The Democratic Party’s congressional sweep in the 2006 midterm elections raised concern among some trade advocates that the party would block bilateral deals and move the country in a protectionist direction. Several victorious Democratic candidates campaigned on a platform critical of free trade agreements. Prominent Democrats already have signaled they will press for more labor and environmental standards in free trade agreements and there is bipartisan concern about China’s growing advantageous position vis-à-vis the United States in global trade. The most significant trade decision for Congress in 2007, however, involves extension of trade promotion authority, which provides the executive branch with crucial flexibility to negotiate trade deals without fear of numerous congressional amendments. Experts say the extension of this authority, or TPA, depends greatly on progress in the World Trade Organization’s (WTO) Doha round of talks, currently mired in disputes over agricultural supports by rich nations. Congressional Democrats could give a boost to Doha by reducing high subsidies to U.S. farmers but this is seen as unlikely.
What trade issues will the 110th Congress face?
Congress faces issues ranging from ratification of pacts with developing nations to extending the president's ability to negotiate major deals without congressional interference. These are the leading issues:
- Trade Promotion Authority. Congress has constitutional authority over trade but can grant TPA, or fast-track authority, to presidents. This limits the changes that can be made to trade agreements after they are negotiated. U.S. trade representatives with TPA have more flexibility in making deals because they can promise trade partners their final agreements will move swiftly and unimpeded through the ratification process. Congress last granted TPA to Bush in 2002 after a partisan battle in which the measure passed by one vote. TPA expires June 30, 2007. Many experts believe that without clear progress in the WTO's stalled Doha round of talks, extension of TPA is doomed. "Congress needs to be given a reason to go through a legislatively difficult process," says William A. Reinsch, president of the National Foreign Trade Council, a group whose members are large multinational companies. "The obvious driver of the train would be some movement on the Doha round," he says. Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, wrote in the Wall Street Journal on January 4 that Congress should act to renew fast-track authority, albeit with what he called "better trade enforcement capability and better environmental and labor provisions." A recent CFR Critical Policy Choices report on trade cites a danger in attaching new congressional mandates to TPA, saying "America's trading partners may perceive its trade negotiators as inflexible," thus undermining the purpose of fast-track authority.
- Farm bill renewal. The Farm Security and Rural Investment Act of 2002 created huge subsidies for U.S. crops and is seen as one of the major impediments to the Doha round, which is stalled in large part due to U.S. and European unwillingness to sharply reduce domestic protections for farmers. Most provisions of the farm bill expire in 2007 and any move to increase farm supports will make it harder to reach a deal on Doha, experts say. "You've got a very complicated situation where the farm lobby basically would like to see the current farm bill renewed pretty much as is," says CFR Senior Fellow Edward Alden. "The difficulty is it will tie the administration's hands in negotiating in the agriculture part of the Doha talks."
- Free trade pacts. Congress is due to ratify bilateral agreements signed with Peru and Colombia. Late last year, Democrats on the House Ways and Means Committee and the Senate Finance Committee -- the two lead legislative bodies dealing with trade -- asked Bush administration officials to strengthen labor protections in the two deals. They asked that both agreements include language urging Peru and Colombia to make their laws consistent with International Labor Organization standards. There are an additional eleven free trade negotiations under way -- including with South Korea, Malaysia, and Thailand -- that are expected to face challenges in the new Congress. The administration has pressed ahead with a number of bilateral and regional deals in the absence of progress on the WTO's Doha Round.
- China. A number of leading lawmakers have expressed concern about the growing trade deficit with China and accuse Beijing of manipulating its currency to dominate world markets. In 2006, Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) threatened to impose a 27.5 percent tariff on Chinese goods if Beijing did not revalue its currency. James A. Dorn of the Cato Institute writes there likely will be legislation penalizing China "if it fails to reduce its large and growing trade surplus with the United States by faster appreciation of the yuan/dollar rate, greater market access, and stronger protection of [intellectual property rights]."
What is the Democratic Party position on trade?
One common view, held by Washington Post columnist Sebastian Mallaby, is of a sharp partisan divide on trade: “Republicans see it as a source of growth, Democrats as a source of inequality,” Mallaby wrote recently. “This split is undermining the U.S. ability to play its traditional postwar role in driving global trade liberalization.” But Slate’s Daniel Gross says it is not correct to assume a “left-right split” in U.S. trade policy. He points to the Bush administration’s temporary imposition of steep tariffs on steel imports, ruled illegal by the WTO, and its endorsement of the farm bill that raised large subsidies for U.S. farmers.
One chief difference derives from the traditional Democratic Party support base of labor unions, which have staunchly opposed free trade deals. Pro-trade Democrats have sought to appease this constituency by insisting on mandatory labor standards in deals involving developing nations. Many Republicans believe such issues should not be covered in trade agreements. Experts say the emphasis on labor standards is likely to continue in the congressional scrutiny of free trade agreements in the upcoming term. That was underscored in a December 2006 op ed by Senator Byron Dorgan (D-SD) and Rep. Sherrod Brown (D-OH), who said the government's trade policy was responsible (WashPost) for "a shrinking middle class, lost jobs and exploding trade deficits." CFR’s Alden describes the Democrats as “still a pro-trade party but they’ve got a significant interest group that’s important within the party that’s not pro-trade—the labor unions.” Regional deals such as the Central American Free Trade Agreement (CAFTA), which received only fifteen Democratic votes in favor in the House when it was ratified in 2005, are not seen as possible in the 110th Congress but bilateral deals could still be approved with conditions attached.
Did the 2006 midterm elections boost anti-trade forces?
CFR’s Alden says the November 2006 midterm elections continued a pattern in which Democrats skeptical about the benefits of free trade were elected to Congress. The Wall Street Journal estimates that five Senate seats and sixteen House seats switched from generally pro-trade lawmakers to trade skeptics. But Alden and other experts say that Democrats with moderate trade records will hold the most important committee positions—Baucus of the Senate Finance Committee, and Rep. Charles B. Rangel (D-NY), who chairs the House Ways and Means Committee. Rangel, for example, has voted for a number of free trade agreements. That got the notice of the conservative Weekly Standard, which described him as “the Democrat best positioned to salvage a free trade agenda—should he wish to and should his caucus not stamp out such efforts." Reinsch, of the National Foreign Trade Council, expects a rhetorical shift “in the direction of more skepticism about trade.” But he adds: “We don’t think it’s going to be as bad as the media has made it out to be.”
Do congressional Republicans support free trade?
Republicans are still seen as generally more supportive of free trade but a sizeable minority has voted against free trade measures. Most recently, in November 2006 more than sixty Republicans in the House of Representatives voted against a measure to extend normal trade relations with Vietnam, temporarily derailing the move. It was later passed at the end of the 109th Congress’ session but opposition remained strong, especially from lawmakers of both parties from states with textile industries. Republicans are also known to be skeptical of the Doha round. In April 2006, then-chairman of the House Ways and Means Committee Bill Thomas (R-CA), appeared to reflect widespread unhappiness with Doha, calling on the administration to focus its energies on other deals. He said the United States and European Union have “irreconcilable differences on trade.”
What is U.S. public opinion on trade?
Polls show deepening pessimism. A December 2006 poll by the Pew Research Center for the People and the Press finds Americans mixed over the benefits of free trade. The German Marshall Fund had similar findings in December 2006 with 60 percent of Americans believing that freer trade costs more jobs than it creates.
Daniel W. Drezner, an associate professor of international politics at the Fletcher School of Law and Diplomacy, told a recent panel at the American Enterprise Institute: “I think there’ve been changes in domestic public opinion and in congressional attitudes towards trade that have basically made this the least hospitable environment for trade liberalization in recent memory.”