Trade Battles Heat Up

W
hen news of a $764 billion trade deficit in 2006 hit Capitol Hill, it kicked off the
beginning of a heated debate over US trade policy and exactly who is benefiting from it. Some
members of Congress expressed concern; others were outraged; the administration quickly defended
its trade policies; and organized labor, US manufacturers and importers joined in the fray.

US Trade Representative Susan C. Schwab quickly met with the House Ways and Means and Senate
Finance committees that have primary jurisdiction over trade legislation. She saw a bright side to
the record trade deficit, pointing out that it shows US exports are on the rise, and she said the
committees should look beyond the headlines and realize US bilateral and multilateral trade deals
are working. She had little to say about the impact of imports except to say the small percentage
of workers who lose their jobs as a result can take advantage of the government’s Adjustment
Assistance retraining program.

Schwab told committee members the US economy is strong, 2 million jobs were created last
year, the economy grew at a healthy 3.4-percent rate, factory output is increasing and wages have
risen by 8 percent since 2001. She said productivity increases, technological change and global
competition can lead to “increased opportunity for many workers.” Saying trade is “spurring
economic growth,” she stated US exports of goods and services grew by nearly 13 percent last year;
and while imports grew by 10.5 percent, 90 percent of the trade deficit increase resulted from
higher petroleum import prices.

Congressional Democrats were skeptical of Schwab’s upbeat report. In a letter to President
George W. Bush, top Democratic leaders, including House Speaker Nancy Pelosi, D-Calif., and Rep.
Charles Rangel, D-N.Y., Ways and Means committee chairman, called the trade deficit “unsustainable”
and warned of its continuing negative impact on US jobs and the economy in general. They urged the
president to develop “a new direction that addresses the problem of the trade deficit and promotes
a broad-based equitable growth for all Americans.” They said “it is painfully clear” that present
trade policies are not addressing these goals, and they called on the administration within 90 days
to present Congress with a comprehensive plan to eliminate the trade deficit.

Textile industry lobbyists joined congressional leaders in condemning the trade deficit and
called for corrective action. Auggie Tantillo, executive director of the Washington-based American
Manufacturing Trade Action Coalition, decried the job losses stemming from the administration’s
trade policies and said it has refused to use access to the US market as leverage in international
trade negotiations. He warned that offshoring of manufacturing will further accelerate the problem
unless Congress acts to address the trade deficit.

In an appearance before congressional committees, Schwab outlined the Bush administration’s
2007 trade agenda, which calls for resumption of the suspended Doha Round of trade liberalization
negotiations, extension of the president’s trade promotion authority (TPA), conclusion of more free
trade agreements (FTAs) and enforcement of US trade laws to circumvent illegal trade practices by
other countries. Renewal of TPA, which expires June 30, is at the top of the administration’s trade
agenda —without it, little else can happen. Trade officials here and abroad agree that without TPA,
the US government’s hands are tied, because Congress could nitpick agreements to death. Democratic
congressional leaders have indicated they are inclined to support extension of TPA, but they want
it on their terms, and they are not willing to give the president a blank check. They want to
include overseas fair-labor standards and environmental-protection provisions, as well as
legislative changes that will provide more protection for US workers and businesses by requiring
more congressional consultation and oversight.

Although the Doha Round has been on dead center since negotiations were suspended last
summer, Schwab hopes it can be restarted soon, and firmly believes it is the key to opening new
markets for US exports. She said a good deal of work remains to be done, as there are major
outstanding issues involving agriculture subsidies, subsidies for manufactured goods, high tariffs
in some countries, and often hidden nontariff barriers to trade. There still is a stand-off between
developed and developing countries, and many countries are reluctant to give up practices that
protect their domestic industries.

The Bush administration has negotiated 25 FTAs, with action pending in Congress on others,
and agreements with South Korea and Malaysia currently being negotiated. Korea will be a
particularly tough nut to crack, as agriculture interests in that country strongly oppose it.

As a result of the newly generated interest in international trade, Congress can be expected
to act on several fronts. Unlike the administration, congressional leaders are placing considerable
emphasis on problems stemming from imports, and a good deal of that focuses on China. They want
better enforcement of US trade laws, including a crackdown on China’s intellectual property
violations. They want to combat what they say is China’s “rampant subsidization of its industries”
by applying countervailing duty and anti-dumping laws to state-run economies.

Saying that a strong Doha Round can create opportunities for US farmers, workers and
businesses, Congressional leaders are encouraging the administration to continue its efforts to
restart the talks, but they insist any agreement must include dismantling of nontariff barriers,
and must ensure World Trade Organization rules do not undercut US trade remedy laws. They also want
to make sure future FTAs “bring about a broad sharing of benefits” for the United States and its
trading partners and that they incorporate an enforceable commitment to adopt and effectively
enforce internationally recognized labor standards.

There is little common ground on where the US textile industry and textile and apparel
importers stand. Importers strongly support extension of TPA in order to facilitate Doha Round
negotiations and other trade agreements. The Washington-based National Retail Federation says “
agreements that affect global trade have too big an impact on the US economy to allow ourselves to
be put on the sidelines by letting TPA expire.” Textile manufacturers, on the other hand, oppose
TPA, with one Washington lobbyist saying US trade policies have been “a fast track to massive job
losses.”

Textile manufacturers believe they may be within reach of obtaining authority to use
countervailing duties to combat imports from state-run economies, such as China, as the
administration is looking into using that authority; and legislation has been introduced in
Congress to force such actions. Importers oppose expansion of countervailing duties.

Textile manufacturers would be happier if the Doha Round would go away, but if it moves
forward, they are insisting that the US not lower its tariffs until other countries that have much
higher tariffs agree to act first. And they would likely support additional FTAs as long as they
provide for a yarn-forward rule of origin and strong Customs enforcement. Importers don’t like that
idea, contending that strict rules of origin limit their sourcing flexibility.

By all odds, 2007 will be a year to remember in the arena of international trade.

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March/April 2007