Trade
and Politics: When Interests Collide
In recent years Congress has passed a spate of free trade agreements. Since
the North American Free Trade Agreement was signed into law in 1993, the U.S.
has signed free trade agreements with Israel, Jordan, Morocco, Chile, Singapore,
Australia, Bahrain, and the region of Southern Africa. Like these earlier
trade agreements, DR-CAFTA should have passed without too much controversy.
Its provisions open the doors to highly protected markets overseas to the
benefit of American exporters. In addition, it lowers barriers to the 20%
of the goods imported from Central America and the D.R. that do not already
enter the U.S. duty-free. This benefits American consumers and importing industries.
So, why did the Administration have such a difficult time garnering support for this one? There were a number of factors at work:
1) Democrats wanted stronger labor provisions. Democrats in Congress felt
the agreement as negotiated did not go far enough to protect the rights of
laborers in the six countries with which the U.S. negotiated. Since these
countries claim they do not have the resources to improve the working conditions
of their people, the Administration agreed to give financial aid to these
countries so that they could achieve this goal.
2) U.S. sugar producers wanted greater protection. Although U.S. Trade Representative Robert Zoellick bent over backwards to negotiate an agreement that would not be detrimental to U.S. sugar producers, our domestic industry nonetheless claimed that this agreement would hurt them. They insisted on special treatment and asked for exclusion from the agreement, even at the risk of alienating producers of other agricultural commodities who stood to benefit from this agreement. In the end, the Administration offered extra assurances to sugar industry, which was enough to gain passage. But the fact that Big Sugar was able to make this vote so difficult only underscores the need to reform the U.S. sugar program so that the producers of this single commodity do not wield an amount of power disproportionate to their numbers.
3) U.S. textile producers wanted reassurance that the trade agreement would not harm their interests. In the end the agreement was modified to guarantee that the DR-CAFTA countries would have to source certain inputs, such as pocketings and linings, from the United States. A few other changes were made in order to garnish the support of Representatives from textiles states.
4) Some Members of Congress were frustrated with China's failure to respect its WTO commitments, particularly its slow response to U.S. pressure to revalue its currency and respecting intellectual property rights. They reasoned that if our current trade partners are not adhering to the rules of fair trade to which they agreed, pursuit of additional trade agreements is meaningless. They were also frustrated by the Administration's failure to aggressively pursue those trade partners (namely China) not obeying fair trade rules, such as respecting intellectual property rights or valuing it currency in such a way that the price of its exports was unfairly low, according to U.S. industry. They reasoned that if we are not going to hold our trade partners accountable by enforcing existing agreements, why bother to negotiate new ones? This frustration was addressed by the introduction of a bill called the "United States Trade Rights Enforcement Act" (H.R. 3283). Among other things and without going into technical detail, H.R. 3283 would make it easier to impose new duties on Chinese imports and would pressure the Administration to force China to revalue its currency so that it would no longer have an unfair price advantage in the American market. The Administration to date has been using diplomatic means to pressure China to float its currency and China did just recently revalue the yuan, although not to the extent desired by American industry. What our government fails to realize (or care about) is that a revalued currency will hurt American importers and consumers by making Chinese products more expensive in the U.S.
5) Partisan politics. With two years left in his second term, Democrats would have loved to have rendered Bush powerless to pursue his policy objectives. By defeating him on an important vote such as DR-CAFTA, they would have succeeded in making him a lame duck, thereby robbing him of the momentum and authority needed to pass other legislative initiatives important to the Republican Party. Also, by refusing Democratic support for this trade vote, the Democrats put those Republican representatives who were sitting on the fence in a position of having to vote for a trade agreement that may not have been beneficial for some of their more influential constituents (such as sugar producers). This would leave those Republicans vulnerable in their next election.
In the end, DR-CAFTA represented much more than a trade vote. Its failure would have signaled a new direction for U.S. trade policy - one in which protectionist interests rule the day and American leadership at the WTO is in jeopardy. As it was, the extreme difficulty in gaining passage raises several questions: Is its politicization a harbinger of things to come? Will future trade votes be used by detractors as a means of achieving other more narrow goals? Will future trade agreements continue to fall victim to partisan politics? CWT certainly hopes the answer to these questions is no. To allow trade votes to be used in this way negates the good that they do and makes their political cost so high that the Administration might think twice before negotiating any more. This would be a very sad day for American producers and consumers alike.
On Aug. 3rd, CWT will host a panel discussion of DR-CAFTA and its implications for the future of U.S. trade policy. Click here to download a registration form.