by Russell L. Smith and Caroline G. Cooper, Willkie Farr & Gallagher
(KWR) Trade and security policy often went hand-in-hand
during President George W. Bush’s first term in
office, particularly following the September 11, 2001
terrorist attacks. Trade policy was often used as a tool
to advance the President’s security policy agenda.
USTR Robert Zoellick pursued free trade agreements (FTAs)
with a range of countries, most of which supported to
one degree or another U.S. policy in Afghanistan and
Iraq. In 2004, the President added a focus on the Middle
East to the trade agenda, again to further foreign and
strategic policy goals. Perhaps the only exceptions were
the Central American Free Trade Agreement (CAFTA) and
bilateral FTAs with Panama, Colombia, Ecuador, and Peru,
which Bush and Zoellick pressed to complete and began
to negotiate, in part because of the lack of any real
progress on the broader Free Trade Agreement of the Americas
(FTAA). This was in part to honor Bush’s 2000 campaign
commitment to focus on the southern hemisphere, which
he otherwise did not do during his first term.
The agenda also included what many regard as a good-faith effort by Zoellick
to revive the faltering Doha Development Agenda negotiations. While still
another agreement in principle was reached on the keystone issue--agricultural
subsidies--as 2004 closed, the prospects for successful and timely conclusion
of the Doha Round were still quite uncertain.
Will the second Bush term that began on January 20, 2005 mean more of the
same on trade? The answer appears to be a qualified yes. Bush and his new
USTR, whoever that may be, will need to broaden the scope of their trade
activities beyond strategic allies and politically helpful neighbors to address
fundamental bilateral, regional, and global trade problems and opportunities.
Bush and Zoellick have already acknowledged this to some extent through their
post-election remarks, Zoellick’s global travels, and Bush’s
planned trip to Europe not long after Inauguration Day.
At the bilateral level, there is a recognition that trade disputes with the
EU need to be addressed more methodically. Ideally they would be resolved,
before they become full-blown trade confrontations, since the damage that
retaliatory tariffs do to the trading relationship is often counterproductive
for both EU and U.S. companies, and in some cases does not resolve the trade
conflict at all. The same is true of the seemingly endless question of duties
on Canadian softwood lumber, as well as disputes over a large number of dumping
law issues that affect dozens of U.S. trading partners.
The bilateral challenges also include China. The United States has yet to
settle upon an effective and constructive approach to its huge and growing
trading relationship with China. USTR and the U.S. Commerce Department simultaneously
praise and excoriate China on trade issues, pressure China to restrict textile
and apparel exports, and then reportedly challenge China’s announced
apparel export tax as both insufficient and potentially WTO-illegal. Beyond
official Administration ambivalence, many Members of the U.S. Congress have
now substituted China for Japan as the scapegoat for all U.S. manufacturing
competitiveness problems. China is the target of a substantial flow of U.S.
dumping cases, and the United States appears ready to trigger special safeguard
measures to place new quotas of Chinese apparel exports. At the same time,
U.S. retailers and their customers demand the inexpensive consumer goods
that are the backbone of China’s capitalist economic development, and
major U.S. companies (autos, for example) grow more and more uncomfortable
with the risk that a souring of the trade relationship will be taken out
on their facilities in China. The nature of China as a strategic rival, as
well as a massive trading partner and potential market, is not the same as
that of Japan when it began to be perceived as a trade “problem.” The
Bush Administration would be well advised not to view its approach to Japan--regular
pressure and threats with the occasional confrontation--as a template for
China. The emergence of China as a major economic and strategic force in
the world, with a clear impact on U.S. policy, demands a more orderly and
measured U.S. approach to the bilateral relationship.
Beyond China, the rest of Asia should and will receive more attention in
the second Bush term. Japan is emerging, albeit slowly, from it recession,
and the U.S.-Korea trade relationship needs to be nurtured. Korea is hopeful
of progress on an FTA with the United States, and as noted by USTR, there
is a potential for such progress if some threshold issues (telecommunications
and pharmaceuticals, for example) can be taken “off the table.” U.S.
assistance to the countries devastated by the December 2004 tsunami is almost
inevitably going to have a trade and development component, which, hopefully,
will go far toward enhancing the perception of the United States in the region.
While the issues in the U.S.-Thailand FTA negotiations are difficult, there
appears to be a relatively cooperative spirit on both sides and a natural
alliance that indicates that an agreement is possible by the end of 2005
or just thereafter.
At the global level, without strong leadership from the United States, the
Doha Round will not move forward. The Hong Kong Ministerial at the end of
2005 may define whether the DDA is a success or a failure. While all the
major parties profess to support the elimination of agricultural subsidies,
the devil is definitely in the details. The personality and determination
of the new USTR will be by far the most important element in determining
whether any substantive agreements can be reached. Zoellick was willing to
take significant political risks, make controversial concessions, and “carry
the ball” virtually alone simply to keep the DDA alive and achieve
an agreement in principle. Whether the new USTR can or will do the same is
open to serious question. If not, recent history indicates that no other
country can or will provide such leadership.
At home, Bush and his trade officials will also face some challenges that
could affect how they conduct themselves abroad. President Bush will inform
Congress that he wishes to extend his negotiating flexibility under Trade
Promotion Authority (TPA) for two additional years, and Congress will have
the opportunity to vote this down. While the risk of defeat is small, the
debate may be quite bitter and some of the proposals that are thrown up as
a “price” for the extension may be most unattractive. Again,
the worst of these will be rejected, but the experience of the last three
decades in U.S. trade legislation has been that the integrity of U.S. trade
laws and of the openness of U.S. markets is degraded to some extent whenever
Congress takes up Presidential negotiating authority.
While there will be efforts to repeal the WTO-illegal Byrd Amendment, which
pays dumping duties to supporters of dumping petitions, the entrenched opposition
to such repeal in the U.S. Congress is substantial. Again the price of repeal
or change in the law, if it introduces further bias in U.S. dumping or other
trade remedy laws, may ultimately be more distasteful than living with Byrd.
Such is the reality of the very unreliable political support for true free
trade principles in the Congress today.
Finally, to conclude on a positive note, free trade principles should prevail
when Congress reviews U.S. participation in the WTO. Any Member of Congress
may call for the U.S. to withdraw from the WTO every five years, and the
second such anniversary comes in 2005. It is inevitable that a number of
Members of Congress may introduce a withdrawal resolution, but the necessity
that neither the President nor the Republican leadership in Congress be embarrassed
by the passage of such a resolution virtually guarantees its defeat.
This analysis indicates that the second Bush term, whatever its other priorities,
will give more attention to trade than in the first term, and that it will
be forced to deal with more complicated and difficult trade issues as well.
It is always possible that the Administration, by simple lack of commitment
or talent, will not give trade the appropriate attention, but that inattention
will come at great peril to U.S. long-term economic strength and global influence.