WASHINGTON - The coming Democratic takeover of the US House and Senate throws a
formidable monkey wrench into President George W Bush's overall policy agenda,
and nowhere with more potential for problems than in the area of international
trade.
Bush is not going to shrink from being an activist president, and
like Bill Clinton after the 1994 Republican election victory, he firmly
believes he is "still relevant". But this position only increases the potential
either for frustration or for confrontation over a range of key trade issues
during 2007 and 2008.
It has already been widely reported that there is a heightened level of
skepticism among newly elected House Democrats about the effects of
globalization that will make it difficult to reach a consensus on trade.
Indeed, most of the newly elected Democrats spoke negatively about trade reform
in their campaigns and 16 of those Democrats will be replacing Republicans that
often voted in favor of trade bills.
These new members join a group of veteran Democrats who have long opposed most
trade initiatives to form a potentially strong anti-trade voting bloc. They
have already made their views known in an internal briefing session at which
they attacked former treasury secretary Robert Rubin when he cautioned against
taking actions that would restrict the free flow of trade and investment into
the United States.
The new chairman of the House Ways and Means Committee, Democrat Representative
Charles Rangel, has pledged to work with Republicans to make progress on trade
priorities and has proposed to invite members of Congress to an informal
retreat with US Trade Representative Susan Schwab and Treasury Secretary Henry
Paulson to discuss trade issues.
But Rangel has also stressed the importance of environmental and labor
standards in negotiating trade agreements and will probably insist on attaching
such standards to any legislation to implement bilateral agreements. In
addition, Rangel has signaled a tougher stance on trade with China at a time
when the American public is growing increasingly anxious about the threat of
competition from abroad.
Democrat Representative Sander Levin will be the new chairman of the ways and
means subcommittee on trade. Levin has promised "vigorous oversight hearings"
on US-China trade, including China's currency manipulation. Levin has also led
efforts to pressure Bush with respect to assistance to the US Big 3 auto
companies, again including addressing their claims that the Japanese government
has, through explicit intervention and implicit "verbal jawboning", kept the
yen artificially weak.
This alleged yen manipulation, according to the Big 3 and Levin, has resulted
in a substantial per-car "subsidy" that has enabled the Japanese auto companies
to gain an "unfair" competitive advantage over General Motors, Ford and
Chrysler. So far, the Bush administration has rejected these claims, but it
seems clear that they will be pressed far more aggressively in the new
Congress.
On the Senate side, Democrat Senator Max Baucus will assume the chairmanship of
the Senate Finance Committee from Senator Charles Grassley. Baucus has worked
in a bipartisan fashion with Grassley during the 109th Congress, such that many
experts are predicting only a "muted" effect when power shifts from Grassley to
Baucus. Several new members with diverse views on trade issues will join the
committee.
Baucus has favored free trade agreements (FTAs) that other Democrats have
criticized. Baucus is a strong advocate of a US-Korea free-trade agreement and
helped launch the negotiations last February. More recently, Baucus has
promoted the idea of a US-Japan bilateral services agreement.
Baucus has also introduced bills on currency and trade enforcement, making it
likely that these issues will be revisited when he becomes chairman of the
finance committee. In September, Baucus joined senators Grassley, Schumer and
Graham to announce they would work together on a World Trade
Organization-consistent bill that would address their concerns over China and
other countries that might have "misaligned" currencies.
In addition, Baucus has in the past pressed legislation that would create high
level positions within the United States Trade Representative (USTR) to focus
on the enforcement of existing trade pacts. He has proposed elevating the USTR
general counsel to a Senate-confirmed position with statutory authority to
investigate and resolve trade-enforcement cases.
The 110th Congress may have the opportunity to consider the Korea and Malaysia
FTAs. The primary hurdle for these negotiations is completing them before the
expiration of Trade Promotion Authority (TPA). That date is effectively March
30, which is the deadline for submitting an agreement before the TPA expires on
June 30. There is a small chance Congress may also consider a Doha Round
agreement, though because of the current impasse among World Trade Organization
(WTO) members, it seems more probable that the negotiations will continue for
several years.
The Asia-Pacific Economic Cooperation leaders, at their Hanoi Summit, indicated
their willingness to make concessions to achieve success in the round, but
qualified the offer with a demand that other factions must do the same. This
statement
