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Policy

Obama’s Trade Agenda Imperiled

Democrats fear market-opening pacts would erode U.S. jobs

by Glenn Hess
May 26, 2014 | A version of this story appeared in Volume 92, Issue 21

An election-year battle is shaping up between President Barack Obama and many of his fellow Democrats in Congress over the thorny issue of free trade.

TRADE DEAL
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The U.S. is nearing completion of a deal with countries that surround the Pacific Ocean. GDP = gross domestic product
A map showing the countries invovled in the Trans-Atlantic Partnership.
The U.S. is nearing completion of a deal with countries that surround the Pacific Ocean. GDP = gross domestic product

The Administration hopes to conclude negotiations this year on the 12-nation Trans-Pacific Partnership. The deal, which has been under negotiation since 2010, aims to eliminate many trade barriers between the U.S., Japan, and 10 other nations on both sides of the Pacific Ocean.

The trade pact is a key component of Obama’s efforts to increase U.S. exports to the growing economies of Asia and boost U.S. presence in the region as a counterweight to a rising China—which is not involved in the negotiations.

The White House is also in early-stage talks with the European Union over what would be the largest bilateral trade deal in history. In addition to removing all tariffs on trade, negotiators working on the Trans-Atlantic Trade & Investment Partnership want to find ways to reduce the high costs associated with duplicative regulations and divergent standards for both governments and industry. Obama calls the proposed free-trade agreement “critical to supporting jobs and boosting exports in both the U.S. and in Europe.”

But the President has run into staunch opposition from members of his own party, who fear a loss of jobs to the forces of globalization. They are refusing to support legislation that would renew a fast-track procedure the President needs to finalize the agreements and then keep them intact as they move through Congress.

For the chemical industry, which perennially ranks as one of the top export sectors in the U.S. economy, the two trade initiatives are of paramount importance.

Largely because of the plentiful domestic supply of low-cost natural gas, U.S. chemical manufacturers currently enjoy a substantial competitive advantage over their overseas rivals. Ethane, a major component of natural gas, is the principal feedstock for chemical production in the U.S., while companies in Europe and Asia rely on naphtha, a more expensive, oil-based raw material.

The American Chemistry Council (ACC), a trade association of more than 140 major U.S.-based chemical manufacturers, believes U.S. exports could grow significantly in future years, surpassing $200 billion in 2014 and expanding nearly 8% per year through 2018.

“This makes the search for new markets and the reduction or elimination of trade barriers in existing ones a core priority for the U.S. chemical industry,” ACC Chief Executive Officer Calvin M. Dooley says.

An ACC analysis shows that the Trans-Pacific Partnership agreement has the potential to generate $1.2 billion in annual export growth for the chemical industry. In addition to the U.S. and Japan, the talks include Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Chemical manufacturers also stand to benefit from a free-trade agreement with the 28-nation EU bloc. The EU remains the largest of the U.S. industry’s foreign markets, with two-way trade in chemicals totaling more than $52 billion in 2013.

Although chemical tariffs on transatlantic trade are already low, the high volume of trade means that eliminating the remaining duties would save U.S. chemical manufacturers about $1.5 billion per year, according to ACC.

And the potential savings from reducing or eliminating regulatory barriers to trade with Europe are even greater, industry officials say. They describe the EU’s regulatory program for managing the potential risks posed by industrial chemicals—the Registration, Evaluation, Authorisation & Restriction of Chemicals (REACH)—as the largest obstacle they face in exporting to Europe.

“It has had a significant impact on the way companies operate in the EU market and the resources devoted to testing and compliance,” says William E. Allmond IV, vice president of government and public relations for the Society of Chemical Manufacturers & Affiliates (SOCMA), a trade group for specialty chemical manufacturers.

The regulatory costs of complying with REACH add an estimated 22.2% to the tariff on chemicals exported to the EU from the U.S., according to an analysis by the U.S. International Trade Commission.

But many congressional Democrats are skeptical of both sets of negotiations, mirroring complaints by union leaders that similar pacts such as NAFTA—the North American Free Trade Agreement—have encouraged U.S. companies to move well-paying manufacturing jobs offshore to countries with lower labor costs.

Obama’s trade agenda is at “cross-purposes with his stated goal of providing opportunity for those striving to reach the middle class,” Rep. Rosa DeLauro (D-Conn.) says. “Ultimately, he will have to choose between that and trade policies that would only further exacerbate the economic problems in this country.”

Top Democrats in both the House of Representatives and the Senate have also rejected calls by the White House to support a bicameral bill (S. 1900; H.R. 3830) introduced in January that would give Obama trade promotion authority, a legislative tool that would ease the eventual passage of trade deals.

Trade promotion authority, sometimes referred to as fast track, would allow the President to submit negotiated trade agreements to Congress for straight up-or-down votes, without any changes. The authority, which has been used in U.S. trade negotiations stretching back to 1974, most recently lapsed in 2007 and has not been renewed.

The Administration and business groups say the streamlined procedure can help assure trading partners that commitments made by U.S. negotiators won’t get picked apart by the 535 members of Congress, all of them with their own parochial interests and the power to offer amendments.

“It is simply not feasible to expect our negotiating partners to put their best offers on the table in the absence of trade promotion authority,” Dooley says.

But critics say lawmakers should be able to fully debate and amend trade deals. The day after Obama asked Congress in late January to restore the authority in his State of the Union address, Senate Majority Leader Harry Reid (D-Nev.) declared that he was “against fast track.”

Reid also suggested that he would block a floor vote on such a measure. He voted against a bill to renew the deal-making device in 2002, the last time it was approved by Congress.

On the House side, more than 150 Democrats, including Minority Leader Nancy Pelosi of California, have also vowed to oppose the pending trade promotion authority legislation. That means Obama will have to rely on pro-trade Republicans to provide most of the 217 votes needed for passage in the House. And any vote may have to wait until the lame-duck period after the upcoming midterm congressional elections.

For their part, congressional Republican leaders have criticized the White House for not doing enough to persuade Democrats to support its ambitious trade plan.

But SOCMA’s Allmond disagrees, saying the Administration “has done a very good job” promoting the trade bill. He notes that Commerce Secretary Penny Pritzker and U.S. Trade Representative Michael B. Froman have ramped up their outreach to Capitol Hill to seek support from Democrats.

“However, they apparently haven’t done a good enough job of convincing Sen. Reid to put trade promotion authority up for a vote,” Allmond adds. “And without his support, the bill goes nowhere.”

With Democrats clinging to an endangered, slender majority in the Senate, “it’s quite clear that Sen. Reid is siding with big labor and some of the Democratic Party’s other main constituencies on this issue,” Allmond says.

Ultimately, the fate of the biggest regional trade deals ever negotiated hang in the balance.

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