Trade Agenda Imperiled

Chemical industry leaders and other business officials are lamenting the demise of the U.S.-Colombia free-trade agreement. They say the decision by House Democrats to indefinitely delay consideration of the pact could undermine future efforts by the U.S. to open new markets for American companies that rely on exports for growth.

The setback puts in doubt the Bush Administration's ambitious trade agenda for its final months in office. That agenda includes reaching a successful conclusion to the long-running round of international talks aimed at lowering trade barriers around the world and getting Congress to finalize bilateral free-trade agreements with South Korea and Panama.

U.S. corporations have pushed hard for approval of the Colombia deal, which they say would level the playing field for American exports in a fast-growing market. Although most Colombian products already enter the U.S. duty-free under an existing trade preference program, the new pact would eliminate tariffs on more than 80% of U.S. shipments of industrial and consumer goods bound for the Andean nation, the second most populous in South America after Brazil. The U.S. exported slightly more than $2 billion worth of chemical products to Colombia in 2007.

Earlier this month, the House voted 224 to 195—mostly along party lines—to deny President George W. Bush's request that Congress approve or reject the controversial pact within 90 legislative days, unraveling more than three decades of trade consensus between the executive and legislative branches. Stripping the deadline from chamber rules in effect since 1974 for fast-track consideration of free-trade agreements allows Democrats to postpone a decision on the Colombia accord until after the November elections.

The American Chemistry Council (ACC), which represents 134 of the nation's largest chemical manufacturers, says it is disappointed that the trade agreement with Colombia got caught up in domestic politics.

"We believe this may send the wrong signal to other trading nations and the negotiations under way in the Doha round," says Mary A. Irace, ACC's managing director of global affairs. "With more than 95% of the world's consumers outside the U.S., and with much of the future global growth in emerging markets, we cannot afford to sit on the sidelines. It's important to America's chemical industry that the U.S. engages in open markets and competes in those markets."

Sen. John McCain of Arizona, the presumptive presidential nominee of the Republican Party, has been a strong advocate for free trade and supports the Colombia agreement. But Democratic presidential hopefuls Sens. Hillary Clinton of New York and Barack Obama of Illinois have expressed doubts about the positive effects of trade agreements on the U.S. economy. Both oppose the Colombia deal, fearing a backlash from blue-collar workers in battleground states where free trade is blamed for job losses to cheaper labor overseas. But Clinton and Obama have also received extensive campaign contributions from corporations that support the agreement.

The unprecedented move by the House means the two Democratic rivals are unlikely to have to cast a vote on the bill in the Senate before one of them wins their party's nomination or before the general election. Under congressional rules, the House is the first chamber to debate any bill that affects revenue. The Senate is unable to take up the measure until the House acts.

Democratic congressional leaders and the Bush Administration have been at loggerheads over the proposed Colombia free-trade agreement since it was signed in November 2006. In an effort to ensure that votes on the accord occur before the fall elections, Bush submitted the deal (H.R. 5724) to the House on April 8 without securing support from Speaker Nancy Pelosi (D-Calif.). The Administration said it took that step only after Pelosi rebuffed numerous attempts to work out a bipartisan process for bringing the pact to the floor.

Two days later, Democrats responded by pushing through a resolution (H. Res. 1092) suspending provisions of the Trade Act of 1974, the law that authorizes the President to negotiate trade pacts under fast-track rules. The fast-track process gives lawmakers 90 legislative days to cast straight up-or-down votes—without amendments—after the White House sends implementing legislation to Capitol Hill. But the statute also allows lawmakers to alter those procedural restrictions.

Ten pro-trade Democrats broke away from Pelosi to oppose the resolution. Six Republicans—mostly from textile states that have been hit hard by job losses—voted with the majority to remove the 90-day deadline. During debate on the rules change, Pelosi urged the White House to focus its efforts on domestic measures to boost the ailing U.S. economy. "We certainly should do more for our own economy before passing another trade agreement," she said, citing recent jobless data. "We are ready to work with the President on a second stimulus package to get our economy back on track and creating jobs. That must be our first priority."

Bush said the House action probably kills consideration of the Colombia initiative this year, leaving it for the next Administration. "Rather than supporting the opening of markets for our farmers and manufacturers, Democratic congressional leaders instead listened to narrow special interests and followed an isolationist path," he said in a statement after the April 10 House vote.

Bush also warned that failure to ultimately approve the free-trade deal with Colombia would embolden Venezuela President Hugo Chavez and his anti-American policies and hurt U.S. credibility across South America. "We can show a watching world that America will honor its commitments, we can provide a powerful rebuke to dictators and demagogues in our backyard, and we can expand U.S. exports and export-related jobs," the President remarked.

"It's unfortunate that moving forward on the agreement became as political as it did," says Lisa M. Schroeter, director of international trade policy for Dow Chemical. "We would hope that this agreement could be considered on its economic merits and the tremendous benefits it would bring not only to the chemical industry, but to American manufacturing in general. This is an economically significant agreement, and we hope that it can still move forward."

Dow, the largest U.S. chemical maker, exports more than $300 million worth of products to Colombia annually. "The agreement would eliminate duties on 90% of those products at the outset, with the remaining 10% phasing out to zero over the next five to 10 years," Schroeter says. "Our competitors out of Mercosur and Mexico already have duty-free access to Colombia, so the agreement really does level the playing field." Mercosur is South America's leading trading bloc. It was set up in March 1991 by Argentina, Brazil, Paraguay, and Uruguay under the Treaty of AsunciÓn. Bolivia, Chile, Colombia, Ecuador, and Peru are associate members.

Trade agreements are often divisive because they typically involve politically sensitive issues. The special interest groups "that like to keep trade barriers in place are motivated," remarks ACC's Irace. "But one would hope and expect that trade agreements that are in our vital national economic interest will be supported by Congress. This is what has happened historically."

The U.S.-Colombia agreement is "vitally important," she says, not just in terms of economics, but also from a foreign policy standpoint. "Colombia has been a strong ally of the U.S.," Irace notes. "Latin America is experiencing many challenges on the political front, including the Chavez movement and his interest in moving the region in a totally different direction that would be counter to our vision. So there are many reasons why the U.S.-Colombia free-trade agreement should be approved. I'm optimistic that at the end of the day, the national interest will prevail and this will pass."

Pelosi maintains that it was not her intent to kill the Colombia agreement. Instead, she has portrayed the vote as a reaction to a heavy-handed White House that tried to ram through a complicated trade pact without first addressing the concerns of the congressional majority. "We believe it is possible to bring the Colombia free-trade agreement to the floor under the proper circumstance," Pelosi said in an April 14 statement. "But first, we need to address the worsening economy in our country."

Since the beginning of the year, Democratic leaders in both chambers have said their willingness to bring the Colombia trade deal up for a vote would depend in part on the President's support for expansion and extension of a program that provides financial aid and retraining to workers who lose their jobs because of foreign competition. Funding for the Trade Adjustment Assistance (TAA) program will run out on Sept. 30, the end of the fiscal year. The Administration has threatened to veto a House-passed TAA expansion bill, saying the $8 billion measure would convert a "trade-related program to a universal income support and training program."

Efforts are under way in the Senate to craft a bipartisan reauthorization measure, but progress has been slow. "With the Colombia agreement in a holding pattern, the most productive thing to do now is to focus on what is right for America's workers, and work together on a solid expansion of TAA," Senate Finance Committee Chairman Max Baucus (D-Mont.) said after the House vote.

Enacting worker aid legislation still might not be enough to muster sufficient support for the Colombia trade pact, which is vehemently opposed by organized labor, an important Democratic constituency. A coalition of seven unions representing 6 million U.S. workers has been campaigning against the deal, charging that the Colombian government hasn't done enough to stop violent attacks, including more than 2,500 murders since 1986, against labor activists. "Colombia needs years, not months, to ensure the eradication of union killings and impunity that have plagued that country for decades," coalition Chair Anna Burger says. "Trade isn't 'free' when thousands are killed for standing up for their rights in the workplace."

Meanwhile, the struggle over Colombia could further complicate U.S. efforts to conclude an agreement in the current round of multilateral trade negotiations, named after Doha, Qatar, where the talks began more than six years ago. Aimed at removing barriers to trade in agriculture, manufactured goods, and services, the negotiations have stalled because of disputes between developed and developing countries over agricultural subsidies and import tariffs on industrial goods.

For U.S. chemical manufacturers, the nation's leading export sector, a key objective in the Doha round is the elimination of chemical tariffs worldwide. "There is a lot at stake for the industry," Irace says. "We are a major exporter globally. Last year, we had $154 billion in exports. So we have a stake in ensuring that the global trading system is open and that barriers to trade are removed."

During the previous Uruguay round of global trade talks, which began in 1986 and wrapped up in 1994, the U.S., the European Union, Japan, and other developed countries agreed to harmonize chemical tariffs. "One of our top priorities in this round is to reach an agreement among the key players to bring those tariffs down to zero," Irace says. "Tariffs are really just a tax on consumers and businesses. We firmly believe that eliminating these tariffs is a win-win for all countries because it will lower the cost of doing business and improve competitiveness."

The proposal to eliminate chemical tariffs in countries with a significant level of production—$3 billion or more per year—was put together by the International Council of Chemical Associations, the Brussels-based global voice of the chemical industry. "In the current environment, that type of agreement could help spur the global economy by freeing up chemicals, the basic building blocks of manufacturing," Dow's Schroeter says. "It would allow us to have a level playing field globally for chemical trade." For Dow, she adds, it would mean saving over $175 million a year in tariffs. "If those tariffs were zeroed out, there would be opportunities not only for increased trade, but also for increased investment in the industry," Schroeter says.

In his State of the Union address in January, Bush identified a successful conclusion to the Doha round as a key objective for his Administration's last year in office. Irace says a committed effort is under way among key countries to try to resolve the various issues that are standing in the way of a final agreement. She notes that agriculture continues to be a problem, but negotiators are trying to find a solution. "We are hopeful that the Doha round will be completed this year. It may be a tall order. There's still a lot to do. But we understand the trade ministers around the world are committed to trying to make this work," she says.

Schroeter says the increased sense of urgency surrounding the talks isn't just because of the transition about to occur in America's political leadership. "There are a number of administrations that are turning over all over the world, particularly in the next 18 months," she notes. "That's a real driver to press for a substantive, commercially meaningful agreement now."

From the standpoint of the chemical industry, Irace says, "We want to ensure that this negotiation achieves a high level of ambition in terms of its outcome. That means we really do need to cut tariffs in a substantial way. So we will continue to push for an agreement that brings tariffs in certain sectors down to zero, and chemicals definitely should be part of that package."

Multilateral trade rounds typically take a long time to negotiate, the ACC official adds. "They involve a lot of countries and it's comprehensive so there are a lot of issues at stake. However, we are at a point now where the leaders of the world must make a decision. Can we get this negotiation concluded at an ambitious level of liberalization this year, or at least make the big decisions so it can be wrapped up within another year or year and a half?"

Irace says a breakthrough is needed that sets a clear path forward toward reaching a final agreement. "It will be difficult to have this concluded quickly," she says. "You will have a new Administration taking office in the U.S. with different priorities. You also have changes taking place in Europe as well. It has always taken leadership from the U.S. and Europe to conclude a round. At this point, we also need leadership from Brazil and India and other leading players. If we don't have a breakthrough in the near future, it will be a lost opportunity to gin up the global economy and get things moving more strongly."

The Colombia deal was thought to be the only bilateral free-trade pact with any real chance of clearing Congress this year. Lawmakers are not expected to consider agreements Bush has also signed with South Korea and Panama until 2009. Business groups are especially eager for Congress to ratify the pact with South Korea, a major U.S. trading partner. Commercially, it would be the most significant for the U.S. since the 1994 North American Free Trade Agreement with Mexico and Canada.

South Korea is the world's 10th-largest economy and the seventh-largest trading partner of the U.S. The two-way trade in goods between the two countries carried an estimated value of $72 billion in 2006. South Korea is also among the world's top 10 chemical producing nations and the sixth-largest market for U.S. chemical exports, which totaled $4.3 billion in 2006. Asia-Pacific remains a high-growth area in the global economy, and South Korea is one of the fastest growing markets in the region for U.S. chemical exports, Irace notes. "So eliminating barriers to entry into South Korea's market is a net plus for the business of chemistry," she says.

Under the pending agreement, more than 90% of trade between the two countries in industrial and consumer goods would become duty-free in three years after enactment, with remaining tariffs eliminated within 10 years. The pact also would ensure that U.S. investors in South Korea have the same rights as Korean investors and that intellectual property rights are protected.

However, consideration of the accord has been delayed because of opposition by many Democrats and organized labor. Rep. Sander Levin (D-Mich.), chairman of the House Ways & Means Trade Subcommittee, wants guarantees that tax barriers won't restrict U.S. auto exports. Baucus wants South Korea to remove restrictions on American beef. And the AFL-CIO has urged Congress to reject the entire agreement unless fundamental changes are made to protect workers' rights.

Industry officials say a concerted effort is needed to counter a rising tide of protectionist sentiment in the U.S. "We certainly see that there is a lot of work to be done on trade policy, including explaining the benefits," Schroeter says. "Fast-growing areas like Asia-Pacific or Latin America present opportunities for us to continue to expand and grow, and to deliver benefits back to our shareholders, employees, and our customers," she remarks. "We would hope that the benefits of trade become clear so that we can work on domestic issues like energy policy, health care, and litigation reform. These are all issues that have significant impacts on U.S. manufacturing. We really need to work on that domestic competitiveness agenda."

The National Association of Manufacturers (NAM), the nation's largest industrial trade group, has commissioned a series of studies that show that free-trade agreements create—not cost—U.S. jobs. "Legislators opposing the Colombia and other pending trade agreements have got it entirely wrong," says Franklin J. Vargo, NAM's vice president for international economic affairs. Agreements that eliminate trade barriers enable U.S. manufacturers to export more, which in turn creates jobs, he says.

"It's amazing how they hold onto the myth that these agreements are the problem rather than the solution when it comes to the trade balance," Vargo remarks. "Stalling these agreements is hurting our export and job prospects while preventing legislators from offering solutions to the real problems U.S. manufacturers face."