Monday, October 17, 2011

What the three new US FTAs portend

Business Times - 18 Oct 2011

What the three new US FTAs portend

Given Democratic opposition, Obama is likely to shelve any fresh foreign trade initiatives until after the 2012 elections


PROPONENTS of global trade liberalisation in Washington and elsewhere are cheering the passage of three long- delayed free-trade agreements (FTAs) in the US Congress last week. The FTAs with South Korea, Colombia and Panama are the first such agreements since 2007, and the deal with South Korea (the world's 15th-largest economy) is regarded as the most important trade agreement since the passage of the North American Free Trade Agreement (Nafta) in 1994.

The good news is that all three deals gained some bipartisan support, which allowed them to pass by wide margins. In the House of Representatives, the Colombia FTA passed by a vote of 262 to 167, the Panama deal passed 300 to 129, and the South Korean measure by a margin of 278 to 151. The Senate saw similarly large margins in favour of the bills with the Colombia one passing 66 to 33, the Panama one by a vote of 77 to 22 and the South Korea measure 83-15.

The bad news is that despite the Obama administration's strong support for the measures, many of those in Congress who voted against the bills were members of the President Barack Obama's own party - including Senate Majority Leader Harry Reid, who voted against all three bills, demonstrating the weakening power of the pro-free trade wing in the Democratic Party.

Indeed, the 15 votes against the South Korean deal in the Senate were all from Democrats, while in the House of Representatives, 130 of the 151 'no' votes were Democrats.

Strategic relationship

The passage of the South Korea FTA was particularly significant and timely. South Korean President Lee Myung-Bak arrived in Washington for a state visit last Thursday and made a trip to Detroit with President Obama during the weekend.

The Obama administration hopes that the approval of the trade deal with South Korea will underscore the economic ties as well as the strategic relationship between Washington and Seoul at a time when both governments remain concerned about North Korea's military nuclear programme and the increasing assertiveness of China in the region.

The United States and South Korea and Panama had originally signed the FTAs back in 2007 while the one with Colombia had been concluded in 2006. But the Democrats who had taken over Congress at that time refrained from bringing the FTAs for a vote, reflecting the opposition to the trade deals from their allies in the trade unions.

And President Obama, who had campaigned as a proponent of 'fair trade', contributed to the stalemate on the three FTAs by demanding that they be revised to take into consideration the concerns of US businesses and workers.

Moreover, the White House and the Congressional Democrats insisted that before sending the three trade agreements to Congress for ratification, Congress renew a Trade Adjustment Assistance (TAA) package that would provide assistance to workers laid off as a result of free-trade agreements. The Republicans had initially opposed such a move, arguing that it would add to the ballooning budget deficit but eventually reached a compromise with the Democrats on the issue.

But at a time when much of the legislative work on Capitol Hill has been stalled as a result of the political deadlock between the White House and the Congressional Republicans, the ratification of the treaties (which was largely negotiated by the previous Bush administration) could be regarded as a unique development: a victory for both President Obama and Republicans leaders on Capitol Hill as well as for numerous businesses that are expected to benefit from removing restrictions on trade between the US and its three trade partners.

Indeed, the main reason for Mr Obama's decision to enunciate the benefits of free trade has been his conclusion that accelerating trade liberalisation could help create new jobs in the US at a time when the rate of unemployment remains stuck above 9 per cent. Advocates of the three deals have argued they would stimulate the ailing US economy and generate employment by helping to gene- rate US$13 billion in new US exports, primarily to South Korea, and having the potential to create as many as 300,000 jobs.

'I look forward to signing these agreements,' the president said, hailing the passage of the deals as 'a major win for American workers and businesses', and emphasising that they would 'significantly boost exports that bear the proud label 'Made in America', support tens of thousands of good-paying American jobs and protect labour rights, the environment and intellectual property'.

Echoing that view was President Obama's leading Congressional nemesis, the Republican Speaker of the House of Representatives John Boehner, who said in a statement that 'these significant trade pacts will provide new opportunities for American small businesses, farmers and manufacturers to expand and hire more workers', adding that 'these common-sense agreements reverse that trend, level the playing field, and provide US job creators access to new customers and markets to sell their products'.

But against the backdrop of the anti-Wall Street demonstration spreading around the country, many Democrats are expected to warn that much of the gains from the trade deals will take the form of new profits for US businesses and will come at the cost of layoffs among American workers because of more competition from South Korean imports. Worse, the burden will fall on older workers without tertiary education who are losing their jobs in the declining manufacturing sector.

Elimination of jobs

Richard Trumka, president of the AFL-CIO, the leading American labour union, warned that the trade pact with South Korea would lead to the elimination of 159,000 US jobs.

That the approval of the three trade agreements with overwhelming Republican support came a day after the Republicans succeeded in forcing the Senate not to proceed with President Obama's US$447 billion plan to create new jobs and in the same week that Democrats joined by a few Republicans pressed through the Senate a bill aimed at punishing China for pursuing a 'misaligned' currency policy poses a major political dilemma for President Obama.

In the coming months, he could join forces with the Congressional Republicans in trying to revive the dormant global trade liberalisation agenda and pursue trade agreements with Japan and Taiwan while concluding negotiations on a Trans-Pacific Partnership trade accord, which would open markets in Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. That could help not only create new American jobs, but would also strengthen the US strategic position in East Asia.

But, more likely, facing the strong opposition of the Democrats, labour union and other left-leaning groups, President Obama is likely to place the rest of his trade agenda on the policy backburner until after next year's presidential and Congressional elections, when the issue will be taken up by him - or by the Republican who replaces him in the White House.

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