EYE ON
AMERICA Rangel over trade
policy By Peter Morici
The Bush administration and Charles
Rangel, the chairman of the Ways and Means
Committee of the US House of Representatives,
appear close to an agreement to strengthen the
labor-rights provisions in pending free-trade
pacts with Panama and Peru.
The prospect
that such provisions could be generalized to all
trade agreements is scaring the pants off unions
and business
lobbies alike. Their angst is
unfortunate, because stronger labor safeguards
will neither fix what really bothers organized
labor about free trade nor harm US commercial
interests.
The Democratic leadership is
generally in favor of free trade, but a deal is
necessary to get new trade pacts through Congress.
Many newly elected House Democrats have received
significant campaign support from organized labor,
and for years unions have urged that trade
agreements better safeguard worker rights. Now
unions are getting their wish but slowly realizing
it won't do them too much good.
Virtually
all members of the World Trade Organization (WTO)
have adopted the eight core International Labor
Organization (ILO) conventions that prohibit
exploitive child labor, forced labor, repression
of unions and discrimination in employment.
The most a free-trade agreement or new WTO
rules could do is permit the United States to
exclude imports made by workers denied these
rights. However, the scope of trade potentially
affected would not be large, because the ILO
applies these standards flexibly, according to
each country's level of economic development.
It is not acceptable for 14-year-olds to
work full-time in the United States, but it is in
Pakistan, and more rigorously enforcing ILO
standards won't raise the minimum wage in
developing countries. Hence incorporating labor
standards in trade agreements won't save US
workers from competing with cheap labor from China
or any place else, or restore lost union
membership.
US businesses fear that
international standards, applied through trade
agreements, could negate US laws regulating their
workplaces. However, compared with the ILO core
standards, US Department of Labor regulations are
strenuous, and US employers abiding by those
regulations have more to fear from an invasion of
Martians than an ILO inspector.
The
important foreign trade practices shutting US
factories and costing union jobs are already
addressed by WTO rules, but the US government does
not effectively assert US rights to combat their
harmful consequences.
At the top of the
list are artificially undervalued currencies that
make products in China, India and other Asian
countries falsely inexpensive when sold in US
markets. In 2006, China and India dumped more than
US$280 billion worth of yuan and rupees into
international currency markets to keep down the
values of those currencies. That created subsidies
on exports to the United States averaging about
24%.
Throughout Asia, exports to the
United States benefit from various export-tax
rebates, low-interest loans, industrial
development grants and technology extorted on the
cheap by foreign governments from such companies
as Microsoft and General Motors.
Whatever
monetary gains businesses in developing countries
obtain from compromising workers' rights, those
could never equal the harm imposed on US workers
and businesses by currency manipulation, other
subsidies, and technology extortion.
US
countervailing-duty laws permit businesses to
petition the US Commerce Department for import
duties that precisely offset the benefits bestowed
by foreign government subsidies. However, since
1983, the United States has not applied
countervailing duties on subsidies paid by
governments in non-market economies, including
China. In a recent case on coated paper from
China, the Commerce Department indicated it will
likely abandon that policy, but the outcome is
less than certain.
Moreover, although US
Federal Reserve chairman Ben Bernanke has labeled
Chinese currency manipulation an export subsidy,
the administration of President George W Bush has
refused to apply the countervailing-duty laws to
these largest of all subsidies regardless of what
country applies them.
For Rangel, the deal
on labor standards is a first small step toward
closing divisions within his own party on trade
and forging a more bipartisan approach to trade
policy. Watching him work gives one respect for
his skills and dedication, but let's hope his
colleagues address the truly salient issues.
This year, the Ways and Means Committee
will consider various changes to strengthen US
trade laws that defend against foreign subsidies,
as well as other unfair trade practices, such as
dumping products in the United States at prices
below their cost of production.
It is
hoped that the committee will find ways to patch
the important loopholes, including currency
manipulation, and give American workers a fair
shake at competing in global markets.
Peter Morici is a professor at
the University of Maryland School of Business and
former chief economist at the US International
Trade Commission.
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