President Bush has called on the US senate to vote on renewed presidential Trade Promotion Authority (TPA). What does it mean? TPA (which went under the name of “fast-track authority” in the 1990s) would ensure that any trade agreement negotiated by the president would be considered by Congress as a single package. Naturally, Congress would maintain the final authority on whether to approve or reject the negotiated agreement, but under this expedited process, Congress would agree to consider the legislation as a whole, with mandatory deadlines, no amendment and limited debate.
Congress would of course be consulted throughout the negotiating process in order to guarantee that international trade agreements reached by the United States reflect the priorities of both the legislative and executive branches of the government. However, in order to give the United States the highest degree of credibility with other countries, it is important that any international agreements be allowed to go through Congress quickly and without “renegotiation”.
The close working relationship between Congress and the president in negotiating trade agreements has a long history. In the 1934 Reciprocal Trade Agreement Act, Congress first gave the president heightened power on negotiating reciprocal reductions of tariffs. With non-tariff barriers to trade becoming important, Congress gave the president the temporary authority to negotiate a broader range of trade issues with the Trade Act of 1974.
It also agreed to follow an expedited procedure for legislative consideration of trade agreements. With a number of renewals, the president was subsequently granted this authority almost continuously until it was allowed to lapse in 1994. So, why bring it back?
The value of restoring TPA can be seen in three steps. The first is to acknowledge the benefits of more open global trade. International trade is an important part of the US economy – in 2001 the United States exported US$1.1 trillion, or 12% of gross domestic product, in goods and services. Trade raises productivity, and productivity is the ultimate determinant of standards of living.
The best route to more open trade, however, is formal trade agreements. For this reason, the United States has been a signatory to the General Agreement on Tariffs and Trade (GATT) since its inception in 1947. The United States is also a member of the World Trade Organization (WTO), the international body that succeeded the GATT in 1994. An institutional commitment to free trade is a good way to overcome instances of short-sightedness. In a developed country, stiff import barriers on labour-intensive goods from developing countries such as clothing, leather, or agricultural produce not only harms consumers but may reduce the income of people in developing countries as well.
A recent World Bank study found that in the 1990s, the income per person in globalising developing countries grew more than three-and-a-half times faster than it did in non-globalising developing countries. (The study identified developing countries as “globalising” if their trade was growing in relation to GDP and their average tariff rates were being reduced.)
The final step, of course, is to make clear the link between TPA and the quality of trade agreements. What evidence is there to support TPA? One answer lies in the difference between parliamentary and divided powers systems. In parliamentary systems, such as in Canada and the United Kingdom, the trade minister is appointed by the party in power. This usually gives the minister a clear mandate, as well as a majority to approve the agreement. The process is streamlined.
On the other hand, in systems such as the US, the negotiators are not necessarily from the same party as those who have the power to accept or reject it. In addition, Congress can continually make amendments that can delay the agreement. And there is no guarantee that once the agreement has been amended the other party will still accept it.
The European Union does not have this problem. It is an interesting hybrid, in that the European Commission negotiates trade agreements on behalf of the EU, which must be approved by the European Council. However, the Commission has the sole right of initiative, and the Council cannot adopt amendments to proposals from the Commission except by unanimous consent. This has helped the EU to speed up the process of concluding free trade agreements with outside countries, as evidenced by the six that have come into effect since the beginning of 1998. The average time to conclude these agreements was under two years.
The United States stands to gain significantly from TPA approval since, while it is stalled in the Senate, the rest of the world is signing trade pacts that exclude the United States. Out of more than 120 regional trade agreements in the world today, the US is a signatory to only three: NAFTA, and free trade agreements with Israel and Jordan. In comparison, the EU and Mexico are signatories to 32 and five respectively.
A study by the University of Michigan finds that if a new WTO trade round leads to a 33% reduction of tariffs on agricultural and industrial products and non- tariff barriers to trade in services, the country would produce gains of about US$2,500 for the average American family of four. An analysis of an agreement with member countries of the Free Trade Area of the Americas, leading to the removal of all bilateral tariffs, concludes that the gains would be about a third as large.
Given these benefits, why is TPA so controversial? Many of the concerns revolve around how labour and the environment should be treated in trade agreements. In an outline contained in the 2001 International Trade Agenda, the president included as negotiating objectives encouraging the protection of children and adherence to core labour standards, as well as mutually supportive trade and environmental protection.
Many competing Congressional bills also contain provisions regarding labour and the environment. However, substantial disagreement exists regarding the nature and extent of those provisions.
Our country, as well as the entire global trading system, stand to benefit from pending trade agreements that would be facilitated with the passage of TPA. Congress should pass it.
• The Development Dimensions of Trade, OECD, 2001.
©OECD Observer No 231/232, May 2002