by Russell L. Smith and Caroline G. Cooper, Willkie Farr & Gallagher LLP

WASHINGTON (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.