Fast Track Impasse

Fast track” trade negotiating authority has become anything but. Nearly five years have passed since the last grant of authority expired—years of wrangling, posturing, and ultimately stalemate.

Without fast track, U.S. trade policy is dead in the water. Current policy consists of negotiating agreements in which we swap reductions in trade barriers with other countries. Our trading partners, though, won’t negotiate seriously as long as they fear that any deals could wind up rewritten on Capitol Hill. Fast track bridges that confidence gap by requiring Congress to vote up or down on trade agreements without amendments and within a specified time period.

But fast track has failed twice in Congress. In November 1997, the bill was yanked at the last minute because it faced certain defeat in the House; last September, supporters forced a House vote and lost ugly, 243 to 180. In the first go-round, President Clinton actively supported the bill but could convince only some 20 percent of Democrats to go along. Republican leaders cooked up the second fiasco to embarrass Democrats prior to last year’s midterm elections, but a third of their own caucus broke ranks and voted no.

Such failures are especially depressing given their timing. During these years of paralysis, conditions could hardly have been more favorable for liberalizing initiatives: The economy has been booming, with unemployment and inflation their combined lowest in decades; since the “competitiveness” scares of the 1980s, major U.S. industries have staged dramatic comebacks. If free traders couldn’t prevail under these circumstances, when could they?

Not, in all likelihood, for the foreseeable future. As economic crises grip Asia, Russia, and Latin America, and as prospects for continued growth at home appear uncertain, a window of opportunity may have closed. Free traders must face the facts: They blew it.

Even worse than the current predicament is the likeliest “solution” to it. Since fast track authority expired at the conclusion of the Uruguay Round of trade talks in 1994, reauthorization has been snagged on the question of whether labor and environmental issues belong on the trade agenda. Most Democrats have refused to support new trade negotiations unless these issues are on the table; they believe that international rules on labor rights and environmental protection are necessary to prevent economic globalization from prompting a woeful “race to the bottom.” Most Republicans, meanwhile, steadfastly oppose such international rules, and many in the GOP would regard any trade agreement that includes them as worse than no agreement at all.

The two failed fast track bills were relatively “clean”—that is, they excluded labor and environmental agreements from the scope of fast track procedures. Thus, the bills were designed to appeal to a center-right political coalition. Since that coalition has been unable to muster a majority, momentum is building for a move to the center-left. That means repackaging fast track to put labor and environmental issues squarely on the trade negotiating agenda.

It’s unclear whether decorating fast track with “blue” and “green” trim would gain more Democratic supporters than it lost Republicans. What is clear, though, is that doing so would mark a radical departure from free trade principles. For the first time, the stated goal of trade negotiations would be to increase rather than decrease government intervention in trade and investment flows.

What a choice for free traders: futility or apostasy. On the bright side, the good thing about reaching a dead end is that you no longer have to wonder whether you’re on the wrong road. For free traders, now is a time of clarity: The only viable option is to strike out in a new direction.

The way out of the impasse starts with a proposition that, once stated plainly, seems embarrassingly obvious: The prospects for opening markets here and abroad would brighten considerably if more Americans believed that open markets here are a good idea. Unfortunately, free traders have not been making the case for free trade at home. On the contrary, they have steadfastly avoided any head-on confrontations with protectionist forces. Instead, they have sought to hold and gain ground by alternately diverting and appeasing those forces. This strategy is no longer working, and must be abandoned in favor of a more principled approach.

Before free traders can figure out their next move, they need to understand how they wound up in the present mess. In a time of unrivaled prosperity, what has made trade liberalization so bitterly controversial?

The answer lies in an emerging nervous disorder known as “globalphobia.” Many Americans are deeply skeptical of the much-hyped global economy and its effects on the U.S. economy. According to a Business Week/Harris poll conducted in September 1997, 56 percent of Americans believe that expanded trade decreases the number of U.S. jobs, while only 17 percent believe that expanded trade increases wages.

The main focus of public anxiety is the supposed threat to American prosperity posed by poor but industrializing countries. Over the past couple of decades, a succession of events—the opening of China, the collapse of the Soviet Union, the abandonment by many developing countries of autarkic import-substitution polices—has added hundreds of millions of new participants to the global division of labor. While new technologies that increase the world’s productive capacity—personal computers, for instance—are hailed as economic breakthroughs, an increase in the form of human capital strikes many people as a menace. The fear is that Americans cannot compete with the low wages of “emerging market” countries, and that a kind of living-standards arbitrage will drag us inexorably down to their level.

Globalphobia afflicts both the left and right. On the right, Pat Buchanan leads the charge. In The Great Betrayal, he decries the increasing economic ties between the First and Third Worlds: “The global hiring hall is the greatest buyer’s market in history for human labor. It puts American wage earners into direct competition for production jobs with hundreds of millions of workers all over the world.” And on the left, William Greider warns in One World: Ready or Not of a “global overabundance of cheaper labor.” Greider shares with Buchanan a zero-sum vision of international commerce: “The history of industrial development has taught societies everywhere to think of the economic order as a ladder….The new dynamic of globalization plants a different metaphor in people’s minds—a seesaw—in which some people must fall in order that others may rise.”

An analysis of 1997 congressional voting patterns by Robert Baldwin and Christopher Magee for the Institute for International Economics shows a clear connection between rising globalphobia and fast track’s failure. According to their study, the higher the employment in a member’s district in industries for which imports are greater than exports, the more likely was that member to state his opposition to fast track. The likelihood of an anti-fast track stance was also highly correlated with the percentage of workers in a member’s district with less than a high school education. By contrast, neither of these relationships was statistically significant in explaining votes for or against NAFTA in 1993. Baldwin and Magee conclude that the deterioration in support for trade liberalization over those four years may be attributed to increased concern about the employment effects of expanded trade, especially with respect to low-skill workers.

But while globalphobes of the left and right have united to block fast track and trade liberalization, their unity does not extend beyond obstruction. When it comes to positive agendas, the left and right wings split along nationalist and internationalist lines. So-called economic nationalists like Buchanan want to stop the world and get off—isolate the U.S. market behind protectionist barriers and let everybody else fend for themselves. Indeed, their hostility to trade liberalization is as much political as economic; they see the free trade cause as a cover for undermining U.S. sovereignty and expanding world government. Conservative activist Phyllis Schlafly uses typical rhetoric when she refers to the World Trade Organization as “a sort of United Nations of trade.” “It is dishonest to call something `free trade,’” she writes, “when it is managed by a huge international bureaucracy.”

Economic nationalists are content simply to trash the world trading system, but their colleagues on the left have bigger plans. Their goal is to remake that system in their own image, creating a larger structure of global governance that imposes social-democratic labor and environmental policies around the world. By ensnaring emerging-market countries in a web of Western-style regulation, and depriving them of their “unfair” advantages of low wages and environmental squalor, they would stop the imagined race to the bottom. Hence most Democrats’ refusal to support fast track without a new “blue and green” paint job.

The internationalist strategy was on display in a recent speech by Rep. Richard Gephardt (D-Mo.) before the Council on Foreign Relations. Describing himself as a “progressive internationalist,” he cloaked the case for global labor rules in the rhetoric of free trade: “Free trade also requires free markets. And a component of free markets is free labor markets. That’s why I have fought so hard, and will never give up the fight, to have workers’ rights be an integral component of our trade policy.”

Ironically, globalphobia’s internal divisions actually strengthen its ability to challenge trade liberalization as traditionally practiced. The economic nationalists can cite the left’s labor and environmental agenda as proof that free trade is just a “new world order” plot; lefties can advance the cause of blurring free trade and world government by casting it in opposition to Buchananite “isolationism.” Each side thus draws strength and legitimacy from the other.

In reality, of course, globalphobia rests on economic illiteracy. We don’t agonize that the country is racing to the bottom because secretaries are replaced by voice mail, or because bank employees are replaced by ATMs. What, then, is so special about the fact that some labor-intensive manufacturing operations are being replaced by Third World factories? All of these trends are part of a larger process: the process of raising productivity, of squeezing more value from less effort. Far from provoking a race to the bottom, this process is the essential precondition for continued increases in our overall standard of living.

Openness to foreign competition pushes productivity, and living standards, upward in two different ways. First, it gives us the opportunity to buy products from abroad that are better or cheaper than those we can make for ourselves. The result is that we are richer as a society. And over time, the work force and resources that would have been devoted to making what we now import can be shifted to sectors in which we are more productive. Second, by causing domestic firms to compete harder and raise their productivity, the spur of foreign competition makes us richer even when we don’t end up buying imports. To take an obvious example, Americans drive much better cars today than they did a couple of decades ago, and not just because many drive imports. American cars have improved dramatically as U.S. automakers responded to the challenge of foreign competition.

The proposition that open markets make a country richer is one of the most thoroughly examined and repeatedly vindicated in all of economics. Adam Smith got to the heart of the matter over two centuries ago when he observed that “the division of labor is limited by the extent of the market.” By expanding the scope for voluntary exchange beyond national boundaries, international trade fosters a broader division of labor and the resulting gains from increased specialization. The “global hiring hall,” as Buchanan puts it, gives us the chance to profit from the ingenuity, creativity, and old-fashioned hard work of billions of participants in a global division of labor.

Clearly, though, many Americans just don’t get it. And one reason why they don’t get it is that free traders rarely talk about such things. To a striking extent, the case they make for free trade bears no relation to the one made by Adam Smith and his successors in the economics profession.

Instead, advocates of trade liberalization hammer away repeatedly at two main themes: increasing exports and showing international leadership. For example, the Web site for America Leads on Trade, a coalition of pro-fast track businesses, defended fast track and trade expansion by arguing that it is critical “for maintaining U.S. leadership in the global economy,” because such agreements “tear down barriers to U.S. trade and investment. These agreements will boost the U.S. economy and create high wage jobs by expanding export opportunities for our companies and workers.”

According to the Web site, “Fast track will allow the United States to keep its competitive edge against foreign competitors. If the United States does not have fast track, we risk being left behind.”

In such arguments, and in speeches, press releases, and studies from business groups, politicians, and think tanks, from Republicans as well as Democrats, the supporters of trade liberalization make their case for the benefits of free trade abroad. Reducing trade barriers in other countries will increase American exports, and export-related jobs, and show U.S. international leadership. As to the benefits of free trade here, and as to reducing trade barriers in this country, free traders of all stripes remain conspicuously silent.

Why? Why let the globalphobes carry the day by default? Basically, free traders have been fighting the last war. Their political strategy dates back to a time when grassroots interest in trade issues was virtually nil, and the economic stakes of trade policy were of concern only to organized business interests. Furthermore, the current strategy is a product of the Cold War, when all international economic issues were viewed through the prism of superpower rivalries.

Under those conditions, free traders hatched their strategy of diversion and appeasement. By pursuing trade liberalization exclusively through international negotiations, they diverted attention away from the U.S. market and onto the benefits of opening markets abroad, and neutralized protectionist lobbying pressure from domestic import-competing industries. In this way they recruited exporting industries to lobby vigorously for trade expansion. At the same time, they diverted attention away from economics and onto diplomacy by stressing the geopolitical gains from trade agreements—notably, cementing the Western alliance and keeping Third World countries from defecting to the Soviet camp.

And when diversion didn’t work, free traders settled for appeasement, making measured concessions to protectionist demands in order to forestall a larger backlash. The major concession was a system of “trade remedy” laws—including the anti-dumping law, the countervailing duty law, and the Section 201 “escape clause”—which allow special duties to be imposed on imports when legally established criteria are met. These laws were supposed to act as a safety valve that keeps protectionist pressures from building to dangerous levels.

However unattractive to the free trade purist, the diversion-and-appeasement strategy achieved results for many years. Tariff levels plunged during the postwar era as the United States, long a protectionist nation, maintained a commitment —honored at times in the breach—to a policy of gradual liberalization here and abroad.

But times have changed. The Cold War is over, and free trade’s foreign policy trump card is gone. In fact, free trade’s association with international negotiations and institutions is now costing it supporters among increasingly nationalist (or anti-internationalist) conservatives. Meanwhile, trade policy is no longer an insider’s game, as the issues surrounding globalization have become high-profile, hot-button concerns. Globalphobia as an energized, grassroots phenomenon really took off during the rancorous NAFTA debate, and it has retained if not increased its potency.

As a result, the conventional diversion-and-appeasement strategy is no longer working. When large numbers of ordinary Americans are worried that their economic future is being threatened by imports from cheap-labor countries, happy talk about additional exports for Fortune 500 companies isn’t an appropriate response. The failure to address genuine, if misplaced, public concerns allows those concerns to fester and spread. Worse, the diversionary focus on exports conveys the impression that free traders value corporate fat cats over regular folks, magnifying globalphobia’s populist appeal.

Among supporters of trade liberalization habituated to old tricks, the reaction to diversion’s failure is to redouble appeasement. And so today many stalwarts of the pro-trade camp—from such establishment bastions as the Brookings Institution, the Council on Foreign Relations, and the Institute for International Economics—are urging some kind of compromise on labor and environmental issues in order to woo moderate lefties back into the fold. Such a move is repugnant to believers in free markets: Creating new international regulatory bureaucracies isn’t what we signed up for. At some point the process of negotiating trade agreements becomes sufficiently adulterated that it’s just not worth doing.

In any event, the case for further appeasement is suspect on purely political grounds. While it may be possible to fudge differences sufficiently to get fast track passed, when it comes to actual trade agreements, it’s hard to see how any compromise will work. Here at home, if any conservative support is to be maintained, the concessions on international standards will have to be very narrow and modest. Likewise, at the international level, developing countries will refuse to sign any agreements that condition their continued access to rich-country markets on so-called “upward harmonization” of labor and environmental policies.

So no matter how much the compromisers on the pro-trade side may want to deal, they will have very little to offer. And it’s highly unlikely that the labor unions, environmental groups, and Naderites will buy what they’re selling. The left is too smart to be placated by blue and green window dressing—especially after the experience of the NAFTA labor and environmental side agreements, which most activists regard as worthless. They will demand tough standards and real enforcement, which they’re not going to get. As a result, appeasement won’t appease.

What, then, will the compromisers accomplish? They will concede that globalphobic fears of a race to the bottom are justified, and that trade policy ought to do something about it. But then the response that they offer will be manifestly insufficient. And so the leftist contention that free traders care more about multinational corporations than about workers and Mother Nature will gain plausibility. Meanwhile, right-wing globalphobes will regard the mission creep of trade negotiations into labor and environmental policy as proof that free trade is a smokescreen for world government. In short, the odds are that appeasement will end up backfiring: Rather than finessing the opponents of open markets, it will only strengthen and embolden them.

Well, what’s the alternative? How do free traders get out of their current jam? It’s simple, really: Attack the problem at its root. The free trade cause has fallen on hard times because of growing public fears about the United States’ place in the world economy. Rather than ignoring those fears, or giving in to them, free traders should make the case that the fears are groundless. Free traders need to take the misconceptions of globalphobia head-on, seize the intellectual initiative, and champion open markets forthrightly and unapologetically.

To begin with, free traders should commit themselves to a major effort of educating the public. They need to demonstrate the benefits of imports as well as exports, of foreign investment here and of U.S. investment abroad. In particular, they need to portray trade as part of the larger process of ongoing technological and organizational innovation that lies at the heart of wealth creation and rising living standards. In that regard, they need to dispel the notion that job losses due to trade are somehow more onerous than those that attend any other technological or organizational breakthroughs.

Abandoning the old strategy of diversion and appeasement, though, entails more than a shift in rhetoric. It requires programmatic change as well. First and foremost, free traders should identify a handful of the most egregious U.S. trade barriers and launch a campaign for eliminating them unilaterally—that is, regardless of whether other countries make similar reforms. There are plenty of targets to choose from: the anti-competitive anti-dumping law, which punishes perfectly normal business practices in the name of “fair trade”; high tariffs and quotas on textiles and clothing; import restrictions linked to price support programs for farm products; the Jones Act ban on foreign shipping between U.S. ports; similar restrictions on the so-called “cabotage rights” that would allow foreign air carriers to fly domestic routes; limits on foreign investment in broadcasting and air transport; and the list goes on.

Skeptics will respond that unilateral liberalization is a sure political loser. If Americans are scared of opening our markets when the deal is sweetened by market opening abroad, why on earth would anyone expect them to take the medicine straight?

But the purpose of campaigning for unilateral free trade isn’t to win legislative victories—at least not in the short term. The point is to change the terms of the debate. On that score, the benefits of a unilateral approach are immediate. First of all, taking this tack forces free traders to go on the intellectual offensive. It’s impossible to push for the unilateral elimination of trade barriers without making a frontal assault on the misconceptions of globalphobia. Free traders would have to explain why imports make us richer, not poorer; why trade deficits are meaningless; why the elimination of particular jobs is consistent with, and indeed necessary for, long-term economic health. Americans would finally begin to hear the other side of the story.

Furthermore, the unilateral approach frames issues in terms that give free traders the natural advantage. Rather than simply defending free trade, they would attack its alternative: protectionism in actual practice. Admittedly, the case for free trade is to some degree hypothetical and counterintuitive. On the other hand, the case against protectionism is much clearer: It raises prices, restricts choices, and benefits a favored few at the expense of everyone else. Protectionism is unfair, plain and simple. An attack on U.S. trade barriers would allow free traders to put their opponents on the defensive for a change. The beneficiaries of protection would be forced to explain why they deserve their special privileges, and why the welfare of other American businesses and their workers, not to mention consumers, should be sacrificed on their account.

Attacking particular U.S. trade barriers would allow free traders to reclaim their lost populist roots. In the old days, the trade debate typically pitted Democrats and the common man for free trade against Republicans and big business for protection. Free traders used explicitly populist rhetoric, condemning tariff walls as bastions of corruption and privilege. Today, free trade is all too often depicted as elitist—pumping up the profits of big multinationals at the expense of jobs for working men and women. Unilateralism would help to counteract that stereotype by focusing on those aspects of the free trade cause with the greatest populist appeal: cutting taxes, lowering prices, and eliminating corporate welfare.

Finally, a campaign for unilateral reform would liberate the free trade cause from the tangle of diversionary squabbles in which it is currently ensnared. Concerned about fast track’s antidemocratic circumvention of normal congressional procedures? Worried about ceding sovereignty to faceless international bureaucrats? Offended by obnoxious practices (continuing trade barriers, subsidies, human rights abuses, drug trafficking, etc.) in the countries with which we strike trade deals? All of these issues become moot when the only question on the table is whether or not Congress, as a matter of purely domestic economic policy, ought to junk particular bad laws.

While they pursue unilateral reforms, free tradersshouldn’t give up on trade negotiations. International agreements can facilitate the liberalization process by enlisting export interests to support free trade at home; also, such agreements provide a useful institutional constraint against protectionist backsliding. But a new U.S. negotiating posture is needed, one that replaces demands for reciprocity with a commitment to free trade principles.

In traditional trade negotiations, countries offer to reduce import barriers in exchange for other countries’ offers of equivalent reductions. In other words, freer markets at home are treated as the price we pay for freer markets abroad. Indeed, in the parlance of GATT negotiations, a commitment to reduce tariffs is known officially as a “concession.” Thus, the rhetoric of trade talks is premised on the protectionist notion that imports are harmful and trade barriers are prized strategic assets.

This is not a mere quibble: Protectionist assumptions and attitudes color every aspect of how trade agreements are currently negotiated and evaluated. Trade negotiators, in the process of championing freer trade, demand “reciprocity” from our trade partners. They insist that a “bad deal” (i.e., one in which we liberalize more than other countries do) is worse than no deal at all. They oppose domestic reforms outside the context of negotiations on the ground that our own bad policies are “bargaining chips” that should be retained for their exchange value. More ominously, they refer to liberalization without reciprocity as “unilateral disarmament.” And when an agreement has been reached, free traders focus on the benefits to exporters, not importers. They tout the benefits of reducing foreign trade barriers, but say little or nothing about the benefits of reducing our own.

These features of conventional trade negotiations are no accident: They are part and parcel of the old diversion-and-appeasement strategy. But if free traders are to break from that dead-end approach, if they are to mount a head-on challenge to globalphobia, they will have to reinvent trade negotiations so that they don’t perpetuate protectionist fallacies.

In areas where the United States still retains protectionist policies, it could identify other countries with similar barriers—but which are committed to reform—and negotiate simultaneous liberalization in a kind of “coordinated unilateralism.” Unlike in reciprocity-based negotiations, the goal wouldn’t be to swap “concessions” or to “win” at the bargaining table by “getting” more than you “give.” Rather, the express purpose of the negotiations would be for each country to gain by reforming its own policies, but to maximize that gain by linking reforms to liberalization abroad. Reforming one’s own policies would be a central negotiating objective rather than the downside of the transaction, while coordination would strengthen the political case for free trade by adding the benefits of liberalization abroad to those of market opening at home. For coordinated unilateralism to work, though, all countries involved would have to be committed to real reform. Otherwise obstructionism and holding out by some parties would become excuses for other countries to cling to their misguided policies, and the whole enterprise would degenerate into reciprocity as usual.

The United States can continue to take a leading role in trade negotiations even when it has already eliminated its protectionist policies. In that regard, consider the 1997 World Trade Organization agreements on telecommunications and financial services. Both agreements represented important breakthroughs, and both were negotiated in the absence of U.S. fast track authority. How was this possible? Fast track was unnecessary because none of the U.S. commitments under either agreement required changes in legislation. The major U.S. “concession” was to agree to “lock in” current levels of openness. The United States would not commit to do so, however, until a critical mass of other countries agreed to exceed a minimum threshold of liberalization.

These agreements show how unilateral reform and trade negotiations can complement and reinforce each other. Even without trade barriers, the United States can still exert powerful leverage at the bargaining table—not only through offers to lock in existing liberalization, but also because U.S. participation lends legitimacy to any international agreement and increases other countries’ confidence in each other’s commitments. Using that leverage, the United States could define negotiating objectives —for example, rules on the treatment of foreign investment, market access for the cross-border provision of services, and so on—and offer to elevate its own unilaterally adopted free trade policies into binding international commitments. That offer would be contingent, though, on pledges by other countries of credible and significant liberalization.

The viability of such an approach is not hypothetical: It worked in the telecom and financial services talks. True, in those negotiations the United States couched its position in terms of demands for reciprocity. But it could easily drop such rhetoric and adopt instead the following line: We pursue free trade policies at the national level because we believe it is in the U.S. interest to do so, but we will not commit ourselves internationally to any agreement unless it reflects a sufficiently serious commitment to free trade principles.

It is thus possible for the United States to remain engaged in the process of negotiated liberalization without fostering misconceptions that undermine free trade in the long term. The United States can still wield significant bargaining power—most important, by refusing to participate in watered-down agreements—without clinging to wrongheaded policies simply because other countries have not yet gotten rid of theirs. In short, the United States can enjoy the best of both the unilateral and the multilateral worlds. Unilateral liberalization, far from undermining trade negotiations, can put them on a much sounder footing.

Many supporters of free trade will be reluctant to abandon a tried and true strategy, but a sober assessment demonstrates that the old diversion-and-appeasement approach has outlived its usefulness. It is contributing to popular anxieties about globalization. It is bending trade negotiations away from true liberalization and toward international bureaucratization. In short, it is creating more problems than it solves.

There is a better way. Free traders have it in their power to promote their cause, here and abroad, with much greater effectiveness than at present. They can seize the intellectual initiative. They can frame issues in ways that give them the natural political advantage. They can set an example for the rest of the world to follow. And best of all, they can achieve these things by standing up for what they know to be true.

Brink Lindsey is vice president for research at the Cato Institute