Monday, March 14, 2011

Will Obama trade agenda fizzle out?

Business Times - 15 Mar 2011

Will Obama trade agenda fizzle out?

The formula that seemed to be a sure win following the 1994 midterm election may not work this time around


THE Republican takeover of the US House of Representatives in last November's midterm elections may have made it more difficult for Congress to reach agreements over how to balance the federal budget. But some free traders in Washington had hoped that the growing power of the pro-business Republicans on Capitol Hill would make it less difficult to get Congress to approve key free trade agreements (FTAs).

Indeed, those Republican and a few Democratic proponents of an energetic US effort to liberalise global trade recalled after last year's Congressional races that the success of former Democratic president Bill Clinton in winning Congressional support for several critical free-trade accords - including the permanent normalisation of US trade relationship with China which was a required precondition for bringing China into the World Trade Organization - wouldn't have been possible if the Republicans had not taken over the House of Representatives after the 1994 midterm election.

Better chance

In fact, the majority of the Democratic members of the House of Representatives reflecting the power of anti-globalisation labour unions as well as the left-leaning ideology of the Democratic Party were opposed in 1994 - as they are in 2011 - to many of the global trade initiatives promoted by the centrist Democratic White House occupant then - and now. Moreover, whether it was president Clinton in 1994 or President Barack Obama in 2011, a Democrat in the White House has a better chance than a Republican president to persuade wavering Democratic lawmakers to vote in favour of a new trade agreement.

So in a way, having a centrist Democratic president and a Republican House of Representatives should be regarded as a winning political-legislative formula for getting Congress to pass new FTAs. Right?

Well, that is really not clear. And it's quite possible that the formula that seemed to be a sure win in the aftermath of the 1994 midterms is not going to work this time around.

Indeed, contrary to the earlier expectations of the advocates of free trade, nothing dramatic has been happening in that arena. If anything, Congress and the Obama administration have failed to press forward with the FTA that US and South Korean negotiators had concluded during the administration of president George W Bush. The tariff-cutting deal with South Korea was actually revised during the Obama administration in response to pressure from representatives of the car industry and the labour unions. Yet Congress is not ready to ratify it.

At the same time, there is no sign that Congress is closer to approving the proposed trade accords with Colombia and Panama that was also reached under the Bush administration. And without progress on these three FTAs, it would become very difficult to accelerate the efforts on reaching an Asia-Pacific trade agreement known formally as the Trans-Pacific Strategic Economic Partnership Agreement (aka the Trans-Pacific Partnership or TPP) - not to mention reviving the stalled Doha round of global trade negotiations.

High cost

Experts estimate that the Korea FTA would bolster US trade by about US$2 billion annually, while the gains for America's exports through the accord with Colombia would come to about US$1 billion a year and the FTA with Panama could increase US exports by about US$200 million. So the costs of not getting these FTAs approved as soon as possible are quite obvious.

And add to these opportunity costs of the long-term effect on US global economic interests as competitors pursue trade agreements with Korea, Colombia and Panama. Canada and the European Union, for example, have just completed negotiations on trade agreements with Colombia that would provide their agricultural products with competitive edge over similar American products in the Colombian market. Moreover, a group of former US trade representatives has called on the White House and Congress to approve the pacts with Colombia and Panama.

Most observers agree that there are enough Democratic and Republican votes in the Senate. The main obstacle remains the House of Representatives. The Republican Congressional leaders have indicated that they could mobilise enough votes in the House for the Korea FTA - which the Republicans support. But the Republicans would not do that unless the White House and the Democrats agree to vote at the same time to approve the FTAs with Colombia and Panama - which many Democrats do not support.

And in a demonstration of the perils of having members of Congress fight over trade, the Republicans and the Democrats seemed to have reached impasse on another trade front. The House Republicans are refusing to extend benefits to unemployed workers who lost their jobs to trade competition (aka trade-adjustment assistance). In retaliation, House Democrats are refusing to extend existing duty-free access to American markets for Colombia and other Central American economies.

Much of the opposition among Democrats to the FTA with Colombia stems from allegations about the lack of respect for labour rights in that country. But Colombia has been an important strategic ally of the United States in Latin America and is facing tough security challenges at home. Even some leading Democratic lawmakers have been urging their colleagues to support the trade pact with Colombia, stressing the contribution that the deal would make for US economic and national security interests.

'American farmers lost US$1 billion in sales to Colombia over the last two years,' according to the Democratic chairman of the Senate Finance Committee, Max Baucus. 'China has tripled its share of the Colombian market; ours has declined by 20 per cent,' he said, adding: 'American jobs are at stake.'

Mr Baucus announced that he would support the Republican request to vote on the Korea, Colombia and Panama trade deals together.

Even supporters of the Obama administration insist that when it comes to global trade issues, President Obama has failed to assume a strong leadership position. Part of the problem has to do with the White House's reluctance to antagonise powerful political allies in the Democratic Party and the labour unions whose support the president would need when he runs for re-election next year.

Public opposition

Mr Obama has been stressing in his speeches that expanding trade with other countries benefits the American economy and creates new jobs. But most public opinion polls show that growing number of Americans are opposed to free trade, a sentiment that has become more intense in the face of a slow economic recovery and a continuing high rate of unemployment. In short, free trade is not really a winning issue for any candidate running for political office. And it's doubtful that Mr Obama is going to win any brownie point with the voters if the FTAs with Korea, Colombia and Panama are approved by Congress.

Major initiatives

And, in any case, with so many domestic and foreign policy issues crowding the White House, it's unlikely that Mr Obama is going to have the time or the energy to win public and Congressional support for major trade initiatives before the end of his term next year.

The conventional wisdom in Washington is that if the White House wants to get Congress to pass any trade agreement, it will need to bring it to a vote before the end of this year. Very little can be achieved on trade issues during a presidential election year.

US Trade Representative Ron Kirk said at a Congressional hearing last week that the Obama administration was hoping to finalise the trade agreements with Colombia and Panama before the end of the year. But he expressed scepticism about the proposal of bringing the FTAs with Korea, Colombia and Panama for a vote in Congress at the same time.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

No comments: