In the aftershocks of last Tuesday’s dramatic election results, many Washington observers are attempting to interpret how and where the Obama Administration will be able to find common ground with a new, more pro-business Congress. While many parts of the Obama agenda have been sidelined by the election results, there is one area of economic policy that may attract immediate emphasis: international trade.
The first two years of the Obama Administration have produced little movement in trade policy, with the White House largely confining itself to trade law disputes, occasional high profile tours of trading partners (India), broad themes at international conferences, such as the G-20, and low-key programmatic boomlets such as the National Export Initiative (NEI), with its pledge to double US exports over five years. A more ambitious trade agenda has eluded the Administration, with key allies preoccupied with domestic issues or opposed to free trade policies.
With a new, more competitive Congress, and a House of Representatives dominated by conservative Republicans, there is now an opportunity for a new coalition that could advance an aggressive trade agenda uniting internationalists in the executive branch with a diverse pro-trade majority in both the House and Senate. The opportunity to advance a new trade agenda remains narrow, however, given the continuing opposition of organized labor to free trade, coupled with labor’s pivotal role as part of the Democratic coalition in the looming 2012 election.
The midterm elections were contested on economic issues but, despite late protectionist appeals by some embattled Democrats, and deep discontents among trade-skeptical blue-collar voters, trade issues were marginal to the political debate and the ultimate outcome. Free trade advocates were able to win key US Senate seats in competitive races (e.g., Rob Portman in Ohio and Pat Toomey in Pennsylvania), while prominent protectionists lost (e.g., Democrat Phil Hare in Illinois) in high-profile House contests in trade sensitive constituencies. While the election was not a mandate for free trade, and many voters remain doubtful of certain past trade agreements, the political landscape has dramatically changed in a manner that allows new openings for rules-based international trade.
In the House, a nominally protectionist majority has been replaced by a new populist conservative coalition open to pro-business policies, and led by strong trade advocates. Under Speaker John Boehner, R-Ohio, and Majority Leader Eric Cantor, R-Va., key free trade supporters like Chairman Dave Camp, R. Mich., at Ways and Means, Chairman Kevin Brady, R-Texas, at the Trade Subcommittee, and Chairman David Dreier, R-Calif., at the Rules Committee can be expected to promote an ambitious agenda facilitating both bilateral and multilateral trade openings. While some populist Republicans may not be counted on to embrace trade agreements or trade legislation (e.g., fast track) because of local issues or ideological concerns, most new GOP members can be expected to consider trade initiatives with an open mind.
It is also significant that many House members have never been part of a protracted trade debate, and may be open to supporting free trade. In recent elections cycle, there has been greater volatility in House membership. As the result, in the next Congress, some 22 percent of the House members will be new. Since 2006, 40 percent of the House will have taken office; only 26 percent of the incoming House will have voted in favor of the Central American Free Trade Agreement (CAFTA). This will represent a huge cohort of members for which a trade vote will be a case of first impression, presenting a large and challenging educational task for advocates of free trade.
In the Senate, the addition of new pro-free trade members to a body already inclined to support trade initiatives is likely to produce a bipartisan majority willing to advance a constructive trade agenda, although some initiatives may create procedural issues that could require super-majorities to advance the necessary legislation.
Although the Obama Administration has offered little public indication of how they might approach an expanded trade agenda, we can anticipate many of the issues that are likely to be uncrated for the new session of Congress:
- Korea – US Free Trade Agreement. The KORUS has been largely dormant for two years, following its negotiation and submission by the Bush Administration. Interest in this free trade agreement (FTA) has recently been revived because of the size of the Korean market; large openings for US manufacturers, financial service providers, and agriculture; and the heightening of US security concerns on the Korean peninsula. Some US producers continue to express concerns about the auto sector and beef issues, and the Obama Administration has been renegotiating sections of the FTA pertaining to investment, labor and the environment. A new EU-Korea agreement pressures the US government to go forward or be placed at a serious disadvantage. President Obama has indicated he expects to resubmit KORUS to Congress next year.
Outlook: If the domestic auto sector settles down, the odds of passing the Korea-US FTA are better than even.
- Colombia Free Trade Agreement. Although negotiated prior to KORUS, this trade pact has attracted less attention because of the intensity of opposition to it from organized labor which has moved it further into the background. Although it opens a large Latin American market to greater US integration and export penetration, this initiative has attracted strong criticism from the American left because of past allegations of anti-union violence in Colombia. Criticisms from human rights groups have continued despite a dramatic reduction in killings among labor organizers, and a change in political regime. Colombia remains a promising market and a key strategic ally in the region. Junior conservative members of Congress are likely to weigh the benefits of a stable and friendly Colombia and its contribution to domestic security, against protectionist skepticism of a new trade pact in the region. The recent free trade agreement between Canada and Colombia gives further impetus to approve this agreement.
Outlook: If President Obama signs off, this FTA is likely to follow the path of earlier FTAs with Chile and Peru, and be approved with bipartisan support after a spirited debate.
- Panama Free Trade Agreement.This last Bush era trade pact is more modest in impact, less controversial, and likely to advance in tandem with the others. It offers potential benefits for US agriculture and services, although concerns about tax transparency remain. The longstanding bilateral relationship between Panama and the United States, and the former’s strategic importance make a compelling case for this free trade pact.
Outlook: The Panama FTA will likely be passed if submitted, with a greater uncertainty being how the other two FTAs and the recession will influence its timing and strategy.
- Trans-Pacific Strategy Economic Partnership (TPP). The Obama Administration has a deeper footprint on this evolving, nonconventional, multilateral free trade agreement. Currently the United States is negotiating to join the framework, which originally consisted of Chile, New Zealand and Brunei, but quickly added Australia, Malaysia and Vietnam. Japan is now cautiously waiting in the wings. This pact has the potential to create a regional counterweight to China’s economic influence, and deepen the United States’ economic integration into the Asia-Pacific sphere.
Outlook: More negotiations, possible future submission to Congress.
- World Trade Organization. With greater congressional support, it is likely that the Obama Administration will play a more decisive role in the Doha Round and move the negotiation toward a successful conclusion.
Outcome: To play a more decisive role, President Obama will need to request and lock in some form of trade promotion authority to protect the product of these and other negotiations from hostile amendments and procedural attacks. If requested, this authority may prove controversial in itself. Also, expect the Obama Administration to wrestle with a challenging accession by Russia to WTO membership, which requires legislation.
- Other issues. A range of other issues, from GSP reauthorization to revisions in the US international tax regime, to domestic trade law modifications and reform of trade adjustment assistance (TAA), are likely to materialize. It is also possible that the Administration will launch a new initiative of indeterminate scope with any of several potential trading partners: Brazil, Egypt, India, or Turkey, which are strong candidates for economic policy reasons, as well as others. The outcome of all of these potential developments will be shaped by the success or failure of a new trade coalition in Congress that will be challenged to assert itself in the next few months.