Executive Briefings

Congress and the President on Free-Trade Pacts: "Frankly, My Dear..."

The decade of the nineties was a time of sound and fury over trade pacts, especially the North American Free Trade Agreement (NAFTA). The topic loomed large in the presidential campaigns of 1992 and 1996, with spoiler candidate H. Ross Perot fuming (what didn't cause Perot to fume?) over what he saw as a sellout of American labor and business interests to foreign competition. The air was thick with bluster, exaggeration and political rhetoric, but you know what? I'd prefer that to the stony indifference that marks our government's attitude to trade agreements today.

Some people still care. One of them is Carlos M. Gutierrez, U.S. Secretary of Commerce under President George W. Bush from 2005 to 2009. He's also the former chief executive officer and chairman of Kellogg Company, as well as founder and chairman of Global Political Strategies, a consultancy on international relations and economics. Kicking off last week's annual conference of the Council of Supply Chain Management Professionals, Gutierrez rang the bell for free trade. I wonder whether anyone outside the halls of the San Diego Convention Center was listening.

Start with NAFTA, creator of the world's largest free-trade area. It's more than 16 years old, but still an infant by some standards. Chief among them is the issue of trucking access. Pressure from U.S. unions has blocked the provision that allows Mexican trucks to operate on U.S. roads - ostensibly due to concerns over safety. Initially, NAFTA was to permit access within a 25-mile commercial zone along the U.S.-Mexico border, expanding to all U.S. states by Jan. 1, 2000. That hasn't happened, and cross-border trucking continues to be a highly inefficient process. NAFTA is a major reason why trade between the three participating countries grew by 198 percent between 1993 and 2006, to $883bn, but its potential hasn't been fully realized in part because of the impasse over trucking.

Meanwhile, three additional FTAs are languishing in Congress, unratified.

The proposed U.S.-Colombia Trade Promotion Agreement seeks to cure the imbalance in the treatment of imports by the two countries. (U.S. exporters pay duties going into Colombia, while Colombian imports enter the U.S. duty-free.) An agreement on trade could also help to curb the power of Colombian drug lords, while strengthening U.S. diplomatic interests in Latin America. Sound like a good deal? "Because of politics and special interests, that agreement has been held up [in Congress] for four years," Gutierrez said.

The Panama Trade Promotion Agreement was signed in June of 2007 and approved by Panama less than two weeks later. It has not been ratified by the U.S. This despite the big jump in commercial activity promised by the expansion of the Panama Canal, with the addition of a third set of locks by 2014. The implications for the western hemisphere and the world are "huge," said Gutierrez. Ports are scrambling to accommodate the ships that will sail through the widened canal. Meanwhile, with the agreement stalled in Congress, the Chinese are positioning themselves to take full advantage of the project.

Work began in 2006 on a U.S.-Republic of Korea Free Trade Agreement, and the treaty was signed a year later. Only the second FTA to be sought between the U.S. and an Asian country (after Singapore), it would also be the second-largest to be concluded since NAFTA. What's more, it would send a message to China and Japan "that we have a partner," Gutierrez said. "It would be huge for our standing in Asia." In the wake of the bilateral negotiations, he noted, South Korea took the bold and politically dangerous step of accepting some imports of U.S. beef. Nevertheless, the Korean FTA hasn't been submitted for a vote by Congress.

"We are not moving ahead," said Gutierrez. "The rest of the world is cutting free-trade agreements right and left." The U.S. remains the wallflower in the corner of the social, watching while everyone else's dance cards get filled up.

There's an even bigger development that threatens to toss that wallflower from the dance hall into the parking lot. It's ASEAN + 3, a developing trade partnership among the 10 members of the Association of Southeast Asian Nations and the economic powerhouses of China, Japan and South Korea. This one, said Gutierrez, "has the biggest possibility of changing the game."

Most of all, ASEAN + 3 advances China's goal of asserting economic leadership over Asia. Gutierrez laid out the three cornerstones of that strategy: the push for a harmonious domestic society, in which nobody "rocks the boat"; a focus on technology and scientific development, and a commitment to a "peaceful rise" in the world. That last phrase describes a foreign policy that rejects attempts to dominate the U.S. militarily - an effort that China is likely to lose - in favor of economic superiority through regional cooperation. In China's ongoing chess game with the U.S., ASEAN + 3 "is not a checkmate move," said Gutierrez. "But it's a big check."

So on one hand, we have China and a multitude of partners seeking to form an immensely powerful trading bloc. On the other, Congress and the Administration making like Rhett Butler at the end of Gone With the Wind, sitting on three potentially valuable FTAs and failing to realize the full benefits of a fourth. Any guesses on who will dominate the global economy in years to come?

- Robert J. Bowman, SupplyChainBrain

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The decade of the nineties was a time of sound and fury over trade pacts, especially the North American Free Trade Agreement (NAFTA). The topic loomed large in the presidential campaigns of 1992 and 1996, with spoiler candidate H. Ross Perot fuming (what didn't cause Perot to fume?) over what he saw as a sellout of American labor and business interests to foreign competition. The air was thick with bluster, exaggeration and political rhetoric, but you know what? I'd prefer that to the stony indifference that marks our government's attitude to trade agreements today.

Some people still care. One of them is Carlos M. Gutierrez, U.S. Secretary of Commerce under President George W. Bush from 2005 to 2009. He's also the former chief executive officer and chairman of Kellogg Company, as well as founder and chairman of Global Political Strategies, a consultancy on international relations and economics. Kicking off last week's annual conference of the Council of Supply Chain Management Professionals, Gutierrez rang the bell for free trade. I wonder whether anyone outside the halls of the San Diego Convention Center was listening.

Start with NAFTA, creator of the world's largest free-trade area. It's more than 16 years old, but still an infant by some standards. Chief among them is the issue of trucking access. Pressure from U.S. unions has blocked the provision that allows Mexican trucks to operate on U.S. roads - ostensibly due to concerns over safety. Initially, NAFTA was to permit access within a 25-mile commercial zone along the U.S.-Mexico border, expanding to all U.S. states by Jan. 1, 2000. That hasn't happened, and cross-border trucking continues to be a highly inefficient process. NAFTA is a major reason why trade between the three participating countries grew by 198 percent between 1993 and 2006, to $883bn, but its potential hasn't been fully realized in part because of the impasse over trucking.

Meanwhile, three additional FTAs are languishing in Congress, unratified.

The proposed U.S.-Colombia Trade Promotion Agreement seeks to cure the imbalance in the treatment of imports by the two countries. (U.S. exporters pay duties going into Colombia, while Colombian imports enter the U.S. duty-free.) An agreement on trade could also help to curb the power of Colombian drug lords, while strengthening U.S. diplomatic interests in Latin America. Sound like a good deal? "Because of politics and special interests, that agreement has been held up [in Congress] for four years," Gutierrez said.

The Panama Trade Promotion Agreement was signed in June of 2007 and approved by Panama less than two weeks later. It has not been ratified by the U.S. This despite the big jump in commercial activity promised by the expansion of the Panama Canal, with the addition of a third set of locks by 2014. The implications for the western hemisphere and the world are "huge," said Gutierrez. Ports are scrambling to accommodate the ships that will sail through the widened canal. Meanwhile, with the agreement stalled in Congress, the Chinese are positioning themselves to take full advantage of the project.

Work began in 2006 on a U.S.-Republic of Korea Free Trade Agreement, and the treaty was signed a year later. Only the second FTA to be sought between the U.S. and an Asian country (after Singapore), it would also be the second-largest to be concluded since NAFTA. What's more, it would send a message to China and Japan "that we have a partner," Gutierrez said. "It would be huge for our standing in Asia." In the wake of the bilateral negotiations, he noted, South Korea took the bold and politically dangerous step of accepting some imports of U.S. beef. Nevertheless, the Korean FTA hasn't been submitted for a vote by Congress.

"We are not moving ahead," said Gutierrez. "The rest of the world is cutting free-trade agreements right and left." The U.S. remains the wallflower in the corner of the social, watching while everyone else's dance cards get filled up.

There's an even bigger development that threatens to toss that wallflower from the dance hall into the parking lot. It's ASEAN + 3, a developing trade partnership among the 10 members of the Association of Southeast Asian Nations and the economic powerhouses of China, Japan and South Korea. This one, said Gutierrez, "has the biggest possibility of changing the game."

Most of all, ASEAN + 3 advances China's goal of asserting economic leadership over Asia. Gutierrez laid out the three cornerstones of that strategy: the push for a harmonious domestic society, in which nobody "rocks the boat"; a focus on technology and scientific development, and a commitment to a "peaceful rise" in the world. That last phrase describes a foreign policy that rejects attempts to dominate the U.S. militarily - an effort that China is likely to lose - in favor of economic superiority through regional cooperation. In China's ongoing chess game with the U.S., ASEAN + 3 "is not a checkmate move," said Gutierrez. "But it's a big check."

So on one hand, we have China and a multitude of partners seeking to form an immensely powerful trading bloc. On the other, Congress and the Administration making like Rhett Butler at the end of Gone With the Wind, sitting on three potentially valuable FTAs and failing to realize the full benefits of a fourth. Any guesses on who will dominate the global economy in years to come?

- Robert J. Bowman, SupplyChainBrain

Comment on This Article