Global Trends by Martin Khor

Monday 2 July 2007

US FTA talks hanging in the balance

Trading partners of the United States will have less confidence that the United States can honour any trade deals it is negotiating after the Democrats’ Congress leaders announced they would not renew the President’s fast-track trade authority, and also rejected two free trade agreements signed with South Korea and Columbia.

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The United States government’s ability to negotiate trade deals took many knocks last weekend when its President’s “fast track authority” expired with no hope for a quick renewal.

This throws into question whether it is possible for partners of the US to negotiate trade deals with confidence that any agreement that is concluded will be honoured by the US.

First, the President’s fast track authority expired on 1 July.  This means that Bush no longer has the power to negotiate trade deals in the knowledge that there is a reasonable chance for the deals to be adopted by the US Congress.

Second, the leaders of the Democrats that control the Congress and Senate have dashed the Bush administration’s hopes that a new fast track authority will be given to the President any time soon.

Third, the Democrats has also announced that they would not approve of two bilateral free trade agreements that the US administration has already concluded, under the old fast track authority, with South Korea and Columbia.

These three blows to the President’s trade policy authority means that the wind will be taken out of current negotiations that the US is conducting, or hoping to conduct, on bilateral FTAs with countries including Malaysia, Indonesia, Vietnam and Thailand.

There will also be a negative effect on the World Trade Organisation’s Doha negotiations because other WTO members would now be uncertain whether any positions put forward by or agreed to by the US can be sustained once the agreement goes up before the Congress.

The so-called “fast track authority” is provided to a US President under the Trade Promotion Authority (TPA) Act.  It allows the government to negotiate and conclude trade agreements that Congress must approve or reject as a whole, without making any changes.

This is considered important for negotiating partners of the US to have confidence that what has been agreed on will be honoured by the US, as otherwise the Congress could make several significant changes to the agreement.

For weeks before the TPA expired on 1 July, Bush and the US Trade Representative Susan Schwab campaigned with the US Congress to get the fast track authority “renewed.”

This would have required a new TPA to be adopted by Congress.  With the Democrats having swept into power in both Houses last year on the back of promises to review the country’s trade policy (as many Americans blame trade for job losses and insecurity), it was always unlikely that they would give Bush a new TPA.

In any case, the Democrats would want to put in many new provisions and conditions in any new TPA to be established, and this would take time to craft.

Moreover, the Democrats are not in a mood to give further power to Bush, a President with who they disagree passionately on many issues.

The last time a fast track authority lapsed was in 1994, when Bill Clinton was President, and it took eight years before a new TPA was established.

Last Friday, the Democrat House Speaker Nancy Pelosi and other Democrat Congress leaders issued a statement saying that “our legislative priorities do not include the renewal of fast track authority. Before that debate can even begin, we must expand the benefits of globalization to all Americans, including taking the actions outlined above.”

The actions mentioned include addressing the increased economic insecurity faced by American families arising from trade, and new legislation that the Democrats are planning to “address the growing imbalance in trade with China, strengthen overall enforcement of U.S. trade agreements and U.S. trade laws, as well as overhaul and improve support to ensure that American workers and firms remain the most competitive in the world.”

Needless to say, it will take quite some time for such new legislation to be debated within the Democrat circle itself, and to be introduced and debated in Congress, and thus any new TPA will have to wait in line for months or years.

The Democrat leaders also announced that they would approve bilateral FTAs that the US has signed with Peru and Panama, but would reject FTAs with Columbia and South Korea.

The Peru and Panama agreements had been signed months ago.  The Democrats then negotiated with the US administration to inject new provisions in seven areas in the FTAs with these two countries.

The issues include labour standards, environment and global warming, patents and access to medicines, government procurement, port security, and investment. 

For Congress to approve the deals, the two countries have to agree to including the new language, even after they had already signed their FTAs with the US. This exercise shows that even after a FTA is concluded, it can be re-opened for the US to put in new demands.

South Korea also signed an amended FTA with the US last Saturday.  However the chances of it being approved by Congress is now slim, because the Democrat leaders said they cannot support the pact as currently negotiated.

The reason given is that the FTA does not address non-tariff barriers blocking access of U.S. manufactured products in South Korea’s market.  The Democrats mentioned the automotive sector where last year South Korea exported more than 700,000 cars into the U.S., while the US exported fewer than 5,000.

The Democrats also rejected the FTA with Columbia because of the violence against trade union members, “the impunity, the lack of investigations and prosecutions, and the role of the paramilitary.”