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Measures to ensure national security and consumer safety by regulating imports often come at the cost of reduced trade. Security benefits—for example, reducing drug smuggling and preventing import of contaminated food products—are desirable, but do they impose a high cost for trade and provide an excuse for "backdoor" protectionism? Given
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the economic trade-off, are tighter import quality control regulations worth subscribing to? What are the implications of a new approach to cargo inspection?
Leading economic and security experts will discuss the trade-offs between trade and security. The lineup features David Hummels, an authority on trade costs, from Purdue University; Stewart Baker, former assistant secretary for policy for the U.S. Department of Homeland Security; Christine A. McDaniel of the U.S. International Trade Commission and recently deputy assistant secretary of the treasury for economic policy; and Frank Vargo, who is responsible for trade policy at the National Association of Manufacturers. AEI's Philip I. Levy will moderate.
| Col 01 | Col 11 | Col 21 |
|---|---|---|
| 9:15 a.m. | Registration | |
| 9:30 | Panelists: | David Hummels, Purdue University |
| Stewart Baker, Center for Strategic and International Studies | ||
| Christine A. McDaniel, U.S. International Trade Commission Frank Vargo, National Association of Manufacturers |
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| Moderator: | Philip I. Levy, AEI | |
| 11:00 | Adjournment |
American Enterprise Institute
WASHINGTON, APRIL 3, 2009--In the face of very real security threats, the costs imposed by border inspection measures may rival tariffs as an obstacle to trade. Security and trade experts speaking at AEI on March 24 grappled with the tradeoffs between more comprehensive container tracking and the demands of modern globalized production for timely shipping.
David Hummels of Purdue University said that consumer safety and national security are top priorities but that the speed with which security measures can "get extended to a sweeping set of protectionist measures is a ball we need to keep our eyes on." He noted that recent developments--such as calls for stricter regulation to keep out contaminated imports and the "10+2" cargo screening rule, which requires importers to submit "import security filings" with 10+2 data elements--are accompanied by considerable economic costs.
Taking the 10+2 case as an example, Hummels said that the security procedures impose indirect delay costs on firms, amounting to a significant fraction of the value of the good. For each day added in transit, he said, firms pay around 2 percent of the value of the good for time-sensitive products like papayas and melons and around 0.8 percent for less time-sensitive goods. When translated to dollar terms, the delay cost estimates range widely, from $2.8 billion to $17 billion per year. Despite the wide variance, Hummels said, the important thing to note is that these type of nontariff barriers are imposing costs even greater than their tariff equivalents and are playing an increasingly important role in impeding trade.
Former assistant secretary for policy at the Department of Homeland Security (DHS) Stewart Baker said that inspection measures "serve an important function and cannot simply be looked at as tariffs." He questioned the notion that delay is the most likely consequence of the 10+2 rule and said that the estimation approach Hummels used may not be addressing the problem at hand. However, Christine A. McDaniel of the International Trade Commission responded that the tariff-equivalent cost is helpful in giving a reliable estimate, since it is the best available tool.
Baker also said that the ad valorem costs associated with delay due to the 10+2 rule are not as high as other costs associated with bureaucratic delays in the originating countries. He said that the 10+2 rule is designed to reduce the ad valorem cost associated with cargo screening through better data collection. Collection of targeted data, if implemented, would make 100 percent screening unnecessary.
National Association of Manufacturers vice president Frank Vargo said that the money spent on security is justified, but the same amount of security can be achieved at lower cost and with less disruption. Resources could be better used if DHS employed an account-based system for screening cargo, instead of treating all containers crossing into U.S. borders as being equally risky. For goods moving within a particular company, it isn't practical for DHS to demand the same information on all containers--let alone subject them to 100 percent screening. Baker disagreed with Vargo about the efficacy of the account-based system, noting it would give potential adversaries a "carte blanche" to take advantage of intracompany loopholes.
Agreeing with moderator Philip I. Levy's concern that focusing exclusively on tariffs might make countries think that it's not protectionism "as long as they come up with something noneconomic," Hummels added that this could also nudge countries towards retaliatory protectionism. He stressed the need for empirical evidence to identify how countries can modify their nontariff barriers to trade. He said that these estimates can then be used to compare other alternatives, such as military expenditures, so that the tradeoff between economic efficiency and national security may be efficiently resolved.
--DHARANA RIJAL
Stewart Baker is a distinguished visiting fellow at the Center for Strategic and International Studies. He will shortly return to the practice of law at Steptoe & Johnson in Washington, D.C. From 2005 to 2009, he was the first assistant secretary for policy at the U.S. Department of Homeland Security. As assistant secretary, Mr. Baker oversaw offices responsible for department-wide policy analysis; international affairs; strategic planning; and relationships with the private sector, advisory committees, and law enforcement. While in that position, Mr. Baker led successful negotiations with European and Middle Eastern governments over travel data, privacy, visa waiver, and related issues; devised a new approach to visa-free travel and shepherded it through interagency and congressional processes and then negotiations with multiple countries; and successfully managed the passage and implementation of the SAFE Port Act. Mr. Baker’s law practice has covered matters such as homeland security, international trade, cyber security, data protection, travel industry regulation, and foreign investment regulation. Mr. Baker has served on numerous boards and commissions. He testified before the 9/11 Commission on intelligence and law enforcement issues and has been a member of the President’s Export Council Subcommittee on Export Administration, the Industry Trade Advisory Committee on telecommunications and electronic commerce, two Defense Science Board panels on information warfare defense, and the Markle Task Force on Technology and Terrorism. He has also been an adviser to international organizations such as the International Telecommunications Union and the Organisation for Economic Co-operation and Development.
David Hummels is a professor of economics at the Purdue University Krannert School of Management and a research associate at the National Bureau of Economic Research. He teaches international economics to undergraduate, Ph.D., and executive MBA students in the United States and Europe. His research, which has appeared in thirty journal articles and two books, emphasizes empirical analysis of product differentiation, trade facilitation, barriers to trade, and the effects of transportation and infrastructure on trade and economic development. Mr. Hummels has worked as a consultant to a number of international development and policy institutions, including the International Monetary Fund (IMF), the World Bank, the Inter-American Development Bank, the Asia Development Bank, the Organisation for Economic Co-operation and Development, the U.S. Agency for International Development, and the Public Policy Institute of California. He was previously on the faculty of the University of Chicago and has been a visiting scholar at Stanford University, the IMF, the Federal Reserve Bank of Minneapolis, and the Board of Governors of the Federal Reserve System.
Philip I. Levy studies international trade and development at AEI. Before joining AEI, he handled international economic issues as a member of the secretary of state’s policy planning staff (2005–2006), was senior economist for trade on the President’s Council of Economic Advisers (2003–2005), and was a faculty member in Yale University's department of economics (1994–2003). An economist by training, he has experience in many international trade and development policy issues, including free trade agreements, trade with China, antidumping policy, welfare effects of globalization, U.S. foreign assistance policy, and economic development policy.
Christine A. McDaniel is the chief economist to Chairman Shara Aranoff at the U.S. International Trade Commission. She is responsible for providing the chairman with economic expertise and advice on economic and industry issues and import injury cases. She served as deputy assistant secretary for economic policy at the U.S. Department of the Treasury from March 2007 to January 2009, where she was responsible for policy coordination on a range of issues, including international trade and investment, labor market adjustment assistance, and economic growth. Prior to joining Treasury, Ms. McDaniel was the senior economist for international trade at the White House Council of Economic Advisers from July 2005 to March 2007 and provided advice on national and international economic policy, including international trade and investment, immigration, and development. She has also worked as an international economist for the U.S. International Trade Commission, the U.S. Department of Commerce, and the Office of the U.S. Trade Representative. She has taught a course on the economics of innovation at Georgetown University and has published articles in academic journals on topics including international trade, NAFTA, intellectual property rights, and economic modeling.
Frank Vargo is the vice president for international economic affairs at the National Association of Manufacturers (NAM), where he serves as the chief spokesman on trade issues. Mr. Vargo is responsible for working with the NAM's fourteen thousand member companies to obtain congressional and executive branch trade policies that benefit America's manufacturers, and he is a leading lobbyist for trade agreements, currency policies, and other actions to reduce foreign barriers to U.S. trade and investment. Mr. Vargo is a well-known trade expert, and he is widely quoted in the press and is a recurring witness at congressional hearings on trade. He frequently speaks at trade conferences and seminars around the country. Prior to joining the NAM, Mr. Vargo had a three-decade trade policy career at the U.S. Department of Commerce. His various positions included deputy assistant secretary for Europe, deputy assistant secretary for Asia, and deputy assistant secretary for World Trade Organization affairs and trade compliance. During his career at the Commerce Department, Mr. Vargo was awarded the Presidential Rank Award for Distinguished Senior Executives, the highest recognition a career government executive can receive.
