AMERICAN.COM

For those who are not trade mavens (most of the population), the maneuverings during this past few days over the pending FTAs and federal assistance for U.S. workers must seem bewildering.

On Thursday, we were treated to the spectacle of Senate Republicans, who strongly support the FTAs, blocking a Finance Committee session that would have advanced the agreements, allowing Senate Democrats and the Obama administration, with brazen hypocrisy given their dubious and erratic record of supporting trade liberalization, to label the Republicans obstructionist for “boycotting … job creation legislation.” Most of the press picked up and followed this line, either implicitly or explicitly laying the blame at the feet of GOP senators.

Phil Levy argued in an earlier blog post that the administration’s handling of this whole affair was “clumsy,” “slapdash,” and risked jeopardizing months of work to reach a bipartisan accommodation on trade, and specifically the pending FTAs. Let’s stipulate that this is so—but, while we still don’t know all the details here, it also looks as if the Republican mixed signals certainly played into the administration’s hands. Last week, one assumes with the knowledge of the House leadership, Representative David Camp, chairman of the Ways and Means Committee, began negotiations with the White House aiming at a compromise that would both allow passage of the FTAs and some form of Trade Adjustment Assistance for American workers. The specific goal regarding TAA was to craft legislation that would essentially split the difference between the expansive (and expensive) 2009 version that was passed as part of the stimulus package, and the earlier, more restricted and less costly version authorized in 2002. On Tuesday, the White House and Senator Max Baucus, chairman of the Finance Committee, announced that a deal had been reached on TAA. They also sprang a surprise by announcing that the administration would combine in one trade bill (under rules that do not allow amendments) both the implementing legislation for the Korea FTA and the TAA compromise. Representative Camp issued a statement supporting the TAA substance compromise. He gave no indication that he opposed the combined Korea FTA/TAA approach, stating only that this “was a matter for the Republican leadership to determine.”

The attempt to slip TAA through in the FTA process took both the House majority leadership and Senate Republicans, who apparently not been privy to any of the negotiations, by surprise. And it infuriated Finance Committee Republicans, who felt particularly dissed by the substance and the process. The usually mild-mannered Senator Orrin Hatch gave a blistering critique of the administration and the president personally in his speech here at AEI. In addition, House Speaker John Boehner immediately disassociated the House Republican leadership from the president’s decision to combine the FTA and TAA legislation in one bill.

Under all of this, there is another complication—the belief by some Republicans that Camp had conceded too much on TAA to the administration, allowing too many provisions of the expanded 2009 TAA bill to remain in place. At the panel session we held here at AEI after Hatch’s speech on Thursday, the two speakers, Howard Rosen (long-time advocate for TAA) and Sallie James (a leading critic), who agreed on little else, both agreed that the “compromise” did not split the difference but went far in the direction of the administration’s position.

All of this presents real problems for congressional Republicans going forward. First, whatever its contents, when the compromise was announced, virtually every leading business trade association lauded the effort—and gave no indication that they cared about the technical details of combining FTA with TAA legislation in one package. Implicitly, they were and are saying to Republicans: just get on with it. Second, it will be very difficult for Republicans in either house to go back and change the substance details on TAA. Some Senate Republicans oppose any renewal of TAA, while others were willing to go along with a scaled-down TAA. Finally, the whole episode raises important questions about communications and tactical unity between the House majority leadership and the Ways and Means Committee.

In the end, the administration may well have the upper hand—it can demand that as the price for splitting the two issues, Republicans guarantee and bring up TAA first.

To close on a cynical note—yes, I know it’s the Fourth of July weekend where unified patriotism should prevail—politically, the administration may calculate that it wins either way: if the Republicans cave on TAA and the FTAs pass, the president will get credit; if TAA fails and the FTAs also go down, he can tell free traders he tried and still bask in union support for the same failure—not a bad outcome looking toward 2012.

Just after I posted “The Big Downside of the Colombia FTA” on Friday, Scott Lincicome, who writes a much-read blog on trade issues, generously reposted it and sent it out. Thanks to Scott—but Scott also raised a very pertinent issue: he pointed out that “this type of FTA bullying” was not new, noting similar tactics have been employed as a result of forced commitments in the U.S-Peru Free Trade Agreement (FTA). On this point, Scott is quite right.

As I stated at the outset of my blog post, I intend to write on the issue of labor and trade more fully in the coming weeks. But in light of Lincicome’s valid query, let me add several points and an excerpt from a 2007 piece of mine warning of the consequences of actions taken with regard to the Peru, Colombia, and Panama FTAs.

This all goes back to the (misbegotten) May 10 agreement between the Bush administration and House Democrats in 2007. To the irritation of the Bush U.S. Trade Representative’s office, my colleague Phil Levy and I opposed the so-called labor “compromise,” arguing that it set a very bad precedent and that the Bush administration would get very little in return (no movement on Colombia or Panama, and also continued holdup on Korea).

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I will write more on this subject in the future, but I want to flag a big downside in the just-announced agreement to move forward with the U.S.-Colombia Free Trade Agreement: that is, the highly intrusive and largely ill-advised provisions of the so-called “Action Plan” for Colombian labor laws and regulations. Yes, I know that the Colombians—browbeaten and desperate to assure permanent access to the U.S. market—have agreed to go along. But in many ways these provisions represent a callous trampling on Colombia’s sovereignty and the right to determine for itself specific priorities and obligations in the domestic labor market.

Among the more egregious demands, Colombia has acquiesced to “criminalize” (with prison terms of up to five years) any acts that “undermine the right to organize and bargain collectively.” It must also pass a law dictating prison terms for anyone who “offers a collective pact to non-union workers that is superior to terms for union workers.” No definition of “undermine” or “superior terms,” of course, is set forth. Such vague mandates are an invitation to harassment and extortion. Further, Colombia must assume heavy administrative and enforcement obligations that will stretch resources and constrict the government’s flexibility to adjust as labor (or other) conditions change in the future—including mandates on the number of inspectors, prosecutors, and police labor investigators, a plethora of new legislative actions, programs, analyses, directives, and consultations/meetings in the labor relations area. Some of these ideas have worth, but the attempted straitjacket of mandated priorities will breed endless disputes down the road.

Two closing questions: the first, related to the above, is what will happen when Colombia, through its own democratic process, wants to adjust programs and mandates in the future? Will the United States intervene to stop or control such changes? And second: beyond Colombia, the United States in the future—starting with the TPP—will attempt to conclude more FTAs. Does the Obama administration really think that Australia or Chile (and later possibly Indonesia and India) will stand for this intrusive trampling of sovereignty and democratically established laws and regulations? Good question—with an obvious answer.

I should add that, ironically, even this is not enough for U.S. labor unions, who have unanimously announced their opposition to the Colombia FTA even with the action plan.

Representative Sander “Sandy” Levin (D-Michigan), former chairman of the House Ways and Means Committee, now ranking minority member—and the leading voice on trade for House Democrats—gave an admirable speech at the Peterson Institute Tuesday. Admirable for its candor and its blunt partisanship, and for an attempt to set forth a “new model” for future U.S. trade agreements.

Right off the mark, in the first sentence, he accused House Republicans of “holding hostage” the more important Korean free trade agreement (FTA) for flawed (in his judgment) FTAs with Colombia and Panama. For Levin, this stance is part and parcel of “the old conventional wisdom on trade.” I’m not going to detail a rebuttal to this twisted version of the Korea/Colombia FTA history here: for that, see Phil Levy’s American.com piece a few weeks ago.

What is more important are the elements of Levin’s new trade model, to the degree that one can discern them, as they are scattered throughout the speech and in the question period that followed. One should note first that, as with many (even supposedly more sophisticated) trade critics, Levin attacks the “traditional” Smith/Ricardo model based upon comparative advantage: “Globalization has challenged the very premises of this model.” Moving on, as the speech progresses, I picked up the following components of the new model: greater use of trade actions (anti-dumping and safeguards) to protect U.S. industries (such as tires which we no longer make here); industrial policies to foster (subsidize) and protect strategic U.S. industries; enforceable labor rights provisions that would allow the U.S. to intervene in the legislative and administrative procedures and policies of trading partners; the assumption international legal obligations that would allow challenges to U.S. labor laws (right-to-work, collective bargaining for public unions); mandatory adherence to UN environmental treaties and agreements; large new U.S. expenditures for social programs (viz, trade adjustment assistance, expanded unemployment insurance) as recompense to trade “losers”; and reinstituting “managed trade” (i.e., tying continued U.S. market opening to specific increases of exports to individual trading partners). There is more, but this gives the thrust.

Levin, whose trade experience was forged by the perception of America’s decline in the 1980s, ended his speech by vowing “not to let what happened in our trade policy toward Japan happen to our trade policy in this decade”—i.e., Japan won. This is a bizarre conclusion, given Japan’s economic history since 1990. No matter, for Sandy “active” intervention to subsidize and protect and “managed trade” in economic diplomacy “were right then … and are right now.”

As I said upfront—this is an admirably forthright speech. Those of us who still believe in the “old model” of Adam Smith at least can’t say we weren’t warned.

Politico’s John Maggs is a very good reporter, but he has written a flawed, misleading article on the connection between the recently concluded KORUS and the similarly pending Colombia free trade agreement (FTA). The thrust of his piece is that House Republicans “threaten” the Korea pact by linking it with passage of the Colombian pact (and less controversially, the pending Panama FTA). Maggs argues that combining the two (three) agreements would “galvanize” House Democratic opposition and views this is a tactic to “force the White House to choose between its liberal base and the business community … [and] a way to make President Obama’s new embrace of trade costly for him with his own party.” This thesis is at best incomplete, and in building supporting evidence Maggs ignores or twists the history of the Colombia FTA.

First, he suggests that Republicans merely want to shore up “Colombia’s conservative government  … despite the history of anti-union violence.” And, in stats straight out of union/Nader propaganda, he cites the “fact” that some 2,800 union officials have been murdered since 1986. Well, Republicans also pushed hard for the KORUS in 2007, despite the fact that the then-Korean president, Roh Moo-hyun, espoused “liberal” policies antithetical to their views on both foreign and domestic policy. Of greater import, however, is the use, or misuse, of statistics on murder and violence. Yes, if one goes back to 1986, the figure 2,800 is accurate. But this disguises the fact that since 2001, according to a study by the Cato Institute (buttressed by other independent assessments), assassination rates of union and business leaders have dropped 80 percent and the murder rate overall has come down some 40 percent. As Cato noted, it is now probably “safer for a union leader to walk the streets of Medellin than those of our own capitol.” All of this occurred as the Colombian government under Presidents Uribe and now Santos fought and finally won a war against drug lords and the Venezuelan-backed FARC guerrillas—and capped it all with a fair and free election in 2010 that saw the “conservative” Uribe voluntarily give up the presidency.

Finally, Maggs accuses the Republican leaders of jeopardizing a new “bipartisan” approach to trade, citing the support of the United Auto Workers union (UAW) and the food workers union for KORUS after the administration extracted “concessions” from Korea. The concessions amounted to a retreat to protectionism but, more important they certainly have not secured a change in union opposition to trade agreements—yes, the UAW and food workers union now support KORUS as a result of this extended protection. But the AFL/CIO federation, including all the major industrial unions—steel, communications, and machinists—all vowed to actively oppose the agreement. And I would bet that the UAW will find some bogus reason to oppose Colombia and Panama, despite the protectionist payoff with Korea.

Having said all that, my own view is pragmatic: if the congressional Republicans have the votes, they should move all three of the agreements in the spring, because of their undoubted benefits for the United States, whatever their side effects on the fractious elements of the Democratic coalition. And I hope John Maggs will celebrate these victories after the “threats” are surmounted.

When the president announced that the United States and South Korea had finally reached a deal on KORUS free trade agreement, the administration touted the fact that it broke new ground by gaining the support of both industry and labor: i.e., the Ford Motor Company, which had led the opposition in the truncated U.S. “native” auto sector, and the UAW, the auto workers union. Well, not so fast: while the food and commercial workers union did endorse the pact, the major industrial unions, led by the AFL-CIO federation, have come out in strong opposition. Virtually identical statements from the AFL-CIO, the steel workers, the machinists, and the communications workers not only decline to endorse (which might have signaled passive opposition), but also vow to “actively oppose” the agreement—meaning that their full lobbying resources will be mobilized against the pact in Congress. And while the UAW will support KORUS, it will be interesting to see if it has changed its position on the pending Panama and Colombia agreements.

Down the road is the Trans-Pacific Partnership, a free-trade agreement under negotiation by nine trans-Pacific nations, with others waiting in the wings. I’ll bet that the UAW will find some (bogus) reason to distinguish its KORUS support from allegedly flawed other agreements, such as TPP. Bottom line: President Obama almost certainly will face strong opposition on any future trade liberalization from this key constituency as he moves to bolster an already frayed Democratic coalition for 2012.