Friday, November 03, 2006

Will U.S. trade policy stall after midterm elections?

Business Times - 03 Nov 2006

Will US trade policy stall?

Increasing Democrat control may weaken pro-free trade forces


THAT the US midterm elections could result in the Democrats regaining control of Congress is causing some concern among pro-free trade proponents in Washington. After all, the Republicans on Capitol Hill have been leading the push for trade liberalisation in recent years, while many Democratic candidates for the House and the Senate have been campaigning on platforms that criticise globalisation with some of them favouring higher tariffs for imported goods.

Indeed, pro-free trade Republican Senators from Ohio, Vermont, Pennsylvania, Virginia, Rhode Island, and Missouri are now facing strong challenges from Democratic candidates who tend to be more skeptical - of not protectionist - on the issue of free trade.

Hence the expectation in Washington is that the most likely consequence of Democratic control of Capitol Hill will be growing pressure against further trade liberalisation, and that even if the Republicans maintain control of Congress, not much will be achieved in terms of US trade policy in the next two to three years, that is, until the next US President starts to advance his (or her) trade agenda sometimes in early 2009.

Looming deadline

The Doha Round to liberalise global trade which was launched in 2001 collapsed in July over mainly as a result of differences over agricultural policies between the negotiators. At the same time, the US President's trade promotion authority (TPA) which allows him to negotiate trade deals that Congress must then accept or reject without adding amendments, expires in June 2007.

Most observers believe that a Democratic-controlled House and Senate would reject renewing President Bush's trade authority. But they also don't expect that a narrow Republican majority would be able to win support for such a measure, either.

And against the backdrop of a stalled Doha Round and with the TPA buried on Capitol Hill, the Bush Administration could find it close to impossible to promote new trade accords.

While Iraq and the Middle East - and not trade or globalisation - have dominated the current election campaigns, there are signs that rising economic anxiety around the country, including over the loss of US manufacturing jobs, has weakened the power the pro-free trade forces on Capitol Hill.

And the expected growth in the influence of the Democrats in Congress make it easier for the trade unions and the environmental groups that are allied with them to press lawmakers to require labour and environmental standards to be included in new trade agreements, and to expand trade-assistance programmes in for workers who lost jobs to foreign competitors.

It is doubtful that the Bush Administration, facing enormous pressure to deal with the deteriorating situation in Iraq and with the nuclear crises with Iran and North Korea, will be willing to spend its very limited political capital on negotiating new trade agreements in the next two years.

And then there is the growing US trade deficit with China and the continuing pressure from Democratic and Republican lawmakers to 'punish' the Chinese with tariffs. But the expectation is that US Treasury Secretary Henry Paulson, who is well-regarded among the leading Democrats in Congress, will succeed in containing the pressures.

Most experts suggest that the chances of Congress approving a proposed trade accord with South Korea and granting permanent normal trade relations with Vietnam before the TPA expires next year are even, although it is unlikely that the Bush administration will be able to press for a trade accord with Malaysia.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.