 This is Think Tech Hawaii. Community matters here. Aloha, and good morning. My name is Larry Foster, and I'm today's guest host for the show Law Across the Sea. Today we're going to—the topic we're going to discuss is navigating the alphabet soup of international trade agreements, GATT, WTO, NAFTA, TPP, TPP-11, and CORIS, and do they matter for Hawaii? Cross-border trade agreements have been around for a very long time. They generally help facilitate cross-border trade by reducing trade barriers such as tariffs. Many also include trade dispute resolution provisions. Three such trade agreements have been in the news recently, NAFTA, TPP, and CORIS. Our guest today, Steve Craven, has worked on international trade and trade agreements on behalf of the United States government since the 1970s, and was one of our senior negotiators in the Tokyo around—for the general agreement on tariffs and trade. His postings have included Asia, Europe, Honolulu, and Washington, D.C. He is a member and former chair of the Hawaii Pacific Export Council. Steve, welcome to the program. Great to be here, Larry. Thanks for having me. So this is a big topic. We could spend probably a couple hours on any one of these alphabet things—easily. So I think what we're going to try and do is sort of keep it at a higher plane, maybe 36,000 feet, not get into the depths of any one particular agreement. But maybe for the benefit of sort of laying some background for our audience. If you could tell me briefly, if at all possible, what do these alphabets stand for? Start maybe starting with GATT. Well, you're right. There are lots of weeds to get into, and I'll try to avoid those. GATT, the general agreement on tariffs and trade, was negotiated back in 1947, by the time I was born. So I don't have firsthand knowledge of the negotiations. So as a senior negotiator, you did not participate in that? No, no. No, no. I was a little early. But after World War II, the general idea of the victorious allies was that the war was in large part caused by economic issues. And they came up with three plans to try to minimize that in the future, the objective being to prevent further world wars. And one of those turned into the International Monetary Fund. Another one was the World Bank. And there was supposed to be an international trade organization. Well, for various reasons, including concerns about American sovereignty, the U.S. Senate turned down the ITO proposal. So much had been negotiated on trade, however, that a document came out called the General Agreement on Tariffs and Trade, the GATT. And the general agreement essentially was a handbook on how to conduct your trade relations in a mutually beneficial, non-discriminatory way. And it worked wonderfully for many years. Is it still in existence today? Yes, it is. And it forms the basis for what the World Trade Organization does today. It's essentially the original law that is the German term Grunzgesst, which is the basic law, the ground law, on which the rest of the WTO was built. In the 1990s, we finally reached agreement on a WTO, you know, almost 50 years after we should have had an ITO. So the GATT continued and became the world's forum for trade negotiations. Now like most things, countries tackled the low-hanging fruit first, which was reducing tariffs. And for many years, we had tariff negotiations. Some of you may remember things like the Kennedy Round, the Dillon Round. We got tariffs down to a fairly low level, least among developed countries. And what's a tariff? A tariff is the same thing as a customs duty. And it generally takes the form that when a product comes across a border, whether coming into the U.S., going into Japan, wherever, there's a book that the customs officials look at. First, they identify what the product is, and then they look up in the book and they see that, oh, we have a 5% tariff on that. What's your importer? Could you pay that to us right now, and if you do, we'll release the product to you. So it's fairly straightforward. If a country wanted to limit certain things coming into their country from other countries, such as to protect a local industry, they would maintain a high tariff on that product. That's correct. At this point, we've negotiated tariffs down so much, and there's zero or close to it among most developed countries. They can still be quite high, though, in certain areas. In the United States, for instance, our duties on agricultural products, food products can be high, leather products, apparel and textiles, but most other things, the duties are zero, say, on parts for civil aircraft. And again, they're high to sort of protect the local industry. Essentially, yes. Sometimes a country maintains them because tariffs are their easiest source for government revenue, but that's not so in the U.S. or the European Union or other countries on that level. Okay. So we had GATT, then we segwayed into WTO. WTO has been around for a while. Yeah, mid-90s. Mid-90s. After WTO, then we have a series of things. Sometimes they're called BITs. Sometimes they're called NITs. Sometimes they're regional trade agreements. Could you go into some of those? Well, let's work with NAFTA. How did NAFTA get started? Sure. NAFTA falls under the rubric of free trade agreements. And essentially the thinking on NAFTA arose from the competition we saw and anticipated from the European Union. They gave us the example, and we, although we knew we couldn't go all the way to an economic union between the United States, Canada, and Mexico, the three countries started mutually looking for ways in which trade between the three could be facilitated. And they did for the time a magnificent job. It's sort of a mutually beneficial treaty for all the parties. That's correct. And I've seen just recently an estimate that due to NAFTA that the United States has created or preserved at least five million jobs. So that's not bad for a fairly controversial free trade agreement. Very good. Very good. So more recently there's an organization getting off the ground called TPP. Could you talk a little bit about TPP? Sure. That's the Trans-Pacific Partnership. And the common perception, well, first let me back up here. When we're talking about a trade agreement like TPP, NAFTA, any of the others, we're essentially talking about what we call trade facilitation. The primary purpose of a trade agreement is generally to make trade easier or less expensive, which benefits Hawaii considerably. So part of that involves tariffs? Part of it involves tariffs, but these days with modern trade agreements, most of it involves non-tariff measures like quotas or how do you define the products before you can apply tariffs? Does it include dispute resolution mechanisms as well? Yes, it does. Yes, it does. And sometimes the modern trade agreements also include some investment rules. They have environmental chapters. They get into labor relations. I seem to recall that when NAFTA was being discussed, there was some opposition from environmentalists in labor unions 25 years ago. Yep. And that continued up through the Trans-Pacific Partnership, which the Trump administration, of course, has withdrawn us from. There was a huge misunderstanding on the part of the environmental community and I think probably the labor community. This is for TPP? For TPP as well as NAFTA, as well as chorus and free trade agreements with say Panama or Peru, Columbia. They mentioned chorus. What is chorus? Chorus is a free trade agreement between the United States and South Korea. Has that been around for a while, this trade agreement? No, only about five years. It's one of the newer ones. Okay. What the misunderstanding was in the environmental community was there were many who were expecting and were hopeful that both NAFTA and TPP would be addressing new restrictions to preserve the environment. Well, when you put it into a trade agreement, essentially you're taking environmental issues out of the context of something like the Paris Accord on the environment, which does affect your environmental measures, because a trade negotiator looks at an issue from the viewpoint of what makes trade more difficult? How can we prevent it from making things more difficult? How can we guarantee that environmental restrictions are not simply disguised discrimination among countries or discrimination against all foreign products in the environmental area? So it's very much trade-oriented, which surprised the environmental community. So some of these environmental and labor issues, do they impinge upon sort of U.S. sovereignty that we're allowing other countries to dictate our environmental policies or labor policies? Actually, no. In most of these areas, U.S. policy and a good example is some of the chapters in TPP as well as NAFTA on investment. Most U.S. policies are the gold standard. When there have been disputes about those policies, the United States generally wins the dispute. We have a very, very strong track record in dispute settlement, particularly the ones that go to arbitration. So I'm a little bemused by some of the current opposition in the Trump administration to dispute settlement procedures. We really have not seen infringement of U.S. sovereignty in most cases. So I guess the U.S. played a major role in GATT, WTO formation, as well as NAFTA. And that seemed to sort of provide us the opportunity to promote what you call sort of the gold standard in a number of these areas. That was the same with TPP? Yes, it was. TPP is very strongly shaped by the United States. And I'm a bit amused, well, just returning for a second to say the environment chapter of TPP. Here in Hawaii, the head of the Hawaii chapter of a noted national environmental organization came out last summer condemning the environment chapter when he hadn't seen it. We're going to have to pause for a minute for a brief commercial. Very good. And we'll be back to talk about this and more in just a few seconds. Let's do that. This is Think Tech Hawaii, raising public awareness. Weep for the day of the big game. Watching at home just doesn't feel the same. What on the list is who's going to drive? It's nice to know you're going to get home alive. Plan for fun and responsibility. Choose a DG. Captain of our team is the DG. For every game day, a sign a designated driver. Don't forget to check me out right here at the Prince of Investing. I'm your host, Prince Dykes. Each and every Tuesdays at 11 a.m. Hawaii time, I'm going to be right here. Stop by here from some of the best investment minds across the globe. And real estate, finances, stocks, hedge funds, managers, all that great stuff. Thank you. Hello. We're back again. Our guest is Steve Craven. We're talking about international trade agreements. And before we had the pause, we were talking about environmental issues with, was it TPP or NAFTA? TPP is? Yes. Yeah. Yes. And I was saying that, and this addresses not only the environment topic, but secrecy in general in negotiating trade agreements. When the TPP was being negotiated over the last few years, there was so much opposition to it because people didn't know what was in the agreement and tended to assume the worst. Most of us knew that. So why can't you have open public negotiations on these kinds of trade agreements? What's the matter with that? Well, what's the matter with that is that gives the advantage to single issue opposition groups to use the one chapter out of 20 or 30 chapters to oppose the entire agreement. And there's a balancing act that goes on in the negotiations whereby, with a negotiation, you're not going to get everything you want. And you might like something in the environmental chapter, but hate something in a chapter on customs valuation, you've got to make trade-offs. What's trade-offs? Would you describe it as winners and losers or just trade-offs or compromises? How would you describe this? Well, what you're looking for is an agreement that is going to be of net benefit to the United States or to your country if you're not from the United States. The assumption is that if some of the participants don't get a net benefit, they're not going to sign on to the agreement at the end of the day. And it's interesting to see that in the current renegotiation of NAFTA, all three countries agreed in advance to keep all the negotiating documents secret. Now, there's another more practical reason to keep those documents off the public table. And that's that they're almost impossible to read. I mean, I spent much of my career drafting, negotiating documents and negotiating the language. And you see segments put into brackets because somebody doesn't agree with it. They don't find brackets within brackets within brackets. Some of them color-coded with asterisks. And at the end of the day, they're almost impossible to understand until you see the final cleaned-up version. Sounds like a lawyer's dream. It is. It is in many respects. Although I was in the game so early that we didn't have many international trade lawyers yet. And they hired economists like me to learn the law because they found it not disparaging lawyers, but they found that easier than hiring lawyers and teaching them the business aspects. That makes great sense. So that led to things like I mentioned the local chapter of an environmental organization condemning the TPP because they hadn't seen the environmental chapter. The following day, the head of the national organization of which they were a part did see a leaked version of the environmental chapter and came out saying, you know, this isn't half bad. So, you know, wait till the end of the negotiations before making a judgment. So NAFTA's been around for what, 25 years? They're abouts. Is there currently some sort of a sunset provision or a provision that just on a regular basis you go back and revisit NAFTA? Or maybe phrase it this way. Did you see a need to go back and revisit NAFTA? Were there problems that could be addressed and they could have to better? First, there currently is no sunset provision. There's no requirement for renegotiations by a certain date. Secondly, though, yeah, it is time to go back and renegotiate part of NAFTA. The world was changed in a quarter of a century. NAFTA really didn't address, for instance, things like electronic commerce. And there are all sorts of follow-ons from that and similar issues. So, yeah, it probably is time to renegotiate part of NAFTA. Now, the Trump administration has proposed a permanent sunset provision that would sunset NAFTA every five years unless the three countries agree to sign up to it again. And that, in my view, is highly problematic. One of the things you want coming out of a trade agreement is some sort of predictability. You want to know that that agreement is going to be around so that our companies, large and small, this affects small business as well, and so our companies can more easily predict what kind of trade restrictions or other business-related restrictions they're going to face in a given market. And not knowing that, having the uncertainty can greatly impact whether or not you established, say, a U.S. firm establishes a large presence in Mexico to take advantage of the zero tariffs under NAFTA, whether a Canadian or a Mexican firm does the same in the United States. So it can potentially have a very large impact on not only trade flows, but jobs, investment flows, entire economies. So the renegotiation of NAFTA is taking place right now. Do you see these discussions concluding by the end of this calendar year, or do you think they'll map over into 2018? Well, I'm already seeing predictions from those in the trade policy community, which is quite small around the world, you might imagine. I'm already seeing predictions that it'll go at least until March 2018. Frankly, an awful lot depends on how hard the U.S. delegation pushes some of the Trump administration proposals that, frankly, would be deal killers for Canada or Mexico. Have any, I'll call them special interest groups, come out to talk about NAFTA, for example, agribusiness or the car manufacturers? What's their stand on NAFTA? They are strongly supportive of NAFTA. Agribusiness is quite possibly the leading supporter of NAFTA. U.S., let's see, I just read something recently, an interview with some almond farmers in California saying that due to NAFTA, their exports of almonds have gone from close to zero to 15% of their production. So that's, you know, NAFTA's been quite lucrative for them. So the net benefit for agribusiness has been a great increase in their ability to export their food products to Canada and Mexico. And the benefits have been even bigger than in other agricultural products like corn and derivatives from corn. It's been quite positive for beef and cork. And the current Secretary of Agriculture has been one of those in the administration that is trying to convince the Trump administration to keep NAFTA. He thinks it would be a disaster for the agricultural community if we withdrew from NAFTA. The same thing is going on in the automotive industry that you mentioned. One of the Trump proposals specifically addresses an arcane area we call rules of origin. And currently under NAFTA, I think I've got the percentage just correct, but to qualify as a NAFTA automotive product, you've got to have, a company has to have at least 60% North American content. That means that, you know, if you put together a car somewhere in North America, if it has 60% U.S., Mexican or Canadian content, or all three of those combined, then it qualifies for duty-free treatment. But isn't one of the motivations of the Trump administration is to, how would I put this, sort of stop the outsourcing of American jobs, high-paying jobs, and bring them back to the United States so that the automotive companies have outsourced to Mexico the production of cars and car parts and bring the parts and cars back in the United States and sell them? Are we better off having the jobs here rather than outside the United States? Well, in saying that Trump is assuming that trade is a zero-sum game, and it isn't. We're building the pie continuously with trade agreements like NAFTA. And yes, you've got a lot more happening in the automotive industry in Canada and Mexico than you would have before. You've got, you know, the creation of this huge North American market is a large part of what has encouraged, say, the Japanese and Korean automobile makers to set up plants in the United States. True, they may also have plants in Canada and Mexico, but if you're looking at North America overall, that's a plus. It's also encouraged companies, you know, from Europe. For instance, the Mercedes, Big Mercedes investment, I think it was in Alabama, and the huge BMW investment in South Carolina. So, yeah, it's sure. There's been benefit from Mexico and Canada. There's been benefit for us. And the U.S. automotive producers, as well as the foreign automotive producers who have invested in the U.S., are unanimous in saying, we've got to have NAFTA. So we're starting to run out of time. In fact, we are running out of time. Uh-oh. We sort of warned ourselves at the beginning that we could talk for hours on any one of these topics. We really haven't gone into much detail on TPP and TPP-11. So maybe we should talk to ThinkTech and allow you to come back and continue to talk about these issues. Let's do it. I love it. They're important to Hawaii. We didn't get a chance to go into that, but Hawaii has a big export market. Our local Hawaii Pacific Export Council that you went to, was recently named the Export Council of the United States, the number one export council. We're very proud of that. Very, very proud of that. So exports are important to Hawaii. So we'll continue the conversation and go forward. Thank you very much for your time. Terrific. Thank you.