Measures to ensure national security and consumer safety by regulating imports often come at the cost of reduced trade. David Hummels of Purdue University said at the American Enterprise Institute (AEI) recently that “economists believe free trade is welfare maximizing and mutually beneficial for both sides.”
He also said that free trade could produce economic gains and national security losses. He then went on to describe food security and discussed problems with the supply chain within China.
China has had contaminated baby food, toys and pet food and Hummels believes the border screening is inadequate. He said “the solution is to increase point of production inspections inside foreign countries.”
As a solution to the problem, Hummels proposed the 10+2 rule for cargo screening. The 10+2 rule requires imports to submit security fillings with data elements.
There are 10 elements that are required twenty-four hours before sailing and in addition to the ten, two elements will be required within 48 hours of vessel departure from the last foreign port. Hummels said “this will reduce the risk of smuggling drugs and bombs.”
Hummels also discussed costs and how time delays affect trade. He said “the value of trade by ocean is cheap but slow.”
“The airplane is a faster transportation mode but it’s expensive, but you pay more for speed to evaluate how firms value time,” Hummels said. “Firms exporting manufacturers pay an average of 0.8 percent of goods value per day to avoid time delays.” He suggested a new view that “non-tariff barriers are more important than tariffs in impending trade.”
Stewart Baker of the Center for Strategic and International Studies said that the “World Trade Organization talks had an enormous success in taking down tariffs.” He said the WTO is a victim of success because it found the problem and addressed the problem.
Baker said “I’m not convinced the WTO can do anything effective with non-tariff barriers.” He also said the purpose of 100-percent screening is to make sure people aren’t using the system to put nuclear weapons against us. He said “the 10+2 gives us data to screen the right thing so we’re not screening the wrong things. Baker also said delays were a consequence of this rule.
Frank Vargo of the National Association of Manufacturers said at AEI, “I’m not trying to get rid of the 10+2; I’m trying to make it better so it doesn’t cause a burden.” Vargo believes “it’s not smart to treat all cargo as equally risky.”
He then questioned, what is not high risk trade? He said “it doesn’t make sense to file for each individual shipment.” He said economic security is necessary and we need closer cooperation between government and businesses. Vargo believes there is not enough communication and we should cooperate and work with other countries to have greater security. He said “10+2 can work but it has to be risked-based.”
Christine McDaniel of the U. S. International Trade Commission said at AEI that “trade associations and industries need a stronger voice.” She believes the more information associations give, the more it will help. McDaniel said “the White House and Congress need to develop a trade-policy subcommittee so economists don’t see it in the 11th hour.” She said we need to set up a clear process for agencies that want to have broad roles. She also said at the end of the day we have to accept some risk and we need to come up with what level of risk we’re comfortable with.