New trade legislation keeps protectionism alive

July 31, 2002|By David H. Feldman

WILLIAMSBURG, Va. -- The Bush administration's trade agenda just got a big boost -- sort of.

Late last week, a House-Senate conference committee reached a compromise agreement that would give President Bush broad new authority to negotiate international trade deals.

"Trade promotion authority," formerly known as "fast track," would allow the administration to negotiate comprehensive trade agreements that Congress must consider as a package. Without trade promotion authority, no nation would offer concessions to the United States since shifting coalitions in Congress could nitpick line items of the agreement afterward.

Under the new trade bill, workers who lose their jobs because of trade will be eligible for special job training and unemployment benefits, and for sizable tax credits to cover their health insurance costs. The bill would substantially augment existing "trade adjustment assistance" programs. This provision is being sold as a win-win outcome for workers and the economy. The price tag for this progress is an estimated $10 billion to $12 billion over the next decade.

No one has mentioned a basic fairness issue.

What's so special about workers who lose their jobs to changing patterns of international trade?

People whose livelihoods are adversely affected by technological advancements or by bumps in the business cycle have to rely on the existing social safety net. Nonetheless, since no trade bill would have been possible without this program, these monetary costs are a small price to pay.

The truly nettlesome part of the new bill is the language that permits Congress to pass a resolution of disapproval if our trade negotiators seem poised to discuss the nation's archaic and highly politicized trade remedy laws. These laws include "safeguard" actions of the sort that gave us the steel tariffs, and anti-dumping procedures that allow domestic firms to harass foreign competitors out of the U.S. market.

Although any resolution would be nonbinding, the most likely outcome of this language is that Robert Zoellick, the U.S. trade representative, would shy away from any reciprocal bargaining that might reduce the international use and abuse of these truly special-interest pocket-liners.

The Bush administration has neither the standing nor the stomach to challenge Congress over these protectionist tools. For this, the administration has only itself to blame. The president's stiff steel tariffs have given a political refresher course to every member of Congress whose state or district has a critical mass of import-threatened firms. They see how useful these trade remedy processes can be, once the president no longer resists on behalf of the larger national interest.

The steel tariffs are a perfect example of what is wrong with our trade remedy laws. They grew out of an administration request to the International Trade Commission for a safeguard action to resuscitate foundering Rust Belt producers.

Safeguard actions are supposed to protect a domestic industry from sudden surges in imports, yet steel imports already had returned to their historical share of the U.S. market. Worse still, this supposedly impartial body is constrained by its own charter to consider only the welfare of domestic producers. Consumer welfare is ignored.

Nonetheless, the ITC found significant harm from imports. This allowed the administration to sprinkle tariff protection across contested political districts in a transparent attempt to pull unionized steelworkers away from their traditional allegiance to the Democrats. Safeguard actions -- and their close kin, the anti-dumping duty -- have become the protectionist weapons of choice both here and abroad because bureaucrats handle the process, largely behind closed doors. The public never sees a full accounting of the costs of these policies, and no legislation is required.

This administrative protectionism threatens all global trade rules because each nation's trade bureaucracy acts as judge and jury on behalf of that country's own business interests. Those same business interests supply many of the commission members who make the decisions.

Yet clear international rules are important to all countries. Presidents and prime ministers who have to think beyond small constituencies have an incentive to negotiate limits on this type of back-door protection -- sort of an arms control treaty for trade. But without U.S. participation and leadership, no progress is likely in curbing the shortsighted abuse of these protectionist mechanisms.

With this trade promotion authority bill, Congress has clearly expressed its liking for our arbitrary trade remedy laws.

When the president's team uses these same mechanisms to fine-tune U.S. tariffs and quotas with one eye on the Electoral College and the other on altering the party balance in Congress, Mr. Bush has signaled he will tacitly acquiesce.

Remember that as you listen to all the self-congratulatory comments on this magnificent compromise.

David H. Feldman is a professor of economics at the College of William & Mary.

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