The Democrats' Dangerous Trade Games
by C. Fred Bergsten, Peterson Institute for International Economics
Op-ed in the Wall Street Journal
May 20, 2008
© Wall Street Journal
President Bush and the Democratic Congress are locked in fierce conflict over approval of US free trade agreements with Colombia, Panama, and South Korea. Presumptive presidential candidates Barack Obama and John McCain hold sharply different views on the merits of free trade and globalization. Whether we're prepared for it or not, a major national debate on these issues is looming for the fall campaign and beyond.
Meanwhile, our venerable House of Representatives, in the context of the Colombia agreement, has recklessly changed the rules for congressional action on trade legislation. By rejecting long-settled procedures that prevented congressional sidetracking of trade deals negotiated by presidents, the House has hamstrung US trade policy and created the gravest threat to the global trading system in decades.
By effectively killing "fast track" procedures that guarantee a yes-or-no vote on trade agreements within 90 days, lawmakers in Washington, led by House Speaker Nancy Pelosi, have destroyed the credibility of the United States as a reliable negotiating partner.
Our unique constitutional system—under which Congress is responsible for "foreign commerce" but the president has authority to negotiate with other governments—has required the creation of special procedures to mesh with the parliamentary systems of other countries where executive and legislative branches almost always work together. Without arrangements that assure reasonably prompt congressional action on agreements negotiated by the president, other countries legitimately fear that Congress will simply let deals languish, or insist on further concessions.
The House was in fact doing both with respect to the pending agreements with Colombia and Korea, before the Bush administration forced the issue by submitting implementing legislation on the former. Facing such circumstances, other countries will not take on the domestic battles surrounding their own liberalization, and thus will not engage seriously with the United States in either multilateral or bilateral talks.
This is not theory but history. One of President John F. Kennedy's crowning achievements, the Kennedy Round of trade negotiations of the 1960s, was shorn of two of its major components by congressional refusal to even vote on them. That action unbalanced the agreement so severely that a furious European Community, our main trading partner then and now, made clear that it would never again negotiate with the United States without firm assurance against the recurrence of such an outcome. The other major trading nations took similar positions.
The result was the "fast track" process, embodied in trade legislation in 1974 and renamed Trade Promotion Authority in 2002. Under those rules, devised largely by Democratic legislators, Congress agreed to vote on trade agreements submitted by the president within a fixed period of time and without amending their terms, provided that Congress authorized the talks in advance and that administration trade officials consulted closely with the Hill throughout the process. This approach has enabled the United States, under presidents and congressional majorities of both parties, to participate effectively in international trade negotiations.
The House action abruptly and unilaterally terminates this highly successful system. The immediate effect is to scuttle the pending free trade agreements with Panama and Korea, as well as Colombia, and to end any remaining prospect for an early conclusion of the Doha Round in the World Trade Organization.
The much more profound impact, however, is to remove the United States from any significant international trade negotiations for the foreseeable future. Current and former chief trade officials of three of the world's largest trading entities have told me that, since the House action, the United States has lost all credibility. In other words, the "time out" proposed for trade policy by one of the major presidential candidates—a central goal of the opponents of globalization—has already been called.
The United States will suffer severe economic and foreign policy costs if the House action is permitted to stand. Careful studies at our Peterson Institute for International Economics show that the US economy is $1 trillion per year richer as a result of the trade liberalization of the past 60 years, and that we would gain another $500 billion per year if the world could move to totally free trade.
The European Union, and the large and dynamic economies of Asia, will now strike trade compacts among themselves that discriminate against the United States rather than do deals with us. Examples will likely include EU-India and EU-Korea, and eventually an Asia-wide trade area. We will lose billions of dollars worth of exports and the associated high-paying jobs—just at a time when improvements in our trade balance, fortified by continuing growth abroad and a highly competitive dollar, are cushioning our slowdown. The multilateral trade system, including the highly effective dispute settlement mechanism in the World Trade Organization, will erode further and weaken our ability to tear down barriers in China, India, and other large emerging markets.
Most profound of all will be the impact on US foreign policy. Any new administration, whether Democratic or Republican, will seek to reverse the perception of unilateralism inherited from its predecessor. But effective withdrawal from the international trading system moves us in the opposite direction. The next president will be very badly served by inheriting such a mess on trade.
It would help if Congress and the present administration could pick up the pieces and pass the Colombia agreement, and the pending Korea and Panama agreements as well. But the fundamental problem of US international credibility on trade will remain until a foolproof Trade Promotion Authority, or some equivalent successor, is renewed in perpetuity.
This can probably be done only as part of a "grand bargain" that recognizes the costs as well as the huge benefits of liberalization, and thus includes a substantial expansion of governmental assistance to workers dislocated by trade.
In the absence of such a renewed foundation for an open and active US trade policy, both our economy and our foreign policy will suffer severely.