Sunday, May 13, 2007

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Reactions to the trade deal

I still haven't seen any specifics on the trade deal between Bush and congressional Democrats. I have, however, seen a lot of criticism from across the board -- which either suggests its a really bad deal or it's the optimal outcome given the tight bargaining constraints involved.

In the Wall Street Journal, John D. McKinnon and Greg Hitt look at the usual suspects to see who's upset:

[A]s details of the agreement emerged, some labor and environmental groups pointed to what they viewed as some significant limitations.

Many businesses had worried the deal would make international labor provisions enforceable against American employers. On Friday, U.S. Chamber of Commerce President Tom Donohue said in a statement that the chamber is "encouraged by assurances that the labor provisions cannot be read to require compliance."

That doesn't sit well with AFL-CIO President John Sweeney, who said the agreement doesn't give enough " challenge U.S. laws." He also complained that in the event of violations, "there is no guarantee the executive branch will enforce any new rights workers may gain through these negotiations." He said his organization would reserve judgment on the deal for the time being.

Some environmentalists raised concerns that big potential loopholes remain for foreign investors -- particularly oil and gas companies that have made large investments in South America.

In addition to worker and environmental protections, the deal calls for quicker access to generic drugs for developing countries. Democrats had made inclusion of such a measure a priority, but brand-name drug makers had fought it.

Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America, said his group has been "extremely concerned during this process that core American intellectual-property rights remain protected." Drug makers said they will try to win back lost ground in other coming trade battles in Congress this summer.

Manufacturers, meanwhile, complained that many of the new worker and environmental protections will be hard, if not impossible, to enforce. They urged the U.S. to focus more on currency manipulation, theft of intellectual property and other unfair trade practices.

Free trade promoters? They're not too thrilled either. The Cato Institute's Center for Trade Policy Studies issued the following press release:
The deal constitutes a political victory for Democrats in Congress, who compelled the administration to swallow U.S. union demands, but is unlikely to lead to any new trade liberalization (another union wish). Forging trade policy is a balancing act: the more an agreement is limited to reflect domestic political demands, the less likely prospective trade partners are to see the benefit of agreeing. With respect to the three Latin American agreements, those countries will now have to reopen debate in their legislatures, which might reject the terms.
Maybe, maybe not. As James Surowiecki points out in The New Yorker, the U.S. can get countries to swallow an awful lot of domestic political demands:
Free trade is supposed to be a win-win situation. You sell me your televisions, I sell you my software, and we both prosper. In practice, free-trade agreements are messier than that. Since all industries crave foreign markets to expand into but fear foreign competitors encroaching on their home turf, they lobby their governments to tilt the rules in their favor. Usually, this involves manipulating tariffs and quotas. But, of late, a troubling twist in the game has become more common, as countries use free-trade agreements to rewrite the laws of their trading partners. And the country that is doing this most aggressively is the United States.

Our recent free-trade agreement with South Korea is a good example. Most of the deal is concerned with lowering tariffs, opening markets to competition, and the like, but an important chunk has nothing to do with free trade at all. Instead, it requires South Korea to rewrite its rules on intellectual property, or I.P.—the rules that deal with patents, copyright, and so on. South Korea will now have to adopt the U.S. and E.U. definition of copyright—extending it to seventy years after the death of the author. South Korea will also have to change its rules on patents, and may have to change its national-health-care policy of reimbursing patients only for certain drugs. All these changes will give current patent and copyright holders stronger protection for longer. Recent free-trade agreements with Peru and Colombia insisted on much the same terms. And CAFTA—a free-trade agreement with countries in Central America and the Caribbean—included not just longer copyright and trademark protection but also a dramatic revision in those countries’ patent policies.

The power asymmetries are such that the U.S. can muscle its domestic preferences into an FTA when it can't do the same thing in the WTO.

Is ability this a good thing? Dani Rodrik doubts it:

[T]his new direction is full of pitfalls--not just disguised protectionism as free-trade fundamentalists fear, but also an inevitable tendency to want to impose our own ways of organizing society on our trade partners. The principle of the right to organize is fine, but different democratic societies have different labor laws, all arguably equally "democratic." If we start judging the adequacy of other countries' laws from the perspective of what WE think is the right set of requirements, we will soon be in trouble.

Which is why I don't think the attempt to enlarge trade agreements to incorporate social and other considerations can go really far (unless you are really serious about it and want to create legal and political integration along with economic integration, as in the case of the EU).

I was originally opposed to these provisions, but have become more agnostic about them over time. On the one hand, there's decent evidence that the best way to eliminate labor and environmental abuses is to have countries grow more quickly, thus causing them to treat their workers and their environment better. On the other hand, there's also decent evidence that including these provisions has an actual effect on trading partners.

In a perfect world, I wouldn't clutter trade agreements with these provisions. In the world in which we live, I'll take these provisions as politically necessary -- so long as they are not so onerous that the proposed FTA partner nixes the deal.

UPDATE: My inside-the-beltway source on trade policy e-mailed me the following reaction:

The typical reactions around town last week... were highly skeptical about applicability, implementation, reaction of countries with recently "closed" FTAs, reaction of countries with ratified FTAs who now want might better deal (specifically with regard to pharmaceuticals), and about the methods by which the new dispute settlement mechanisms for labor and environment might actually work. You could probably sum the reaction of many trade pros as follows: "they're making it up as they go along."

posted by Dan on 05.13.07 at 11:01 PM


Well, based on the people who don't like the deal and the lack of comments, it must be a good thing. Rock on, Dan, rock on.

posted by: Useless Sam Grant on 05.13.07 at 11:01 PM [permalink]

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