EVENTS

Date:	Wednesday, June 27, 2007
Time:	2:00 PM -- 4:00 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

June 2007

The Bipartisan Trade Bargain: Is the Deal Worth It?

A month ago, the George W. Bush administration made a tentative deal with Congressional Democrats on a new template which could allow passage of pending trade accords and potentially clear the way for new ones. According to the proposal, countries seeking free-trade agreements (FTAs) with the United States would have to satisfy broader labor and environmental mandates. This follows the Bush administration's earlier expanded demands on the domestic regimes of potential FTA partners in the areas of capital controls and pharmaceutical pricing. Is the template for trade promotion authority flawed? Are trade deals increasingly extending too far into the domestic affairs of sovereign nations? Is it time for the United States to pull back? At a June 27 AEI conference, Ambassador John Veroneau, deputy U.S. trade representative, defended the administration's position, and following his keynote address, a panel of trade scholars discussed the agreement and related trade issues.

The Honorable John K. Veroneau
Deputy U.S. Trade Representative

Time will tell whether the deal between the administration and Congressional Democrats is "worth it," since its value depends largely on whether Congress passes pending FTAs with South Korea, Panama, Peru, and Colombia. Failure to reach this deal would have been harmful, since the pending FTAs are important for economic and political reasons to these countries and to the United States. This bipartisan deal paves the way for passage of these FTAs, a notable achievement considering that this past fall, many were skeptical that the Bush administration would see any progress in its trade policy. While attaching social provisions to trade agreements can be overly burdensome--either by eroding the economic benefits of the agreement or making it unpalatable to trading partners--the provisions contained in the recent accord between Democrats and the administration are not excessive and do not reach that tipping point. As the U.S.-Jordan FTA signed in 2000 demonstrated, labor provisions do not have to complicate the trade relationship between countries.

Trade liberalization in general is good policy. It leads to more efficient economies and welfare gains, especially for people of a lower socioeconomic status. Whereas closed economies tend to benefit the country's elites, the benefits of trade liberalization are normally more widespread. FTAs can play an important role in promoting transparency, the rule of law, and economic freedom. Moreover, the modest labor and environmental standards agreed to by the administration and Democrats will make it more likely that the benefits of globalization will be widely distributed.

Philip I. Levy
AEI

Ambassador Veroneau has rightly pointed out that, given the current political situation, the administration was faced with a difficult set of choices in its laudable goal of achieving greater trade liberalization through bilateral agreements. Moreover, bipartisanship in the development of U.S. trade policy has been eroding since the 1990s, and it is worthwhile to attempt to regain it. What the administration might obtain from this particular deal with Democrats, however, might not outweigh the loss of principles that were sacrificed. There is no guarantee that the Democrats will seek passage of the four pending FTAs--Ways and Means Committee chairman Charles Rangel (D-N.Y.) has stated that he will not actively advance the Colombia FTA--and the purported goodwill that has resulted from the deal is overstated. Furthermore, stricter labor and environmental standards are not the proper means to spread benefits of globalization to the world's poorest people. To achieve better standards in these areas, policies should be oriented first towards economic development, since once countries achieve stronger economic growth, they are likely to institute more appropriate labor and environmental regulations on their own.

Kimberly Ann Elliott
Peter G. Peterson Institute for International Economics

The recent trade deal is an improvement over the previous template for negotiating FTAs, but it is still flawed. Labor and environmental standards should be included in FTAs, but in a less intrusive and more effective way. Perhaps the greatest improvement is that the deal pared back "WTO-plus" provisions on intellectual property and modified provisions that impinged on governments' ability to use compulsory licensing. More specifically with respect to labor standards, the deal drops the old requirement that countries enforce their own laws, which is not sufficient if the trade partner has unjust labor laws, such as prohibitions on unions. In addition, this deal has the United States finally updating its definition of internationally recognized worker rights to match the International Labour Organization (ILO) consensus reached in 1998, which includes a non-discrimination provision. Core labor standards are good for development and essential to democracies and well-functioning labor markets. Moreover, there is little evidence that these provisions can be used for protectionist purposes by U.S. industry--or by other countries--to challenge U.S. labor laws. The provisions in this deal, however, are ultimately antidemocratic, and countries should arrive at labor and environmental standards through domestic policy processes. Finally, while the provisions of the trade deal would be helpful, some countries do not have the will or the resources to enforce them. Therefore, the United States should focus not only on FTAs' having the right legal requirements, but also on providing resources that enable countries to enforce labor and environmental standards.
 
Arvind Panagariya
Columbia University

FTAs are not the right instrument to promote free trade, but if that is what we must use, agreements with small countries accounting for negligible amounts of the world's trade are unlikely to help achieve that objective. If the administration seriously wants to promote trade through FTAs, it should focus on larger countries such as Brazil, Argentina, India, and ultimately China. By forcing members of Congress to repeatedly cast votes on a polarizing issue, FTAs with small countries end up compromising the success of multilateral negotiations without significant gains. Developing countries do not support including labor provisions in trade agreements. In fact, of all the bilateral agreements between developing countries, not one contains labor regulations.

The section of the deal between the administration and Democrats that calls for trade partners to ensure "acceptable conditions of work" is ambiguous and open to a wide range of interpretations. Non-trade objectives such as labor standards should be advanced through instruments such as the ILO and nongovernmental organizations, leaving the WTO to promote free trade. Multiple objectives require multiple instruments.

Warren H. Maruyama
Office of the U.S. Trade Representative

The bipartisan trade deal is optimal given the political realities. Since Democrats assumed the majority in Congress in 2006, any effort to establish FTAs with Peru, Colombia, Panama, and South Korea would have had to cover labor and environmental standards. This deal also helps make trade policy more of a bipartisan issue, which it had been for several decades up until the most recent one. The deal suitably addresses Democratic concerns, but the challenge remains to incorporate its provisions in FTAs without losing Republican support for FTAs or nullifying the economic advantages of free trade.

The deal successfully addresses both labor and environmental concerns. It incorporates labor standards by insisting on the ILO Declaration on Fundamental Principles and Rights at Work, which was developed by the Clinton administration in 1998 and covers largely noncontroversial issues such as abusive forms of child labor and forced labor. The trade deal specifically does not incorporate the ILO Conventions, the majority of which the United States has not approved. Concerning environmental standards, the deal incorporates seven multilateral environmental agreements with which the United States is already in agreement and compliance, such as the Convention on International Trade in Endangered Species and the Montreal Protocol on Ozone Depleting Substances, and these will be enforceable FTA obligations if the trading partner has signed on to them as well. Furthermore, in addition to promoting the international expansion of human rights, the rule of law, and sustainable environmental practices, if the deal enables Congress to ratify the FTAs currently under negotiation, the United States will avoid dishonoring its partners.

AEI research assistant Daniel Geary prepared this summary.