Trade fireworks

Trade fireworks

Last week, fireworks arrived early for trade mavens. The Senate Finance Committee could not even hold a hearing on pending free trade agreements when Republicans held a rare walkout.

This is the same Senate Finance Committee that maintained comity throughout the divisive health care debate and steadily issued bipartisan calls to pass the pending agreements with South Korea, Colombia, and Panama. Now the long-delayed agreements are moving forward at last, and now Republicans object? Why the uproar?

The first obstacle emerged in the spring, when the administration conditioned FTA passage on the renewal of an expanded program to help those who could link their job losses to trade (Trade Adjustment Assistance, TAA). This raised hackles because it seemed to Republicans like bargaining in bad faith, it was linked to the 2009 stimulus package, and there were real questions about the program’s cost and effectiveness. My AEI colleague Claude Barfield has written that the TAA compromise reached between the White House and House Republicans tilts heavily toward the Democrats’ position. Reasonable people could disagree on that verdict; the program needs a major rethink and this agreement seems to set the stage for one.

But if there was a compromise, what’s the problem? The administration decided to go with the narrowest possible coalition for getting the trade agreement through – Senate Democrats and House Republicans. In the process, it took a critical procedural shortcut; rather than asking for a TAA vote alongside the FTA votes, it tucked TAA into the implementing legislation for the Korea FTA. This led to the following characterization by Sen. Orrin Hatch (R-UT), the ranking member of the Senate Finance Committee:

"Let me be blunt.  The decision to jam TAA into the Korea agreement and then spring a quickie markup on the Finance Committee is a process foul.  Moreover, as a matter of substance TAA is a deeply controversial spending program.  Between an ugly process and questionable policy, you have some very ticked off Republicans on the Finance Committee."

The big story here is not the substance of the TAA compromise, it’s the process foul that Sen. Hatch highlighted. That may sound like the kind of arcane question of interest only to parliamentarians, but it has deep and damaging implications for U.S. trade policy moving forward.

The division of power on trade between the White House and the Congress has been a problem for decades. The U.S. Constitution gives Congress the final say. That proved problematic in the past, when Congress became over-enthusiastic about protectionist log-rolling and passed measures like the Hawley-Smoot Tariff Act of 1930. The executive branch was thought better able to look out for the national interest and put parochial pressures in perspective. There was also a practical issue. How could 535 members of Congress go negotiate a trade agreement with another country? Should the partner country’s trade minister speak with the Chairman of the House Ways and Means Committee or the Senate Majority Leader?

To solve these problems, a series of procedures were developed, from the Reciprocal Trade Agreements Act of 1934 up to modern "Fast Track" and "Trade Promotion Authority." These allowed for a rare delegation of power from the legislative to the executive branch. If the executive negotiated an agreement that met the conditions Congress had laid out, Congress agreed to put the agreement to an up or down vote (no amendments) and do so in a timely fashion. This has rightly been seen as an indispensable prerequisite for a credible U.S. trade policy. Who wants to strike a delicately balanced agreement with the United States, only to see it molder or have it picked apart with amendments?

This process worked until April of 2008, when then-Speaker Nancy Pelosi demonstrated, to widespread surprise, that Congress had not really committed itself at all: When President Bush tried to submit the Colombia FTA under Trade Promotion Authority, she just changed House rules and blocked it. This dealt the first serious blow to the underpinnings of U.S. trade policy.

Last week, the administration dealt the second such blow. By stuffing TAA into the Korea FTA implementing bill – i.e., by protecting it with Trade Promotion Authority that was supposed to be reserved exclusively for these trade agreements — it may have sounded the death knell for this critical trade procedure.

The maneuver may well work. There’s substantial bipartisan interest in passing these agreements. It’s legally dubious, as trade attorney Scott Lincicome describes, but they can probably get away with it. The result, though, may be a Pyrrhic victory.

The three pending trade agreements are important, but they are the leftover trade agenda of the last decade, all concluded in 2006 or 2007 (which is why they are covered by the now-expired Trade Promotion Authority). The administration’s newfound sense of urgency comes from subsequent agreements, reached with other trading partners while we dithered, that are about to come into force and threaten to disadvantage U.S. exporters.  

But there is a significant future trade agenda now at serious risk. The administration has ambitious negotiations underway for a Trans-Pacific Partnership that could set the rules for trade with Asia. Global leaders have repeatedly called for a conclusion to beleaguered talks under the auspices of the World Trade Organization. For any of these, the White House will need new trade promotion authority. Such authority was hard to come by even in the best of circumstances. What chance would it have now, if it is interpreted as giving any White House the right to attach controversial and unrelated spending measures in a protected way?

The passage of the pending FTAs is long overdue. The compromise on TAA is acceptable, if it paves the way for a necessary reworking of the program. But, as with mishandled fireworks, the administration’s narrow and divisive approach to solving the present impasse may prove crippling for U.S. trade policy in years to come.