Is The U.S. Falling Behind In International Trade?

Monday, October 4, 2010 - 01:00

The Editor interviews the Hon. Susan Schwab, Strategic Advisor in Mayer Brown's Government & Global Trade practice and Professor at the School of Public Policy at the University of Maryland.

Editor: Please share with our readers your background, beginning with your early experience and your later appointment as U.S. Trade Representative in the Bush Administration.

Schwab: My first job was as a "GS-nothing" at USTR right out of my masters program in 1977. My undergraduate and masters program were in development policy where I had studied agricultural economics and international trade basically as vehicles for economic development. I ended up doing agricultural trade negotiations, like trying to get beef and citrus into the Japanese market, negotiating to keep the Europeans from blocking our almonds and walnuts, and seeking new market access for horticultural products in the Tokyo Round multilateral trade negotiations.

I had taken the Foreign Service exam in graduate school and happily, when my appointment came through, the State Department let me stay at USTR as my first assignment. As the negotiations were winding down, I went into language training and then went to work at the U.S. Embassy in Tokyo, Japan, dealing with market access issues again - this time trying to open the Japanese government procurement market for U.S. telecommunications products.

About the time that deal closed, I learned about an opening on Capitol Hill. Sen. John Danforth (R-MO) was about to take over the chairmanship of the International Trade Subcommittee of the Senate Finance Committee and was looking for a trade staffer. I paid my way back to Washington to interview, got the job and went to work on the Hill for eight fascinating years.

In 1989, President George H.W. Bush nominated me to head the U.S. & Foreign Commercial Service at the U.S. Department of Commerce. The focus was export promotion assistance for small and mid-sized firms, advocacy for large firms, and a great deal of management - with a U.S. and international staff in some 200 locations around the world and across the United States.

It was a remarkable organization, and an incredible experience being there as the Cold War was coming to an end and U.S. commercial interests joined our foreign policy interests in trade. For example, I worked with Larry Eagleberger, who was then Deputy Secretary of State, to encourage American ambassadors to get more active on behalf of U.S. companies internationally, including the writing of our government's first set of "advocacy guidelines." Then President Bush lost his job, so I lost mine and went to the private sector.

Editor: Where?

Schwab: Motorola. I was interested in doing anything other than U.S. government relations and wanted a line position outside of Washington D.C. I moved to Schaumburg, Illinois to work with their business development unit, doing M&A work at home and, particularly, abroad, including strategy in Asia and negotiation of joint ventures in China. Then in 1995, I got a totally unexpected opportunity: to become dean of the School of Public Policy at the University of Maryland. The former dean was joining the Clinton Administration, and the University was interested in a non-traditional dean. I had gotten my Ph.D as a part-time student a few years earlier because I wanted to write a book and felt I needed a stronger intellectual framework for the work that I had been doing professionally.

That turned out to be a fortuitous decision. I was dean for eight years, then spent two years as president and CEO of the University System of Maryland System Foundation and vice chancellor for advancement.

So by the time I became deputy USTR in 2005, I had been largely away from the trade field for ten years. Then six months later, President (George W.) Bush decided to name my boss, Ambassador Rob Portman, as director of OMB, and nominated me to succeed him.

Editor: How have U.S. trade policy and politics evolved?

Schwab: Actually, my doctoral dissertation was about the 1988 Omnibus Trade Act, "fast track" and the history of American trade policy and politics. The current era in U.S. trade policy really began with the disastrous Smoot-Hawley Tariff Act and the Reciprocal Trade Agreements Act of 1934 that followed.

It is the history of cooperation, conflict, compromise and the like between the president and the executive branch on one side and the Congress on the other, courtesy of the Commerce Clause. Article I, Section 8 of the Constitution tells us that: "The Congress shall have the power ... To regulate commerce with foreign nations ...," while Article 2 puts the President in charge of foreign policy. The result is a tension that has existed since the founding between Congress and the executive.

Starting in 1934, Congress periodically has delegated certain authorities to the executive branch to conclude trade liberalizing agreements with other countries. Initially these agreements just involved tariff cuts. This authority, however, was never delegated on a permanent basis, just periodically, with strings attached.

And over the years, as the coverage and complexity of trade agreements has grown, encompassing new sectors, subsidies, non-tariff barriers and the like, so has the scope and complexity of the delegation of authorities. Similarly, congressional committees beyond the principal committees of jurisdiction, House Ways & Means and Senate Finance, have wanted to get more involved over time, whether on agricultural issues, protection of intellectual property, trade in services, and the like.

While many aspects of U.S. trade law are permanent, such as those dealing with unfair trade practices, the authority to implement market opening agreements (as distinct from negotiating them) has only been delegated periodically, with constraints as to time and scope.

In the 1974 Trade Act, a new element was added to address the growing number of non-tariff measures being negotiated, and that became known as "fast track" and now "Trade Promotion Authority (TPA)," whereby trade negotiators have to bring any agreement back to the Congress after it is negotiated for an up or down vote. No amendments are allowed and Congress is supposed to act on the legislation within a specific time frame.

This gives some basic assurances to our negotiators and trading partners that if we get an agreement that is acceptable to the majority in the Congress, it will go through and not get filibustered or unraveled with floor amendments. Without it, why would any country give you their bottom line? And yet it ensures extensive consultations between negotiators and the Congress, as well as any and all constituencies, before, during and after negotiations.

It is hard to imagine any major trade agreements without these special authorities, when you consider that the multilateral deals now take eight or more years to negotiate and involve over 150 countries and hundreds, if not thousands of issues.

Editor: Where do we go from here?

Schwab: As you know, TPA expired in 2007. This kind of authority has been critical to virtually every major multilateral and bilateral trade deal the U.S. has negotiated since 1974. Today there remain three pending free trade agreements negotiated under the Bush Administration, with Colombia, Panama and South Korea, which can still be considered under the TPA procedures that were in place when they were concluded. It is hard to imagine any meaningful deals being closed in the future without some version of this basic contractual understanding between the executive and Congress and between U.S. negotiators and their international counterparts.

TPA has become difficult to get through Congress, but was used very effectively by both Democrats and Republicans in the White House up until 2008, when the Democratic leadership in the House refused to act on the Colombia FTA and signaled the same for the other two. This was in spite of the fact that the Bush Administration had entered into a special agreement with the Democratic (and Republican) leadership in the House in May of 2007 to build into the FTAs with Peru, Colombia, Peru, Panama and South Korea, for the first time, enforceable labor and environmental standards.

The big labor unions, environmental groups, and their congressional allies had been agitating for these for decades. No administration, not Bush 41, not Clinton, Republican or Democrat, had been willing to do it. So in the interest of moving the legislation and trying to heal what was and is a growing rift within the Democratic Party over trade, we decided to reach out and go the extra mile in response to their demands.

Sadly, what we learned was that for big labor and most of the environmental folks, demanding these labor and environmental standards was just an excuse to oppose trade agreements. No sooner did they get what they had been demanding for over a decade than they came up with other reasons to fight the deals.

It's one thing for members of Congress to vote against a particular trade agreement because they've got constituents who might be negatively impacted. It is quite another thing if they are doing it because their party is captive of one set of special interests. International trade and trade liberalization benefits the vast majority of Americans, including competitive U.S. firms who manufacture in this country. If a limited number of groups, industries, or communities within our economy are negatively impacted by trade agreements, then we need to help them directly rather than by placing an uncompetitive burden on the rest of the economy, punishing everyone else.

I think the Obama Administration has a big challenge in reconciling its campaign pledges and commitments to organized labor with governing and doing what is best for the economy. The future of U.S. growth and the best jobs will be in sectors that export as well as produce for domestic use, and you don't get there using artificial barriers to trade and investment.

Editor: Are there other complicating factors beside the lack of TPA?

Schwab: Yes, the statutory private sector's advisory committee system that was set up in the 1970s to ensure that American voices from across our economy could help to advise our trade negotiators and the Congress is a shadow of its former self. These committees, set up with experts from all industrial, agricultural and service sectors, union representatives, environmental experts, and so on really helped to bridge the division created by the Commerce Clause.

They are supposed to advise U.S. negotiators on what to put on the table and what U.S. negotiating priorities should be. Then, they are supposed to report to the Congress on the agreements negotiated and whether they would recommend enactment.

Close to a thousand volunteers were engaged in this critical role by the time I became USTR, and they were invaluable to us, all holding security clearances so as to give them access to our negotiating documents and advise us on negotiations in real time.

Unfortunately, the Obama Administration decided to ban all registered lobbyists from serving on these committees, forcing close to half of these experts out of the room. Consequently, you now have different individuals advising the executive from those advising the Congress.

If you are registered to lobby Congress, you can't advise the executive and pretty much vice versa. This creates a huge knowledge gap that is going to come back to bite this or the next administration when the folks who know the most will be precluded from fully participating in the process.

Editor: Where does that leave us with the open agreements?

Schwab: President Clinton deserves applause for getting NAFTA and the Uruguay Round legislation through Congress. When the Bush Administration came into office, the United States had free trade agreements with only three countries, Canada, Mexico and Israel.

Under the Bush Administration, we concluded free trade agreements with 17 additional countries, with all but the three I mentioned, Colombia, Panama and South Korea, now in place.

The three that are in limbo are now over three years old. Meanwhile, the Europeans have negotiated their own FTA with Korea; Canada has negotiated a deal with Colombia; China has an FTA with the Southeast Asian nations that make up ASEAN; and other such preferential trade deals are being negotiated between these and other countries every day that exclude us.

U.S. export markets are in jeopardy and U.S. firms are essentially being forced to produce off-shore to avoid losing access to markets subject to other nations' preferential trade agreements. In the case of Colombia, we have lost market share in agriculture, and while I don't have the exact number, U.S. exporters and Colombian importers of U.S. goods have now paid out over $2 billion in tariffs to the government of Colombia that might have been used to invest in jobs at home.

The irony is that Panama and Colombia already have unlimited access to the U.S. market through trade preference programs, so the real impact of these deals would be to open THEIR markets to our exports. And with the Korean deal, we're talking about an agreement with a large and rapidly growing Asian nation with close to $20,000 in per capita income that the International Trade Commission tells us would boost U.S. GDP by over $10 billion. Together, these FTAs would open up sales opportunities to over 100 million customers for U.S. exports and solidify economic ties with three critically important allies.

Editor: Does the election of Santos as president improve the chances for the Colombian FTA?

Schwab: I think the unions believe they are on a roll when it comes to trade politics and that it is not in their interest to differentiate between good and bad trade agreements, as long as they can block all trade agreements, which they have now successfully done for three years.

If you look at all that former President Uribe accomplished, he was a truly transformational leader. He took what most of the world had concluded was a failed state and saved it. His policies reduced dramatically the level of violence and improved the economy. His sound economic policies provided opportunities for former paramilitaries, FARC guerillas and those involved in the drug trade to transition into the legitimate economy.

President Uribe was so interested in the FTA, not because he was going to get new access to the U.S. market (because they have had preferential access since 1991), but to make the existing access permanent, thereby increasing stability and attracting both domestic and foreign direct investment. But in spite of these successes that saw him leave office with an approval rating of over 70 percent (!), the unions continue to use violence as an excuse to oppose the FTA. In fact, violence is down, and the situation for workers and unions has improved to the point that Colombia is no longer on the International Labor Organization's watch list.

So does the election of President Santos improve the chances for the FTA? I have heard nothing to suggest that big labor in the U.S. has any intention of dropping their opposition. They just don't want any meaningful trade deals. Period. It's sad, because ultimately, it is the American worker who is being hurt by their opposition to these trade agreements. And if the Administration hopes to get close to the President's goal of doubling U.S. exports in five years, opening up the markets of Colombia, Panama and South Korea would be an important step.

Editor: Are potential new trade negotiations paralyzed by the fact that Colombia, Panama and South Korea are stymied?

Schwab: Other countries continue to negotiate with us without TPA and with the three deals hanging out there, but in my opinion there is zero chance that any one of our trading partners is going to put its bottom line on the table in a negotiation, unless they think that the executive branch negotiators can deliver Congressional approval.

Please email the interviewee at sschwab@mayerbrown.com with questions about this interview.