Executive Briefings

Down to the Wire on Free Trade

The clock is ticking on a trio of free-trade agreements that have been held up in Congress for more than four years. Unless lawmakers act within the next few weeks, the pacts will be consigned to several more years of legislative limbo. Assuming they survive at all.

At issue are FTAs with South Korea, Colombia and Panama. The U.S. signed all three back in 2006 and 2007. Since then, they've languished in Congress, awaiting ratification, victims of a political environment that has ranged from indifference to outright hostility.

The spring of this year saw renewed activity that gave cause for hope. The Obama Administration achieved a breakthrough in negotiations with Colombia over revising the treaty to strengthen workers' rights. On the heels of that development, the Office of the U.S. Trade Representative said it would begin working with key members of Congress to draft legislation on implementing all three FTAs at once. Chiming in with support for the announcement were numerous trade and business groups, including the American Association of Exporters and Importers, Retail Industry Leaders Association, National Retail Federation and U.S. Chamber of Commerce, the last no friend of the Obama Administration on many other key issues.

Emboldened by the Administration's actions, the Senate Finance Committee scheduled a "non-mark markup" for June 30, to allow for amendments and prepare the bill for formal submission to Congress. Things seemed to be moving along smoothly for the first time in years. Then Senate Republicans refused to come to the party.

The alleged sticking point was extension of the Trade Adjustment Assistance program, which provides benefits to Americans who lose their jobs due to international trade. An expanded version of the TAA, enacted in 2009 and including service workers, expired back in February of this year. Republicans oppose a renewal of the program, supposedly out of concern for its impact on the federal budget. The Republican-controlled House Ways and Means Committee has countered with its own bill to implement the three trade agreements without a revived TAA. That proposal will never fly with Obama and Democratic legislators, so as of last week the issue was once again in stalemate.

At stake is a measure that could increase U.S. exports by as much as $12bn a year. Meanwhile, an FTA between South Korea and the European Union sailed into effect on July 1, leaving U.S. suppliers of automotive, pharmaceutical and high-tech goods out in the cold.

This latest roadblock occurs at a time when the Obama Administration has finally decided to take the lead on free trade. The President did little to advance that agenda in his first two years in office, to the point where supporters wondered whether he had a trade policy at all, notes Marianne Rowden, president and chief executive officer of AAEI. It took a crushing recession to get Obama's attention; now he touts U.S. exports as the key to domestic recovery. But we'll never tap lucrative foreign markets without dismantling the barriers to trade. "The Administration rightly understands that the only way we are going to get out of our current financial mess is to grow our way out of it," says Rowden.

Of the three pending FTAs, Korea's is the one that offers the biggest reward for U.S. manufacturers and suppliers. It promises to eliminate 95 percent of tariffs on bilateral trade in consumer and industrial products within three years, and nearly all tariffs within 10. According to the U.S. International Trade Commission, the tariff and quota eliminations alone would add between $10bn and $12bn to annual U.S. gross domestic product, and about $10bn to annual merchandise exports to Korea.

The fight over the TAA stands in the way. Republicans view the program as just another means of extending unemployment benefits to American workers - and we all know how they feel about that. In reality, says Rowden, they know they'll have to support the FTA legislation in the end. "It's just a matter of getting a number in TAA." Free trade is, after all, a cornerstone of traditional Republican politics. (Assuming, of course, that the Tea Party-fueled hatred of government spending hasn't ripped that plank from the platform.)

The TAA isn't perfect. The kind of training programs that it supports aren't necessarily suited to the jobs for which displaced workers ought to be preparing themselves in the 21st Century. And big unions like the AFL-CIO, who run up the flag of opposition to just about any free-trade initiative, aren't doing enough on the training front. "Our programs," says Rowden, "are out of sync with the jobs that are available."

Still, there needs to be some kind of a safety net for those who are hurt by free-trade agreements in the short term. Consider the TAA an investment in the American worker, with benefits that far outweigh the immediate cost.

What it shouldn't be is a political football. Rowden worries that the FTA bill will be stalled by the acrimonious federal budget negotiations, in particular the battle over raising the debt ceiling. As of last week, she was giving the legislation a 60- to70-percent chance of passage by the August congressional recess. After that, forget about seeing any action until well after the 2012 presidential election - possibly as late as 2014. So we should know the fate of those three FTAs in a very short time. Keep your fingers crossed.

Next: What's so great about free trade, anyway?

- Robert J. Bowman, SupplyChainBrain

Comment on This Article

The clock is ticking on a trio of free-trade agreements that have been held up in Congress for more than four years. Unless lawmakers act within the next few weeks, the pacts will be consigned to several more years of legislative limbo. Assuming they survive at all.

At issue are FTAs with South Korea, Colombia and Panama. The U.S. signed all three back in 2006 and 2007. Since then, they've languished in Congress, awaiting ratification, victims of a political environment that has ranged from indifference to outright hostility.

The spring of this year saw renewed activity that gave cause for hope. The Obama Administration achieved a breakthrough in negotiations with Colombia over revising the treaty to strengthen workers' rights. On the heels of that development, the Office of the U.S. Trade Representative said it would begin working with key members of Congress to draft legislation on implementing all three FTAs at once. Chiming in with support for the announcement were numerous trade and business groups, including the American Association of Exporters and Importers, Retail Industry Leaders Association, National Retail Federation and U.S. Chamber of Commerce, the last no friend of the Obama Administration on many other key issues.

Emboldened by the Administration's actions, the Senate Finance Committee scheduled a "non-mark markup" for June 30, to allow for amendments and prepare the bill for formal submission to Congress. Things seemed to be moving along smoothly for the first time in years. Then Senate Republicans refused to come to the party.

The alleged sticking point was extension of the Trade Adjustment Assistance program, which provides benefits to Americans who lose their jobs due to international trade. An expanded version of the TAA, enacted in 2009 and including service workers, expired back in February of this year. Republicans oppose a renewal of the program, supposedly out of concern for its impact on the federal budget. The Republican-controlled House Ways and Means Committee has countered with its own bill to implement the three trade agreements without a revived TAA. That proposal will never fly with Obama and Democratic legislators, so as of last week the issue was once again in stalemate.

At stake is a measure that could increase U.S. exports by as much as $12bn a year. Meanwhile, an FTA between South Korea and the European Union sailed into effect on July 1, leaving U.S. suppliers of automotive, pharmaceutical and high-tech goods out in the cold.

This latest roadblock occurs at a time when the Obama Administration has finally decided to take the lead on free trade. The President did little to advance that agenda in his first two years in office, to the point where supporters wondered whether he had a trade policy at all, notes Marianne Rowden, president and chief executive officer of AAEI. It took a crushing recession to get Obama's attention; now he touts U.S. exports as the key to domestic recovery. But we'll never tap lucrative foreign markets without dismantling the barriers to trade. "The Administration rightly understands that the only way we are going to get out of our current financial mess is to grow our way out of it," says Rowden.

Of the three pending FTAs, Korea's is the one that offers the biggest reward for U.S. manufacturers and suppliers. It promises to eliminate 95 percent of tariffs on bilateral trade in consumer and industrial products within three years, and nearly all tariffs within 10. According to the U.S. International Trade Commission, the tariff and quota eliminations alone would add between $10bn and $12bn to annual U.S. gross domestic product, and about $10bn to annual merchandise exports to Korea.

The fight over the TAA stands in the way. Republicans view the program as just another means of extending unemployment benefits to American workers - and we all know how they feel about that. In reality, says Rowden, they know they'll have to support the FTA legislation in the end. "It's just a matter of getting a number in TAA." Free trade is, after all, a cornerstone of traditional Republican politics. (Assuming, of course, that the Tea Party-fueled hatred of government spending hasn't ripped that plank from the platform.)

The TAA isn't perfect. The kind of training programs that it supports aren't necessarily suited to the jobs for which displaced workers ought to be preparing themselves in the 21st Century. And big unions like the AFL-CIO, who run up the flag of opposition to just about any free-trade initiative, aren't doing enough on the training front. "Our programs," says Rowden, "are out of sync with the jobs that are available."

Still, there needs to be some kind of a safety net for those who are hurt by free-trade agreements in the short term. Consider the TAA an investment in the American worker, with benefits that far outweigh the immediate cost.

What it shouldn't be is a political football. Rowden worries that the FTA bill will be stalled by the acrimonious federal budget negotiations, in particular the battle over raising the debt ceiling. As of last week, she was giving the legislation a 60- to70-percent chance of passage by the August congressional recess. After that, forget about seeing any action until well after the 2012 presidential election - possibly as late as 2014. So we should know the fate of those three FTAs in a very short time. Keep your fingers crossed.

Next: What's so great about free trade, anyway?

- Robert J. Bowman, SupplyChainBrain

Comment on This Article