Spotlight on trade policy

Spotlight on trade policy

U.S. trade policy is undergoing a thorough reassessment due to the convergence of two events: the Democratic takeover of Congress and the upcoming expiration of the president's trade negotiating authority. As a result, the odds are good for passage of trade legislation that would likely have significant effects on U.S. companies and industries.

With our nation's trade deficit reaching a staggering $764 billion in 2006, Congress has embarked on a re-examination of trade policies pursued during the first six years of the Bush administration, their impact on industries, and how best to proceed.

President Bush has enjoyed Trade Promotion Authority, also known as "fast-track" negotiating authority, for virtually his entire administration. But results have been mixed at best. The World Trade Organization's Doha Round of talks, begun five years ago, stalled last July (although they are showing some signs of life) as the U.S. and the European Union failed to make progress on agricultural subsidies, the key issue of the round, and dragged their feet in other sectors.

The U.S. also has negotiated a series of free-trade agreements more notable in number than in significance. These FTAs varied between small but potentially important regional agreements (the Central America Free Trade Agreement) and several that are primarily relevant geopolitically (Oman, Bahrain). From a trade perspective, it is difficult to conclude that these accords have strengthened trade prospects or U.S. global leadership on policy issues.

With an agenda dominated by these FTAs, trade was a polarizing issue in 2006, and many assumed that Democratic control of Congress would result in further deadlock on trade issues. However, 2007 also coincides with the expiration of the president's trade negotiating authority - at a time when he can ill afford to lose it. In addition to the WTO talks, which formally restarted in March, the administration is at critical stages in the negotiation of several FTAs that could have a more meaningful impact on trade.

A pact with South Korea would be the largest FTA in terms of total trade since the North American Free Trade Agreement, but lacking a deal by March 31, it must await new Trade Promotion Authority. Only Congress can renew TPA, and it has signaled unwillingness to do so unless its negotiating objectives on labor rights, the environment and other topics are given greater weight. In other words, TPA gives Congress leverage to reassert its role in the trade policy debate.

Congress is not hesitating to use it. The House Ways and Means Committee has begun hearings on the impact of globalization. One of the opening witnesses, Daniel Tarullo from Georgetown University Law Center, noted that trade policy and its impact are often depicted - incorrectly - in binary terms (free trade vs. protectionism), and called for a more sensible debate that recognized the multiplicity of interests at stake.

In February, U.S. Trade Representative Susan Schwab testified before the House and the Senate, facing a variety of tough questions about China, the trade deficit, the WTO and FTA negotiations, as well as the United States' weak enforcement of trade-remedy laws.

The convergence of administration interest in TPA and congressional interest in trade policy reform makes substantial trade legislation likely in 2007, for the first time in recent memory. In the short term, Congress is likely to advance legislation that would confirm that the U.S. could use its trade-remedy laws to challenge pervasive trade-distorting subsidies in China. Later in the year, Congress plans to pursue broader trade law reform, as well as legislation to strengthen Customs practices and procedures, expand trade-adjustment assistance for U.S. workers displaced by imports and improve U.S. economic competitiveness.

All of this may end in congressional deadlock. Many Democrats have little interest in granting the administration renewal of TPA and would rather wait until after 2008 to empower presidential trade negotiations. But it is wrong to assume that nothing will happen on trade this year. Because Congress and the administration are forced to work together, both on TPA and any trade law revisions, there is greater likelihood for progress and for proposals that might not only be passed but also enacted into law. And the debate that takes place in 2007 on issues such as China and globalization is likely to shape policy in 2008 and beyond.