- By Phil LevyPhil Levy is Senior Fellow on the Global Economy, The Chicago Council on Global Affairs, and teaches strategy at Northwestern University’s Kellogg Schoool of Management.
From an otherwise tepid weekend of international economic summitry, the most striking development was the Obama administration’s declaration that it intends to move forward with the Korea free trade agreement (FTA). President Obama announced that he wanted renegotiations completed by his visit to Seoul in November and that he would submit the agreement to Congress shortly thereafter.
Amidst faltering progress on global trade talks and discord over stimulus and deficit reduction at the global talks in Canada, it would be easy to miss the import of the Korea announcement. The Korea-United States (KORUS) FTA was completed in 2007 but President Bush could not persuade the Democratic-controlled Congress to put it to a vote. The Koreans passed the agreement long since, but it has lingered in U.S. legislative limbo under the Obama administration. The Obama team had characterized KORUS as unsatisfactory, citing shortcomings in barriers to auto trade and beef, but had been unwilling to present the Koreans with a list of necessary fixes. To do so would have been to imply that remedies would lead to passage.
This new move represents a sharp break with Obama administration trade policy to date, and arguably with the administration’s approach to legislation more generally. Administration trade policy so far has been characterized by deliberate ambiguity and an avoidance of deadlines. The Obama administration joined the G-20 nations in calling for a conclusion to the WTO trade talks last year, but resisted deadlines like a ministerial review last March. It stated general support for mending and passing the pending FTAs with Colombia, Panama, and Korea, but never put forward a timeline. It called for "engagement" with the Trans-Pacific Partnership, but left details vague and did not set a target end-date for those negotiations.
Obama strategists had their reasons. The president had convinced both trade skeptics and enthusiasts in his party that he stood firmly with them. Any bold trade move risked disillusioning one group or the other. When faced with an inescapable deadline on Chinese tire tariffs, the President chose to split the difference and apply tariffs at half the level recommended by the U.S. International Trade Commission. This didn’t really satisfy anyone, but it was a good try.
With the commitment to conclude KORUS, President Obama steps away from this ambiguity. He will need to face down some powerful and skeptical voices in the House of Representatives. Ways and Means Chairman Sander Levin (D-MI) had this to say about KORUS passage:
[The current agreement] "does not effectively address the regulatory and tax barriers that have led to one-way trade and hurt our industrial sector as well as kept out our beef. Congress expects to be consulted actively in these negotiations, and the date targeted by the president can be met only if the outstanding issues are fully addressed with enforceable commitments."
Not exactly an enthusiastic statement of support. Furthermore, Korea is far less likely than smaller trade partners like Peru to accept U.S. demands wholesale. The existing agreement has already been politically sensitive in Korea and the Korean government has expressed reluctance about renegotiation.
This move, should the administration see it through, will also mark a break from the general legislative strategy of the Obama administration. On measures from stimulus to spending to health care to financial reform, the administration has stated broad objectives and then given Congress significant leeway to craft the specifics as it pleased. That approach will not work on a carefully-negotiated trade agreement. Nor will the administration be able to rely upon the traditional protection of negotiating rules which required Congress to give FTAs a timely up-or-down vote. That approach fell apart when Speaker Pelosi moved to block the Colombia FTA in April 2008. The president will have to insist that Congress pass the agreement unchanged and see it through.
From an international relations standpoint, the timing of the pledge is understandable. The failure to move on KORUS was calling into question U.S. credibility on trade in general and U.S. standing in Asia in particular. It would have been exceedingly awkward to show up in Seoul for the November G-20 meeting with nothing to offer.
But from a domestic political standpoint, it is hard to see how the timing could be much worse. One of the awkward features of trade agreements is that there is a prolonged interval between the time politically sensitive concessions are first broached and the time when the issue is settled. By calling for submission some months after the November mid-term elections, the Obama administration may have hoped to avoid any political penalty, but politically powerful opponents of KORUS will be well aware of administration offers pre-election if the Korean deal is to conclude in November.
The looming KORUS battle raises a number of questions about the administration’s political strategy. Is this a decision to override the concerns of skeptical House Democrats, thereby paving the way for Colombia, the Trans-Pacific Partnership, and more? Or will the administration try to split the difference, as with Chinese tires, and pass only the one agreement while leaving the others hanging?
The answers will say a great deal about the prospects for trade policy in the remainder of the president’s term. If the administration sees this through, it may mark a welcome return to U.S. trade leadership. If political obstacles prove too much, it will be very hard to conceal the failure in light of this weekend’s specific and public commitment.