Trade Promotion Authority And The FTAA

For immediate release: Thursday, November 15, 2001 01: 23 Trade Promotion Authority and the FTAA: Anti-terrorism spin on Thomas TPA bill a tactic to enact legislation which could threaten labor, the environment and erode national sovereignty

§ TPA sits dead in the water; no legislative action scheduled as White House fails to give TPA priority

§ WTO talks point to future FTAA dilemmas as developing countries are now demanding a greater say in trade negotiations

§ Peppered with unenforceable and cosmetic language, the Thomas TPA bill lacks concrete protections for labor and environmental concerns

§ While it remains unclear whether the White House will stage a last minute all-out fight for TPA, U.S. Trade Representative (USTR) Robert Zoellick has attempted to bully Congress into passing the partisan Thomas bill, distinguishingly claiming it has bipartisan support

§ TPA advocates see a pressing need to try to pass the controversial legislation now, and not during next year's elections, when it would be more politically risky

§ Concrete evidence for any NAFTA-driven prosperity is hard to prove (despite the administration's claims to the contrary), but is badly needed to generate support for a Free Trade Area of the Americas (FTAA)

§ In fact, NAFTA has led to increased income disparity and has inflicted deleterious effects upon both U.S. and Mexican workers

Now packaging the legislation as an anti-terrorism and national security measure, TPA's congressional advocates are imploring their colleagues to jump onto the "fight-terrorism-through-trade" bandwagon. Comments from USTR Zoellick make it clear that the historic use of cold war-era rhetoric, in which trade traditionally was promoted as a means to isolate communist states, is presently experiencing a rebirth in a period in which the public is apprehensive over terrorism's reach.

Fears over new terrorist attacks, calculatedly welded to the present U.S. economic downturn, have given the Bush administration's quest for Trade Promotion Authority (TPA) and the eventual passage of a Free Trade Area of the Americas (FTAA) a significant face-lift, even though it is difficult to establish the connections. This revised scheme, however, by no means guarantees that a victory is in the bag for the White House. The reason for this uncertainty is that the president has failed to invest the necessary political capital to insure a legislative victory for what his administration has insisted is essential to advance U.S. trade prospects. The phone calls have not been made, arms have not been twisted and new post offices have not been offered in order to draw in otherwise hesitant legislators. As of today, President Bush's request for TPA would fail Congressional approval.

Although brandishing a new moniker, TPA still represents the same "fast track" approval that Congress denied President Clinton, after he utilized it to ratify NAFTA in 1994. By granting the president TPA, prospects would immediately improve for the Bush administration securing major free trade agreements, including the FTAA. If the wrong pact comes into effect it could have potentially devastating consequences for labor, the environment and this country's basic sovereign rights.

One of the most certain ways to achieve an FTAA devoid of basic labor and environmental standards would be for Congress to pass the measure drafted by Representative Bill Thomas (R-CA). The Thomas bill currently awaits a House vote after the Ways and Means Committee narrowly approved it. The proposal would give the president the power to negotiate trade agreements and then pass the legislation on to Congress for an up-or-down-vote. Amendments providing for sufficient labor and environmental standards would not be allowed under TPA. In addition to its other flaws, TPA inevitably would be used to facilitate the passage of a FTAA that is certain to cost U.S. manufacturing jobs, exacerbating what has been experienced under NAFTA.

Developing countries take a stand at Doha If TPA is granted, increased pressure on labor in both the U.S. and developing countries seems inevitable, as competitive advantage would provide a strong incentive for U.S. corporations to close plants and relocate to nations with fewer regulations. An erosion of national sovereignty is also a near-certainty, as TPA would be easier to pass trade agreements which give corporations the right to sue governments, as under NAFTA for loss of potential profit - even when the company's actions violate national environmentally protective legislation. In addition, developed nations will likely continue to protect intellectual property rights at all costs, thereby placing, for example, miracle drugs outside the price range of most citizens in developing countries.

Based on the WTO talks in Doha, Qatar, however, developing countries are in the early stages of banding together to battle the developed countries on issues such as access to pharmaceuticals, labor and the environment. The developing countries, which compose nearly three quarters of the WTO member nations, are taking advantage of the organization's unanimous approval clause to make their voices heard. In theory, this clause grants every country the right to veto trade amendments regardless of the nation's comparative economic clout. Historically, these nations have been hampered by limited exposure to international trade negotiation leaving them largely powerless and more susceptible to being badgered and manipulated by the trade heavyweights. After seeing few benefits from previous trade negotiations, however, developing countries are now pushing for their voices to be heard, and are demanding a more equitable implementation of future trade agreements. Such a strong stance has placed the two trade powerhouses, the U.S. and the EU, on the defensive. Recently, Brazil and India took the lead among developing nations in battling economic giants on trade issues, such as pharmaceutical patent laws. Through intense negotiations, the developing countries secured a favorable ruling which allows them greater access to essential disease-fighting drugs, a setback to industrialized nations. As a result of this favorable ruling, many developing nations have gained added confidence for confronting their larger trading partners and settling trade disputes. Many developing countries are also concerned with the labor and environmental standards in future trade agreements. Although some industrialized countries' representatives feel these issues are vital to any trade agreement, leaders of developing countries, perhaps ignorantly tend to view them as hidden trade barriers. Such objections stem from the fear that developed countries will take advantage of these regulations by imposing higher tariffs on industrializing countries' products, claiming that they are produced under environmentally sub-standard conditions. Developing nations consider this tactic tantamount to a double standard, and cite the fact that neither the U.S. nor the EU had to comply with these lofty requirements during their own process of industrialization. With the U.S. and other developed nations facing significant challenges as a result of the Doha meetings, particularly due to the subsidization of its agriculture exports to developing countries, the futures of FTAA and TPA are much in doubt. Buoyed by their recent success at forming cohesive coalitions to confront the trade behemoths, it appears that the hemisphere's developing nations will no longer shy away from what they historically have seen as U.S. trade imperialism. It is likely that these nations will now become more involved in FTAA negotiations, and not relegate themselves to the sidelines, letting the U.S. largely impose its position. In the U.S., as FTAA negotiations begin to be stepped up, many of its supporters are reasserting the importance of TPA. Although the Bush administration emphasizes its capacity to break trade negotiation stalemates, Congress is less likely to approve such authority when such issues as labor, the environment and agriculture (all extremely important to their constituents), have not been clearly resolved.

NAFTA's tarnished track record While NAFTA promised protections for U.S. workers during its negotiation phase, close analysis of the performance of that trade agreement since its inception is crucial to accurately assess the true merits of the Thomas bill and the free trade agreements that could follow from the passage of such legislation. Although pro-NAFTA groups are quick to cite the many jobs created since its passage in 1994, they neglect to stress those eliminated through relocation and increased competition under NAFTA's terms. In fact, under NAFTA 365,000 U.S. workers have qualified for stringent federal retraining support after being rendered unemployed, mainly upon their companies moving to Mexico. The actual number of U.S. workers who lost their jobs is substantially higher, however, and falls in the range of an estimated 766,000 eliminated positions, with many workers either not opting to enter a retraining program or not fully qualifying for one. In addition, the replacement jobs these workers are likely to find tend to be in the service sector rather than the higher-skilled manufacturing industries, offering an average of only 77 percent of the wages and benefits of their former positions, according to the Economic Policy Institute.

For employees in the U.S. manufacturing sector fortunate enough to retain their jobs, the threat of relocation has proved to be a vital tool in suppressing unionization on job sites and demanding "give-backs." This scare tactic, which has long been a staple in negotiations in developing countries, has been particularly common among U.S. employers in the mobile "light" industries, such as garment production. A recent Cornell University study of 600 union organizing campaigns found that in 62 percent of the cases company owners used the prospect of relocation as a tactic to browbeat the union into cooperation. Furthermore, a five-year study conducted under the auspices of provision of the labor side agreement to NAFTA, concluded that in 90 percent of the plant closings it reviewed, the shutdown was intended to forestall union organizing drives.

Mexican and Canadian maladies Far from living up to promises of making the Mexican economy more stable, NAFTA helped generate a financial crisis several years ago as numerous investors who had first overestimated the country's growth potential decided to pull out, condemning it to instability. Subsequent multilateral debt incurred as a stabilization measure in response to the 1995 market crash has further hurt the economy, with Mexico now owing $25 billion more than before NAFTA's inauguration. The current recession only exacerbates the shock of restructuring because of Mexico's increasing reliance on the U.S. economy.

Meanwhile, the boom of the border maquiladora sector in Mexico has been heralded as a success story, even though border industries have also recently suffered with falling wages. In actuality, however, conditions have not significantly improved for many Mexicans. Because maquiladoras are concentrated along the border, they lead to an appearance of overall growth that generally does not extend to the interior. The drop of the minimum wage by as much as 20 percent in certain sectors has pushed down 8 million Mexicans from middle class to poverty status. A significant contributing factor to this economic marginalization is a consequence of rising imports of U.S. corn, sugar and other basic grains into Mexico. On occasion, these imports have suppressed domestic prices to recent lows, leaving local small-scale farmers struggling to survive. As the interests of rural workers, the backbone of the country since the 1910 Revolution, are shoved aside, the wealth-distribution gap widens and further polarizes society. In fact, the number of Mexicans living in poverty conditions has increased from around 50 percent immediately before the advent of NAFTA to 58 percent this year. As Mexican farmers have learned the hard way, Washington's rhetoric of open markets belies an abiding reality of protectionist subsidies and quotas for U.S. agriculture.

NAFTA has also negatively affected Canada's social safety net, disqualifying millions of its citizens from anticipated levels of unemployment insurance. Unfortunately for the Chretien administration, these cutbacks in government spending came while there was a 13 percent decline in the country's manufacturing output. The result was an increased concentration of wealth, causing the ratio between the most affluent and the poorest 10 percent of Canadians to rise from 1:50 to 1:314.

FTAA: A simple continuation of NAFTA? If the FTAA comes to pass in its current form, environmental degradation, violations of worker safety rules and infringements on government sovereignty are likely, especially if the proposed agreement expands upon NAFTA's controversial Chapter 11. This clause gives corporations the ability to challenge government laws that tread on their 'right' to turn a profit, regardless of the negative societal and environmental consequences of such activities. Thus far, NAFTA has allowed for impingements on the national sovereignty of each of the signatory nations, even where consumer safety and health have been threatened and the environment has been polluted.

Furthermore, the WTO-issued secret panel decisions relating to such issues have not afforded citizens the right of recourse and input. For example, past cases have successfully argued against bans of harmful gas additives known to be injurious to humans and the environment, forcing governments to overturn regulations affecting these practices or pay millions to compensate for 'lost profits.' In addition, the FTAA will likely mandate that countries open all their resources and services, from oil drilling to water extraction, to competition from foreign corporations. Under the prospective trade agreement, it is unlikely that governments would be able to limit the size and scope of operations providing non-essential services, even if deemed environmentally damaging or infringing upon citizen's rights. Nations would also be required to prove that their environmental laws in every instance were, from a corporate point of view, the least costly option available. Finally, in perhaps the most ambiguous requirement, governments would need to show foreign companies more flexibility if the corporation were at a competitive disadvantage owing to environmental regulations.

Despite promises from NAFTA's architects that increased investment inevitably would lead to more money spent protecting the environment and developing infrastructure, the Mexican record is that industrial pollution has almost doubled since 1994. In addition, the repeal of laws protecting against foreign investment in certain strategic sectors has led to a sharp increase in U.S. logging in Mexican forests, some of the largest in North America.

The Thomas proposal The Thomas TPA proposal appears markedly similar to the "fast track" legislation that President Clinton utilized in passing NAFTA. Through his token inclusion of labor and environmental concerns in a predictably unenforceable form, the bill promises to give President Bush ample authority to sign an FTAA pact essentially lacking basic social protections, as well as safety and welfare considerations. While USTR Zoellick claims that the bill has gone further than past proposals in reaching a genuine compromise regarding labor rights and environmental protections, there is little concrete evidence for such claims. Although two Ways and Means Committee Democrats, William Jefferson (D-LA) and John Tanner (D-TN), along with Calvin M. Dooley (D-CA), collaborated with Thomas in drafting the bill, no senior Democratic leaders were consulted. Consequently, only Jefferson and Tanner supported the bill in the Ways and Means Committee vote.

Despite the outpouring of congressional unity in the aftermath of the terrorist attacks, partisan divisions on issues of labor and the environment have been quite evident in debates on TPA over the past month. In a recent COHA interview, a representative of House Minority Leader Richard Gephardt (D-MO) stated that although his boss supports TPA, he feels that the Thomas proposal falls short of the necessary labor and environmental provisions. The aide asserted that a satisfactory TPA proposal would be one which mandates protections that will improve upon NAFTA's tepid side agreement provisions for labor protection, rather than weaken them. An adequate proposal, according to Gephardt and the majority of House Democrats, would need to closely resemble the recently signed U.S.-Jordan Free Trade Agreement, which included labor and environmental protections within the body of the pact. Nonetheless, the enforceability of these provisions has yet to be demonstrated. Indeed, according to a recent COHA interview with the Development GAP's Karen Hansen-Kuhn, the Bush administration added a side agreement to the U.S.-Jordan accord that in reality rendered its labor and environmental protections non-binding and ineffective.

Potential alternatives An alternative TPA bill, proposed by Representatives Charles Rangel (D-NY) and Sander Levin (D-MI) was rejected by the Ways and Means Committee by a vote of 26 to 12 before a tally was taken on the Thomas measure. The most significant difference between Thomas' proposal and the Rangel-Levin version was the enforceability of International Labor Organization guidelines. Although both pieces of legislation theoretically supported such guidelines, the Democrat-sponsored alternative would be far more binding. Nevertheless, USTR Zoellick adamantly argued that such an agreement would leave little room for U.S. maneuvering during trade negotiations.

A narrow affirmative vote in the House would almost certainly assure even more finagling in the Senate. In an effort to avert that possibility, Senate Finance Committee chairman Max Baucus (D-MT) has created a list of amendments for the Thomas bill that he believes would ease its passage through the Senate. One top priority would be increased congressional involvement during the actual trade negotiations, supported by the creation of a Congressional Trade Office as well as the power for Congress to revoke TPA if certain participatory guidelines were not met. The Baucus bill does not require as much congressional input as the Rangel-Levin version, which might make it more palatable for Republicans. Baucus' changes also bring labor and environmental standards up to those of the U.S.-Jordan agreement, an action that should accommodate most liberal Democrats. Baucus also proposes to add a Trade Adjustment Assistance package to the TPA bill. This would provide additional resources to workers who have lost their jobs due to trade agreements by expanding insurance and training programs and by also covering secondary workers affected by all countries with which the U.S. presently trades. Although such modifications would increase the likelihood of Senate approval, House Republicans would be less likely to approve the Thomas bill with the Baucus additions, as it compromises some of their economic goals. Baucus' negotiations with the House are also an attempt to prevent the birth of yet another, and far less conciliatory, TPA bill - this one from Senators Bob Graham (D-FL) and Frank Murlowski (R-AK) - from being brought to a vote by the Senate Finance Committee.

TPA: Not in an election year? Meanwhile, Zoellick continues to push for the passage of Thomas before Congress adjourns for the year. In a recent speech at a FTAA conference, Thea Lee, senior economist for the AFL-CIO, shed some light on the motivations behind this strategy. Lee argued that since Congress is less likely to pass, or even vote on TPA during an election year because the plan lacks broad popular support, Zoellick will press for a vote now, before time runs out. However, Zoellick, who wanted Congress to grant the president TPA before the WTO talks began in Qatar on November 9, has been hoping for an immediate vote, even if it depended upon a bare minimum of Democrat votes -- clearly a risky strategy. However, this strategy could doom every trade agreement negotiated in the near future to a stiff congressional fight. If only 20 Democrats support Thomas, for example, the measure still could pass if 210 House Republicans backed it, a prospect that is by no means assured.

Unfortunately for the Bush administration, the support of several key members of the House Agriculture Committee is in doubt, as both chairman Larry Combest (R-TX) and ranking member Charles Stenholm (D-TX) have been waiting for assurances regarding the White House's WTO agriculture priorities and its support for generous farm legislation. It is questionable whether representatives with farming ties are prepared to take a stand unpopular with their constituents, particularly in light of the administration's untimely rejection in October of several House farm measures.

As Zoellick continues to pressure House leadership to set a firm voting date on TPA, it is questionable whether the Thomas bill will even be approved by a slim margin or even with Baucus' changes. However, one thing is certain: an unchanged version of the Thomas bill would have dramatic consequences for labor, the environment, national sovereignty and the further polarization of wealth in this country. Furthermore, if Congress acquiesces to accepting a bill that threatens such areas of crucial concern, it will show itself as being immune to learning from NAFTA's shortcomings, with voter retribution a distinct possibility.

Lead authors Olivia Nelson and Ross Knutson, COHA Research Associates

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of our nation's most respected bodies of scholars and policy makers."

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