Wake-up Call Needed for U.S. Trade Policy

The global trade playbook needs to be rewritten for it to be dynamic again.

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WASHINGTON — The global trade playbook needs to be rewritten for it to be dynamic again.

This story first appeared in the March 25, 2014 issue of WWD.  Subscribe Today.

The U.S. is entering a new era for global trade that is not always embraced — even by pro-trade advocates — and will force President Obama and future leaders to engage more directly and build a stronger bipartisan consensus to move the agenda forward, according to experts in the field.

Obama’s trade agenda has stalled in the first half of the year against the backdrop of looming midterm elections in November, thorny issues in trade negotiations and some opposition from members in his own Democratic party. Then there is the continued onslaught of global crises, the most recent of which — tensions with Russia over Crimea and Ukraine — could result in trade sanctions and Russia could choose to retaliate with its own trade sanctions against U.S. and European Union exports.

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Whatever happens with Russia, experts do expect action over trade deals to ramp up after the elections.

“I don’t remember a time in my career in and out of government ever since I worked for [then-President] Ronald Reagan back in the early Eighties where trade has been seen as an issue as indifferent as it seems to be today,” said Jon Huntsman Jr., chairman of the Atlantic Council think tank in an address before the American Apparel & Footwear Association, “where people in my party — the Republican Party — which used to see trade as a bulwark for economic growth and development and central to everything we did, people are now running for cover on trade issues and the Democrats are no stronger on trade.”

Huntsman, who served as U.S. ambassador to China under Obama, and is a former governor of Utah and was a GOP presidential candidate in 2012, added, “We’re in trouble in terms of how we see trade as a nation and we need to strengthen that.”

Phillip Swagel, a professor of international economic policy at the University of Maryland, said Obama will need the support of more Republicans to push several pending trade measures through Congress, including trade promotion authority, an Asia-Pacific trade deal with 11 countries and a transatlantic trade deal with the EU.

“In my mind it is striking — when the president is energetic on an issue, it really energizes the issue,” Swagel said. “The most recent example was where he headed off [a nuclear crisis] with Iran. He was really engaged on it and it got things stopped. But he hasn’t done the same thing on trade. [Democrats] share a goal of a stronger economy and job creation, but they disagree whether expanded trade is the route to a stronger economy.

“The worst outcome for trade might be if Democrats maintain a narrow control of the Senate and then the left rises up against trade,” Swagel said, discussing the midterm elections. “In contrast, a narrow Republican majority in the Senate would mean that the [trade] treaties go forward. It’s an irony that the potentially largest economic accomplishment for President Obama’s second term has a greater prospect of success with a Republican Senate.”

Former President Bill Clinton set up a war room in the early Nineties to drum up support for the controversial North American Free Trade Agreement between the U.S., Canada and Mexico, which faced stiff opposition from his union allies, his own party and even Republicans, and helped get it past the finish line.

“The unions were totally opposed to NAFTA,” said Julia Hughes, president of the U.S. Fashion Industry Association. “Republicans didn’t want to give anything to Clinton either, which is not that different from these days. But Clinton was personally engaged in the discussions…and he built a war room and had a very aggressive campaign in the White House, as well as throughout the agencies, to push for it. I think that is a good model and I certainly hope the administration will eventually move to be that aggressive.”

Hughes added that U.S. Trade Representative Michael Froman has been thoroughly engaged with members of Congress and the private sector, as have several cabinet members. Froman recently defended the hard effort he and the administration have put into making a case for TPA and the Trans-Pacific Partnership.

“I think we’re out there and engaged and this is a long game, and we’re going to continue to make the case and ensure we’re making it real for the American public and their representatives in Congress,” said Froman, noting that many cabinet secretaries have been mobilized and are conducting outreach on trade.

“There is a process underway on Capitol Hill,” Froman said. “A bill was introduced in January. There has been a transition at the Senate Finance Committee. Chairman [Ron] Wyden has now stepped into that position. He’s going to want to take the time necessary to confer with the Democrats, as well as with the Republicans on that committee, as well as with his colleagues in the House to try build the broadest possible support for TPA going forward.”

Obama will need all the help he can get to complete negotiations on the TPP pact with Vietnam, Canada, Mexico, Japan, Australia, Brunei, Chile, Malaysia, New Zealand, Peru and Singapore.

Most trade experts argue he will first have to overcome another hurdle before he can conclude TPP — getting Congressional approval on TPA, under which Congress can only vote up or down on trade pacts negotiated by the executive branch.

Obama is facing opposition from many in his own party on TPA and TPP, including from Senate Majority Leader Harry Reid (D., Nev.) and several key House Democrats.

There is a growing consensus that Congress will not take up a vote on TPA until after the midterm elections in November, which has added to the slowdown in the pace of the trade agenda.

“I think it is looking increasingly difficult to finish TPP before the midterms and I think it looks like it is not going to be possible to pass TPA before then,” said Joshua Meltzer, a fellow on the global economy and development at the Brookings Institution. “Fast track [as TPA was formerly known] is needed to get these trade bills through Congress. In the absence of that, the other negotiating parties tend not to want to finalize a deal because they don’t want to have them be picked apart by Congress.”

Stephen Lamar, executive vice president at the American Apparel & Footwear Association, said, “The timetable on TPA has, for sure, slowed down. There was a lot of expectation something could move sooner. A lot of people were talking about getting something moved by late winter or early spring and that timetable is clearly gone.”

Hughes said many trade experts believe the Obama administration is trying to get as close as possible to finalizing TPP as a way of “pushing for action on TPA.” She said she expects TPA to get a vote in a lame duck session of Congress this year, but does not expect TPP to get Congressional approval until early next year.

The Transatlantic Trade and Investment Partnership accord between the U.S. and EU is much farther behind in the negotiation phase than TPP, but negotiators are continuing to hold rounds and exchange initial offers this year on a wide range of areas, including market access and the phaseout of tariffs.

“From our perspective, this is a real opportunity to completely eliminate tariffs between the U.S. and Europe,” Lamar said of T-TIP.

The AAFA sent a joint letter with Euratex to Froman and EU Trade Commissioner Karel de Gucht earlier this month, seeking reciprocal duty elimination on Day One of implementation of T-TIP. The EU and U.S. recently exchanged their opening proposals on tariff elimination and must also work to find regulatory convergence in several sensitive sectors, including cosmetics and pharmaceuticals.

Hughes said there is already a “healthy relationship” between the U.S. and EU on inputs and finished products, where some of the highest duties also exist.

“I would expect we would end up with totally duty free and total tariff elimination,” Hughes said.

But Meltzer said there has already been some push back from the EU on the initial tariff-dropping offer by the U.S., which he said has been portrayed as a “low ball” effort and not aggressive enough. Meltzer also said the T-TIP negotiations might run into its own complications this year because of the European parliament elections in May, which he said could change the “composition of the important EU players.”

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