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Taking Seats at the Trade Table

Author: Bruce Stokes
December 7, 2002
National Journal

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The key interest groups and lobbyists on the trade front are coalescing in response to proposed U.S. agreements with Chile and Singapore. Players are also beginning to emerge in the debate over taxing U.S. exporters.

Chile Agreement

The notion of a free-trade agreement between Chile and the United States has been bruited about for more than a decade. The deal would phase out tariffs on trade between the two countries, open up the Chilean services market, and set new rules for dealing with trade-related labor and environmental problems. The Bush administration should be ready to submit an agreement to Congress in the spring of 2003, and the Chilean government hopes for a vote before the summer congressional recess-though given the lack of urgency over the agreement and Congress's legislative calendar, fall may be a better bet.

Washington's interest in such an accord is more tactical than substantive. Lifting trade barriers will help individual U.S. companies sell more goods and services, but the small size of Chile's economy-the U.S. economy is more than 70 times larger— means that greater access to the Chilean market will have little noticeable positive impact on the United States as a whole. The administration's real purpose in signing a free-trade deal with Chile is to leverage faster progress in its broader effort to open markets throughout Latin America.

Groups in Favor

The business coalition in support of the Chile agreement is led by Caterpillar, United Parcel Service, and Lockheed Martin. The group, just now being formed, hopes to have several hundred companies participating and to use the Chile lobbying effort to rebuild a bipartisan congressional coalition for free trade.

The group's collective goals will flow from individual self-interest. For example, Chile already has a free-trade deal with Canada-which means that a road grader made by one of Caterpillar's Canadian competitors faces no import duties in Chile, so it has a $15,000 price advantage over comparable Caterpillar machinery. The elimination of such duties would provide immediate returns for Caterpillar. UPS wants to use the language in the Chile agreement to set a precedent for the multilateral services negotiations now going on in Geneva.

Groups Opposed

Opposition to the Chile free-trade deal is most likely to be desultory and to come from individual U.S. business sectors that might face greater competition from imports. It will also come from the labor and environmental movements. Groups that opposed presidential trade-negotiating authority in 2002 privately agree that they have little chance of blocking passage of the Chile agreement. They are currently weighing how much to invest in a fight that may be doomed to failure.

The California wine-grape growers oppose lowering U.S. tariffs on Chilean wine. But U.S. wineries have invested in Chile and stand to benefit from freer trade.

Organized labor doubts the effectiveness of an administration-proposed provision that threatens countries with fines if they fail to live up to their own labor laws. Moreover, unions worry that such language could set a precedent for future bilateral and regional trade deals. Labor prefers that enforcement be carried out through the threat of trade sanctions. Unions also think the agreement's likely dispute-settlement provisions aren't broad enough to address their concerns.

The environmental movement believes that Chile's environmental law barely passes the smell test because many regulations to enforce the law have yet to be written. The green group Friends of the Earth will oppose the Chile deal because it believes that investment provisions grant foreign investors disproportionate rights that could undermine environmental laws. Most important, environmental leaders, like organized labor, don't want the Chile deal to set the standard for future deals. "The Chile FTA is not a precedent for anything, legally or politically," said Daniel Seligman, trade expert at the Sierra Club. "Given the size of the economies involved, you will have a very different dynamic when you are looking at the FTAA," the hemisphere-wide Free Trade Area of the Americas Agreement now under negotiation.

Singapore Agreement

This deal between the United States and its 11th-largest export market was cooked up during a golf game between Singapore's prime minister, Goh Chok Tong, and then-President Clinton in late 2000. As a city-state and trading center, Singapore is already a relatively open economy, and its products face few barriers in the U.S. market. But Singapore is also a major regional center for financial and other services. So the U.S. goal for the negotiation has always been to create a template for liberalization of services trade in future negotiations. Washington also wanted to spur freer trade throughout the rest of Southeast Asia; on that score, the negotiations have already succeeded. Singapore has recently signed free-trade deals with Japan and Australia, and Asian nations have begun free-trade discussions among themselves.

The deal with the United States will eliminate all tariffs on U.S.-Singapore trade, allow U.S. professionals to sell their services in Singapore, and create new market opportunities for U.S. banking, insurance, telecommunications, and express-mail companies. But economics was not the sole rationale for this agreement. Singapore's commodious harbor and strategic position along vital sea lanes gave Washington ample reason to bolster the economy of a longtime ally and to re-cement the American presence in the region.

The U.S.-Singapore agreement is close to being finalized and is likely to be submitted to Congress early in 2003. Still to be determined is whether the Singapore accord will be paired with the more complex Chile agreement, or whether they will be submitted separately. Joint submission would enhance the likelihood of congressional action next year. But given the lack of opposition to free trade with Singapore, the Bush administration may not want to ensnare Singapore in any contentious debates over Chile.

Groups in Favor

The U.S.-Singapore FTA Business Coalition-involving roughly 50 American firms and trade associations-will lead the lobbying effort once the Singapore agreement is finalized. The coalition is headed by ExxonMobil, Boeing, and UPS.

The stake each of these companies has in a Singapore trade deal reflects both their particular commercial interests in Singapore and their interests in freer commerce throughout the region. ExxonMobil is one of the biggest foreign investors in Singapore, where it has built one of the largest refineries in Asia. Singapore Airlines is a big buyer of Boeing commercial aircraft, and Boeing's defense arm sells fighter jets to the Singapore air force. UPS wants to limit the ability of the Singapore postal service to cross-subsidize express-mail service that competes with UPS. All three firms will benefit from regional growth in the volume of trade and in tourist and business travel.

The business coalition expects to work closely with the recently launched Singapore Congressional Caucus, chaired by Reps. Curt Weldon, R-Pa., and Solomon P. Ortiz, D-Texas. Boasting more than 50 members, the caucus advocates better ties with Singapore for both security and business reasons.

Groups Opposed

No major opposition to the Singapore agreement has yet surfaced. Once the agreement is finalized, financial-services companies may have their noses out of joint if they don't get all they want. But they're unlikely to mount active opposition to the deal. Textile and apparel firms may worry about rules of origin and the transshipment of products through Singapore to avoid U.S. import quotas. And labor and environmental groups may not like the precedent set by provisions addressing their interests, but they are likely to focus their fire on the Chile agreement.

Tax Reform

U.S. exporters stand to lose up to $4 billion in tax benefits, thanks to a World Trade Organization ruling that the way the United States taxes the overseas profits of American multinational companies violates international rules. The WTO has already rejected Congress's first effort to rewrite the tax code. And the European Union has threatened to begin imposing massive duties on U.S. exports unless the Bush administration brings the code into conformity with WTO rules in 2003.

House Ways and Means Committee Chairman Bill Thomas, R-Calif., has drafted legislation that would eliminate the offensive provisions and cut taxes in other ways in order to reimburse at least some of the companies that now stand to lose tens of millions of dollars in export tax benefits. To pay for these new cuts, Thomas would raise taxes on foreign investors in the United States. The Bush administration's own reform proposals largely support the Thomas approach.

Groups in Favor

Any attempt to change taxes on export earnings is likely to be part of a broader administration effort to revamp the U.S. approach to international taxation. The Thomas proposal has split the original business coalition, which was led by the National Foreign Trade Council. The NFTC had proposed tax-code fixes intended to keep everyone whole. Firms such as Citicorp and Procter & Gamble, which export little, now support the Thomas approach since they have little to lose and much to gain from his proposed tax changes.

Groups Opposed

Opponents of the Thomas approach include major exporters such as Boeing, Microsoft, and defense companies. Boeing alone would lose more than $100 million per year from the proposed tax changes. The company warns that the loss of tax benefits could force it to move more production overseas, resulting in the loss of 9,600 high-paying, high-tech Boeing jobs in the United States, and the loss of an additional 23,000 jobs at Boeing's U.S.-based suppliers.

Foreign investors in the United States also oppose the Thomas bill because it could cost them up to $10 billion over the next 10 years. The Organization for International Investment, representing nearly 100 foreign investors in the United States, including DaimlerChrysler, Nestle USA, and Sony Corporation of America, are mobilizing to block Thomas. They intend to enlist the governors and local officials whose communities would suffer most if investment slowed because of higher taxes on foreign companies.

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