IT’S NOT A RAILROAD, IT’S A PROMOTION

The U S Congress is having a vigorous–and healthy– debate on whether to grant President Obama more authority to conclude trade agreements. At issue is Trade Promotion Authority, (TPA) which allows Congress to only vote yeah or nay on any proposed treaty, without the ability to adorn the proposal with changes or amendments.  The world should pay close attention to the debate and its outcome.

It is far too easy to dismiss the debate as an exercise in partisan wrangling exacerbated by the already-started US presidential campaign. Or the on-going tug of war on Presidential vs Congressional powers

There are certainly elements, to which trade in particular is highly vulnerable. These are visible when one looks at the name of the issue at stake. Originally, for decades the label was “fast track” legislation or authority. But this terminology sounded too much like a hasty railroading of trade treaties through Congress. To mitigate this concern the tried and true Washington approach of re-naming the measure was put in place. So now the same issue is named “Trade Promotion Agreement” clearly more uplifting in terms of perception.

This is remindful of the controversial term “Most Favored Nation” or MFN. This expression became subject to highly charged complaints, particularly at the trade battle of Seattle when the public perception thought it to be providing for special friendship and treatment for some very much non-favored trading nations. A  persistent perception very difficult to change, even though MFN was essentially an equal opportunity clause for international trade by providing for equal, not special border crossing  treatment of trade. So policy makers took the less information and education intense step by changing the controversial name into an uncontroversial one, namely  “Permanent Normal Trade Relations” or PNTR.   This new term, even though designating the same action and relation as MFN, is now free from public debate, since there seems to be little opposition to the new terms of either permanent, normal, trade or relations. Another controversy eliminated without changing policy or impact. Perhaps TPA needs a new name.

But at its core, the fast track debate is about the future shape of the global trading system, which  is why the world should pay attention. The painfully slow process of winding up the latest world-wide trade negotiations called the Doha Round has made a few things clear. During the by now 14 years of negotiations in this round, there have been tectonic shifts in the global trade environment. These include the greater number of participants who are involved much more intensely, just consider that the World Trade Organization, whose predecessor, the General Agreement on Tariffs and Trade (GATT) had 23 founding members, now boasts of 161 members. In spite of this great growth, WTO decision making is still based on unanimity, a goal much more difficult to achieve with the great diversity in its membership. Other key shifts include the emergence of global supply chains, the blurring of the lines between services and manufactured good and the attendant focus on value added accounting as opposed to cross border taxation–which are entirely unaddressed in the geriatric Doha agenda. There is also the use of localization policies by advanced developing countries which clearly distort trade but which neither our WTO-based agreements nor our Free Trade Agreements (FTAs) seem to be able to address.

There are also the concerns about the labor and environmental implications of trade both direct and indirect. Neither one of these issues is really addressed in WTO documents, nor are the specifics of currency manipulation, which can be crucial for the competitiveness of nations but so far, has largely been ignored.

Some see the long delays and the heat of the TPA debate as signaling a US retreat from trade. There has been some decline in the international trade interests of the population at large, but we suggest an alternative hypothesis: The Fast track bill that emerges from the US Congress (and we predict it will) positions the United States to resume its historic position of leadership in international trade.  The prolonged national debate on the role of trade will produce an expanded agenda for key improvements in the global marketplace that will accomplish for world economies of the first half of the twenty first century what the GATT-based system did for the latter half of the twentieth century.

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