Who Decides? Congress and the Debate Over Trade Policy in 1934 and 1974

November 17, 1999

Report

Introduction

Governor Adlai E. Stevenson thought trade policy was boring; he once described it as one field where the greatest need is for fresh clichés. He had a point. In the long period that the United States used tariffs to protect, to nurture specific sectors, and to finance government, some Americans described trade policymaking as undemocratic and inequitable. After 1934, when Congress authorized bilateral trade liberalization, some Americans again argued that trade policymaking was undemocratic and inequitable. Despite changes to the U.S. and global economy, and the development of the GATT/WTO, these concerns still resound on Capitol Hill.

This paper will highlight the debate over two trade bills, which authorized the Executive to negotiate tariff (1934) and nontariff (1974) trade barriers. Critics of the 1934 Reciprocal Trade Agreements Act (RTAA) condemned the new law as unconstitutional and undemocratic. The Trade Act of 1974, (fast-track), was designed to mitigate support for protection and to authorize U.S. participation in negotiations to develop rules to govern the use of a wide range of nontariff barriers. Ironically, this act would prove to be the impetus for a new generation of trade agreement critics who saw trade agreements as forcing deregulation without a thorough public debate.

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Trade

Political History and Theory

Both of these bills stimulated widespread resistance among members of Congress. Some of this resistance reflected Congressional reluctance to cede any authority to the Executive branch. However, much of this concern reflected public support for protectionism, which is deeply rooted in American democracy. Citizens believed and believe today that protection preserved jobs, high wages and America's social stability.[1]

Moreover, some of this resistance reflected Congressional unwillingness to view trade policy as foreign policy. For much of U.S. history, policymakers saw trade policy solely as a domestic issue. According to the trade scholar William Kelly, the United States tariff, although negotiable in principle, had not been very negotiable in fact.[2] This perspective continued even after the development and success of the GATT. Until 1974, Congress repeatedly refused to negotiate reduction of nontariff trade barriers.[3] The GATT was deliberately drafted so that the United States could participate without changing existing U.S. law. Under the Protocol of Provisional Application, the provisions of the GATT are binding only insofar as they are not inconsistent with America's existing legislation.[4] From 1948-1974, Congress effectively drew a line in the sand beyond which it would not cede control over trade policy or over other policies that trade might affect such as how to regulate consumer safety or environmental protection. But the Trade Act of 1974 redrew that line when Congress agreed to negotiate nontariff barriers such as procurement regulations or safety standards that could distort trade.

The Reciprocal Trade Agreements Act of 1934

A. Overview

Our ability to negotiate trade agreements is rooted in a radical piece of legislation -- the Reciprocal Trade Agreements Act of 1934. The preamble of the RTAA noted it was designed to "restore the nation's standard of living," create jobs, and increase the purchasing power of the American public. Although the legislation acknowledged that tariff reduction might help stimulate domestic and international economic growth, it was not a repudiation of protectionism; it passed as an amendment to the Smoot-Hawley Tariff Act. As before, tariffs could only be reduced selectively on a product-specific basis. Tariff concessions were granted in return for equivalent concessions by other nations and "only after exhaustive study shows that they will not result in material injury to any group of American producers." Thus, the RTAA built freer trade policies upon sector-specific protection. Policymakers could not use this act to make economy- wide cuts in tariffs.[5]

B. The Debate

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Trade

Political History and Theory

Congress debated the Reciprocal Trade Agreements Act for some four months. Although some members opposed the legislation for protectionist reasons, many members had difficulty reconciling this new approach with America's democratic tradition of determining trade policy. They objected to what they saw as an unconstitutional delegation of legislative power from the Congress to the Executive. These members alleged that the act infringed on Article I, section 8, and Article II of the Constitution.[6] Moreover, they worried that "the vesting of authority in one man, who would have to rely mainly upon the advice of others, was unwise."[7] Some opponents feared that Congress was being forced to give advance approval for any agreements into which the president might enter.[8] Finally, some members wondered if the trade agreements were in fact treaties, which required ratification by two-thirds of the Senate. (These pleas would be seconded during the Uruguay Round debate.)

To some degree these concerns were on target; State Department officials were not very interested in obtaining public input in the negotiations. Both Francis B. Sayre, assistant secretary of state, and Secretary of State Cordell Hull opposed public hearings.[9] However, the RTAA formalized a process by which the public could have input into trade policymaking. It created the Committee on Reciprocity Information to hold hearings on the views of interested parties.[10] Moreover, Hull did not seem to favor making trade policy more transparent. He opposed publishing a preliminary list of items being considered for concession, fearing such a procedure "would give away to foreign nations our ammunition." But the legislation required that the secretary of state must issue a public notice of intention to negotiate, along with a list of products on which the United States will consider granting concessions. The Executive Branch soon learned to live with these minimal efforts at outreach.[11]

C. Implications of the New Approach to Trade Policy

Was the Act an undemocratic delegation of authority? Congress remained in the driver's seat. The law kept the Executive on a tight leash, forcing him to return to Congress to obtain renewed authority as well as feedback on the agreements it had made. The law was designed to ensure that the State Department would be responsive to the needs of specific sectors and would balance" export promotion with import protection."[12] Moreover, special interests retained much of their ability to influence trade policy considerations. As State Department officials noted, tariff concessions were granted "only after exhaustive study shows that they will not result in material injury to any group of American producers."[13]

But the RTAA changed the procedures and players involved in making trade policy. The act gave the executive branch greater authority to negotiate trade agreements concerning a wide range of commodities. New officials developed competence on trade issues. Such officials would be less likely to kowtow to special interests and might take a more internationalist approach to trade. However, because these officials were not directly elected, some opponents of trade liberalization argued that this process was not democratically determined.

Finally, the RTAA helped create a public constituency in support of trade liberalization. But this constituency was small compared to the numbers of Americans who supported protection. The idea that protectionism preserved U.S. jobs was so embedded in the American polity that the government had to portray the Reciprocal Trade Agreements Act as a temporary measure that would increase employment. Polls revealed that few Americans understood the rationale for or costs and benefits of multilateral trade agreements.[14] As a result, critics argued that the GATT was built on legislation that was not rooted in public understanding or support. Concerns about democracy continued to haunt the extensions of the Act.

The Trade Act of 1974

A. Context

The Trade Act of 1974 was also a radical change to U.S. trade policymaking; it authorized the President to negotiate nontariff trade barriers under the aegis of the GATT. This was the first time Congress acknowledged that nontrade policies might distort trade, and Congress might be willing to change such policies in the interest of facilitating trade. The law also set up a system of advisory committees designed to make trade policymaking more democratic and transparent. But the act was historic for other reasons. In the Jackson-Vanik amendment, Congress explicitly linked trade policy to Soviet willingness to improve its human rights record. By so doing, Congress made social results an acceptable objective for some trade agreements and made it easier for groups not concerned with the economic effects of trade (such as environmentalists) to influence trade policies.

Congress was motivated to make these changes because of difficult economic conditions. The U.S. was bedeviled by stagflation; policymakers recognized that imports might keep prices down. As in the 1930s, they also hoped that trade liberalization would expand demand for U.S. products. The 1973 OPEC oil embargo and rising oil prices led to massive layoffs in the automobile industry and then in other sectors as well. Companies found it hard to adjust to rising energy prices. Rising food and petroleum prices led to a collapse in demand -- and eventually recession and unemployment.

Members were also under significant pressure from influential business constituents who wanted Congress to attack barriers to trade, especially nontariff barriers. By the 1960s, it was evident that policymakers in the U.S. and abroad were increasingly creative in developing such barriers. These "invisible tariffs" or NTBS included a wide range of subsidies, procurement regulations, and product standards. GATT did not include rules to regulate how policymakers could use many of these NTBs. At the same time, many industrialized nations developed a wide range of regulations to protect workers, consumers, and the environment. Such "social regulations" were usually not designed to distort trade, but domestic producers may have found it easier to comply with such regulations than their foreign competitors. Thus, these regulations also appeared "protectionist." Ironically, U.S. companies frequently complained that such NTBs were a competitive disadvantage.[15]

Difficult political conditions also inspired action. Nixon wanted a trade agreement with the Soviet Union to increase exports and cement his program of détente.[16] But he submitted a trade bill at the same time that the public learned of the Watergate revelations. It was also a scary time in the world. On October 6, 1973, the Yom Kippur war broke out. Some members of the House, however, saw these conditions as empowering their bargaining condition. They argued that if Nixon wanted to totally change the paradigm for foreign policy (détente) at a time of such flux, members of Congress wanted the model for making trade policy to change as well.

B. The Hearings

The House hearings on the President's bill were rancorous and focused on this new grant of authority. The President's men made their case in conciliatory tones, recognizing that their request raised questions of constitutionality. According to Ambassador William R. Pearce, Deputy Special Representative for Trade Negotiations, "we can't ask you for an advance grant of authority to do away with NTB's; in most cases they are linked in very subtle ways to all sorts of domestic legislation."[17] But the request also raised the issue of federalism. Congressman Charles Vanik asked whether trade agreements and implementing legislation could override state laws constituting nontariff barriers to trade.[18] Congressman Peter Frelinghuysen also expressed grave worries about negotiations on "nontariff barriers...are so inextricably intertwined in a web of domestic social, economic and political considerations that Congress would benefit by knowing what the executive branch has in mind before they enter into negotiations."[19]

The 1974 debate presaged many of the concerns expressed about NAFTA and GATT in the 1990s. Members were particularly interested in how granting such authority might affect health and safety standards at the federal, state, and local levels.[20] Congressman Corman wondered whether Oregon's law prohibiting the importation of beverages in nonreturnable containers could be negotiated away by the President. Congressman Vanik asked the General Accounting Office how a grant of such authority might affect environmental protection laws such as those protecting endangered species. The GAO replied, "A President may not through trade negotiations overturn or change a duly enacted law, absent other authority of law. However...the President feels-and we agree-that the enactment of section 103 will grant him sufficient authority to allow him to enter into agreements which could, in effect, change domestic law."[21]

Congressman Vanik wondered if the proliferation of environmental protection or food safety regulations would lead to more trade disputes with America's trading partners.[22] But he also worried that such objectives could be subordinated to trade policy goals. He called for an "escape clause" to protect consumers. But Agricultural Secretary Earl L. Butz refused to grant him that assurance, noting that "if the rights of the consumer become...unreasonable it may result in inadequate food supplies, higher prices." He cited consumer concerns about the use of pesticides and growth hormones (DES used to fatten beef) as examples of such unreasonable concerns.[23] In his view, these pesticides or additives simply made it cheaper to produce food.

However, Congressman Bill Archer of Texas (seconded by Congressman Wagner) took the increasingly popular view that America's high regulations such as OSHA, EEOC, and EPA regulations make competition "unfair," because other nations don't have these many regulations and consequent high costs.[24] Most witnesses, however, were less concerned with the costs of complying with American regulatory standards, than minimizing the discriminatory impact of such regulations overseas.[25]

Many of the witnesses and members suggested that trade policies would be improved if trade policymaking became more democratic, by involving a broader cross section of Americans.[26] The Emergency Committee for Foreign Trade (a leading supporter of trade liberalization) suggested "the President consider the views of the public" on non-tariff barriers, since the president must gain public views before entering in tariff negotiations.[27] Despite days (and thousands of pages) of debate, the House never acted on the President's bill. It passed its own bill on December 11, 1973.[28] But the Senate delayed its consideration of the bill, however, ultimately inventing a new approach for Congressional approval, "fast-track". This approach required two bills: a bill authorizing negotiations and an implementing bill, as well as a strict timetable for voting.[29] These changes would give Congress more control and information to make decisions about the ever-broader turf that trade negotiations would cover, but it limited what Congress could do during the negotiating process.

The Senate debate did not focus on NTBs, but on how trade sanctions and market access could be used to support American values overseas. Congress and the new Ford Administration found a compromise that linked trade concessions to human rights improvements, but did not force the Soviets to adhere to strict public emigration rules. However, policymakers and witnesses recognized that by linking trade liberalization to the achievement of social goals in other nations, they might open up a Pandora's box of requests. As example, the Society for Animal Protective Legislation wanted H.R. 10710 to be amended to require Soviet adherence to an additional moratorium of ten years on the commercial killing of whales to get normal trade privileges.[30] These requests, however, did not gain Congressional support.

C. Conclusion.

The Trade Act of 1974 finally became law on January 3, 1975. This bill was not only about the traditional turf of trade policymakers, border measures. It also had the potential to affect domestic regulations and laws that shaped how goods and services were produced. Ironically, although the legislation was designed to mitigate support for protection and protectionist use of NTBS, it would prove to be the impetus for a new generation of critics of trade agreements. These individuals who included environmentalists, consumer advocates and human rights advocates, among others, saw deregulation and a threat to American sovereignty in the GATT's attempt to address trade distortions of domestic regulations.

The bill was a first step in making trade policy more transparent, democratic, and accountable. The circle of participants had grown larger to include as example, human rights and religious leaders. The bill also broadened the involvement of Congress and business, agriculture, and labor advisors. However, the circle of participants was still relatively small, given the growing importance of trade policy to the nation's economic and political health. Moreover, the involvement of new special interest groups in the making of trade policy did not mean that the United States developed more democratic or better trade policies.

However, by linking trade concessions to emigration, the Trade Act of 1974 explicitly made emigration/human rights achievement an acceptable goal for trade policy. Moreover, it also made the achievement of results, rather than solely the negotiation of rules, an acceptable strategy for trade policy. This would have important ramifications for future trade policy.

Food for Thought

From the 1930s to the 1970s, Congress slowly and reluctantly granted some of its control over trade policymaking to the Executive. During the fifty somewhat years that Congress let the Executive drive the process, it kept the Executive on a short leash. It forced the Executive to follow certain procedures for public input and to return to Congress for new authority. These procedures, however, did not ensure that multilateral trade liberalization was built on a foundation of public support. Despite the growing importance of trade to the nation's economic growth and to citizens' lives, most Americans had and have little understanding of trade and trade agreements. They tend to think local and to see trade as an issue of jobs.[31] They will remain skeptical and apathetic about trade unless our leaders make education about globalization a priority. Moreover, many Americans may be receptive to protectionist entreaties, unless proponents and opponents alike are honest about the costs and benefits of trade agreements to the achievement of other important policy goals, such as promoting human rights overseas or environmental protection.

With the end of the Cold War, Congress struggled to find a new balance, which would allow it to retake control of trade policymaking, while allowing the Executive to complete existing negotiations and to bring new sectors under the aegis of the GATT/WTO. Congress was firmly in the driver seat by 1995. This, I believe, is a better explanation of why the President does not have fast-track than other explanations such as the lack of business enthusiasm for new negotiations, poor Executive leadership, or the rise of new protectionism. Control has not yielded new trade policies, however. Members are deeply divided as to what the turf of trade agreements should include and how to monitor the trade policymaking process.

Trade policy today is a test of how America's priorities, institutions, and values of equity, openness, and democratic decision-making can survive in the global economy where there is no constitutional road map to guide us. The fast-track process did not establish separate hearings on laws or regulations that might be changed or affected by trade agreements. To ensure that trade agreements are rooted in public understanding, we need to rethink how Congress can grant authority to the Executive while ensuring that other important policy goals are complemented rather than thwarted by trade liberalization. Even Adlai Stevenson would have found this task challenging and interesting.

Endnotes

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Endnotes

  1. ^ David M. Pletcher, "Growth and Diplomatic Adjustment", in William H. Becker and Samuel F. Wells, Jr. Economics and World Power: An Assessment of American Diplomacy Since 1789, (New York: Columbia U. Press, 1984), 133-134. For a good overview of the history of protection, see Alfred E. Eckes, Jr. Opening America's Market: U.S. Foreign Trade Policy Since 1776 (Chapel Hill: North Carolina, 1995).
  2. ^ Willliam B. Kelly, ed., Studies in United States Commercial Policy (Chapel Hill: North Carolina, 1963), 24, 27, 29, 69.
  3. ^ Percy W. Bidwell, The Invisible Tariff: A Study of the Control of Imports into the United States (New York: Council on Foreign Relations, 1939), 251-252.
  4. ^ U.S. Tariff Commission, Operation of the Trade Agreements Program 2d report, 19-21, 20n.4; U.S. Tariff Commission, Report on the Havana Charter for an ITO (Washington: GPO, 1949), 5, 7; Oral History Interview with John M. Leddy, 6/15/1973, 52-63 and Oral History Interview with Winthrop Brown, 5/25/1973, 43 both at Harry S. Truman Presidential Library.
  5. ^ Aaronson, Trade and the American Dream, 21, 31.
  6. ^ To counter this concern, State Department lawyers poured over the history of executive agreements. N.a., n.d., "Memorandum on Constitutionality of Trade Agreements Act", 1937, box 46, RG 57D-284, in National Archives.
  7. ^ Henry J. Tasca, The Reciprocal Trade Policy of the United States: A Study in Trade Philosophy (Philadelphia, University of Pennsylvania Press, 1938), 33-38.
  8. ^ John Day Larkin, Trade Agreements: A Study in Democratic Methods (New York: Columbia, 1940), 11-12.
  9. ^ Tasca, Reciprocal Trade, 66-67; and Larkin, Trade Agreements, 65-67.
  10. ^ Harry C. Hawkins and Janet L. Norwood, "The Legislative Basis of U.S. Commercial Policy," in Kelley, U.S. Commercial Policy, 85.
  11. ^ John M. Letiche, Reciprocal Trade Agreements in the World Economy (New York: Kings Crown, 1948), 18-19.
  12. ^ Stephen P. Haggard, "Foundations of Hegemony", in G. John Ikenberry, et al., eds. The State and American Foreign Economic Policy (Ithaca: Cornell, 1988), 112-113
  13. ^ U.S. Department of State, The Reciprocal Trade Agreements Program of the United States (Washington, D.C.: GPO, 1938), Hawkins and Norwood, "A Legislative Basis", 100.
  14. ^ Hadley Cantril, Public Opinion, 1934-1946 (Princeton: Princeton, 1951), 122, 124, polls # 4, 6, 7, 19.
  15. ^ I take this history from Susan Ariel Aaronson, "Redefining the Terms of Trade: Nongovernmental Organizations, Trade and the Social Compact" (forthcoming, Johns Hopkins Press, 2001).
  16. ^ Committee on Ways and Means, Hearings on H.R. 6767, The Trade Reform Act of 1973, 93rd Cong., 1st sess., part 1, May 9-June 15, 1973, 5. United States Trade Representative Bill Eberle in Congressional testimony on this authority, 346, 351; Statement of Frederick W. Hickman, Assistant Secretary for Tax Policy, treasury Department, 498-499.
  17. ^ Ibid., 352-353. Ambassador Pearce's comments on 395. Also see summary of government officials' comments on the basic authority, p. 5175--5176. Administration officials were well aware of the Congressional implications of negotiating NTBs. See W.B. Kelly Jr., 5/9/1969, 3-10, in D-4/69, Box 5 in RG 364.
  18. ^ Ways and Means, Hearings on H.R. 6767, 327-331, 5176-5177.
  19. ^ Ibid., 713; 5176-5177;5054-5055; 5058-5061,5109.
  20. ^ Ibid., 446-448.
  21. ^ Ibid., 756-759.
  22. ^ Ways and Means, Hearings on H.R. 6767, 763.
  23. ^ House Ways and Means, Hearing on H.R. 6767, 557-558.
  24. ^ Ibid., 1181; Congressman Wagner, 655.
  25. ^ Ibid., 2813-2815; and on wine grapes 3046.
  26. ^ The League of Women Voters urged that the interests of consumers be given serious consideration when national trade policy is discussed. Ways and Means, Hearings on H.R. 6767, 370, 461, 2997 and 5305, comments of Robert B. Schwenger (a former trade negotiator) 4468-4489; V. J. Adduci, President, Electronic Industries Association, 3268; Mr. Graubard, 1092; National Council of Jewish Women, Inc., 2954. For a good summary of opinion of witnesses see on the authority-5177-5193. On attitudes towards NTB negotiations, see 5193-5204.
  27. ^ Ways and Means, Hearings on H.R. 6767, view of ECAT, 660, 668.
  28. ^ Ways and Means, Brief Summary of H.R. 10710: The "Trade Reform Act of 1973," As Report to the House on October 10, 1973(Washington: GPO, 1973), 55.
  29. ^ The implementing bill must contain the following provisions1. approval of the trade agreement;2. changes or additions to domestic law necessary to implement the agreement; and3. in recognition that NTB negotiations could forces changes to U.S. laws or regulations, a statement describing changes to administrative practice to implement the agreement.After these steps, Congress (by majority vote) must vote up or down on the bill within ninety days after the implementing bill (which could not be altered by Congress) was introduced. Finally, the Special Trade Representative must continually consult with the Senate Finance Committee and House Ways and Means Committee on the negotiations.
  30. ^ Committee on Finance, U.S. Senate Hearings on H.R. 10710: An Act to Promote Development of An Open Nondiscriminatory and Fair World Economic System, (Washington: GPO, 1974), 2585; link MFN to environment 2649-2659.
  31. ^ See Steven Kull and I.M. Destler, "Misreading the Public: the Myth of New Isolationism," forthcoming Brookings; Richard Morin and John M. Berry, "Reality Check," series of polls in the Washington Post, October 1996; and polls cited in Aaronson, Trade and, chapters 10, 12.