U.S. Trade Policy, R.I.P.

The NY Times, Washington Post, and other major media outlets have been gushing praise upon congressional Democrats and the Bush administration for hammering out a deal that keeps the trade agenda alive.  Lending some credibility to those media perspectives, which are too often misinformed and misleading, are assessments from knowledgeable, respected trade policy scholars that the compromise deal struck last week does in fact constitute a major breakthrough.

In my view, only analytical laziness or low expectations about the capacity of the administration and Congress to agree on anything related to trade, or sheer desperation for a sign of progress could produce a thumbs-up assessment of last week’s deal.  The proper interpretation is this:

U.S. trade policy, RIP.  Here’s why.

There are four concluded bilateral trade agreements (with Korea, Colombia, Peru, and Panama) awaiting congressional approval.  There is the seriously stalled Doha Round of multilateral trade negotiations, which has been the elusive grand prize of trade policy during the Bush years.  And there is the June 30 expiration of Trade Promotion Authority, which enables the executive branch to negotiate agreements (that must also reflect the wishes of Congress as of 2002, when TPA was passed into law) and bring them back to the Congress for an up-or-down vote.  Without TPA, agreements would be undone, reconfigured, and made unrecognizable and ultimately unacceptable, as 535 congressional tinkerers got their hands on them.

The TPA 2002 language was silent about environmental provisions and specified that trade partners should be required to enforce the labor laws on their books.  The new Democratic Congress finds the TPA 2002 language unacceptable.   Trade deals must contain strict, enforceable labor and environmental provisions, if they are to win the support of the Democratic caucus – so they say. 

The agreement struck last week is akin to a supplemental to the TPA 2002 bill.  It doesn’t extend TPA beyond June 30, but it imposes additional conditions with which trade agreements must comport.  The administration agreed to the terms because, well, it had no choice!  The labor unions, which now dictate congressional trade policy, are unwilling to support trade liberalization.  The administration has nothing, absolutely nothing, with which to compromise.  Thus, by agreeing to last week’s terms, the U.S. Trade Representative is throwing a Hail Mary.  Trade policy will not advance without those terms, and there’s a remote change it could advance with them.  The problem is that it won’t.

Arguably, the left-of-center press is giddy about the fact that Congress compelled the Bush administration to agree to include strict, enforceable labor and environmental provisions in prospective trade agreements (There was more to the deal, but labor and environmental standards were the big issues).  It matters not to the ubersanctimonious of the media that if you’re really concerned about environmental quality and working standards in poor countries you should seek to remove (not create) conditions on investment inflows.  Oh well, at least they’ve acknowledged the plight of poverty. 

But they should also remember that just because two branches of the U.S. government agree to these provisions doesn’t mean our trade partners will.  With a few relatively minor exceptions, they won’t.

In 1996, WTO trade ministers at the conclusion of their first biannual meeting in
Singapore issued a strong statement of consensus on the issue of labor standards.  The statement declared support for core labor standards, but opposed the idea of enforceable labor provisions in trade agreements.  Standards are promoted by “economic growth and development fostered by international trade and further trade liberalization,” the statement read.  Imposing conditions on trade and investment with poor countries only slows economic growth, which prevents labor standards from rising, was the gist of the statement.

Today, the WTO comprises even more developing countries than in 1996.  Their position against enforceable labor standards is even more entrenched.  They don’t oppose better local labor and environmental conditions, but fear that rich countries will use those provisions as a fig leaf to achieve protectionist outcomes.  The legitimate concern is that the potential to allege labor or environmental violations, regardless of merit, will deter foreign investment in local factories and in other areas of the local economy, which is the real key to raising standards.

Thus, despite suggestions that the last week’s deal opens up the door to continued progress on Doha, reality is quite different.  The United States has only introduced another obstacle that will calcify the current North-South divide in the Doha negotiations.

There is a remote possibility that the agreements with Peru and Panama will come to fruition.  Both of those governments are vested heavily in a successful trade deal with the United States, so they may be inclined to bite the bullet.  It remains to be seen, however, if the Peruvian and Panamanian legislatures will approve the new terms.  And quite frankly, there is absolutely no guarantee that Democrats in the U.S. Congress will support these deals despite last week’s ballyhooed “breakthrough.”

Indeed, the Colombian deal has been identified as still problematic by the congressional leadership.  In a letter to the USTR last week, House Ways and Means Chairman Charles Rangel (D-NY) wrote that the Colombia agreement can not be supported by Democrats unless the Bogota government does a better job finding and punishing violent criminals.  And House Ways and Means Trade Subcommittee Chairman Sander Levin (D-MI) is actively opposing the Korea agreement since it doesn’t include his proposal to condition Korean access to the U.S. auto market on the success of U.S. auto sales in Korea.

Although the Democratic leadership has been asserting that its caucus would support trade liberalization if its positions on labor and the environment were accommodated, it appears their bluff has been called.  Opposition to Colombia and Korea has nothing to do with labor and environmental standards.  It has everything to do with union opposition to trade, period.

And without labor’s nod, Democrats will not support trade in sufficient numbers to keep U.S. trade policy on track. 

Thus, trade policy, RIP.