U.S. trade policy, like much in politics, has become increasingly partisan. Passage of the North American Free Trade Agreement (NAFTA) and the Uruguay Round establishing the World Trade Organization (WTO) have severed the bipartisan consensus favoring free trade, a trend tracing back to the Reciprocal Trade Agreement Act (RTAA) of 1934. This bipartisan consensus strengthened following World War II with the passage of the General Agreement on Tariffs and Trade (GATT).
Congress initially achieved bipartisan consensus on free trade by tying its own hands. The Smoot-Hawley Tariff of 1930 demonstrated the disastrous consequences of protectionism. With the passage of the RTAA in 1934, trade negotiating authority passed to the Executive. The purpose of this delegation of authority from legislature to president was to overcome the collective action problem inherent in trade politics.
Although free trade is optimal from a total welfare perspective, costs are concentrated while gains are spread widely. The losers therefore are likelier to lobby Congress for protection, while the winners have less motivation to organize politically.
Delegating trade policy authority to the president is a cure for this potentially debilitating condition. Fast-track authority (now called Trade Promotion Authority) requires the president to notify Congress of his or her intention to negotiate a trade agreement 90 days before negotiations. Congress must then vote up or down (without amendment) on the final agreement within 60 days of the bill being submitted. This process has shielded Congress from partisan pressures for a long time.
Partisanship has returned to U.S. trade politics. Congress is reasserting control over trade policy that was granted to it under the Constitution. NAFTA, which came into force in 1994 and sparked a bitter debate over the effects of trade on labor standards and the environment, passed only when President Clinton offered labor and environmental side agreements to placate opponents. Clinton later failed to gain renewal of fast-track authority in 1997. President Bush barely received fast-track authority in 2001, with the House voting in favor 215-214. Similarly, the Central American Free Trade Agreement (CAFTA) narrowly passed in the House, 217-215. Congress allowed Bush's fast-track authority to expire in 2007, likely dooming the Doha trade round.
While Republicans have generally supported free trade policies, Democrats have become the party of "fair trade." This is actually a reversal of the parties' traditional positions. Throughout the late 19th century and early 20th century, Republicans were the party of protectionism and Democrats of free trade. Northern Republicans wanted to protect the industrializing north's "infant industries" from international competition, while Democrats in the agrarian south had an interest in free trade. These roles have reversed. Democrats have grown skeptical of pure free trade partially in response to pressures from their traditional union base.
Rising inequality, stagnating wages among unskilled workers, and worker anxiety over job security attributable to globalization have driven this shift in trade politics. As Paul Krugman points out in a recent article, the United States now imports more manufactured goods from low-wage countries than from other advanced countries. There is reason to believe therefore that the effect of globalization on the wages of unskilled workers may not be as modest as it once was.
Concerns over weak labor and environmental standards in developing countries are also at play. Many fear that weaker standards give these countries an "unfair" advantage in international competition. Meanwhile, low standards and wages can be seen as a comparative advantage. Whatever the economic merits of the argument, labor and environmental standards have become a political issue able to stymie trade agreements.
A new bipartisan consensus is needed if there is to be progress on trade in the near term. Labor rights proved to be the most divisive issue in the tough negotiations between U.S. Trade Representative Susan Schwab and Congressmen Charles Rangel (D-NY) and Jim McCrery (R-LA) that resulted in compromise on May 10, 2007. Their Bipartisan Agreement on Trade Policy outlines language to be incorporated in pending free trade agreements (FTAs).
On labor standards, parties must agree to enforce the five basic labor standards outlined by the International Labor Organization (ILO). On the environment, parties are obligated to enforce their environmental laws and to meet obligations of several multilateral environmental agreements. On both labor and the environment, parties must commit to not lowering standards. In addition, the U.S. government must develop further the Strategic Worker Assistance and Training (SWAT) Initiative in order to support the losers from free trade. This support is intended to go beyond traditional trade adjustment assistance. The agreement also includes provisions on access to generic medicines, investment, government procurement, and port security.
This compromise offers a way forward on trade policy and suggests that bipartisan consensus may indeed be achievable—an optimism borne out by the relatively easy passage of the U.S.-Peru FTA. But there are also signs that the compromise is fragile. Congress let President Bush's Trade Promotion Authority expire after the compromise agreement was reached. In addition, passage of the U.S.-Colombia and U.S.-South Korea FTAs is far from a priority.
Progress on trade in an election year will be unlikely. Congress will not want to hand President Bush a victory, and candidates for president and Congress will find it politically convenient to bash trade. The true test of the compromise agreement will come with the arrival of the next administration.
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