Trade Policy at a Cross Roads

Article excerpt

AN APPROACH FOR 1999--AND BEYOND

For U.S. Trade Policy, the past quarter-century is not without irony. Its first 20 years were replete with economic troubles, real and perceived: "oil shocks" and double-digit inflation in the 1970s; the "twin deficits" of budget and trade in the 1980s; unemployment, the productivity slowdown, and stagnation in workers' take-home pay; the growing challenge from Japan. Yet over these same two decades, the United States maintained and reinforced its open-market international trade policies, with two unprecedented global agreements (the Tokyo Round and the Uruguay Round under the General Agreement on Tariffs and Trade), the North American Free Trade Agreement, and other liberalization initiatives.

In the past five years, by contrast, the U.S. economic situation has turned astonishingly rosy. Inflation and unemployment are both at or near their 25-year lows. Productivity is rising, as are workers' real incomes. The budget deficit and the Japanese threat are both history. Yet since the beginning of 1995, U.S. trade policy has been on hold. For the better part of three years President Bill Clinton sent no proposal to Congress to renew the "fast-track" negotiating authority granted to all his predecessors since Gerald Ford. When he finally did so, and lobbied hard for it in the fall of 1997, his overture was spurned. When House Speaker Newt Gingrich pressed for approval last September, the vote was negative.

Today U.S. producers and consumers are exceptionally well positioned to gain from global trade. Federal government action can enhance these gains, particularly by negotiating with other nations to achieve further mutual reductions in trade barriers. But no agenda for U.S. trade policy can be credible in 1999 unless it recognizes and takes account of the political forces that led to today's stalemate.

Diplomatic Success, Political Stalemate

Bill Clinton inherited two landmark trade initiatives: NAFTA, signed by President George Bush in 1992, and the GATT Uruguay Round, initiated under Ronald Reagan. In an uphill battle, Clinton won congressional approval of NAFTA in November 1993--after negotiating side agreements with Canada and Mexico on labor and environmental issues. His U.S. Trade Representative, Mickey Kantor, closed the Uruguay Round deal a month later, and Congress approved its implementing legislation in December 1994.

The United States concluded 1994 with two new trade-liberalizing commitments. In November, leaders of the Asia Pacific Economic Cooperation Forum (APEC) agreed to free trade among themselves by 2010 (2020 for the less developed members). In December Western Hemisphere nations pledged to negotiate a Free Trade Area of the Americas by 2005.

The years that followed saw further progress in trade liberalization under the auspices of the World Trade Organization, the permanent global institution created during the Uruguay Round. Three new sectoral negotiations carrying over from the Uruguay Round were successfully concluded: information technology in December 1996, basic telecommunications services in February 1997, and financial services in December 1997. The WTO's Dispute Settlement Understanding also got off to a credible start. The United States became the most active complainant and won most of its cases.

The United States also remained active in bilateral trade matters, striking agreements with Japan on autos and China on intellectual property. But U.S. negotiators were undercut by the expiration of fast track, the law that allows them to make credible commitments to reduce U.S. trade barriers in exchange for market-opening commitments by U.S. negotiating partners.

Fast track is Washington's solution to a bedrock constitutional dilemma. The president and his executive branch can negotiate all they like, but Congress makes U.S. trade law. Other nations know that our highly independent legislature will not necessarily deliver on executive promises. …