The Reciprocal Market Access Act and IP Protection -- Too Long Overdue!

"America's trade policies often force domestic industries to compete on an unfair playing field with foreign competitors, and it's costing us jobs. To help address this problem, we have introduced H.R. 1749, The Reciprocal Market Access Act."
Congresswoman Louise M. Slaughter (D-NY)
Congressman Walter B. Jones (R-NC)

Right now, three fundamental premises underpin America's overall global economic and trade policy. Each is deeply flawed, especially as it relates to our single most important trade relationship, which is that with China.

1) The first premise is that advancing the interests of America's multinational corporations always benefits American workers and in turn the American economy.

The reality, however, is that the disconnect between the interests of America's multinational corporations and the best interests of employees and the country has never been greater. Significant consequences have been the consequences-be-damned offshoring of millions of American manufacturing jobs and a failure to tie the fruits of domestic R&D and innovation into corresponding production in the U.S.

2) The second premise is that the rules-based, free trading system favored by U.S. multinationals, combined with the overall rule of "Country Comparative Advantage", will result in balanced globalization for all trading partners, to the advantage of American workers and the American economy.

This premise works well when all nations play by the same rules. However, we know that China especially continues to pursue mercantilist policies that are at best anti-competitive and often illegal.

Many of us have written often about how China has gained unfair trade advantages through its abysmally low direct labor costs, its lack of meaningful environmental and labor standards, and its currency manipulation. Less appreciated, however, are the other measures China uses to game the system, the two most extreme of which are China's "Indigenous Innovation Production Accreditation Program" and its related unceasing demands that U.S. companies seeking to do business in China make massive transfers to it of their intellectual property that took decades to develop with internal investment and often with support from U.S. government-funded research laboratories. Because of their perpetual ripple effects throughout our economy, these IP transfers will ultimately be an even bigger drain on our economy than the direct offshoring of millions of American jobs over the last 15 years.

3) The third premise is that the U.S. can make up for the millions of manufacturing jobs being lost overseas with exports of "software, movies, medicine, university degrees, management consulting and legal work" plus new employment by the high technology companies of Silicon Valley.

This first conclusion is simply absurd on its face. And as for the high-tech companies and their plans and capabilities, Silicon Valley is mostly a jobs-exporting juggernaut and not a jobs-creating one. Our own Bureau of Labor Statistics has concluded that U.S. employment in "information technology" will actually be lower in 2018 than it was as far back as 1998.

In the face of these three very flawed premises and actions by certain of our major trading partners which are particularly counterproductive to American interests, we can pursue one of two strategies:

I. We can continue to try to resolve our problems through lengthy bilateral and international discussions over the next several years, which our recent history in this arena ought to discourage; or

II. We can adopt a realistic, hard-headed approach to leveling the playing field, in order to straighten out our trade deficit and help U.S. companies be more competitive.

Both strategies, of course, would be intended to create American jobs, especially manufacturing jobs. The first strategy, however, smacks of timidity and belies the urgency of the problems and the lack of past success in patiently trying to resolve these problems through lengthy bilateral and international discussions. By contrast, the second strategy is all about quickly restoring U.S. self-determination and adopting a more urgent, hard-headed approach.

We need to do three things to successfully put into place the second strategy.

First, we need to enact the Reciprocal Market Access Act, the bipartisan legislation sponsored by Representatives Slaughter and Jones. This Act was first introduced in 2007, and reintroduced in this Congress. Its companion bill, S. 1766, has been introduced by Senators Sherrod Brown (D-OH) and Kay R. Hagan (D-NC). Here is why this legislation is critical.

Right now, U.S. industry faces significant non-tariff barriers ("NTBs") in key markets, preventing fair market access. These NTBs deny U.S. manufacturers current and future export opportunities. As the Members of Congress have noted, "eliminating the U.S. tariffs without securing elimination of NTBs is equivalent to unilateral disarmament - giving full advantage to our competitors, while allowing them to protect their home markets."

The Reciprocal Market Access Act would immediately break down the 'barrier' (i.e., the Chinese Wall) which, under the current Doha negotiation process, exists between tariff and non-tariff barriers. Currently, so-called "tradeoffs" are almost strictly tariff-for-tariff and non-tariff-for-non-tariff.

This Act, according to its legislative write-up, would, in addition:

• Tie the authority to reduce or eliminate tariffs in trade agreements to achieving meaningful market access for U.S. domestic producers that have identified and worked with the U.S. government to address those barriers.

• Require that the President provide a certification to the Congress, in advance of agreeing to a modification of any existing duty on any product, that sectoral reciprocal market access has been obtained. This will also greatly enhance the vital trade 'partnership' with Congress.

• Give our government - triggered by either a private sector or a Congressional request - the automatic negotiated right (or "snap back authority") to revoke concessions to cut tariffs if our trading partners don't implement the commitments they made in order to open up their markets.

Second, for economic, employment, competitiveness and national security reasons, the administration and Congress should continuously test their views of our international trading environment against the following realities:

1. The now-desperate need for a Manufacturing & Industrial Policy for the U.S. that balances the mercantilist policies of our major trading partners, especially China's, whose overall trade surplus in manufactured goods matches almost dollar for dollar America's trade deficit in such goods. Nineteen members of the G-20 have defined Manufacturing Policies. America alone does not, even though there is not a responsible economist who believes that an economy as large and complex as ours can prosper with less than 20-25% of its workers being in manufacturing and without the sector contributing a like percentage of GDP. As it is, however, only 8 to 9% of Americans now work in manufacturing, and as a percent of our GDP, the sector provides just 11.2% of the total.

2. The obvious challenge to America's interests from China's non-WTO-compliant "Indigenous Innovation Production Accreditation Program" and from China's illegal subsidies and currency manipulation. Many of China's practices provide its companies with a clear-cut "counter-available subsidy" and they need to be treated as such, including China's abysmal environmental practices.

3. The outright theft every day of America's hard-gained, valuable intellectual property, especially by China, which enervates our economy as much as any other trade tactic employed by China or any other country. The U.S. International Trade Commission estimated in May that "up to 2.1 million new direct private-sector jobs would be created in the U.S. in total if China [alone] raised its IP protection to U.S. levels."

Third, we need to stop international intellectual property theft.

When it comes to finding solutions to the daily theft of America's invaluable IP, a single anecdote brings this imperative home. Microsoft, one of the real gems of American ingenuity and also one of the most patriotic major companies headquartered in the U.S., recently sold to a large commercial customer in China one (1) unit of its advanced business software, for several hundred dollars. However, when it sent out an upgrade to the software, the upgrade was downloaded thirty million (30,000,000!!) times. This egregious theft of Microsoft's IP - and the millions of other thefts in China of the company's intellectual property - is why Microsoft's profits from sales in China, with its 1.3 billion population, are no greater than its profits from sales in The Netherlands, with its population of only 16.7 million.

The best immediate solution to the theft of American intellectual property would be to adopt former U.S. Senator Slade Gorton's (R-WA) recent recommendation to the U.S. China Economic and Security Review Commission that the U.S. impose tariffs which would generate revenues equivalent to 150% of the estimated annual IP losses suffered by American companies.

The best solution into the long-term would be for the administration and Congress to make IP theft a trade agreement priority, which is a priority sadly lacking today in an urgent, encompassing way.

Following the US-China Strategic and Economic Dialogue meetings held in mid-May 2011, Commerce Deputy Assistant Secretary Craig Allen declared: "In all of these cases - indigenous innovation, intellectual property enforcement, transparency - we would have preferred much more explicit detail in terms of timeline, in terms of coverage, and in terms of implementation. But we are pleased at the same time that the Chinese did commit those previously verbal assurances in writing. That is progress."

This may be deemed "progress" by some, but I, for one, am not satisfied that this is the kind of progress that we should ever accept. We need to take a much more pro-active stance in trade in order to better balance the nationalistic economic policies and mercantilist practices of our trading partners with our own trading rights as a nation.

Within the last week, the recently confirmed new Secretary of Commerce, John Bryson, declared in a speech that we must reshape our trade policies toward China. One important way to meaningfully do that would be for him to get the administration to support the important trade legislation being sponsored by Senators Brown and Hagan in the Senate and Representatives Slaughter and Jones in the House. As they have implored us: "We must ensure that our trade negotiators do not give away our domestic markets in future trade agreements without gaining meaningful market access for American manufacturers in exchange. Unless other governments play by the rules and remove barriers to our exports, the U.S. should not acquiesce to their demands by further opening our market - already the most open market in the global economy."

Leo Hindery Jr. is chair of the US Economy/Smart Globalization Initiative at the New America Foundation, co-chair (with USW President Leo Gerard) of The Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. and Liberty Media, and is currently an investor in media companies.