Unfulfilled trade policy

As congressional Democrats and Bush administration officials were congratulating themselves last week for agreeing to include tough, enforceable labor and environmental standards in trade agreements, U.S. trade policy quietly crawled into a corner and died.

"Here lies U.S. trade policy," the epitaph should read. "Loathed by most Democrats and the labor unions they represent; taken for granted by the Bush administration, which never articulated a comprehensive case for liberalization." Meanwhile, completed bilateral agreements with Peru, Panama, Colombia and South Korea, as well as the Doha Round of multilateral trade negotiations, are left orphaned.

It's a telling commentary about how far trade policy expectations have fallen when agreement between the administration and Congress over how to proceed in years-old trade negotiations passes for a significant breakthrough. The chief spokesman for U.S. Trade Representative Susan Schwab offered: "I think there is a growing degree of trust and bipartisanship that will allow the trade agenda to move forward. We showed the world that we can work together." She seems to have forgotten that trade agreements are forged between countries, and last week's domestic accord renders those possibilities less likely.

To the person who feels more than he thinks, the agreement to require stricter, enforceable labor and environmental provisions in trade agreements must sound like progress. It might represent progress for congressional Democrats seeking union support for their 2008 re-election bids, but it will do nothing to improve prospects for trade liberalization. Instead, it will impede trade liberalization and in the process deprive developing countries of opportunities for economic growth, which is the key to raising local labor and environmental standards.

In 1996, trade ministers representing members of the World Trade Organization concluded their ministerial meeting in Singapore with a strong statement of consensus on the issue of labor standards. The statement declared support for core labor standards while simultaneously opposing the idea of enforceable labor standards in trade agreements.

Labor standards are promoted by "economic growth and development fostered by international trade and further trade liberalization," the statement read. In other words, imposing conditions on trade and investment with poor countries only slows economic growth and prevents labor standards from rising.

Today, the WTO includes even more developing countries than in 1996. It's not that they oppose better local labor and environmental conditions. Rather, they fear that rich countries, at the behest of their own import-competing interests, will use those provisions as a fig leaf to achieve protectionist outcomes. The overriding concern is that the potential to allege labor or environmental violations, regardless of merit, will deter foreign investment in local factories and in other areas of the local economy, which is the real key to raising standards.

The Bush administration acknowledged this consensus view, and recognized that enforceable, stringent labor standards would be opposed by virtually all developing countries. That's why the "trade promotion authority" legislation under which trade negotiations have been conducted since 2002 requires only that countries enforce the laws on their books.

But the return of Congress to Democratic control last November changed the equation. U.S. labor unions have long advocated tough labor and environmental standards, and they are now dictating terms through the congressional leadership. Accommodating those demands was touted as a way to break the logjam and move the trade agenda forward. But now that those demands have been met, labor appears to be raising the bar.

In a letter to the U.S. trade representative last week, House Ways and Means Chairman Charles Rangel, New York Democrat, concluded that, notwithstanding last week's deal, the agreement with Colombia would still be problematic until the attorney general's office in Bogota did a better job of finding and punishing violent criminals.

Meanwhile, House Ways and Means subcommittee Chairman Sander Levin, Michigan Democrat, remains opposed to (and Mr. Rangel silent about) the Korea deal because it doesn't include his proposal to condition Korean automobile access to the U.S. market on U.S. auto sales success in Korea.

Opposition has nothing to do with labor or environmental issues. It should be pretty clear that labor unions and their congressional allies are steadfastly opposed to new trade agreements. Although agreements with Peru and Panama might still come to fruition because the governments in those countries have staked their reputations on a deal, the Doha Round is now more elusive than ever on account of the deal between Congress and the administration.

Forging trade agreements in our mercantilist policy environment is a delicate business. It involves balancing domestic political demands with the objective of crafting an agreement that is still worthwhile for U.S. and our trade partner's interests. The more concessions to domestic politics, the less worthwhile the ultimate agreement will be. By insisting on strict, enforceable labor and environmental provisions, the tipping point was reached.

Thus, "Here lies an unfulfilled U.S. trade policy. It deserved a better fate."

Daniel Ikenson is associate director of the Cato Institute's Center for Trade Policy Studies.