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NEWS & COMMENTARY 2008 SPEAKERS 2007 2006 2005

Thursday, June 22, 2006

US trade policy


International trade issues seem less important to the US government these days, particularly after the departure of Robert Portman from the US Trade Representative’s office. Susan C Schwab, who replaced Mr Portman as the US’s senior trade diplomat on June 15th, has pledged to work hard to advance the existing agenda. This includes completion of the Doha round of world trade talks and ratification or negotiation of several bilateral agreements. But Ms Schwab faces tough hurdles, with the Doha talks hobbled and President George Bush’s legal authority to negotiate trade deals—so-called trade promotion authority (TPA)—due to expire in mid-2007.

Mr Portman, a former congressman close to Mr Bush, was pulled from the Trade Representative’s office (USTR) and given the post of White House budget director in April. He was the second high-profile head of the trade agency in the Bush administration to leave; Robert Zoellick departed in 2005 for a position as deputy secretary of state. (Mr Zoellick has just stepped down from that post for a job on Wall Street.) These departures deprived the USTR of two seasoned heavy hitters. Ms Schwab was deputy to Mr Portman, but is not well known internationally.

Ms Schwab has spent her entire career working on trade matters in government, universities and private business. She can probably expect some small successes on her watch, but also some potentially huge failures. Her priorities will include the following:

* Doha round. These global trade talks, under the auspices of the World Trade Organisation (WTO), are in deep trouble, and are hence Ms Schwab’s biggest challenge. Negotiators face a critical meeting in July to present a framework for a multilateral trade liberalisation accord that encompasses 147 countries. Recent deadlines have not been met, however, and disagreements over farm subsidies, particularly in Europe, and issues such as special treatment for textiles and garments remain as difficult to resolve as ever. Large developing countries such as India and Brazil have refused to make significant tariff reductions of their own in the areas of manufactured goods and services until the farm issues are resolved.

If a framework accord for a multilateral agreement is not decided by the end of this year, the talks will probably collapse altogether. It is unlikely that any agreement would be approved by the US once TPA expires next July. Under that provision, the government is free to negotiate trade treaties without concern that Congress will amend them; instead, legislators must simply vote up or down on such bills.

To advance the prospects for the global agreement, the USTR would have to persuade European leaders to lower agricultural subsidies and other barriers. Yet European representatives want the US to scale back its demands, and believe the focus should be more on manufacturing trade, not trade in farm products. There is little sign the stalemate will end soon.

* Bilateral free-trade agreements (FTAs). The US has signed more than a dozen bilateral FTAs, most recently with Colombia and Peru. These are awaiting ratification by the respective legislatures. US officials are in various stages of discussing other accords with countries in Latin America (such as Ecuador and Panama), Asia (South Korea and Malaysia) and the Middle East (Oman). Bilateral deals in the Americas have largely replaced the previous goal of creating a hemisphere-wide Free-Trade Area of the Americas, (FTAA), which is virtually dead, largely owing to sharp differences over farm subsidies.

Yet given the difficulty of convincing Congress to approve the Dominican-Republic Central American Free-Trade Agreement (DR-CAFTA) last year, legislative approval of more trade treaties is by no means assured, and would require heavy lobbying by the White House and the USTR. They would also have to be concluded before TPA expires.

* Relations with China. The Bush administration has lowered the temperature, at least for the time being, in trade relations with China by resisting demands from Congress and business groups to accuse the Chinese authorities formally of currency manipulation. The Treasury department is required to issue a report every six months naming governments that manipulate their currencies to gain an unfair trade advantage. The Treasury must then open formal negotiations with countries on the list. With feelings against Beijing running high, Congress had urged the Bush administration to add China to the list of manipulators.

However, the Treasury opted for a less confrontational approach in its latest report, expressing only "strong disappointment" that China had not allowed the renminbi to appreciate further against the dollar. The Chinese authorities revalued the renminbi by 2.1% against the dollar in July 2005, and have subsequently allowed only a further modest appreciation.

Several more forceful actions against China are still in the congressional pipeline. These bills are unlikely to become law in their present form, but they reflect the strong political backlash against China among many US businesses and their employees. China’s poor record on intellectual property rights protection is another longstanding complaint.

Still, with a new Treasury secretary, Henry Paulson, ready to take the helm, chances of a toughening of policy towards China may diminish further. Mr Paulson, until now chief executive of the investment bank Goldman Sachs, is a China hand who has travelled and done business there. He understands well China’s importance in the global economy, and the potentially counterproductive effects of pushing it too hard.

* Other trade disputes. The Bush administration in April settled a long-running dispute with Canada over alleged subsidies on Canadian softwood lumber exports, bringing to an end the most important trade irritant between the two countries. Under the seven-year deal, the US will revoke anti-dumping and countervailing duties that have been in force since 2002. However, the finer details of the settlement are proving problematic, and final approval in the respective legislatures may not happen until the fall. Moreover, with the agreement expiring in seven years, it may be described more as a truce than a permanent settlement. Canada also has a complaint about alleged US subsidies on corn exported to Canada.

The US also has ongoing disputes with the EU related to aircraft subsidies (Airbus versus Boeing), and an EU ban on US poultry and beef imports.

No breakthroughs

Prospects for achieving a major breakthrough in any of the Bush administration’s trade initiatives in the months ahead are dim, not least because of the November congressional elections. Trade liberalisation will not be popular on Capitol Hill at a time when control of the Congress could shift back to the Democrats. Trade protectionism, on the other hand, may emerge as a major campaign issue in some states. Demands for greater pressure on China, in particular, could intensify.

Past the November elections, the end of Mr Bush’s trade promotion authority in July of 2007 will be the next big obstacle to fulfilling the administration’s trade policy. There is no talk yet of seeking an extension of TPA, and with a new presidential election on the horizon, this too may not be feasible.

As a result, Washington’s trade agenda is likely to advance in fits and starts in the months ahead. The Bush administration’s hemispheric and global trade ambitions have been tempered by reality, and a colossal failure, especially with Doha, is all too possible.

Source: ViewsWire New York
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