Topic Category: Politics

Having just returned from a speaking tour in China and Singapore, I found the audiences there extremely interested in the perspectives of the Obama administration and the 111th Congress. And why not? Economic and trade policy decisions driven by this Congress and President will have a tremendous impact on Asia, as well as every other continent.

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Charles Darwin, author of On the Origin of Species published in 1859, once said, “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” If true, the new administration is off to a good start with China. Why? The Middle Kingdom’s global status has increased significantly and President Obama appears to have recognized it.

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The American Recovery and Reinvestment Act of 2009, known as H.R. 1 or the $787 billion stimulus bill, was approved by Congress on February 13th and signed into law by President Obama on February 17th. Many aspects of the bill remain controversial. But the Buy American provision essentially provided the ingredients to start a trade war—until the Dorgan amendment was added. Although the provision has been rendered less effective, it still may become contentious once the dust settles.

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Many hope that President-elect Barack Obama will help uplift the American spirit and inspire a new “can-do” attitude toward remedying our serious economic problems. This, of course, is no easy task. But if successful, Obama’s encouragement will have awoken a uniquely American attribute currently lying dormant in the American psyche.

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Globalization is a fact of life in 21st century America, and America’s small businesses should be allowed to take full advantage of its opportunities.

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There are nearly 400 regional trade agreements either in force around the world, signed but not yet in force, or being negotiated, according to the World Trade Organization. And the number is anticipated to grow at an accelerated rate.

Not surprising, many of these agreements have evolved into trade blocs, such as the 27-member European Union and the 10-member Association of Southeast Asian Nations. And as they evolve, their global negotiating strength increases as they capture more and more global trade and investment.

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The era of trade liberalization is dead. Yet it could get worse still. Not only have prospects for liberalization over the next few years been dashed, but Congress is considering legislation that could precipitate a retreat from the trade policies and institutions that have served U.S. interests for 60 years.

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America’s growing engagement in the global economy is not just a story of the Fortune 500. Increasingly, small and medium sized U.S. companies are entering global markets not only to sell but also to buy and invest. In response, Congress and the administration can and should do more to open new opportunities for U.S. small businesses to remain competitive in a globalized economy.

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On June 30, 2007, Trade Promotion Authority (TPA) is set to expire, and without it, the Bush Administration will no longer be able to negotiate timely, effective trade agreements.

Legislation to re-authorize TPA would continue the system where Congress votes up-or-down on trade agreements the President secures but cannot amend or filibuster them. Because today’s global economy offers unparalleled opportunities for the U.S., it is in America’s economic interest to continue to expand trade by lowering barriers placed on goods and services. Moreover, freer trade helps spread freedom globally, reinforces the rule of law and fosters economic development in poor countries.

Congress should renew TPA as it is, allowing America to continue reaping the benefits of good policy.

The debate over whether Congress should renew TPA will become a bigger issue—and not just between free traders and protectionists. Within each camp, different ideas for modifying TPA are emerging. Some would leave TPA as it is, some would require additional guarantees and restrictions protecting U.S. workers and firms from foreign trade partners, some would seek to expand the role of Congress in the negotiations process, and some would do away with TPA all together. Because it would hinder the expansion of freer trade, limiting or ending TPA would be a mistake.

TPA Today

Under TPA, formerly known as fast-track authority, Congress can approve or reject an entire trade agreement, but it cannot alter specific provisions in the agreement. In return, the President must fulfill certain criteria specified by Congress in each free trade agreement (FTA).

One of these criteria is consultation with Congress throughout the negotiations process. Additionally, TPA rules require that America’s free trade agreements go beyond winning lower tariffs on U.S. agriculture, manufacturing and services exports. FTAs contain provisions that safeguard investors from discrimination and uncompensated expropriation of property, increase regulatory transparency and eliminate excessive red tape, protect and enforce intellectual property rights, combat corruptive practices, ensure nondiscriminatory government procurement, protect labor rights, and strengthen environmental protections.

The U.S. negotiates agreements that include transparent dispute resolution and arbitration mechanisms to guarantee that the agreements are upheld, along with the rights of U.S. firms and consumers.

Due to the way TPA is implemented, countries are assured that U.S. trade policy commitments in an FTA will not be amended by Congress after negotiations conclude. Consequently, the TPA enhances America’s ability to negotiate trade agreements by ensuring that U.S. commitments are made in good faith. This minimizes the cost and uncertainty associated with the negotiations process.

Each element of an FTA strengthens the transparent and efficient flow of goods, services and investments between member countries. FTAs open markets, protect investors and increase economic opportunity and prosperity. In short, FTAs—and the TPA legislation that defines them—serve to promote U.S. interests, not weaken them.

A Record of Success

TPA has helped the U.S. negotiate and conclude new free trade agreements in an efficient and timely manner. Over the years, the U.S. has implemented 10 bilateral or regional FTAs with 16 countries. Trade liberalization through these FTAs and multilateral channels has resulted in significant benefits to the American economy.

Today’s $12 trillion U.S. economy is bolstered by free trade, a pillar of America’s vitality. The United States is the world’s largest economy and a major exporter. Increases in U.S. exports accounted for about 25 percent of America’s economic growth in the 1990s and 20 percent in 2005, according to the U.S. Trade Representative. Jobs directly linked to the export of goods pay 13 to 18 percent more than the average U.S. job.

Freer trade enables more goods and services to reach American consumers at lower prices, giving families greater power to save money or spend it on other goods and services. The United States is among the most open markets in the world. According to the USTR, The World Trade Organization Uruguay Round and the North American Free Trade Agreement (NAFTA) alone have lowered U.S. tariffs and provided an average savings of $1,300 to $2,000 a year for a family of four.

Freer trade policies have created a level of competition in today’s open market that leads to innovation and better products, higher-paying jobs, new markets, and increased savings and investment. The expansion of international trade has helped make American one of the most productive and wealthy economies in the world.

The TPA Debate

The call for TPA reform reflects a growing sense that TPA legislation is the appropriate vehicle to address the perceived costs of globalization on the U.S. economy. But using TPA to redress the alleged costs of trade is a bad idea for a number of reasons.

First, TPA is not designed to address trade or industrial policy concerns that may be different across trade partners. TPA has two primary roles: to define the basic standards of FTAs and to provide the President the legal authority to negotiate and conclude trade agreements quickly and effectively. TPA sets the foundation from which trade talks start. As negotiations move forward, policy concerns that are unique to the bilateral trade relationship are identified and addressed. Not all trade partners are created equal; TPA should retain the flexibility needed to conclude FTAs that are beneficial to all parties.

Second, implementing more restrictive conditions to the structure of each FTA could eliminate the benefits to partner countries of joining into free trade agreements with America—especially developing countries that use U.S. Free Trade Agreements to help promote development and lessen poverty. The idea that forcing more stringent labor and other standards on potential FTA partners will make freer trade more “fair” for America is false. The major economic benefits of free trade are derived from the differences among trading partners, which allow any country embracing world markets a chance to be competitive. Free trade is fair when countries with different advantages are allowed to trade and capitalize on those differences.

Finally, modifying TPA opens the door to protectionist policies aimed at saving jobs in declining industries. But trade is not the key issue with jobs. Exposing noncompetitive companies to the rigor of serious competition, whether domestic or international, is not the cause of lost jobs. A better policy, then, is to redress the factors that lead to noncompetitive firms that should be fixed. High corporate tax rates, a relatively high minimum wage, weak protections of property rights, corruption, and other policy failures are the real threats to American jobs, and erecting trade barriers will not address these issues. Instead, policymakers should focus directly on these concerns with the appropriate policy tools. America’s competitive advantages in the global market would not be served by making FTAs harder to negotiate but would be improved by healthy debates on U.S. tax and regulatory policy.

Final Thoughts

Trade Promotion Authority is vital to strengthen the hand of the United States at the negotiating table and provide a framework for consultation with Congress at key stages of trade negotiations. The President needs the ability to sign good trade deals that expand U.S. access to overseas markets and strengthen international trade norms. Current TPA rules support the development of effective labor and other economic policies without forcing unrealistic and detrimental regulations on developing economies or significantly undermining the benefits of freer trade.

Congress should insure that TPA legislation is renewed without substantial, restrictive new provisions that define the content of U.S. FTAs. Legislation resulting in TPA provisions that are too costly for the U.S. or erect new barriers to trade would harm Americans and American interests.

Defending free trade and encouraging new trade agreements are central tasks for Congress. Expanding global trade—and America’s role in world markets—is fundamental to building a stronger economy at home and promoting better relationships abroad.

Daniella Markheim is Jay Van Andel Senior Analyst in Trade Policy in the Center for International Trade and Economics at The Heritage Foundation. This article appeared in Impact Analysis, May-June 2007.
Topic: Politics
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U.S. trade policy is regularly the subject of contentious debate on Capitol Hill, and the 110th Congress promises an even more volatile debate. Although a new study of voting records and campaign platforms released by the National Foreign Trade Council and USA Engage asserts that the overall impact of the elections will result in a Congress only “slightly less supportive” of freer trade polices, even a slight change is meaningful.

In today’s policy world, free trade legislation passes on the margin, and every single vote is critical. The loss of even a few proponents of freer trade policies could result in a costly shift away from the open market policies that have helped bolster America’s economic growth.

Incoming congressional Democratic leaders have promised to work with the Administration on international trade issues. After all, free trade is about beating poverty and expanding economic opportunity—markedly non-partisan issues. Over the coming months, the strength of their promise will be tested repeatedly when many forthcoming pieces of trade legislation are submitted for debate and approval.

In the process of working through the policy proposals, Congress will have the opportunity to advocate free trade and help America and the world reap the rewards that accrue from such policies. Or Congress could choose to isolate and deprive the U.S. of the benefits of leading and engaging the global economy. Prosperity in the U.S. and around the world has a real chance to thrive under the 110th Congress, but only if the Administration and Congress work as partners to advance a sound trade agenda.

Free Trade Is Fair

An artificial distinction has been drawn between “free” trade and “fair” trade. The idea that free trade is only fair if countries share identical labor costs and economic regulations, or if domestic producers are compensated for market losses to more competitive foreign producers, is false. The major economic benefits of free trade are derived from the differences among trading partners, which allow any country embracing world markets a chance at being competitive. Free trade is fair when countries with different advantages are allowed to trade and capitalize on those differences.

Low wage costs, access to cheap capital, education levels, and other fundamental variables all play a role in determining what comparative advantages one country has over another in the global marketplace. To “fairly” equalize those differences—provided those differences are based on a country’s economic and demographic reality—only serves to negate or reduce the ability of a country to benefit from participating in the global trade system.

Such “fairness” also prevents countries from realizing the real gain from freer trade—a more competitive economic environment and better, more efficient domestic resource allocation. This effect drives greater long-term economic potential, creates economic opportunity, and improves living standards at home.

Free trade allows a country to compete in the global market according to its fundamental economic strengths and to reap the productivity and efficiency gains that promote long-run wealth and prosperity. Indeed, there is no distinction between “free” and truly “fair” trade.

Tangible Benefits of Trade

The gains from freer trade are substantial. Today, the $12 trillion U.S. economy is bolstered by free trade, a pillar of America’s vitality. American exports support one in five U.S. manufacturing jobs. Jobs directly linked to the export of goods pay 13 to 18 percent more than other U.S. jobs. Moreover, agricultural exports hit a record high in 2005 and now account for 926,000 jobs.

The service sector accounts for roughly 79 percent of the U.S. economy and 30 percent of the value of American exports. Service industries account for eight out of every 10 jobs in the U.S. and provide more jobs than the rest of the economy combined. Over the past 20 years, service industries have contributed about 40 million new jobs across America.

Because today’s global economy offers unparalleled opportunities for the U.S., it is in America’s economic interest to continue to expand trade by lowering trade barriers in goods and services. Freer trade policies have created a level of competition in today’s open market that leads to innovation and better products, higher-paying jobs, new markets, and increased savings and investment.

Freer trade enables more goods and services to reach American consumers at lower prices, giving families more income to save or spend on other goods and services. Moreover, the benefits of free trade extend well beyond American households. Free trade helps spread freedom globally, reinforces the rule of law, and fosters economic development in poor countries. The World Bank estimates that the continued reduction of tariffs on manufactured goods, elimination of subsidies and non-tariff barriers, and a modest 10 percent to 15 percent reduction in global agricultural tariffs would allow developing countries to gain nearly $350 billion in additional income by 2015. Developed countries would stand to gain roughly $170 billion.

Whether the U.S. pursues freer trade through multilateral negotiations or via bilateral agreements, the result is fair and beneficial for America. Similar to the objectives sought after by U.S. negotiators in the World Trade Organization (WTO), U.S. free trade agreements (FTAs) go beyond winning lower tariffs on American agriculture, manufacturing and services exports. FTAs include provisions that safeguard investors from discrimination, increase regulatory transparency, protect and enforce intellectual property rights, combat corruptive practices, protect labor rights, and strengthen environmental protection. The U.S. Trade Representative (USTR) negotiates agreements that include transparent dispute resolution and arbitration mechanisms to guarantee that the agreements, along with the rights of U.S. firms and consumers, are upheld.

Each element of an FTA strengthens the transparent and efficient flow of goods, services and investments among member countries. Both FTAs and multilateral trade liberalization open markets, protect investors and increase economic opportunity and prosperity. In short, freer trade policies serve to promote U.S. interests, not weaken them or unfairly burden Americans.

A Very Busy Time for Trade

In order to continue reaping the benefits of free trade, the U.S. can make tangible progress in four main areas: bilateral trade deals, global trade negotiations via the WTO, trade preference programs for developing economies, and renewed presidential authority to negotiate trade policy.

Congress should start with vocal support for bilateral free trade agreement negotiations and ratification of concluded agreements. It also should call for help in seeking additional partners to engage via bilateral trade agreements. The Administration and Congress should strive to insure the timely ratification of concluded agreements with Colombia and Peru. FTA negotiations with Panama, Ecuador, South Korea, Malaysia, and the United Arab Emirates are at various stages of progress and would advance the interests of U.S. businesses and consumers and maintain America’s leadership on trade.

U.S. leadership in the WTO and a successful conclusion of the current Doha round of multilateral trade negotiations are essential. Support of USTR negotiations in the WTO and effective reform of U.S. agriculture programs through the upcoming review of the farm bill are important elements of achieving this goal. Congressional approval of most-favored nation status to countries acceding to the WTO, such as Vietnam and Russia, is needed to insure that America benefits from WTO member expansion.

Tariff and trade preferences granted under the Generalized System of Preferences (GSP), Andean Trade Preference Act (ATPA), the African Growth and Opportunity Act (AGOA), and other programs extend market access to countries struggling to develop, and often, reform their economies. Changes made to these programs in 2006 will need to be addressed in 2007 to insure their effectiveness. Continued implementation of these programs is a critical element of any meaningful aid strategy for eligible countries.

Congress should renew Trade Promotion Authority (TPA). TPA is vital to strengthen the hand of the United States at the negotiating table and provides a framework for consultation with Congress at key trade negotiating stages. The President, regardless of political affiliation, needs the ability to sign good trade deals that expand U.S. access to overseas markets and strengthen international trade norms.

A Real Chance

American and global prosperity have a real chance to flourish under the 110th Congress. That chance is dependent upon both the Administration and Congress having the will to work toward solutions on policy differences, rather than using trade as a means to advance a partisan agenda. The economic cost of politicizing trade policy is high; the benefits of evaluating and implementing free trade policy based on its merits are even higher. For over 50 years, the U.S. and the world have reaped the economic benefits of trade and investment liberalization. Congress should continue its liberalization policies and allow Americans to enjoy the wealth and opportunities that come with freeing trade even more.

Daniella Markheim is Jay Van Andel Senior Analyst in Trade Policy in the Center for International Trade and Economics at The Heritage Foundation. This article appeared in Impact Analysis, March-April 2007.
Topic: Politics
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