Trade and jobs: policy and political issues.

Author:Cunningham, Richard O.
Position:35th Annual Henry T. King Conference: The US-Canadian Border Action Plan
 
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  1. INTRODUCTION

    Our discussion on jobs and trade comes at an interesting and important juncture. The March 2012 release of jobs data showed that for the third month, the U.S. has added more than 200,000 jobs, yet the March unemployment rate remained at 8.3%. (1) Consumer sentiment--however meaningful that may be--is also up, as is consumer borrowing, which is more significant. (2) In January, the U.S. trade deficit surged to a three-year high. (3) While the market indicators of recovery are positive for now, prospects for bringing manufacturing jobs back to the United States, and even for maintaining such jobs at current levels, present a more somber picture.

    I want to begin today by talking a bit about the general direction of U.S. trade policy under the Obama Administration, focusing in particular on the goals of increasing exports and manufacturing jobs. I will analyze the TPP--the Trans-Pacific Part--the trade negotiation that has largely taken the place of the Doha discussions and that is now portrayed as the main hope for trade liberalization on an international level, though it is only plurilateral, not multilateral. I will talk about the challenges the TPP faces and why it may therefore not be the transformative agreement for U.S. jobs to which the Obama Administration aspires. Finally, I will try to assess what all of this--the U.S.'s trade policy on a domestic and international level--means for U.S. jobs and businesses.

  2. U.S. TRADE POLICY

    U.S. trade policy, I am sorry to say, has not, under the current Administration, been the highest priority nor the subject of extensive thinking until recently. The Obama Administration had not (and some may say it still has not) set a clear national strategy in what it wants to achieve, in terms of taking a disciplined and dedicated approach to identifying what sectors have strategic importance for America in the long term, or how trade policy interplays with business growth and the creation or maintenance of U.S. jobs. The preoccupation with other issues, together with the current U.S. political gridlock, has prevented meaningful addressing of the hard steps the country will need to take in order to reach long run goals. Therefore, until quite recently, trade policy has evolved haphazardly from a combination of focuses on retaining manufacturing jobs, increasing exports, dealing with China on currency and other issues, etc. Part of this lack of priority for trade policy had to do with the country's emergence from a focus on terrorism, followed by the 2008 recession and a need to take a series of drastic short-term measures to cushion the economic impact.

    In simplified terms, the gist of the Administration's trade policy is this: (1) to meet the President's National Export Initiative goal of doubling U.S. exports by 2015, particularly by bringing manufacturing back to the U.S.; (2) to jumpstart and encourage exports by using government institutions such as the Export-Import Bank; and (3) to negotiate the TPP to assure U.S. economic presence in the Pacific, achieve some of the concessions and protections that were to be addressed in the Doha Round, and reduce or eliminate barriers existing abroad in customs, regulatory measures, intellectual property (hereinafter "IP") protection, and other behind-the-border impediments. (4) There are other ambitions of the Obama Administration--such as revamping the corporate tax law to enhance U.S. competitiveness and keep from losing investment to other countries, and using World Trade Organization (hereinafter "WTO") litigation to make its major trading partners, especially China, comply with trade obligations. However, for purposes of this presentation, I will focus on three aspects of the current U.S. trade policy.

    First, on the national level, the Administration's National Export Initiative has as its goal the doubling of exports by 2015. (5) This is a program based on the view that, with greater exports, jobs will increase. It may be observed that this strategy relies on a somewhat tenuous connection between export growth and job creation, since U.S. productivity has increased despite the 2008 recession, (6) with the consequence that greater exports, even if they increase U.S. manufacturing activity do not necessarily mean a proportional increase in jobs. However, the focus on exports is probably reasonable, given that it is an area with much potential for growth, especially in light of the fact that U.S. exports as a percentage of GDP were only 11% in 2009. (7) Contrast that with China where exports were 25% of GDP, Canada where exports were 27% of GDP, and Germany where exports were a whopping 41% of GDP. (8) Moreover, given that only I% of our small and medium-sized businesses are currently exporting, and that half of that i% export only to one market, typically Mexico or Canada, (9) there is potential for substantial export growth.

    The Administration has recently begun to devote serious attention to providing financial and other support to businesses engaged in exports. The Export-Import Bank (hereinafter "Ex-Im"), which provides export-financing assistance to U.S. companies, has identified nine markets and certain industries as areas of strategic importance to the U.S. (10) Those markets do not include China. Boeing has been a leading Ex-Im beneficiary for years, with about 60% of all Ex-Im loans. (11) However, like many trade and competitiveness issues, the Ex-Im program produces political crosscurrents. Export financing support to Air India, for example, supporting its purchase of Boeing planes, ended up making Delta abandon certain routes due to the added competition from Air India. (12) It should also be noted that a significant number of Republican members of Congress advocate the abolition of the Export-Import Bank. (13)

  3. U.S. TRADE NEGOTIATION: THE TRANS-PACIFIC PARTNERSHIP INITIATIVE

    With the Doha Round stalled despite many attempts since 2001 to revive it, there is not--at least for now--much enthusiasm left for Doha. The sad fact is that negotiating stances have become untenable, with developed and developing countries unable to converge on agriculture and non-agricultural market access (hereinafter "NAMA") (14) concessions. Developed countries--notably the United States and EU-have been unable or unwilling to deal with their domestic constituencies on the issues of agriculture and light manufactures that are important to developing countries. By the same token, the major emerging economies--India, China, Brazil have resisted negotiations for increased access to their home manufacturing and agricultural sectors. (15) China is reluctant to make more commitments as it felt that it had already made concessions excessive, in its eyes--in its WTO accession agreement. (16) And, truth be told, some countries are wary of greater liberalization for fear of unleashing more imports from China. The seemingly endless negotiating process further undermined Doha. In 2007, Trade Promotion Authority ("TPA") expired in the United States, which put the United States in a weakened negotiating position as its trading partners were no longer assured that its Congress would accept negotiated commitments. Then, a series of elections in key countries--the United States in 2008, India in 2009, etc.--posed successive "We can't get it done this year" objections. This year, there will be a change of president and premier in China and the presidential election in the United States. All of these factors have sapped the political will in major WTO Members. The upshot: a successful Doha Agreement is not foreseeable for at least several years, if at all.

    It is not meaningful to dwell on Doha, because the United States has decided, for now, to concentrate on the TPP, which has become the central focus of U.S. trade negotiating policy. (17) The Administration sees the TPP currently being negotiated with eight other countries: Chile, Singapore, Brunei, New Zealand, Australia, Peru, Vietnam, and Malaysia--as a trade agreement that promises to achieve on a regional basis many of the trade liberalization objectives of Doha and more. (18) The TPP is described as a "gold standard" regional trade agreement. (19) In it, the United States and its negotiating partners aim for broad market access gains in services as well as NAMA and agriculture, together with unprecedented levels of investment and IP protection. Once in place, this regional agreement would be open to joinder by other countries. (20) By this process, one might even envision a gradual move to a multilateral agreement by accretion, with the added geopolitical benefit of being a counterweight against China.

    The TPP goal is also to become a "WTO-plus" agreement that will deal with many "behind the border" issues including regulatory harmonization, worker rights and trade facilitation. (21) In this aspect of the negotiation, the U.S. hopes to address supply chain issues, coercive extraction of technology, government procurement, IP protection, corruption, the conduct of state-owned entities and exchange rate policies. If one saw in this agenda an oblique challenge to many practices that U.S. firms have encountered in China, one would not be wrong. (22)

    The TPP is without doubt an ambitious initiative, but in part for that reason--assessment of its prospects is difficult. While progress is certainly being made, there are negotiating hurdles to overcome and latent domestic political problems.

    The issue of investor-state protections shows the negotiating complexity of the TPP. (23) Three rounds of negotiations based on the standard U.S. free trade agreement (hereinafter "FTA") negotiating template have resulted in a largely completed draft investment chapter. (24) The investment section generally follows the 2004 U.S. Model Bilateral Investment Treaty, with a few significant square brackets. (25) If accepted by TPP members, this would mean significantly greater assurance in terms...

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