Ending the Trade War in Washington

Last November, the U.S. electorate sent a clear message to President George W. Bush and the new Democratic congressional leadership: work together to deal with the nation's challenges. Few issues depend on bipartisanship as much as trade policy, an area that has been plagued by bitter disagreement between the Democratic Party and the Republican Party during the first six years of the Bush presidency.

As of this writing, Democrats on the Senate and House trade committees and U.S. Trade Representative Susan Schwab were in the process of negotiating critical trade and labor issues. A breakthrough is possible, but it will require the Bush administration to reevaluate its trade and labor policies, something it is now seriously doing. A trade policy that increases export opportunities for U.S. goods and services while also addressing international labor standards and the needs of those hurt by expanding trade would appeal to mainstream Democrats, who see the value of international trade but want to mitigate the inequities it creates. Such a trade policy should also be acceptable to the U.S. business community, which benefits from increased trade and increasingly applies high labor and environmental standards to its own operations abroad. In short, the well-being of the U.S. economy depends on reaching a political consensus on trade policy.

The value of U.S. trade and earnings on foreign investment increased 32-fold between 1970 and 2005 and 130 percent between 1994 (the year before the successful completion of the Uruguay Round of trade talks) and 2005 in nominal terms. In 2005, the value of U.S. trade in goods and services alone stood at a record 27 percent of GDP, up from a mere 11 percent in 1970 and 22 percent in 1994. Today, at least 12 million Americans owe their jobs to exports to the rest of the world. The United States' role in free trade is so central that were the country to appear to be closing its doors to trade, it would send a dangerous signal to the rest of the world that protectionism is acceptable. Any resulting protectionism would constrict the main arteries of global trade and jeopardize continued economic growth.

Unfortunately, protectionist sentiments and partisan polarization seem to be on the rise on Capitol Hill. In the 2006 congressional elections, several Democratic Party candidates won on anti-free-trade platforms. The new Democratic House Speaker, Nancy Pelosi, has warned that their views need to be heeded in developing a new trade policy. Many Democrats are stating that they will refuse to renew President Bush's trade-promotion authority (known as "fast-track" authority), which allows the president to negotiate trade agreements and requires Congress to vote on them without amendments, after it expires at the end of June. The White House has relied almost solely on Republican votes to push its trade policy through Congress.

In recent years, Democrats have struggled with the free-trade agenda. President Bill Clinton had to rely heavily on Republican support to pass the North American Free Trade Agreement (NAFTA) in 1993 and to normalize trade relations with China in 2000. In 1998, Democratic opposition in Congress blocked the renewal of Clinton's fast-track authority, even though a majority of House Republicans supported the bill. In 2002, a Republican majority supported an identical fast-track measure for Bush, but it received minimal support from Democrats.

Republicans, for their part, reinforced partisan polarization on trade when they were the majority party. The Republican leadership of the House Ways and Means Committee, for instance, refused to consult on trade issues with ranking Democrats such as Charles Rangel (D-N.Y.), the committee's current chair, and Representative Sander Levin (D-Mich.), now chair of the Trade Subcommittee. They preferred to ram legislation through with just Republican votes.

Today, the Bush administration and congressional Republicans could continue to tow a staunch free-trade line that ignores Democratic concerns, although this would likely end in failure. At the other end of the spectrum, Democrats could push an antitrade agenda that exploits Americans' concerns about free trade's negative effects and ignores its benefits. This would be unwise for both parties. Instead, congressional Democrats and President Bush should work together to fashion a new, bipartisan trade agenda.

The prospects of building a bipartisan consensus on trade are brighter than is commonly recognized. Rangel, for example, is not the reflexive protectionist his opponents have made him out to be. He supported five of the seven bilateral free-trade agreements (FTAs) negotiated by the Bush administration, despite having been cut out of the loop. In the Senate, the Democratic chair of the Finance Committee, Max Baucus (D-Mont.), worked cooperatively during the previous Congress with then Committee Chair Charles Grassley (R-Iowa) on a variety of trade issues; he opposed only the Central American Free Trade Agreement. In the dying days of the Republican Congress, in December 2006, an overwhelming majority of Democrats in the Senate and roughly 50 percent of Democrats in the House supported extending unilateral trade preferences for developing countries under the Generalized System of Preferences (GSP) program. Rangel and other Democrats have long been strong supporters of the GSP and regional trade preference programs, even when they offer no reciprocal benefits for U.S. exports.

The key to building an effective bipartisan trade policy lies in addressing labor issues. At home, support for free trade depends on managing the dislocation of U.S. workers caused by it. Abroad, it means pushing for greater protection of basic workers' rights.

CONSENSUS FRAYED

For much of the postwar era, international trade was an issue that enjoyed bipartisan support. In 1979, when President Jimmy Carter's special trade representative, Robert Strauss, skillfully concluded the Tokyo Round of talks under the General Agreement on Tariffs and Trade (GATT, the predecessor to today's World Trade Organization), Congress ratified the agreement with nearly unanimous support. (So few members opposed it that Strauss joked, "Who are the few SOBs that voted against our bill?") Indeed, all but seven members of the House of Representatives and all but four Senators supported the Tokyo Round agreement, which included an eight-year extension of the president's fast-track negotiating authority.

After 1979, this consensus began to fray due to rising competition from Japan, the growth of exports from low-wage countries such as China and Mexico, the sharp decline in U.S. manufacturing jobs (largely and wrongly blamed on trade competition), and the stagnation of U.S. workers' wages. The most profound change occurred within the Democratic Party. Harry Truman had launched the GATT as one of the great postwar institutions, and every Democratic president after him had also championed trade liberalisation, including the Kennedy Round (under John F. Kennedy and Lyndon Johnson), the Tokyo Round (under Carter), and the Uruguay Round (under Clinton). By Clinton's presidency, however, things had changed. The Democratic Party was already emphasizing free and fair trade, asserting that it would support only those trade agreements that included enforceable labor provisions. Furthermore, the labor movement, a key Democratic Party constituency, fiercely opposed NAFTA and bilateral trade agreements with developing nations, arguing that these deals took jobs away from the United States and drove down wages.

Today, the general public, which is increasingly skeptical of the benefits of trade, shares such concerns. According to a December 2006 Pew Research Center poll, a plurality (44 percent) of Americans believe trade agreements are good for the country in general, but a plurality also blame trade agreements for hurting their personal finances (36 percent), lowering wages (44 percent), causing job losses (48 percent), and generally slowing the U.S. economy (34 percent). This is likely to be a major issue in the 2008 Democratic Party primaries and in the presidential election.

A HELPING HAND

Building bipartisan support for free trade will first require that Democrats and Republicans cooperate with one another and with the White House in order to broaden protection for U.S. workers and communities affected by trade. Free-trade advocates often ignore the fact that in addition to lower prices and more export-related jobs, trade liberalization and technological innovation also produce losers, particularly among workers in industries that are not competitive with low-cost producers elsewhere in the world. The Bush administration has not done all it can to take the sting out of FTAs. It should work on a bipartisan basis to develop a better retraining and adjustment program for workers.

One way to do so would be to expand the Trade Adjustment Assistance (TAA) program, which provides income support and training to U.S. workers who lose their jobs as a result of import competition or, in certain cases, the relocation of production overseas. The TAA program, which was implemented as part of the 1962 Trade Expansion Act, was first broadened in 1974, and in 1993 special TAA programs were adopted to help workers laid off because of the opening up of trade with Canada and Mexico under NAFTA. In 2002, with Bush administration support, the regular TAA and NAFTA-related TAA programs were consolidated, TAA funding was doubled -- to about $1 billion every year -- and eligibility for the funds was expanded. The number of weeks of income support was increased, and health coverage and wage-insurance benefits were added.

But more needs to be done. The scope of the TAA is too limited: it applies only to those adversely affected by competition from foreign goods, not foreign services. As Senator Baucus and Senator Norm Coleman (R-Minn.) have proposed, the TAA must be expanded to cover the 80 percent of U.S. laborers who work in the service sector, including those workers who may lose their jobs because of outsourcing. Such an expansion of the TAA to the service sector would make the program more relevant. Growing demand for TAA training has exhausted states' TAA funds. In fiscal years 2001, 2002, and 2003, 19 states temporarily discontinued enrolling TAA-eligible workers in training programs, and in 2004 six halted enrollment. Although these training programs resumed when more funds were made available, no worker should be denied training benefits because insufficient money has been dedicated to the program.

In addition, short enrollment deadlines for training programs have placed further pressure on the system, often giving workers too little time to accept the trauma of being laid off and grasp the need for training. Even when workers do seek training assistance within the statutory period, program officials do not always have enough time to properly assess workers' needs. In the most dramatic cases, if workers miss the enrollment deadline for training, they may become ineligible for TAA payments. These shortcomings need to be addressed through a more robust TAA program.

HYBRID MODEL

Labor provisions in the United States' bilateral FTAs are another area where bipartisan consensus is needed -- and possible. Democrats do not support FTAs with countries that do not have decent labor practices. The Bush administration has been able to get Democratic support for FTAs with countries whose labor standards are not a significant concern, such as Australia and Morocco, or with countries that have committed to improving their labor laws, such as Bahrain. But FTAs with nations whose labor practices are suspect, such as Oman, have drawn limited Democratic support. Pending agreements with Colombia, Panama, and Peru are in peril unless Democrats' concerns over labor standards can be addressed. Negotiating FTAs with countries with weak labor standards generally breeds political polarization. Washington therefore needs to choose its trading partners carefully and emphasize the effective implementation of internationally recognized labor principles.

The FTA debate often centers on whether the "Clinton model" (embodied in the FTA with Jordan) or the "Bush model" (exemplified by the Central American Free Trade Agreement) is better. But there are similarities in the labor provisions of both that can be built on. The Clinton and Bush models both contain the same core labor obligation: each trading partner must commit to effectively enforcing its own domestic labor laws. The models differ in how they resolve disputes in which one country believes the other is failing to uphold its labor commitments. One of the strengths of the Clinton approach is that all of the labor obligations in an FTA are subject to the same dispute-settlement regime that is used to resolve commercial trade conflicts. The Bush model, on the other hand, creates a different dispute-settlement process for labor (and environmental) obligations, placing the resolution of such disagreements on a separate track. Furthermore, under the Bush approach, only a single labor provision -- the obligation of each country to effectively enforce its own labor laws -- is subject to the settlement mechanism, whereas Clinton's FTAs subject all labor obligations to dispute settlement. By placing labor disputes on a par with commercial ones, Clinton's approach sends an important message to Washington's trading partners: the United States wants to liberalize world trade without compromising labor standards. Ultimately, Washington should be just as concerned about violations of an FTA's labor provisions as it is about violations of an agreement's commercial provisions, such as intellectual-property or investment rules.

At the same time, there are aspects of the labor provisions in Bush's FTAs that could be valuable additions to the Clinton approach. The labor dimensions of the Bush administration's FTAs are more extensive. For example, under the Bush model, signatories make a commitment to provide access to an impartial tribunal for those workers who believe their rights have been violated. Under the Bush model, trading partners also commit to increased transparency, including an obligation to make most hearings open to the public. Although these measures are taken for granted in the United States, these specific commitments to due process rights and greater openness are important improvements to the basic Clinton FTA labor provisions. Furthermore, although the Clinton model does recognize the need for cooperation between trading partners to improve labor standards, the Bush model includes a more robust commitment to such cooperation, highlighting technical assistance and collaborative projects on a wide range of specific labor issues. Such activities are vital for advancing labor standards in FTA partner countries. Overall, a hybrid FTA model -- adopting strengths of both the Clinton and the Bush approaches -- represents a feasible political compromise that should be adopted.

Such a hybrid approach could also be applied to the environmental commitments in FTAs. The Bush model includes important environmental provisions, such as the "citizen submission process," which allows nongovernmental organizations to file petitions with an impartial secretariat if they feel that an FTA partner is not effectively enforcing its environmental laws. This measure was the result of close collaboration between the White House and Senator Baucus, who originally suggested its inclusion.

Both the Clinton- and the Bush-era FTAs commit each country to effectively enforcing its own labor laws, but they do not require adherence to internationally recognized labor standards. This makes sense for countries that already have strong labor laws but not for countries with weak ones, in which promises to enforce existing domestic rules mean little. The core labor standards of the International Labor Organization (ILO) -- freedom of association, the right to bargain collectively, a prohibition on the use of forced and child labor, and the elimination of employment discrimination -- are important both to protect workers abroad and to ensure a level playing field for U.S. industries competing internationally. The Bush administration should push its FTA partners to adopt and implement labor laws and practices that at least meet the ILO's standards.

Doing so may be tricky, however, since Washington itself has not ratified all of the ILO labor conventions. Here, the GSP program may be a useful alternative approach to help ensure that U.S. trading partners adopt internationally recognized workers' rights. The GSP program, which has bipartisan support, does not explicitly require adherence to ILO standards; however, along with the African Growth and Opportunity Act, the Andean Trade Preference Act, and the Caribbean Basin Initiative, the GSP program ties trade benefits to the protection of workers' rights. Trade benefits can be revoked if a country fails to meet specified labor standards. Both Democratic and Republican administrations have used the GSP program in the past to address violations of workers' rights. The Central African Republic, Pakistan, and Paraguay have all had their GSP benefits temporarily suspended for not adequately protecting workers' rights. Belarus has been excluded from the GSP program since 2000 due to its weak labor standards.

BREAKING DOWN BARRIERS

In forging a bipartisan trade policy, Democrats should back the Bush administration's push to complete the Doha Round of trade talks even though labor standards cannot feasibly be introduced into these negotiations. The positions being pressed by U.S. Trade Representative Schwab -- greater reductions in EU agricultural tariffs in return for greater cuts by the United States in domestic agricultural subsidies, lower worldwide tariffs on manufactured products, and increased access to world markets for U.S. service industries -- all deserve bipartisan support. President Bush's fast-track authority, which is necessary to reach a binding agreement with the 150 countries of the WTO, expires at the end of June. The slow pace of progress in the Doha talks and the pending French presidential election will make it difficult to reach an agreement to present to Congress before then. If President Bush needs more time to negotiate a good deal, Democrats should extend his fast-track authority so that he can reach a WTO agreement and conclude bilateral FTAs in cases where acceptable labor provisions can be achieved.

There is reason to be optimistic that Democrats and Republicans can find common ground on the Doha Round. Democrats have historically been more supportive of multilateral trade agreements than of bilateral or regional ones, such as NAFTA, even though the former typically contain no labor provisions. Although only around 40 percent of House Democrats voted for NAFTA in 1993, for instance, 65 percent supported the agreements under the multilateral Uruguay Round in 1994. In the multilateral context, the advantages of global trade liberalization are obvious to Republicans and Democrats alike, since the U.S. market is much more open to the goods and services of other countries than foreign markets generally are to the United States' goods and services. Democrats have recognized that they cannot insist on labor provisions in WTO agreements because of the massive number of tradeoffs that would have to be negotiated with all the participants.

Forging an effective bipartisan trade policy will require compromise on both sides of the aisle on labor issues, and Democrats will have to engage in a more open dialogue with their Republican colleagues than they were permitted to have when the Republicans controlled the House. Fortunately, Democratic leaders, such as Rangel, appear willing to do so. The Bush administration should embrace many of the TAA reforms proposed by Senators Baucus and Coleman, especially considering that they would cost less than what is spent in a month for the Iraq war. Democrats, in turn, should be supportive of the Doha Round and grant President Bush the authority he needs to finish these important negotiations as well as secure acceptable bilateral FTAs.

If Washington fails to reach a bipartisan solution, trade talks will stall and stymie an important avenue of growth for the U.S. economy, which is much more intertwined with the global economy today than it was when Washington first led the world in breaking down trade barriers in the 1950s. Now is not the time to let domestic partisan politics jeopardize that global leadership.