Fast-Track Trade Promotion Authority and Its Impact on U.S. Trade Policy

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Introduction

Fast-track trade promotion authority, or TPA, grants the U.S. president the right to negotiate trade agreements independent of congressional oversight. TPA is seen as a critical tool for facilitating trade liberalization by streamlining the complicated process of drawing up trade legislation. Congress voted to give President Bush TPA under the Trade Act of 2002, but this authority expires June 30, 2007, unless Congress votes to extend or renew it (the legislature can specify the length of any possible extension or renewal). With major bilateral trade deals currently on the table with South Korea, Colombia, Peru, and Panama, and with the multilateral Doha round of trade negotiations still hanging in the balance, the expiration of TPA presents a dilemma for lawmakers.

Will President Bush’s TPA be renewed?

Experts disagree, but many say it is increasingly unlikely. Daniel T. Griswold, director of the Center for Trade Policy Studies at the CATO Institute, says: “The prospects of TPA being renewed, as is, are nil. It wasn’t trade that elected the Democratic Congress but the Democratic Congress is firmly committed to a departure from the Bush administration’s trade policy. That includes fast-track.” Legislators tend to confirm this outlook. Max Baucus (D-MT), who heads the Senate Finance Committee, the starting point for any action to renew TPA, recently discussed congressional attitudes toward fast-track in the Wall Street Journal. “Frankly, there’s not a lot of momentum right now,” Baucus said.

There have been signals that TPA might be extended, rather than renewed, to help push through some trade agreements already in the works, such as a potential Doha round deal. House Democrats in March 2007 proposed an extension, contingent on provisions such as the requirement of international labor and environmental standards in future trade deals. Both U.S. Trade Representative Susan Schwab and Treasury Secretary Henry M. Paulson lobbied Congress, seeking compromise on these issues and an extension. But several false starts produced no deal in March, and experts say the prospects for an extension have grown dimmer. “At the end of the day, fast-track is about trust,” says Robert Z. Lawrence, a professor of international trade at Harvard’s Kennedy School of Government. Lawrence notes that right now “there isn’t a lot of trust” between Congress and the president.

What political pressures weigh on the TPA debate?

U.S. lawmakers operate in an increasingly protectionist political climate. Yale political science professor Kenneth F. Scheve and CFR Adjunct Senior Fellow Matthew J. Slaughter note this trend in a July/August 2007 Foreign Affairs article. Scheve and Slaughter say this may be a result of falling relative earnings for U.S. workers and rising income inequality, and note rising barriers to foreign direct investment in the United States. Tensions are particularly strained with respect to China, which some legislators view as an increasing threat to U.S. workers.

The newly Democratic-controlled Congress has seized on these issues as a major point of contention with President Bush’s trade policy, and insist they will not renew TPA unless they are confident the president will include labor standards in future trade deals. Scheve and Slaughter say the 109th Congress introduced twenty-seven pieces of anti-China trade legislation, while the 110th put forth over a dozen in its first three months. Democrats say requiring stricter labor standards from U.S. trade partners is one way to stem U.S. job losses, and insist they won’t pass trade deals that fail to meet these standards. In a recent Online Debate, Claude Barfield, a resident scholar at the American Enterprise Institute, and Charles Kernaghan, a workers-rights activist, discuss whether labor standards should have a role in U.S. trade agreements.

What would the expiration of TPA mean for the deals President Bush has already negotiated?

Four bilateral agreements await congressional approval. These include the recently agreed free trade agreement with South Korea, the largest trade deal secured since the 1994 North American Free Trade Agreement. Deals with Colombia, Peru, and Panama also await congressional vote. The expiration of fast-track won’t immediately affect the language of these deals, as they have already been negotiated. Still, it remains unclear whether these deals will make it through Congress. Of the four deals, experts generally agree that the Peru and Panama deals, which are smaller than the other two, are the most likely to win congressional approval. The prospects for the passage of these two deals were greatly improved in May 2007, when the Bush administration agreed to amend the deals with more stringent labor laws at the insistence of congressional Democrats.

Experts say the Colombia and South Korea deals face thornier paths in Congress, despite the fact that they would be far more significant in their economic impact. “The Colombian and South Korean agreements are in deep trouble for political reasons,” says CATO’s Griswold. “The domestic violence in Colombia has included the killings of union leaders, so people are resisting the deal for that reason. South Korea has been resisted because it has a very competitive auto industry that competes with Michigan.”

What other trade deals would be affected by the expiration of TPA?

The United States is engaged in bilateral negotiations with eight countries, including Thailand and Ecuador. If fast-track expires, experts say many or all of these countries could refuse further negotiations with the United States. This could potentially make for a situation where the United States falls behind other countries in trade competition. “If we don’t have fast-track, we are going to lose out in the race for bilaterals,” said CFR’s Senior Fellow Jagdish N. Bhagwati in a recent interview.

More generally, experts say allowing TPA to expire could scare off potential U.S. trade partners. “It sends a negative signal to the rest of the world that we’re confused on trade policy and temporarily bowing out of negotiations,” says Griswold. He says the expiration of TPA “doesn’t raise any trade barrier—it only reduces the chance of lowering barriers.” Bhagwati adds that losing TPA won’t necessarily kill all trade deals but it could limit progress to very minor agreements that wouldn’t have much of an effect on the U.S. economy. “Every time there’s been something big and complicated—certainly the big multilateral [agreements], and even the big bilateral ones like NAFTA—they had to go through fast-track,” he says.

What would the expiration of TPA mean for the Doha round of trade negotiations?

Nothing good, though some experts say the Doha round is destined to fail with or without TPA. The director-general of the World Trade Organization, Pascal Lamy, recently said the failure to renew TPA would undermine Doha by signaling that the United States had lost faith in world trade talks. But some experts say this loss of faith might not be unjustified. A renewed push in early 2007 to secure a deal through the Doha talks, initiated after Democrats regained control of Congress, surprised many experts given the expectation of TPA’s imminent expiration. Entrenched stances among the “G-4” negotiating parties—the United States, the European Union, India, and Brazil—threatened from the start to block any potential breakthrough, and the expectation that a deal could be negotiated in a matter of months struck many as wildly optimistic.

The United States and European Union have each dug in on reducing agricultural subsidies (though the United States did offer subsidy cuts of around $3 billion, it still has failed to come close to concessions on the scale demanded by developing countries). India and Brazil, meanwhile, seem unlikely to lift the barriers to market entry demanded by the United States and Europe. “I think Doha is in deep trouble,” says Harvard’s Lawrence, pointing out that domestic politics also complicate the issue. “You run into the problem that if you don’t get action very quickly, you’re going to have an election year next year. You don’t want a situation where President Bush signs the agreement and it falls to his successor to approve it.” Should talks break down fully, it could spell trouble not only for the trade negotiators involved, but for major international institutions like the World Trade Organization. A recent CFR Special Report by Lawrence notes severe strains on the WTO’s dispute settlement system, and says the situation could further devolve if a Doha agreement is not reached.

Still, free trade proponents remain optimistic that a watered-down Doha agreement—“Doha-Lite”—could be passed sooner rather than later. “I do think there’s enough on the table now to get a Doha-Lite agreement,” says Griswold. “Maybe it’s in the interest of the system to wrap up the current negotiations, take what’s on the table, improve it a little, declare victory, go home, and declare an end to this round. We would have some progress—some reductions of agricultural subsidies and trade barriers on manufacturing goods and services.” Bhagwati notes that even if no deal is reached through the Doha round, the negotiations should not be written off as a total failure. The talks have successfully narrowed debate to core issues, Bhagwati says, noting that this may make a future agreement more possible. “All the issues that had cluttered things up ha[ve] been cleared away,” he says, adding that the fact that negotiations are now narrowed to the G-4 states is itself a productive outcome.