Thursday, June 02, 2011

Headwinds for Obama trade agenda

Business Times - 03 Jun 2011

Headwinds for Obama trade agenda


AS PART of its stated commitment to help American companies double their exports by 2015, the Obama administration has been pressing Congress to approve the proposed free trade agreements (FTAs) with South Korea, Colombia and Panama. Indeed, early this year in his State of the Union speech, President Barack Obama hailed a trade deal with South Korea 'that will support at least 70,000 American jobs'.

In fact, President Obama and his aides had to deal with strong opposition from Democrats in Congress and their supporters in the labour unions who opposed the three pacts that were negotiated by former president George W Bush and that enjoyed the backing of a majority of the pro-business Republicans on Capitol Hill. The White House was able to eventually secure Democratic support only after making some modifications to the Korean bill.

At a time when the US economy is recovering from the worst recession since the Great Depression, enacting the three pacts could help accelerate economic growth by boosting US exports by an estimated US$13 billion a year, most if it to the South Korean market. At the same time, the Colombia and Panama deals would eliminate most of the tariffs faced by US agricultural and industrial products exported to those countries.

Moreover, officials in Washington warn that there is a danger that the US would be left behind in the global trade arena if Congress doesn't approve these FTAs. An FTA between the European Union and South Korea is going to take effect next month and Colombia could be forced to focus on its existing trade partners, such as the South American trade group Mercosur and Canada.

Congressional passage of an FTA with Seoul should also be considered to be a strategic priority at a time when the US is trying to resolve the ongoing North Korean nuclear crisis. Similarly, Colombia is an important military ally of the US in South America, where anti-American policies are being promoted by Venezuela.

So, against this backdrop, it was not surprising that the expectation in Washington has been that the three FTAs would probably be approved by Congress before the end of its session this year.

That could still happen. But the momentum to approve these trade deals - as the first step in trying to re-energise the entire global trade agenda - may have come to a halt as the issues have been caught up in the partisan bickering on how to cut federal government spending.

At the centre of this latest squabbling has been the 50-year-old Trade Adjustment Assistance (TAA) programme, which provides support for workers who have been displaced as a result of foreign competition and which expired in February.

The programme consists of cash allowances given to unemployed workers displaced by foreign competition so they can attend training to find new work. It cost about US$1 billion last year and helped around 250,000 Americans.Â

The TAA has been a regular feature of US global trade policies for half-a-century. But then the US federal deficit ballooned. And while the White House and its Democratic allies in Congress want to extend the programme, Republicans argue that the TAA is not effective and have proposed abolishing it as part of a wider effort to reduce the deficit.

But the Obama administration insists that it will not submit the three FTAs to a vote if Congress doesn't renew the TAA. The White House position is backed by 41 Democratic Senators who in a letter issued last week stated that, notwithstanding their 'differing views on elements of the trade agenda', they were 'unified in our belief that the first order of business, before we should consider any FTA, is securing a long-term TAA extension'.

The FTAs have to be ratified by the Senate, and since the Democrats control that legislative body, the Republicans will have to reach some sort of compromise with the Democrats over extending the TAA if they and their allies in the business community want to see the three pacts approved by Congress this year.

The Senate Finance Committee led by Max Baucus, a pro-free trade Democrat from Montana, has conducted a series of hearings on the three trade pacts, operating under the understanding that they will be approved before the August recess.

Senator Baucus and other supporters of the pacts are concerned that it could become much more difficult to get them approved next year in the midst of the heated Congressional and presidential elections campaign when public opinion polls point to rising protectionist sentiment among many Americans.

As Orrin Hatch, a senator from Utah, and the Republican top member on the Senate Finance Committee, pointed out, a failure to submit the three agreements to a vote this year would send 'a chilling signal around the world that the United States is not a trusted ally on trade'.

The question is whether Mr Hatch and his Republican and Democratic colleagues will succeed in overcoming their current political differences and ensure that the US indeed remains a trusted trade partner.

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