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Who’s Stalling Whom on Trade?

Friday, March 4, 2011

Calls for broader trade progress have been bipartisan, yet the Obama administration continues to delay free trade agreements.

The New York Times reported this week on the standoff in U.S. trade policy. The story came perilously close to criticizing the Obama administration’s dilatory trade tactics, but caught itself in time and blamed the standoff on Republicans.

Describing the impasse, Sewell Chan writes: "Although the White House renegotiated a pivotal free-trade agreement with South Korea in December, scoring rare bipartisan praise, House Republican leaders have refused to allow the deal to move forward. They want the administration to make progress first on similar accords with Colombia and Panama that face stiff opposition from labor unions and liberal Democrats."

Beyond the three pending free trade agreements (FTAs), this dispute has blocked the renewal of a program to help workers who lose their jobs to new trade flows (Trade Adjustment Assistance) and a number of preference programs that lowered U.S. tariffs on certain developing countries.

This story can perplex anyone who has not followed the issue over its long history: Republicans favor free trade, so they are blocking the Korea FTA, and the White House is holding out on setting a firm deadline for the Colombia and Panama FTAs, while the secretaries of State and Treasury say these should be done by the end of the year. What’s going on?

As late as October 2010, the Koreans were still complaining that they had not received a formal U.S. proposal. The delay ended up embarrassing President Obama.

The story goes back four years to 2007, when Democrats claimed control of both the House and the Senate. The Bush administration had negotiated and signed four FTAs: Peru (April 2006), Colombia (November 2006), Panama (June 2007), and South Korea (June 2007). Congressional Democrats roundly criticized these agreements and demanded a new approach.

White House negotiators sat down with congressional leaders and reached an accord on May 10, 2007 (the date became memorialized as the agreement’s name). President Bush committed, among other concessions, to expand the coverage of labor and environmental issues in U.S. FTAs. In turn, the Bush team thought it had secured a promise that all four pending FTAs would come up for a vote.

The labor and environmental provisions of the agreements were revised, per White House promises, but only the Peru FTA came up for a vote (and was approved). It turned out to be one-and-done. When the Bush administration submitted the Colombia FTA, then-House Speaker Nancy Pelosi commanded a rewrite of the rules governing FTAs and blocked a vote.

Since then, U.S. trade policy has been dormant. President Obama, both in office and as a candidate, said that he approves of the idea of free trade agreements, but that these pending deals are flawed and need mending. Such criticism never delved into particulars. The audience was left to imagine what the flaws might be and to speculate about the magnitude of the required fixes.

This long period of nebulous discontent with the pending FTAs seemed to draw to a close last year. In June 2010, President Obama announced that he would conclude a revision of the South Korea FTA at a previously scheduled November summit in Seoul. Trade aficionados eagerly anticipated the unveiling. What would these revolutionary reworkings of trade agreements look like? What kind of momentous changes had the Obama trade team been secretly cooking up over the years?

The brevity of negotiation with Korea and the limited nature of the changes suggest that the administration’s delay on other agreements has been due more to political concerns and a lack of resolve than to substantive criticism.

Oddly, the June announcement was not followed promptly by a list of demands for revising the Korea FTA. As late as October 2010, the Koreans were still complaining that they had not received a formal U.S. proposal. The delay ended up embarrassing President Obama, as agreement was not reached in time and he was compelled to stand up in Seoul and declare that he and his counterpart had failed. Only on December 3 did the two sides finally settle, after what totaled less than two months of serious talks.

At last, though, it was possible to see what the fuss had been about. What had turned an agreement from objectionable to acceptable in the eyes of the administration? Jeff Schott, of the Peterson Institute, assessed the Korea FTA changes thus:

In economic terms, the overall impact of the new deal differs little from the old deal. Changes in the tariff schedules reduce the overall benefits of the trade pact but not by very much.

It is worth remembering that, in economic terms, the U.S. trade relationship with Korea is substantially bigger and more complex than those with Colombia or Panama. The brevity of actual negotiation with Korea and the limited nature of the changes suggest that the administration’s delay on the other agreements has been due more to political concerns and a lack of resolve than to substantive criticism.

The experience with the May 10 agreement and repeated empty promises of future progress have made Republicans wary of another one-and-done, in which Korea would pass but then the trade agenda would stall once more. Calls for broader trade progress have been bipartisan. This week, 67 of the 87 freshman Republicans in the House signed a letter calling on the president to move forward with all three pending FTAs by July 1, when Europe’s FTA with Korea comes into force. Senate Finance Committee Chairman Max Baucus (D-Montana) issued a statement: “The administration needs to quickly resolve all outstanding issues so Congress can approve all three free trade agreements as soon as possible this year and help create more jobs here at home.”

Perhaps as a result of pressure in the current standoff, Washington Trade Daily reports that U.S. Trade Representative Ron Kirk will now present specific demands and a timeline for Panama and Colombia at a March 9 Senate Finance hearing. If so, the list of particulars will arrive only four years, three months, and 15 days after the Colombia agreement was signed.

Who has been stalling whom?

Philip Levy is a resident scholar at the American Enterprise Institute.

FURTHER READING: Levy says “Protection Rolls On” under President Obama, describes “An 18-Wheel Bellwether” on trucking trade with Mexico, and asks “Will the President Confront His Base on Trade?” He evaluates “The SOTUation on Trade and the Deficit,” writes “For Obama, Free Trade Is Key to Success,” and condemns “The KORUS Catastrophe.”

Image by Rob Green/Bergman Group.

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