Reframing Trade: Obama, Democrats, and Trade Liberalization after the Midterm

Kathy Bowen, BASC Research Assistant 

  

With all but a cadre of Obama loyalists predicting a thumping for the Democrats this November, does the Administration have much, if anything, to look forward to after the midterm elections? The good news for liberals - of the Ricardian variety - is that a GOP majority in Congress may be more likely to approve bilateral deals with South Korea, Columbia, and Peru, a Trans-Pacific Strategic Economic Partnership agreement, and a final settlement to the Doha Round. Obama has thus far seen little movement on any of these initiatives, in part because many Democratic incumbents were elected with the support of organized labor, a group traditionally opposed to trade liberalization. Notwithstanding the outcome this November, future Democratic administrations may not have to sacrifice their party’s majority to achieve victories on trade. With an improved rhetorical packaging, the Obama Administration may be able to reframe the trade debate to make new agreements a winning issue for Democrats.

Pressure from labor unions and skyrocketing unemployment has increasingly shifted the Democratic Party’s rhetoric from ambivalence to antagonism on trade-related issues, manifested most recently by a wave of Congressional China-bashing. However, Democratic-led protectionism is not a new phenomenon. Trade liberalization has divided progressives for decades, splitting the party largely between politics and policy – or between traditional constituents and a ‘forward-looking’ economic agenda (Mishel and Teixeira, Economic Policy Institute). The former has dominated far more often than the latter, as blue collar workers and organized labor, empirical bastions of Democratic support, have fervently denounced new trade initiatives. This dynamic was evident during the Clinton years, with the Midwest and industrial Northeast heavily against ratification of the North American Free Trade Agreement (NAFTA), and reappeared again during George W. Bush’s fight over the Central American Free Trade Agreement (CAFTA). Non-college-educated middle-class workers, historically a significant source of Democratic electoral support, opposed NAFTA because of its potentially detrimental effects on American manufacturing jobs and wages; CAFTA debates recycled many of these same arguments, with the agreement ultimately passing by an incredibly narrow party-line vote.

The pressure is especially pervasive this session, with many incumbent Democrats facing tough reelection races and desperately needing the vote-gathering and financial potential of organized labor. According to Jagdish Bhagwati, senior fellow at the Council on Foreign Relations, this crop of Democrats is particularly ‘indebted to trade-fearing unions,’ inhibiting the otherwise pro-trade Obama Administration. United States Trade Representative Ron Kirk captured the Democrat’s bind in a speech to Arkansas farm interests this month, admitting that it was “only politics” that kept him from submitting free trade agreements with South Korea, Columbia, and Peru to Congress (Truitt, Ag Today).

Kirk’s moment of candor demonstrates the extent to which the Democrats' rhetoric is damaging to Obama’s trade agenda, independent of members’ actual voting record on trade issues. First, vocal Democratic opposition to trade initiatives creates the perception of future legislative hurdles, dissuading the Administration from submitting already completed agreements to Congress and from negotiating them in the first place. Second, protectionist posturing transmits a broader signal that does not go unnoticed by Washington’s trade partners. Negotiations for what is arguably Obama’s top trade priority, the Trans-Pacific Partnership (TPP), have been put on hold until after the midterm elections because of uncertainty regarding Obama’s ability to muster sufficient Democratic support. Alex Frangos writes in the Wall Street Journal that “in Asia, the impression is also that any trade pact will require the political atmosphere in Washington to change.” Moreover, former ASEAN secretary-general Ruodolfo Severino was quoted as suggesting that the current mood in Congress would make it impossible to enter into a free-trade area like the TPP. He suggested that if Obama cannot get a bilateral deal with Korea approved, which has been in the works since 2007, it is unlikely he would get Democrats to move on a deal involving many more parties.

Thus, Democrats are contributing to Washington's turn away from trade. Can policy overcome politics, or will Democratic administrations be perpetually forced to play up protectionism? While it remains unlikely we will see a push for trade-friendly initiatives prior to the midterm, Obama may be able to sell his own party on trade come January.

First, the immediate political pressures on Democrats to appease organized labor will have dissipated. Empirically, political pandering has been the largest proximate cause of Democratic protectionism.

Second, Obama has already begun to refashion the trade debate in his favor, and bolder steps in this direction could yield political pay-offs. While pundits have gone so far as to brand Obama’s trade agenda as “anemic” (Wolverson, CFR) and even a “contradiction in terms” (Drezner, WSJ), the National Export Initiative at least takes the right approach at framing the issue. By setting the goal at doubling US exports over the next five years, Obama officials can tout trade initiatives as a means to an end for American business. The language of keeping America competitive vis-à-vis exporters like China will make it difficult for opponents to capitalize on trade politically, and will allow Obama and Democrats to take the moral high-ground on Chinese trade and currency policy. While most Democratic China-bashing can be chalked up to an attempt at developing a winning issue for the midterm, this kind of rhetoric is unproductive at best, catastrophic at worst. Trade as a means of securing foreign market access and bolstering export-led growth can be spun as a way to beat China at its own game while avoiding its use of unfair fiscal and monetary practices. This framing may also create a longer-term political niche for Democrats between free-market liberalism and economic populism.
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Finally, Obama should tacitly pursue labor protections in accordance with trade initiatives. While a persuasive argument exists to forgo muddying trade agreements with Christmas tree-like provisions, political realities require an acknowledgment of labor’s grievances. Obama should make concessions to organized labor as a means of currying favor with rank-and-file Democrats. In exchange, Democrats may be more willing to move on the Administration’s trade priorities. Labor standards can either be conditioned on the FTA itself, or can be disaggregated from the larger deal. The latter method could be adopted in contentious bargaining contexts, in order to avoid creating the perception among foreign governments that labor standards are a deal-breaker. Beyond its short-term political benefit, promoting labor protections alongside trade liberalization could help to avoid a broader public backlash to globalization.

With the midterm quickly approaching, and a presidential election in the not-too-distant future, any successful movement on the Administration’s trade initiatives will require a bolder effort to reframe the issue. Trade liberalization and a Democratically-controlled Congress do not have to be inimical objectives for the Obama Administration, but achieving both in the longer-term will necessitate a shift in the rhetoric surrounding trade. Democrat’s don’t have to tank their traditional sources of electoral support to champion a progressive trade agenda; however, Obama does need to more aggressively frame trade as a means to achieve export-led economic growth while simultaneously making side-deals to build up political capital with organized labor.

The Trans Pacific Partnership (TPP): A Panglossian Endeavor

Peter Volberding, BASC Research Assistant

On December 14, 2009, President Barack Obama and USTR Ron Kirk officially notified Congress of the administration’s intention to enter into negotiations for the Trans Pacific Partnership (TPP). Currently, the TPP is a multilateral FTA composed of four members—Singapore, Brunei, New Zealand, and Chile—and endeavors to have full free trade between member countries by 2015. The United States enters into negotiation with the four current members, as well as three other nations—Vietnam, Peru, and Australia.

While the intentions of international free trade are laudable, the negotiation process is likely to be wrought with difficulties. In fact, given the heterogeneity of the eight negotiating countries, the TPP is inevitably headed to turbulent waters. Observers have noted that the current system only functions because of the small size and disparate interests of each member. However, with the addition of the United States, the world’s largest economy, Vietnam, a large export-oriented economy, and Australia and Peru, two large agricultural exporters, the prospects look increasingly grim. USTR Ron Kirk has already acknowledged that the negotiation process will take at least 18 to 24 months, longer than the average time for a bilateral FTA.

The one bright spot comes from an unlikely source—Congress. As Kirk highlighted just this week, there is surprising political will, or perhaps political acquiescence, for the US’s involvement in the TPP. This largely stems from the political cycle. Since a Congressional vote would take place following the 2010 midterm elections, there is less political risk. Moreover, broad industrial and agricultural support for the TPP has precluded immediate opposition.

Despite initial Congressional interest, the TPP faces numerous challenges. House Representatives Rangel (D-NY) and Levin (D-MI) have flagged Vietnam as a potential obstacle. They specifically cite Vietnam’s failure to adhere to international labor standards and lackluster enforcement of intellectual property rights. Rangel and Levin also note the Communist Party’s limitation of free speech as an impediment to negotiations.

Additionally, domestic industries have started to lobby Congress and the USTR for industry-specific provisions, occasionally pitting entrenched interests against one another. According to Inside U.S. Trade, an international trade news service, more than 100 submissions were made in late January by various industry and interest groups to the USTR office. Most concern was placed on rules of origin (ROO) and intellectual property rights (IPR), but the requests ranged widely.

Manufacturing groups, such as the National Association of Manufacturers (NAM), Philip Morris, and Ford have pushed for stronger enforcement of IPR in the TPP. Pharmaceutical groups, led by the industry association PhRMA and companies such as Novartis, have been particularly aggressive in pursuing IPR regulations in FTAs generally to limit foreign production of generic versions of patented drugs. However, Oxfam has voiced opposition, positing that the TPP should not impose strict IPR, which would increase the cost of medication.

The food and agriculture industry has also been extremely vocal, especially with ROO requirements and tariffs rates. For example, the National Milk Processors Federation (NMPF), the American Sugar Alliance (ASA), and the US Dairy Export Council have all proposed strong ROOs, especially with regards to New Zealand. The Corn Refiners Association and the Meat Importers Council, among others, want more liberalized trade and fewer tariffs. More specifically, ConAgra Foods and the American Potato Trade Alliance have cited the need to reduce import tariffs on US-produced frozen french fries.

Disagreements over the “yarn forward” ROO, which requires the TPP nation to use a TPP member-produced yarn in textiles in order to receive duty-free access, has pitted the National Council of Textile Organizations, who support the requirement, against the US Chamber of Commerce and Wal-Mart.

With the TPP’s mission in mind—an elimination of all tariffs by 2015—the prospect that the US will expeditiously join is simply Pollyannaish. Industry disagreements will promote inaction. US politicians will continue to exploit political issues, such as Vietnam’s human rights violations, to stall progress. In the case that a negotiated deal is signed, Congressional ratification will still be necessary. And while the 2010 elections will have already passed, the 2012 elections will be right around the corner.

50th Anniversary of the US-Japan Security Treaty comes amid strains in the bilateral relationship

Ren Yi Hooi, BASC Research Assistant

The US-Japan security treaty turned 50 years old last month, but the bilateral relationship between these two countries currently faces a critical point as a result of several spats between the US and the new Hatoyama administration in Japan.

Although US President Barack Obama and Japanese PM Yukio Hatoyama share common goals and policies, including development in the Third World, measures to curb global warming and the prevention of nuclear proliferation, Hatoyama’s call for a “close and equal” Japan-US relationship since taking office has precipitated a rise in tension between the two countries.

Under the current treaty, the US is obliged to defend Japan in the case of an armed attack, but Japan is not obliged to defend America should the attack happen the other way around. Instead, the US is given access to facilities and areas in Japan "for the purpose of contributing to the security of Japan and the maintenance of international peace and security in the Far East." While this agreement yields both nations considerable benefit, its asymmetrical relationship has long been a cause of friction, and Hatoyama’s hope to see a “more equal alliance” has placed it under further strain.

More specifically, what Hatoyama wishes to see is a reduction in the “omoiyari” budget, the costs born by Japan for supporting the US forces here, and a revision of the Status of Forces Agreement governing the operation of the US military in Japan--issues which are not negotiable from the point of view of the US. The issue of the relocation of the US Marine Corps Air Station Futenma, in particular, has fueled dispute between the two countries over the last few months, and is currently still unsettled. Neither country wishes to give in to the other's demands, and it is difficult for either to push forward without incurring strong repercussions.

In addition, the US-Japan relationship is also seeing points of contention over non-security issues. Japan’s new incentives for eco-friendly cars, for example, have raised the ire of US auto-makers who found their cars largely excluded from Japan’s subsidy program. Despite the small volume of American cars exported to Japan, the US has been putting pressure on Japan to include more American cars in its environmental incentives, leading to a new potential cause for trade disputes between the two countries.

As the two nations review the past 50 years of their security relationship, their evaluations of the past will play a crucial role in determining the future direction of their alliance. While the US and Japan both agree that their partnership is indispensible and share hopes for it to be further deepened, the question of whether there is a change in the balance of power, and how the two countries react to it, will be the key factor that determines whether their alliance will be further strengthened or invevitably destabilized.

WTO Summit 2009: An End to Doha in sight?

Ren Yi Hooi, BASC Research Assistant

The seventh official ministerial meeting of the WTO’s 153 nations was recently held in Geneva from November 30 to December 2, but it passed with barely a whisper in comparison to the furor that greeted the Seattle WTO summit ten years ago. Even the protests were considerably more subdued, with only a few hundred participants rather than the thousands typical of previous summits. With the Doha Round well into its eighth year, it appeared as though none had high hopes for an imminent conclusion, and Director Pascal Lamy did not even plan to have it on the agenda for this low-key meeting. Instead, the first WTO summit since the Hong Kong meeting in 2005 aimed at “examining the functioning" of the global trade regulator during the three-day event and discussed the role of the WTO’s contribution to the global recovery from recession.

However, while the limping Doha Round was not brought up as an official topic of negotiation to avoid rising tensions, it was the subject that was weighing on everyone’s minds. The Doha Round has repeatedly failed to achieve its stated mission of opening rich-country markets to food exports from the developing world. This year’s summit concluded with an agreement to conduct a review early next year on whether a deal in the Doha Round is possible in 2010, and a large number of ministers called for the conclusion of the Doha Round in in both formal plenary meetings and informal working sessions. Many economists and trade policy experts also argued that the WTO should update the Doha agenda to tackle issues such as climate change and food security and reform its work style to serve developing countries better.

What makes the Doha Round different from other previous WTO negotiations is the fact that developing countries are strongly pushing for its move forward, and developed countries, especially the US, are blamed for holding it back. In pointed contrast to the lack of visible Doha progress, a group of 22 developing countries signed their own trade deal to cut tariffs and boost South-South trade. The European Union, Brazil and other economic powers have blamed the U.S. for gridlock in global-trade talks. The lack of US-led progress in the Doha Round is further reinforced by the fact that the Obama administration currently has other priorities and is not in a position to take on its protectionist constituencies in the United States. In response, U.S. Trade Representative Ron Kirk argues that Barack Obama still believes the Doha Round can be concluded during his first term, but that what is now on the table does not deliver "meaningful market access in the part of the world that will be growing and driving GDP growth over the next few years." His statement refers to countries such as India, China and Brazil, which the US has requested to further liberalize their industrial markets.

With the stall in agreement between current and burgeoning major world powers, it appears that this year’s low key Geneva Summit has achieved little in advancing global trade concerns. However, it is possible that the political momentum and energy gathered at this meeting, even without the opening of formal negotiations, could help to support an urgent push to conclude the Doha Round next year should eager countries be willing to compromise.