Fast Track Impasse

This article appeared on Cato.org on February 1, 1999.
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Fast track" trade negotiating authority has become anything but.Nearly five years have passed since the last grant of authorityexpired--years of wrangling, posturing, and ultimatelystalemate.

Without fast track, U.S. trade policy is dead in the water.Current policy consists of negotiating agreements in which we swapreductions in trade barriers with other countries. Our tradingpartners, though, won't negotiate seriously as long as they fearthat any deals could wind up rewritten on Capitol Hill. Fast trackbridges that confidence gap by requiring Congress to vote up ordown on trade agreements without amendments and within a specifiedtime period.

But fast track has failed twice in Congress. In November 1997,the bill was yanked at the last minute because it faced certaindefeat in the House; last September, supporters forced a House voteand lost ugly, 243 to 180. In the first go-round, President Clintonactively supported the bill but could convince only some 20 percentof Democrats to go along. Republican leaders cooked up the secondfiasco to embarrass Democrats prior to last year's midtermelections, but a third of their own caucus broke ranks and votedno.

Such failures are especially depressing given their timing.During these years of paralysis, conditions could hardly have beenmore favorable for liberalizing initiatives: The economy has beenbooming, with unemployment and inflation their combined lowest indecades; since the "competitiveness" scares of the 1980s, majorU.S. industries have staged dramatic comebacks. If free traderscouldn't prevail under these circumstances, when could they?

Not, in all likelihood, for the foreseeable future. As economiccrises grip Asia, Russia, and Latin America, and as prospects forcontinued growth at home appear uncertain, a window of opportunitymay have closed. Free traders must face the facts: They blewit.

Even worse than the current predicament is the likeliest"solution" to it. Since fast track authority expired at theconclusion of the Uruguay Round of trade talks in 1994,reauthorization has been snagged on the question of whether laborand environmental issues belong on the trade agenda. Most Democratshave refused to support new trade negotiations unless these issuesare on the table; they believe that international rules on laborrights and environmental protection are necessary to preventeconomic globalization from prompting a woeful "race to thebottom." Most Republicans, meanwhile, steadfastly oppose suchinternational rules, and many in the GOP would regard any tradeagreement that includes them as worse than no agreement at all.

The two failed fast track bills were relatively "clean"--thatis, they excluded labor and environmental agreements from the scopeof fast track procedures. Thus, the bills were designed to appealto a center-right political coalition. Since that coalition hasbeen unable to muster a majority, momentum is building for a moveto the center-left. That means repackaging fast track to put laborand environmental issues squarely on the trade negotiatingagenda.

It's unclear whether decorating fast track with "blue" and"green" trim would gain more Democratic supporters than it lostRepublicans. What is clear, though, is that doing so would mark aradical departure from free trade principles. For the first time,the stated goal of trade negotiations would be to increase ratherthan decrease government intervention in trade and investmentflows.

What a choice for free traders: futility or apostasy. On thebright side, the good thing about reaching a dead end is that youno longer have to wonder whether you're on the wrong road. For freetraders, now is a time of clarity: The only viable option is tostrike out in a new direction.

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

Before free traders can figure out their next move, they need tounderstand how they wound up in the present mess. In a time ofunrivaled prosperity, what has made trade liberalization sobitterly controversial?

The answer lies in an emerging nervous disorder known as"globalphobia." Many Americans are deeply skeptical of themuch-hyped global economy and its effects on the U.S. economy.According to a Business Week/Harris poll conducted in September1997, 56 percent of Americans believe that expanded trade decreasesthe number of U.S. jobs, while only 17 percent believe thatexpanded trade increases wages.

The main focus of public anxiety is the supposed threat toAmerican prosperity posed by poor but industrializing countries.Over the past couple of decades, a succession of events--theopening of China, the collapse of the Soviet Union, the abandonmentby many developing countries of autarkic import-substitutionpolices--has added hundreds of millions of new participants to theglobal division of labor. While new technologies that increase theworld's productive capacity--personal computers, for instance--arehailed as economic breakthroughs, an increase in the form of humancapital strikes many people as a menace. The fear is that Americanscannot compete with the low wages of "emerging market" countries,and that a kind of living-standards arbitrage will drag usinexorably down to their level.

Globalphobia afflicts both the left and right. On the right, PatBuchanan leads the charge. In The Great Betrayal, he decries theincreasing economic ties between the First and Third Worlds: "Theglobal hiring hall is the greatest buyer's market in history forhuman labor. It puts American wage earners into direct competitionfor production jobs with hundreds of millions of workers all overthe world." And on the left, William Greider warns in One World:Ready or Not of a "global overabundance of cheaper labor." Greidershares with Buchanan a zero-sum vision of international commerce:"The history of industrial development has taught societieseverywhere to think of the economic order as a ladder....The newdynamic of globalization plants a different metaphor in people'sminds--a seesaw--in which some people must fall in order thatothers may rise."

An analysis of 1997 congressional voting patterns by RobertBaldwin and Christopher Magee for the Institute for InternationalEconomics shows a clear connection between rising globalphobia andfast track's failure. According to their study, the higher theemployment in a member's district in industries for which importsare greater than exports, the more likely was that member to statehis opposition to fast track. The likelihood of an anti-fast trackstance was also highly correlated with the percentage of workers ina member's district with less than a high school education. Bycontrast, neither of these relationships was statisticallysignificant in explaining votes for or against NAFTA in 1993.Baldwin and Magee conclude that the deterioration in support fortrade liberalization over those four years may be attributed toincreased 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 toblock fast track and trade liberalization, their unity does notextend beyond obstruction. When it comes to positive agendas, theleft and right wings split along nationalist and internationalistlines. So-called economic nationalists like Buchanan want to stopthe world and get off--isolate the U.S. market behind protectionistbarriers and let everybody else fend for themselves. Indeed, theirhostility 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 activistPhyllis Schlafly uses typical rhetoric when she refers to the WorldTrade Organization as "a sort of United Nations of trade." "It isdishonest to call something `free trade,'" she writes, "when it ismanaged by a huge international bureaucracy."

Economic nationalists are content simply to trash the worldtrading system, but their colleagues on the left have bigger plans.Their goal is to remake that system in their own image, creating alarger structure of global governance that imposessocial-democratic labor and environmental policies around theworld. By ensnaring emerging-market countries in a web ofWestern-style regulation, and depriving them of their "unfair"advantages of low wages and environmental squalor, they would stopthe imagined race to the bottom. Hence most Democrats' refusal tosupport fast track without a new "blue and green" paint job.

The internationalist strategy was on display in a recent speechby Rep. Richard Gephardt (D-Mo.) before the Council on ForeignRelations. Describing himself as a "progressive internationalist,"he cloaked the case for global labor rules in the rhetoric of freetrade: "Free trade also requires free markets. And a component offree markets is free labor markets. That's why I have fought sohard, and will never give up the fight, to have workers' rights bean integral component of our trade policy."

Ironically, globalphobia's internal divisions actuallystrengthen its ability to challenge trade liberalization astraditionally practiced. The economic nationalists can cite theleft's labor and environmental agenda as proof that free trade isjust a "new world order" plot; lefties can advance the cause ofblurring free trade and world government by casting it inopposition to Buchananite "isolationism." Each side thus drawsstrength and legitimacy from the other.

In reality, of course, globalphobia rests on economicilliteracy. We don't agonize that the country is racing to thebottom because secretaries are replaced by voice mail, or becausebank employees are replaced by ATMs. What, then, is so specialabout the fact that some labor-intensive manufacturing operationsare being replaced by Third World factories? All of these trendsare part of a larger process: the process of raising productivity,of squeezing more value from less effort. Far from provoking a raceto the bottom, this process is the essential precondition forcontinued increases in our overall standard of living.

Openness to foreign competition pushes productivity, and livingstandards, upward in two different ways. First, it gives us theopportunity to buy products from abroad that are better or cheaperthan those we can make for ourselves. The result is that we arericher as a society. And over time, the work force and resourcesthat would have been devoted to making what we now import can beshifted to sectors in which we are more productive. Second, bycausing domestic firms to compete harder and raise theirproductivity, the spur of foreign competition makes us richer evenwhen we don't end up buying imports. To take an obvious example,Americans drive much better cars today than they did a couple ofdecades ago, and not just because many drive imports. American carshave improved dramatically as U.S. automakers responded to thechallenge of foreign competition.

The proposition that open markets make a country richer is oneof the most thoroughly examined and repeatedly vindicated in all ofeconomics. Adam Smith got to the heart of the matter over twocenturies ago when he observed that "the division of labor islimited by the extent of the market." By expanding the scope forvoluntary exchange beyond national boundaries, international tradefosters a broader division of labor and the resulting gains fromincreased specialization. The "global hiring hall," as Buchananputs it, gives us the chance to profit from the ingenuity,creativity, and old-fashioned hard work of billions of participantsin a global division of labor.

Clearly, though, many Americans just don't get it. And onereason why they don't get it is that free traders rarely talk aboutsuch things. To a striking extent, the case they make for freetrade bears no relation to the one made by Adam Smith and hissuccessors in the economics profession.

Instead, advocates of trade liberalization hammer awayrepeatedly at two main themes: increasing exports and showinginternational leadership. For example, the Web site for AmericaLeads on Trade, a coalition of pro-fast track businesses, defendedfast track and trade expansion by arguing that it is critical "formaintaining U.S. leadership in the global economy," because suchagreements "tear down barriers to U.S. trade and investment. Theseagreements will boost the U.S. economy and create high wage jobs byexpanding export opportunities for our companies and workers."

According to the Web site, "Fast track will allow the UnitedStates to keep its competitive edge against foreign competitors. Ifthe United States does not have fast track, we risk being leftbehind."

In such arguments, and in speeches, press releases, and studiesfrom business groups, politicians, and think tanks, fromRepublicans as well as Democrats, the supporters of tradeliberalization make their case for the benefits of free tradeabroad. Reducing trade barriers in other countries will increaseAmerican 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 ofall stripes remain conspicuously silent.

Why? Why let the globalphobes carry the day by default?Basically, free traders have been fighting the last war. Theirpolitical strategy dates back to a time when grassroots interest intrade issues was virtually nil, and the economic stakes of tradepolicy 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 theprism of superpower rivalries.

Under those conditions, free traders hatched their strategy ofdiversion and appeasement. By pursuing trade liberalizationexclusively through international negotiations, they divertedattention away from the U.S. market and onto the benefits ofopening markets abroad, and neutralized protectionist lobbyingpressure from domestic import-competing industries. In this waythey recruited exporting industries to lobby vigorously for tradeexpansion. At the same time, they diverted attention away fromeconomics and onto diplomacy by stressing the geopolitical gainsfrom trade agreements--notably, cementing the Western alliance andkeeping Third World countries from defecting to the Sovietcamp.

And when diversion didn't work, free traders settled forappeasement, making measured concessions to protectionist demandsin order to forestall a larger backlash. The major concession was asystem of "trade remedy" laws--including the anti-dumping law, thecountervailing duty law, and the Section 201 "escape clause"--whichallow special duties to be imposed on imports when legallyestablished criteria are met. These laws were supposed to act as asafety valve that keeps protectionist pressures from building todangerous levels.

However unattractive to the free trade purist, thediversion-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 attimes in the breach--to a policy of gradual liberalization here andabroad.

But times have changed. The Cold War is over, and free trade'sforeign policy trump card is gone. In fact, free trade'sassociation with international negotiations and institutions is nowcosting it supporters among increasingly nationalist (oranti-internationalist) conservatives. Meanwhile, trade policy is nolonger an insider's game, as the issues surrounding globalizationhave become high-profile, hot-button concerns. Globalphobia as anenergized, grassroots phenomenon really took off during therancorous NAFTA debate, and it has retained if not increased itspotency.

As a result, the conventional diversion-and-appeasement strategyis no longer working. When large numbers of ordinary Americans areworried that their economic future is being threatened by importsfrom cheap-labor countries, happy talk about additional exports forFortune 500 companies isn't an appropriate response. The failure toaddress genuine, if misplaced, public concerns allows thoseconcerns to fester and spread. Worse, the diversionary focus onexports conveys the impression that free traders value corporatefat cats over regular folks, magnifying globalphobia's populistappeal.

Among supporters of trade liberalization habituated to oldtricks, the reaction to diversion's failure is to redoubleappeasement. And so today many stalwarts of the pro-tradecamp--from such establishment bastions as the BrookingsInstitution, the Council on Foreign Relations, and the Institutefor International Economics--are urging some kind of compromise onlabor and environmental issues in order to woo moderate leftiesback into the fold. Such a move is repugnant to believers in freemarkets: Creating new international regulatory bureaucracies isn'twhat we signed up for. At some point the process of negotiatingtrade agreements becomes sufficiently adulterated that it's justnot worth doing.

In any event, the case for further appeasement is suspect onpurely political grounds. While it may be possible to fudgedifferences sufficiently to get fast track passed, when it comes toactual trade agreements, it's hard to see how any compromise willwork. Here at home, if any conservative support is to bemaintained, the concessions on international standards will have tobe very narrow and modest. Likewise, at the international level,developing countries will refuse to sign any agreements thatcondition their continued access to rich-country markets onso-called "upward harmonization" of labor and environmentalpolicies.

So no matter how much the compromisers on the pro-trade side maywant to deal, they will have very little to offer. And it's highlyunlikely that the labor unions, environmental groups, and Naderiteswill buy what they're selling. The left is too smart to be placatedby blue and green window dressing--especially after the experienceof the NAFTA labor and environmental side agreements, which mostactivists regard as worthless. They will demand tough standards andreal enforcement, which they're not going to get. As a result,appeasement won't appease.

What, then, will the compromisers accomplish? They will concedethat globalphobic fears of a race to the bottom are justified, andthat trade policy ought to do something about it. But then theresponse that they offer will be manifestly insufficient. And sothe leftist contention that free traders care more aboutmultinational corporations than about workers and Mother Naturewill gain plausibility. Meanwhile, right-wing globalphobes willregard the mission creep of trade negotiations into labor andenvironmental policy as proof that free trade is a smokescreen forworld government. In short, the odds are that appeasement will endup 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 oftheir current jam? It's simple, really: Attack the problem at itsroot. The free trade cause has fallen on hard times because ofgrowing public fears about the United States' place in the worldeconomy. 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 globalphobiahead-on, seize the intellectual initiative, and champion openmarkets forthrightly and unapologetically.

To begin with, free traders should commit themselves to a majoreffort of educating the public. They need to demonstrate thebenefits of imports as well as exports, of foreign investment hereand of U.S. investment abroad. In particular, they need to portraytrade as part of the larger process of ongoing technological andorganizational innovation that lies at the heart of wealth creationand rising living standards. In that regard, they need to dispelthe notion that job losses due to trade are somehow more onerousthan those that attend any other technological or organizationalbreakthroughs.

Abandoning the old strategy of diversion and appeasement,though, entails more than a shift in rhetoric. It requiresprogrammatic change as well. First and foremost, free tradersshould identify a handful of the most egregious U.S. trade barriersand launch a campaign for eliminating them unilaterally--that is,regardless of whether other countries make similar reforms. Thereare plenty of targets to choose from: the anti-competitiveanti-dumping law, which punishes perfectly normal businesspractices in the name of "fair trade"; high tariffs and quotas ontextiles and clothing; import restrictions linked to price supportprograms for farm products; the Jones Act ban on foreign shippingbetween U.S. ports; similar restrictions on the so-called "cabotagerights" that would allow foreign air carriers to fly domesticroutes; limits on foreign investment in broadcasting and airtransport; and the list goes on.

Skeptics will respond that unilateral liberalization is a surepolitical loser. If Americans are scared of opening our marketswhen the deal is sweetened by market opening abroad, why on earthwould anyone expect them to take the medicine straight?

But the purpose of campaigning for unilateral free trade isn'tto win legislative victories--at least not in the short term. Thepoint is to change the terms of the debate. On that score, thebenefits of a unilateral approach are immediate. First of all,taking this tack forces free traders to go on the intellectualoffensive. It's impossible to push for the unilateral eliminationof trade barriers without making a frontal assault on themisconceptions of globalphobia. Free traders would have to explainwhy imports make us richer, not poorer; why trade deficits aremeaningless; why the elimination of particular jobs is consistentwith, and indeed necessary for, long-term economic health.Americans would finally begin to hear the other side of thestory.

Furthermore, the unilateral approach frames issues in terms thatgive free traders the natural advantage. Rather than simplydefending free trade, they would attack its alternative:protectionism in actual practice. Admittedly, the case for freetrade is to some degree hypothetical and counterintuitive. On theother hand, the case against protectionism is much clearer: Itraises prices, restricts choices, and benefits a favored few at theexpense of everyone else. Protectionism is unfair, plain andsimple. An attack on U.S. trade barriers would allow free tradersto put their opponents on the defensive for a change. Thebeneficiaries of protection would be forced to explain why theydeserve their special privileges, and why the welfare of otherAmerican businesses and their workers, not to mention consumers,should be sacrificed on their account.

Attacking particular U.S. trade barriers would allow freetraders to reclaim their lost populist roots. In the old days, thetrade debate typically pitted Democrats and the common man for freetrade against Republicans and big business for protection. Freetraders used explicitly populist rhetoric, condemning tariff wallsas bastions of corruption and privilege. Today, free trade is alltoo often depicted as elitist--pumping up the profits of bigmultinationals at the expense of jobs for working men and women.Unilateralism would help to counteract that stereotype by focusingon those aspects of the free trade cause with the greatest populistappeal: cutting taxes, lowering prices, and eliminating corporatewelfare.

Finally, a campaign for unilateral reform would liberate thefree trade cause from the tangle of diversionary squabbles in whichit is currently ensnared. Concerned about fast track'santidemocratic circumvention of normal congressional procedures?Worried about ceding sovereignty to faceless internationalbureaucrats? Offended by obnoxious practices (continuing tradebarriers, subsidies, human rights abuses, drug trafficking, etc.)in the countries with which we strike trade deals? All of theseissues become moot when the only question on the table is whetheror not Congress, as a matter of purely domestic economic policy,ought to junk particular bad laws.

While they pursue unilateral reforms, free tradersshouldn't giveup on trade negotiations. International agreements can facilitatethe liberalization process by enlisting export interests to supportfree trade at home; also, such agreements provide a usefulinstitutional constraint against protectionist backsliding. But anew U.S. negotiating posture is needed, one that replaces demandsfor reciprocity with a commitment to free trade principles.

In traditional trade negotiations, countries offer to reduceimport barriers in exchange for other countries' offers ofequivalent reductions. In other words, freer markets at home aretreated as the price we pay for freer markets abroad. Indeed, inthe parlance of GATT negotiations, a commitment to reduce tariffsis known officially as a "concession." Thus, the rhetoric of tradetalks is premised on the protectionist notion that imports areharmful and trade barriers are prized strategic assets.

This is not a mere quibble: Protectionist assumptions andattitudes color every aspect of how trade agreements are currentlynegotiated and evaluated. Trade negotiators, in the process ofchampioning freer trade, demand "reciprocity" from our tradepartners. They insist that a "bad deal" (i.e., one in which weliberalize more than other countries do) is worse than no deal atall. They oppose domestic reforms outside the context ofnegotiations on the ground that our own bad policies are"bargaining chips" that should be retained for their exchangevalue. More ominously, they refer to liberalization withoutreciprocity as "unilateral disarmament." And when an agreement hasbeen reached, free traders focus on the benefits to exporters, notimporters. They tout the benefits of reducing foreign tradebarriers, but say little or nothing about the benefits of reducingour own.

These features of conventional trade negotiations are noaccident: They are part and parcel of the olddiversion-and-appeasement strategy. But if free traders are tobreak from that dead-end approach, if they are to mount a head-onchallenge to globalphobia, they will have to reinvent tradenegotiations so that they don't perpetuate protectionistfallacies.

In areas where the United States still retains protectionistpolicies, it could identify other countries with similarbarriers--but which are committed to reform--and negotiatesimultaneous liberalization in a kind of "coordinatedunilateralism." Unlike in reciprocity-based negotiations, the goalwouldn't be to swap "concessions" or to "win" at the bargainingtable by "getting" more than you "give." Rather, the expresspurpose of the negotiations would be for each country to gain byreforming its own policies, but to maximize that gain by linkingreforms to liberalization abroad. Reforming one's own policieswould be a central negotiating objective rather than the downsideof the transaction, while coordination would strengthen thepolitical case for free trade by adding the benefits ofliberalization abroad to those of market opening at home. Forcoordinated unilateralism to work, though, all countries involvedwould have to be committed to real reform. Otherwise obstructionismand holding out by some parties would become excuses for othercountries to cling to their misguided policies, and the wholeenterprise would degenerate into reciprocity as usual.

The United States can continue to take a leading role in tradenegotiations even when it has already eliminated its protectionistpolicies. In that regard, consider the 1997 World TradeOrganization agreements on telecommunications and financialservices. Both agreements represented important breakthroughs, andboth were negotiated in the absence of U.S. fast track authority.How was this possible? Fast track was unnecessary because none ofthe U.S. commitments under either agreement required changes inlegislation. The major U.S. "concession" was to agree to "lock in"current levels of openness. The United States would not commit todo so, however, until a critical mass of other countries agreed toexceed a minimum threshold of liberalization.

These agreements show how unilateral reform and tradenegotiations can complement and reinforce each other. Even withouttrade barriers, the United States can still exert powerful leverageat the bargaining table--not only through offers to lock inexisting liberalization, but also because U.S. participation lendslegitimacy to any international agreement and increases othercountries' confidence in each other's commitments. Using thatleverage, the United States could define negotiating objectives--for example, rules on the treatment of foreign investment, marketaccess for the cross-border provision of services, and so on--andoffer to elevate its own unilaterally adopted free trade policiesinto binding international commitments. That offer would becontingent, though, on pledges by other countries of credible andsignificant liberalization.

The viability of such an approach is not hypothetical: It workedin the telecom and financial services talks. True, in thosenegotiations the United States couched its position in terms ofdemands for reciprocity. But it could easily drop such rhetoric andadopt instead the following line: We pursue free trade policies atthe national level because we believe it is in the U.S. interest todo so, but we will not commit ourselves internationally to anyagreement unless it reflects a sufficiently serious commitment tofree trade principles.

It is thus possible for the United States to remain engaged inthe process of negotiated liberalization without fosteringmisconceptions that undermine free trade in the long term. TheUnited States can still wield significant bargaining power--mostimportant, by refusing to participate in watered-downagreements--without clinging to wrongheaded policies simply becauseother countries have not yet gotten rid of theirs. In short, theUnited States can enjoy the best of both the unilateral and themultilateral worlds. Unilateral liberalization, far fromundermining trade negotiations, can put them on a much sounderfooting.

Many supporters of free trade will be reluctant to abandon atried and true strategy, but a sober assessment demonstrates thatthe old diversion-and-appeasement approach has outlived itsusefulness. It is contributing to popular anxieties aboutglobalization. It is bending trade negotiations away from trueliberalization and toward international bureaucratization. Inshort, it is creating more problems than it solves.

There is a better way. Free traders have it in their power topromote their cause, here and abroad, with much greatereffectiveness than at present. They can seize the intellectualinitiative. They can frame issues in ways that give them thenatural political advantage. They can set an example for the restof the world to follow. And best of all, they can achieve thesethings by standing up for what they know to be true.