because of this provision: “If the 1982 Treaty is terminated, the Protocol will continue to be effective (as will the other Articles of the 1982 Treaty) for an additional 10 years as provided in Article XIII(4) of the 1982 Treaty.”

He also returned to the issue of Panama, saying that the Panama FTA “has given corporations and very wealthy people the opportunity to dodge taxes throughout the world.”

This isn’t quite the issue. The opportunity existed before. And I’m not quite sure what he means by “throughout the world.” Panamanian law firms do help rich people throughout the world dodge taxes both in Panama and other countries. So maybe that’s what Sanders is getting at.

The issue, as I explain here, is whether the U.S. used its political capital effectively enough to get Panama to change its practices in the lead-up to the FTA. The answer is probably “no,” or that the U.S. had no credibility on the issue since we’re a banking secrecy jurisdiction too. This was a failure to link the issues in an effective manner..As Emilie Hafner-Burton, David Victor, and Yonatan Lupu write, linkage is  a tried and true strategy in many international negotiations:

the boundaries around a problem  are often malleable, allowing  entrepreneurial countries and other actors to link issues in ways that alter the strategic  context of a negotiation by changing the scope of bargaining…  For example, the boundaries around the topic of “international trade” have  greatly expanded over time… studies note that powerful states have put on  the international trade agenda topics of great interest to some of their well – organized  interest groups — such as rules on intellectual property (of value to western pharmaceutical  and entertainment companies) or limits on the ability to use trade rules to undercut  environmental standards (of keen interest to environmental groups)… international legal institutions on the protection of biological  diversity were expanded to include complicated schemes to protect developing countries  against “biopiracy” of their natural assets. The role of issue – linkage as a way to set the  agenda and alter the prospects for successful bargaining is long familiar in the formal study  of  negotiations, and some scholars with that background have looked in depth at the  negotiations leading to major international legal agreements.

Then there’s a related matter, which is quite frankly so complicated that I would advise any candidate against trying to explain it. This is whether U.S. anti-tax haven initiatives could be challenged under the FTA’s dispute settlement provisions. The answer there is “yes, but it hasn’t happened yet.”

Here’s my take at a better one-liner: “The U.S. should eliminate its tax haven, use all tools at its disposal to pressure for the elimination of those in Panama and elsewhere, and make sure that trade deals don’t make any of these efforts any harder than they already are.”